Pakistan Economy - News & Updates - Archive

[Neo]

Rs 12 billion 'textile package' approved: ministry had demanded Rs 40 billion ​

ISLAMABAD (September 01 2008): The government has approved a package of Rs 12 billion for the textile and garments sectors instead of Rs 40 billion as demanded by the Ministry of Textile Industry, official sources told Business Recorder.

Approval of this package is complete negation of the 2008-09 budget as no subsidy had been envisaged for the textile sector. "We have approved a total package of Rs 12 billion as research and development (R&D) support for the textile and garment sectors. Now it is the responsibility of the Textile Ministry, in consultation with the stakeholders, to calculate percentage of R&D," said one official of Finance Ministry.

The rupee has devalued by 22 percent in one year's time, the ultimate advantage of which has gone to the exporters. Why are they talking of impact of rupee devaluation on their financial health?" sources asked.

Textile Ministry, in its proposal had demand of the State Bank of Pakistan (SBP) to condone delay in filling claims for the first six months, and allow reimbursement of 3 percent interest to textile beneficiaries (spinning) with the date extension beyond June 30, 2008, for which expenditure is estimated at Rs 570 million. It had been proposed that this facility should be extended till June 30, 2009.

Other proposals submitted by the ministry were as under:

a) Disbursement of R&D support to textile and clothing exporters for shipments made up to June 30, 2008 covering claims filed within 90 days thereafter.

b) R&D support be converted into 'drawback', and extended for one year to units having at least in-house cutting and stitching facilities. Approximate expenditure on the scheme during 2008-09 had been calculated at Rs 20 billion.

c) Investment Support Fund(ISF) be introduced, under which 5 percent interest on loans obtained for textile machinery and equipment be reimbursed, effective from July 1, 2007, for five years by the government. Also tax credit facility at the rate of 20 percent be given on investment under ISF. d) Two years moratorium on principal and interest payment loans be allowed, for which SBP should direct the commercial banks to facilitate.

Sources said all these proposals had been placed before the Economic Co-ordination Committee (ECC) of the Cabinet in its last meeting, which not only expressed displeasure over the performance of the textile sector but also decided that the package should be discussed first by the EMC.

 

[Neo]

Government claims on FDI rise not supported by facts ​

ISLAMABAD (September 01 2008): The tall claims of the government that foreign direct investment (FDI) had increased by 76.1 percent during July 2008 over the same month of last year is not supported by facts and figures as inflow from two major contributors ie USA and UK had actually decreased during this period.

The government claimed that FDI from USA and UK had increased by 15.9 percent and 6.8 percent, respectively, during July 2008, over the same period of last year.

But a survey conducted by Business Recorder showed on Saturday that the FDI has actually declined from both these countries during the period under review. The government claimed that the second largest contributor of FDI was US in July 2008, but the FDI by the US actually declined in July 2008 from $61.9 million in July 2007 to $54.2 million in July 2008. To cite this decline as an increase is as much of manipulating statistics as the present government has accused the Shaukat Aziz government.

The FDI from UK declined from $28.3 million in July 2007 to $23.3 million in July 2008. Moreover, the main reason attributed to the 76 percent increase claim in FDI during July 2008 over the same period of last year is $214.5 million investment by the Singapore Port Authority (SPA). This was touted as indicator of the PPP-led government economic credential, but the investigation/data analysis showed that $214.5 million FDI inflow was a natural outcome of a deal between SPA and the Gwadar Port Authority during Shaukat Aziz government.

The contract signed between the two in February 2007 explicitly provided $550 million investment by SPA in five years. It was in July of this year that almost half of that amount was invested. The SPA is on track in fulfilling its obligations--something that earned it reputation world-wide. But the present government, led by PPP, has claimed credit for this inflow.

Sources said that the PPP-led present government was trying to take credit of the investment deals actually signed by their predecessors. It is important to mention that agriculture, power, oil and gas exploration and manufacturing sectors have been defined as policy case sectors for attracting investment in the country.

Recently, a delegation of US Chamber of Commerce called on the Acting Secretary of ID & BOI. The delegation was led by Lieutenant General Daniel W Christman, Senior Vice President for International Affairs, US Chamber of Commerce, and comprised Jay Collins, Chairman, US-Pak Business Council/CEO, Public Sector Group. The Acting Secretary welcomed the guests and briefed them about the working and structure of the ID & BOI. The Acting Secretary while highlighting the geo-strategic location of Pakistan and other market dynamics, signified the upward trends of foreign direct investment over the years, and appreciated US investment into Pakistan being the highest ie $1.3 billion, during 2007-08.

 

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Foreign investors withdraw over $12.771 million in one week ​

KARACHI (September 01 2008): A massive outflow of portfolio investment from the country's equity market continued as the foreign investors withdrew over $12.771 million during the outgoing week while the cumulative outflow of $50 million was recorded in the current month of August 2008.

"Foreign selling has been at heart of recent fall in the local equities," Farhan Rizvi, an analyst at JS Global Capital said, adding that while the quantum is not huge, low volumes and prevailing political and economic uncertainties have magnified its impact. The offshore investors' concerns over the prevailing political situation in the country and weakening economic indicators forced them to offload their holdings.

The cumulative outflow of foreign portfolio investment from Pakistan's equity market increased to $354.672 million during the current year from January 1, 2008 to date. The outflow of foreign investment started from the beginning of the week as the offshore investors withdrew $5.476 million from the equity market on Monday. This trend continued and foreign investors withdrew another $2.689 million on Tuesday, $4.111 million on Wednesday and $3.987 million on Thursday.

