Pakistan Economy - News & Updates - Archive

[Neo]

Exports miss another target, fall short by $320m​

* First quarter of the current fiscal year saw exports worth $4.456 billion against a target of $4.776 billion

By Sajid Chaudhry

ISLAMABAD: Country’s exports have missed their target for the first quarter (July-September) of current fiscal year 2007-08 by $320 million, a senior official told Daily Times on Saturday.

Trade managers of the country had fixed a target of $4.776 billion for exports and total exports during the first quarter amounted only to $$4.456 billion, the official explained.

Export target fixed by the Trade Development Authority of Pakistan (TDAP) that is headed by federal minister for commerce, serves as the bench mark for accessing the export performance of the country, so that actual export target is realised after ensuring that is meets the projections made on month by month basis.

The trade managers of the country have not been able to meet individual monthly targets from the start of this fiscal year. Total exports during the first month of July stood at $1.486 billion as against the monthly target of $$1.523 billion leaving a shortfall of $37 million in that month.

A shortfall of $163 million was witnessed in exports during the month of August when the total exports of the country managed to reach at $1.477 billion as against the fixed monthly target of $1.640 billion.

Exports fell short of another $120 million during the month of September when actual exports managed to reach $1.493 billion against the fixed monthly target of $1.609 billion.

On the external side, the Asian Development Bank in its Asian Development Outlook Update 2007 has projected relatively slow growth in exports because of continuing weakness in textiles. Whereas it projects elevated import growth that will reflected in a larger oil bill and continued expansion in investment. The bank projects the trade deficit to remain heavy at $11.4 billion or 7.1 percent of GDP.

“While the net services and income deficits will continue to widen, workers’ remittances, targeted to reach $6.2 billion, should hold the current account deficit to $8.8 billion, or 5.5 percent of GDP, in fiscal year 2007-08,” it said.

International experts say that there would be a slight deceleration in Pakistan’s economy which would have negative impact on country’s exports due to the factors like, tightening stance of the monetary policy to contain consumer demand; high international oil prices; continued slow growth in exports, due mainly to greater international competition in the textile sector; and expected slow growth in the US economy (Pakistan’s largest trading partner) in July–December 2007.

An International Monetary Fund mission which held discussions with the Pakistani authorities on recent economic developments, prospects, and policies under the annual Article-IV Consultations welcomed the measures announced in the recent monetary policy statement of the State Bank of Pakistan, including the stated intention to reduce the role of the central bank in financing the government and providing export refinance. It recommended a flexible approach to the determination of interest rates to help achieve the inflation objective and reduce import growth.

The mission underscored the need for an appropriate policy mix between monetary and fiscal policies in bringing down the external current deficit. In particular, it stressed that further fiscal consolidation, starting in 2007-08, would contribute significantly to reducing the external current deficit while lessening pressures on real interest rates.

Daily Times - Leading News Resource of Pakistan

 

[Neo]

Pakistani cement set to rock Indian market​

NEW DELHI: Pakistani cement’s arrival in India is set to prove a boon for the construction industry. Pakistani cement, which is scheduled to hit Indian market by the end of October, is expected to lower the cement prices here considerably with Pakistani cement bags being priced at Rs 165 per 50 kg. Indian cement is currently priced at Rs 230 to Rs 265 per 50 kg bag.

Because of the rapid rise of the Indian rupee against the dollar, Pakistani companies have large room to price aggressively to gain a market share. A representative of Pakistan’s Bestway Cement Company told reporters here that a 100-tonne sample consignment was arriving through rail at Amritsar in a few days. “We already have orders for about 15,000 tonnes from some real estate players,” he said. The company recently received the certification of the Bureau of Indian Standards (BIS).

Bestway Cement along with another Pakistani company DG Khan Cement is flooding the Indian market with 35,000 tonnes of cement by the end of this month. Experts here believe though the quantities are small given the 155 million-tonnes a year requirement in the Indian market, their lower prices could force Indian cement producers to drop their prices. India has granted licences to 18 cement companies in Pakistan, Bangladesh, Dubai and Bhutan after cement import regulations were relaxed earlier this year.

Over the last year, the Indian government has announced several incentives including lowering of excise duty to lower cement prices, but they have little effect. Indian industry hopes that Pakistani cement wil succeed where Indian government incentives failed in lowering the prices of cement.

Daily Times - Leading News Resource of Pakistan

 

[solid snake]

Industrial units in ROZs to follow labour laws​

By Sabihuddin Ghausi

KARACHI, October 13: The leaders of American trade unions who have an influential role in US legislation that include granting market access to key allies, like Pakistan, want enforcement of international labour standards and compliance of Decent Work in the industrial and business houses to be set up in the proposed Reconstruction Opportunity Zones (ROZs).

The zones are being planned to be set up with American assistance all along on Pakistan-Afghanistan border in the NWFP and Balochistan.

President Bush has promised a duty-free market access of products from such ROZs in his country as Americans have done similarly in West Bank of Jordan and a few African and South American countries to generate employment and contribute to economic prosperity of the friendly companies and faithful allies.

