Pakistan Economy - News & Updates - Archive

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Pakistan-US economic ties ​

By Ishrat Husain
Wednesday, 08 Apr, 2009

THE Obama administration has recently completed a review of Washington’s Pakistan strategy. The US Congress is considering a bill that will triple aid appropriations to Pakistan for non-military economic development and another bill to set up Reconstruction Opportunity Zones in Fata.

Is US aid as envisaged in the Kerry-Lugar bill an appropriate tool for Pakistan’s long-term economic development? Is its disbursement through the existing channels the most preferred mode of assisting Pakistan in its endeavour to resume its journey to sustainable and equitable growth? Before we get overwhelmed by this act of generosity the issue needs to be explored.

In my view, the proposed appropriation and mode of delivery with inherent political conditions built into the bill is the least desirable of all options to help Pakistan and improve the US image. Literature on the effectiveness of aid gives evidence that very few developing countries have made good use of this resource for the larger benefit of their populations. Government-to-government assistance results in the relaxation of domestic efforts to mobilise revenues through taxation, non-tax receipts, user charges, and induces wasteful and unproductive expenditures.

Tied aid, in the form of procurement of goods and services sourced from the donor country, reduces the net benefits to the recipient country. USAID is particularly notorious in this respect as it is popularly believed that as many as 70 cents per aid dollar ends up in the hands of US-based private contractors, consultants, administrators and suppliers. This form of assistance hardly creates a significant number of jobs in the economy.

There is a mistrust of government agencies in developing countries and these are often bypassed. This has created more distortions in the economy. Instead of strengthening the capacity of institutions responsible for delivering basic services to the people, NGOs are permitted to act as intermediaries in the execution of projects. They hire government officials or professionals at very high compensation packages. This tends to deplete the human resource reservoir available to the government and impairs its capacity. Aid flows also lead to ‘Dutch disease’ where the appreciation of domestic currency discourages exports and exportable goods and makes non-tradable goods more attractive.

The political dependence and loss of control over these aid resources are the most persuasive argument as far as public opinion is concerned. Pakistanis are convinced that their economy waxes and wanes with the rise and ebb of US assistance. As democratically elected governments, in contrast to military dispensations, may not always toe the US line they are more vulnerable to the abrupt suspension of aid and the consequent economic dislocation. The goal of building a stable civilian government thus remains at risk.

Although there is no empirical evidence to substantiate it, there is a widespread feeling that exceptional US aid has been instrumental in boosting economic growth recorded under military governments. Despite huge losses suffered by the economy (an estimated Rs37bn) as a result of 9/11, most outsiders attribute Pakistan’s economic turnaround to the inflow of $10bn from the US.

Although the proposed US aid of $1.5bn in the Kerry-Lugar bill would contribute only three to four per cent of Pakistan’s total foreign exchange earnings the psychological damage it will cause to Pakistanis and Americans far exceeds the benefits derived from this paltry sum. Pakistanis will resent their economic fortune being controlled by the US and strong anti-American sentiments would be reinforced as a result.

There is no doubt that the Obama administration wishes to demonstrate through this aid bill that the US is a long-term friend of Pakistan. But there is the risk that Congress, think tanks, and the media will use this as a stick against Pakistan every time they perceive that it is not doing enough. Hundreds of Pakistani soldiers have been killed in the war on terror, many more have suffered crippling injuries. The country, which has captured hundreds of Al Qaeda and Taliban operatives, has seen infrastructure destroyed, hundreds of thousands of people internally displaced, its political leaders exposed to terrorist threats, millions among its population antagonised, and has spent large amounts from its resources on beefing up internal security.Yet the consistent theme from the other side is that Pakistan is providing sanctuary to the Al Qaeda leadership, nurturing the militants and that its intelligence agencies leak sensitive information to the other side. The possibility of the suspension of US aid, under pressure from American public opinion, will, therefore, always loom large, cause economic disruptions and sour relations between the two countries. The best way forward to strengthen US-Pakistan economic relations and create a vibrant economy is through the following measures.

First, the US should finance only such infrastructure, education and health projects that are included in the government’s development programme. It should commit the money by co-financing these projects with the World Bank and Asian Development Bank that have the required expertise and the experience of working with and strengthening the institutions responsible for project planning and execution. This would be the most effective use of the US taxpayers’ money.

Second, the US Chamber of Commerce has rightly called for easing access for the country’s textiles to American markets. American tariffs on Pakistan’s leading exports average approximately 10 per cent, about four times the average US tariff rates on imports from other countries. A reduction in tariff rates would not confer any favour on Pakistani exporters but provide them with a level playing field. For a country that so strongly believes in marketplace competition this is a correction not a concession.

Third, Pakistan needs foreign direct investment in power-generation, transmission and distribution, gas pipelines, oil and LNG terminals, refining capacity, petrochemical complex, etc. US investors should be encouraged through Export-Import Bank loans and Overseas Private Investment Corporation guarantees to participate in Pakistan’s energy development plans.

