Pakistan Economy - News & Updates - Archive

[Owais]

CSIBL fails to pay Rs 68.547 million of TFCs to fund holders

KARACHI (July 11 2006): Crescent Standard Investment Bank Limited (CSIBL) Term Finance Certificates (TFCs), amounting to Rs 68,547,000, which matured on July 4, have not yet been paid to the fund holders, it is learnt.

Anjum Saleem, CEO of CSIBL, when asked why the Fund holders have not been paid the amount on maturity date, said that they were not able to pay the amount because of liquidity crunch the bank was facing. He, however, assured that the amount would be paid in a few days' time. (The prospectus regarding the TFCs stipulates a 'Grace Period' of seven days for payment).

It is unheard of that TFCs are not paid in time by any financial institution. It is further learnt that Alman Aslam, consultant to the CSIBL, is preparing a merger plan of CBIBL with Crescent Leasing and Javaid Vohra & Company, all of the Crescent Group. The proposal in this regard will shortly be submitted to the Securities and Exchange Commission of Pakistan (SECP).

The SECP has not yet finalised the enquiry report on CSIBL which it is conducting since September 2005 on the basis of the report prepared by A Ferguson & Company, and SECP's own diligence officers.

According to sources, SECP has passed an order against Crescent Standard Business Management (Pvt) Limited (CSBM) and its directors, namely Mehmood Ahmed and Siyyid Tahir Nawazish, under Securities and Exchange Ordinance 1969 directing it to compensate a sum of Rs 182.435 million, which is equivalent to the cumulative sum of price per share of CSIBL and Javaid Vohra & Company.

The SECP authorities have directed CSBM to pay Rs 182.435 million to Javaid Vohra & Company, within 30 days of the order passed by Arif Mian, Executive Director, and Securities Market Division (SMD) of SECP. The order was passed on June 22.

The order, spread over 11 pages, said that the matter arose out of two Show-Cause Notices (SCNs) of April 5, 2006 issued by the SECP to members of the Board of Directors of CSBM, namely Mahmood Ahmed and Siyyid Tahir Nawazish. Mahmood Ahmed is also Chief Executive of CSBM.

Brief facts of the case are that on February 1, 2006, CSBM sold 20 million shares of CSIBL through First National Securities to Javed Omar Vohra & Co Ltd, (JOV) @ Rs 12.00 per share, and another 4.5 million shares to JOV on February 3, 2006, through Dossalani Securities @ Rs 11.98 per share. Both CSIBL and JOV are listed public companies. Moreover, CSIBL and CSBM are associated companies as Mahmood Ahmed is a director of both CSBM and CSIBL. He also held the position of chief executive in both these companies at the time of aforementioned transactions.

On October 3, 2005, the Commission commenced inspection of the books and accounts of CSIBL and, in November 2005, communicated to the Board of Directors of CSIBL of critical information regarding mismanagement of books and accounts and unauthorised transactions undertaken by CSIBL, and the poor financial condition of CSIBL, asking it to explain and clarify the same.

In the light of the foregoing SCNs issued to the Board of Directors of CSBM comprising of only two directors, namely, Mahmood Ahmed and Siyyid Tahir Nawazish, the allegations against CSBM were summed up in the following manner:

(a) CSBM sold securities of CSIBL while being associated with CSIBL through common director and in possession of material non-public information related to CSIBL.

(b) CSBM sold to JOV 24.5 million shares ar Rs 12.00 and Rs 11.98 per share on February 1 and 3, 2006, respectively, and the share price of CSIBL declined to Rs 8.00 per share on March 13, 2006; and CSBM, by acting on material non-public information, illegally caused JOV to deal in securities of CSIBL in violation of section 15A of the Ordinance, thus avoided a loss and inflicted loss on JOV and its share holders.

Except one director of JOV, namely Mustaq Chappra, who was abroad, the following appeared personally before the Executive Director, Securities Market Division, SECP:

Javed Omer Vohra, Chairman/Director, JOV, Nasir Ayub, Director, JOV, Faud Nazir Kehar, CEO/Director, JOV, Nadeem Javed, Director, JOV, and S.M.Yusaf, Director, JOV.

