Pakistan Economy - News & Updates - Archive

[Neo]

Car production to fall further in 2009 ​

Sunday, January 04, 2009

LAHORE: The automobile industry has started the New Year in extreme gloom as production of cars, motorcycles and tractors are expected to drop substantially.

The News has found that the country produced 120,000 cars in 2008 compared to 165,000 in 2007, showing a decline of 45,000. In 2009, the production is projected to fall further to 70,000 units.

Production schedule of Original Equipment Manufacturers (OEMs) for the first quarter of the new calendar year depicts a gloomy picture.

For instance, Pak Suzuki, which accounted for over 60 per cent of total car production in the country, plans to produce 1,200 cars per month or 14,400 units in a year. Toyota plans to produce 2,400 cars per month or 28,800 a year.

Together these two enjoy over 80 per cent market share and would assemble only 43,200 cars. Rest of the manufacturers, even if they are able to maintain their volumes at last year’s levels, which looks unlikely, would add another 27,000 units.

Another alarming aspect that has emerged after the economic downturn is that the share of small cars, popular in the middle class, has rapidly vanished. However, demand of luxury cars used by the richer segment of society has not declined much. Some experts argue that high interest rates, which make borrowing expensive, are the main reason for the weakening sales of low-end cars.

They point out that prices of smaller cars have risen beyond reasonable limits and this came at a time when rates of raw material, used in car production, are falling. In fact, the OEMs are squeezing local auto-vendors to reduce prices but they themselves continue to maintain high car prices.

The auto-vending industry is now operating at 40 per cent capacity and its cost of production has increased due to low volume of orders. However, they have no choice but to reduce prices as the OEMs are the only customers of auto parts they produce.

Some experts urge the regulators to take notice of extremely high car prices and force the assemblers to bring them to reasonable levels. However, the car manufacturers, while justifying the increase in prices of their brands, say the rupee has depreciated against the Japanese yen from Rs0.65 to Rs0.80.

Experts say the currency weakness comes to around 20 per cent and foreign exchange component in car manufacturing is 70 per cent. This means the impact on the production cost should not be more than 15 per cent, but car prices have been raised by 33 to 50 per cent.

They say Suzuki Mehran VX 800cc price has risen by Rs82,000 since January last year while Mehran VXR CNG is priced at Rs504,000 against Rs408,000 last year. Cultus 1,000cc VXR CNG is priced at Rs814,000 against Rs632,000 and Cultus VXL CNG is available at Rs884,000 as compared to Rs689,000.

Toyota Corolla XLI and GLI prices rose over Rs345,000 to Rs1.26 million and Rs1.38 million respectively. Its recently introduced Corolla 2.OD is priced at Rs1.71 million against Rs1.16 million earlier.

The economic downturn and high car prices have dented hopes of the automobile sector to produce by 2012 half a million cars, 1.5 million motorcycles, 600,000 three-wheelers and 800,000 tractors.

 

[Neo]

KSE edges towards recovery after historic plunge ​

Sunday, January 04, 2009

KARACHI: The bulls made their presence felt this week on Karachi bourse, but they still need more time to come out of depression, regain their strength, turn stable and lead the show.

It was weekend twin-sessions when a modest short covering of 40.39 points helped market closing on positive note after recording massive plunge of about 37 per cent in the last 13 consecutive bears-run sessions since floor removal. This session also witnessed notable trade in blue-chips led the volume leaders.

Moreover, the Thursday session also witnessed a mild recovery in the index from the day intra-day low. This little intra-day regain helped index reducing the day cumulative losses.

The KSE 100-share Index fell below 6,000 points level during the week to four years-low. This benchmark lost another 694 points or 10.69 per cent on weekly basis and closed at 5,793.57 points.

Analysts said that the out-of-court settlement of disputed open position on Continuous Funding System (CFS) after producing much heat between the CFS lenders and borrowers, and the launch of much awaited Rs20 billion NIT-State Enterprises Fund (NIT-SEF) with an aim to prevent incurring massive losses altogether helped changing investors’ mindset to positive.

The fund will, however, invest only in eight government-owned stocks, which are OGDC, PPL, NBP, PTCL, SNGPL, SSGC, PSO and KAPCO.

Analysts maintained that the much delayed launch of NIT-SEF had given undue time to the speculators, who did not miss the opportunity of exploiting financially weak investors and brokers at full length.

This is evident with 63 per cent slump in index since all time high closing in last April and 58 per cent on year-to-year basis.

The parallel running junior 30-Index deprived of 943.50 points or 15 per cent this week and ended at 5,341.22 points.

Volumes in the ready market showed improvement over the week, however, they remain relatively low compared to average volumes before the price floor mechanism was imposed.

Average daily volumes in the ready market were recorded at 108.99 million shares compared to 55 million shares - showing an increase of 98 per cent on week-on-week basis. On the last day of the week, volume hit more than four month high and was recorded at 210.8 million shares.