Fourth, the US leads the world in higher education and scientific and technological research. They should resume their assistance in training our teachers and scientists in leading US institutions, forging links between Pakistani and American universities and strengthening the capacity of our research organisations in agriculture, water resources, renewable energy and low-cost building materials.

These four channels of US assistance have a much better chance of achieving the goals shared by the US and Pakistan – a strong and prosperous Pakistan capable of safeguarding its territorial integrity – than direct US assistance administered through the existing traditional channels.

The writer is a former governor of the State Bank of Pakistan.

 

[Hasnain2009]

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Iraq offers to invest in Pakistan oil, gas sectors​

ISLAMABAD: Iraq has offered to invest in the re-construction of Pakistan besides the oil and gas sectors.

Iraq ambassador to Pakistan told Geo News investors from all over the world coming to Iraq, while the projects on large-scale were underway. He said that Iraq could prove to be a better avenue of employments to the skilled Pakistanis.

He said that Iraq was a big market for Pakistani rice, cement and sugar. He said that a joint ministerial meeting of Pak-Iraq economic cooperation would be held in Baghdad in the third week of next month, after a lapse of long one decade.

Iraq offers to invest in Pakistan oil, gas sectors - GEO.tv

 

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Pakistan economic slowdown could linger​

LONDON: Pakistan economic slowdown could keep lingering in the wake of stringent monetary policy and global crisis.

Moody’s Services analyst Anand Mitra told this. He said that Pakistan economic recovery would hinge on long-term reforms, which could help pave the way for increase in saving, local investment and tax revenue.

Anand Mitra said that the fallouts of the dwindling global demand could also affect Pakistan’s exports and foreign investment. He further said that Pakistan has made some positive headway for the achievement of targets, according to international financial institutions report.

Pakistan economic slowdown could linger - GEO.tv

 

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When in knead, bread can't be a winner ​

KARACHI: It is difficult to explain to a poor man in Pakistan that he will have to fork out more for bread in ten days, but that this is a ‘good’ thing.

Flour is going to be more expensive from April 15 because of a decision the government made four months ago. It decided to offer wheat farmers a higher price for their crop to encourage them to sow this staple instead of any other. The result? More wheat was grown in Pakistan for 2009 but the government will have to honour its price.

As promised, the government will buy wheat from farmers at 950 rupees per tonne up from 810 rupees last year.

As a result, after the 15th, a 20kg bag of flour is likely to cost 65 rupees more.

The government sells fixed amounts of wheat to the flour mills adding about five rupees as a storage charge. So from Rs 950 per tonne, flour mills are likely to buy it for Rs 955 per tonne from the government.

The flour mills will then grind the wheat and sell flour to the retailers, wholesalers, food department and bakeries for a higher price. They told SAMAA they expect the price to up Rs 3.15 per kg. Retailers may have to pay Rs 535 instead of Rs 460.

However, if the government manages to make Pakistan’s wheat just as expensive as wheat in the international market, there will be less smuggling. If there is less smuggling our supplies will not be tampered with. The good news is that Pakistani farmers will be encouraged to sow more wheat and Pakistan will produce enough to feed itself. It won’t need to then import wheat at the international rates as it did last year. The only downside is that the average person will have to pay more for bread but at least there will be enough to go around.

WHY THE GOVT MADE WHEAT MORE EXPENSIVE?

In 2008 there was an agonising shortage of wheat in Pakistan – but not because of a small harvest. There was an outcry as market pricing mechanisms kicked in and the price of naan and roti bread went up as demand outstripped supply.

Pakistani wheat was cheaper than wheat in the international market. Smugglers took advantage and tonnes of the staple quietly left Pakistan for Afghanistan and neighbouring countries. A shortage developed even though farmers had initially harvested enough. As the shortage got worse, the government tried to crack down on people who stashed big supplies of flour. It even banned the movement of wheat between the provinces.

HOW MUCH DOES PAKISTAN NEED?

An average person needs 125 kg of wheat per year in Pakistan.

This means the country eats about 21 million tonnes a year.

Last year, Pakistan produced 23.3 million tonnes – people in the countryside kept 13.5 million for themselves, one million tonnes was set aside as seed for next year’s crop and around 4.5 million tonnes was bought by the government. The rest was traded privately.

PAKISTAN WHEAT PRICES, INTERNATIONAL WHEAT PRICES

Global trends in food prices are changing. Last year, the world price of wheat was trading close to US$450. Prices of wheat were rising rapidly in Pakistan’s region — they were 30% to 35% higher in Afghanistan and Iran and more than 50% higher in Central Asian states.

International are likely to stay high in the future. Why?

Rising incomes in China and India mean more people are eating meat. This increases the demand for cereal to feed the animals. According to the Economist, since the 1980s, in developing countries demand for meat has more than doubled, and farmers are now feeding their animals about 200 to 250 million more tonnes of grain than they did twenty years ago.