“These industries must adopt international labour standards, workers be paid proper wages, full freedom of association be guaranteed to workers and that there should be no exploitation of workers,’’ said Ms Thea Lee, the Policy Director of the Legislation Department of AFI-CIO, told a delegation of NWFP investors and tribal leaders that visited US on an ROZ advocacy mission. The President of Karachi Chamber of Commerce and Industry, Mr Majyd Aziz, was with this delegation as its consultant advisor and involved in the negotiations.

“Full support of American workers for ROZs in Pakistan is imperative,’’ Majyd Aziz said.

He said that Pakistan wants a level-playing field with other competitor countries in the US market.

“Since our regional competitors are having an edge on us in US market, we have advocated for same advantages,’’ he said.

The American leadership also explained in detail the concept of ROZ to the NWFP investors during the meetings.

“The idea is to provide employment opportunities to women living in villages,’’ the KCCI president said.

He explained that setting up of ROZs also intend to attract student registration in vocational institutions and schools.

Quite a few businessmen in Karachi have visited the ROZs set up at the West Bank in Jordan and Palestine where a large number of Arab women, mostly Palestine Christians, have found employment opportunities and immensely improved on their economic prosperity.

Businessmen also quote Liberian trade zones as another success story where women are playing a key role in changing and bringing sense in a violence-ridden society.

But businessmen doubt on success of ROZs in the Federally Administered Tribal Areas (FATA) in the NWFP and Balochistan on Pakistan-Afghanistan border as women will never be allowed to become economically productive members of the family.

“Even now in the 21st century, the women in the FATA are stopped from casting their votes in general elections,’’ a businessman pointed out who said “it is not only in far-flung areas of FATA but right here in the economic power house Karachi.”

“In Pashtun settlements of Banaras Colony and other areas, the area elders decide on elections eve that their women will not go to polling stations to cast votes.

“How can you imagine these people will allow their women and girls to work in a garments factory even when there is a pick and drop facility.’’

Many South Asian and Far East Asian countries are on path of progress because their women played a key role in South Korea, Singapore, Malaysia, Thailand and now in Bangladesh and India.

Industrial units in ROZs to follow labour laws -DAWN - Business; October 14, 2007

 

[Neo]

SCRAs hit new high of $151.035 million ​

KARACHI (October 14 2007): After witnessing a fresh inflow of 65.820 million dollars on October 11, the special convertible rupee accounts (SCRAs) balances reached the new high level of 151.035 million dollars during the current fiscal year.

The fresh inflow was witnessed mainly from the UK, US and Switzerland as the investors from these countries were keen to invest more in the Pakistan's equity market, analysts said. Out of the total fresh inflow of 65.820 million dollars, while 32.668 million dollars came from the UK, 27.217 million dollars from the US and 7.513 million dollars from Switzerland only on October 11.

On the other hand, an outflow of 1,013,441 dollars and 5,65,727 dollars was witnessed by Hong Kong and Singapore on the said date. According to the State Bank of Pakistan figures, a total of 287.258 million dollars came during the first 11 days of the current month, while the foreign investors withdrew 130.556 million dollars during this period and cumulative net inflow stood at 156.702 million dollars by October 11.

During the current fiscal year, a total of 230.722 million dollars came from the US followed by 26.480 million dollars from Kuwait, 14.823 million dollars from Hong Kong, 6.095 million dollars from Camyan Island, 5.363 million dollars from Luxembourg and 1.990 million dollars from Chile. The investors from Bahrain invested 331,470 dollars, Qatar 89,834 dollars and Japan 84,671 dollars.

On the other hand, the UK investors withdrew 75.085 million dollars from the country's equity market during the current fiscal year till October 11 followed by 27.507 million dollars by Australia, 23.497 million dollars by Singapore, 3.609 million dollars by the UAE, 2.193 million dollars by Switzerland, 1.990 million dollars by Chile, 1.757 million dollars by Germany, 1.200 million dollars by France and 93,657 dollars were withdrawn by B. V. Island.

"The foreign investors' confident has began to flourish again after re-election of Pervez Musharraf as President of Pakistan", Chief Operating Officer (COO) of JOV & Co Ahmed Nabeel said, adding that the ongoing economic reforms and privatisation process would continue after the re-election of Pervez Musharraf. He said that the foreign investors were well aware that there was a huge potential in the Pakistan's equity market.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

Japan to invest $1.7bn in copper mines​

TOKYO, Oct 13: Two Japanese mining firms will invest up to $1.7 billion in jointly developing copper production bases in Peru and Chile to secure supplies amid growing demand worldwide, a report said on Saturday.

Nippon Mining and Metals Co. and Mitsui Mining and Smelting Co. plan to build the facilities by 2011 to produce up to 250,000 tons of copper ore a year, the leading business newspaper Nikkei reported.

The project will be undertaken by Pan Pacific Copper Co., a joint copper smelting venture set up by the two firms last year.

It will be the biggest nonferrous metal mining endeavour by Japanese companies, the report said.

Copper is a main raw material for electrical wires, cellular phones, personal computers and automotive electronics.

Pan Pacific Copper will develop mines wholly owned by the two firms -- one in Quechua in the Peruvian province of Cusco and the other in Caserones in northern Chile.

In Quechua, production facilities will be built as early as 2010 to produce 70,000 to 100,000 tons a year. The entire output will be shipped to Japan to be smelted into copper bullion, which will be mostly supplied to domestic users, the report said.It added that copper ore production at the Caserones mine would begin in 2011.

