Pakistan Economy - News & Updates - Archive

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Revisiting the budgetary targets​

THE state of the economy as indicated in its first quarterly report 2007-08 by the central bank is likely to lead to a downward revision of the ‘ambitious’ annual budgetary targets.

Official planners are believed to have sought time from the caretaker prime minister to brief him over the deteriorating economic situation. The objective is to seek the government’s approval for revising downward various fiscal targets and goals for 2007-08. That may include possible cut in development expenditure.

A decision is also said to have been taken to make adjustments in the Poverty Reduction Strategy as part of the presentation being planned for the caretaker cabinet.

A joint ‘presentation’ on the issue by the senior officials of the economic ministries is expected to be given to the caretaker prime minister and his cabinet team very soon. At the same time, the World Bank, the IMF and the Asian Development Bank (ADB) are also being informally contacted to seek their comments.

A major problem is coming from fiscal side and on the external sector mainly on account of unpredictable rise in oil prices. And at the going prices, officials concede that the oil import bill would reach to $10.5 billion and may result in Rs152 billion hit to the budget, if domestic prices remain frozen.

Fiscal indicators were turning weaker primarily due to development expenditure rising by 89.5 per cent to Rs130 billion during the first quarter of 2007-08 compared with the same period last year and the current expenditure increasing simultaneously by 34.34 per cent to Rs340 billion. A slower economic growth than targeted is unlikely to yield estimated tax revenue.

Yet, the officials in the economic ministries have reacted to the State Bank’s report by maintaining that there was no need to say that risks to the economy were increasing. “The central bank report could have termed them as challenges rather than calling them risks to avoiding any panic in the public”, an agitated official said. However, he agreed that the finance ministry cannot direct the central bank to do this or do that and the central bank has to offer its own independent views on economic issues.

Former director of the Pakistan Institute of Development Economics (PIDE) Dr A.R. Kamal believes that the government will have to revise downward its fiscal targets set for the current financial year. This was evident much before the assassination of Ms Bhutto while the situation today is extremely alarming. Due to the ongoing load-shedding and the decision of the Federal Bureau of Revenues (FBR) to revise its targets downward and the unprecedented losses that occurred between December 27 to 31, the government is left with no option but to urgently revise to lower its fiscal targets. There was a revenue shortfall and export growth was declining while imports were rising and trade deficit was widening.

“Under these circumstances, there is no way the government can achieve its 7.2 per cent GDP growth target or reach even close to that target,” Dr Kamal said. The oil import bill was increasing. The money supply had increased because of the government’s huge borrowing and these are not good signs for the economy, he added.

Former senior World Bank official Abid Hasan sees the situation very difficult, maintaining that if the government continues with its increased expenditure, it will be forced to revise downward its budgetary targets set for 2007-08.

He said the government might scale down the size of Public Sector Development Programme (PSDP) to meet the situation. There is a serious problem of current account deficit and nobody knows how long the government will finance this deficit through uncertain foreign capital inflows. Then subsiding energy was becoming a serious issue. And his may ultimately cost Rs150 to Rs160 billion to the government. “They would try to go for some window dressing to get away with this current serious situation”. He called upon the government to take bold decisions to avoid landing in troubled waters.

When contacted Special Secretary to the ministry of finance Dr Ashfaque Hasan Khan said it was premature to talk about revising downward broad economic indicators set for 2007-08. He was hopeful that increased industrial production and improved performance of the agriculture will obviate the need to revise fiscal targets.

He said that industrial production in October was 9.83 per cent over 7.7 per cent of October last. “Despite billions of rupees losses due to violence seen during December 27 to 31, the industry is expected to grow at 11-12 per cent rate”, he said.

Asked about wheat output, he said with the ongoing rains across the country, wheat production target of 24 million tons was likely to be achieved against 23.3 million tons of last year. Dr Khan said the negative impact on GDP will be when there will be a serious impact on agricultural growth.

“Yes the problem will come from cotton production which will be less than the target of 14.1 million bales”. He said the government will miss this target. Rice production would be slightly higher than last year. Likewise, he said, that last year’s sugarcane production at 54 million tons will be surpassed by an expected 62.4 million tons this year.

Large scale manufacturing is expected to grow at an average rate of 10.5 per cent though its performance remained at 7.7 per cent during the first four months of the current fiscal year.

Similarly, this year there will be 40 per cent increase in sugar production and its weight in the GDP is 4.155 per cent. “At this stage it cannot be said what will happen to our various budgetary targets”, he said hoping that despite various problems the government will manage 6.6 per cent plus GDP growth against the target of 7.2 per cent.

He said growth estimates vary from institution to institution. For example, Merrill Lynch predicted 5.8 per cent GDP growth rate while ADB was projecting it would be 6.5 per cent. The central bank said it would be 6.6 to seven per cent.

The problem with Pakistan, he said, was that it had witnessed seven per cent plus GDP growth in the last 4-5 years. This has built expectations that economy will continue to grow around this level in the foreseeable future. The government, he said, had always been saying that GDP growth would be in the range of 6-8 per cent per annum over the next one decade.

He believes that even six per cent GDP growth indicates a robust economy especially when many countries has been witnessing recession.

The problem, he said, was on the fiscal side and the current account balance, while the inflation primarily food driven, is a global phenomena.

Revisiting the budgetary targets -DAWN - Business; January 14, 2008

 

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Making exchange rate more competitive​

The State Bank of Pakistan’s warning on the growing challenges to the economy was followed by the slide of the rupee in the inter-bank.

In its quarterly report of fiscal 2008 released on Saturday, January 5, the SBP predicted in no uncertain terms the annual current account deficit going up to 5.2 per cent by end June as against 4.9 per cent in the last fiscal year. And from the following Monday, the rupee came under strain and by Thursday noon was quoted in inter-bank market at Rs62.75 a dollar.

The July-October current account imbalance at $3 billion is better than $3.5 billion deficit in the same period of 2006-07, but things went wrong from the second quarter, particularly from November when politics and expediency overtook all economic considerations. Deterioration set in and the chain of events that followed November 3 emergency exposed the national economy to increasing risks.

Market analysts now predict that rupee-dollar parity may go down further by the end of next June. But some exporters want a dollar at Rs70 to boost their foreign sales, no matter how it will impact the import bill and inflation. ‘’Caretakers will avoid taking such a decision but the elected government will have a tough time to draw up a strategy’’, remarked an economist. The central bank believes in a market-driven exchange rate, intervening only in case of abnormal volatility.

‘The rupee depreciated by 1.4 per cent between July and December 12 as the deterioration set in the external sector in November/December. The SBP report informs that the rupee value depreciation was limited to 0.5 per cent in July-October 07.