.:: SAMAA - When in knead, bread can't be a winner

 

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CFS Mk-II to be eliminated in 66 days ​

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has decided to discontinue the Continuous Funding System (CFS) Mk-II (‘badla’ or leveraged buying) and deliverable futures products after finding that these financial products had aggravated the recent capital market crisis in the country.

A press release issued by the SECP on Tuesday evening stated that the decision was taken after considering the recommendations of a committee formed to study the product.

The SECP termed the decision as a move taken in the best interest of capital markets in Pakistan.

The CFS Mk-II will be phased out in three working cycles of 22 business days.

Therefore, a complete phase-out would be completed in 66 working days. Starting from April 8, no fresh take-up in CFS Mk-II shall be allowed.

Furthermore, no new contracts would be opened in the Deliverable Futures Market from April 20, 2009.

The committee decided that the commission shall coordinate with the stock exchanges to develop effective futures products in line with international best practices.

The SECP, the committee said, shall also strive to implement alternative financing products to cater for the financing and leveraging needs of market participants.

The SECP press release stated that during the recent market turmoil and afterwards, a majority of market participants were of the view that the adverse situation faced by investors was, to a large extent, either attributable to the CFS Mk-II product or that the product had played a major role in aggravating the situation.

The boards of Karachi Stock Exchange (KSE), National Clearing Company Pakistan Limited (NCCPL) and a large number of brokers had requested to the commission that this product should be discontinued.

In order to evaluate the situation, the commission constituted a committee, comprising prominent professionals and representatives of all three stock exchanges, NCCPL and capital market specialists, to review the product independently and give its recommendations.

The committee was headed by Shehzad Naqvi, the CEO of Royal Bank of Scotland (RBS), who is a career banker with vast experience in corporate finance and investment banking.

The committee, after due deliberation, formally recommended to the SECP that CFS Mk-II and Deliverable Futures products be discontinued in the best interest of the capital markets in Pakistan.

The committee further recommended that Cash Settled Futures products should be encouraged. These products would reduce strain on resources of the stock markets since settlement of price differentials does not involve delivery of the underlying shares.

The committee suggested that Cash Settled Futures should be offered both for single scrips as well as for the stock index and implementation of more stringent eligibility criteria for selection of shares for cash settled futures products.

For the time being, cash settled futures shall be made available in the five most liquid majority government owned scrips.

The committee said the existing risk management framework for cash settled futures products should be further strengthened and recommended that client-level margin system should be introduced at all stock exchanges.

Similarly, concentration margins should also be implemented.

It suggested widening of scrip based circuit breakers and introduction of index based market halts.

The committee also said that a robust securities lending and borrowing system should be introduced. Implementation of real time surveillance mechanism at all stock exchanges to detect market manipulation and abuse has also been proposed.

The commission, in collaboration with all other stakeholders, will consider the implementation of these recommendations over the next few months.

DAWN.COM | Business | CFS Mk-II to be eliminated in 66 days

 

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T-bills’ rates may rise by up to 50 basis points ​

KARACHI: Treasury bills rates may experience another increase of up to 50 basis points due to shortage of liquidity in the market creating a conducing environment for keeping the interest rate high at the current level.

The cut-off yields were slashed largely in late February and in second week of March, which cumulatively reduced the yields by 220 basis points. It was taken as a sign that the State Bank was planning to reduce the policy interest rate from 15 per cent elevated in November, 2008 as part of the agreement with the International Monetary Fund.

In the last auction the yields on T-bills were increased by up to 11 basis points giving a sign of reversal like situation. ‘The T-bills cut-off yield on Wednesday may increase by 25 to 50 basis points due to liquidity shortage in the money market,’ said Mohammad Sohail, a leading analyst.

In the last auction held on March 25, the 12-month T-bills cut-off yield was increased to 10 basis points to11.95 per cent. Market dealers said this 12-month paper was traded at 12.25 to 12.40 per cent in the money market on Tuesday, which reflects clearly that the money market was short of liquidity.

The last auction also witnessed increase in the cut-off yield of benchmark 6-month paper by 11 basis points to 11.89 per cent.

Until recently, the banking system was floating with the ample liquidity as the outflows to the corporate sector and the entire private sector fell sharply to just one third of what it was last year.

However, the massive borrowing by the government and organisations under its umbrella sucked up the liquidity.

The State Bank last week announced that it would raise Rs350 billion from the market through T-bills till the end of the current fiscal.

The liquidity shortage emerged due to massive government borrowing, higher lending to public sector enterprises and outflow of liquidity to National Saving Scheme.

In the first nine months, the government borrowed over Rs100 billion through commercial banks while during the same period of last year it retired Rs97 billion.

The public sector enterprises borrowed over Rs63 billion against Rs22 billion of the last year. The government recently accumulated Rs80 billion through 10 commercial banks by selling Terms Finance Certificates to pay off the stuck-up circular debts of the oil marketing companies.

