Pakistan Economy - News & Updates - Archive

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By December 2009: Govt to reduce group credit exposure limit from 50% to 45%​

ISLAMABAD: The government plans to introduce phased reduction in the group credit exposure limit from 50 percent to 25 percent gradually to minimise the risk to the banking sector on default of big business groups, official sources told daily Times on Wednesday.

A commitment made with the World Bank for the upcoming fiscal year 2009-10 is to reduce the group credit exposure limit from 50 percent to 45 percent by December 2009 and 40 percent by December 2010, the sources added.

In this regard, prudential regulations would be amended to introduce phased reduction in group credit exposure limit so that systemic risk are minimised as well as putting in place improved banking sector regulations.

According to banking sector expert, at present banks are allowing credit up to 50 percent of equity of entire companies based on purely good working relations. However, in the recent past, default of different companies of a big business group of the country have threatened the banks and their capital have been blocked. At a time when world as well as Pakistan’s economy is undergoing a difficult phase, entire banking sector is exposed to systemic risk.

To reduce this risk, the government has committed with World Bank that group credit exposure limit would be reduced in phased manner not only to save banking sector but also to enable the banking sector to diversify its lending to comparatively smaller and medium groups.

Credit to private sector witnessed a net increase of Rs 55.4 billion during July 01, 2008-April 18, 2009 as compared with Rs 359.7 billion in the comparable period of last year. The stocks still went up by 9.1 percent. SBP undertook aggressive monetary tightening during the period, further increasing the policy rate by 300 bps in two rounds. On a cumulative basis, this means a 550 bps increase during the last 18 months up to March 2009. However, the policy rate was decreased by 100 bps on April 20, 2009. These policy measures were in response to carryover of macroeconomic stresses of the preceding year and increase in real aggregate demand. Monetary tightening has worked in the right direction.

Weighted average lending rate have witnessed slight decline from 15.5 percent in October 2008 to 14.8 percent in February 2009. Weighted average deposit rate on the other hand has increased from 6.2 percent in October 2008 to 7.0 percent in February 2009 which implies narrowing of the spread amidst intensive deposit mobilisation efforts on the part of the banks. The weighted average yields on 6 months T-bill has declined by almost 250 basis points to 11.5 percent in March 2009 as against 14 percent in November and December 2008.

 

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Government to send 50,000 skilled workers to Libya​

ISLAMABAD: The government will export 50,000 skilled workers to Libya by the end of this year under a MoU signed between the two countries during recent visit of President of Pakistan to Libya.

Ambassador of Pakistan in Libya Jamil Ahmed Khan expressed these views while giving a presentation on Libya to the local business community at Islamabad Chamber of Commerce and Industry here on Thursday. Pakistan and Libya have tremendous opportunities of enhancing cooperation in diversified fields and the Embassy of Pakistan in Libya had stepped up its efforts to explore new areas of mutual interest for the two countries.

He said Libya had one of Africa’s highest per capita incomes of $14,500 with surplus budget of more than $25 billion & forex reserves of $134 billion. He said Libya holds the largest proven oil reserves in Africa (43.66 billion barrels as of 2007) while its proven natural gas reserves as of 2007 were estimated at 54.38 trillion cubic feet and all these indicators showed its good economic strength. He said Libya was gradually opening up its economy and liberalizing its trade. Private enterprises were encouraged to do business in Libya and Pakistani entrepreneurs should look for increasing their share in Libyan economy.

He said major industries of Libya were petroleum, farming, food processing, cement and agriculture. Libya imports about 75 percent of its food and Pakistan has vast scope to enhance the exports of its food products to Libya. He said Libyan oil and gas sectors projects were open for foreign companies and called upon Pakistani businessmen to explore opportunities for themselves in Libya in these sectors.

Pakistan could also provide software, hardware and personnel to oil companies in Libya. Highlighting other areas of cooperation, he said Pakistan could increase its exports of textile products, commercial goods, plastic products, score of items used in the housing sector from cement to wood, furniture, IT, oil and gas equipment, auto parts, sports goods, tractors, agriculture implements, transformers, telecommunication towers and many other items.

In the housing and construction sector, he informed that Libya planned an investment of $100 billion during the next five years which means $20 billion a year - which was something Pakistan could take very big advantage. He said in coming days Libya’s importance would further grow as the next President of the UN General Assembly would be from Libya and its President Moammar Qadafi was also the Chairman of 53-nation African Union. Therefore, Libya could became a best source for Pakistan’s access to African countries and their markets.

Speaking on the occasion, Shaban Khalid, Acting President, Islamabad Chamber of Commerce and Industry said the skilled workforce of Pakistan, well recognized in the US and the West, could best be utilized in the health sector, infrastructure development, engineering projects, information technology, education, banking and finance. He said in 1970s, Pakistani doctors, engineers and other professionals rendered valuable contribution to lay the foundation of Libya as a nation emerging from Italian Imperialism and established good credibility.

