Pakistan Economy - News & Updates - Archive

[Neo]

Former IMF negotiator recommends Pakistan hike rates​

* Former IMF negotiator advocates rate rise
* Sees rupee fluctuating around 80 per dollar​

KARACHI: Pakistan needs to hike interest rates further to build foreign exchange reserves and dampen inflation despite facing recession, according to the economist who led IMF negotiations with Pakistan two months ago.

Mohsin Khan retired as director of the IMF's Middle East and Central Asia Department at the end of November immediately after concluding the $7.6 billion emergency stand-by credit agreement to rescue Pakistan from a balance of payments crisis and looming default on its international debt.

Pakistan entered a 23-month standby credit facility to correct external and fiscal imbalances, bring down inflation running over 25 percent and alleviate poverty.

The first tranche of $3.1 billion credit was released on November 26. The next tranche of $850 million is due to be released subject to an IMF review that should be completed by March 15. The government should meet its first review targets, as it has largely set the targets itself, though achieving zero net government borrowing from the central bank will be difficult. The central bank ramped up interest rates by 2 percentage points to 15 percent in November, and many analysts in Pakistan believe interest rates should be reduced quickly because of an alarming economic slowdown.

The central bank has forecast growth slowing to 3.5 percent to 4.5 percent in the 2008-09 fiscal year ending June 30, its weakest pace since 2001-02.

Now a senior fellow at the Peterson Institute for International Economics in Washington, Khan gave his views on the outlook for Pakistan in an email response to questions ahead of the State Bank of Pakistan's half year monetary policy review, due to be announced on January 31.

The following is a transcript of Khan's answers:

Q: Do you expect an increase in interest rates, given inflation has begun moderating and the trade deficit has started to narrow?

A: The case for raising interest rates further is that core inflation is still too high, so you can't blame inflation on energy (oil) and food prices, both of which have come down quite sharply in the last few months. Therefore, based on the core inflation numbers, another 100 to 150 basis points would seem to make sense. This is an orthodox prescription. However, the monetary tightening already done in November (raising the rediscount rate by 200 basis points to 15 percent), and any further tightening to come will not have a significant impact on inflation (headline and/or core) for a while. So one should not expect too much from higher interest rates on inflation in the next few months. But, I think there is a stronger case to raise interest rates, which is to strengthen the international reserves position of the State Bank of Pakistan. For some reason this point has not been stressed as much as it should have -- the focus has been too much on the monetary policy-inflation link. The effect of interest rates on international reserves can be quite quick (and certainly much quicker than the effect on inflation). The usual channel is capital inflows, but in Pakistan remittances are also influenced by interest rates (and the exchange rate). See how remittances jumped after the increase in interest rates in November. With a relatively stable exchange rate (around 80 rupees per dollar), Pakistani interest rates should be quite attractive, particularly for overseas Pakistanis.

Q: How do you see Pakistan's economy faring?

A: With the world in recession, I don't expect the Pakistan economy to grow by more than 2 percent or so this fiscal year. And this too depends on how agriculture does. For Pakistan a 2 percent growth of real GDP is a recession. Moreover, it's difficult to see where higher growth in 2009-2010 is going to come from with the world recession worsening. Lower oil prices are a mixed blessing for Pakistan. Yes, import costs are lower, but the demand for Pakistani labour in the Gulf and foreign direct investment from the Gulf are also lower.

Q: What is your outlook for the rupee?

A: I think the rupee will fluctuate around 80 per dollar. Barring any other external shock, the worst is behind the country. If remittances do as well as they are doing, and there are some capital inflows, State Bank of Pakistan's international reserves and the amount of dollars in the open market should increase. This may actually lead to pressures for the rupee to appreciate against the dollar, i.e., become stronger. My own view is that the rate is about right and that the SBP should, if needed, buy dollars to keep it there (and add to its international reserves). It is always better for a country to have an undervalued exchange rate than an overvalued one. reuters

 

[Neo]

Gilani writes off Rs 17.5 billion Balochistan overdraft​

* Centre assures Balochistan new NFC award will be finalised before next budget​

ISLAMABAD: Prime Minister Yousuf Raza Gilani directed the authorities on Thursday to immediately freeze the payment of a Rs 17.5 billion State Bank overdraft payable by the Balochistan government and then write it off after six months as the Centre assured the province that a new five-year National Finance Commission (NFC) Award would be finalised before the announcement of the 2009-10 budget.