The annual ore output of 110,000 to 150,000 tons will be processed into bullion at a smelting plant to be set up there for sales worldwide.

Pan Pacific Copper, which also produces copper ore at other mines, would boost its annual procurement to 350,000 tons when the new mines go into full swing, the daily said.

Japan’s copper bullion consumption stands at roughly 1.25 million tons a year, Nikkei said.

Worldwide consumption of copper amounted to about 17 million tons in 2006, up two percent from 2005, it added.

Pan Pacific Copper shares 40 per cent of the domestic market worth one trillion yen.—AFP

Japan to invest $1.7bn in copper mines -DAWN - Business; October 14, 2007

Solid,

How is this news related to Pakistan???

 

[Neo]

Pakistan approves Khalifa Point refinery near Hub​

By an OGJ correspondent

KARACHI, Oct. 15 -- Pakistan has approved construction of the $4-5 billion coastal refinery project at Khalifa Point near the Hub area of Balochistan province.

Ashfaq Hassan Khan, briefing adviser to the finance ministry, said preliminary work has begun on the refinery, which will have a capacity of 200,000-300,000 b/d.

The facility would be established as a 74:26 joint venture of Abu Dhabi-based International Petroleum Investment Co. (IPIC) and Pak-Arab Refinery Co. The project is expected to be completed and commissioned by first quarter 2011.

The Ministry of Petroleum and Natural Resources was authorized to sign the implementation agreement with IPIC within a month.

Various concessions had been announced for the project, including a 20-year tax holiday, exemption from 5% workers' profit participation, and exemption from 0.5% services charges under the export processing zones rules.

Pakistan also advises Oil & Gas Development Corp. to dedicate at least 80% of the liquefied petroleum gas produced from Chanda field for distribution in the Federally Administered Tribal Areas of northern Pakistan.

Pakistan approves Khalifa Point refinery near Hub - Oil & Gas Journal

 

[solid snake]

Neo, my bad. I thought they were going to invest it in Pakistan, but apparently they're doing it in Chile. Please delete that post.

 

[Neo]

Pakistan eyes the $13.4bn Middle East IT market​

Pakistan has launched a major drive to step up IT exports to the Gulf countries.

United Arab Emirates: Sunday, October 14 - 2007

The six Gulf Cooperation Council (GCC) countries offer huge potential for Pakistan IT industry, official of Pakistan Software Export Board said in a statement.

Pakistan's IT exports to the Gulf had been increasing over the years, but there is still considerable potential to expand IT exports to GCC countries. Several IT companies of Pakistan have succeeded in making inroads in the fast growing IT market of the Middle East.

Currently, it is the third fastest growing IT market in the world, after India and China.

Market Information Estimates show that the Middle East and North Africa (MENA) IT market is set to grow from $6.9bn in 2003 to $13.4bn in 2008. Between the GCC countries, UAE and Saudi Arabia alone account for 77% of the Gulf region's current annual IT spend of $4.94bn, which is projected to increase to $5bn this year.

Official stated that several Pakistani IT companies have developed successful business relations and have established their offices in Middle East.

Amongst those Pakistani IT companies, which have made inroads in the Saudi Arabian IT market, ZRG International is the prime example due to its selection by Smart Link Inc. (Saudi Arabia) to deliver flexible open standards based Intel CTI technology. Smart Link is a rapidly growing contact center outsourcing service provider, established as a joint venture by Saudi Arabia's two prestigious business groups, namely Al-Khaleej and Al-Alamia.

By winning the first phase of this multi-million dollar contact center expansion project, ZRG has clearly demonstrated its capability to successfully deliver the quality expected by the international IT customers.

Another credible name in the global IT market, TPS is serving 25 countries across the Middle East, Asia and Europe. The TPS technology solutions are helping banks in Bahrain, Qatar and Oman to develop EMV-compliant ATMs, thus assisting them in avoiding any likely penalties, which could be levied for non-compliance by end of the year. In the years to come, UAE is likely to be the next country to mandate EMV.

Software export activities by Pakistanis companies are not only enhancing Pakistan's image abroad, but are also having a positive impact on the IT export related earnings of the country.

PSEB official stated that Pakistan IT industry has experienced a tremendous growth of 60 percent in the last fiscal year, while the industry size is estimated to be at US$ 2.8 billion, according to BPM 6. At current rates of growth, it is expected that industry size will surpass eleven billion dollars by 2011.

Pakistan eyes the $13.4bn Middle East IT market | Pakistan Software Export Board

 

[Neo]

Next KSE target could be 15,000 if all goes well​

15 October 2007

KARACHI — The KSE 100-share index last week soared to an all-time high of 14,400 points and analysts predict its new target could be 15,000 if all goes well with the background news both on the political and legal fronts.

The post-Musharraf unofficial election rally and the buying euphoria associated with it on the perception of continuation of the existing economic and financial policies could push the index to new peak level. The market talk of 15,000 plus level may not be irrelevant but it is linked to the apex court ruling on Musharraf's eligibility as a presidential candidate, some leading brokers believe.

But some others said the entire affair appeared to be "inspired" by some quarters who have a stake in it but ground realities are silent on the issue and the current market run-up.