Therefore, Libya should import from professionals and workers from Pakistan, he demanded. He said Pakistan had well-developed banking sector and it could provide useful support and expertise to Libya in banking sector as well. He said Pakistan could not only support projects within Libya it could also contribute towards Libya’s various African Development programs. He said enhanced exchange of business delegations was the best way to explore areas of cooperation & to take optimum advantage of them. He asked the Pakistan Ambassador in Libya to use his efforts for making visa procedures and processes more easy and quick to facilitate the business communities of both countries.

 

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Import of power from Tajikistan, Kyrgyzstan: US pressing Pakistan and Afghanistan​

ISLAMABAD (May 28 2009): Washington is pressing both Islamabad and Kabul to import 1000 megawatt electricity from Central Asia, despite the fact that Asian Development Bank (ADB) has withdrawn from the project, according to official documents made available exclusively to Business Recorder.

At a recent tripartite meeting in Washington, there was general consensus that energy constraints faced by Pakistan and Afghanistan were limiting the growth potential of the two countries. However, a number of concerns were raised on the viability of the project, particularly by Pakistan's and Afghan officials.

Some key concerns mentioned in the meeting were:

(i) the adequacy of World Bank financing, given ADB's reported withdrawal from the project;

(ii) even though a report confirms the economic viability of the project which includes 500 kV AC interconnection between Kyrgyzstan and Tajikistan and a 500 kV DC interconnection from Tajikistan to Pakistan via Afghanistan such that 1300 MW can be exported from Tajikistan and Kyrgyzstan with 1000 MW imported by Pakistan, yet concerns about surplus energy remain;

(iii) the impact of transit fees and power purchase tariff rates on the economic viability of the project; and (iv) risk coverage arrangements, ensuring continuity of supply on long term, sustainable basis.

The Cabinet has already vetoed the project titled 'Central Asia-South Asia', (CASA) until the project's tariff, economic feasibility and other issues are resolved. The United States has fully supported this project and, during the Bush administration it pressured the regional governments, including Pakistan, to seek energy from Central Asia instead of other sources, particularly Iran.

Responding to the concerns raised by the officials of Pakistan and Afghanistan, Robert Deuttsch, Senior Advisor on Economic Integration, US Department of State, said that it would be necessary to set up an "outage reserve fund", and adequately capitalise it, to ensure cash flows in the eventuality of disruption of supply on account of sabotage.

According to sources, he further clarified that IFC has developed an economic model for the project and suggested a framework for the power purchase agreement. Preliminary details have been shared with power generation companies of the two countries.

After detailed discussion on CASA, it was agreed that:

1) Definition of outage reserve fund will be finalised by the US, in consultation with CASA partners including IFC and MIGA, by the end of July, 2009.

2) US will solicit support of other donors for the reserve fund. Information on the initiative will be shared with Afghanistan and Pakistan by the end of October, 2009.

3) Process of contributions to the fund will be held by MIGA and are likely to be concluded by the US by December 2009.

4) Afghanistan and Pakistan will convene an inter-governmental council meeting with Tajikistan and Kyrgystan by June 15, 2009 to agree on revised project timing. IFC joint project development agreement will also be signed by this date.

5) Afghanistan and Pakistan will conclude agreement with other CASA partners on term sheets for commercial contracts, power purchase and opening concession/investments by end of July, 2009.

6) World Bank will issue Request for Proposal (RoP) for the project based on country agreed documents by end of October, 2009. The Ministry of Water and Power had submitted a summary to the Cabinet for ex post facto approval to the MoU and agreement for import of electricity from the CASA market, which was not cleared by the Cabinet in its meeting on April 8, 2009, sources added.

"The Cabinet observed that the decision to import electricity could be taken only after its tariff/import price was estimated, and its economic feasibility conclusively established, in comparison with the existing sources including rental plants," sources said.

Official documents, obtained by this correspondent, show that Pakistan's team, IFI consulting teams, and the representatives of the US government had met over July 3l-August 2, 2008 to discuss the CASA 1000 MW project, and reached the following consensus, which is to be considered as a recommendation to the IGC for endorsement.

INSTITUTIONAL STRUCTURE: The concession would now also include the Kyrgyz-Tajik link (aka AC facilities). The concession company would develop, construct and operate Tajik-Afghan-Pakistan transmission system (aka the DC facilities) as well as construct Kyrgyz-Tajik link. A decision on whether to also include the operations and maintenance of the AC facilities in the concession is under consideration.