Between July and October, 07 the financial and capital account showed a surplus of $3.1 billion and raised the foreign reserves to $16.4 billion. But the subsequent developments between November/December reduced the reserves to $15.5 billion. Financial analysts say there was no respite from the process of haemorrhage of the foreign exchange reserves.

Dollars’ outflow has overtaken dollars inflow’’, said an analyst in a money exchange company while trying to explain the slow erosion of rupee value, adding that, ‘the demand for dollars from importers and oil companies in the inter bank is mounting with every passing day’’. He sees little possibility of any respite as international oil prices are giving no indications of a reversal and merchants are set to import wheat at $450-500 a ton along with many other consumer items.

On the other hand, the inflow of dollars is slowing down. The export growth is too sluggish. The remittances may come under strain after November 3 emergency and following the devastating incidents that shook the country. The latest was the incident on last Thursday of a bomb blast that shattered investors’ confidence and market watchers now fear a big haemorrhage of portfolio investment. An official justification, issued by the federal finance ministry for imposition of emergency, apparently failed to provide comfort to investors.

And yet, Asad Saeed, a noted economist, is confident that the rupee exchange value will not tumble down. He also rules out a huge devaluation of the rupee to boost exports as it would raise the import bill and push the inflation to un-manageable limits. However he wants a hard look at the budget and economic policies. If the monetary policy is to be retained, the fiscal policy needs to be reviewed, he maintains.

But on the other hand, a retired central banker foresees bad days ahead: ‘’I have been warning for the last few years about the growing imbalances,’’ he says, as according to him, a prudent policy-fiscal and monetary-should bring about a balance within four to five years. ‘He estimates the trade imbalances for 2007-08 at around $15-16 billion by end-June next and the current account deficit at around $7-8 billion Foreign borrowing is becoming too expensive.

The government has already borrowed Rs191 billion from the banking sector which is Rs35 billion more than the target and further borrowing will create more reserve money pushing up inflation, he added..

He says that foreign investment came mostly in services sector which, in turn, outgrew the real commodity sectors. It does not provide commodities but it creates demand for the same. ‘’No wonder, 56 per cent of our import bill —directly or indirectly---is for consumer goods’’, he said while including mobile phones in the same category.

The SBP report identifies two potential factors that could impact on the economy. The first is the decrease in export growth and the second being the rise in cost of financing for funding external deficit.

‘’Our exports are expensive and too meagre in quantity as compared to our competitors-- India, China, Bangladesh and other countries’’, the retired central banker said. ‘’Mere cosmetic measures will not improve the export performance but a whole revamping of industry and agriculture will have to be done,’’ he says. There has to be long-term policies with periodical reviews.

The SBP report also reminds its readers that domestic economy is now more prone to external shocks than ever before. ‘’This has important policy implications going forward’’, the report says while pointing out that domestic prices will be more sensitive to international prices even in face of surplus availability. The report does not elaborate much but businessmen mention wheat as an example. Farmers produced 23.3 million tons of wheat against the requirement of 22 millions. The growers were paid only Rs425 for 40 kg as against almost three times of this price in the international market. Even now, wheat in Karachi is selling for Rs22 a kg while in Lahore, it is Rs19 a kg.

Making exchange rate more competitive -DAWN - Business; January 14, 2008

 

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Coping with the worst power shortage​

THE power consumers of Wapda and KESC are enduring with remarkable patience the worst power shortage since 1980s.

Perhaps, they are conscious that they belong to the lucky 50 per cent population having access to the national power grid. The government has consoled the consumers that power shortage and load-shedding are side effects of the growing national prosperity. That is not the whole truth. The rising power shortage and the looming bankruptcy of the power sector are mainly the result of poor planning, failure to upgrade an old and inefficient power grid, tolerating unsustainable operating losses and an ineffective power policy.

In the past 10 years, there were clear indications of the impending power crisis. The government was fully aware of the looming power shortage at the time of framing the 1998 and 2002 power policies. But there was no will to investigate and adopt a reasonable, cost-effective and lasting remedy.

The power grid includes lot of inefficient and unreliable power generating, transmission and distribution facilities. As a result, the grid normally operates at less than 80 per cent of its installed or de-rated capacity. The capability of the power grid is also affected by an imprudent planning by the KESC and Wapda. For example, the KESC heavily relies on supply of the natural gas for generating 78 per cent of its electricity. At the same time, Wapda depends on hydropower and natural gas for generating 80 per cent of its electricity. The simultaneous shortage of these resources in the winter drastically reduces the power generating capability of the grid. For this reason, in December 2007 the actual output of the power grid fell to 60 per cent of its installed capacity.

Another example of the imprudent planning is the dependence of Wapda on the hydropower developed as a secondary benefit of the irrigation projects. The dependence on the irrigation demand makes the electricity less reliable than the electricity supplied by an independent hydropower project. In fact, most of the country’s hydropower is dependent on three factors, first the irrigation demand, second the water level in reservoirs and third the water flowing in rivers.

On the other hand, the output of the run of river hydropower projects depends on the water flowing in the river only. If Wapda had developed some of the promising run of river hydropower projects, the reliability of the hydropower would have been far better than it is the case at present. However, despite many studies in the last 40 years, no major run of river project was implemented out of the most promising potential.

Wapda and the KESC also annually lose huge amount of their revenue due to extra fuel and loss of electricity, besides the loss of capacity of the grid. The average efficiency of their thermal power plants is so low that their operation requires very high expenditure on fuels. On top of it, about 26 per cent of the generated electricity or 30 billion kilowatt- hour per year is lost in transmission and distribution systems or it is simply stolen. The annual loss of electricity amounts to at least Rs120 billion. Total annual losses suffered by the power sector, including the loss of capacity, the loss due to inefficiency and the loss or pilferage of electricity, are simply unsustainable. If remedial measures are not taken soon, these losses and other short comings of Wapda and the KESC will result in the bankruptcy of the entire energy sector. That eventuality can severely disrupt the economic growth.

Finally the policy called ‘Policy for Power Generation Projects Year 2002’ neither prevented the power shortage nor attracted private investment in power generation from the indigenous coal and hydropower. It is futile to expect the policy to attract the required investment for its anticipated 34,885 MW additional demand by 2,027 or an average addition of 1400 MW per year. So far, no hydropower and coal-based project initiated under the policy has achieved the financial closure. Only the low risk gas and fuel oil- based thermal power projects achieved the financial closure.

However, the total output of these projects is too small to make any difference to the rising power shortage. Furthermore, there is an acute shortage of gas which normally shuts down most of the gas-based plants in the winter. For example, even the recently rented power plants were shut down due to gas shortage in December 2007. On the one hand, the fuel oil is an imported and now very costly commodity that is affecting the affordability of electricity and the country’s current account and trade deficits.