“Off market volumes was seen coming down gradually last week, as average daily volumes in this market in the outgoing week were standing at 13.1 million shares,” reported Atif Zafar at JS Research.

He maintained, taking advantage of increasing volumes, foreigners bought shares worth $9.7 million and sold $ 47.5 million, resulting in net selling of $37.8 million this week. While last year a record selling of $442.8 million was witnessed, according to NCCPL data.

Gul-e-Zehra Jafri at KASB Securities said barring any last minute surprise, the NIT State Enterprise Fund was expected to become active from next week. With the systematic risk at the KSE potentially under control, market focus is expected to remain firmly on price discovery in the week ahead.

Her brokerage house reported that Arif Habib Bank, JS Bank, Samba Bank, Kot Addu Power and NIB Bank were major gainers while Altern Energy, Bank of Punjab, Adamjee Insurance, Pakistan State Oil and Arif Hahib Securities were major losers at the KSE this week.

Movement in Weekly Volume Leaders

Symbols Open on Close on Difference

Monday (Rs.) Friday (Rs.) (Rs)

Fauji Fertilizer 63.27 64.74 1.47

FF Bin Qasim 13.81 13.69 -0.12

Hub Power 14.38 15.45 1.16

NIB Bank 4.26 5.30 1.04

Pak Prem Fund 2.50 2.66 0.16

Pak PTA 1.89 1.95 0.06

TRG Pakistan 2.16 2.28 0.12

Zeal Pak 0.54 0.58 0.04

 

[Neo]

9.7m bales reach ginneries, 6.9pc increase recorded ​

Sunday, January 04, 2009

MULTAN: Ginneries across Pakistan have received 9.7 million (9,744,546) cotton bales by January 1, 2009 this season, some 6.91 per cent up than the cotton arrivals recorded during the corresponding period of the previous season.

According to a fortnightly report issued by Pakistan Cotton Ginners Association (PCGA) detailing cotton arrival figures till Jan 1, 2009, last season’s cotton arrival figures of 9.1 million bales stands elevated to 9.74 million cotton bales this season and of them, total 9.25 million (9,256,974) bales have been pressed into bales.

Cotton arrivals at Punjab ginneries recorded at 7 million (7,064,126) bales with a percentage increase of 2.89 per cent, showing a marked recovery after last season’s shortfall of 23.18 per cent. Total 6.7 million (6,728,383) bales have been pressed into bales in Punjab.

Cotton arrivals at Sindh ginneries recorded at 2.68 million (2,680,420) bales showing a percentage increase of 19.19 per cent which was recorded at 4.84 per cent during the previous season. The number of bales which have undergone ginning process in Sindh were calculated at 2.52 million (2,528,591) bales. Out of the total 9.7 million cotton arrivals, 7.7 million (7,784,374) bales have been sold out.

Trading Corporation of Pakistan (TCP) has purchased 97,400 bales, exporters have bought 254,431 bales while textile mills have purchased 7.4 million (7,432,543), leaving 1.9 million (1,960,172) bales as unsold stock.

 

[maximus]

Only time will tell...lets see if they reduce the amount of loadshedding in major cities. Faisalabad is an industrial hub severely hit by power crisis, there will be more protests...but it doesn't mean that governement isn't doing anything to solve the crisis.

That's actually the whole crux of the problem. Hardly anything has been done in the past few decades to meet the future requirements. They can do all they want now. It will take considerable time before this crisis is solved. Being optimistic is positive, but we have to remain realistic as well. The problem with our nation is that we never learn from our mistakes. The politicians have always been too preoccupied with stealing and corrupt practices. The people couldn't care any less about the future of this country.

 

[pkpatriotic]

Pakistan to seek waiver from IMF
By Mehtab Haider
Monday, January 05, 2009

ISLAMABAD: Pakistan will have to seek a waiver from the IMF for missing an ambitious tax collection target of Rs 1,360 billion and achieving net zero borrowing from the central bank in order to receive the second tranche of a loan worth $750 million by the end of March of the current fiscal year, The News has learnt.

Highly credible sources in the Ministry of Finance also believe that the government is all set to place its request for waiver before the IMF on the envisaged fiscal deficit target as well in the wake of substantial revenue shortfall on one side and ballooning expenditures on the other side.

“The government is making last ditch efforts to bridge the deficit by not passing on benefits of reduction in POL prices in the international market to domestic consumers. But it seems that the envisaged fiscal deficit target, which was to be brought down to 4.2% of the GDP for the current fiscal from 7.4% of the GDP in the last fiscal year, is likely to be missed,” a high-level official in the Ministry of Finance said while talking to ‘The News’ here on Sunday.

The government, the sources said, also made commitments with the IMF to achieve zero borrowing from the central bank, But when Net Foreign Assets (NFA) are in the deficit mode, it will be very difficult for the government to achieve this target, they added.

