Pakistan Economy - News & Updates - Archive

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No sign of rupee stability ​

Tuesday, December 23, 2008

LAHORE: The stability of rupee will be crucial for attracting foreign investment but the government has not yet come up with a viable economic plan after getting an IMF loan facility.

The Adviser to the Prime Minister on Finance Shaukat Tarin has admitted that economic growth would not pick up without foreign direct investment. All economists agree that current economic conditions in the country are not conducive for foreign investment.

The Consumer Price Index (CPI) is a major factor that affects the value of rupee. The rule of thumb is that the difference in the inflation levels between two countries is the level of devaluation the country with higher inflation would face. Pakistan’s rupee has declined against all major currencies and India on this basis.

The inflation in most of the countries has remained much below Pakistan’s level. Currently, it ranges from 2 to 3 per cent in developed economies and China while it is in single digit in India. Inflation in Pakistan is over 24 per cent and is targeted to come down to 18 per cent by the end of this fiscal.

On this basis alone, the rupee is expected to depreciate by 10 to 15 per cent against major currencies in next six months if the targeted inflation level is achieved. Economists point out that other factors that determine the strength or weakness of a currency include its GDP growth forecast for a fiscal year by the government and any subsequent downward or upward revision in the growth rate. GDP is considered the broadest measure of a country’s economy and it represents the total market value of all goods and services produced in a country during a given year.

The government had announced a growth target of around six per cent in the budget for 2008-09. The target was revised downward in the next six months gradually and now the central bank expects GDP growth rate to decline to 3.5 per cent while multilateral agencies see growth slowing down to 3 per cent.

The Economist Investigation Unit predicts GDP growth rate of 2.9 per cent for the current fiscal. The reason that investors give importance to GDP is because it is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth.

Industrial growth is another important factor that impacts the currency value of a country. The statistics of industrial production reveal the change in the production of factories, mines and utilities within a nation. It also reports their ‘capacity utilisation’, the degree to which the capacity of each of these factories is being used.

It is ideal for a nation to see an increase in production while being at its maximum or near maximum capacity utilisation. The industrial production in Pakistan is likely to decline by more than 75 per cent of the productivity achieved last fiscal. Current large-scale industrial production is around 3 per cent only while most of the small and medium sized industries are reporting negative growth.

 

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Five hydropower projects worth $65 million to be constructed​

LAHORE (December 23 2008): Punjab Irrigation and Power Department will construct five hydropower projects with the financial assistance of Asian Development Bank (ADB) worth 65 million dollars in the public sector. The total annual power generation of these five projects would be 24.8 MW, it has been learnt.

Sources told Business Recorder that the Asian Development Bank sanctioned this amount as soft loan for the power projects, but unfortunately it could not be utilised because neither Planning Development Department hired the consultant nor prepared any feasibility report in this regard.

Taking notice of the matter, Chief Minister Punjab Mian Shahbaz Sharif asked the irrigation department to finalise the projects after preparing the feasibility reports of the projects. He also directed that if proper utilisation of the ADB's soft loan is not possible for the irrigation and power department, the loan amount be returned to the bank.

Sources claimed that the Punjab government had agreed to contribute 20 percent ie, 13 million dollars for these projects. Under the "Punjab Power Generation Policy, 2006", the Punjab government planned to develop hydel power projects, both in public and private sectors, on 'raw' and 'solicited sites' with minimum equity required by private sponsors is 20 percent. Mode of investment for hydel power projects is Build-Own-Operate-Transfer (BOOT) basis.

The sources said that there were 48 preferred sites having potential of a total of 350 MW electricity generation. Hydel power potential of barrages could help produce 246 MW electricity and non-perennial canals could produce 105 MW electricity annually.

The sources said that Rs 462 million Pakpattan project would produce 3.2 MW, Rs 692 million Okara project would produce 4.0 MW, Rs 676 million Deg Outfall project would produce 5 MW, Rs 827 million Chianwalli project would produce 5.4 MW and Rs 1,064 million Marala project would produce 7.2 MW electricity. Total annual power generation of these five projects would be 24.8MW.

 

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Revenue raising, expenditure must be in conformity with budgetary decisions​

EDITORIAL (December 23 2008): At a three-day moot arranged by the Federal Board of Revenue (FBR) on "Tax Policy Options for Pakistan", lots of sensible proposals were made to improve fiscal position of the country. Stressing the need for an increase in revenue generation, Advisor to the Prime Minister on Finance Shaukat Tarin said that such a policy thrust was essential to ensure a sustainable growth.

So far as tax policy was concerned, Pakistan needs to have an equitable, simple and transparent tax system executed in a professional manner. It should also be broad-based and devised in a manner that each and every Pakistani should share the burden instead of burdening some people "who will ultimately find ways of not paying those taxes."

The Advisor admitted that revenue target for the current year was high but added that there were many people in the country who were not paying taxes and if the FBR could tap only 10 to 20 percent of these people, there would be no difficulty in meeting the target.

The country had to move in the direction in which most of the other countries had moved and learn from their experience. Being an autonomous body, the FBR should put in more efforts and a part of the collected amount could be utilised for improving the administration of the department and compensating its employees.

Some of the other speakers also urged upon the need to increase tax revenues. FBR Chairman Ahmad Waqar noted that his department needs to be more vibrant and effective in compliance issues. He also said that there was a consensus for integration of domestic taxes ie GST and income tax and certain other reforms. Ehtisham Ahmad of the IMF observed that revenue generation over the past 20 years was inadequate which led to vulnerability.

Some of the other proposals included excise duty on services, reinforcement of Self Assessment Scheme (SAC) with random audit mechanism and improvement in compliance in corporate income tax. We feel that statements and proposals made by various speakers at the conference are relevant to our situation. The urgency to raise tax revenues in our context is all the more important in view of the recent deteriorating trend in the fiscal balance.