However, an inflow of foreign investment in the equity market was witnessed on Friday as over $3.493 million were invested by foreign investors on attractive levels on the last trading day of the week.

 

[Neo]

ADB to provide $100 million for Punjab MDGs schemes ​

FAISALABAD (September 01 2008): Asian Development Bank (ADB) will provide US $100 million for Punjab Millennium Development Goals Programme to improve access and quality of primary and secondary health care services which will save at least 11,000 women's lives.

In an update project report, Rie Hiraoka, Senior Social Sector Specialist (CWGF) of ADB said that this project would increase and improve efficiency of public health care financing. To improve management of health services and poverty reduction are other important objectives.

Rie Hiraoka said that the goal of the PMDGP is to help the GoPb attain MDGs in IMR and MMR. The Programme will assist the GoPb in undertaking health sector reforms to

(i) improve availability and quality of primary and secondary health services; (ii) develop sustainable and pro-poor health care financing system; and (iii) better management of health service delivery.

(i) Improved Availability and Quality of Primary and secondary health care:- The programme will help GoPb ensure the implementation of the minimum service delivery standards (MSDS), through its incorporation in provincial and district health sector plans, and qualitative and quantitative improvements in human resources in the health sector.

(ii) Better Management of Health Service Delivery:-The programme will also help GoPb in improving daily management of health service delivery by increasing timely procurement of essential drug, institutionalising contracting of health services to non-governmental organisations, enhancing and streamlining existing performance monitoring and evaluation systems.

(iii) Sustainable Pro-Poor Health Care Financing and Provider Payment System:- The programme will assist the GoPb in substantially increasing health care budget and improving planning and management of the budget, introducing a targeted programme for reducing out-of-pocket health expenditure among poor the poor, and developing a sustainable health care financing and provider payment system.

Rie Hiraoka said that the loan proceeds will be used to finance the full foreign exchange costs (excluding local duties and taxes) of items produced and procured in ADB member countries, excluding the items specified in a negative list of ineligible items (and imports financed by other bilateral and multilateral sources).

The proceeds of the programme loan will be disbursed to the Islamic Republic of Pakistan as the borrower. No supporting import documentation will be required if, during each year the loan proceeds are expected to be disbursed, the value of Pakistan's total imports minus imports from non-member countries, ineligible imports, and imports financed under other official development assistance is equal to or greater than the amount of the loan expected to be disbursed during that year. The Government of Pakistan will certify its compliance with this formula with each withdrawal request, otherwise import documentation under existing procedures will be required. Disbursements would be made under the simplified procedures for programme loans, Rie Hiraoka concluded.

 

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IDA mulling $50 million loan for social protection project ​

FAISALABAD (September 01 2008): The International Development Association (IDA) is considering a loan proposal to provide $50 million to Pakistan for social protection project.

According to World Bank (WB), project study reports stated that the broad objectives of the National Social Protection Strategy were to reduce poverty and inequality, and promote human capital investments among poor families through provision of direct monetary transfers and incentives for investing in human capital. The World Bank assistance under the proposed project would aim to contribute to these ultimate objectives of poverty reduction and human capital development among poor families.

Within this broader context, the objective of the proposed project is to strengthen the ability of the Food Support Program (FSP) and Child Support Program (CSP) to play an effective role in the country's strategy to reduce poverty and inequality and to foster investments in human capital, as well as to assist the Pakistan Government in the development of a minimum package of social care services for the poor structured around these programs.

Specifically, phase-1 of the project would support the effective strengthening and implementation of the FSP and CSP programs and of a minimum package of social care services. 'Effectiveness' would be assessed in terms of (i) the targeting, coverage, and adequacy of the benefits/services; (ii) efficacy of the CSP conditionalities (co-responsibilities) to foster investment by beneficiary families in human capital; and (iii) the capacities of involved institutions (including ministries, program staff, service providers, and beneficiary groups) to manage these programs efficiently, to monitor results, and to (begin to) evaluate impacts.

Phase-2 of the project would consolidate and deepen the reforms, further perfecting the design of the programs based on experience under phase-1. Such 'second-generation reforms' might include measures to enable scaling up/down depending on country conditions, further strengthening of M&E, additional administrative efficiency gains, possible development of complementary social protection instruments/services for poor people who are highly vulnerable but do not have children (and thus are not eligible for the co-responsibility requirements of the CSP); and development of mechanisms to enhance prospects for self-sufficiency ('graduation') of poor families.

Meanwhile, World Bank experts have emphasised the need for improving Fiscal Sustainability and Financial Management in Pakistan. The fiscal sustainability of civil service schemes can be improved through parametric changes in the system--changes in the assessment base, accrual rates and retirement age. This will lower short term and the present value of future pension spending. Systemic changes in the system--shifting to defined contribution system--would take up front fiscal outlays, but would eventually lead to a much more sustainable civil service pension system, lowering the present value of fiscal expenditures on pensions, from 71 to 47 percent of GDP.

Options for improving the fiscal sustainability of EOBI will also need to be considered, including improvements in the financial management of reserves. Information on the management of other funds also needs to be improved, including strengthening independent oversight. Investment policy statements and processes will need to be defined and disclosure improved.

According to WB report, Monitoring Systems will need to be strengthened to avoid evasion, thus improving the financial position of funded schemes. Improvements in tracking of individual earnings for the pension department to make accurate payments will be needed for parametric reforms in the civil service scheme. For a defined contribution (DC) scheme, record keeping would have to be much more stringent. Improving enforcement mechanisms for late payments and reporting is needed. In all schemes, monitoring is weak and will need to be considerably strengthened.

