Pakistan Economy - News & Updates - Archive

[sigatoka]

Sig,

CAD has been fluctuating between 4-5% for last two years. Its supposted to be around 4.7% now.

So it seems the report says that a lot of it is due to capital machinery imports by the private sector.

There is nothing wrong with this like the report says. However its recommendation that in future it suggests expenditure switching to reduce the deficit doesnt seem to be too smart.

It would be better that in future the government reduced its budget deficit and thus reduce foreign borrowings. If this doenst solve the CAD problem the government could introduce forced national savings scheme in the form of superannuation contribution. (such as Singapore, and Aust & NZ) this will reduce imports as people disposable incomes are reduced.

 

[Neo]

So it seems the report says that a lot of it is due to capital machinery imports by the private sector.

There is nothing wrong with this like the report says. However its recommendation that in future it suggests expenditure switching to reduce the deficit doesnt seem to be too smart.

It would be better that in future the government reduced its budget deficit and thus reduce foreign borrowings. If this doenst solve the CAD problem the government could introduce forced national savings scheme in the form of superannuation contribution. (such as Singapore, and Aust & NZ) this will reduce imports as people disposable incomes are reduced.

You're right, CAD has to be reduced, even WB and IMF have shown concern about the current situation.
Can this be solved by issueing Eurobonds again like we did couple of months ago to raise $1 billion?

 

[sigatoka]

You're right, CAD has to be reduced, even WB and IMF have shown concern about the current situation.
Can this be solved by issueing Eurobonds again like we did couple of months ago to raise $1 billion?

I dont understand? issueing Eurobonds is increasing borrowings which means the CAD is increasing.

Remember, increasing CAD means net borrowings by nation, Decreasing CAD means means reduction in borrowings.

Net lending will show up as Current Account surplus.

 

[Neo]

What I meant is that immidiate decrease in imports of heavy machinery is unlikely due high demand in a rubust economy, imports are liekly to grow next year hence increase in CAD.

 

[sigatoka]

"Can this be solved by issueing Eurobonds again like we did couple of months ago to raise $1 billion?"

What do u mean by that?

"What I meant is that immidiate decrease in imports of heavy machinery is unlikely due high demand in a rubust economy, imports are liekly to grow next year hence increase in CAD."

Yeah, thats true. Its very unusual for robust growth to occur with Current account surplus.

 

[Neo]

Correct me if I'm wrong but according to what I read is that a part of the Eurobond was sold domestically creating Governemts domestic debt which is not calculated in CAD.
Is this correct??
I was hoping you could explain so I asked the question. :what1:

 

[Neo]

ISLAMABAD (updated on: June 25, 2006, 01:08 PST): Prime Minister Shaukat Aziz on Saturday said the government's policy of deregulating the telecom sector has resulted in record high expansion and massive investment in the sector.

"Today, Pakistan has 32 million mobile phone subscribers and 20 percent teledensity which is highest in the region," he said.

The prime minister was talking to Sheikh Adil Almisehal, who called on him here at the PM House this evening.

Almisehal, a Saudi Arabia based company is one of the three shareholders of Wah Nabel, which is running three companies in Pakistan.

The prime minister said Pakistan owing to its investment-friendly policies, the level playing field provided to the investors and the reduced costs of doing business, is fast becoming a destination of choice for foreign investors, as the Foreign Direct Investment (FDI) is expected to reach $3.5 billion by the end of current fiscal year, highest in the country's history.

He said that the increased inflow of investments is driven by the wide-ranging structural reforms, sustained economic growth and consistency and continuity of the government policies.

The prime minister said the driving principals behind the reform agenda were deregulation, liberalisation and privatisation. These coupled with transparency are the hallmarks of the government polices, he added.

He emphasised the need for public private partnerships and said the role of government is to open the doors of opportunity and create an atmosphere, which ensures ease of doing business.

"The investors are our growth partners and the government is facilitating investments which will lead to more job opportunities, technology up-gradation and more exports from Pakistan", the prime minister said.

Sheikh Adil Almisehal, on the occasion, said Pakistan because of its economic landscape offers great opportunities to foreign investors.

He said his company is satisfied with the performance of its business and is planning to expand its area of operations.

He said Saudi Almisehal Group will be investing in telecom, engineering, communication, ship building and construction sectors in Pakistan.

 

[Neo]

QUETTA (updated on: June 25, 2006, 01:10 PST): Balochistan governor Owais Ahmed Ghani on Saturday said the survey on rail and road projects to link Gwadar with Afghanistan and Central Asian Republics (CARs) has been completed and the work on the projects would soon be launched.

Talking to a delegation of Chaman Chamber of Commerce and Industry, who called on him here, he said the government is taking concrete measures to promote legal trade with the neighbouring countries and to provide the traders with maximum facilities.

"The construction of Chaman border terminal by National Logistic Cell has already been started and its completion will resolve the traders problems to a great extent besides promoting international trade," he said.

Chaman would gain much importance in future in the perspective of construction of Gwadar port and trade with Central Asian states, he said, and maintained a project to make the border town a modern and model city is also under consideration, he added.

The delegation, on the occasion, informed the governor about their problems and requested him for establishment of export processing zone in Chaman besides provision of warehouse and cold storage facilities.

 

[Neo]

LAHORE (updated on: June 25, 2006, 01:11 PST): Advisor to Prime Minister on Finance, Dr. Salman Shah on Saturday urged Small and Medium businesses (SMEs) to adopt Information technology tools in their operations in a bid to become competitive.

"The competition at international level is becoming more stiff every day; SMEs should adopt business software solutions to get in line with international trends," he said while speaking at the launching ceremony of SAP Business One Solution software at a local hotel.