"But when the money comes in in tonnes, most of the basic fundamentals take a back seat ignoring the irritants and this is what is happening in the market," said analyst Ahsan Mehanti.

After having hit an all-time high of 14,536.49, the KSE 100-share index at 14,300 with a market capital at Rs4.4 trillion indicates that a strong foundation has been laid for another boom within the current year, floor brokers said. The market's bullish reaction was also well reflected in the KSE100-share index, which posted a fresh sharp rise at 14,366.99 points, surpassing its previous all-time high record set in March this year at 14,236 points.The total market capital at Rs4.4 trillion or $74 billion and an average daily volume figure of well over 300 million shares reflect investors' confidence and the market's future outlook.

Much of the rise in the index was contributed by half a dozen leading base shares, notably National Bank, Pakistan Petroleum, Bank AlFalah, Askari Bank, Bank of Punjab and OGDC. The KSE 30-share index rose by 386.91 points at 17,718.51 points.

"The progressive rise in the single session volume to well over 300 million shares reflects the future viability of the share market," analysts said.

Khaleej Times Online - Next KSE target could be 15,000 if all goes well

 

[Neo]

Only 27 greenfield projects set up from $4.27bn FDI in Pak ​

In India, 981 such projects established from $16.88bn FDI; greenfield projects pertain to development of undeveloped areas

Wednesday, October 17, 2007

LAHORE: Pakistan has managed to establish only 27 ‘greenfield projects’ from total foreign direct investment (FDI) of $4.273 billion it received in calendar year 2006. In comparison, 981 greenfield projects were established in neighbouring India from FDI of $16.881 billion during the said period.

The World Investment Report, released on Tuesday by the United Nations Conference on Trade and Development (UNCTAD), revealed these figures.

The report said global FDI soared to $1,306 billion in 2006, recording an increase of 38 per cent over previous year. South Asia received $22.274 billion in FDI in 2006, which was more than double the investment of $9.866 billion it received in 2005.

The FDI inflows to Pakistan increased by less than 100 per cent from $2.201 billion in 2005 to $4.273 billion in 2006. The FDI inflows to India, on the other hand, rose by 250 per cent from $6.676 billion in 2005 to $16.881 billion in 2006.

The report gave details of greenfield projects established from 2002 to 2006 in all the regions. These projects generate additional employment which is not the case in the acquisition of already established projects by foreign investors.

The number of greenfield projects established in Pakistan was 13 in 2002, 23 in 2003, 20 in 2004, 67 in 2005 and 27 in 2006. That meant the total number of greenfield projects during the last five years in Pakistan was 152.

In neighbouring India, 246 greenfield projects were set up in 2002, 453 in 2003, 696 in 2004, 590 in 2005 and 981 in 2006. Thus, India managed to develop 2,966 such projects during the five-year period from 2002 to 2006.

It is worth noting that the total number of greenfield projects established in Pakistan was much less than the projects attracted by India even in 2002 when it set up the lowest number of such projects.

Another point that needs attention is that the FDI for greenfield projects in Pakistan remained inconsistent during the last five years while India managed to attract higher number of foreign investors for these projects every year, though there was a slight decline in 2005 which was more than compensated in 2006.

There were five cross-border mergers and acquisitions in Pakistan in 2004 which increased to six in 2005 with another six Pakistani companies acquired by foreign investors in 2006. Foreigners acquired 80 Indian companies in 2004, 126 in 2005 and 163 in 2006.

Again there is a progressive increase in cross-border mergers and acquisitions by foreigners in India while the process remained stagnant in Pakistan.

Pakistani investors purchased/acquired three foreign companies in 2004 and none in 2005 and 2006. Indian investors, on the other side, acquired 64 foreign companies in 2004, 91 in 2005 and 133 in 2006, showing a consistent increase. These included some of the biggest acquisitions worth $32 billion by Mittal of a European steel company and $9 billion takeover of another steel company by Tata.

The report revealed that developed economies were the main recipients of FDI inflows which increased by 45 per cent in 2006 to $857 billion The US regained its position as the main destination for FDI inflows replacing Britain which was the leader in 2005.

The FDI inflows to developing economies reached a record $379 billion, registering an increase of 68 per cent over previous year. The largest investments in this category went to China, Hong Kong and Singapore.

Only 27 greenfield projects set up from $4.27bn FDI in Pak

 

[Neo]

Pak external debt at $36.9bn, up from $33.6bn in ’99 ​

This gives a lie to govt’s claim country has come out of WB’s, IMF’s clutches; country borrowing more and more from WB, ADB

Wednesday, October 17, 2007

KARACHI: The economic managers of the present government have continuously been making claims that the country has come out of the clutches of the foreign lending agencies, especially the World Bank (WB) and the International Monetary Fund (IMF). The present government has also made claims that inflation has declined and the country would no more require further assistance from the WB and the IMF.

The factual position, however, is entirely different.

According to prominent economists, Pakistan’s official external debt has not gone down since 1999 although it has received record aid, investments and remittances. It has gone up to $36.9 billion from $33.6 billion in 1999 despite receiving at least $10 billion in economic, military and development aid from the United States, over $6 billion from privatisation proceeds and a relief of $1.6 billion in loan write-offs by foreign governments during the last seven years.