On the substantial tax revenues shortfall, the sources said that the Pakistani side and the IMF jacked up the annual tax target from Rs 1,250 billion to Rs 1,360 billion on the projections of higher POL prices in the international market and depreciation of the rupee against the dollar by around 30 per cent. “The POL prices in the international market have witnessed steep decline, touching $34 per barrel from the earlier price of over $140 per barrel and the rupee has also slightly appreciated against the dollar,” the sources said and added that all this resulted in a nosedive on the tax collection side.

The government had collected Rs 154 billion on taxes levied on POL products in the last financial year 2007-08 and its share in indirect taxes was 23 per cent.

When Chairman FBR, Ahmed Waqar, was contacted for comments, he said that the tax collection target of Rs 1,360 billion was estimated on the basis of nominal growth in the range of 28 per cent and POL prices in the range of $85 to $90 per barrel. “Our target was increasing tax to GDP ratio to 10.2%, which is equivalent to Rs 1,360 billion at the time of our agreement with the IMF,” he added.

Now the projection of inflation, he said, has been reduced from average 24% to 20-22% while real GDP growth has been estimated hovering around 3.5% to 4%. “It means that the nominal growth will come down to around 24% from earlier estimates of 28%,” he said and added that the annual tax collection target would also be re-adjusted to the lower side from the earlier envisaged target of Rs 1,360 billion.

Without sharing any exact revenue figures, he said that the tax target would certainly come down but they would strive hard for collecting maximum revenues in order to give enough fiscal space for meeting the social sector needs of the country.

For improving tax revenues, the Chairman FBR said that the board finalised parameters to hold random audit in order to detect tax evaders. Now effective enforcement will detect under-filers and especially non-filers, he added.

“I cannot share the parameters for holding audit because the Income Tax Ordinance prohibits us but one thing is clear that the FBR will hold a transparent audit which will be free of harassment of taxpayers,” he said and added that the audit would be launched very soon.

The FBR has collected Rs 543 billion in the July-Dec period of the current fiscal year and it needs to collect Rs 817 billion in the remaining six months (Jan-June) in order to reach its desired target of Rs 1,360 billion by June 30, 2009.

 

[Neo]

Monetary overhang from government borrowing to persist ​

ISLAMABAD (January 05 2009): Finance Ministry has conceded that monetary overhang from the unprecedented government borrowing from the State Bank of Pakistan (SBP) for budgetary support would continue to frustrate the decline in imported inflation.

"Inflationary pressure was likely to ease in the next few months because of sharp decline in the prices of commodities in international market particularly POL and palm oil, however, the impact of budgetary borrowing will not let the imported inflation come down easily," Finance Ministry briefed the Economic Co-ordination Committee (ECC) of the cabinet which met on December 30, with Prime Minister's Advisor on Finance, Shaukat Tarin in the chair.

The sources said, ECC observed that despite sharp decline in the prices of POL and palm oil, over all benefits of decrease in prices of these commodities was not evident commensurate to decrease in local commodities pricing. This was responsible for the common man not getting relief.

The sources said, former Governor SBP, Dr Shamshad Akhtar also presented an overview of economy and highlighted the major areas which required attention. She was of the view that with the International Monetary Fund (IMF) support foreign exchange reserves have improved and economy attained stability. However, Large Scale Manufacturing (LSM) showed negative growth of 6.2 per cent and it was the main area of concern which affected all sectors of the economy.

According to Dr Akhtar, money supply witnessed mixed trends and cash flow in domestic credit (net) has risen to 30 per cent. Dr Shamshad who was present in the last ECC meeting as Governor SBP also expressed concern over massive borrowing by the federal government for budgetary support.

"Another area requiring attention is borrowing from the SBP by the government for its budgetary financing," the sources quoted her as commenting.

According to the conditions agreed to in the Letter of Intent(LoI) signed by Shaukat Tarin, Prime Minister's Advisor on Finance and Dr Shamshad Akhtar, former Governor, SBP, the government had committed to limiting SBP financing of the budget to zero on a cumulative basis during October 1, 2008 to June 30, 2009. During this period, fiscal deficit will be fully financed by available external disbursements( which have already been committed), the acceleration of the privatisation process, the issuance of treasury bills and domestic financing instruments including Pakistan Investment Bonds(PIBs), Ijara Sukuk and National Savings Scheme(NSS) instruments. Dr Shamshad further stated that a major break through achieved by the economy was enhancement in the deposit rate from 5.5 per cent to 10 per cent whereas lending rates were also manageable.

Dr Shamshad took credit in taking timely measures to provide liquidity to the banks. "Banking system did not experience 'liquidity crunch' due to timely measures' taken by the SBP," the sources quoted her as saying.

Sources present in the meeting, on condition of anonymity, stated that while Dr Akhtar was highlighting her achievements there was a general lack of interest. One cabinet member wanted to change the subject but was told to let the Governor finish her statement. After the meeting views were exchanged about the poor performance of SBP with respect to the eroding rupee value as well as the lack of liquidity in the market till such a time as the IMF came on board.