Commenting over the 'Reducing program fragmentation', the WB study said that the administrative costs may be reduced through consolidation of certain activities in one institution (eg, cash transfers), as has often been proposed. Steps toward this include harmonisation of practices (reporting, accounting, audits, actuarial evaluations) and establishing a common, updated database. Simplifying the process for registration and collection for employers would also help compliance. In this regard, the current effort to consolidate legislation is a welcome first step, though processes for external oversight are needed.

According to the WB study, micro-finance and community-based groups are emerging as one way of expanding coverage to the informal sector. Their penetration is still low, and using these institutions to expand coverage would have a long gestation period. However, there might be scope for using community-based groups for providing insurance products in Pakistan as already happening with the rural support programs. These groups could 'plug into' a formal sector arrangement, for example a defined contribution pension cum insurance. Combined with civil service pension reforms, this could create a seamless system of pension coverage and other group insurance. It would allow easier movement between informal and formal, public and private sector work and lower administrative costs that would tend to be duplicated under parallel schemes. However, these schemes would have to be piloted and evaluated, and their fiscal costs assessed prior to any expansion.

Social pensions are another way to extend coverage to the elderly without access to a formal pension, but their costs and consistency with other safety net programs needs to be carefully considered. In many countries around the world and in the South Asia region, cash transfers to the elderly (or social pensions) are used to provide informal sector workers with income support in old age.

These pensions can be means-tested (India), or provided to all individuals over a particular age (Nepal).

Social pensions can be costly, with costs increasing with the aging of the population. Further, the advantages of providing separate benefits to the elderly need to be assessed against the poverty needs of other groups. The feasibility of using the existing cash transfer system to target the elderly also needs to be assessed prior to introducing social pensions.

In Pakistan, WB study said that the North-West Frontier Province (NWFP) is experimenting with social pensions in select districts, with expansion contingent on evaluation of pilot results and fiscal resources.

The WB study said that social protection is not a substitute for economic growth which, along with human capital development of individuals, will remain pivotal for poverty reduction in Pakistan.

Social protection can complement policies for creating growth and building human capital, and also help individuals cope with (and where possible exit) poverty and manage risk. Public social protection instruments should strive to add to the choices and options available to households, and where feasible explore potential synergies with informal and market-based risk management instruments used by households. Thus, public risk coping instruments need to be designed, keeping in mind the larger landscape of risk management strategies employed by households, markets, and society at large.

 

[Neo]

SMEs need special package for increasing export volume ​

SIALKOT (September 01 2008): Sialkot has developed a remarkable export culture over the period and contributing more than 900 million dollars to the national exchequer annually. Still the exporters community is trying its utmost for doubling the export volume despite tough competition in the world market for fetching valuable foreign exchange for the country.

The Small and Medium Enterprises (SMEs) are also playing a significant role not only in strengthening the national exchequer but also providing employment to thousands workers in Sialkot.

In order to develop true and secure "Small and Medium Culture" of Sialkot the government should formulate a special package of incentives and concessions for SMEs of the area for increasing the export volume to many folds and to redress their problems.

The development of cottage industries in Sialkot has assumed a model status for the developing world. The city is sprinkled with thousands of small and medium enterprises, which are engaged in honouring their global commitment for export of valve-added quality goods such as sport goods, surgical instruments, leather goods, gloves, badges and musical instruments etc.

The city has developed industrial edge over other cities of the country especially in sports goods and surgical instruments. Over 1.20 lacs industrial workers are engaged with both the industries and are earning their livelihood in a respectable way.

Many researchers of different foreign universities are considering to conduct research on the unique export culture of Sialkot, which is a hub of cottage industries and export-oriented city of Pakistan.

The researchers would penetrate on ascertaining how Sialkoties are doing the export business successfully where every third person is an exporter. The business community of Sialkot is playing a tremendous role not only in bringing boom in exports but also fulfilling the social responsibilities and the uplift of the city on voluntarily basis. Over 85 percent of total production of soccer ball of the world comes from Sialkot while all international brands are sourcing their supply of footballs from this export-oriented city and hub of cottage industry of the country.

The soccer ball industry had totally been purged from the menace of child labour and Sialkot has set a role model for others to follow the same for the elimination of child labour.

The business community had managed to develop the culture of "Do it yourself " in Sialkot under which the business community was playing a pivotal role for the development of the city and welfare of the people. For the construction of city roads and drains, Sialkot Chamber of Commerce and Industry (SCCI) initiated Sialkot City package in collaboration of other trade bodies in the city. Under the programme exporters are voluntarily contributing 0.25 percent against their export invoices as a result of which many city roads and drains have been constructed. The mega project of Sialkot International Airport has become operational which has been constructed by the local business community on the basis of Build, Operate and Own (BOO) basis costing over Rs 2 billion.

It is expected that the cargo flights would be started from Sialkot international airport in near future. Sialkot International Airport is a unique project in private sector and first of its kind in not only in the country but also South-East Asia. Despite of extra-ordinary contribution of the local exporters, the city was being ignored in many respects and deserved for a very special status. Keeping in view the importance and contribution of Sialkot, the city should be treated, as city of cottage industry and both federal and Punjab governments should announce special concessions and incentives for this export-oriented city for the larger interest of the SMEs.