Addressing a high-level meeting to look into Balochistan’s financial difficulties at Prime Minister’s House – Gilani said the federal government would now be responsible for the payment of the overdraft. “Moreover, from the next year, the Federal Public Sector Development Programme (PSDP) for Balochistan will be expanded considerably,” he said.

NFC: Talking to Daily Times, the Balochistan finance minister confirmed that Adviser to Prime Minister on Finance Shaukat Tareen had “assured us that a new NFC award would be finalised before the budget of 2009-10”, at the meeting.

According to official sources, the federal government is consulting provinces to develop a political-level consensus on a revenue-sharing formula for the federal government and the provincial governments. Similarly, the basis for revenue sharing among the four provinces is also being negotiated with the chief ministers.

Punjab has already proposed that 20 percent revenue be shared among the provinces on the basis of multiple factors, while the remaining 80 percent be shared on the basis of population to boost the share of smaller provinces.

Sindh, NWFP and Balochistan are likely to make final comments on the proposal during negotiations to be held over the next three months.

The three provinces have been demanding that revenue be shared among provinces on the basis of multiple factors instead of population alone. The new NFC award, if agreed before the announcement of the budget, would be based on new projections agreed between the Centre and the federating units, said the official sources. The Centre has already re-constituted the National Finance Commission to finalise the next NFC award.

The NFC would also finalise a new mechanism for provincial borrowing from the federal government and interest payments with revised terms and conditions. NFC would also facilitate the provinces to agree on a distribution mechanism for royalty on crude oil production and surcharge on gas production.

 

[Neo]

Key Chinese entrepreneur keen to participate in various projects​

BEIJING (January 23 2009): A prominent Chinese entrepreneur has expressed keenness for co-operative partnership with Pakistani counterparts to develop infrastructure, tourism, culture, mining, housing and power generation and also to contribute a portion of profit to bring improvement in social sector.

"If your country has incentives, investment-friendly policies and top level support, we believe we can participate and implement various projects", Chairman of China World Peace Foundation and heading a number of Chinese companies and institutions Li Ruo Hong said in interview with APP.

Li, who plays active role in social activities and also runs a hospital, said that he intended to spend some portion of the profit generated through business activities in the social welfare sector with the co-operation of Pakistani NGOs to ensure provide better health and education facilities.

Li Ruo Hong, also the Vice-Chairman of Beijing Association of Enterprises with Foreign Investment, has immense experience under his belt to accomplish international plan, their design, and implementation. The people and governments of Pakistan and China had traditional friendship and wide co-operative future, Li said and added that projects' accomplishment needed sincere co-ordination from both sides.

He informed that he would not only intend to make investment by himself but also encourage other companies to invest, develop and build up projects in their respective fields in Pakistan. Also Professor at University of Alberta, Li said his companies and institutions had made investments and accomplished projects in the fields of petroleum, telecommunication, automobile, real estate, business, culture, tourism and medical within and outside China.

The areas of large power station, harbour, mining, airport, TV station, investment, public welfare establishments, etc were focused recently, he said. Based on friendly co-operative relations between China and Tunisia, Li at the invitation of President Ben Ali last year visited Tunisia and signed an agreement on developing Tunis Zembra Island. The development work on the project spreading over 400 hectares is now being implemented.

 

[Neo]

Access to EU markets: Pakistan continues to enjoy GSP preferences​

ISLAMABAD (January 23 2009): Under the European Union's new GSP scheme for 2009-11, Pakistan continues to benefit from important preferential access to the market of 27 member states of the European Union (EU). The GSP preferences allow Pakistan to export more than 3,000 tariff lines duty-free to Europe.

While enjoying reduced duties on another 3,000 tariff lines, including textiles and clothing, says a press release issued by European Commission (EC) mission here on Thursday. In 2007, the EU imported Euro 2.6 billion worth of goods from Pakistan under the scheme, making Pakistan the eighth most important user of the scheme accounting for 4.5 percent of the EU's total imports under the GSP.

However, Pakistan's application for even better preferential market access to the European Union (EU) from 2009 through the so-called GSP+ scheme could not be approved.