Finance Ministry, in a presentation to the ECC, indicated that overall CPI-based inflation registered marginal decline in November 2008 as against October 2008.

Inflation stood at 24.7 per cent in November as against 25 per cent in October. Food inflation also decreased from 34.7 per cent in October 2008 to 30.4 per cent in November 2008 and non-food inflation registered an increase of 20.2 per cent during this period. Overall contribution of five non-food items and four food items towards overall inflation was 57.1 per cent.

 

[Neo]

Power and gas load shedding: SBP report confirms industrialists' difficulties: MCCI ​

MULTAN (January 05 2009): President of Multan Chamber of Commerce and Industry (MCCI) Anis Ahmed Sheikh has said that state bank quarterly report had confirmed that industrialists were rightly making hue and cry on the grim industrial situation due to power load shedding, suspension of natural gas, high mark-up, severe energy shortages, deterioration in law and order situation and rupee depreciation and less demand of exportables from foreign buyers.

He said that production, especially large-scale manufacturing (LSM), continued to decline during the first quarter of fiscal year 2008-09, registering a negative growth of 6.2 percent against growth of 7.3 percent in the same period last year, power shortages have been haunting all manufacturing sub-groups in FY08-09.

He said that textile sector, in particular, was jolted by other multiple shocks firstly because it is an export-driven sector and impact of weak external demand fell disproportionately on it. Secondly, poor law and order situation diverted importers of Pakistani products to search for new suppliers. Thirdly, rising cost of raw materials, and fourthly as imported inputs go into textile production process, a high degree of volatility in domestic currency value created problems of costing and pricing.

Anis Sheikh said that report further reveals that both agro-based and other industries registered a decline in production. This classification also highlights the fact that LSM sector has been unable to achieve significant growth without good performance of these two sections of industry, even with high growth in the recent past. Within the non-agri based industries section, consumer durables (cars and jeeps, motorcycles, refrigerators, deep freezers, TV sets, air conditioners, etc) registered a decline of 31.2 percent in production. But when the decline in consumer durables is excluded, the negative growth in LSM production reduces to only 0.8 percent. Not only has the increase in interest rate on consumer financing hit the production of consumer durables, but a sharp rise in their prices has also led to a drop in the demand. Growth in electronics, in particular, suffered due to increased electricity tariff and power shortages in the country.

In addition, demand for consumer durables eased as increase in international prices of steel products and rupee depreciation compelled manufacturers to increase the prices of durables, while the surge in inflation eroded the purchasing power of middle class consumers (major market segment of durables). Engineering sub-sector registered considerable growth on the basis of higher production in safety razor blades, diesel engines (multiple uses of diesel engines in agri sector) and wheat threshers (thresher demand rose expecting bumper wheat crop), he said.

 

[Neo]

Wheat crop prospects ​

(January 05 2009): To gain self-sufficiency in food items has always been an important objective of government policy in Pakistan. However, the matter seems to have assumed greater urgency after acute shortage of wheat and sharp increase in its prices in the recent past.

Wheat, it may be stated, is the main food item of Pakistani people and its availability and cost are, therefore, important determinants of the popularity of the government and welfare of the public at a particular point of time.

The main reason for wheat scarcity during FY08 was a sharp reduction in its output to 21.8 million tons as compared to 23.3 million tons a year earlier due to both decline in acreage and drop in the yield per hectare. Delayed start of sugarcane crushing season and cotton picking caused reduction in the area under wheat crop while insufficient availability of irrigation water at sowing time, uncertainty about returns (due to non-announcement of a support price for FY08 crop) and higher fertiliser prices also discouraged wheat farmers. This was particularly evident in Punjab, which contributes over 75 percent of the total wheat production in the country. In order to overcome shortages of wheat in the country, the government had to spend $852.3 million on the import of the commodity in FY08 as compared to only $41.5 million in the preceding year.

In order to avoid the bitter experience of frequent shortages and soaring prices, the government took a number of steps to increase the output of wheat crop during FY09. Incentive signals were boldly activated by increasing the support price of wheat by 52.0 percent to Rs 950 per 40 kg for FY09 crop, much before the sowing season and a target of 25.0 million tons was fixed for the year. Also, efforts were made to supply the necessary fertilisers at subsidised rates. However, initial reports are not very encouraging. According to the State Bank's estimates, wheat harvest is likely to fall in the range of 23-24 million tons due to the shortage of 39 percent in irrigation water for rabi crops.

The farming community is also not optimistic about achieving the target. Ibrahim Mughal, the Chairman of Agri Forum, Pakistan, is of the view that the government should start a campaign for increasing the use of weedicides and micro-nutrients immediately and announce an increase in procurement target for the final production to be close to 25 million tons. Another official of the Forum, Rana Majid Zafar has said that the government fixed the high target without turning the factors of production positive. No better wheat variety was introduced to ensure higher yields and sowing of certified seed was not increased. The sowing of the crop stood at only 28 percent on 20th November, 2008 which means that over 70 percent sowing would fall under the late category.