“The rescheduling of Paris Club debt provided an additional relief of $1.2 to $1.5 billion annually in terms of debt service payments. Is the government’s debt management policy is sound and successful as it claims or a historic opportunity to restructure the country’s high debt levels has fallen victim to political expediency or a false sense of achievement,” questioned an economist.

Even after having received such generous assistance, Pakistan’s external debt to GDP ratio is 28 per cent, slightly worse than Africa’s 26.2 per cent, which also happens to be the average for all the developing countries. The average external debt to GDP ratio of all emerging markets declined from 42.1 per cent in 1999 to 26.2 per cent in 2006, underpinned by strong growth in the global economy and record investment flows into developing countries.

The economists argue that former prime minister Nawaz Sharif left a heavy external debt burden at 53 per cent of GDP and the current levels represent a substantial improvement. The net debt flows (disbursements minus repayments) into Pakistan during 1990-1999 aggregated $5.4 billion compared with $1.1 billion during 2000-2006.

Hence the growth in the debt slowed down during the last seven years. However, post-9/11, Pakistan received generous foreign aid as well as much higher levels of foreign direct investment. Remittances averaged around $4 billion a year during 2003-2006 compared with an average of $1.5 billion in the 1990s.

Nevertheless, Pakistan’s liquid foreign exchange reserves, after jumping to $10 billion-level in 2002-03, have more or less stayed around that level on average. The foreign exchange reserves of even Sub-Saharan countries (excluding South Africa and Nigeria) doubled to $50 billion during the same period. Brazil and Argentina repaid all of their $25 billion debt, by utilising their foreign exchange reserves, to the IMF in early 2006 to rid their countries of its influence.

In contrast, Pakistan has not been able to reduce the external debt burden in absolute terms or build up its foreign exchange reserves. In fact, it has become the fourth-largest borrower of the World Bank and the fifth-largest recipient of American aid. This shows its continued reliance on foreign governments and multilateral institutions, despite declarations of economic sovereignty, and a failure to mobilise domestic resources to pay for the development expenditure. Leaving aside all the technicalities and vague statements, there has been no convincing explanation for not having used the privatisation proceeds to reduce the external debt in a completely transparent manner.

Some policy-makers argue that it is acceptable to borrow if the borrowing is for productive purposes. That is theoretically correct. However, if the borrowing record is littered with corruption and wasteful spending, and major sectors of the economy (large agriculturists, stock brokers, property barons, etc) do not pay any tax at all, the proposition becomes quite debatable and the motives questionable.

The government claims that it no longer borrows from the IMF and does not carry around a begging bowl. This is quite misleading because it has been borrowing more and more from other multilateral institutions like the World Bank and the Asian Development Bank (ADB). The borrowing from multilaterals has outpaced the borrowing from the Paris Club since 1999-2000. Its share in total public and publicly-guaranteed debt has increased from 37.5 to 50.2 per cent in 2006.

While negating the claims of breaking the begging bowl by the present government the World Bank has recently unveiled a lending programme of up to 6.5 billion dollars for Pakistan under a new four-year aid strategy showing a significant increase in funding aimed largely at beefing up the country’s infrastructure.

According to a Washington-based institution, the 2006-2009 strategy’s blueprint, discussed by the Bank envisaged “a lending programme of up to 6.5 billion dollars for Pakistan during the period.”

The new lending shows “a substantial increase over the previous period,” the WB claimed.

According to WB’s sources, Pakistan received about 2.73 billion dollars from the Bank over the last four years.

As the government is constantly telling lies to the people of Pakistan, the economists believe that it is just like pulling wool over the eyes of the people of Pakistan.

But the biggest question is: where all the money has gone?

Pak external debt at $36.9bn, up from $33.6bn in ’99

 

[Neo]

The economy under Pervez Musharraf​

This may be a good time to take stock of the economy’s recent performance. When on October 12, 2007, General Pervez Musharraf completed the eighth year of being in total power, the military had governed the country for a total of 32 years.

During this time the economy grew at an average rate of 6.3 per cent a year. For the remaining 28 years, the economy’s performance was less impressive, the GDP increased at the annual rate of 4.7 per cent.

Does this mean that the military is a better manager of the economy? This question does not have an easy answer but it can begin to be addressed by looking closely at the performance of the economy under General Musharraf.

This article is an attempt to take a look at how the economy was governed in 1999-2007 period. The conclusion that I will reach after asking a number of questions and then providing brief answers to a few of them is that while the economy performed well under the general, it was not due to any deep structural change brought about by the regime in power. Luck and a change in the external environment were important determinants of growth.

What are the important questions we need to raise at this time as we begin to assess the performance of the economy under the military? I will begin with six of them. Are the people better off after eight years of military rule compared to their situation when the military returned to power?

Has the economy, as a result of the policies adopted during this eight year period, now proceeding on a trajectory of reasonably high level of growth on which it can remain, no matter what happens to the flow of foreign assistance?

What kind of structural changes have been introduced and will these strengthen the economy over the long run? Is Pakistan now in a position to take advantage of the enormous change that is occurring in the global economy?

Was the decision making in place during the Musharraf period such that it could factor in the wishes and aspirations of the population at large? Have the governments at the sub-national level been given the autonomy to operate without too much interference from the central authority?