 

[Neo]

Rs 550 million 'Tunnel Technology' plan evolved ​

SIALKOT (September 01 2008): Punjab government has evolved a plan costing Rs550 million for introducing 'Tunnel Technology' aiming to produce off-season crops in the Province soon. Official sources told Business Recorder on Sunday that the concept of introducing tunnel technology was to promote several off-season crops and to ensure their availability round the year in Punjab.

The proposed programme would also support to improve the economic condition of vegetable growers of the Province. Apart from this, the government has also set a side Rs560 million for the provision of subsidy to the farmers on agriculture tools in Punjab.

 

[Neo]

Setting up of mini-industrial estates in rural areas on the cards ​

SIALKOT (August 31 2008): The setting up of mini-industrial estates in remote rural areas is on the cards with the aim of promoting non-traditional products being produced in these areas and generate employment opportunities for skilled and semi-skilled persons at their doorsteps in the Punjab.

Official sources on Saturday told Business Recorder that the government has accorded special attention to the promotion and development of cottage industries and for this purpose Rs 40 crore would be spent to accelerate the pace of exports and enhance the productivity of Punjab.

The development of industrial sector was on top of government agenda and during the current fiscal period Rs 1.30 billion were being spent on the development of industrial sector in the province.

The government has already introduced business-friendly policies to ensure establishment of maximum number of industries in private sector and to expand the scope of setting up industries in rural areas for bringing industrial revolution in the Punjab.

In order to facilitate the SMEs the Punjab government would soon initiate a "Micro-Finance" loaning scheme with an amount of Rs one billion during current fiscal for the development of cottage industries and creating self-employment opportunities in the province.

The concept of introducing this scheme was to extend loan facilities to the interested persons for setting up small scale and cottage industries in the Punjab. The Punjab government has evolved a strategy to develop business friendly environment to ensure Direct Foreign Investment (***) in various fields of industrial sector in the province.

 

[Neo]

Circular debt, looming defaults​

The fiscal crunch is taking a heavy toll on the corporate sector. The private sector energy companies are touching their borrowing limits, the public sector is defaulting in its payment commitments and the public at large is struggling to cope with more than seven hours of load shedding daily in addition to unannounced power breakdowns.

By August 20, the inter-corporate circular debt has crossed over Rs400 billion and widespread default is looming large in the energy sector. A number of companies have, in fact, started defaulting in their commitments technically and financially.

Oil firms have expressed their inability to ensure smooth supplies in the days ahead and independent power producers (IPPS) are running at less than their generating capacity because of financial crunch to purchase fuel.

Partially, because of previous government’s dilly-dallying on major economic decisions and mainly because of current government’s pre-occupation with political crisis, the administration finds it hard to take even day-to-day decisions in a prudent manner. The IPPs have threatened to declare force majeure and call government’s sovereign guarantees.

The government has started eliminating subsidies. Electricity rates have been raised by 16 per cent last month by withdrawing of general sales tax and another 61 per cent increase would be made soon after the presidential elections to be held on September 6.

Natural gas rates have been increased twice by more than 40 per cent since the democratic government took over and oil prices have surged more than 50 per cent since February this year. Rise in utilities’ cost is resulting in escalation of all essential and not-so-essential commodities.

At the heart of problem is non-payment of arrears by public sector companies and government entities. The receivables of Pakistan Electric Power Company (Pepco) and its allied power companies have gone beyond Rs150 billion. Karachi Electric Supply Company (Kesc) has been holding over Rs56 billion payments to Pepco while arrears payable by Federally Administered Tribal Areas have gone beyond Rs75 billion as of July 31. The federal government, provinces, AJK and some public sector corporations together owe another Rs18 billion to electricity distribution companies.

In return, the Pepco and Kesc have accumulated payables of about Rs100 billion. Of this, Pepco has to pay about Rs64 billion to IPPs, limiting their capacity to purchase fuel oil and hence run on less than half of their capacity. The Pepco also has to pay about Rs10 billion and Rs8 billion each to oil and gas companies respectively. The problem is that unless the public sector clears electricity bills of distribution companies, they would not be able to release finances to the IPPs and oil and gas companies.

On top of that is the government’s inability to clear over Rs84 billion dues to the oil companies and refineries on account of price differential claims.

The PDC amount might have been much higher but the burden has been replaced with even more expensive borrowing from the commercial banks. So far, the government has paid about Rs50 billion to the oil companies and refineries by arranging syndicated loans from the market. PSO has over Rs25 billion of receivables from Pepco and IPPs.

Since, the government has not been able to liquidate petroleum differential claims (PDCs), the oil marketing firms have also informed the government about their inability to make payments to the oil refineries. This is despite the fact that oil marketing companies have reported 20 per cent higher fuel consumption during the current month.

“This is the re-emergence of the energy sector inter-corporate debt that we used to have in the early 1990s. The situation is even worse today”, said a senior official in the ministry of finance dealing with the chronic problem.

The situation is such that the energy sector crisis could worsen in the short-run in the kind of disruption in oil supplies and much higher scale of load shedding at least for another year. In the longer run, the budget deficit may go beyond eight per cent of GDP by end of current year.

Pakistan’s currency has already slumped to a record low, development schemes are being curtailed, the cost to safeguard sovereign bonds from default has almost tripled since October last year and foreign exchange reserves have declined by almost $7 billion-- enough to cover only three months of imports.

Interestingly, the current spate of unprecedented power load shedding emerged primarily because of financial crisis and fuel shortage, and not due to capacity constraints as being portrayed by the government. The government has been attributing the load shedding to the previous government’s failure to enhance generation capacity as the demand for power consumption increased.