Some other Forum officials have stated that usage of fertilisers has dropped steeply due to skyrocketing prices. Credit crunch has also adversely affected the use of inputs. The import of 250,000 tons of wheat by the TCP at the time of local harvest also looks like a disincentive to the farmers.

Although it is too early to make a definitive assessment of the size of wheat crop during the current year, early indications coming from diverse sources are certainly inauspicious and we would like to highlight this negative view because price stability and ample availability of wheat the year-round is too important in our context and at least some of the factors impeding the achievement of the target could still be taken care of at this initial stage. Weeds, for instance, often reduce crop production as they compete with the crop for nutrients, water, light, gases and space and the use of weedicides could be increased from the current 10 percent of the cropped area to a reasonable level through effective involvement of the provincial agricultural departments in the exercise.

The government could also announce that it was committed to buying surplus wheat at official rates through its own agencies like Passco and would not leave the farmers at the mercy of exploitative market forces. Financial institutions engaged in providing agricultural credit could also be persuaded to provide adequate credit for the wheat crop.

Overall, however, there is no doubt that Pakistan needs to change its policy orientation and address certain structural issues on a priority basis in the agricultural sector like poor crop management skills of the farmers, lack of agricultural infrastructure, higher post-harvest losses, limited research as well as the gap between available research and practical applications. Needless to mention that adequate availability of energy is also quite important to supplement water resources and increase overall efficiency in the agricultural sector.

Also important for the government is to resolve to never repeat the mistake of the past year of allowing export of wheat due to the incorrect assessment of a bumper wheat crop. We don't want to say anything about last year's bad experience because so much has been said already but would like to advise the government that it should continue to monitor the crop position very closely and then base its judgement on the conservative side. If needed, sufficient quantity of import should be arranged from the international market well in time to discourage unnecessary speculation in the domestic market.

Adequate availability of wheat at reasonable prices throughout the year would definitely be comforting for the ordinary people who see no end to the flurry of bad news in their lives these days. The perils of empty stomachs are too severe to even contemplate.

 

[Neo]

Stocks up by 2.14 per cent with bailout on way ​

Monday, 05 Jan, 2009

KARACHI: Shares in Pakistan gained for a second straight trading session on Monday, adding 2.14 per cent as investors eagerly await the launch of a government market bailout fund, dealers said.
The Karachi Stock Exchange’s benchmark KSE-100 index gained 123.83 points to close at 5,917.4. At mid-session, the index had gained 162 points before dropping back.
Volume was 210.11 million shares, almost on par with Friday’s level and near the average 250 million shares that changed hands daily in 2007, when the market was tipped as one to watch among developing economies.
Shares have rebounded since Thursday’s close. At that point, the market had lost 37 per cent of its value since December 15, when regulators removed a ‘floor’ imposed in August.
Investor confidence has been on the rise since the government announced last week that the state-owned National Investment Trust-State Enterprise Fund (NIT-SEF) would soon be launched, perhaps as soon as this week.
The entity, funded by state institutions and a consortium of banks, will invest 20 billion rupees in eight selected stocks, and then resell them to overseas Pakistanis, in a bid to prop up the market.
Analysts said the package could be launched at any time this week, but dealers were already in high spirits.
‘The fund will be launched any time this week but it has immensely encouraged local investors, who are on a buying spree,’ analyst Mohammad Sohail told AFP.
But he added: ‘Foreign investors still prefer to sell and it could take some time to get them to reinvest in Pakistani stocks.’
Foreign investors withdrew 440 million dollars of a total of 1.8 billion dollars in holdings from the KSE in 2008, he said.

 

[pkpatriotic]

Monetary overhang from government borrowing to persist ​

ISLAMABAD (January 05 2009): Finance Ministry has conceded that monetary overhang from the unprecedented government borrowing from the State Bank of Pakistan (SBP) for budgetary support would continue to frustrate the decline in imported inflation.
"Inflationary pressure was likely to ease in the next few months because of sharp decline in the prices of commodities in international market particularly POL and palm oil, however, the impact of budgetary borrowing will not let the imported inflation come down easily," Finance Ministry briefed the Economic Co-ordination Committee (ECC) of the cabinet which met on December 30, with Prime Minister's Advisor on Finance, Shaukat Tarin in the chair.

The sources said, ECC observed that despite sharp decline in the prices of POL and palm oil, over all benefits of decrease in prices of these commodities was not evident commensurate to decrease in local commodities pricing. This was responsible for the common man not getting relief.

The sources said, former Governor SBP, Dr Shamshad Akhtar also presented an overview of economy and highlighted the major areas which required attention. She was of the view that with the International Monetary Fund (IMF) support foreign exchange reserves have improved and economy attained stability. However, Large Scale Manufacturing (LSM) showed negative growth of 6.2 per cent and it was the main area of concern which affected all sectors of the economy.