The power grid requires an annual infusion of several billion dollars for a foreseeable future on repairs, retrofitting, upgrading, replacements and additions. But it is also clear that the government is not in a position to arrange and manage such a huge investment. Moreover coal and hydropower are the main dependable sources of electricity. But these resources cannot be fully harnessed without private financing and that would be possible only if the power policy offers incentives. The government needs to frame a new policy that offers incentives commensurate with risks and tangible as well as intangible benefits of each technology of power generation.

Although water as an input for hydropower is virtually free and coal is the cheapest fossil fuel, the green field coal and hydropower projects require 100 to 200 per cent more investment per MW than the gas and fuel oil-based power projects. But the price of fuel oil and natural gas is very high and volatile. By the end of 2007, the prices of fossil fuels in the international market in dollar per million British thermal units were 17, seven and three respectively for fuel oil, natural gas and coal. The coal and hydropower-based projects also face a large number of risks, but they provide the following tangible and intangible benefits:

Providing cheap and inflation proof electricity. Reducing the dependence on foreign oil and gas imports and the attendant economic and national security problems Enhancing power system reliability and flexibility. Spending up to 80 per cent of the construction costs on local inputs and jobs The hydropower provides the following additional benefits:

Reduction in the use of non-renewable resources. Reduction in the adverse environmental impacts of thermal power generation, including a relative improvement in air quality and resulting human health.

More than 40,000 MW untapped hydropower can meet Pakistan’s future demand of electricity but for the stability and the reliability of the power grid the hydropower needs back-up of an inexhaustible Thar coal. The coal is still the most widely used fuel for power generation. This is evident from the share of 39, 19, 16, 15, 10 and one per cent respectively of coal, hydro, nuclear, natural gas, oil and other sources in the total output of electricity in the world. The USA has abundant coal and uses it to generate over 49 per cent of the total electricity. Canada has abundant hydropower and generates 61 per cent of its electricity from hydropower. Pakistan should also make optimum use of its coal and hydropower for achieving the energy security, for overcoming power shortage, for stabilising the price of electricity and for reducing the current account and trade deficits.

Coping with the worst power shortage -DAWN - Business; January 14, 2008

 

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Hard decisions or IMF bailout?​

Amid deteriorating economic indicators and continuing political turmoil, independent economists believe that the government - irrespective of who is running the show – is running short of time for taking long pending, tough policy decisions for resource mobilisation.

With mounting risks to macro-economic stability and no remedies yet in sight, financial analysts ask: Is the government taking a path that would put Pakistan again in the lap of International Monetary Fund within a couple of years of breaking the proverbial begging bowl or the national economic sovereignty could be salvaged by bold decisions upfront?

Those within and outside the government concur that the country has moved into the vicious cycle. The prices are out of hand, while fiscal deficit and energy crisis are emerging as a major risk to the current growth momentum.

In the first quarter of the current fiscal year, the fiscal deficit increased to 1.6 per cent of GDP against the targeted one per cent. If the trend continues, this year’s deficit should not be less than 6.4 per cent, much higher than the target. In the first six months, the Federal Board of Revenue is set to reduce revenue target by Rs35 billion. Coupled with this, another additional burden of Rs100 billion in subsidies on oil and electricity would further raise the overall fiscal deficit.

And the current account deficit is rising every year; foreign capital and financial inflows are adding to outflows; and repayments due this year of the $12.5 billion foreign debt that was re-profiled five years ago, will increase.

“The next six months would be crucial for the macroeconomic management of the economy particularly the policy of subsidising oil, power and food items”, the central bank chief Dr Shamshad Akhtar warned the federal government on Tuesday last.

Is Musharraf administration strong enough to confront the critical fiscal challenges head on? Is it time to tax real estate and stock market for additional resource mobilisation given the fact that deals worth billions of rupees take place in each sector every day while contributing very little to the real economy? Or the axe has again to fall on general public when the vast majority of the population is already struggling for survival. About 74 per cent – still lives on less than Rs120 per day. Economists understand that policy options are limited and the time, if available at all, is short to remove worsening fiscal imbalances.

Prominent economist Dr A. R Kemal says “the situation on fiscal deficit is very dangerous”. He explains that current fiscal deficit (expected 6.4 per cent of GDP) is worked out on the revised base of 1999-2000. If calculated on the old base, this deficit would be in excess of eight per cent of GDP. There are only two options to contain this deficit: resource mobilisation and cut in expenditure. Otherwise, the fiscal deficit is going to go up. Easier solution for the government is to cut expenditure because it has not mobilised additional resources. Again, the expected cut on expenditure will be in the form of reduction in public sector development programme that would further hamper the economic growth.

The only option is to introduce new direct taxes, said an economist working with the government. The avenues left are capital gains tax – an area exempted till June 2008 – and wealth tax on real estate. And no serious efforts have been made to realise the potential revenue from income-tax on agriculture as this sector is dominated by the influential feudal and military class. These special interests have also so far effectively prevented the development of a proper tax base on real market value rather than fictitious price reported in the sale deeds, says Dr Kemal.

In the absence of these options, the resources to meet fiscal deficit can come either through foreign debt, through loans from the general public or banking borrowing. While the foreign aid or loans would mostly be dependant on geo-political situation with a cost to sovereignty, there will be a need to increase interest rates on national savings or Pakistan Investment Bonds that would multiply the domestic debt servicing cost and put pressure on the banking industry. The third source, loan from domestic banks, is more tricky and costly since the banks would have to bid for the money, the government would require and cost may go beyond 15 per cent. In the short run, however, the government can borrow from the central bank that would result in increased money supply and higher inflation.

The problem is that the only way to contain money supply is to reduce credit to the private sector. If that is done, the investment is going to be hurt and interest rates would rise further. So the only way of controlling money supply is to contain fiscal deficit, which in fact is the real problem and presents a chicken and egg situation. These were the signs that led us to the IMF in the 1990s when the balance of payment and the fiscal deficit were unsustainable. “So there can again be the same situation by end of this fiscal year”, says Dr Kemal. The only saving grace is around $15.5 billion reserve which can evaporate anytime, and we would be forced to go back to the IMF, he says.

Caretaker minister for finance Dr Salman Shah, however, says the situation today is much different than the 1990s and there is no need to go back to the IMF. He concedes that there are many risks to the economy this year but the country now had huge foreign exchange reserves, a much bigger economy and a lot of inflows and resources to sustain so many shocks. He said the Central Bank projected the economic growth rate at 6.6 per cent but any rate between 6.5 to 8.5 per cent was a good number to have.