Dr. Salman Shah said the adoption of managerial excellence and good governance by the SMEs could give a new strength to Pakistan's industrial sector in particular and national economy in general.

"The difference between leaders and lagers in Pakistan's industry was on the basis of governance, management and procedures," he said.

Dr. Salman Shah hoped that SAP business software would help the SMEs to overcome their problems.

He congratulated AbacusConsulting on entering into a strategic alliance with SAP and hoped that these two firms together would make a positive contribution to Pakistan's corporate sector and the growth of economy.

Managing Director SAP, Eric McDonald said that SMEs were playing an important role in the economic development of the country.

He said induction of new IT tools could help SMEs become more competitive and efficient.

 

[Neo]

Saturday June 24, 2006

RAWALPINDI: President General Pervez Musharraf and Prime Minister Shaukat Aziz on Friday expressed their commitment to developing marble and granite reserves, specially for the socio-economic uplift of the people in the under-development areas endowed with these resources.
Speaking at a meeting on development of marble and granite reserves, President Musharraf said that the government would encourage exploitation of these recourses for the benefit of the local people "The development of these recourses would not only add to the volume of annual exports but also contribute meaningfully to socio-economic progress of people at grass roots level as they would acquire skills for better jobs in marble industry" he underlined.

Pakistan’s annual exports of marble and granite stands at US dollars 21 million, which could be increased manifold in the years ahead.

Speaking on the occasion, Prime Minister Shaukat Aziz said that the government is resolved to bringing the people of far-flung areas into the mainstream of economic development.

The government has set up Pakistan stone development company, as an affiliate of Pakistan industrial development corporation which has been tasked to established five marble cities, warehouses, and train the local people for proper utilization of these reserves.

Later, Minister for Industries and Special Initiative Jahangir Khan Tareen, told media persons that the federal government and the provinces would collaborate to ensure ownership of the projects at local level.

 

[Neo]

Saturday, June 24, 2006

ISLAMABAD: The government is committed to reducing the population growth rate from 1.8 percent to 1.3 percent by 2020 to ensure that benefits of the economic growth reach the common man, Prime Minister Shaukat Aziz told the International Group on Population and Development during a meeting at Prime Minister’s House on Friday. Duff Gillespie, senior scholar at the Gates Institute in the United States, led the group. Later, local legislators and a delegation from the Muslim Council of Britain, led by its Secretary General Sir Iqbal Sacranie, also called on the prime minister and discussed various issues with him.

 

[Neo]

"Can this be solved by issueing Eurobonds again like we did couple of months ago to raise $1 billion?"

What do u mean by that?

"What I meant is that immidiate decrease in imports of heavy machinery is unlikely due high demand in a rubust economy, imports are liekly to grow next year hence increase in CAD."

Yeah, thats true. Its very unusual for robust growth to occur with Current account surplus.

Sig,

Can you please activate your Pravate Messaging option?

Thanks,

Neo

 

[sigatoka]

Correct me if I'm wrong but according to what I read is that a part of the Eurobond was sold domestically creating Governemts domestic debt which is not calculated in CAD.
Is this correct??
I was hoping you could explain so I asked the question. :what1:

A Euro bond is a debt denominated in Euros. So I think yes that you indeed may be right, it is possible for locals to purchase Pak. Euro Bonds.

Government borrowing from locals does not factor in the CAD. (If the borrowings is in Euro's then both parties undertake exchange rate risk, but this doesnt affect the nation becaue what one party loses with the nation, the other gains.)

However there is a little catch, Government increasing local borrowings for fiscal stimulus can raise the domestic interest abov world rates, which leads to capital inflows, which leads to currency appreciation, which can lead to higher imports and lower exports and therefore can affect the CAD in a roundabout way. (The IS-LM-BP model.) This however is assuming flexible exchange rate, Pak. follows hybrid which means it does allow some exchange rate movement but the central bank acts against strong movemtns.)

Also even ignoring trade and exchange rates, domestic borrowings by Govt. while not contributing to CAD can infact not be very effective because it can squeeze out private investment. (Using AD-AS model, assuming AS curve slopes upward & becomes vertical and AD cut across the vertical portion.) Govt. borrows from the same pool that local businesses do, and it raises interest rates such that the increase in government borrowings raises interest rates such that investment goes down by such an amount that there is no economic change in output.

 

[sigatoka]

Sig,

Can you please activate your Pravate Messaging option?

Thanks,

Neo

Dont know how to.

 

[Neo]

A Euro bond is a debt denominated in Euros. So I think yes that you indeed may be right, it is possible for locals to purchase Pak. Euro Bonds.

Government borrowing from locals does not factor in the CAD. (If the borrowings is in Euro's then both parties undertake exchange rate risk, but this doesnt affect the nation becaue what one party loses with the nation, the other gains.)

However there is a little catch, Government increasing local borrowings for fiscal stimulus can raise the domestic interest abov world rates, which leads to capital inflows, which leads to currency appreciation, which can lead to higher imports and lower exports and therefore can affect the CAD in a roundabout way. (The IS-LM-BP model.) This however is assuming flexible exchange rate, Pak. follows hybrid which means it does allow some exchange rate movement but the central bank acts against strong movemtns.)

Also even ignoring trade and exchange rates, domestic borrowings by Govt. while not contributing to CAD can infact not be very effective because it can squeeze out private investment. (Using AD-AS model, assuming AS curve slopes upward & becomes vertical and AD cut across the vertical portion.) Govt. borrows from the same pool that local businesses do, and it raises interest rates such that the increase in government borrowings raises interest rates such that investment goes down by such an amount that there is no economic change in output.

Thats the answer I was hoping for, we share same opinion.
Tnanks!