The GSP+ offers additional preferences as an incentive to vulnerable countries to ratify and effectively implement a broadly defined set of international standards in the fields of human rights, core labour standards, sustainable development and good governance.

There are two reasons why Pakistan did not qualify for GSP+. First, Pakistan does not fulfil the requirement provided in Article 8(1)(c) of Regulation (EC) No 732/2008 to be considered a vulnerable country.

Vulnerable countries are those not classified by the World Bank as high income countries and whose GSP exports to the EU show both relatively high product concentration (the five most important product sections must represent more than 75 percent of the total GSP imports) and a relatively low volume (less than one percent) in comparison to total the GSP imports from all beneficiaries.

This is not the case for Pakistan as official Eurostat statistics confirm.

Second, Pakistan has not yet ratified the United Nations International Covenant on Civil and Political Rights, the Convention Against Torture and the Cartagena Protocol on Biosafety. These conventions are listed as core conventions in Annex III to the GSP regulation. Article 8 of this Regulation provides that GSP+ may only be granted to a country, which has ratified and effectively implemented all the conventions listed in Annex III.

Hence, the European Commission had no choice but to conclude that Pakistan does not meet the GSP+ eligibility criteria. The European Commission was, therefore, unable to include Pakistan in the list of GSP+ beneficiaries in 2009-11. Countries, which do not yet meet the GSP+ qualifying criteria, will have an additional opportunity for applications in mid-2010, halfway through the life of the GSP Regulation 2009-11.

The European Commission against the eligibility criteria set in the GSP Regulation examined all applications received before the deadline of October 31, 2008. As a result of this examination, the Commission has established a list of beneficiary countries, which fulfil the relevant eligibility criteria. The list was approved through a commission's decision on December 9, 2008. Pakistan's preferential access to the EU market under the GSP remains effective.

 

[Neo]

Exporters get one-year grace for loan payment​

Shahid Iqbal

Friday, 23 Jan, 2009

​

KARACHI: The State Bank announced on Thursday a Rs12 billion plan to help borrowers of the export financing scheme, deferring payment of their loans for one year.

However, the borrowers having non-performing loans would not be able to avail the facility.

Exporters have been demanding extension of payment, saying a slowdown in business activities and a liquidity crunch had put them in a difficult situation.
In a circular, the SBP said it had been decided to allow banks and development finance institutions (DFIs) to provide grace period to borrowers who have availed financing under the Long Term Financing for Export Oriented Projects (LTF-EOP), including Debt Swap Facility under LTF-EOP scheme and Long Term Financing Facility (LTFF) scheme.

The borrowers, who have already repaid LTF-EOP or LTFF loans, will not be eligible for reimbursement. Similarly, in case a loan is not payable during 2009 as per its original schedule, it will not qualify for the benefit under these arrangements.

'Only loans outstanding as of Dec 31, 2008, will qualify for the benefit of grace period. As such, the loans disbursed on or after Jan 1, 2009, will not qualify for the benefit,' said the circular.

Banking sources said that the exporters would get an accumulated facility of around Rs12 billion under the scheme.

This is a one-time facility effective from the date of issuance of the circular and will remain valid only up to March 31. 'Any request received after March 31 will not be considered by banks or DFIs,' said the SBP.

Banks and DFIs may provide deferment of one year in repayment of the principal outstanding under the above schemes as of Dec 31, 2008. Under this facility repayment dates for all installments of principal amounts falling due between Jan 1 and Dec 31, 2009, may be re-fixed after a passage of one year from the due date. 'For this purpose, banks or DFIs will carry out their due diligence of the individual borrowers on case-to-case basis.'

No benefit under the circular should be given to the borrowers having non-performing loans, classified under SBP prudential regulations.

In case a loan has already been rescheduled by a bank or *** as per its policy or in case a borrower has defaulted on loans, such cases would not be eligible for the benefit under these instructions.

The borrowers, who have already repaid LTF-EOP/LTFF loans, will not be eligible for reimbursement.

Similarly, in case a loan is not payable during 2009 as per its original repayment schedule, it will not qualify for the benefit under these arrangements.

'Only loans outstanding as of Dec 31, 2008, will qualify for the benefit of grace period. As such, the loans disbursed on or after Jan 1, 2009, will not qualify for the said benefit,' said the circular.