“I am very optimistic that there will be no difficulty” because the objective was to achieve the target of four per cent fiscal deficit and there should be no big deal if it is done through fiscal adjustments that may slash development budget as well. He said the government still had six months to make budget adjustments to overcome the real issue of increasing subsidies. The exchange rate was getting more competitive and competitiveness of exports was not an issue despite domestic violence. He was non-committal on taxing the capital market, the land market and the agriculture but agreed that every sector has to come under the tax net with the passage of time.

Hard decisions or IMF bailout? -DAWN - Business; January 14, 2008

 

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State of economy: optimism and reality​

The State Bank’s quarterly review of the economy was finalised before December 27. That is why its projections about the future trend of key economic indicators seemed overly optimistic but even at the time they were made they bordered on optimism because market started slowing down much before the December tragedy.

The approach of elections shifted government focus away from plugging critical infrastructure gaps, especially in the power sector, although this gap was implicitly (lost working hours) and explicitly (supply contract cancellations and ensuing losses) retarding productivity of every sector and escalating the cost of doing business. This critical gap will magnify over time, and part of the blame there will lie with the industry because it never seriously pushed the government into matching power supply with the rising industry demand.

If elections bless us with a regime that has a credible strategy to plug this gap and the others manifested by the present deficits in trade ($ 7.2 billion), current account ($ 4.8 billion) and revenue (1.6 per cent of GDP), one may see a rebound but it won’t make up for slow growth in agriculture and key large-scale manufacturing sectors during the earlier quarters. The focus should be on sustaining productivity by forestalling another violence-driven interruption.

Assuming that this is ensured, SBP expects a rise in retail and wholesale trade to push growth, but consumer good market sentiment (except food) doesn’t support this hope. Nor does the financial sector given slow credit off-take, accelerated and stiffer loan loss provisioning requirements, and network losses caused by the recent riots. Leasing sector continues to under perform, and following the recent riots, insurance firms may book large losses since they don’t re-insure their entire risk.

The existing political situation exacerbated the existing pressures that took their toll on growth; re-scheduling of elections will stretch their impact into third the quarter. GDP growth of 6.6 per cent is therefore unlikely. GDP can still grow by six per cent registering a modest slow down, as will the other regional economies but a critical factor in achieving this target would be containment of inflation to stabilise the industry’s cost structure.

SBP’s worst-case expectation is that consumer price index (CPI) will stay below 7.5 per cent. This is a tough task; since July 2007, it has risen by 8.7 per cent and the year-over-year (yoy) increase is 12.7 per cent. This is without a rise in oil price that has been held back reflecting political expediency in the election year. But the worrying part is that rise in the prices of wheat, rice, edible oil and sugar accounts for nearly three-fourths of the rise in CPI.

What is worth noting is that these commodities are traded in the economy’s large undocumented sector. In spite of claims about market checks through price inspectors having magisterial powers, the government has failed in coaxing this sector into behaving. Worse still, the government lacks a clear strategy for timely and sufficient import of buffer stocks, and the delivery network to upstage the profiteers.

Continued drop in agricultural productivity has forced import of wheat and cotton – crops in which an agricultural economy like Pakistan should have exportable surpluses. To complicate matters, price of oil – another commodity for which Pakistan depends largely on imports – has been rising without any prospect of coming down. In addition thereto, prices of key imported industrial inputs have soared due to a rapid rise in their consumption in India and China.

This trend may reduce imports in general, but import of wheat, cotton and power generating equipment will rise. Deficit in the services sector could rise due to our continued dependence on foreign service-suppliers, especially shipping services. In FY 07-08 so far, the rupee has depreciated by 1.4 per cent. Along with the dollar (to which it is pegged) the rupee will weaken further increasing the dollar and rupee value of all imports. During third quarter FY 07-08, oil price could stay around the present level.

These trends will also undermine Pakistan’s industrial competitiveness. Every chamber of commerce had pointed them out. Yet, exporters’ problems were compounded by the limitations imposed on availing subsidised credit. This milieu of domestic and international pressures will not permit achieving export target of $18.9 billion nor prevent imports exceeding last year’s figure of $30.5.billion. The first five month’s trade deficit of $7.2 billion may exceed $15 billion by year-end.

In recent years, the current account deficit has been plugged with capital and financial inflows including foreign investment. But weakening of investor sentiment on account of political and security concerns (indicated by SACRA outflows and turning back on some earlier investment commitments), and postponement of privatisation of state assets, foreign investment will be no where near the $8.4 billion received in 06-07.

On top thereof will be the outflow of part repayment of external liabilities that were re-structured in 2001, and profit on the FDI received in recent years. These trends defy hopes of containing the current account deficit within 5.2 per cent of GDP. Besides, Pakistani observers, foreign analysts, IMF, World Bank and ADB had also pointed to this burden that was building up; after December 27 this burden could only rise.

Given these increasing burdens of grave concern is the high fiscal deficit caused largely by current expenditure. In the first quarter alone the government borrowing (Rs191.3 billion) has exceeded the full-year target for 07-08. It may be noted that it doesn’t include the liability to the oil industry for the differential between import and retail sales prices of oil. The possibility this current liability of being converting into term debt to avoid recording an even higher current fiscal debt cannot be ruled out.

In spite thereof, in the Q1 the revenue balance recorded a deficit. At its current pace (1.6 per cent of GDP in Q1) it could exceed 6.4 per cent of the GDP by year-end. In spite of 22.3 per cent rise in Q1 tax revenue, and besides high current expenditure, the deficit reflects a failure to expand the tax net fast enough; a higher tax-GDP ratio could provide a larger cushion for absorbing slippages like the unpaid oil price differential.

A harsh reality is that after de-regulation, cuts in import tariffs, and removal of import controls, import-oriented domestic markets become vulnerable to external shocks, and agricultural sector’s demand for international prices can’t be classified as unreasonable. Since supply shortages worldwide are likely to persist, prices of domestically produced crops could remain volatile. How then you control CPI, the mother of all market distortions? In a vastly undocumented economy, containing CPI with just the monetary policy amounts to wishful thinking.

By implication, the priority of the new government should be to develop new water reservoirs, repair and expand the canal network, line the water courses, expand fertiliser and pesticides production capacity, and re-vitalise agricultural research to increase crop yield. With a third of its population still below the poverty line, Pakistan must grow enough to feed its hungry millions because it can’t waste its dwindling export earnings on food imports. Export earnings and other foreign inflows must go into filling the infrastructure gaps to support the industry.