However, the situation on ground is that that lack of capacity addition would cause power shortage to the extent of 5,500MW in 2010. The current shortfall in electricity demand and supply was because of the government’s inability to make full payments to the oil supplier and power generation companies and forced closure of a few thermal power plants.

The generation from Pepco’s own thermal power plants, according to official record, has shrunk to the lowest ebb because of Pepco’s inability to purchase fuel oil from its suppliers. On August 20, the Wapda’s thermal plants could produce a maximum of 1,900MW electricity against their capacity of 4,829MW because of their inability to purchase furnace oil and minor technical faults in gears, clutches and switches.

Likewise, the generation from IPPs stood at about 3,470MW on August 19 against their capacity of 6115MW, again because of their fiscal constraints. Similar has been the case all along for the last two months as total thermal power generation remained less than 6,000MW against total capacity of about 12,000MW.

As a result, Pakistan State Oil — the country’s largest and state-owned supplier — has refused to make payments to the refineries or lift fuel oil. As a result, refining capacity of some of the refineries has reduced by one-third due to storage constraints that could lead to shortage of petroleum products in the consumer market.

Facing short supplies from Attock Refinery, Kapco plant which could also run on natural gas, has not been able to produce electricity to its capacity when the gas utilities reduced their supplies to about 60MMCFD (million cubic feet per day) against usual supplies of 300MMCFD. The end electricity consumer had to suffer between August 23-28 as electricity load management became unmanageable.

Despite an available generation capacity of about 18,000MW, Pepco plants have not been able to produce more than 12,000MW in the last two months despite maximum generation by hydropower projects as river flows improved in the monsoon season. During the current month, the countrywide load shedding peaked at 4,810MW on August 25 and it was all because of financial and fuel supply constraints. That meant that generation capacity was available but the plants did not have fuel stocks to run their units.

In the Karachi Electric Supply Company’s system, thermal plants in Karachi could not generate more than 1,300MW electricity against their capacity of about 1,800MW. This was more because of technical problems that fuel shortages.

Oil and gas companies are now demanding to make a law empowering the suppliers to discontinue supplies to power companies if they fail to make payments in time up to a certain limit. Some international lenders also feel that unless it was done, the continuous inter-corporate circular debt in the energy sector would keep various oil and gas companies in the financial turmoil and keep foreign investors at bay since some of these firms are either listed abroad or were multinationals.

 

[Neo]

Hydropower initiatives​

The mountainous Northern Areas have also been struck by the regular load-shedding, adversely affecting normal life and trade in its main towns.

According to recent reports, trade activities at Sust, the busiest town and trade hub near Pak-China border, as well as various offices in the Gojal valley are facing power shortages and outages. Similar is the situation in Gilgit city, the headquarters of the Northern Areas.

One of the major issues facing the government is that of raising the quality of life of the people of the Northern Areas who are currently deprived of even the basic amenities like electricity. Shockingly, Pakistan is ranked one of the lowest, 152 among 208 countries of the world, in terms of per capita consumption of electricity. The latest global data of 2007 shows 453 kWh per capita annual consumption in Pakistan that is even lower than Bolivia and Mozambique. Compared to this figure, per capita yearly consumption of electricity in the Northern Areas is just 44 kWh, the lowest in any part of the country.

The federally administered Northern Areas, populated by about one million, are spread over 72,496-sq. km. There are about 650 towns and villages, widely scattered, with population density of 10 persons per sq. km.

Primarily, the electricity is used for lighting households, schools and dispensaries etc. Still, only 45 per cent of the population has access to electricity, which is not even available to some of the valleys at all. Nonetheless, the demand is increasing at a faster rate, as tourism, trade and the SMEs develop in major towns.

The national grid is at a distance of 350 km from Gilgit and its extension to the Northern Areas is neither practical nor justifiable. The electricity network here is therefore being operated in isolation, and in many remote areas even the transmission lines and grid stations do not exist.

Today, the total installed capacity for power generation in the Northern Areas is around 102 MW. Major source of power generation is hydroelectric, of cumulative capacity of 95 MW, whereas thermal power generation is to the level of over seven MW only.

These diesel generators were installed, mostly in Gilgit city, to meet the peak demand of power, and are of great help to reduce the present load-shedding in the surrounding areas. Due to logistic and financial factors involved in transportation of diesel however, further increase in thermal power generation capacity is not feasible.

The Northern Areas present enormous hydropower potential from River Indus and its various tributaries with steep gradients. A network of small, mini and micro hydropower stations, generally in the wide range of 50 kW to 4 MW, has been constructed. There are more than 400 mini and micro hydropower stations operating in remote localities. In addition, there are many small hydropower stations, up to a maximum capacity of about 11 MW installed in Gilgit.

Indeed, it is a tremendous job to provide electricity to the Northern Areas as it is a region of high mountains and narrow valleys where infrastructure is practically non-existent. Furthermore, the widely varying topography, geology and hydrology, coupled with extreme weather conditions, make the construction of power stations difficult. The reliability of power supply is also impacted in the wake of frequent floods and landslides. Thus the available power supply is optimal during summer, but the season covers three months only. During the remaining nine months of the year the net electric supply is reduced to almost half of the installed capacity due to non-availability of water for power generation.

Administratively, the Northern Areas consist of six districts namely Gilgit (including Hunza and Nagar valleys), Skardu (including Shigar and Khaplu valleys), Diamer (Chilas valley), Ghanche (Baltistan), Ghizer and Astore.