TRADING ARRANGEMENTS: In the first IGC meeting over VC, it was considered in principle that Barki Tojik (Tajikistan) could be the consolidator in the initial phase which would require Kyrgyz Genco to sell power to Barki Tojik (at the Tajik-Kyrgyz border) on the Kyrgyz-Tajik link (which is part of the CASA 1000 mw project) and Barki Tojik will then sign a single PPA each with DABM/DABS and CPPA. But this was subject to further discussion.

The documents further said that decision was reached to consider concluding a joint commitment of energy from Kyrgyz Republic and Tajikistan. While they may conclude separate direct PPM with the purchasers, they will make arrangements for close co-operation on energy delivery and storage to meet their joint commitment.

LEGAL FRAMEWORK: There will be a single concession agreement. The legal advisors will examine the need for host country agreements, one with each country, to capture the country-specific rights and obligations (eg tax, labour laws) and concessionaire's rights and obligations to that country (environmental, social).

ENERGY FLOWS: Until additional exportable capacities are developed, Kyrgyz Republic and Tajikistan should together firmly commit 5 TWh flow on average per year through the line during the operating period of the concession agreement (which will be 25-30 years) to be delivered during the summer months. Roughly speaking, Tajikistan should commit to 3 TWh and Kyrgyz Republic to 2 TWh.

Exporting countries will invest to cover the load growth and, in doing so, they can maintain the summer surplus. Once the line is constructed, the options for additional generation include upgrading existing facilities and constructing new generation projects.

This could include thermal projects which would allow for non-summer power to be exported. The long-term objective of all the parties is to stimulate additional low cost generation to expand the CASA regional electricity market and all parties agree to ensure the conditions for early implementation of new generation capacity.

INVESTMENT AND FINANCING: The inter-government negotiators had recognised that there had been increases in costs, in part because of demand for electricity equipment and in part because of commodity price increases (eg for steel and aluminium). The final project cost will be determined through the bidding process.

For purposes of determining the threshold to be used during the tendering process, the EPC cost to be used will be $774 million (DC: $574 million, AC: $200 million) as estimated by SNC (June 2008 prices).

In addition, other costs are included in the total project cost in the model such as supervision by owner's engineer, interest during construction, environment and social mitigation costs, and other financing costs.

ADB has noted that this EPC price does not include contingencies. Both components are to be financed 100 percent under CASA-1000 mw project. Additional financiers will be needed to be brought in to fill any financing gaps.

PROJECT TENDERING TRANSMISSION TARIFFS: Average transmission tariff estimates for the TSA will be the ones calculated by IFC/Infra Ventures incorporating the assumptions referred to in the investment and financing section.

These tariff estimates will be adjusted once the final EPC is determined during the tendering process. IFC/Infra Ventures will recommend options for transmission service pricing between sellers and buyers as a basis for TSA negotiations.

WORKING ARRANGEMENTS: The countries agree to authorise their advisors to meet for the purposes of advancing the agreement on commercial terms of the project without the presence of IGC members and the need for formal meetings. However, each country's advisors will be responsible for seeking necessary approval of all proposed contractual terms.

 

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PTCL buyer withholds $799.3 million till transfer of properties​

ISLAMABAD (May 28 2009): Etisalat, the buyer of Pakistan Telecommunication Company (PTCL), has withheld $799.3 million until the Government of Pakistan (GoP) transfers properties in Sindh and Punjab in favour of PTCL, sources in Privatisation Commission told Business Recorder.

PTCL was privatised through sale of 26 percent shares for $2,598,960,000.00, to be paid in nine equal instalments, payable on biannual basis. As per Share Purchase Agreement (SPA), GoP is required to provide clean titles of 100 percent of PTCL properties (3384 in number) by January 12, 2008. Payment of balance sum of $1.198 billion was contingent upon transferring titles to the properties in question.

Three further installments of $133,000,000 ($133 million) were paid by the buyer upon transfer of the corresponding number of properties. In the event of non fulfilment of this obligation, GoP is obliged to nominate a list of non-transferred properties to the buyer whereafter GoP and buyer will separately appoint property valuators to determine the value of such properties. The valuations have been procured.

Following such valuations, the buyer has the option to surrender its right to the use of non-transferred properties and deduct the estimated value from balance payments or withhold such payments till the titles to the properties are transferred.

In order to ensure timely completion of transfer of title and possession of the properties in question, GoP constituted a steering committee headed by Secretary, Ministry of Information Technology, (who is also Chairman of the PTCL Board of Directors).

However, to date, a balance of 161 non-transferred properties (including 71 in Punjab and 45 in Sindh) remain outstanding and consequently the instalments ($133.218 million each), due on March 12, 2008 and September 12, 2008 have been withheld by the buyer. Etisalat has now paid a total of $1.799 billion and the balance of $799.3 million remains, which Etisalat intends to adjust against the value of non-transferred properties, sources said.