According to Dr Akhtar, money supply witnessed mixed trends and cash flow in domestic credit (net) has risen to 30 per cent. Dr Shamshad who was present in the last ECC meeting as Governor SBP also expressed concern over massive borrowing by the federal government for budgetary support.

"Another area requiring attention is borrowing from the SBP by the government for its budgetary financing," the sources quoted her as commenting.

According to the conditions agreed to in the Letter of Intent(LoI) signed by Shaukat Tarin, Prime Minister's Advisor on Finance and Dr Shamshad Akhtar, former Governor, SBP, the government had committed to limiting SBP financing of the budget to zero on a cumulative basis during October 1, 2008 to June 30, 2009. During this period, fiscal deficit will be fully financed by available external disbursements( which have already been committed), the acceleration of the privatisation process, the issuance of treasury bills and domestic financing instruments including Pakistan Investment Bonds(PIBs), Ijara Sukuk and National Savings Scheme(NSS) instruments. Dr Shamshad further stated that a major break through achieved by the economy was enhancement in the deposit rate from 5.5 per cent to 10 per cent whereas lending rates were also manageable.

Dr Shamshad took credit in taking timely measures to provide liquidity to the banks. "Banking system did not experience 'liquidity crunch' due to timely measures' taken by the SBP," the sources quoted her as saying.

Sources present in the meeting, on condition of anonymity, stated that while Dr Akhtar was highlighting her achievements there was a general lack of interest. One cabinet member wanted to change the subject but was told to let the Governor finish her statement. After the meeting views were exchanged about the poor performance of SBP with respect to the eroding rupee value as well as the lack of liquidity in the market till such a time as the IMF came on board.

Finance Ministry, in a presentation to the ECC, indicated that overall CPI-based inflation registered marginal decline in November 2008 as against October 2008.

Inflation stood at 24.7 per cent in November as against 25 per cent in October. Food inflation also decreased from 34.7 per cent in October 2008 to 30.4 per cent in November 2008 and non-food inflation registered an increase of 20.2 per cent during this period. Overall contribution of five non-food items and four food items towards overall inflation was 57.1 per cent.

^^^^ Thanks Neo for sharing such fact.... off-course its bitter but unfortunately very true, .....as I have stated during debate session held on "export furture" that, at present what we now watching the position of our financial standings is just due to the recently injected money through IMF loan, and it is a dire need to manage these funds in most sophisticated professional way to enjoy real long terms benefits otherwise mismanagment of funds can back fire on our economy.
I have serious concerns that our exports may further markably decline rather, due to bad governance based on continue ignorance, lack of interest & capabilities, on financial matters, and ill-intended personal motives of state's management.
Despite of sevreral reminders with proposals from exporters associations and intellectuals sourcing & buying houses, there is no positive response and seriousness observed at any level of state's managment to address even a single issue, as yet. ..... Anyway I wish to talk in detail on the topic and want to exchange views with the forum members later but soon, as right now i am engaged in 3 development projects simultaneously which may a break through to our economic boost, InshaAllah!!!

 

[Neo]

KSE up 124 points on across-the-board rally ​

Tuesday, January 06, 2009

KARACHI: The bulls took control of the Karachi stock market on Monday after hibernation of about six months, while active trading was seen in blue chips. The KSE 100-share Index gained 124.33 points or 2.15 per cent to close at 5,917.90 points.

The bazaar opened on a strong positive note and the market stayed in this territory throughout the session. “This full-fledged bull-run was seen on KSE after a gap of about six months,” said a dealer.

However, a little intra-day correction of 37.04 points was noted in the closing hours from intra-day high of 5,954.94 points.

Interestingly, the number of actives increased to 269 stocks with gainers outnumbering losers 194 to 75 with none closing unchanged. Moreover, the day session generated a handsome turnover of over 210 million shares in ready market, consecutively.

Abdul Shakoor at InvestCap said that the buying recommendation by the foreign brokerage houses in the blue chips, in which foreign selling was expected, has changed the scenario to positive and that is why the Oil and Gas Development Company (OGDC) and Pakistan Telecommunication Company Limited (PTCL) managed to maintain in the green territory in this session after long.

The news of buying by NIT-State Enterprises Fund from this week, in eight government-own specific securities, made the investors tension-free and rather restored their confidence level of extending their stay at markets, he added.

The NIT-SEF will inject Rs20 billion funds in OGDCL, NBP, PTCL, SSGC, SNGPL, KAPCO, PPL and PSO, Chairman-NIT Tariq Iqbal Khan announced last week.

Furthermore, the contribution of penny stocks also remained visible in this session too, Shakoor added.

The parallel running junior 30-Index rose by another 98.55 points or 1.85 per cent to 5,439.77 points.

The day turnover in ready market stayed at four-month high level, as it was produced at 210.111 million shares against 210.763 million shares changed hands on the weekend.

Activities in future market remained nil in this session too, while NCCPL has demanded 50 per cent additional cash margins on fresh leveraging in the market on Continuous Funding System (CFS) MK-II transactions.