State of economy: optimism and reality -DAWN - Business; January 14, 2008

 

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Malaysia to put $130m into power plant​

* Plant to use solid waste to generate electricity

KARACHI: The City District Government Karachi (CDGK) has inked an agreement with a Malaysian firm that will invest $130 million for the installation of a waste-to-energy project which will produce 50MW of electricity.

A Letter of Intent (LoI) for the project was signed Sunday night at a local hotel by EDO Municipal Services Masood Alam and Managing Director Abaseen International (Pvt) Limited Omer Malik in a ceremony that was attended by City Nazim Mustafa Kamal, DCO Karachi Javed Hanif, EDOs and other officials.

“This will be the first plant in Karachi that would use the plasma gasification technology, which is being used in the energy sector worldwide to generate electricity from municipal waste. We will facilitate the Malaysian firm in allocation of land and provision of unsorted municipal solid waste for the plant, and the rest would be their responsibility,” Kamal said. He said that they had been working on the project for the last 18 months and it will help mitigate the ongoing power crisis and maintain the city’s cleanliness as the CDGK would obtain a share from the Carbon Crediting.

Omer Malik told Daily Times that the plant will be installed on 25 acres of land in Korangi and the agreement to finalize the project will be signed within the next 30 days. “Plasma gasification has been used in Malaysia and Karachi will be the second location where electricity will be produced from municipal waste.” He mentioned that the project is based on a Build-Operate and Transfer (BOT) basis for a concession period of 25 years and that they will get 15 percent of the profit from energy sale while the rest would go to the KESC.

Responding to a question, he said that the project was environment friendly as the municipal waste will be utilized to produce electricity and its residue could be used as slabs for flooring.

Daily Times - Leading News Resource of Pakistan

 

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Food prices shot up 12pc in December ​

CPI rose 8.79 per cent, WPI 12.14 per cent YoY in December

Tuesday, January 15, 2008

ISLAMABAD: The food prices went up to 12.21 per cent during December 2007, making poor men life more miserable as they consume the major portion of their income only for obtaining the basic necessities of life.

The phenomenal hike in food prices by 12.21 per cent served a crushing blow to the millions of low and fixed income families. It swelled to the double digit over the corresponding month of the last fiscal.

The food inflation has hit low-income families hardest by further eroding their purchasing power. The government is unlikely to achieve its overall inflationary target of 6.5 per cent during the current fiscal year mainly because of sky rocketing food prices in the domestic market.

The government has failed to overcome growing prices of food basket despite making tall claims. Based on 2000-2001 as base year the CPI inflation went up to 8.01 per cent during July-Dec period of the current fiscal year, reinforcing the view that the central bank’s policy of tightening its monetary stance has failed to yield the desired results.

The data released by the Federal Bureau of Statistics (FBS) on Monday showed food prices increased 12.21 percent from a year earlier, house rent was up 8.84 percent, and apparel, textile and footwear groups were up 8.63 percent.

The consumer price index rose 8.79 percent year-on-year in December from 8.67 percent in November, due to higher food as well as non-food prices. The December index was also up 0.58 percent from November.

For the July-December period, inflation eased to an average 8.01 percent against 8.39 in the same period last year. But it was higher than the 6.5 percent target for the 2007-08 fiscal. The prices of wheat registered an increase of 14.75 per cent, wheat flour 12.73 per cent, spices 9.75 percent, maida 7.70 percent, egg 6.60 percent and rice 2.44 percent during December 2007.

The inflation rates based on CPI, SPI and WPI increased by 8.01 per cent, 11.03 per cent and 10.26 per cent respectively in first half of the current fiscal year. It is interesting to note that high inflation trend in food has been noticed since the start of the last fiscal 2006. Food inflation stood at double-digit, averaging more than 10 per cent during fiscal year 2006-07.

During July 2006, food inflation stood at 7.44 per cent, in August 11.08 per cent, September 11.26 per cent, October 10.54 per cent, November 8.07 per cent, December 12.71 per cent, January 2007, 8.70 per cent, February 9.99 percent, March 10.74 per cent, April 9.41 per cent, May 11.31 per cent and during June 2007 it stood at 9.68 per cent.

Likewise, at the start of the financial year 2007-08, it kept the same trajectory and during July 2007 food inflation stood at 8.47 percent, in August 8.62 percent, September 12.97 percent, October 14.67 percent, November 12.47 percent and December 12.21 percent.

Despite their adverse impact on the low-income group, no effective steps are being taken by the government to reverse the trend. The government seems to be indifferent to the plight of the poor and the lower middle class who find it increasingly difficult to make both ends meet with soaring prices of foodstuff and medical expenses.

The CPI based basket shows that the prices of fuel and lighting increased by 5.51 per cent, household, furniture and equipments by 6.55 per cent, education by 4.44 per cent, cleaning, laundry and personal appearances by 8.85 per cent and medicare by 7.55 per cent in December 2007.

The Wholesale Price Index (WPI) went up to 12.14 per cent during December 2007 in which the food prices witnessed biggest jump by showing surge of 15.79 per cent, fuel, lighting and lubricants 12.73 per cent, building material 9.21 per cent and raw material 9.53 per cent .

Pakistan’s 40 million people living below the poverty line are the major victims of ballooning food prices during the elections year 2008 owing to double digit hike in food inflation, resulting into eating away the purchasing power of the low-income group.

Food prices shot up 12pc in December

 

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Trade deficit reaches $8.24bn in 6 months ​

Imports up 13.82 per cent, exports rise only 3.67 per cent during the period

Tuesday, January 15, 2008

ISLAMABAD: Pakistan foreign trade deficit during the first half (July-December) of the current fiscal 2007-08, jumped to record high $8.24 billion, which is 27 percent more than $6.49 billion recorded during the same period in last fiscal, the Federal Bureau of Statistics (FBS) said Monday.

During December 2007 exports were down by 13.6 percent to $1.33 billion against $1.54 billion in same month of the last fiscal. Indicating that 1.11 per cent depreciation of rupee against dollar in one month could not impart fruitful results for increasing exports.

Depreciating currency to strengthen exports was one of the main demands of the multilateral donors for the last few years, but in Pakistan’s case this theory, seems to have failed. Benazir Bhutto’s assassination on December 27 disrupted trade activities during the concluding four days of year 2007.

Due to huge aggregate trade deficit for July-December 2007-08, it is feared that with the current pace of deficit growth, by end this fiscal, the trade deficit would reach more than $15 billion, that would further aggravate the current account deficit (CAD) position which has been termed by the international donors as the potential threat to Pakistan’s economic health.

During July-November, 2007-08, Pakistan’s exports totalled $8.72 billion and imports $16.95 billion against $8.40 billion and $14.89 billion, respectively recorded during the same period last year.