The banks and DFIs will keep on record the basis for grant of said benefit to the borrowers concerned, which will be checked by the Banking Inspection Department during inspection of banks and DFIs to ensure that this has been allowed as per laid-down criteria.

Banks and DFIs will take into account the track record, conduct of account, underlying collateral, financial condition and future outlook, volume of exports and overall risk profile of the borrowers in evaluating their requests.

 

[Omar1984]

Services exports posts impressive growth ​

Thursday, 22 Jan, 2009

​

Wow is this really Pakistan? I'm impressed

 

[Neo]

Yes, this is Chundrigarh Road, Sadar Area in Karachi. Tall building on the left is the Habib Bank Plaza, used to be Karachi's tallest building till late seventies.

 

[Al-zakir]

China provides $500 million aid to Pakistan



Updated at: 1950 PST, Saturday, January 24, 2009

ISLAMABAD: China has provided an aid of $500 million to Pakistan for improving its foreign exchange reserves.

The finance ministry sources said this amount will be repaid in one-and-a-half year and interest rate will be determined at the rate of soft loans.

This loan was announced when President Asif Ali Zardari visited china.

The amount has been provided to Pakistan under term deposit support

China provides $500 million aid to Pakistan

 

[Skywalker]

Wow is this really Pakistan? I'm impressed

So what do you think, are we living in stone age.

 

[RabzonKhan]

Govt aiming to accelerate GDP growth rate

* Policy matrix for PRSP-II proposes zero percent revenue deficit in 2009-10

By Sajid Chaudhry
January 25, 2009

ISLAMABAD: The government is aiming to alleviate poverty by accelerating the gross domestic product (GDP) growth rate from 3.4 percent in the current fiscal year to 5.5 percent by 2010-11, according to the policy matrix of a proposed Poverty Reduction Strategy Paper-II (PRSP-II).

According to the PRSP-II policy matrix released on Saturday by the Ministry of Finance, the fiscal deficit and debt will be reduced to a sustainable level and expenditures relating to poverty reduction initiatives will be protected.

Agriculture loans will be increased from Rs 432 billion to Rs 522 billion, credit for small and medium enterprises (SMEs) will be enhanced from Rs 250 billion to Rs 390 billion and the number of clients of micro-finance will be increased from 2,138,750 to 3,133,202 by the year 2010-11.

The provinces’ share in proceeds of federal taxes and duties will be increased from 43.75 percent to 46.25 percent by the year 2011.

Deficit: Revenue deficit would be brought to zero percent in the next fiscal year and public guarantees annually will be kept at or below 2 percent of the GDP.

Savings as a percentage of the GDP will be increased from 13.4 percent to 19.2 percent, and investments as a percentage of the GDP will be increased from 19.9 percent to 23.8 percent by the year 2010-11.

Pro-poor interventions under the PRSP-II will be increased from Rs 34 billion to Rs 50 billion by the year 2010-11 and the Benazir Income Support Programme coverage will be increased from 3.4 million households to 7 million households.

The paper says around Rs 32.250 billion will be spent on the provision of self-employment opportunities to 154,000 people in 2009. The Employees Old Age Benefit Institution pension will be increased from Rs 1,500 to Rs 2,000 per month and total allocations will be increased from Rs 7.464 billion to Rs 11.059 billion.

 

[keeninterest]

^^^

that i believe is a realistic target given the present global meltdown, and the political instability that pakistan faces as of date.

the primary focus for the present day government has to be to contain inflation which if not handled properly could clearly go out of hand but then with imf around that now looks highly unlikely.

Savings as a percentage of the GDP will be increased from 13.4 percent to 19.2 percent, and investments as a percentage of the GDP will be increased from 19.9 percent to 23.8 percent by the year 2010-11.

the priorities of the government seem to be clear and these are basics if done properly will bring back the possibility of sustained growth for pakistan in the long run, though with all the basics right the utmost important thing would still be political stability. if that political bit can happen and be sustained then the biggest of the hurdles can be dwarfed.

 

[macintosh]

'Pak has petroleum reserves for only six days'

1/26/2009 7:29:40 PM


Pakistan is reeling under acute shortage of oil reserves as its petroleum products will last only six days while the furnace oil stock has fallen substantially which can fulfill only nine-day requirements of the country.