However, an inflow of Rs37 billion was witnessed in overall market capitalisation, which enhanced to Rs1.879 trillion.

M Fawad Khan at KASB Securities reported that favourable news flow like resolution of leveraged financing issue and market support fund and current near-trough valuations have allowed the market reasons to cheer after over 37 per cent correction since Dec 15 (63 per cent from its peak).

“We believe a sustainable re-rating from current multiples rests on how three key risks unfold in the coming few months (1) next move on policy rate expected in late January (2) extent of political noise leading up to election/nomination of senate chairman and Chief Justice in Mar 09 and (3) Pakistan’s compliance with IMF conditions.

“While 2008 expected market price-to-earning (P/E) of 4.5 multiples is 30 per cent below implied theoretical levels, we believe the market may trade well below its theoretical bottom for now,” he added.

Ahsan Mehanti at Shahzad Chamdia Securities said that with December result announcement was set to continue bullish activity in oversold market.

TRG Pakistan led the volume leaders with 16.083 million shares closed at Rs2.85 with a gain of 57 paisa, followed by OGDC with 15.282 million shares closed at Rs49.27 with a gain of Rs2.33, NIB Bank with 12.772 million shares closed at Rs6.01 with a gain of 71 paisa, Zeal Pak with 12.647 million shares closed at 71 paisa with a gain of 13 paisa and PTCL with 8.880 million shares closed at Rs15.61 with a gain of 10 paisa.

 

[Neo]

Pak economy approaching depression from constant recession ​

Tuesday, January 06, 2009

LAHORE: The incapability of the economic planners to act discreetly in time is pushing the Pakistan’s economy from recession to depression calling for out of book strategy to keep the economy moving.

Economists point out that both the government and central bank have been ineffectively fighting to hold the inflation for the last 15 months by raising the interest rates. They point out that the country suffered from stagflation and required altogether diverse approach to keep the economy sailing.

The simple description of stagflation is a sluggish economy coupled with price inflation says senior economist Naveed Anwar Khan, FCA. He said in stagflation the prices go up while the economy goes down. He said under normal circumstances inflation heats up the economy, adding that in a heated economy the central banks are warranted to increase interest rates to cool it down to rational level but in stagflation the usual method of raising interest rates do not help the situation. The only reason it helps in times of high economic activity is because it slows the “velocity of money” or the speed at which it changes hands, he added.

Naveed pointed out that when the economy is sluggish inflation usually is also low and standard remedy overseen by the central banks is to lower the interest rates to stimulate the economy. Regrettably he added it is unfeasible to stimulate the economy by lowering rates while concurrently fighting inflation.

He said the plan for economy during stagflation is different. He said during course of stagflation the government and central banks know that interest rates are not the problem but it is the money supply that keeps inflation high in slow economy. It has to decrease the money supply and get the economy back on a firm footing. He said the central bank unfortunately failed to force the government to reduce its borrowing to contain money supply.

The inflationary pressure created during the decline in economic activity was partly due to high borrowing of the government from the State Bank of Pakistan and partly due to unbridled money creation, and rupee devaluation compared to the other currencies, says Asif Ali Shahid, Canada based charted accountant.

This he added has caused prices for food and energy to skyrocket. He said on the deflationary side we have the industrial downturn, energy and power crisis which is plummeting liquidity for banks as well as causing real estate prices to fall.

There is no doubt that Pakistan’s economy is in depression since the start of 2008 says Faisal Qamar a Dubai based chartered accountant. He said the recession has now got out of hands and by all counts Pakistan is now facing economic depression. He said technically a country is in depression when the decline in its real GDP exceeds 10 per cent or a recession that lasts for more than three years.

He said Pakistan is close to its third year of recession calling for evolving depression specific economic policies. He said non-depression economics shuns fiscal policy, on the grounds that central banks’ tools are powerful enough and their decision-making more effectual and technocratic than that by legislatures. But in today’s customary conditions, we cannot afford this perception. The economy needs fiscal incentive that could be provided by first taming inflation by curtailing huge government borrowing.

 

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Country’s economy capable of meeting defence needs: Tareen ​

Tuesday, January 06, 2009

ISLAMABAD: Adviser to the Prime Minister on Finance Shaukat Tareen said on Monday that the Pakistani economy was fully capable of meeting the defence requirements of the country.

Talking to a private TV channel, he said the Defence Ministry had not put any undue burden on finance despite tension on the eastern border and movement of troops. Replying to a question, he said that the government would make all-out efforts to meet the defence requirements.

He said the Finance Ministry had chalked out a nine-point economic agenda to achieve short, medium and long-term goals. He said: “Our agenda is to bring micro-economic stability, increasing revenues, reducing fiscal deficit, rationalisation of developmental budget and reduction in poverty.”

Tareen said that besides disbursement of cash amount among the poor, the government also wanted to give them health insurance.He said that despite tough challenges, the Pakistani economy was showing signs of improvement, adding that, due to the international financial crunch, stock markets of all the countries suffered.