Economy pulled in 13.82 percent more imports over the same period last fiscal, while, its exports rose only by 3.67 percent. Each month, the import growth exceeds exports steadily widening the trade gap, the provisional FBS data revealed.

It is important to note that previously, in its trade policy for the fiscal 2007-08, the government targeted imports at $29.6 billion and exports $19 billion with a trade deficit of $10.6 billion.

Now, in the first half, the country achieved 45.87 percent of exports and 57.26 percent of imports target. The huge import pressure and low exports growth envisages that by the end this fiscal the trade deficit would exceed the set target of $ 10.6 billion.

During December 2007, the local goods worth $ 1.33 billion have been exported, recording an decrease of 12.05 percent against exports of $ 1.52 billion in the same month last year. Imports have been recorded at $ 2.35 billion during December 2007, which also has reflected a decline of 8.35 percent as compared to imports of $ 2.56 billion registered in December 2006.

Comparing exports of December 2007 with the previous month, the bulletin reveals decline of 13.59 percent as against exports of the previous month, which stood at $1.54 billion. The imports interestingly declined by 25.67 per cent from $ 3.16 billion recorded in November 2007.

Trade deficit reaches $8.24bn in 6 months

 

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Crops’ yield remains below global standards ​

Experts say unwise use of fertilisers does not ensure high yield

Tuesday, January 15, 2008

LAHORE: Productivity of all crops in Pakistan has remained below global standard as the unaware farmers continue increasing the fertilizer use without paying attention to other aspects like the quality of soil and seeds.

Agriculture experts point out that blindly adding fertilizers does not ensure higher yield. They said the quality of soil determines the type and quantity of fertilizer to be added in the soil. They said the quality of seed and the removal of weeds is also crucial for obtaining maximum yield. They said provincial Agriculture Extension Departments have failed to create the awareness about the judicial use of inputs and required treatment of soil for ensuring higher yields.

They said fertilizers are nutrients and their fair addition in soil does increase the productivity. However they pointed out that the fertilizer use in Pakistan has tripled in case of nitrogen fertilizer during past two decades while the use of phosphate fertilizer has increased nine times during this period without corresponding increase in the productivity of major crops.

According to the food and Agriculture organization data Pakistan is gradually becoming more dependent on fertilizer imports as the consumption of different fertilizers has increased at much higher pace than the local production.

Pakistan was self-sufficient in urea (nitrogen fertilizer) in 1990 when its total production of 1.119 million ton was higher than domestic demand. By year 2000 the production of urea increased to 2.053 million metric tons but the consumption 2.254 million metric tons depicting a deficit of 200000 metric ton. The urea consumption increased to 3.073 but the production inched up to only 2.475 million tons. The gap between local production and domestic production increased to 600000 tons.

The production of Phosphate Fertilizer (DAP) was 1,04,700 ton in 1990 while the domestic demand was 1,47,000 metric ton. The productions of DAP increased to 243000 ton but the consumption jumped to 6,75,000 ton. The increase in DAP production failed to keep pace with the increased local demand that jumped to 9,55,000 ton in 2005.

Pakistan was not producing potash fertilizer till 2005 when it produced 15000 ton of this fertilizer. The consumption of potash fertilizer remained erratic in the country that was 32,000 ton in 1990, 23,000 ton in 2000 and 40,000 ton in 2005.

A look at the productivity of all major crops during last decade indicate that though the per hectare yield has increased it is far behind the yield of these crops in many countries. Pakistan produced 557 kg of cotton from one hectare of land in 1994 that increased to 704 kg in 2006 that dropped last year to 650 kg per hectare.

The added fertilizer failed to increase the productivity as the planners neglected the mealy bug infestation that intensified last year after impacting the crop below injury level for three years. The BT cotton that provides high yield and pest free varieties was also not introduced in Pakistan. Australia obtains 1,860 kg of cotton from one hectare and China 1242 kg that is three and two times higher than Pakistan.

Sugarcane per hectare yield in Pakistan was 46,143 kg in 1994 that increased to 49,229 in 2006. China in 1994 produced 59344 kg of sugarcane from one hectare that increased to 82527 kg in 2006. Sugarcane yield is highest in Australia that obtains 92,000 kg from one hectare.

In wheat that is the staple food of the country Pakistan is far behind European farmers. It obtained 1,893 kg of wheat per hectare in 1994 that increased to 2,518 kg in 2006. The farmers produce 8083 kg of wheat per hectare in United Kingdom and 7,200 kg per hectare in Germany.

In paddy Pakistani farmers obtained 2,433 kg per hectare in 1994. The paddy production increased to 3,163 kg per hectare in 2006. They are still far behind the best in the world as United States produces 7,694 kg paddy per hectare and China produce 6,300 kg per hectare.

However the increase in paddy yield is better in Pakistan than other crops. The reason for this is that Pakistani farmers are gradually shifting to hybrid rice seed. They would catch with the best producers when 100 per cent farmers shift to hybrid rice. The agricultural experts have appealed the government to pay attention to all aspects that improve productivity in agriculture instead of leaving it to the poor farmers that do not have access to modern technology and inputs.

Crops’ yield remains below global standards

 

[Neo]

Gas reserves at 32tr cubic feet ​

Tuesday, January 15, 2008

ISLAMABAD: The country has retained natural gas reserves around 32 trillion cubic feet as per present gas production of 4 billion cubic feet per day, It will last for next 22 years.

According to official sources in the Ministry of Petroleum, presently, 42 companies are working in the country with 118 exploration licenses and 127 leases. 17 new blocks have been opened which would give further impetus to the ongoing exploration activities in the country and would open tremendous opportunities for the prospective investors in diversified fields.

About production, he said that 70 per cent of natural gas is coming from Sindh while share of gas in the energy mix is 54 per cent. In the new petroleum policy, more incentives have been offered to investors for oil and gas exploration and production in the onshore and offshore areas. The state-run Oil and Gas Development Company Ltd (OGDCL) is engaged in exploration and production activities in the country for last four decades. The company holds the largest share of oil and gas reserves in the country.

Gas reserves at 32tr cubic feet

 

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PSEB to boost Pakistan’s IT market in US ​

Tuesday, January 15, 2008

Karachi: Pakistan Software Export Board (PSEB) is organising networking events in Houston, Austin, Las Vegas, Palo Alto and Chicago, which are the hub of IT activities in USA.

Networking sessions and meetings have been arranged with the leading companies, Chambers of Commerce and government entities in collaboration with Texas Trade Council (TTC), Organisation of Pakistani Entrepreneurs in North American (OPEN), Pakistan’s Embassy in USA and various other local partners, a spokesman of PSEB said in a statement.