At 7.4 percent of GDP, fiscal deficit during FY08 was much more than the budget target of 4.0 percent and 4.3 percent witnessed in the previous year. Notable was the fact that even revenue balance moved into deficit, reaching 3.4 percent of GDP during FY08 against a budgeted surplus of 1.0 percent of GDP.

This is highly troubling since the FRDL Act 2005 requires the revenue balance to be at least zero, as a percentage of GDP by FY08 and beyond. Deceleration in revenue growth coupled with a strong rise in expenditures caused a serious deterioration in fiscal indicators during FY08.

The situation can only be improved by making concerted efforts to enhance substantially the level of revenues and by taking stringent measures to control expenditures. We are in complete agreement with Shaukat Tarin and other speakers that a higher level of tax revenues needs to be attained and the tax system should be equitable, simple, transparent and broad-based, but the problem is that mere intentions can't translate into concrete actions and produce desired results.

The situation on ground is that tax revenues as a percentage of GDP continue to hover at around nine percent of GDP despite a number of reforms in the FBR as some of the sectors still continue to be outside the tax net. Large-scale tax evasion and existence of a large informal sector are some of the other problems.

Looking at the past experience, we are afraid that observations at the moot would not make much difference for revenue generation at the practical level due to the influence of powerful lobbies that always have a vested interest in maintaining the status quo. A high level of political commitment is needed to effect the necessary change.

A very serious problem with our fiscal policy is that we don't give enough consideration to containment of expenditures which is as important as revenue generation. Every government has its own agenda for poverty alleviation and other expenditures with a view to winning popular support.

For instance, we fully understand and appreciate the fact that Benazir Income Support Fund is targeted at most vulnerable sections of society, but the scope of this programme must not be misunderstood and extended to the purchase of tractors or construction of houses. In the past, schemes like yellow cabs and YIPs have failed miserably and the same experience should not be repeated this time, especially in the absence of any fiscal space.

Also, the country is earning lots of windfall profits by not decreasing the domestic prices of oil in proportion to the continuing reduction in international prices. Such earnings need to be kept in a separate pool to clear the outstanding dues and minimise the size of circular debt. Besides, white elephants such as PIA and railways need to be disciplined to help reduce burden on the exchequer.

These kinds of PSEs are meant to provide public services at a minimum of cost without serving as agencies for employment creation. Bold initiatives, in our view, are needed to be taken in the area of expenditure control even if these are not a requirement under Stand-By Arrangement with the Fund. The government is also required to ensure that revenue raising and expenditure must be in conformity with budgetary decisions.

 

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Chinese model and Pak constraints​

EDITORIAL (December 21 2008): President Asif Ali Zardari has observed that the introduction of mechanised farming cannot only help meet Pakistan's own food requirements; it can also make the country a major exporter of foodgrain. The government should therefore ensure farmers' access to mechanized farming, and consider importing re-conditioned tractors, which will also inject an element of competition in the country's tractor manufacturing industry, besides helping the farmers increase their crop production capability.

A lot can indeed be learnt from the Chinese model, if there is sufficient political will on our part. Of course, Pakistan cannot follow the Chinese model in entirety, but it can adapt the Chinese model to suit its socio-economic conditions. Heilongjing, China's largest grain producing province, has taken effective measures for increasing grain production since 1997, and the rate of success has been simply spectacular.

The province supplies nearly 20 million tons of grain to the country's grain market annually. As compared to a steep downturn in Pakistan's agriculture sector since 1949-1950s when its contribution to the GDP stood at as high as 53 percent, China's agriculture sector has achieved phenomenal growth.

Pakistan's agricultural growth performance has by and large been of a volatile nature, which has proved detrimental to the income growth of land tillers, though large landholders have been reaping huge profits. Another noteworthy factor in Pakistan's agriculture sector has been the decline in the share of labour force from 65 percent in 1950-51 to around 48 percent at present.

This has spawned increased rural unemployment and poverty, which in turn has triggered rural-urban migration, with all its attending socio-economic consequences for the country. China has experienced one of the fastest rates of agricultural and economic growth over the last decade.

With a population of well over 1.2 billion, China's agricultural growth of 6% and industrial growth of 8% per capita from 1978 to 1997 was remarkable for its speed and duration. Further, China has lifted its 200 million people out of poverty, in which its robust agriculture sector has played a key role. In 2006, China had fixed its grain production target at 500 million tonnes.

The increase in China's grain production has been attributed to the increase in area under cultivation. Although China's agricultural production is the largest in the world, only about 15 percent of its total land area is cultivable. Its arable land, which represents 10 percent of the world's total arable land, supports over 20 percent of the world's population, which is reflective of the success of the Chinese model.

China's major agriculture producing regions are close to the urban markets, and are connected through a vast network of farm-to-market roads, of which there is an acute paucity in Pakistan. Above all, China has traditionally implemented policies that have encouraged grain production at the expense of cash crops, to ensure food security of its population, in sharp contrast to the practice followed in Pakistan.

As a result China has experienced one of the fastest rates of agricultural and economic growth. Community farming and smaller landholdings have helped China achieve the miracle. It is said that a novel hydropower strategy has been adopted for modern agricultural farms in China, which not only ensures water supply and electricity to farms. Tubewells pump water up to the huge elevated tanks built at four corners of the farm, which, when released, runs turbines to produce electricity for use on the farm.

The mechanism not only ensures steady supply of water, but also of power. Pakistan, on the other hand, has failed to develop its immense hydropower potential, which has restricted growth of both these key sectors of the economy. Almost all our water and power projects are behind schedule, while the country is caught up in a severe water and energy crisis.