After detailed hearing and having perused the reply and written submissions made by the CSBM directors to the SCN, the Executive Director, SMD is of the considered view that both members of the Board of Directors of CSBM, who were issued separate SCNs, ie Mahmood Ahmed and Siyyid Tahir Nawazish, "have contravened the provisions of section 15A of the Ordinance.

 

[Owais]

Tea import through legal channels declining

KARACHI (July 11 2006): The import of black tea through legal channels has been declining by around 10 percent every year as against import of this commodity under Afghan Transit Trade (ATT) is increasing rapidly.

Pakistan imported over 114.082 million kg black tea worth $193.282 million in the fiscal year 2005-06, while the import of this commodity was 130.071 million kg worth $206.922 million in the fiscal year 2004-05 through legal channels.

On the other hand tea import under Afghan Transit Trade Agreement (ATTA) has increased by 10 million kg in the first nine months of the fiscal year 2005-06. As many as 27.66 million kg black tea was imported under ATTA during the same period against 17.64 million kg black tea imported in the corresponding period in 2004-05 from Kenya.

Muhammad Altaf, Chairman, Pakistan Tea Association (PTA) in an exclusive interview with Business Recorder here said that the legal tea importers have to pay more than 33 percent as transportation expenses while these expenses for import of tea under ATTA is only 10 percent.

He said that Kenya was a major tea exporting country to Pakistan, as its share in total tea import was over 60 percent. He pointed out that at present there is a draught like situation in Kenya and other African countries and availability of tea in these countries has declined which has pushed the prices upwards by 50 percent to 80 percent as compared to the last year. The tea production deficit has reached 50 million kg in Kenya and after some correction it was still facing a shortage of 37 million-kg against its tea production of last year, he added.

This situation will encourage smugglers to import tea through illegal channels, which would destroy the legal tea trade in the country. Following the situation, Pakistani tea importers are going to import this commodity from countries like India, Indonesia, Sri Lanka, Bangladesh as well as other countries.

Pakistan as one of the five biggest tea-importing countries in the world including the Russian Federation, United Kingdom and Egypt has its importance regarding tea trade.

Pakistan has a market of over 170 million kg for black tea every year and imports this commodity from 19 different countries including Kenya, Indonesia, India, Bangladesh and Sri Lanka. Mohammad Altaf said that still it is time to correct the situation by taking fiscal measures, otherwise legal imports might drop at a rapid pace in the future.

He said that the Pakistan tea industry is taking urgent and pre-emptive action to secure tea supplies from Kenya, but unfortunately the situation is beyond its control. "We now fear not only a rapid escalation in tea prices if the duty remains the same, but it could also create a shortage like situation", he added.

 

[Owais]

Saarc finance ministers meeting today

ISLAMABAD (July 11 2006): The First Saarc Finance Ministers meeting will be held here on Tuesday to formulate recommendations for establishing 'Saarc Poverty Alleviation Fund' (SPAF) under the 'Social Window' as an integral part of Saarc Development Fund (SDF).

The Fund will be managed and operated by the Governing Board of SDF, with an initial corpus of $300 million, to be raised from contributions from member states. The focus of lending under the Fund would be on poverty alleviating projects.

Prime Minister Shaukat Aziz is expected to inaugurate the meeting of Finance Ministers while Advisor to Prime Minister on Finance and Economic Affairs Dr Salman Shah will chair the working session of the meeting.

Delegates from the Saarc Secretariat and Saarc member countries, including India, Bangladesh, Sri Lanka, Nepal, Bhutan, Maldives and Pakistan will participate in the conference. It is hoped that the conference would add another potential dimension to the rapidly progressing regional co-operation among the Saarc member states.

The meeting follows up from the deliberations and decisions of the 13th Saarc Summit held in Dhaka in November 2005. Under the Dhaka Declaration the Heads of State/Government decided to establish a Saarc Poverty Alleviation Fund (SPAF) with voluntary and assessed contributions.

The Fund, with its own permanent Secretariat, would comprise three distinct 'Windows' namely, Social Window, Infrastructure Window and Economic Window. The three windows would offer concessional and non-concessional funds as well as grants to Saarc countries.

In this regard, they welcomed the offer of Pakistan to host the meeting of Finance Ministers. They agreed that South Asia Poverty Fund would function within the South Asia Development Fund, which would be reconstituted as 'Saarc Development Fund' (SDF) and would serve as umbrella financial institution for all Saarc projects and programs.