With an IT Industry worth more than US$2.8 billion, including annual IT exports exceeding $1.4 billion, Pakistan is eyeing to increase the size of its IT sector to over $11 billion by 2011. The operational costs in Pakistan are 30 per cent lower than neighbouring country India, while the infrastructure advantages of high-speed connectivity in all the major cities are available at competitive rates.

According to “Buying Triangle”, the operational cost for a full time employee is $58,598 in USA, while it is $23,708 to $35,562 in India and only $9,000 in Pakistan, the spokesman explained.

PSEB to boost Pakistan’s IT market in US

 

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Phenomenal growth in WWL subscribers in 2007​

KARACHI: The number of country’s wireless local loop (WLL) subscribers has surged to 2.07 million by the end of year 2007, official data revealed here Monday.

The figures gathered by the telecom watchdog shows that by November 2007 Pakistan Telecommunication Limited led the market share with 1.21 million subscribers followed by Telecard, which is serving 447,455 people, World Call 358,254 and Great Bear 54,744 subscribers across the country.

In the year 2005 total WLL subscribers were over 200,000, which has sharply increased and reached to over 1.02 million subscribers by the end of year 2006.

At present four WLL companies are operating in Pakistan in which PTCL is grabbing the highest number of subscribers.

There is a 682.66 percent increase if such figures are compared with the year 2005. In fact there is an exceptional jump in cellular subscribers’ number base. The four companies PTCL, Telecard, World Call and Great Bear have earned better market share during the first 11 months of 2007, which attracted subscribers with different tariff packages and incentives.

The cellular density witnessed a phenomenal jump in the last three years as WLL teledensity has reached 1.31.

Analysts see WLL service growth in line with expectations, but say 2008 appears challenging for the WLL companies as they have also a great competition with the cellular companies, which are gradually increasing and the way mobile companies are reducing their tariff it will create a new atmosphere for the other communication services.

“In fact reduced tariff and increase in the number of destinations have brought WLL and cellular service within the reach of low-income groups,” the analysts added.”

“Actually tariff and service quality is almost the same of all the companies,” said one of the companies’ official. “So it encouraged the consumers to continue with the same.”

Daily Times - Leading News Resource of Pakistan

 

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Cotton crop estimate slashed to 11.6 million bales ​

ISLAMABAD (January 15 2008): The country has failed to achieve the production target of cotton for 2007-08, sources in the Food Ministry told Business Recorder here on Monday.

Sources said that in Cotton Crop Assessment Committee (CCAP) meeting held here on Sunday, it was announced that the estimated crop of cotton achieved by the country is 11.6 million bales while the revised target for 2007-08 was 12.8 million bales. So, the country has a shortfall of 1.2 million bales.

In 2006-07, the cotton crop achieved is 13 million bales while this year, the estimated crop production is 11.6 million bales clearly indicating a difference of nearly 11 percent. The cotton production in Punjab is recorded 8.9 million bales while including the contribution of NWFP and the total cotton production estimates in Sindh and Balochistan is recorded 2.7 million bales.

Sources disclosed that every year the country has to import 2 to 2.5 million bales while 0.5-0.6 million bales are exported. "The overall requirement of cotton by the industry is 15 million bales", they informed. The furious attacks of Cotton Leaf Curl Virus (CLCV), mealy bug, the government's negligence about the import of pesticides and the production of less resistant varieties of cotton may be contributed to be the main reason behind the crop reduction.

In 2006-07, the symptoms of CLCV were recorded on 70 percent spots of the cotton crop while in 2007-08, this attack increased to 71 percent. The attack was four times intense as ever before while attack of mealy bug on the crop this year was six times higher than 2006.

The sources said that the damage caused by CLCV is about 60-67 percent while by mealy bug 30-35 percent to the total loss. On the other hand, the shortage of pesticides at the time of the attacks was other main reason behind this loss.

Sources told this scribe that the government should have arranged the pesticides by importing them immediately at the time of attacks of mealy bug and CLCV but at that time, the market was showing an extreme shortage of pesticides just because of hoarding. The government is claiming to introduce the Bt cotton variety to save the crop but all of its claims have proved to be false.

This clearly shows that if the situation remained the same and the attacks of CLCV and the mealy bug remained uncontrollable along with the shortage of essential pesticides, then the farmers will be left with no other option except to grow any other crop instead of cotton.

The government's negligence about the import of pesticides has already made the country to produce less cotton as compared to 2006-07. The share of agriculture sector in GDP is 21 percent. Similarly, the contribution of cotton that is a major cash crop will affect the GDP growth.

Business Recorder [Pakistan's First Financial Daily]

 

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Pakistan rupee versus US dollar ​

KARACHI (January 15 2008): US dollar has been under severe pressure lately, and continues to slip against other major currencies of the world. There may be technical adjustments occasionally, giving it a short respite, or a boost even, but the underlying trend points to an eventual devaluation to remedy the situation.

Paradoxical as it may seem, Pakistan currency is depreciating against the dollar even faster, bucking the general trend of most other currencies - major or minor. In the kerb market Pak rupee has not only lost its value against other countries - which is to be expected - but against the dollar as well, which can only be explained by weak economic fundamentals in Pakistan, a situation further exacerbated by upheavals following the tragedy of December 27, 2007.

Any improvement in the situation does not appear on the horizon, and the rupee's descent into an abyss continues unabated. Despite SBP's intervention, the parity has gone from around Rs 60 per dollar to about Rs 63 during the last few days, not only in the open market, but also in the interbank sphere.

The question is how much will Pakistan be forced to devalue, if the dollar is devalued officially, which is a strong possibility, considering the Fed's problems. Can a crisis be averted in Pakistan? It is difficult to say, with the dark clouds looming on the political and economic panorama about to rain destruction and disaster.

Things are brewing, but when they came to a head, who knows what will happen to:- the stock exchange indices; wheat and flour prices; sugar cement and other commodities and related industries; and various infrastructure development plans; the budget deficits; balance of payments situation; drying up of FDI trickles; abrupt halt to loans grants and aid from foreign donors - the World Bank, ADB and IDB.

The scenario is frightening. Even the most inveterate optimist will find it hard to overlook the calamities in offing, or predict anything other than blood, toil and tears in the future. Adamant regimes, who have resisted calls for devaluation and have waited too long to do the inevitable, have rued their hesitancy.

It is far better to weigh the pros and cons and take a bold step now, rather than let events take their course with dreadful results. It is far better to cut losses than to run the gauntlet and lose everything in the process.