The Privatisation Commission (PC), on its part, has followed up the case of transfer of properties with earnestness and various meetings have been held with the Provincial Chief Secretaries/Senior Members, Boards of Revenue for resolving the issue. The Minister for Privatisation and Advisor to Prime Minister on Finance have also written letters to the Chief Ministers of Punjab and Sindh to help facilitate the transfers but no progress has been made.

The Punjab government has conveyed that it proposes to charge the current market price plus 10 percent surcharge for transferring the properties to the federal government or the PTCL. Sindh government has, however, agreed to charge fees at amenity rate (50 percent of the commercial rate). In this regard, Sindh government has asked for Rs 11.4 billion, whereas Punjab is demanding higher figure.

Sources said that meetings were also held between Secretary Privatisation Commission, Chief Secretary Sindh and Senior Member Board of Revenue Sindh to discuss and finalise valuation of these properties. "We are very close to arriving at a figure for payment to Government of Sindh for transfer of the properties in that province," sources added.

They said that Chairman and CEO Etisalat was kept updated by Secretary PC through personal meetings, telephonic discussion, and letters and was assured of GoP's full support at all levels.

However, vide his letter dated 10-3-2009, the Chairman and CEO Etisalat, in a letter on March 10, informed the PC that EIP has decided to exercise its rights under clause 2.8(a) of the SPA which allows the buyer to instruct PTCL to surrender the right to eleven high value properties, together with a surrender of EIP's corresponding payment obligations in respect of such surrendered properties. The aggregated value of these properties was far in excess of Pakistan's own assessment carried out by our external valuator, sources said.

A Privatisation Commission team headed by the Secretary visited Abu Dhabi on May 4, 2009 at the invitation of CEO, Etisalat, to discuss the process of transfer of properties. In the meeting it was discussed that subject to the approval of the GoP, PC/ GoP would expedite the process of transfer of properties and Etisalat agreed to a period of three months for this purpose.

However, payment of balance sale considerations and release of shares would automatically happen at the end of this period. Payment would be released in full by Etisalat of outstanding amounts subject to deduction for those properties not transferred at the end of the three-month period.

Privatisation Commission also held a meeting with Chief Secretary Punjab on May 22, 2009 to discuss the transfer of outstanding properties on the pattern of the arrangement agreed with the Sindh Government. It was agreed in this meeting that clean titles and possession of properties be transferred to PTCL in the shortest possible time.

The properties would be valued at market price by the District Price Committees under the supervision of senior member Board of Revenue Punjab. The Punjab Government would transfer titles @ 50 percent of the market price for all the 71 properties located in that province within a period of one month, provided the payments of valuated price was made to them.

 

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Rs 500 billion to be earmarked for PSDP​

KARACHI (May 28 2009): The country has come out of the financial crisis and, with sufficient fiscal space, Public Sector Development Program (PSDP) for the next fiscal year will be of about Rs 500 billion. This was stated by Federal Minister for Information, Qamar Zaman Kaira, while briefing newsmen about the decisions at a meeting of senior bureaucrats of Sindh, presided over by President Zardari at Chief Minister House here on Wednesday.

Sindh Governor Dr Ishratul Ibad Khan, Chief Minister Qaim Ali Shah, and Federal Minister Information Qamar Zaman Kaira were also present in the meeting besides high officials of Sindh government. Kaira said that PSDP for the current fiscal year was fixed much higher but only Rs 220 billion has been utilised. He said that the President told the meeting that work on NFC Awards would begin soon after the presentation of federal budget. There will be no resource shortage, but need is to improve the mechanism and execution of funds on projects in an optimal way.

"President Asif Ali Zardari has also made it clear that local governments system will continue in the country. However, it would be improved through reform process and consultation with all the four provinces," Kaira said.

The President formed a committee headed by Advisor to PM on Finance, Shaukat Tarin, to sort out all issues relating to Thar coal projects and speedy work. "Thar coal is a property of Sindh and all hurdles in the development of coal reserves would be removed," Zardari said. Kaira said that President urged the bureaucracy to ensure good governance and work together to build a better Pakistan for the next generation.

The President, while paying tributes to ZA Bhutto and Benazir Bhutto, said that he was following in their footsteps and policies to make Pakistan stronger, he added. He said that the President has also urged for better facilities for the farmers and said that quality seeds, on time water availability, and latest technology for better production should be provided to them.

"We want to improve the life style of farmers by giving them fair return on their production, as we believe if we will facilitate farmers they will provide us food security," he added. The President said that bureaucracy should emulate and learn lessons from success stories of the world and implement them in Pakistan. "We have to work together for a victory because there is no option for defeat. We have to win this war and deliver service to the public and we have to achieve prosperity, political and economic stability", the President added.

Kaira said that power crisis has not been created by the present government. However, the government is working on the issue by establishing new power plants. All new mega power generation plants are being setting up at Karachi, he added. The President said that bureaucracy should remove hurdles in the way of Sindh development and world on public-private partnership for a speedy work.