The government has mobilised Rs75 billion through National Saving Scheme (NSS) in first seven months of the current fiscal while it gathered Rs86.6 billion during the same period last year.

The shortage of liquidity provides an opportunity to the State Bank to carry on with the policy interest rate (discount rate) at current level of 15 per cent.

This high interest rate has already crippled the industry and trade, which forced the economy to contract instead of growing. Demand for lowering of interest rate is strong but the IMF has recently suggested Pakistan not to change its policy interest rates ‘unless the inflation falls decisively.’

The advice came with the approval of second IMF tranche of $848 million, which made it significant. A senior banker doubted that the SBP was making ground to keep the interest rate at the present level or reduce it insignificantly.

DAWN.COM | Business | T-bills? rates may rise by up to 50 basis points

 

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SECP registers 653 companies in first quarter​

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) registered 653 companies during the first quarter of this calendar year.

With the new incorporations, the total number of registered companies with the SECP as on March 31, 2009, is now 53,211.

The newly registered 653 companies also include 53 companies having foreign investment.

Foreign investors are mainly from the US having participation in nine companies followed by UK and China with investment in eight companies each, and Germany in four companies.

An official announcement issued by the SECP here on Tuesday said other foreign investors who invested in the newly- registered entities belonged to Canada, Italy, Korea, Malaysia, Turkey having participation in two companies each and Austria, Australia, Bulgaria, Belgium, France, Hong Kong, Oman, Iran, Lebanon, Netherlands, Nigeria, South Africa, UAE.

During the quarter, the numbers of companies registered during the months of January, February and March, 2009 were 237, 187 and 229, respectively.

Out of the total 653 companies registered during the quarter, 647 companies were limited by shares, comprising seven public unlisted companies, 610 private companies and 30 single member companies.

In addition, four associations are not-for-profit under section 42 of the Companies Ordinance, 1984 (the Ordinance), one company limited by guarantee under section 43 of the Ordinance and one trade organisation was also registered.

Total authorised capital and paid-up capital of the 647 companies limited by shares amounted to Rs269 million and Rs12.73 million, respectively.

During the quarter, the number of new incorporation was the highest in Lahore whereby 210 companies have been registered with the Companies Registration Office (CRO) of SECP, followed by 156 companies in CRO Karachi and 182 in CRO Islamabad.

The CROs of Peshawar and Quetta registered 28 companies each while CROs at Multan, Faisalabad, and Sukkur registered 27, 20 and two companies, respectively.

The highest number of company incorporation was witnessed in the services sector, comprising 118 companies, followed by 112 in trading, 62 in tourism, 45 in construction, 40 in information technology, 28 in communications, 22 in power generation and 21 in textile sector.

DAWN.COM | Business | SECP registers 653 companies in first quarter

 

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Cut in federal funds to hit mega projects​

PESHAWAR: The federal government has hinted at over 40 per cent cut in the size of Public Sector Development Programme (PSDP) owing to financial constraints, affecting implementation of a number of mega projects in Frontier province.

‘The Planning Commission, which oversees execution of PSDP, has recently communicated to the provinces that the size of PSDP was going to be reduced by more than 40 per cent,’ an official told Dawn here on Tuesday.

The official said that prime minister had already approved to cut the size of the Rs541 billion PSDP by Rs100 billion in the current fiscal year, however, further decrease in the allocation was also on the cards.

The Planning Commission, the official said, had communicated to the provinces the expected decline in the funds availability along with a list of projects, which were going to be affected by the cut.

The official said that the cut would mostly affect execution of new projects, as those ongoing projects, which were about to be completed or were in the middle of their implementation schedule would continue to get funds inflow as per the plan.

The PSDP for current fiscal year carries 61 uplift projects, which are being implemented in NWFP with total estimated cost of Rs247.25 billion. The current year allocation for these projects was Rs8.094 billion.

The sector-wise allocation for current year and number of PSDP schemes in NWFP include; health with Rs1.978 billion, education and training sector with Rs384.850 million, food, agriculture and livestock sector with Rs1.884 billion, environment sector with Rs335 million, finance sector with Rs161 million.

Similarly, industries with Rs300.558 million, planning and development sector with Rs203.100 million, water and power sector with Rs2.323 billion, population welfare with Rs21 million, narcotics control with Rs377.810 million and access to justice programme carries an allocation of Rs108.320 million in the current fiscal year.

The official said that as per the Planning Commission list, the projects in health, water and power, environment and education would be affected owing to non-availability of funds in the current fiscal year.

Development cycle, the official said, in NWFP was already hit because of paucity of resources and growing cost of security related expenditures in the current financial year.

DAWN.COM | - NWFP | Cut in federal funds to hit mega projects

 

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Three licenses for oil exploration granted​

ISLAMABAD: After the approval of petroleum policy-09, the government has awarded three petroleum exploration licenses, which are the first concessions after more than two years.