There are 35 hydroelectric power stations of cumulative installed capacity of 34.76 MW in Gilgit district. Thermal power generation is limited to 4.3 MW installed capacity. Power demand at is estimated to be net 30 MW, which would further increase to 54 MW by the year 2010. To narrow the gap in supply and demand, three hydro power stations, Naltar IV of 18 MW, Pari of 1 MW and Cane of 3 MW installed capacity, are under construction at present.

The projects under construction include a 1-MW hydropower station at Sermik (Skardu), a 2-MW station at Talu-Rondu (Baltistan) and a 1-MW station at Tolti (Shigar). Other approved projects, in various stages of implementation, are 1-MW power station at Shumayal (Skardu), 1-MW at Kindas (Ghanche), 2-MW at Thalley (Ghanche), 1-MW at Hassanabad (Ghanche), 2-MW at Gultari (Skardu), 1-MW at Kindrik (Skardu) and 2-MW capacity at Bordas (Balgher).

To cater for increasing demand of electricity, a broad-based plan for the development of small hydropower generation is being implemented. Many potential hydro sites, up to 50 MW capacity projects, have been identified and techno-economic feasibility studies prepared.

These include 18-MW project at Hanzel (Gilgit), 3-MW at Juglot-Sai (Gilgit), 2-MW at Misgar (Hunza), 2-MW at Pissan-Minapin (Nagar) and 1.3-MW project at Cane-Kargah. Other approved projects are 2-MW at Nolti, Bathrez (Ghizer), 4-MW at Pakora Gudai (Astore), 2-MW at Darmadar (Ghizer), whereas three projects are to be constructed in Diamer district, namely Darel-Chilas III of 1.5 MW, Khanbary of 2 MW and Botogah-Chilas of 1 MW capacity. The government has recently approved Naltar III and Naltar V hydropower projects of 16 MW and 14 MW capacity, respectively, to be installed near Gilgit city, for which financial resources to the tune of Rs3 billion have been committed.

Wapda is also actively involved in contributing towards addition of power generation capacity in the Northern Areas. It is constructing Satpara dam and hydropower station of 13 MW in Skardu, in three phases, whereas design and engineering is in hand for Basho project of 28 MW capacity, which will be connected to Skardu and other upstream valleys through 66 kV transmission line. Likewise, Harpo hydropower projects of phase I of 15 MW and phase II of 33 MW capacity are to be developed in Skardu district. Also, planning work is being done by the Wapda for developing a power station on Phunder Lake, Ghizer.

Development of hydropower projects in the Northern Areas will be accelerated if Pakistan can build the capacity to manufacture and install small power stations of above five MW. The same is lacking at present though various items of electrical and mechanical equipment and related materials are being produced locally, and the infrastructure for implementing small hydro schemes is available.

The requisite advanced technology is essentially required for achieving the purpose of creating indigenous capability for design, engineering and manufacturing of equipment for power plants. The government needs to take initiative in this direction, pursuant to its policies of developing far-flung areas and promotion of renewable energy.

 

[Neo]

How free is the economy for sustainable growth?​

Pakistan’s economy is 56.8 per cent free, according to 2008 Index of Economic Freedom compiled by The Heritage Foundation and The Wall Street Journal. The index covers 162 countries across ten specific factors of economic freedom.

Pakistan’s rank is 93rd. Which means it is more free than India which is placed at 115th position with an overall score of 54.2 per cent and also China which stands at 126th rank with an overall score of 52.8.

Pakistan’s overall score this year is 1.7 percentage points lower than last year’s, faring badly in six of the 10 economic freedoms. In Asia-Pacific region, Pakistan is ranked 16th out of 30 countries.

Under the Index, the global economic freedom score this year is 60.3 per cent, which is the same as last year. In the years since the Index began in 1995, world economic freedom has improved by 2.6 percentage points.

The countries are judged by the authors of the report from the perspective of the advanced countries of the West in terms of the facilities and incentives they get while investing in or trading with the non-Western world.

Hence, economic freedom is considered the key to creating an environment that allows a cycle of entrepreneurship, innovation and sustained economic growth.

Economies with higher levels of economic freedom, the authors claim, also enjoy higher living standards.

Hong Kong has the highest level of economic freedom. Singapore comes second in the world and Ireland the third.

Following are the top ten freest economies with their overall scores in the bracket: Honk Kong (90.25), Singapore (87.38), Ireland (82.35), Australia (82), United States (80.56), New Zealand (80.25), Canada (80.18), Chile (79.79), Switzerland (79.72) and United Kingdom (79.55).

A majority of the freest economies are in Europe, five are in the Asia-Pacific region, one country (Mauritius) is from the sub-Saharan Africa region, and one (Bahrain) is from the Middle East/North Africa region. Only 30 countries have economic freedom scores higher than 70 per cent. The bulk of countries — 103 economies — have freedom scores of 50–70 per cent. Of those, about half are “moderately free ” ((60-70 per cent), and half are “mostly unfree. ”

The erosion of economic freedom in Latin America reflects reversals of free-market policies and ‘lack of perseverance’ in pursuing economic freedom in some countries. Asia-Pacific countries have the highest variance within their region, which means that there is a much wider gap between the heights of freedom in some economies and the lows in others that is nearly twice as variable as the norm.

Pakistan scores ‘moderately well’ in fiscal freedom, business freedom, and labour freedom, but its only exceptionally high score is for limited government size. The corporate tax rate is high, but tax revenue and government spending are low relative to GDP.

Commercial registration and licensing are historically inefficient, but efforts to liberalise the business climate are producing results. The labour market is flexible, although sacking procedures are costly.