Devaluation now would mean costlier imports, and lesser foreign exchange earnings from exports. However, it will put a curb on unnecessary and wasteful imports, while giving the exporters a competitive edge that will boost their volume to a level offsetting the exchange losses of devaluation.

Increased quantum of exports will give an impetus to local industry, and a spurt to the employment scene, while putting more money in the hands of families living on remittances from their bread earners working abroad. The balance of payments situation will be rectified. Tourist industry will get a leg up, attracting travellers due to a cheap rupee.

It does have a downside, but the advantages far out-weigh the drawbacks. The most fearful is the inflation factor, but it is a bitter pill which people have to swallow willy-nilly, for the sake of larger national interests.

Business Recorder [Pakistan's First Financial Daily]

 

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Punjab's gross provincial product improves in 2006-07 ​

LAHORE (January 15 2008): In fiscal year 2006-07 Punjab's Gross Provincial Product (GPP) grew at 7.8 percent as compared to previous fiscal year of 2005-06 and in absolute terms it amounted to Rs 3,067,033 million, 58 percent of the national Gross Domestic Product (GDP).

Punjab Economic Report 2007, which was released by the Planning and Development Department, Government of the Punjab, disclosed here on Monday. The services sector is the largest sector, contributing about 54 percent to GPP. Agriculture accounts for 20.3 percent and industry 25.7 percent.

Changes in the sectoral break-up of GPP over the years are indicative of structural changes away from a reliance on agriculture. The data indicate that the share of agriculture has declined considerably, from 31 to 20.3 percent between FY-1991 and FY-2007, while that of manufacturing and services has increased.

According to the report, the structural changes that are taking place in Punjab's rural economy over time have important implications, particularly for employment.

About 44 percent of Punjab's labour force is associated with the agricultural sector. It is also the only sector other than construction where the labour force absorption rate (as measured by the percentage of total labour employed in that sector) is higher than its share in the provincial economy.

While the impressive growth of the services sector serves to boost GPP, growth in agriculture has a far more wide-ranging effect on incomes, employment, and the incidence of poverty in the province.

"The Punjab government has estimated the decline in poverty headcount to have been about 11.52 percent between FY 2002 and FY 2005. Non-income-based poverty measures, such as the enrolment rate, literacy level, access to safe water and health services, etc, have also improved over time. The Bureau of Statistics estimates that the province is poised to meet nearly all the Millennium Development Goals well before the 2015 target," it added.

The report claimed that the provincial government had significantly increased spending on the social sectors. To maintain social sector expenditure at its desired level, the government had instituted significant financial management reforms for expanding the budgetary fiscal space to shoulder the expenditure requirements of these sectors.

During the last nine years, the total government expenditure averaged 5.6 percent of the GPP, the bulk of which (4.3 percent of GPP) was for recurrent expenditure and the remaining (1.3 percent of GPP) for development expenditure.

The government increased efforts to mobilise its own revenues, focusing its efforts on introducing agricultural income tax, rationalising provincial taxes and improve tax collection by changing the rate structure of urban immovable property tax and stamp duties and tax administration.

Recent initiatives undertaken by the Punjab government to improve resource management include focusing more on social sector expenditure, developing public-private partnerships, pursuing a debt management strategy, and implementing governance reforms, the report adds.

It also suggested that to achieve its ambitious development goals in terms of poverty reduction and accelerated growth, the Punjab government needed to mobilise significantly higher resources for non-inflationary financing of its development programme.

Possible options that the government could exercise, to create the additional fiscal space it needs over the medium term to achieve its development objectives, include:- placing continued emphasis on debt management, improving its expenditure efficiency, aligning policies and outcomes, institutionalising the MTBF process at lower levels of government, reviewing public-private partnerships, harmonising aid programs, making budgets more comprehensive, improving financial reporting systems and promoting transparency.

The report, talking about agriculture, termed it the mainstay of Punjab's economy, with a 20.3 percent share in the GPP. Major crops contributed about 46.5 percent of value-added to agriculture in Punjab in FY-2007, while livestock contributed a further 39.1 percent.

The Government of Punjab is taking several initiatives to optimise agricultural resource use (particularly of fertiliser), improve seed quality and promote farm mechanisation, plant protection, and access to agricultural credit. Other potential areas to increase agriculture productivity and production include promotion of non-traditional agricultural products (eg off-season vegetables), and livestock, and the expansion of effective research and extension.

The report pointed out that several special programmes to develop the less developed areas of the province have been started by the government with the objective of reducing regional disparities and alleviating poverty. Particular attention is being focused on barani (rain-fed) regions of Potohar, Cholistan, and Dera Ghazi Khan.

New initiatives, include drought management efforts, the Barani Village Development Project, Sustainable Livelihoods in Barani Areas Project, Bahawalpur Rural Development Project, and Dera Ghazi Khan Rural Development Project. These initiatives aim to achieve rural development through income-generating employment activities, improvements in regional infrastructure, and provision of financial support for skills development through participatory organisations.

The report disclosed that Punjab has played a significant role in the industrial development of Pakistan, accounting for almost 60 percent the country's industrial production in FY-2007. The industrial sector's share in GPP was 25.7 percent in FY-2007, compared to roughly 17 percent in FY-2000.

The large and small scale manufacturing sub-sectors accounted for 14.14 and 5.27 percent of provincial GPP, respectively, in FY-2007 (value-added from the abbatoirs, which is now classified as an industry, make up the rest).

It also disclosed that the share of the services sector now exceeds the combined total of all the commodity-producing sectors. The wholesale and retail trade sub-sector is the most important in Punjab in terms of its large share, followed by transport, storage and communications, and social, community, and personal services.

The services sector has great potential for employment generation and poverty reduction due to its strong forward and backward linkages, the report added. Punjab, the report maintained, like the rest of Pakistan, is a water-scarce area both with reference to irrigation needs and drinking water and sanitation needs in rural and urban areas.

"Water conservation and management is crucial to ensure continued, adequate water supplies. A water conservation strategy for the province will require the use of innovative technology as well as institutional reforms to achieve the desired results, but the government has already taken some important steps in this direction and plans to do far more. However, judicious use of the country's scarce water resources is crucial to ensure food security and maintain growth in the economy," it added.

"While the government continues to focus its attention on the key areas of reform two inter-related and extremely important aspects need to be further strengthened. Effective policy reform requires a sound monitoring and evaluation system (M&E).

It is important to know what works and what does not; and what can be replicated and up-scaled. And it is crucial to have this information in real time to feed into policy refocusing for greater efficiency. Such a system of monitoring and evaluation is built on sound data. A revitalised data collection system in the province will greatly strengthen this M&E system," the report suggested.

Business Recorder [Pakistan's First Financial Daily]