All the three licenses have been awarded to the three joint venture companies of one group after open bidding.

The first license has been awarded to Paige Limited & RDC International in the block no. 2972-2 (Cholistan), covering an area of 2478 square km in Bahawalpur and Bahawalnagar district of Punjab.

The second exploration license has been awarded to Nativus Resources Ltd and RDC International for block 3072-4 (Shakarganj West) covering an area of 2479 square km in Vehari, Pakpattan, Sahiwal and Bahawalnagar districts of Punjab.

While the third one is obtained by the joint venture of RDC International (Pvt) Ltd & Paige Limited for block no 3073-3 (Punjab) covering an areas of 2410 square km in Pakpattan, Sahiwal and Okara districts.

All the licenses have been awarded in non-traditional areas of Punjab in terms of oil and gas exploration.

The three companies will invest $1.3 million in the initial three years for satellite data processing, geophysics and geology studies and the two dimension seismic surveys.
All the three companies are already involved in E&P activities in blocks bordering Balochistan.

The concessions were signed by G.A. Sabri, additional secretary petroleum ministry, and Javed Ahmed, chief executive officer RDC and Khawar Mahmood, director Paige & Nativus.

DAWN.COM | Business | 3 licenses for oil exploration granted

 

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Cellular companies rule out downsizing​

KARACHI: Almost all cellular companies rule out any plan to shed permanent workers, and many have disclosed plans to increase investment in the current year.

However, one company admitted to have offloaded contractual and some permanent workers.

Currently, the companies are spending huge amounts on print and electronic media campaigns, on cut in call rates, besides offering various packages to lure customers.

In view of 160-170 million population, the mobile phone subscriber base in Pakistan currently stands at 91 million. Many people prefer holding multiple SIMS.

Dawn has solicited views from various cellular companies to review their investment plans in 2008 and 2009 and also job situation in view of the economic slowdown.

MOBILINK: Director, Public Relations and Corporate Social Responsibility, Orascom Telecom (Mobilink), Omar Manzur, said as an Orascom Telecom Holding (OTH) subsidiary, Mobilink has invested $537 million in its infrastructure aimed at enhancing capacity, network quality and coverage.

On investment plans in 2009, he said information would be made available by OTH in its first quarter results 2009.

Having invested approximately $2.5 billion to-date in network rollout, infrastructure and a 6,500 km redundant fiber optic backbone and with a diverse product platter, including m-commerce and broadband, the company is well-poised to fulfill the communication needs of its consumers.

‘We plan to continue investing during 2009 as well, regardless of economic factors,’ he said.

On job scenario in 2008 and 2009, he said global economic crunch and overall inflationary trends have affected the entire economy and the telecom sector is no exception.

As part of an overall cost-rationalisation exercise, there have been some adjustments in the portfolio of services sought through various agencies.

‘No permanent employees have been laid-off in the past six months. We are hiring at the moment as well and have advertised 60 new openings in various departments,’ Omar said.

In times of stiff competition and economic slowdown, Mobilink had registered a double digit growth in revenues during the year 2008 in local currency. However, he said, as a private sector organisation, this information remains privy to OTH and is reflected in OTH’s overall earnings results available on OTH website.

Mobilink employs over 4,100 individuals directly and has a subscriber base of over 28 million.

UFONE: Head of Public Relation, Pak Telecom Mobile Limited (Ufone), Moazzam Ali Khan, said the company invested over $250 million in 2008.

A majority of this investment was directed towards network foot print in less developed and rural areas of Pakistan. In addition to direct investments in the network, Ufone has been busy in expanding its retail and franchise network in all parts of the country in view of tough economic conditions.

‘As of March 2009, Ufone has not let go off any employees neither planning to lay-off any employees in the near future,’ Moazzam said.

In fact, Ufone has been adding new employees to its family based on the continuously growing business requirements, he claimed.

He did not give figures of earning or profit during 2008 compared to 2007 saying this is company confidential information and hence he won’t be able to share the same. Ufone has more than 19.5 million customers and 3,850 Ufone team members.

TELENOR: Director, Corporate Communication, Syed Hasnat Masood, said Telenor has made the largest European direct investment in Pakistan as yet, exceeding two billion dollars. Recently, Telenor Pakistan entered into an agreement to acquire 51 per cent of the shares in Tameer Microfinance Bank for a Foreign Direct Investment of $12.5 million through a direct rights issue. The acquisition is part of Telenor Pakistan’s strategy to offer financial services in Pakistan.

On new investment during the current year, he said as Telenor ASA of Norway, the parent company of Telenor Pakistan, is listed on the stock exchanges in Oslo and New York, we are legally bound not to disclose figures publicly before they are formally released.

About future plans, Telenor Pakistan has set aggressive targets for itself, while exploring diverse business opportunities.

‘The company is here to stay and intends to play a vital role in further expansion,’ he added.