Full answer to these questions will need a much longer article than possible for the pages of a newspaper. That said, my main purpose today is to provide a quick overview of the performance of the economy over the last eight years and then address the issue of its vulnerability to possible changes in the perception of the world to the evolving situation in Pakistan.

I will begin with a simple accounting of the performance of the economy in terms of the growth in GDP and income per capita of the population. These are shown in the table placed below. The table shows three things. One, the economy took time to pick up under General Musharraf. It was only after three years that it began to expand and income per capita started to increase. The economy was deliberately kept in check by the decision to follow the IMF’s model of stabilisation.

Nonetheless, in the eight year period since the latest take over by the military, the size of the economy increased by almost 50 per cent and that of income per head of the population by nearly 25 per cent.

Two, once the economy shrugged off the constraints placed on it, it went on to a higher trajectory of growth on which it has remained for the last five years.

Three, over the entire period, GDP per capita has increased at nearly twice the rate of growth of population. This should have had a profound impact on the incidence of poverty. But that did not happen.

There is a reason why the poor did not benefit as much from the pick up in the rate of the economy during the period of Pervez Musharraf. This was due to the fact that growth came from the sectors which did not provide much employment to lower income groups. Much of the increase in GDP came from the sectors which returned high rewards to the investors but in which the share of wages was relatively low. Real estate development was one of the important sectors of the economy as was the modern service sector. Neither, at least in the context of Pakistan, generated employment and income for the poorer segments of the population.

The government maintains that public policy has put the economy on a trajectory of growth that would produce seven to eight per cent increase in GDP over the next several years. That claim is hard to endorse since the economy remains sensitive to the quantum of external flows. As was the case in the past, the economy would suffer a serious set back if the flow of resources from abroad is reduced significantly. The only difference between the present situation and the past is that a sudden cut off in aid will not hurt the economy as much as it did in the ‘nineties. Then, the sanctions imposed on the country following its decision to test nuclear weapons resulted in a severe economic set back. Now, if aid were to suddenly stop, Pakistan could continue with economic expansion provided capital continues to flow in from the large and rich Pakistani diasporas in three continents and provided also the Middle Eastern investors retain their interest in the country.

One of the positive features of the way the Musharraf government managed the economy is to have made it attractive for some foreign investors. But Pakistan has not become an important destination for investors as India has over the last decade. India offers the promise of political stability, a legal system that can protect investors, a highly trained workforce, and a fairly large rate of domestic savings. It also has a large domestic market which is of interest to foreign companies.

Pakistan, on the other hand, is seen as a country which has high levels of illiteracy, in which political instability continues to threaten the pursuit of economic policies that would be sustained over a reasonably long time, and in which the rise of Islamic extremism threatens economic and social modernisation. If foreign investors have been attracted to the country it is only those who either are tapping the large market for some basic goods of consumption and for some basic services. When the government claims that it has made possible large foreign direct investment into the country, it does not mention that FDI has come in the form of purchase of domestic cigarette manufacturing by America’s Altria group, or by an expansion in the presence of such food and beverage companies as Pepsi Cola and MacDonald. There has also been significant investment in mobile telephony by operators from the Middle East and China.

But investment in consumer product and domestic services cannot be the basis of long-term sustainable growth.

The vulnerability of the economy to external flows is revealed by the data on investments and the sources for financing it. During the Musharraf period, the rate of investment has increased by a third, from 17.2 per cent of GDP in 2001-02 to 23.0 per cent in 2006-07. However domestic savings have declined from 17.8 to 16.1 per cent of GDP in the same period. This means that the economy is even more dependent on foreign flows than was the case in the 1990s. This dependence may not mean that the continuing political support of western governments and development institutions such as the World Bank is absolutely critical for economic progress. But there is now reliance on other sources of external finance. In other words, some changes in the structure of the economy notwithstanding, the claim of Islamabad that the economy is now moving on a sustainable course and that it will not derailed by political storms is hard to accept. The economy remains vulnerable to external shocks but of a different kind.

The economy under Pervez Musharraf -DAWN - Business; October 17, 2007

 

[Neo]

Slower credit off-take and falling industrial growth​

DURING the first quarter of this fiscal year, the private sector made a net retirement of Rs4 billion bank loans. This comes in a sharp contrast to its net borrowing of Rs37 billion in the same period of the last year.

At its meeting held in Karachi on October 9, the central board of directors of the State Bank examined this and other recent economic developments. Sources said that the private sector’s representatives on the board pointed out that the monetary tightening was resulting in a slower off-take of the private sector credit.

State Bank Governor Dr Shamshad Akhtar, however, insisted that the tightening of the policy had slowed the rate of inflation and added that the inflation target of 6.5 per cent set for FY08 would be achieved.

Business leaders are concerned about a big fall in banks lending to the private sector. They are also unhappy with the State Bank for not holding the meeting of the Private Sector Credit Advisory Committee. Sources close to SBP believe that the committee would meet early November. Dr Shamshad Akhtar is leaving for Washington to attend the IMF-World Bank annual meetings and would be back towards the end of this month.

The advisory committee is expected to draw the credit plan for this fiscal year and set a tentative target for the private sector borrowing from banks. “There is little point in holding the meeting after four months of the new fiscal year have passed,” remarked a member of the committee.