The first informal meeting of Saarc Finance Ministers was held in Hyderabad, India, on May 3, 2006, on the sidelines of the 39th annual meeting of the Asian Development Bank, in which all member states participated. It was attended by Advisor to the Prime Minister on Finance, Revenue, Economic Affairs and Statistics. The meeting reiterated the need for seizing the opportunity for furthering the process of regional economic co-operation in a significant manner.

The first meeting of finance experts from Saarc countries was held in September 2005, followed by the second meeting of finance experts in Katmandu in February 2006. These meetings came out with recommendations regarding the operationalisation of Saarc Poverty Alleviation Fund.

 

[Owais]

Government fails to implement Rs 70 billion project: laying rail track from Gwadar
ISLAMABAD (July 11 2006): The government has failed to implement the Rs 70 billion project to connect Gwadar deep-sea port with the country's main rail network. Despite firm directives by President General Pervez Musharraf, the Ministry of Railways has only managed to prepare a feasibility report in over three years' time.

Pakistan Railways, being economically safe and suited for long haul traffic, was tasked to establish a railway line from Gwadar connecting it with the main network at Quetta-Kohi-Taftan section.

"We have so far prepared a feasibility report to lay a new track that will connect the port with the existing railway network. There are some problems that are being sorted out to start the construction work," an official in the Railways Ministry told Business Recorder on Monday.

It is learnt that officials were considering various alternatives like Gwadar-Mastung link. This would start from Gwadar and would pass through Turbat-Hushab-Panjgor-Nag-Besima-Surab, Kalat and Mastung.

The 961 kilometres route is considered to be the shortest in length covering scattered population in the area.

The official said that one of the major reasons behind the inordinate delay in construction work was the volatile law and order situation in Balochistan.

The route runs through the central portion of restive Balochistan where a number of new roads would be built in close proximity of railway stations.

On the other hand, the proposed alignment between Hushab-Panjgur and Surab-Kalat-Mastung is difficult as the area has steep grades and sharp curves.

The government has already missed the extended deadline of June 30 for the inauguration of the multi-billion dollars port due to poor performance of communications and railways ministries.

Neither the Communications Ministry has done its job by completing required road network nor Ministry of Railway has been able to lay the necessary rail tracks.

President Pervez Musharraf is very eager to open Gwadar port as soon as possible with access to neighbouring countries.

On the Iranian border, the official said, the railway line from Quetta to Kohi-Taftan continues on to Zahidan in Iran. But an additional 600 kilometres railway line would have to be built to link it to the main Iranian railway system at Kerman.

There is no railway infrastructure in Afghanistan and a line from Quetta terminates on the border at Chaman.

 

[Owais]

NBP selected 'best foreign exchange bank in Pakistan, 2006'


KARACHI (July 11 2006): Global Finance, New York, one of the leading financial journals, has selected National Bank of Pakistan (NBP) as "The Best Foreign Exchange Bank in Pakistan-2006". This is the third consecutive year that NBP has won this prestigious award.

Another recognition of the bank announced by Global Finance is awarding NBP the "Best Emerging Market Bank in Pakistan-2006". The award giving ceremony will be held on September 18, 2006, in Singapore during the annual meeting of the IMF and World Bank.

NBP was the first to establish a foreign exchange company in February 2003 after the State Bank of Pakistan liberalised the foreign currency business. NBP Exchange Company offers a full range of foreign exchange services to individuals and companies through the extensive use of network of international correspondents covering over 100 countries. NBP Exchange Company has branches in Karachi, Rawalpindi, Mirpur AK and Islamabad. The operations will shortly be extended to Pershawar and Lahore.

The selection criteria for the "Best Emerging Market Bank in Pakistan-2006", besides transaction volume and market share, included customer service, competitive pricing and innovative products and technology.

NBP showed very strong financial performance during the year 2006. Pretax profits improved by 59 percent year-on-year and reached Rs 19 billion ($319 million). The bank continued to make substantial investment in technology and upgrading its human resource base. NBP's focus on marketing diversified asset products to its 10 million-plus account holders to maintain revenue momentum through higher fee and interest income was another factor in its selection for the award.