However, there is a need for stability in policies, and investment-friendly climate, and reasonable taxation, he said.

The company has created some 2,500 direct and 25,000 plus indirect jobs. The company believes in prudent hiring and by keeping the long-term business in view. ‘We don’t have to lay off people,’ he said, adding ‘Telenor Pakistan is not planning any job cuts.’ The company has a subscriber base of 19.8 million.

ZONG: A spokesman for China Mobile Pakistan said that Zong would invest $500 million in the country’s economy during 2009 in the areas of building new network capacity of more than 20 million customer base and other infrastructure.

He said the company had, so far, invested $1.66 billion and has generated more than 1700 direct and over 40,000 indirect jobs. ZONG is the first international brand of China Mobile which was launched on April 07, 2008 in Pakistan. Currently the company has over six million customers.

DAWN.COM | Business | Cellular companies rule out downsizing

 

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End of turmoil means surge for Pakistan stocks​

KARACHI: Pakistan’s stock market has rebounded 27.5 per cent in three weeks, taking advantage of some welcome political stability, which dealers hope can propel the bourse to the heights seen last year, AFP reported.

In mid-March, the government ended a damaging political showdown with the opposition by reinstating the country’s sacked chief justice, bringing an end to mass protests and helping to restore investor confidence.

The benchmark index of the Karachi Stock Exchange, the KSE-100, has now recovered more than 58.5 per cent since hitting a four-year low of 4,815 points in late January. It closed at 7,635.88 on Tuesday.

‘Political stability is the key that has created positive sentiments and made the market grow tremendously,’ said Mohammad Sohail, an independent analyst formerly with market intelligence firm JS Research.

‘It is the fastest recovery of our stock market in history,’ he said.

The Karachi exchange has been seen as one of the most promising emerging markets in the world, but the global economic slowdown has compounded the woes caused by the political turmoil in the troubled country.

Last year, as the slowdown took hold, Pakistan was hit by almost incessant attacks by militants, which deterred foreign investment in this nation of more than 160 million people.

The result? The market lost 58 per cent of its value in 2008. Market capitalisation dropped from 75 billion dollars the previous year to 19 billion dollars.

It was the index’s first losing year since 2004.

The rapid turnaround so far in 2009 has been a welcome change, and many analysts stress that the political situation is key to that success at the exchange, which was founded in 1947, the same year Pakistan came into being.

‘The market is expected to grow as long as political stability remains,’ said Shuja Rizvi, an analyst formerly with brokerage house Capital One Equities. ‘A better law and order situation will strengthen them further.’ Even though the market has rebounded dramatically, foreign investors remain skeptical, and are selling more shares each week than they buy — testament to the instability in a country where Al-Qaeda and the Taliban are active.

But analysts say foreign investors are getting more bullish on the country.
‘Foreigners are still skeptical but their ratio of selling is slowing. This shows they are gaining confidence and it is not as chaotic as January to March when they sold 250 million dollars worth of shares,’ Rizvi said.

Foreign investors were believed to be net sellers of about 7.5 million dollars in shares last week.

‘Local investors have even disinvested their money from foreign countries and invested it here,’ Rizvi said. ‘We call it the reversal of capital flight.’ International financial institutions have also shown confidence in Pakistan, the world’s only nuclear-armed Islamic nation.

The International Monetary Fund (IMF) and the World Bank have respectively extended an 847 million dollar loan and 500 million dollars in interest-free credit — announced in late March after the political showdown came to an end.

The IMF also released 3.1 billion dollars last November as a first tranche of a 7.6-billion-dollar emergency loan to stave off a balance of payment crisis.
Analysts say the government’s economic measures are heading in the right direction through prudent macroeconomic polices and needed reforms.

Indeed the market has been doing so well, analysts say, that it’s on the verge of showing one of the ultimate signs of health — a correction.

‘Shares will shed a few hundred points soon because it has gained heavily in a very short period,’ Rizvi said. ‘Correction in the market is due.’

DAWN.COM | Business | End of turmoil means surge for Pakistan stocks

 

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Pakistan-US economic ties​

THE Obama administration has recently completed a review of Washington’s Pakistan strategy. The US Congress is considering a bill that will triple aid appropriations to Pakistan for non-military economic development and another bill to set up Reconstruction Opportunity Zones in Fata.

Is US aid as envisaged in the Kerry-Lugar bill an appropriate tool for Pakistan’s long-term economic development? Is its disbursement through the existing channels the most preferred mode of assisting Pakistan in its endeavour to resume its journey to sustainable and equitable growth? Before we get overwhelmed by this act of generosity the issue needs to be explored.

In my view, the proposed appropriation and mode of delivery with inherent political conditions built into the bill is the least desirable of all options to help Pakistan and improve the US image. Literature on the effectiveness of aid gives evidence that very few developing countries have made good use of this resource for the larger benefit of their populations. Government-to-government assistance results in the relaxation of domestic efforts to mobilise revenues through taxation, non-tax receipts, user charges, and induces wasteful and unproductive expenditures.