 

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IMF may allow use of additional loan facility for budgetary support ​

Friday, May 29, 2009

ISLAMABAD: The International Monetary Fund Board (IMF) will consider the option to allow the Government of Pakistan to use some part of its additional facility for budgetary support or fiscal development, Paul Ross, Resident Chief of the Fund told this while briefing media people on Regional Economic Outlook in the Middle East and Central Asia.

“So far nothing has been decided to this effect as the Fund Board is going to consider this option. The next tranche for Pakistan under the $7.6 billion bailout package will be released in the month of July,” he disclosed.

To a question, Ross said: “We have provided the relaxation to the government in fiscal deficit target from 3.4 per cent to 4.6 per cent to craft fiscal space that is to be utilised on social sector development and welfare of internally displaced persons (IDPs) in the wake of ongoing military operation against militants.”

The government is also providing the relief to IDPs from the Benazir Income Support Programme (BISP).

While discussing the regional economic outlook Ross said that the exports and private capital inflows is on the decline. He mentioned that last year private capital inflows stood at $5.5 billion, which has now been projected at $3.5 billion keeping in view the ground realities of economic slow down at world level.

The contraction of global economy and its impact on Pakistan economy has reduced exports, private capital inflows and workers’ remittances, Ross said.

“Pakistan is to continue to face in next fiscal more risks of reduction in exports, private capital inflows and workers’ remittances and to this effect the government needs to come up with strategy effective macro economic stability and ensure the protection for vulnerable segment of society.

“Tokyo pledges seem feasible and will be materialised, which will help fuel the economic activities in the country.” Coming to the revenue issue of the country, Ross recommended the medium terms strategy to tackle this issue.

Mentioning about the monetary policy he said that discount rate reduction is linked with fluctuation in core inflation about which the Fund had estimated it will plummet, but did not come down as per the estimates. However, the inflation in Pakistan has started coming down.

The IMF had earlier estimated the inflation at 7 percent with 3.5 percent GDP growth for next fiscal year, which would now be revised keeping in view the new ground realities.

When his attention was drawn towards the debt sustainability issue as the external debt has surged manifold, Ross said there exists no stress on Pakistan over particular issue.

Dilating upon the global economic outlook, he said that across the globe, GDP is falling and the world economy is estimated to contract by one percent in 2009, which is why the unemployment is rising.

However, Paul Ross predicted that the world economy will start recovering in 2010 subject to the concerted policy actions to stabilize financial conditions, strong macroeconomic policy support to bolster demand and gradual improvement in credit conditions.

 

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prolonged recession: Severe effect on Pakistan’s GDP growth likely: IMF​

ISLAMABAD: International Monetary Fund (IMF) indicated a prolonged economic recession in oil importing partner countries including Pakistan could have major impact on their growth and unemployment. IMF also cautioned poverty could also rise substantially.

"Growth is slowing down while financial sectors are now showing some sign of vulnerability," Paul Ross, IMF resident representative of Pakistan said.

Prolonged recession in trading partner countries and reduced availability of external financing could lead to worse outcomes on growth and unemployment, he added.

After a session on Regional Economic Outlook on Middle East, North Africa and with special focus on Pakistan, he said, "This will also leave weaker corporate sector and banks balance sheets."

He said, "Impact of contraction of world economy on Pakistan has resulted into reduced economic growth, reduced exports and lower private capital inflows."

Paul identified decline in exports, private capital inflows and remittances as risk for Pakistan's economy and suggested consolidating macroeconomic stability and protecting vulnerable groups should be policy priority.

On huge size of the government and non-observation of cut in current expenditures, Paul said, "The government has already started reducing its current expenditures by eliminating its subsidies that were not poor centered and even rich were also benefiting from subsidies." The best use of this money is to spend it on health and education and other social sectors, he added.

He said pledge of donor's support at Tokyo meeting would prove as bridge and consolidating revenue generation efforts for Pakistan. However, he indicated delay in disbursement of donor's support would be a risk.

He said IMF's executive board has not yet received any request from Pakistan for additional loan, however he said third tranche of Stand-By-Arrangement would be released to Pakistan in July 2009.

He admitted inflation in Pakistan was not coming down as per expectation and suggested use of monetary policy as well as fiscal policy was required to bring inflation down. Heavy debt burden is considered as potential risk, Pakistan has the capacity to repay the debt without any stress, he added.

On suitability of proposed tax collection target of Rs 1.405 trillion, Paul said, "I don't see it unreasonable".

It was informed during the presentation the current monetary policy stance is consistent with domestic and external stability. In the area of consolidating macroeconomic stability, donor's support will provide scope for counter cyclical policy to support economic growth. As a result the budget deficit target agreed has been increased from 3.4 percent of the GDP to 4.6 percent of GDP for 2009-10.