 

[Owais]

SBP sells Rs 17,750 million treasury bills



KARACHI (July 11 2006): The State Bank of Pakistan (SBP) sold Rs 17,750 million of Treasury bills on Monday in a 10-day repo operation at 7.90 percent to mop up funds from the money market.

 

[Owais]

KSE index tumbles by 331 points


KARACHI (July 11 2006): Bearish onslaught prevailed in all energy, banking and cement scrips at KSE on Monday as the market failed to convince leading investors and financial institutions to lend support. The KSE-100 index tumbled by 331 points, or 3.4 percent, to close at the 9504-point level.

The volume in the ready market was 127 million shares compared to 174 million shares of Friday. However, the volume in the futures market was 65 million shares, against 35 million shares.

Following the higher-than-expected dividend announcement by NIT, the market started positively. However, across-the-board hefty selling pressure plunged the index to mark the 9484 points intra-day low. The index suffered heavy losses in the absence of any significant support. All notable scrips closed at or near their lower circuit levels.

Despite higher dividend payout from NIT; NBP, BoP and Faysal Bank these received heavy battering and closed 5.6 percent, 5.4 percent and 6.1 percent lower from their intra-day highs. Picic Bank, which had closed limit up for the last three consecutive sessions, depicted 3.8 percent decline to close at Rs 28.00. Among energy scrips, OGDCL, PPL and POL decreased by Rs 6.35, Rs 9.90 and Rs 14.65, respectively, to close at Rs 123.65, Rs 200.85 and Rs 302.35.

Rumours regarding former SECP chairman disclosing names of brokers involved in March 2005 crisis also pushed the investors to offload their positions. Therefore, the market made an intra-day low level of 9484.

Hasnain Asghar from Aziz Fidahuesin said that the outcome of the presentation in the National Assembly created further unrest among market participants, as the blame game seemed to have increased nervousness. Raise in transaction cost had already reduced the number of participants. The ongoing tussle has forced the remaining to stay on the back foot.

The inability of the market to move on its technical and fundamentals hints that if the blame is transferred to the stakeholders it would invite a massive offloading. Technically, the index would continue to find support around 9470-9477, while immediate resistance stays at 9727-9733. It is, however, recommended to wait for the settlement of the issue as the sensitive market with low turnover and absence of buyers might not be able to digest any tough development.

An analyst from Al-Habib Capital Market said that the banking sector was mainly the beneficiary of NIT's healthy dividend opened at a positive note with good volumes in NBP, BOP and FABL, but the ongoing controversy between SECP and Finance Ministry changed the market sentiment. Investors preferred to stay outside the market, and with no interest from any quarter, the benchmark KSE-100 index continued downward trend. Forensic investigation, local auditors, and sending of data to Korean investigators for analysis, did the rest. Decline in volumes showed that market did not seem stable at these levels. "We do expect that the market may slide further in the short run, but a dip would definitely be an excellent buying opportunity for the long term."

Ahsan Mehanti, chief executive officer of Salim Chamdia Securities, said that the market needed intervention from the government and it should immediately clear the dust following the meeting of National Assembly Standing Committee last week. "The allegation war should be ended to boost the investors' confidence. The valuations are attractive and upcoming results, which are likely to be healthy ones, might help turn the tables."

 

[Owais]

LSE index down 193.90 points



LAHORE (July 11 2006): The local share market nose-dived on Monday, following rising worries of market players after allegations levelled by a former SECP chief against brokers and government high-ups, holding them responsible for the March 2005 crisis.

The LSE-25 index retreated to 4104.99 points from 4298.89, registering a fall of 193.90 points. The volume plunged to 26.975 million shares from 40.536 million of Friday, showing a decline of 13.561 million shares.

Led by key banking stocks and petroleum shares, the market mostly stayed in the red zone as dark shadows caused by submissions of Dr Tariq Hassan, an ex-chairman of SECP, in the National Assembly's Standing Committee on Finance and Revenue, gripped the market. Dr Hassan has levelled allegations against big brokers and government high-ups for ill-practices in the stock market that led to March 2005 crisis causing heavy losses to investors.