Existing petroleum reserves were sufficient for only six days, but there would be a considerable boost to country's oil reserves after it gets new shipment of oil today, Petroleum Ministry Additional Secretary G A Sabri was quoted as saying by the Geo TV.

Sabri said the government was vigilant about the petroleum products' reserves. "We are currently importing petroleum products based on 10 days' inventory keeping in view the dollar constraints."

According to data available with GEO TV, in the corresponding period of the last year, the country had petrol reserves for 20 days' consumption and furnace oil for 21 days.

Pakistan, which is dependent on gulf countries for its oil need, annually requires some 60 million tonnes of oil, two-thirds of which is imported.

 

[asaad-ul-islam]

and yet, again democracy delivers the finishing blows to the country...

Foreign debt to swell to $51.5 bn​

Monday, January 26, 2009

By Khalid Mustafa

ISLAMABAD: Pakistan’s external debt is to alarmingly swell to $51.5 billion by the end of the ongoing fiscal year 2008-09 with rise in debt of 16 per cent if compared with foreign debt of $46.5 billion in the last fiscal year.

The public debt of the country will climb by 20.5 per cent to Rs1.3 trillion in toto that includes Rs900 billion foreign debt and Rs400 billion domestic debt, a senior official in the Ministry of Finance told The News.

The country headed by President Asif Ali Zardari will witness the 16 per cent rise in external debt only in fiscal year 2008-09, which the country experienced in the last eight years. The major factor in 16 per cent rise in foreign debt is moving the International Monetary Fund (IMF) for a bailout package of $7.6 billion. “This has virtually reversed the declining trend in debt to GDP ratio,” the official said. During this fiscal year, the country will get $4.6 billion from the IMF in three instalments by June 2009, $1 billion and $500 million from the World Bank and $500 million from the Asian Development Bank, and $400 from other IFIs, meaning Pakistan will get $7 billion in the current financial year. Pakistan will have to pay $3.1 billion as debt servicing this year, which will increase to $3.5 billion in the next fiscal year.

Prior to moving the IMF, the sharp downslide of rupee against the US dollar has made an alarmingly whopping addition of around Rs900 billion to public debts without any additional borrowing of even a single penny.

“Depreciation of the currency by just one rupee against US dollar enhances the public debt by Rs46 billion,” the official said. In Musharraf regime dollar-rupee parity was at 1:60, but when the PPP took the driving seat, rupee started sliding down because of the poor foreign exchange reserves and at one time dollar-rupee parity reached at 1:84. Owing to this factor the government’s national debt swelled by Rs900 billion.

To a question the official said that the GDP growth is expected to be at 2 per cent keeping in view the bumper crop of wheat and in case agriculture does not perform for any reason, the country’s GDP would be in negative zone.

This will hurt the capacity of the country to retire the huge debt. With high discount rates in the country, most of the businesses have gone into the red zone. With 2 per cent GDP performance, FBR will not be able to increase the tax to GDP ratio, which right now stands at 10 percent. It means that the country’s revenue would not be able to maintain the debt servicing. “This may lead to an embarrassing situation in the years to come for the country,” the official opined.

 

[Pk_Thunder]

Pakistan asked to attract overseas investments​

KARACHI (January 28 2009): Consul General of France, Pierre Seillan has said that Pakistan should market the name for attracting investment and should build image to give confidence to attract overseas investments.

Speaking at a meeting of Site Association of Industry (SAI) on Tuesday, he said that few years back he used to receive inquiries from French Investors for investment in Pakistan but with the passage of time, it appears that French investors are losing interest, considering Pakistan not investment conducive due to shrinking trend of receiving inquiries of investment in Pakistan from France.

Pierre said that France had made investments in Pakistan. The French agro business giant had a joint venture, which produces the world-class biscuits.

There is now more scope for joint ventures in the fields of telecommunications, chemicals, automobiles, shipbuilding etc. There is room for improvement and volume of the trade could be increased through regular and sustained exchange of information, he added.

The Consul General was of the view that with development of infra structure, the possibilities of investment may increase and French entrepreneurs may be attracted to make investment in different sectors in the near future in a big market of 170 Million people.