For protecting vulnerable groups, the social safety net will be strengthened by improved targeting of poor under the Benazir Income Support Programme.

The roll out of reformed BISP has started and Internally Displaced Persons (IDPs) due to Swat operation have also been included in this scheme.

The relaxation in increase in fiscal deficit target for 2009-10 would provide space to the government for additional social spending, settlement of IDPs and security expenditures.

Total government debt that was 57.4 percent of GDP in 2007-08 is projected to decline to 56.9 percent in 2008-09. Current account balance that was $9.6 billion in 2008 is projected to decline to $8.3 billion due to decline in imports and it will come down from 5.9 percent of the GDP to 4.9 percent of the GDP in 2009.

Total gross external debt to increase from 26.5 percent of the GDP in 2007-08 to 31.9 percent in 2008-09.

Due to contraction in the economies of US, EU and Gulf Cooperation Council member countries, labour demand from Pakistan is to decline, as well as reduce private capital inflows, he concluded.

 

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Forex reserves increase to $11.193bn​

KARACHI: The country’s foreign exchange reserves increased to $11.193 billion on the week ending on May 23, 2009 as compared with $11.14 billion last week, figures released by the State Bank of Pakistan showed on Thursday.

The total reserves witnessed an increase of $53 million during the last week.

The reserves held by the central bank witnessed an increase of $57 million as the reserves reached to $7.883 billion, as compared with the last week’s figures of $7.826 billion. However, the reserves held by the banks (other than SBP) showed a decline of $3 million to reach $3.310 billion, as compared with $3.313 billion last week.

 

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Increase manufacturing sector’s share by 30% of GDP: experts​

ISLAMABAD: Economic experts have suggested the government to increase the share of the manufacturing sector by more than 30 percent of the gross domestic product (GDP) and tax compliance rate should be increased rather than broadening the tax base.

This was revealed during the Pakistan Institute of Development Economics’ (PIDE) seminar on ‘Pre-Budget Consideration for Revenue, Expenditure and Deficit Management’. Speaking on the occasion VC PIDE and Chief Economist Dr Rashid Amjad stressed the need to stabilise the economy through increase in development expenditure and completion of ongoing projects rather than starting new projects. He also appraised the Benazir Income Support Programme, which has the capacity to meet the need of the time. He also suggested improvement in taxation by increasing visible services like better health, safe drinking water and infrastructure, etc. Earlier, Dean NUST Business School Dr Ashfaque Hasan Khan talked about expenditure, fiscal deficit and major issues in fiscal management. He pointed out that in contrast to the general perception the defence budget is now 12 percent of GDP where as the interest payments have increased up to 25 percent of the GDP. He suggested that the size of PSDP should be consistent with macro-economic structure. He said that funds should also be allocated for maintenance for physical infrastructure and third party validation should be made for public projects. Finally he recommended that tax compliance rate should be increased rather than broadening the tax base.

Professor at NUST Dr Ather Maqsood said that the GDP and FBR taxes are increasing and decreasing with a similar trend showing the absence of efforts to collect more taxes. He also said that tax compliance rate is poor such as Rawalpindi pays more taxes as compared to Gujranwala, which is the hub of industries. He recommended we should stabilise exchange rate otherwise the borrowing cost will increase. He also recommended that we should limit our expenditure and further suggested structural transformation wherein the share of manufacturing sector should increase by more than 30 percent of the GDP. IBD Chamber of Commerce Mohsin Khalid suggested that corporate taxes should be reduced from 35 percent to 25 percent. Dr Hussain from the government of NWFP emphasised the role of incentives for taxpayers by reducing tax rate and simplifying the payment procedures.

 

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Pakistan and Gazprom sign MoU ​

ISLAMABAD (May 29 2009): Pakistan and Gazprom, the largest extractor of natural gas in the world and largest Russian company, have signed a Memorandum of Understanding (MoU) for laying the 950 km gas pipeline under the Iran-Pakistan-India (IPI) project. Pakistan and Iran have recently finalised the draft of Gas Sales Purchase Agreement (GSPA) and are close to signing the deal.

Work on the IPI gas pipeline project is scheduled to commence in September 2009 and completed in four years. "Gazprom and Pakistan have already signed the MoU to carry out the project," sources in Petroleum Ministry revealed to the Business Recorder.

A pre-feasibility study of the IPI project was undertaken in 2006; to further develop the project, a bankable feasibility study as well as Front End Engineering Design (FEED) will be undertaken that would enable the project managers to approach prospective investors and financiers. Sources said that a Pakistani company would undertake feasibility study and design.