The double-digit food inflation of nearly 15 percent in Pakistan has contributed to the erosion of gains, if any, achieved in poverty alleviation, which has generated social unrest and popular discontent. The president has done well to advocate pursuit of the Chinese model of farming, but do we have the financial and technological wherewithal as well as the political will to implement the Chinese model?

Will the IMF, which is going to keep us on a tight monetary leash, allow implementation of the Chinese model? Why not nudge the water and power bureaucracy to undertake fast-track implementation of the Vision 2025 programme? Above all, can we muster the political will and sincerity of purpose of the Chinese leaders? We only wish we could. There is an urgent need for us not to resort to kite flying any more, because the crisis the country is caught in today needs serious and sincere action.

 

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Purchase of urea on deferred payment: Saudi Arabia refuses $400 million credit facility​

ISLAMABAD (December 22 2008): Saudi Arabia has refused to provide $400 million additional credit facility to Pakistan for the purchase of urea on deferred payment, well-placed sources told Business Recorder here on Sunday. According to sources, at present the country is facing Urea shortage.

At the very beginning of wheat sowing season, the prices of Urea have gone up due to black-marketing and smuggling of the commodity. Keeping this thing in view, the government had directed the Economic Affairs Division (EAD) to make a deal with Saudi Arabian government but it was turned down, sources revealed.

The Saudi Arabia agreed in September 2008 to provide a credit facility of $258 million to Pakistan on deferred payment. But the increasing demand of Urea in domestic market once again forced the government to ask for an additional credit facility worth $400 million.

Sources said that the reluctance of Saudi Arabia to provide additional credit facility of $400 million and its earlier negative response to provide financial assistance to Pakistan to overcome its balance of payment crisis before going to IMF clearly indicate that the Saudis no more trust our present government.

An official of the Food Ministry, requesting anonymity told Business Recorder that most of the countries of the world are suffering from financial crunch and Saudi Arabia is no exception to it. That is why, Pakistan's request for additional credit facility was turned down. Federal Minister for Food, Agriculture and Livestock (Minfal), Nazar Muhammad Gondal, while defending the refusal of Saudi Arabia in this regard said: "After getting loan from International Monetary Fund (IMF), there is no need of additional credit facility from Saudi Arabia. So, the government has, therefore, withdrawn its own proposal".

The minister noted that government would float another tender of 350,000 tons import on January 15 to ensure the availability of the fertiliser to farmers. The government would also offload 290,000 tons Urea fertilizer in the market by December 31 to break the cartel of the market players.

IMF has approved a 23-month stand-by arrangement for Pakistan equivalent to SDRs5.169 billion (about 7.6 million dollars) to support the country's economic stabilisation programme. Considering the current ongoing global financial market crisis, Pakistan has already succeeded in securing third place in terms of amount of loan accessed from IMF.

Sources disclosed that the government has started importing Urea fertiliser from other sources after getting loan from IMF. They said that the government would import 390,000 tons Urea by January 15 and 190,000 tons Urea would reach Pakistan by December 31.

 

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DFIs for economic development in Pakistan​

ARTICLE (December 21 2008): Besides high balance of payments deficit, the country is at present facing a number of challenges, such as:

(a) low foreign exchange reserves; (b) impending huge debt servicing; (c) shortfall in power generation capacity, resultantly electricity loadshedding; (d) poor physical infrastructure in terms of ports, railways and roads; (e) heavy dependence on imported industrial raw materials, consumer durables and plant and machinery; (f) fast rising population, urbanisation, poverty and unemployment; (g) deplorable conditions in health and education sector; (h) severe supply gap in housing availability; and (i) lack of properly-funded and functional development financial institutions (DFIs).

To ease foreign exchange availability and reserves situation, the government has already obtained from IMF $7.60 billion stand-by loan (of which $3.10 billion has been already disbursed) while more funds are from the Friends of Pakistan (FOP).

The government is in the process of preparing a dossier on projects for consideration by the FOP. Besides, a number of public sector enterprises, including privatisation of SME Bank etc are under consideration. It is not considered imperative that the plans are first discussed among the stakeholders including the provincial governments and the local DFIs.

Like other developing countries in the region, DFIs were established in Pakistan during l950s and 1960s for fostering economic development with assistance from international Financial Institutions (IFIs) as well as a number of friendly countries particularly, the USA.

These DFIs were major channels for routing development funds to the private manufacturing sector and achieving the desired socio-economic objectives, such as encouraging new entrepreneurs, promoting industries in less developed areas and wider diffusion of industrial ownership.

The DFIs were also assisting the Government in screening new development projects, framing economic development plans or policies, rehabilitating sick or problem projects, administering or supervising special loans provided by the government or foreign institutions and participating in the promotion of other DFIs for achieving related socio-economic objectives.

Besides promoting establishment of import-substitution industries, the DFIs encouraged capital formation by directly investing or underwriting shares and debentures issued by the local companies. They also assisted Pakistani entrepreneurs in obtaining suitable foreign investment, attracting foreign investors in formation of joint ventures with local partners and assisting in obtaining technical / managerial advice for businesses and industries.

Many industries were made operational, enormous jobs were created both in the operational and service sectors and the country was on the road to economic and social progress.

In the 1980s and 1990s many DFIs ran into problems stemming basically from poor management, excessive had loans, withdrawal of incentives or resource constraints. The stakeholders did not opt to) get problems of DFIs probed or their functions reoriented to the then prevalent realities with the help of reputed independent experts. Unlike the cases of certain commercial banks, neither there were efforts to inject fresh equity or soft loans into problem DFIs, nor there was a serious attempt to restructure them.

The problem DFIs, under, presumably, a faulty approach, were merged into other DFIs/commercial banks or were liquidated. The Youth Investment Promotion Society (YIPS) was merged into) Regional Development Finance Corporation (RDFC) which in turn was merged into Small Business Finance Corporation (SBFC), subsequently renamed as SME Bank Limited.