The ongoing inquires also overshadowed the impact of good payouts declared by NIT on Saturday last, a broker said, adding that even the banks having stake in NIT also shed heavily. However, Askari Commercial Bank and UBL edged higher while National Bank, MCB and PPL were the key losers of the day.

The market was in the grip of uncertainty and panic after Dr Hassan opened his lips and held the government high-ups and brokers responsible for the March 2005 crisis, Javed Iqbal, chief executive of Javed Iqbal Securities Ltd said. "Both sides are making allegations and counter-allegations against each other, which has disturbed the entire market sentiment," he added. "Investors are on sidelines and awaiting the outcome of the inquiries. However, one thing is clear that this time the inquiries will make headway and the responsible persons will be taken to task," he added.

Investors had suffered heavily in the March 2005 crisis. Therefore, they want accountability of the responsible persons who sucked their blood, he said. "I believe this time the government will not let loose the culprits, and will bring them to book for the sake of future of the market," he remarked. The government reportedly has hired Korean experts to probe into the crisis, which is a good step and will boost investors' confidence in the market, he viewed. Koreans have also faced such types of crisis and have expertise in dealing such situations; therefore, the government has rightly chosen them to ascertain the actual causes of the March 2005 crisis.

Overall, 85 scrips hanged hands on the floor, of which 10 improved their worth, 40 landed in minus zone, and 35 were intact to their previous zone. Among most active scrips, Askari Commercial Bank gained Rs 0.95, UBL Rs 0.75, Dewan Farooq Motors Rs 0.35, and Southern Electric Power and Prime Commercial Bank Rs 0.30 each.

In minus, National Bank shed Rs 13.65, MCB Bank Rs 11.85, PPL Rs 11.00, Pakistan Oilfields Rs 10.00 and PSO Rs 7.00. Fauji Cement and National Bank were the volume leaders with 4.382 million and 3.748 million shares, respectively.

 

[Owais]

Bears strengthen positions on ISE


ISLAMABAD (July 11 2006): Bears strengthened their positions on the Islamabad Stock Exchange (ISE) where equities continued to show negative signs under the lead of hot favourite amid decrease in index. ISE Ten index showed a decrease of 124.11 points, as the ten index moved from 2,552.49 to 2,428.38 points.

The horizon of trade contracted from 118 companies to 107 stocks. Majority of stocks (85) closed in negative territory, 22 showed positive signs, whereas zero companies remained pegged to their overnight levels.

The turnover of OGDCL was 78,700 shares as compared to previous volume of 88,000 shares. The volume of Pakistan Petroleum Ltd was 41,900 shares as compared to previous turnover of 22,300 shares. The volume of Fauji Fertiliser Bin Qasim was 16,000 shares.

 

[Owais]

Malaysia to tech-assist Pakistan seafood exports KARACHI: Malaysia will provide technical assistance to Pakistan for boosting its seafood exports.

Secretary General, Chinese Chambers of Commerce and Industry of Malaysia told newsmen in Kuala Lumpur that Malaysia was ready to provide modern technology to Pakistan for frozen food and packing.

Pakistani seafood industry delegation is on a visit to Malaysia these days, where they are engaged in meeting Malaysian traders for the boosting of seafood exports.

Pakistan during the outgoing fiscal year exported 647 tons of seafood.

 

[Owais]

100 MW power supply to Gwadar from Iran likely in 2008 GWADAR: Iran is expected to provide power up to 100 MW to Gwadar port from December 2008, the WAPDA sources told Geo News on Sunday.

Iran would charge 6.25 cents per unit for one year, the sources said and added that an Iranian company would launch a project worth $ 26 million for power supply to Gwadar.

Soon a delegation from Iran would visit Pakistan to negotiate power tariff with Pakistan authorities, the sources said.

 

[Neo]

KARACHI (updated on: July 11, 2006, 18:44 PST): The State bank of Pakistan (SBP) said on Tuesday the country could save up to $900 million a year if trade with India is liberalised.

The release of the SBP report focused on the benefits of increasing bilateral trade with India coincided with an inaugural meeting of finance ministers from the South Asian Association for Regional Cooperation (SAARC) being hosted by Islamabad.

"Expanding the current list of positive items will give Pakistan an average saving estimated between $400 million to $900 million," the report, based on data for fiscal 2004, said.