The country is facing a massive power shortage, which has led to widespread load shedding across the country. As many as 48 percent of thermal power generation is based on furnace oil of which 62 percent was imported costing over $2 billion in financial year 2007-08. Official sources said that gas imported from Iran would be utilised mainly for power generation that would be 25 percent cheaper as compared to the power generated through furnace oil. Pakistan has made a commitment to Iran to import minimum 750 million cubic feet gas per day and maximum one billion cubic feet gas per day.

 

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PM announces Rs 50 bln for Balochistan ​

Saturday, May 30, 2009

ISLAMABAD: Prime Minister Syed Yousuf Raza Gilani Saturday announced Rs 50 billion for Balochistan, besides 3 billion each for provincial budget and Quetta’ saying the government was cognizant of the problems and would do all to end sense of deprivation. Chairing a meeting here at the PM House, the prime minister said the government was doing all within its limited resources to provide best possible facilities to the people of Balochistan, including health, education, communication and infrastructure development to bring it at par with the rest of the country.

The prime minister said this year the government would provide Rs 8 billion more as compared to the last year for development of the province.

The meeting was attended by the Governor Zulfiqar Magsi, Chief Minister Balochistan Nawab Aslam Raisani, Deputy Chairman Senate Jan Mohammad Jamali and members of provincial assembly.

The Prime Minister apprised the delegation that he in his capacity as the vice-chairman of Pakistan People’s Party (PPP) has formed a committee on Balochistan, comprising Commerce Minister Makhdoom Amin Fahim, Minister for Parliamentary Affairs Dr Babar Awan, Minister for Labour and Manpower Syed Khursheed Shah, Mian Raza Rabbani and PPP Balochistan President Haji Lashkari Raisani.

He said Mian Raza Rabbani has been asked to finalize the draft recommendations for Balochistan that will be presented before the All Parties Conference.

The prime minister informed the delegation that the government has summoned the meeting of the PPP Balochistan Provincial Executive Committee on June 5 to take the provincial party on board.

He said like the previous year, the government will try to provide Rs 5 million each for constituency of the national assembly.

The prime minister also took into confidence the Baloch leadership about the ongoing operation in Swat and Malakand divisions and said the action had to be taken as a last resort, as the other party did not honour its part of the commitment.

 

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Pakistan, Indonesia to finalise trade accord soon ​

Saturday, May 30, 2009

RAWALPINDI: Ambassador of Indonesia Ishak Latu Consina said the business community can play a vital role in further strengthening ties between Pakistan and Indonesia, which are already strong because of both culture and religion, and frequent visits of trade delegations will promote bilateral trade.

He was talking to Rawalpindi Chamber of Commerce and Industry President Syed Asad Mashadi during his visit to the RCCI. “The intention of my visit to RCCI is to enhance cooperation between Pakistani and Indonesian entrepreneurs so that any advancement should be made towards joint ventures. The governments of both countries are also working to ink a trade agreement, which would soon be finalised,” the diplomat added.

He informed the meeting that at present the trade volume between two sides is almost $1.12 billion that has increased by 33.9 per cent in last one year but this trade is in favour of Indonesia but both the sides want to create a balance in trade so that Pakistan and Indonesia could get benefit equally.

He said the Indonesian embassy has softened the process of getting business visa on the recommendations of chambers of commerce so that the contact between business communities might be developed. He also invited a delegation of RCCI to participate in the largest Indonesian trade fair ‘Expo-09’which will be held in October in Indonesia.

Mashadi assured the ambassador that a delegation from the Rawalpindi chamber will take part in the exhibition.

He said there is a lot of scope to boost the trade between Pakistan and Indonesia and now it is up to the private sector that how it may take advantage of this opportunity.

The business community is eagerly waiting for trade deal among two countries.

Mashadi said that there is a great demand of Indonesian palm oil in Pakistani market whereas Pakistan can export fruits, cotton made garments and leather goods to Indonesia. He said the RCCI would encourage joint ventures, extend full cooperation to Indonesian industrialists in holding single country exhibitions in Pakistan as well.

 

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IPDF running 13 projects worth Rs230bn ​

Saturday, May 30, 2009

KARACHI: The government wants to provide sovereign backing and improve credit worthiness of local governments in order to attract foreign investors to form partnerships with them, said Ghulam Murtaza Satti, Head of Infrastructure Project Development Facility (IPDF).

According to a press statement, he said the IPDF was running 13 projects worth Rs230 billion. Of these, he noted, the projects nearing completion included the Karachi Circular Railway costing Rs80 billion, CNG buses being imported at a cost of Rs0.4 billion, Rs12 billion cool chain system along the National Trade Corridor and Rs12 billion IT park under the Pakistan Software Export Board.

Satti said that high-level meetings had taken place recently between the IPDF, World Bank, its UK-based consultants, the Cambridge Economic Policy Associates (CEPA) and important officials of the Ministry of Finance. They discussed setting up two funds, Viability Gap Fund (VGF) and Project Development Fund (PDF).