PICIC, the premier *** was merged with NIB Bank. Before that NDFC was merged into NBP and Bankers Equity (BE) liquidated. IDBP and SME Bank - both DFIs holding commercial banking license, are reportedly on the privatisation list.

The people's government is committed to provide jobs to the millions of jobless and poor. Jobs can help reduce poverty and stop migration from interior to the cities. More jobs can be created through promotion of economic activities, particularly in less-developed areas of Balochistan, FATA, Waziristan, NWFP Sindh and the Southern Punjab.

Promotion of agriculture, agro-based industries, export-oriented handicrafts, provision of housing, construction of health and education infrastructure, development of mining and mineral based industries etc can provide jobs besides improving import-exports trade balance.

Implementation of these measures can be facilitated with appropriate financing by the DFIs such as SME Bank, ZTBL, HBFC and IDBP, SME Bank and IDBP, when restructured are considered to have the potential for rejuvenating business and industry at this critical juncture. These need to he taken off the privatisation list.

The task ahead is larger than the capabilities or scope of existing DFIs. Therefore apart from strengthening existing DFIs; the government should look into the proposition of creating new sector-specific DFIs. Malaysia, economically and technologically more advanced than Pakistan, still has operative a number of development finance institutions (DFIs), set up under the Development Financial Institution Act 2002.

DFIA defines a *** as: "an institution which carries on any activity, whether for profit or otherwise, with or without any Government funding, with the purpose of promoting development in the industrial, agricultural, commercial or other economic sector, including the provision of capital or other credit facility.

For the purposes of this definition, "development" includes the commencement of any new industrial, agricultural, commercial or other economic venture or the expansion or improvement of any such existing venture.

Moreover in Malaysia, the DFIs roles as outlined under the Financial Sector Master Plan (2001-2010) are: (a) develop and promote strategic sectors of the economy and achieve social goals as mandated by the Government; (b) to fill the gaps in the supply of financial services that are not normally provided by banking institutions; and (c) offer value added advisory services and technical assistance supported by strong research capabilities.

***'s role in changing economic situations in Malaysia is acknowledged for: (a) continued support as financier; (b) assistance for business development; (c) enhance effectiveness of role as implementer of developmental programs; and (d) role to facilitate development. (Source: Presentations in a recent ADFIAP Seminar in Malaysia).

Pakistan, still a low income, developing country, badly needs the services and facilities offered by the DFIs for achieving socio-economic objectives and well-being of the people, particularly in the underdeveloped areas, also on political consideration.

Unlike private institutions or commercial banks that are motivated solely by profit, the public-sector DFIs are tuned to finance socio-economic projects also. Their basic motive is the welfare of the people. In every developing country, as a minimum there are DFIs for financing of Small and Medium Enterprises (SMEs), housing, municipal services, effluent and waste disposal, physical infrastructure and export promotion.

There are DFIs even in. the developed countries eg Germany, Canada, European Union, etc. Growth and stability in a country, like Pakistan, can come through financing by the local DFIs and not through profit-centred activities of the foreign controlled commercial banks, is the view widely held in Pakistan, particularly after the recent debacles in the financial sectors of Europe and USA.

In India, IDBI and ICICI were two premier DFIs at a time when we in Pakistan had DFIs like PICIC and NDFC. Unlike Pakistan, the role of these two institutions have been substantially enlarged over the period. In order to further enforce their role, to supplement their low cost funding sources and enhance their profitability they were granted licenses for commercial banking business.

Both the institutions were restructured to keep them in line with changing market conditions. IDBI Bank and ICICI Bank are profitably financing infrastructure and other development projects in India whereas we have allowed PICIC and NDFC to whither away.

In this context, we may also borrow a leaf from the history of the World Bank, which has been restructured many times over the years. Conceived during World War II at Bretton Woods, New Hampshire, the World Bank initially helped rebuild Europe after the war. Its first loan of $250 million was to France in 1947 for post-war reconstruction.

Reconstruction has remained an important focus of the Bank's work - given the natural disasters, humanitarian emergencies, and post-conflict rehabilitation needs that affect developing and transition economies. The Bank borrows at low cost and offers clients good borrowing terms.

Today it has sharpened its focus on poverty reduction in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services.

The World Bank today has a multidisciplinary and diverse staff, including economists, public policy experts, sectoral experts, and social scientists. Forty percent of staff is now based in its country offices. The Bank has become a Financial Sector Group, encompassing five closely associated development institutions: the IBRD, the IDA, the IFC, the MIGA, and the ICSID. (Source World Bank's web site)

With new developments, new areas of interest are appearing on the economic scene. For profitable exploitation of which the country needs services and support from the DFIs, which may also be encouraged to adapt to face the emerging situations. Effluent disposal and solid waste management are assuming importance for health and export exigencies and such projects may be financed on priority basis.

It may be appreciated that the DFIs in Pakistan are relevant for financing such projects. These DFIs are badly needed at least until the country is dependent on the IFIs for finances, technical assistance and advice on its various socio-economic development projects.

The local DFIs would be catering the requirements of relatively smaller customers or projects for finances and technical services now provided by the IFIs to the government-sponsored large projects or institutions. DFIs would also be needed for the specialised 'think tanks' offering suggestions to the government on different policy issues and options. As such, the government may reactivate its policy of economic development through promotion and funding of local DFIs.

Long Term Credit Fund (LTCF), established by the Government for financing private sector power generation projects, for the last many years has remained, almost dormant as for as financing of new power generation capacity is concerned although throughout this period the country has suffered power shortages and has been seen no increase in power generation capacity.