"Compared to the actual trade worth $476 million in FY04, the potential of bilateral trade based on FY04 data has been worked out at $5.2 billion," the report added.

Pakistan and India are the region's largest economies.

A peace process begun in early 2004 has seen a major improvement in relations, though the core dispute over the Himalayan region of Kashmir remains unresolved.

"Success of this peace process will help in improving the atmospherics and augurs well for the region in bringing new synergy to SAARC," Prime Minister Shaukat Aziz said at the start of the finance ministers meeting.

In 1996, India granted a Most-Favoured Nation (MFN) status to Pakistan, but Islamabad is yet to reciprocate.

Instead, it has gradually increased the number of items permissible for trade with New Delhi.

India and Pakistan have already signed the South Asia Free Trade Area (SAFTA) protocol, along with Bangladesh, Bhutan, Maldives, Nepal and Sri Lanka.

Under the first phase of the agreement, scheduled to last until December 2007, tariffs are to be reduced in two phases to 20 percent in the case of India, Pakistan and Sri Lanka and 30 percent in the case of Bhutan, Bangladesh, Maldives and Nepal.

 

[Neo]

KARACHI (July 11 2006): The federal government has given approval to five business houses of the country to set up power plants at an estimated cost of around $1 billion, sources told Business Recorder on Monday. They said that the five business houses, which have been given 'green signal', include a Dubai-based firm which has been told to kick-off development work on the power plants on war-footing.

The licensees are now engaged in erecting their plants in Sindh and Punjab region. Sources said that the power generation capacity of each of the five independent power producers (IPPs) would be 200MW, totalling to 1000MW. These IPPs are: Fauji Al-Kubail (from Dubai), Orient Power, Nadeem Power, Saif Power and Muridke Power.

The estimated cost of each power plant would be $182-$200 million and the turbines would be run on gas. Officials have estimated that the new IPPs would operate at 60 percent capacity. However, if the demand increases, these plants would have the capacity to operate at 90 percent.

Source said that top officials of the five business houses had held a meeting with President General Pervez Musharraf in Islamabad a few days ago. The President lauded the efforts of the private sector in helping the government to overcome power shortage in the country, especially in Karachi.

Source said that the President had strongly urged the investors to start work on 24x7 basis, so that their projects could be operational within two years. Sources said that the new entrants have negotiated and fixed their production with Wapda at the rate of 4.5 cents per unit, which is about Rs 5.90 per unit.

They said that the investors would get 15 percent return on their investments and all sales will be made to Wapda, which has entered into the power supply contract for 30 years. "These five projects are from the first batch, while in the second batch four more power projects would be considered as standby projects," sources said.

However, they said, the standby power plants would use furnace oil and their generated power would be used if any mishap occurred. Sources said that the estimated cost of the standby power plants would be around $182-$215 million and their generation capacity would be 1000MW each.

About technology and machinery, sources said that the managements of all the five IPPs had contacted well known companies of United States, Sweden and Germany for importing large generators.

Sources believe that with the setting up of the five new IPPs and four in the standby position, the power crisis in the country would be managed to a great extent.

 

[Neo]

KARACHI (July 11 2006): Pakistan Railways is going to offer its land in four major cities for the construction of five star hotels. Sources told Business Recorder that the railway is working on the plan to lease out the land in Karachi, Lahore, Multan and Rawalpindi. The land sites has been selected and would be finalise in a month's time.

About 60 percent of the revenue earned as a result will go to the railway and 40 percent to the provinces where these hotels will be constructed.

 

[Neo]

THE choice for Pakistan may appear to be between the high economic growth, higher inflation and moderate growth with low inflation. But low growth could mean less employment, low production and less exports.

So, the real option is high growth with policies tailored to keep the inflation low and employment high with considerations of equity prevailing.

High growth is often accompanied by high inflation and larger money supply. But the government has tried to tie both together by having a growth target of seven per cent this year along with an inflation rate of 6.5 per cent. But whether the two targets will move in tandem or not is to be seen.

But the State Bank of Pakistan (SBP) is trying to keep the increase in money supply restrained and the government is trying to improve the supply side so that the essential goods can be available at fair prices. However, the market following its persistent high profit policy, is not going along with the government willingly and the world price pattern, whether that be for oil which has touched $72 a barrel or for sugar which has hit world prices is not helpful to the government.