Business leaders fear that a low bank borrowing of the private sector would lead to a lesser than expected growth in industry during this fiscal year. “That is very much obvious,” says Mr. Iqbal Ibrahim, vice chairman of the All-Pakistan Textile Mills Association. “And once the industrial sector growth falls short of target it means we won’t achieve the economic growth target as well.” The government has set the GDP growth target at 7.2 per cent for this fiscal year.

In the last fiscal year, growth in the large-scale manufacturing had declined to 8.5 per cent against the targeted 12.7 per cent partly because higher interest rates had lowered private sector’s borrowing from banks. In FY07 the private sector’s borrowing fell to Rs366 billion against the target of Rs390 billion and far below the FY06 borrowing of Rs402 billion.

That the slowdown in the private sector credit flow is likely to impact on industrial growth is evident from the fact that in the first month of FY08, large-scale manufacturing has grown at a low rate of 6.2 per cent. The full year growth target is 10.5 against 8.5 per cent in the last year.

Business leaders say the appetite for private sector credit is low primarily because the textile sector’s borrowing from banks has fallen sharply. They claim that many yarn processing mills have closed down and even those operating are working below capacity as this sector fights for survival amidst growing international competition and rising input cost.

The sector-wise credit disbursement data for Q1 FY08 are not available. But older statistics show that the manufacturing sector rather made a net retirement of Rs21 billion during the first two months of this fiscal year.

Senior bankers say this happened as banks tightened credit disbursement after bad loans ballooned during January-June 2007.

Non-performing loans of all commercial and specialised banks rose to Rs187.3 billion at end-June 2007 from Rs173 billion at end-December 2006, showing an increase of Rs14.3 billion.

Financial observers point out that in the first quarter of FY08 banks did not bother much about lending to the private sector because the government borrowing from banks was at its peak. In Q1 FY08 the government borrowed Rs88 billion from banks to fill in the gap between budgetary income and expenses. It, however, retired Rs9 billion of central bank credit.(In Q1 FY07 the government had retired Rs21 billion bank loans and borrowed Rs60 billion from SBP.

On the one hand, heavy government borrowing from banks has led to a situation where banks are not much concerned about a negative growth in private sector credit. But on the other hand, the government policy to borrow from banks and not from the central bank has helped keeping core inflation in check. Small wonder than that in July-August 2007 CPI inflation accelerated 6.4 per cent against 8.3 per cent in July-August 2007.The government has agreed to keep its borrowing from the central bank at bare minimum from this fiscal year to help the State Bank in its fight against inflation..

The manufacturing sector, particularly textiles, looks certain to borrow less in this fiscal year because of high interest rates combined with rising input cost including increased wages. But the farming community believes that agricultural borrowing would rise.

“The government has increased the produce index value—a tool that determines the borrowing requirement of farmers—from Rs400 to Rs1200,” says Syed Qamaruzzaman Shah, president of Sindh Chamber of Agriculture. “This means a farmer can now borrow up to three times his previous borrowing limit. This would boost banks’ agricultural lending.”

In the first two months of this fiscal year, agricultural lending increased 18 per cent to Rs25.8 billion and bankers say it would increase faster once the notification about calamity-affected areas is issued.

After heavy monsoon rains and flooding earlier this year, the government had eased the terms for farm loans recovery—and even waived parts of outstanding loans in certain parts of the countryside. “But bankers say they have not received notification of this and insist on recovering previous loans before making new ones,” complained Syed Qamaruzzaman Shah.

The FY08 growth target for agricultural sector is 4.8 per cent. But lower-than-expected cotton production, concern about rice output and increase in the prices of agricultural inputs including fertiliser might let the target slip by. Agriculturists, however, believe that agricultural lending this fiscal year would reach the targeted level of Rs200 billion—not only because of an increase in PIU but also because over the past two years Zarai Taraqiati Bank has improved its financials and commercial banks have learnt the art of farm lending. In the last fiscal year banks lending to agricultural sector rose to Rs168 billion against the target of Rs160 billion.

More importantly, as National Insurance Corporation has just facilitated crop and crop loans insurance by banks, agriculturists think this would go a long way in boosting agricultural credit. But they point out that there is very little awareness about this among farmers.

The overall private sector credit growth has remained negative in Q1 FY08 also due to slower distribution of consumer loans. Data covering the first two months of FY08 show that consumer loans rose just 2.6 per cent. Bankers say though auto loans might continue to show a nominal growth because of a rise in car prices, housing finance might grow faster.

“The reason is that the real estate prices have seen a nominal fall in the recent months and have become attractive again,” said a head of credit division of a large local bank. “If the sub-prime credit squeeze in the US worsens, you’ll see lot of investment in the real estate here and that would be followed by a growth in bank loans for housing and construction.”

In FY06 when the private sector credit had hit an all- time high of Rs402 billion ,it was widely believed that part of the bank credit was used in speculative investment in the real estate and stocks thus fueling inflation. This phenomenon weakened in the last fiscal year when private sector credit totaled Rs366 billion against the target of Rs390 billion. And since the SBP has made it difficult now to use bank loans taken for other purposes in investing in the real estate and stocks, this too has dampened the private sector credit appetite this year.