The purpose of these funds is to supplement the Public Private Partnership initiative in the infrastructure sector.

 

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Bidders may offer $150m to $200m for RBS​

KARACHI: Bidders are likely to offer between $150 million (Rs 12 billion) and $200 million (Rs 16 billion) for the acquisition of businesses of Royal Bank of Scotland (RBS), banking sources and market players told Daily Times here on Friday.

Sources further said that MCB Bank and Habib Bank are likely to withdraw from the race for acquiring the foreign bank. Spokesman for MCB Bank said his bank was very much in the race for the acquisition and that there had been no intention of withdrawing. Calls made at the Habib Bank were not answered.

“Bids were to be presented to the seller on June 5,” a banking source said. Due diligence by the prospective buyers was to continue till May 29, but more time was obtained by the bidders for due diligence.

Orascom group, who is running leading companies in Pakistan including Mobilink, has also entered into the race.

However, the spokesman for State Bank of Pakistan, Syed Wasimuddin, said the central bank had given on Friday the approval to Orascom to conduct due diligence of RBS.

After the approval granted to Orascom for due diligence it is likely that the date for bidding would be extended further because it might not be possible for Orascom to complete due diligence in only six to seven days. It is pertinent to mention here that the other three bidders spent about one month in due diligence.

“Jahangir Siddiqui group and Orascom are the major contenders for RBS,” a market source said. “These groups may offer between $150 million and $200 million,” he added.

RBS is being eyed by bidders as “a medium-sized bank with a decent branch network, an excellent depositors’ base, and a highly skilled workforce”.

RBS Pakistan had announced in February that it was exploring new ownership for the retail, commercial, GBM and GTS businesses in Pakistan. It said there had been several reasons why this decision had been made.

The annual report of RBS Pakistan for 2008 said it had been decided by the new management of RBS plc to revisit its global footprints in various countries to decide about the future world wide strategic presence to ensure optimum capital rationing. Based on the results of a strategic review conducted for all the locations, RBS Plc had announced its intention to explore new ownership for its businesses in fifteen countries including Pakistan.

MCB Bank and HBL had expressed their interest in RBS on April 13 while JS Bank joined the race on April 14.

 

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July-March debt servicing mounts to $3.6 billion: 16 percent rise over last year​

KARACHI (May 30 2009): The country's external debt servicing has crossed 3.6 billion dollars mark in first nine months of the current fiscal year mainly due to payments for Euro bond and short term loans. The State Bank of Pakistan (SBP0 on Friday said that the country's payments under external debt servicing stood at $3.654 billion including principal amount of $2.836 billion and $818 million interest payment in July-March period of fiscal year 2009.

This debt servicing was 16 percent higher than overall debt servicing of last fiscal year, which was $3.161 billion including $1.931 billion principal amount and $1.23 billion interest payment.

The country rescheduled billions of dollars foreign loans due to insufficient foreign exchange reserves, and over $1.6 billion foreign debts have been rescheduled in July-March of current fiscal year to reduce payment of foreign debt and maintain foreign exchange reserves at a suitable level. Rescheduled loans in last fiscal year 2008 stood at $1.2 billion.

Economists said that major reason behind current surge in debt servicing was payment of Euro Bond worth 500 million dollars and short-term loans of Islamic Development Bank (IDB).

They said that rising payments of debt servicing was an alarming situation, as the country's foreign reserves are already on downward track due to the high foreign payments and at this stage country needs to further develop foreign reserves. "The country's foreign reserves declined to some 6 billion dollars in November 2008 from a peak level of 16 billion dollars in November 2007 due to the slow foreign inflows and rising outflows," they added

Economists said that huge payments under the debt servicing and depleting reserves have also put a negative impact on exchange rate, which was at Rs 60-61 to the dollar in fiscal year 2008 relative to Rs 80 to the dollar in fiscal 2009. The major payments under the debt servicing have been made on account of public and publicly granted loans, under which some 2.843 billion dollars (including 2.221 billion dollars principal amount and 622 million dollars) have been paid under debt servicing.

Similarly, debt servicing under private non-guaranteed loans stood at 459 million dollars in July-March of fiscal year 2009. Payments to IMF and Paris Club stood at 160 million dollars and 295 million dollars respectively in first nine months of current fiscal year. The country also availed the opportunity of rescheduling in the wake of high debt servicing payment and rescheduled some 1.650 billion dollars worth of loans in July-March to defer payments for a specific time period.

Rescheduling of loans is some 450 million dollars higher than the overall rescheduling of loans in last fiscal year, in which international financial institutions rescheduled some 1.2 billion dollars. It may be mentioned here that during the fiscal year 2008 payments under debt servicing had gone up by 6.18 percent to 3.161 billion dollars as compared to 2.977 billion dollars in fiscal year 2007.