The government however has to try to make the best of a bad situation and hold down prices as best as it can, while the SBP has decided to continue with its rather tight monetary policy.

The National Credit Consultative Committee has approved a credit plan for the new fiscal year which will increase the broad money by 13.5 per cent or Rs460 billion to meet the demands created by targeted seven per cent economic growth and the inflation of 6.5 per cent as against the monetary growth of 12.8 per cent or Rs380 billion set for last year.

The net domestic assets of the banking system are expected to expand by Rs450 billion this year and the net foreign assets of the banking system are expected to expand by Rs9.8 billion. But the government’s need for bank credit is large indeed and it will absorb Rs130 billion. The last year’s government borrowing for budgetary support too was Rs120 billion.

Credit to the private sector has been considerably increased and the NCC has estimated that at Rs390 billion as compared to the targeted Rs330 billion last year. But the actual private sector borrowing was far more.

Larger tax mobilisation this year along with the heavy borrowing of the government from the banking system would reduce the availability of credit to the private sector. But the public sector development programme has been suddenly expanded to Rs415 billion so the government has to borrow more from the banks.

The SBP governor has appealed to the bank management to reduce the large spread between the high lending rate and the low return on deposits. But businessmen complain that the lending rates of the banks have gone up from 4-5 per cent in 2002 and 2003 to 10-11 per cent. The export refinance rate has risen to a high nine per cent. Businessmen now complain that the financial cost of exports is now 3.79 per cent and there is in addition a 1.5 per cent levy on textile exports.

Businessmen now want not only larger credit, but also for longer terms and on lower interest rates. The fact is that they have not able to accomplish the export target of $17 billion, while the government was predicting that exports would rise to $18 billion. The businessmen complain that the competition to the export trade is increasing steadily around the world under the WTO regime and financial charges raise their cost of production.

The cost of power in many other countries is low and the supply is steady. But the power supply in Pakistan is unsteady and inadequate and subject too much disruption and is too costly. If the industrialists and exporters have to arrange for their own power production that increases the capital cost at a time when the interest rates for borrowing are rising.

So the SBP governor has appealed to the bank to stretch the maturity of the deposits to create room for long-term project lending. Their preference for short term-lending and promoting consumer credit has to give way to lending for long-term project financing. So that more industries could be established instead of more money going in to trade and the service sector.

Such appeals have had little effect on the banks that enjoyed a 99 per cent increase in the profit last year. The government and the SBP do not want to make new laws for such purposes in a market economy in which the private sector is the prime mover with the government taking the backstage. But the private sector while enjoying the benefits of the market economy is not ready to make the kind of concessions essential to make the free economy popular and a success.

The time has come for major decisions by the government and the private sector to modernise the economy. The government is talking of public-private partnership along with speedy privatisation of the public sector. Unless the people see the freedom for the private sector and the varied benefits given to it, including larger bank credit as benefiting the people as a whole, there will be little enthusiasm among the masses for the public- private partnership.

The private sector is still relying on the old monopoly and cartel system for fixing prices, whether that be of sugar or cement or other major items. There has to be a world of change in the private sector outlook if the nation and its people have to gain by the new freedom conferred on the private sector.

It is for the leaders of the private sector to play their part honestly and fully. Some of them have got in to the parliament and some have become ministers. Instead of exploiting such positions for their own advantage, they should strive for a larger and more open economy.

In spite of the rather tight monetary policy followed by the government, more money is coming in as foreign investment and workers remittances which together account for about $8 billion dollars. In addition, the market is also awash with money made quickly through the stock exchanges and the real estate deals.

In such an environment, the tight money policy of the SBP cannot be too helpful in stabilising prices and the effort of the government to raise the number of the utility stores and make them play a larger role in holding down prices has a limited, though useful role.

Hence the supply side of the economy deserves far more attention from the government. It is not enough if polices are made and announced or if the prime minister directs the chief ministers to hold down prices. What matters is achieving positive outcomes and bringing down the prices and keep them stabilsed so that the 6.5 per cent inflation becomes a reality and not yet another illusion.

http://www.dawn.com/2006/07/10/ebr15.htm