He said that his country would extend all possible help and assistance towards Alternate Energy Projects in Pakistan, which is prime need of the hour. Covering the education side, the Consul General said that the French government is continuing to extend all possible help in the field of Science & Technology for benefit of both the countries and so many institutions are operating under the auspices of French Government in Karachi, Faislabad and Lahore and are imparting training in latest technology.

Commercial Counsellor of France, Francis Widmer said we should not expect any relaxation from the European Union in GSP and anti dumping duties as alone France cannot help in this matter because it is the unified policy of European Union which drives the trade within and from EU.

On market access to France directly, he said that it is a difficult task but not impossible because we are part of the EU club and have to be under the policy making of EC.

He advised that Pakistan diplomatic core posted in the EU should persuade at Brussels and as well as all the member countries of EU. Influencing all member countries of EU may pave the way for a policy which will also market access for Pakistani goods in Europe at a comfortable level for competing with the goods received by EU from other countries in the region.

Chairman SAI, Engr. M.A. Jabbar said that Pakistan and France have history of co-operation and cordial relationship in economical arena and defence production and its need. Engr. M. A. Jabbar expressed anxiety of Pakistan 's limited trade with France The trade of less than a billion euro a year, which is less than 2% of total imports and exports of Pakistan, which need to be reviewed. France offers the excellence of consumer products and as well as telecommunication and electrical equipment which has made in France name to sale trust in the market. Possible investment in this sector by French counterparts for a market of 170 million people may be market demand and profit driven.

The meeting expressed its desire from the participant members of association that the CG of France may consider lobbying to help to mitigate the effect of GSP and GSP, available to other countries in the region. Participants of the meeting thought that the desire of increasing business by France could play a vital role in strengthening the share of France in Pakistan in the shape of manufactured merchandise, investments and exporting services required by Pakistan. Those who attended the meeting include Suleman Chawla, Sr. Vice Chairman and others.-PR

 

[Pk_Thunder]

Regulatory duty abolished on imports: FBR concession to investors in chain stores​

RECORDER REPORT
ISLAMABAD (January 28 2009): The Federal Board of Revenue (FBR) has abolished regulatory duty (RD), ranging between 15 to 30 percent, on import of 19 types of capital goods used for establishment of wholesale trade centres or retail chain stores. This is subject to the condition that the companies have to import the goods for their own utilisation and not for sale.

The FBR has amended SRO.896(I)/2008 through a notification issued here on Tuesday. The decision has been taken to facilitate the investors, intending to make investment in chain stores across the country. It would also be instrumental in expansion of the existing network of the retail chain stores operating in the country.

According to the notification, regulatory duty would not be applicable on the capital goods if imported for establishing wholesale or retail chain stores under Serial No 17 of the S.R.O.575 (I)/2006, June 5,2006, upon fulfilment of conditions mentioned therein and subject to the condition that these companies import the same for their own utilisation and not for sale. The following are the names of items and rate of RD, which would not be applicable at the import stage:

-Pad locks: five percent ad valorem; exhaust fans: 15 percent ad valorem; window or wall type: 15 percent ad valorem; self-contained or split type comprising inner and outer unit whether or not imported separately: 15 percent ad valorem; other: 15 percent ad valorem; incorporating a refrigerating unit and a valve for reversal of the cooling/heat cycle (reversible heat pumps): 15 percent ad valorem; incorporating a refrigerating unit: 15 percent ad valorem; not incorporating a refrigerating unit: 15 percent ad valorem; combined refrigerator freezers, fitted with separate external doors: 15 percent ad valorem; compression type: 15 percent ad valorem; other: 15 percent ad valorem; Freezers of the chest type, not exceeding 800 l capacity: 15 percent ad valorem; Other furniture (chests, cabinets, display counters, show cases and the like) for storage and display, incorporating refrigerating or freezing equipment: 15 percent ad valorem; Line telephone sets with cordless handsets: 30 percent ad valorem; Other Apparatus combined with sound recording or reproducing apparatus: 20 percent ad valorem; metal furniture of a kind used in offices: 15 percent ad valorem; other metal furniture: 15 percent ad valorem; 9403.5030 other: 15 percent ad valorem; chandeliers and other: 15 percent ad valorem.