According to the Index, Pakistan has ‘weak’ trade freedom, investment freedom, financial freedom and property rights. Imports are subject to a high average tariff rate and burdensome non-tariff barriers. The judicial system does not protect property rights effectively because of a serious case backlog, understaffed facilities, and poor security.

Serious corruption taints the judiciary and civil service, making Pakistan one of the most corrupt nations as rated by the Index.

Pakistan’s financial market, though advanced for the region, is constrained by regulation and bureaucracy.

Business freedom is rated at 70.8 per cent by the Index. The overall freedom to start, operate, and close a business is relatively well protected. Trade freedom is 65.2 per cent. Pakistan’s weighted average tariff rate was 12.4 per cent in 2005. Liberalisation has progressed, but import bans and restrictions, import taxes, ‘inconsistent’ standards administration, non-transparent government procurement, export subsidies, weak enforcement of intellectual property rights, and corruption add to the cost of trade.

Fiscal freedom is rated at 79.1 per cent. Pakistan has implemented some tax cuts and the top income tax rate was reduced to 25 per cent. The top corporate tax rate is 37 per cent. In the most recent year, overall tax revenue as a percentage of GDP was 10 per cent and government spending equalled 18.2 per cent of GDP. Privatisation has advanced in recent years.

Relatively unstable prices explain most of the monetary freedom score which is 72.2 per cent. The government controls pharmaceutical and fuel prices, subsidises agriculture, and ‘influences’ prices through state-owned enterprises and utilities, including electricity and water. An additional 10 percentage points is deducted from Pakistan’s monetary freedom score to account for policies that distort domestic prices.

Investment freedom is rated at 40 per cent. Foreign investors may own 100 per cent of most businesses, except in arms and munitions, high explosives, currency and mint operations, radioactive substances, etc.

Foreign ownership in agriculture is capped at 60 per cent. Total foreign equity control is permitted in the services sector. The government requires a minimum initial investment in agriculture, infrastructure, and social services and maintains local content requirements for 16 items in the automobile and motorcycle industries.

Deterrents include political violence, civil unrest, poor infrastructure, ‘inconsistent and arbitrary’ regulation and enforcement, and a lack of co-ordination between the federal and provincial governments. Restrictions on foreign exchange accounts include the need for government approval in some cases.

Financial freedom is only 30 per cent. Pakistan was supposed to have converted to an Islamic (interest-free) financial system by 2001, but the Supreme Court is still considering a final judgment.

Five domestic banks account for over 80 per cent of assets. The government has a majority stake in the largest bank and controls several specialised banks. New foreign banks must establish subsidiaries under 49 per cent control rather than opening branches.

Insurance is underdeveloped, and a state-owned firm controls over three-quarters of the life insurance market. Foreign investors may not own more than 51 per cent of a life or general insurance company. Domestic insurance companies must meet their reinsurance needs in Pakistan.

Property Rights are 30 per cent. Pakistan’s judiciary, by law separate from the executive, remains hampered by ineffective implementation of the laws, poor security for judges and witnesses, sentencing delays, a huge backlog of cases, and corruption. The government closed down several pirate optical disc factories and beefed up enforcement of intellectual property rights in 2006.

 

[Neo]

Billions withdrawn before Zakat deduction ​

Tuesday, September 02, 2008

KARACHI: Thousands of accountholders withdrew billions of rupees from their saving accounts during the last few days ahead of the deduction of ‘Zakat’, the fourth pillar of Islam and an obligatory annual money contribution by affluent Muslims (at 2.5 per cent of one’s savings) for the needy people of the society.

A big number of accountholders rushed to their respective banks and ATM kiosks on Monday intending to draw their cash to avoid zakat deduction. The money market came under tremendous pressure in the wake of heavy withdrawals and faced liquidity crunch that forced banks to borrow Rs8.4 billion from discount window of State Bank of Pakistan (SBP) in order to maintain their mandatory cash reserves.

Though exact amount of withdrawal in a single day is yet to be ascertained, banking sources said that the volume of cash taken out by accountholders on Monday and last week of August was in billions.

Numerous accountholders, particularly corporate accountholders, also converted deposits of billions of rupees into Call Deposit Receipts (CDR) or pay orders, which would be deposited again into the original accounts soon after the deduction of Zakat on Tuesday after the Ramazan moon was sighted on Monday.

This year 2.5 percent Zakat is applicable (Nisab of Zakat) on Rs19,625 or above balance of saving accounts of the banks’ customers. The banking sources said that from 2nd Ramazan which is likely to fall on Wednesday most of the people would again deposit money, encashed or converted into Call Deposit Receipts. Bankers said that it would be very difficult to guess the actual amount of money, either withdrawn from bank or converted into CDRs however, they believed that could be in billions and might be around Rs15-20 billion.

The people against the deduction of Zakat on their saving account have to submit affidavit to their respective bank one month prior to start of Ramazan. However, some small and foreign banks accept affidavit few days or a day before deduction of zakat in order to facilitate their corporate and valuable individual accountholders.

Since last couple of days large number of ATM machines were not doling out cash to banking customers and customers were very much annoyed by the ‘Machine is out of order’ stickers labelled outside ATM Kiosks. The internal sources said that actually banks were facing liquidity shortage due to which they were not enough cash to place a substantial amount in ATM machines.

Moreover, heavy withdrawals caused immense pressure in money market, as large number of accountholders injected a big amount in forex trade in order to mint easy profit in short span of time. The fresh inflow in forex trade stirred the Rupee-dollar parity and the exchange rate of US dollar surged to Rs76.90 in interbank market, which was being traded at Rs76.40 early on Monday.