LTCF, originally known as Private Sector Energy Development Fund (PSEDF), was administered by NDFC on behalf of the government. It has played an important role in promotion of Independent Power Producers (IPPs) - such as Hub Power project in the private sector in Pakistan.

LTFC now administered by NBP, with suitable revamp and upgrading, has the potential to play a much bigger role for the establishment of additional power generation capacity and infrastructure projects in the country, through finances mobilised locally as well as foreign credit lines from friendly foreign countries and IFIs.

Infrastructure and municipal projects need specialised DFIs as the existing financial sector (with the exception of LTCF) generally lacks the expertise to appraise, finance and monitor such projects. The LTCF, can play a decisive role in overcoming power shortages, may be allowed full service commercial banking licence with a view to facilitate mobilisation of local savings and thus have the flexibility for sustaining ifs operations without support from the Government.

Economic growth and stabilisation with a human face is possible only through local DFIs, which need to he nurtured. In the past, the DFIs had played substantial role along with the commercial banks' in the consortia for project financing. Once the local DFIs are strengthened, they can play even bigger role in the financing of large infrastructure projects.

There is talk of relocation of existing industries away from the cities and built up areas. In the corning days when the provincial governments are better aware of environment pollution problems due to industries operating within populated areas The movement is expected to) gain momentum. The DFIs only would be able to satisfactorily handle the industrial relocation process as well as the setting up and financing of effluent treatment plants in various parts of the country.

Food security is of tremendous importance for a country. Development of agriculture on modern lines cannot only help achieve food self-sufficiency but also) yield exportable surplus to eat-n foreign exchange. The operations of ZTBL (earlier ADBP) thus need to be strengthened.

In Pakistan, large infrastructure or other socio-economic projects are financed by the IFIs like the World Bank, ADB, IFC or the Islamic Development Bank. Properly revamped local DFIs may appropriately collaborate with the IFIs in financing as well as monitoring of such projects or program.

Moreover, relatively smaller projects in these very sectors are presently not catered by the IFI by way of technical assistance or loan funds. This gap in tile provision of technical advice, research studies and financial Support could easily he filled by the local DFIs.

(The writer is President of First Credit and Investment Bank Limited (FCIB). The views expressed are of the author, not necessarily representing the Bank)

 

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Flow of goods from India continues ​

Wednesday, December 24, 2008

LAHORE: The flow of goods from India to Pakistan has continued uninterrupted through different routes despite the war hysteria created by New Delhi after the Mumbai attacks last month.

No slowdown has been noticed in imports of different products from India, however exports of Pakistani goods to India have plunged due to non-serious behaviour of traders and government of the neighbouring country.

A study conducted by The News has found no major impact on imports from India by the Mumbai incident. But on the export side, downtrend has begun. Pakistan mainly exports cement to India through rail and sea routes and its exports has sharply declined due to non-tariff barriers.

Annual trade between India and Pakistan currently stands at $2.3 billion with balance heavily tilted in favour of Delhi. Pakistan imports some $1.95 billion worth of products from India including fruits, vegetables, seeds, spices, maize, soybean, mushroom, medicines, chemicals, cotton and others. On the other hand, its exports are worth only $400 million.

The high trade surplus for India means if it stops trade with Pakistan, it would lose a good market of its products. Sea trade has a huge share in total trade between the two neighbours.

In 2004-05, trade between the two sides totalled $835 million only, which has now increased two times. These days, Indian vegetables are coming from Wagah border regularly and the Mumbai attacks have not hampered the flow of commodities. Around 70 to 80 trucks loaded with Indian tomato, potato, cotton and other items are arriving daily.

India has suspended land trade through Muzaffarabad-Srinagar route after the Mumbai incident and has also threatened to stop trade from other routes. However, facts indicate it will not take an extreme step of stopping trade with Pakistan when it is massively in favour of it.

The business community of both sides is against war and says the two governments should resort to dialogue instead of indulging in war talk.

Talking to The News, Vishal Malhotra, a Mumbai businessman doing business with Pakistan, slammed the Indian government for giving ‘sweeping’ statements and said “war has never been a solution to any problem.”

He said business with Pakistanis was good, but “now the Indian government is taking cosmetic measures to hinder trade. It will spoil the whole trade between the two countries and a third country will benefit.”

HK Bhatia, an exporter based in New Delhi, said his sales had sharply increased since bilateral trade between the two countries through land route started. He was of the view that politicians should not destroy trade for their politics.

“We want other land routes opened,” he said, adding the Indian government should not initiate war.

Mehfooz Ahmed, a Karachi-based exporter, said his Indian counterpart had cancelled orders for lead and cement owing to difficulties created by Delhi government.

He pointed out that Indian traders were ready to do business but their government was not giving them any room and not showing flexibility, ignoring the fact the balance of trade was in its favour.

Jamil Magoon, a veteran leader of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said the leadership of both countries should boost confidence of the business community in order to stabilise the region. “War will take both the nations 100 years back,” he remarked.

 

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Economists stress industrial revival plan ​

Wednesday, December 24, 2008

LAHORE: Slowdown in industrial activities has hot only eliminated new job opportunities but has also added to the unemployment pool as a fall in production causes layoff of workers.

Economists have no sympathy for the entrepreneurs that have failed to prepare themselves for hard times due to incompetence and inefficiency but they are extremely concerned about the increased slashing of jobs in the productive sector.

They say that instead of brooding over past mistakes, the government should formulate a comprehensive industrial policy that should facilitate producers by reducing their cost of doing business and improving their efficiency.

They regret that the government has so far not unveiled an industrial revival plan. The exercise would require input from the industry, economists and bureaucracy. This would require some time. In the meantime, they urge the government to take some urgent measures to ensure sustainable growth and increase in employment opportunities.