Tied aid, in the form of procurement of goods and services sourced from the donor country, reduces the net benefits to the recipient country. USAID is particularly notorious in this respect as it is popularly believed that as many as 70 cents per aid dollar ends up in the hands of US-based private contractors, consultants, administrators and suppliers. This form of assistance hardly creates a significant number of jobs in the economy.

There is a mistrust of government agencies in developing countries and these are often bypassed. This has created more distortions in the economy. Instead of strengthening the capacity of institutions responsible for delivering basic services to the people, NGOs are permitted to act as intermediaries in the execution of projects. They hire government officials or professionals at very high compensation packages. This tends to deplete the human resource reservoir available to the government and impairs its capacity. Aid flows also lead to ‘Dutch disease’ where the appreciation of domestic currency discourages exports and exportable goods and makes non-tradable goods more attractive.

The political dependence and loss of control over these aid resources are the most persuasive argument as far as public opinion is concerned. Pakistanis are convinced that their economy waxes and wanes with the rise and ebb of US assistance. As democratically elected governments, in contrast to military dispensations, may not always toe the US line they are more vulnerable to the abrupt suspension of aid and the consequent economic dislocation. The goal of building a stable civilian government thus remains at risk.

Although there is no empirical evidence to substantiate it, there is a widespread feeling that exceptional US aid has been instrumental in boosting economic growth recorded under military governments. Despite huge losses suffered by the economy (an estimated Rs37bn) as a result of 9/11, most outsiders attribute Pakistan’s economic turnaround to the inflow of $10bn from the US.

Although the proposed US aid of $1.5bn in the Kerry-Lugar bill would contribute only three to four per cent of Pakistan’s total foreign exchange earnings the psychological damage it will cause to Pakistanis and Americans far exceeds the benefits derived from this paltry sum. Pakistanis will resent their economic fortune being controlled by the US and strong anti-American sentiments would be reinforced as a result.

There is no doubt that the Obama administration wishes to demonstrate through this aid bill that the US is a long-term friend of Pakistan. But there is the risk that Congress, think tanks, and the media will use this as a stick against Pakistan every time they perceive that it is not doing enough. Hundreds of Pakistani soldiers have been killed in the war on terror, many more have suffered crippling injuries. The country, which has captured hundreds of Al Qaeda and Taliban operatives, has seen infrastructure destroyed, hundreds of thousands of people internally displaced, its political leaders exposed to terrorist threats, millions among its population antagonised, and has spent large amounts from its resources on beefing up internal security.Yet the consistent theme from the other side is that Pakistan is providing sanctuary to the Al Qaeda leadership, nurturing the militants and that its intelligence agencies leak sensitive information to the other side. The possibility of the suspension of US aid, under pressure from American public opinion, will, therefore, always loom large, cause economic disruptions and sour relations between the two countries. The best way forward to strengthen US-Pakistan economic relations and create a vibrant economy is through the following measures.

First, the US should finance only such infrastructure, education and health projects that are included in the government’s development programme. It should commit the money by co-financing these projects with the World Bank and Asian Development Bank that have the required expertise and the experience of working with and strengthening the institutions responsible for project planning and execution. This would be the most effective use of the US taxpayers’ money.

Second, the US Chamber of Commerce has rightly called for easing access for the country’s textiles to American markets. American tariffs on Pakistan’s leading exports average approximately 10 per cent, about four times the average US tariff rates on imports from other countries. A reduction in tariff rates would not confer any favour on Pakistani exporters but provide them with a level playing field. For a country that so strongly believes in marketplace competition this is a correction not a concession.

Third, Pakistan needs foreign direct investment in power-generation, transmission and distribution, gas pipelines, oil and LNG terminals, refining capacity, petrochemical complex, etc. US investors should be encouraged through Export-Import Bank loans and Overseas Private Investment Corporation guarantees to participate in Pakistan’s energy development plans.

Fourth, the US leads the world in higher education and scientific and technological research. They should resume their assistance in training our teachers and scientists in leading US institutions, forging links between Pakistani and American universities and strengthening the capacity of our research organisations in agriculture, water resources, renewable energy and low-cost building materials.

These four channels of US assistance have a much better chance of achieving the goals shared by the US and Pakistan – a strong and prosperous Pakistan capable of safeguarding its territorial integrity – than direct US assistance administered through the existing traditional channels.

DAWN.COM | Business | Pakistan-US economic ties

 

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Government approves Iran gas pipeline​

ISLAMABAD: After years of delay and recent differences over the price of gas, the federal cabinet on Wednesday cleared the way for the $7.5 billion Iran-Pakistan-India (IPI) pipeline project by accepting price purchase formula offered by Iran.

The cabinet accepted the Iranian demand of offering one billion cubic feet per day of gas from the IPI at the rate of 80 per cent of the crude oil price in the international market.