The adviser said inflation was reducing and hoped that the government would succeed in bringing it to a single digit by next year. He added that inflation would drop by three per cent in the next two months.

Replying to a question, he said that he had no intention to increase the interest rate if core inflation dropped.When the interest rate reduces, it will give confidence to markets to perform well, he said.

Tareen said the government had reduced oil prices by 40 per cent just in 45 days to give quick relief to the common man and the next decrease in petroleum products would be made after thorough deliberations.

The adviser said circular debt was due to Pepco which stood at Rs 170 billion, adding that, the Finance Ministry had released the first installment of Rs 7 billion to the IPP to improve their cash flow. He said directives had been issued to ministries to reduce non-essential expenditure, like telephone and petroleum, to overcome the fiscal deficit.

 

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IMF condition of zero borrowing: Federal government retires Rs 98 billion debt to SBP ​

KARACHI (January 06 2009): Complying with the IMF's one of the primary conditions, the Federal Government has not only restrained from borrowings but also retired some Rs 98 billion to the central bank. The federal government was constantly borrowing from the banking system including the State Bank of Pakistan (SBP) and other banks since last one and a half years to meet its budgetary deficit, sources said on Monday.

While in October, when Pakistan approached International Monetary Fund for a standby loan, it set a condition of zero borrowing from central bank in October 1, 2008 to June 30, 2009 period. "Although Pakistan agreed to IMF condition, the slow foreign inflows made the government continue borrowings from the central bank to meet its deficit," they said.

The federal government has borrowed Rs 411 billion from SBP for budgetary support from July 1 to December 13, 2008 despite the IMF had asked it to limit the budgetary borrowing to Rs 258 billion for the whole fiscal year. However, SBP on Monday revealed that government has retired Rs 98 billion during second week of December 2008.

The government borrowing for budgetary support has declined to Rs 313 billion on December 20, 2008 previously stood at Rs 411 billion on December 13, 2008, depicting a decline of some 24 per cent. Sources said that the federal government has further retired debts during third and last weeks of December 2008, which would be reflected in the next Broad Money report. "The retirement of central bank borrowing shows the seriousness of government regarding the IMF programme", economists said.

They said that it's a good sign for the economy and would help easily get the second tranche of IMF loan. Adding, "the retirement statistics depicting that government is likely to meet IMF's condition of net zero borrowing since October 2008, in January 2009".

They informed that at present government is focusing other instrument like market treasury bills, National Savings Scheme (NSS), Pakistan Investment Bonds and recently issued Ijara Sukuk to meet its deficit.

 

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Interest rate will not be increased: all IMF targets met, says Tarin ​

ISLAMABAD (January 06 2009): Finance Ministry has achieved all IMF targets, including 2 percent fiscal deficit by the end of December 2008, and tax collection likely to touch 10.5 percent of GDP as discussed and agreed, said Advisor to PM on Finance, Shaukat Tarin.

He also said that interest rate would not be increased now. "I am not in a mood to increase interest now as inflation rate would start falling now". He said that CPI inflation as of December is likely to fall by 1.5 percent and in the next two months it would reduce by 2 percent, as initial data is indicating. By end-June inflation would be below 20 percent.

Talking in Aaj TV program Islamabad on Monday night he said that Rs 700 billion was stuck in bank accounts of unspent development spending, which should first be used, then asking for new allocation, even which we are ready to do as government has more fiscal space.

IMF delegation is due in February, which would review end-December targets, where the government seems comfortable now, he said. Increase in defence expenditures has not put the spending under pressure, and these are manageable.

He said that circular debt is Rs 169.7 billion and is likely to be settled by end-January, and ministries have spent their last two days in resolving these issues. Initial payment of Rs 7.5 billion has gone and other payments would come in due course of time.

This would have cut electricity shortage from 4500 mw to 2000 mw and would reduce load shedding substantially. OMCs margins and dealers margins are being reviewed in the petroleum policy, to be taken up by ECC on January 9.

The government is also planning to review oil and gas payments on monthly basis. On expenditure side, Tarin said that he had asked the ministries to reduce their travelling, petrol, telephone and other spendings to match revenue capacity.

State Bank's profit with other government owned commercial organisations would provide some resources for managing fiscal deficit. He admitted that that poverty rate has increased in last two years and a World Bank-based survey with independent third-party evaluation was underway, which would be completed by end of this year. Overdraft of SBP has reduced by Rs 36 billion from Rs 258 billion to Rs 222 billion, which would also help reduce other monetary targets.

NFA (net foreign assets) and other targets are also on track. He also assured no bank failure and government is ready to issue any guarantee to any bank in case it shows any problem, say Tarin.

He said that falling trade deficit has helped in managing foreign exchange reserves. In next 18 months oil payments would be shifted from interbank rate market. "We have crossed problem time and now we are sailing through for a better future where I am seeing light at the end of the tunnel", Tarin remarked.