Commenting on the issue, senior economist Naveed Anwar Khan, FCA, said that the electricity and energy cost of the industry has increased substantially, but reducing tariffs might not be feasible for the government.

He said energy wastages in most of the industries range from 10 to 25 per cent due to improper factory layout, inefficient motors and absence of proper ventilation. Many textile spinning mills, he added, have now saved 5 to 7 per cent energy cost without spending a single penny by shifting the location of their machines and providing better ventilation outlets.

He said mills that got their energy audit conducted and invested Rs1-10 million managed savings of up to Rs1.8 million per month (Rs60,000 per day), adding these savings returned their entire investment in one to six months. Similar savings, he said, were achieved when some industries replaced their inefficient gas appliances with global standard burners.

He said these facts are not known to most of the productive sector and the government should come up with detailed programmes in this regard on the electronic media to create awareness among industrialists. Small and medium entrepreneurs would particularly benefit from this awareness and informative campaign that should be broadcast two to three times a day, he suggested.

Dubai-based Chartered Accountant Faisal Qamar said that a large number of small export units have closed down as they could not afford to install water treatment plants, which is a precondition of foreign buyers under the social compliance concept. He said the federal and provincial governments should install common effluent treatment plants in all industrial estates and recover the cost by charging the industries monthly usage rent that all exporters could afford.

The installation, he added, should be quick, as over a decade has been wasted in this regard by various governments by paying only lip service to the issue.

This would revive a large number of closed export units.

Canada-based Certified Public Accountant Asif Ali Shahid said that the high mark-up is eating into the competitiveness of the local industry.

He said the government had finally withdrawn the research and development grant it was providing to a few textile sector importers.

He said the money for this purpose was earmarked in the budget and the amount should now be utilised to reduce the burden of mark-up on all industrial loans availed by manufacturers.

He said India and China that have a much lower interest rate regime are facilitating their industrial sectors through by subsidising bank mark-up. Pakistan he added should do so in order to boost employment opportunities.

 

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Iran, Pakistan discuss cooperation in power ​

Wednesday, December 24, 2008

ISLAMABAD: Ambassador of Iran to Pakistan, Masha’ allah Shakeri, called on the Minister for Water and Power, Raja Pervez Ashraf, here on Tuesday.

Both discussed matters of mutual interest and bilateral relations to further boost economic ties between the two countries and to explore possibilities of cooperation in the power sector of Pakistan.

The minister, welcoming the Iranian envoy, said that Pakistan had close brotherly relations with Iran. Pakistan valued the help and support of Iran and was desirous of expanding bilateral relations in all sectors.

The minister and the ambassador discussed the forthcoming visit of the Iranian Minister for Energy, Parviz Fattah, who will visit Pakistan from Dec 29 to 31 with a high-level delegation of Iranian investors and heads of major power sector manufacturing companies.

The energy minister, during his visit along with the delegation, will meet the Minister for Water and Power, representatives of BOI, PPIB, WAPDA, Pepco, and Nespak to discuss the possibilities of cooperation in power and other sectors particularly among private sector investors of both the countries.

The minister will also discuss their investment proposals in the power projects, ongoing process of construction of transmission line between the two countries and import of 1000 MW by Pakistan from Iran.

“Iranian companies are also interested in upgradation projects of transmission lines, investment in hydel, thermal and alternative energy projects and manufacturing of power transformers and switchgears equipment along with transfer of technology” the ambassador said.

The minister said the government is taking necessary measures in generating electricity to bridge the demand and supply gap through fast track projects. “The government has planned to bring 35,000 MW by the year 2016 and steps are being taken in this regard,” the minister added.

He lauded the offer of the Iranian and said that Pakistan has already signed a MoU to import 1000 MW from Iran.

The minister hoped that during the visit of Iranian Energy Minister, both the countries will explore new opportunities of cooperation in the power sector and will further strengthen bilateral relations between the two countries.

He also assured his full support and assistance to facilitate the Iranian investors to invest in water and power sectors.

 

[Neo]

Packages to sell Tetra Pak shares to Swiss firm for $115 million​

KARACHI: Packages Limited has announced that it has decided to sell its shareholding in Tetra Pak Pakistan Limited to Tetra Laval of Switzerland for $115 million.

“This amount includes $15 million already received against the Call Option Agreement signed in June 2008,” said Packages Limited in a letter sent to the Karachi Stock Exchange.

Packages said that the agreement by virtue of which TL had a right to exercise Call Options between 3 and 10 years now stood terminated.

Tetra Pak, in order to secure the continuous support of Packages, has agreed to issue shares to it with rights only to dividends in that company for the next 10 years.

The letter did not include the details about the number of shares being sold to the Swiss firm. It also did not mention any timeframe for the completion of the transaction.

Packages’ principal activities are to manufacture and market paper, paperboard, packaging material and tissue products. The Group also manufactures and markets finished and semi-finished inks. Tetra Pak Pakistan is a food processing and packaging company.

 

[Neo]

Iran to give 30,000 barrels oil/day on deferred payment​

ISLAMABAD: Pakistan and Iran have entered an arrangement under which Iran would provide 30,000 barrel crude oil per day to Pakistan on 90-day deferred payment, a well-placed source in the Ministry of Petroleum confided to Daily Times here on Tuesday.

At present, Iran is providing Pakistan 10,000 barrel crude oil per day on 30-day deferred payment to help Pakistan meet its energy needs.

The facility would be available to Pakistan at a time when the country’s foreign exchange reserves are under severe pressure.

Pakistan Refinery Limited (PRL) is the only refinery, which would refine the Iranian crude oil. “With the passage of time when import of Iranian crude oil is increased, the refining capacity of the PRL and other companies would need enhancement,” source maintained.