Slower credit off-take and falling industrial growth -DAWN - Business; October 17, 2007

 

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Qatar to invest $2.5 billion ​

ISLAMABAD (October 17 2007): A number of companies from Qatar have shown interest to invest $2.5 billion in Pakistan in various sectors like finance, hotel industry, cement plant and power generation. The Chief Executive of Pak-Qatar General Takaful Limited, Waqar-ud-Din, told Radio Pakistan on Tuesday.

The Islamic Bank, with an investment of $100 million, would be established in Pakistan. Companies included in the Takaful would also introduce their products and services in property and automobile and engineering sectors, he added.

Business Recorder [Pakistan's First Financial Daily]

 

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Gwadar highlighted as global investors' future port ​

KARACHI (October 17 2007): Gwadar was highlighted as the future port of global investors at an international conference on 'Free zones, science and technology parks, enterprise zones', jointly organised by World Free Zone Convention (WFZC) and World Customs Organisation (WCO).

The conference was held at the WCO headquarters in Brussels, Belgium, on June 5 and 6. According to a report prepared by Sheikh Javaid, Chairman, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) standing committee on export processing and free zones, who attended the conference, Gwadar was also introduced as commercial hub of the region.

The report, available here on Tuesday, said that the conference was told that Gwadar, when fully operational, would be capable of catering the requirements of international trade between CAS countries, Middle East & Near East and Far East. As a result of the wide coverage by media, considerable interest by investors of the world had been recorded for investment in projects in Gwadar.

WFZC is UK-based international organisation engaged in providing knowledge and information to free zone stakeholders, ie, managers, operators, customs and port authorities, transporters, investors, financial institutions, etc. It thus provides a fora for guiding concerned institutions and personnel not only for establishment of new free zones but also to suggest ways and means to improve the working of existing zones for achieving the targets set for each unit.

The report says that Mike Schmitz, Director, World Customs Organisation, Brussels, mentioned about a policy of understanding and cooperation and said that certain countries were executing examination of goods and documents on behalf of each other to avoid duplication of work at the points of origin and destination.

A similar system has been introduced at Port Qasim for Pakistan's exports to the United States whereby scrutiny of goods is carried out through scanning the containers by a joint team of Pakistan and US customs to avoid re-examining of goods at destination in US. It was also emphasised that simplification of documents and customs procedures should be ensured to achieve faster movement of goods in the supply chain.

Adel Abdel Maged Masoud, First Under-secretary and head of Free Zones sector, GAFI, from Cairo, spoke on setting up and monitoring zone customs bases in public and private zones and compliance issues. His main points for discussions included role of Free Zones relationship between Free Zones and customs bases. Egypt has developed Free Zones with dedication and has provided a distinguished investment regime to the investors.

There are two types of Free Zones in Egypt, namely, the Public Free Zones, and Private Free Zones. There are 1000 units working in Free Zones regime in Egypt. Simplification of procedures and freedom to export and import was also ensured in Free Zones in Egypt.

The report said that this issue is hitting the investors hard in Pakistan these days and it is reported that survival of EPZ units is becoming difficult day by day. Investors are agitating over the regulation of 80-20 and it is said that a considerable number of units in KEPZ have closed down.

Mao Xintang, Vice-Chairman and Secretary General of China Free Trade Zone and Export Processing Zone, said that ShenZhen Special Economic Zone (SZSEZ), established in 1980, was launched as the first Special Economic Zone in People's Republic of China. It is said that ShenZhen's economic growth is among the world's most robust and fastest growing Free Zones and, by 2010, the annual GDP of ShenZhen City would rise to $12000 per capita.

The report mentions that Pakistan's importers have been in contact with ShenZhen Free Zone and have been importing merchandise of a sizeable volume from the zone.

China claims to have following free zones in the country: Export processing zones 59; free trade zones 15; bonded ports 4; bonded logistics parks 8; and cross-border industrial park 1. Special zones of China are seen as roadmap and many countries of the world have followed the special economic zone strategy to give a boost to their economy. These countries include India, Iran, Jordan, Poland, Kazakhstan, the Philippines, Russia, Ukraine and Pakistan.

China is helping Pakistan develop the 'Haier-Ruba' economic zone near Lahore, and another zone is likely to be set up in Gwadar. The conference noted with great interest the Chinese efforts in the area of establishing free zones to support its economy. The Chinese government also encourages outward foreign direct investment (FDI). The outflows amount to $16.1 billion, placing China at 13th position in the world, with stocks rising to $73 billion mark.

The report summarises that free zone concept is claimed to be an ideal situation for the betterment of economy of a country. The world is attracted by free zone ideology, and most of the countries of the world, including China, Pakistan, Bangladesh, UAE and others, introduced and amended their policies so as to induct and follow the ideology.

The world has recognised free zone as an ideal solution. These zones are established under different titles eg export processing zones, special economic zones, and science and technology free zones, etc.

There are about 3000 free zones in the world, and thousands of industries, service units and offshore trading and warehouses are operating under the free zones flag. Special economic zones of China, Panama, UAE and Shannon free zone, Ireland are considered successful zones of the world.

The report concludes by pointing out that departure from public sector control to private sector was suggested by leading advisers, especially in cases where zones are not giving desired results for betterment of country's economy in the form of increased exports and investment.

Business Recorder [Pakistan's First Financial Daily]