A sale-purchase agreement with Iran is likely to be signed this year.

The Economic Coordination Committee (ECC) of the cabinet had earlier rejected the Iranian price formula and asked the Ministry of Petroleum to make Tehran agree to 60 to 68 per cent of the crude oil price as the offered rate was too high.

However, when Tehran did not budge from its position, the ECC directed the ministry to lower its demand from the project by 50 per cent to 500,000 million cubic feet per day.

In its last bid to move Tehran, the government had offered a rate of 70 per cent of the crude price in the international market. Several official Pakistani delegations visited Iran over the last few months including multiple visits by Advisor to Prime Minister on Petroleum Dr Asim Hussain.

Later, President Asif Ali Zardaru himself visited Iran and requested Iranian President Ahmedinejad to bring down the demanded price, but the president was told by his counterpart that any further concession was not possible from Tehran.

Now, the ECC has cleared the way for the project despite immense diplomatic efforts and pressure from the United States to make Islamabad opt for the somewhat costlier option of buying the Caspian Sea natural gas from Turkmenistan through Afghanistan by agreeing to the Trans-Afghanistan Pipeline (TAP).

The Asian Development Bank (ADB) has also agreed to provide loan for the TAP project from which India will also buy gas.

After the approval of the cabinet, a Pakistani delegation will now visit Tehran to sort out further differences over the design of the project because Iran also wants Islamabad to agree to the size of the pipeline through which India should also be provided almost a similar quantity of gas.

India for the time being is staying away from the IPI project mainly because of its recent agreement with the US over nuclear energy for civilian use.

Pakistan’s domestic or industrial sector will not be able to afford IPI gas. But Pakistan, now faced with 3500 megawatt shortages of electricity, will be able to produce 5000MW with the Iranian gas, which even at the agreed rate will still be a cheaper option than using furnace oil.

When contacted PM Advisor on Petroleum Dr Asim Hussain said: ‘The next step would be to sign an agreement with Iran and hire a consultant for the design of the project.’

Experts of the petroleum ministry and the Inter State Gas Systems (ISGS) would be heading for Tehran soon to finalise an agreement over the projects. Pakistan’s interest in the project is being looked after by the ISGS, a semi autonomous public sector body.

The imported gas would be supplied to power generation units through the public sector gas utility companies under the administrative control of the Petroleum Ministry and a separate tariff can be formulated for those industrial consumers who would use imported gas for their captive power plants.

The 1100-kilometer IPI is proposed to start from Asalouyeh, the South Pars field in Iran and will pass through Balochistan and Sindh. The initial capacity of the pipeline will be 22 bcm of natural gas per annum, which is expected to be raised later to 55 bcm.

The Iran -Pakistan -India gas pipeline project was conceived in 1995 and after almost 13 years of discussions, India finally decided to quit the project despite facing a severe energy crisis.

DAWN.COM | Business | Government approves Iran gas pipeline

 

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Traders exchange goods worth Rs 1.7 million across LoC​

ISLAMABAD (April 09 2009): Traders of Azad Jammu and Kashmir and occupied Kashmir exchanged trade goods worth Rs 1,727,010 on Wednesday. According to Kashmir Media Service, for the first time since the trade started, the traders of both the sides exchanged goods in a single day, across the Line of control (LoC) via Poonch-Rawlakot road.

The LoC was opened at 9:00am and closed late in the evening. As many as ten trucks loaded with tradable goods, valuing Rs 1,159,670 were dispatched to the other side of LoC, which reached Ranger Nallah Trade Felicitation Centre (TFC).

These trucks returned at 5:30pm to Poonch after unloading the goods dispatched to Azad Jammu and Kashmir, across the LoC. Trader Bansi Lal Sharma of Occupied Kashmir dispatched tradable goods to Choudhary Mohammad Akbar proprietor of Datta Agencies Hazira in Azad Kashmir.

These goods included 200 boxes of banana (900 kg) worth Rs 63,000, 5 boxes of mango (75 kg), 305 bags of onion (45795 kg) worth Rs 51, 127 and three bags of lady finger (90 kg) worth Rs 5,69,662. Meanwhile, Anand Sales Corporation Poonch exported 115 bags of onion (6227 kg) and 200 boxes of banana (3400 kg), all valuing Rs 43,112 to Chaudhary Mohammad Rashid of Hazira.

Another trader Hazi Abdul Razaq dispatched fifteen pieces of blankets worth Rs 80,550 and twenty pieces of rugged sheets worth Rs 7,960 to Datta agencies Hazira. Ram Pal Sharma of Narwal Jammu sent 380 bags of onion (12940 kg) worth Rs 1,95,546 and samples of one box each of grapes and apples to Datta Agency. A trader Sat Pal of Narwal Jammu, occupied Kashmir, also forwarded trade goods.

Business Recorder [Pakistan's First Financial Daily]