Adviser to the Prime Minister on Petroleum and Natural Resources, Dr Asim Hussain on Tuesday said Pakistan was vigorously pursuing Iran – Pakistan – India (IPI) gas pipeline project to meet the growing energy demands. The advisor expressed these views during a meeting with Iranian Ambassador in Pakistan Mashallah Shakari.

The two sides expressed satisfaction with the progress in IPI gas pipeline project and maintained that its early implementation would also serve to strengthen and expand the economic and trade relations among the regional countries.

Pakistan’s delegation, led by Dr Asim Hussain, would visit Tehran on 29 December 2008 to sort out the issue of price revision in the signing of GSPA of the IPI project. It merits mentioning here that President Asif Ali Zardari also instructed the Ministry of Petroleum to speed up work on the IPI gas pipeline project.

Talking to the Iranian Ambassador, the advisor said that IPI is an important component of Pakistan’s long-term energy plan and the government is therefore fully committed to complete the project as early as possible.

The adviser said Pakistan and Iran have a long history of friendship and enjoy excellent brotherly relations in diversified fields, which were growing and s strengthening with the passage of time.

Asim said that oil and gas co-operation between the two countries would further open up new vistas for their mutual advantage. He invited Iranian investors to avail the investment opportunities in Pakistan’s oil and gas sector.

 

[Neo]

Listed debt market grows by Rs 24.8 billion in 2008​

KARACHI: The listed debt market grew by Rs 24.8 billion in 2008, as seven TFCs were offered at local bourses.

In 2007, the number of TFCs issued was the same, but the amount offered was just Rs 10.2 billion, 57 percent lower than amounts raised this year.

With an addition of Rs 24.8 billion, total outstanding TFC market is estimated to have reached Rs 65 billion to date.

The size of TFCs listed at the market represents only 2.9 percent of KSE market capitalisation. This ratio ranged between 1.2 percent and 1.6 percent in last few years, but due to a long bearish spell at KSE this year the ratio has improved.

TFCs represent only 2.1 percent of total bank’s advances as on 13December 2008. Credit penetration in Pakistan is 29 percent of GDP whereas listed TFCs penetration is only 0.6 percent of GDP.

Out of seven TFCs issued in 2008 two were sold by banks. TFCs are counted in the calculation of Tier 2 capital of the banks. The size of banking sector TFCs was Rs 9 billion in 2008. These banking sector TFCs will continue to become the part of corporate debt market in years to come owing to increased capital adequacy ratio requirement by the central bank, said the analyst. “We expect banking sector TFCs to occupy the major chunk of corporate debt market in 2009 and 2010,” said the analyst.

“Listed corporate debt market, known as Term Finance Certificate (TFC) is currently at an infancy stage in Pakistan,” Muhammad Imran Khan, an analyst at First Capital Equities Limited said.

“A very big hurdle in the development of an efficient corporate bond market in Pakistan is the fact that the government securities and the corporate securities both compete for the same pool of resources,” says a research report. “The government has the advantage of being the risk free. Government attracts savings from the retail investors through NSS while from the institutional buyers through PIBs and MTBs.”

Since the government securities are risk-free so their rates should be less than the TFCs, which have more risk than the government securities, but the TFCs are priced very close to the Defence Saving Certificates, which are another type of government securities with 10-year maturity and government guarantee. So this very small difference of returns between a riskless investment (DSCs) & risky investment (TFCs) make the latter less attractive for the investor. So there is a lack of a level-playing field between the government securities and that of corporate sector, says the paper.

 

[Pk_Thunder]

Transportation of containers and cargo: revised ATTA draft suggests setting up of monitoring body​

SOHAIL SARFRAZ
ISLAMABAD (December 24 2008): The draft of the revised Afghan Transit Trade Agreement (ATTA) has proposed establishment of a Transit Co-ordination Authority for monitoring and facilitation of transportation of containers and cargo under the transit trade between the two countries.

Sources told Business Recorder on Tuesday that the Federal Board of Revenue (FBR) is examining draft of the revised ATTA along with relevant Protocol received from the Afghan government to finalise issues pertaining to duties, taxes, charges and payment arrangement between the two countries. The FBR is reviewing the customs clearance procedure, sealing and de-sealing of containers procedure; transit documents and other issues in view of the proposed ATTA.

It is expected that Afghanistan and Pakistan would review the draft of the new agreement in January 2009. This draft has been initially agreed by the Afghan authorities, which is presently under review by the FBR, Commerce Ministry and other stakeholders.

One of the major features of the proposed ATTA is the transportation of bonded carriers from one country to another without de-sealing of containers. The movement of transit containers would be allowed till reaching destinations under the draft ATTA. It has been proposed to improve railway lines for providing warehousing facilities at the border stations of Pakistan and Afghanistan.

Presently, no customs duty, toll tax, transit fee or any other federal or provincial taxes were being charged on the transit of goods between Pakistan and Afghanistan. The Ministry of Commerce has recently dispatched the latest draft of the ATTA to the FBR for examination of customs related issues during transit of consignments between Pakistan and Afghanistan.

For regulation of transit traffic through the two countries, a transit co-ordination authority known as the "Afghanistan Pakistan Transit Co-ordination Authority (APTCA) would be established under the proposed agreement. The APTCA would be responsible monitoring and facilitating the implementation of the APTA and recommend policy and operational measures related to transit trade and transport activities.

The APTCA would comprise Deputy Ministers of Commerce from Pakistan and Afghanistan, who would act as joint presidents responsible for taking decisions under the agreement. A consultative and advisory board of the APTCA would cover senior officials of Ministries of Foreign Affairs; Finance; Public Work, Transport, Interior and Commerce from both each country. The representatives of Central Banks of Afghanistan and Pakistan; chambers of commerce and industry and fright forwarders/road transporters of both the sides would be part of the advisory board.

According to the latest version of the ATTA, renamed as Afghanistan Pakistan Transit Agreement (APTA), Pakistan and Afghanistan would not levy customs duty, taxes, dues or charges of any kind whether national, provincial or municipal on goods in transit regardless of their destination.

As per proposed agreement, the ATTA of 1965 is outdated and does not take into account the current economic realities of the two countries and the new international transit requirements. The new convention would effective administration of transit transport, avoiding unnecessary delays in the movement of goods and commercial vehicles between Pakistan and Afghanistan.

Through proposed agreement, Pakistan and Afghanistan would allow transit of right hand and left hand vehicle under the requirements for the admittance of road vehicles. Both the countries would establish Inland Clearance Depot (ICD) ie common used facility with public authority status, which would offer services for handling and temporary storage of containers carried under customs control and with customs and other agencies competent to clear goods for home consumption, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export.

Under section-VI of the proposed agreement, Pakistan and Afghanistan shall recognise domestic driving licenses, vehicle registration documents and vehicle license plates, which are issued by he competent authorities of both the countries. The proposed agreement has also designated international transit transport corridors with Ports of Entry/Exit at both maritime land border stations with approved customs offices for carrying out customs transit regime.

Under dispute settlement clause, any dispute, controversy or claim regarding the interpretation or application of the agreement shall be settled directly or by amicable negotiation through the APTCA. In case of arbitration, the joint presidents of the APTCA shall nominate one arbitrator, who shall not be a national of Pakistan/Afghanistan. The dispute would be settled in accordance with the rules of arbitration of the United Nations Commission on International Trade Law.

According to the draft agreement, Pakistan and Afghanistan may restrict or prohibit traffic in transit on certain routes for the duration of repair work or for the duration of a danger to public safety including traffic safety or public emergency. Before traffic in transit is restricted or prohibited for reasons other than emergencies, country imposing restrictions or prohibitions shall notify the competent authorities of the other country well in advance of taking action.

 

[Neo]

Services sector posts $2 billion deficit in five months​

KARACHI (December 24 2008): The country registered a deficit of some 2 billion dollars in services sector during the first five months of the current fiscal year, mainly due to huge payments on account of transportation, travel and government services.

The State Bank of Pakistan on Tuesday said the country's services sector trade performance is improving as overall imports and the deficit have declined by 8 percent and 27 percent, respectively, during July-November of FY09.

Services sector exports in first five months stood at 1.533 billion dollars against imports of 3.59 billion dollars, depicting a deficit of 2.061 billion dollars during July-November of current fiscal year. However, the deficit in the first five months is less than that of the last fiscal year, in which services sector deficit stood at 2.844 billion dollars.

"Heavy payments on account of transportation, travel services, insurance, technical fee, royalties and government sector are the major contributor in the services trade deficit," economists said. However, they said that declining imports of services sector and increasing trend in exports helped reduce the services sector deficit to a great extent.

Export of services sector surged by 42 percent to 1.533 billion dollars during the first five months of FY09 against exports of 1.079 billion dollars during the same period of FY08. Services sector imports dipped by 8.38 percent to 3.594 billion dollars during July-November of FY09 over imports of 3.923 billion dollars during July-November of FY08.

Huge payments of transport sector is the major contributor in overall deficit, as only the transportation sector deficit stood at 1.157 billion dollars against the overall deficit of some 2.061 billion dollars. The country's transportation imports stood at 1.644 billion dollars against exports of some 487 million dollars during first five months of current fiscal year. Meanwhile, services deficit in November stood at 235 million dollars with 562 million dollars imports and some 227 million dollars exports.

The country earned 88 million dollars on account of travel, some 36 million dollars in communication, 31 million dollars in insurance and 27 million dollars from financial sector during July-November period. On the other hand, travel payment stood at 697 million dollars, communication 50 million dollars, construction 34 million dollars, insurance 49 million dollars, financial sector 75 million dollars, computer and information sector payments 44 million dollars. Similarly, royalties and licence fee payments reached 34 million dollars and the government services 128 million dollars.

 

[Pk_Thunder]

10 equities worth Rs 7.4 billion offered to public in 2008​

RECORDER REPORT
KARACHI (December 24 2008): Despite record fall in equity values and slowdown in overall economy, the Karachi stock market witnessed 10 IPOs in 2008, worth Rs 7.4 billion as compared with 9 IPOs worth Rs 15.5 billion in 2007. Interestingly, 9 out of 10 offerings in 2008 occurred before the imposition of price floor rule.

A total amount of Rs 17.4 billion was received from investors in 2008 (excluding Media Times Limited) against these offerings, resulting in value-wise over-subscription of 2.4 times. In 2007, total amount subscribed was Rs 27.2 billion--over-subscribed by 1.8 times.

However, the smaller size (in terms of value) of IPO compared to previous year could be linked to the nonappearance of government offerings in 2008, Muhammad Sohail, analyst at JS Global Capital said. Out of 10 IPOs, 6 companies represented the financial sector, of which 3 were stockbrokers as shown in the table. Others include, one from cement, two from chemicals, and one from technology and communication sector.

"Though the offered size was relatively smaller, huge investor interest was witnessed in IPOs of two brokerage houses, which took place during first quarter of 2008, when no one thought that brokers will face problems in future", Sohail said.

However, later due to depressed market sentiment, share offering of another stockbroker was under-subscribed. Thus, during 2008, seven offerings were over-subscribed and two were not fully subscribed. The result of recently issued IPO by Media Times is still awaited.

He said that the outgoing year may be the worst year for the local stock markets. With only 5 trading sessions remaining, the KSE 100 Index is down 51 percent (61 percent in $), its worst performance since the introduction of the index way back in 1991 when Pakistan's market was opened for foreigners as part of financial sector liberalisation.