 

[Neo]

S Arabia to provide $540m urea facility on deferred payments ​

Tuesday, September 02, 2008

ISLAMABAD: Saudi Arabia will extend urea facility amounting to $540 million on deferred payment and in the first phase the kingdom will provide $140 million urea to Pakistan.

Later on the country will be having urea facility of $400 million from Saudi Arabia, a senior government official told The News quoting the Secretary Ministry of Food Agriculture and Livestock as saying in the Economic Monitoring Committee held here on Monday with Syed Naveed Qamar Federal Minister for Finance, Privatisation & Investment in the chair.

MINFAL secretary informed the meeting participants that MINFAL and the commerce ministry has signed an agreement with the Saudi government for purchase of 135 thousand tonnes of urea.

Shipments will, to this effect, start arriving from tomorrow (September 3), followed by more shipments as per the agreed schedule. It added that urea availability in Punjab and Sindh, particularly in rice and cotton belts, has improved.

However, the press release issued says that EMC was informed that DAP price shall shortly be notified in consultation with stakeholders. MINFAL further informed that 22,000 tonnes of urea’s first shipment is arriving in Karachi on 3rd September, 2008. EMC advised MINFAL to work out modalities for urea import from Kuwait and other friendly countries to meet Rabi season’s crops’ input demand of growers.

The finance minister also directed MINFAL to submit wheat import requirements according to the varying needs of different areas along with estimated foreign exchange requirements. EMC was informed that an agreement for 50,000 tonnes of wheat import from USA shall be finalised by 30th September 2008, followed by working out modalities for subsequent similar agreements to beef up domestic wheat stocks and demands.

EMC was told that pricing of other food grains is stable. It was added that sugar pricing at the moment is also stable, with adequate stocks available countrywide. Rice production has presently improved and substantial rice production is forecasted during the next year. It was added that the existing rice pricing in the country corresponds to that of last year’s pricing slabs.

Earlier, MINFAL briefed EMC that the issue of wheat imports of 0.5 million tonnes on deferred payments from Canada has been put to necessary homework and shall shortly be finalised. This would help augment domestic wheat stocks.

EMC directed Ministry of Petroleum to bring up proposals to cut down petroleum product’s consumption, in order to reduce the import bill, and also submit a viable strategy to regulate countrywide consumption of gas supply during the upcoming winter season.

 

[Neo]

Karachiites undeterred by inflation ​

Tuesday, September 02, 2008

KARACHI: The people of Karachi are determined not to let inflation and politics affect their religious celebrations and are already preparing to celebrate the Eid-ul-Fitr with fervour which is still a month away.

The exhibition ‘Womenza’ that was recently held at the Karachi Expo Centre from August 29 to 31 witnessed the multitude of visitors who grabbed the opportunity to shop around under one roof ahead of Ramazan and Eid-ul-Fitr.

Afsheen Farooqi and her three sisters made most of their purchases for Eid at the exhibition as it saved them the hassle of traveling to various bazaars which “is a time-consuming task” she said since they do not own a car and they are seven members in her family, commuting in a taxi is an expensive option for them and therefore they make the most of these events that are held at the Expo Centre.

Another visitor, Rani Iqbal made purchases for friends and relatives as she found jewellery items at bargain prices and therefore bought them in bulk. She also took the opportunity to purchase ‘eidi’ for her maid and guard who are employed by her family.

Sumaiya Ahmed also made purchases of various items like cloths, decorative pieces and cosmetics. She said that though inflation was indeed affecting the people of Pakistan, Eid was one occasion which held special emotions for Muslims all over the world and therefore people often made the effort to go out of their way to make it exceptional for themselves and their loved ones.

She stated in the country Eid is observed joyously and it is a time when markets all over the country are lit up with festive lights and are open till late. Hence, she predicted this year it would not be different from the previous years and people would fork out as they always have, since the occasion has religious sentiments attached to it.

However, Eid was not the only occasion in the visitors mind as they also made purchases for Ramazan.

According to the exhibitors, they had received a good response because Expo had coincided with the forthcoming Ramazan and the purchases that the people had made were also related to the month.

An exhibitor who was promoting his photography services informed that while his neighboring stalls had a large number of visitors, his booth was merely glanced towards before people moved on to the next stand.

On the other hand, exhibitors dealing with cosmetic, clothes, household items and eatables and beverages said they were pleased with the response their stalls had received and they had made good business in the three days of the event.

Sindh Minister for Information Shazia Marri, Speaker of National Assembly Dr Fehmida Mirza, Sindh Minister for Women Development Madam Tauqeer Fatima Bhutto and Qaim Ali Shah were some of the high profile personalities who visited the exhibition for its closing ceremony on Sunday evening.

 

[Neo]

Govt to set up task forces for economic development​

ISLAMABAD: A high level meeting chaired by Deputy Chairman Planning Commission here Monday decided that five task forces will be set up in for the different sectors of the economy i.e. Infrastructure, industry, Information Technology, health and education, a senior government official told Daily Times on Monday.

The Pakistan Peoples Party led coalition government is set to give the country a five year economic development plan (2008-13) aimed at taking the economy on the track of sustainable growth.

The five-year plan will have short term and medium term goals, which will be achieved within 2.5 and 5 years to accelerate economic growth.

The government has decided to take on board all the four provinces and Azad Jammu and Kashmir for the formulation of the plan. In this regard, nominations from all four provinces would be called for inclusion as members in the task forces, so that province specific needs and development potential is exploited.

Task Force on Infrastructure will focus on construction of big water reservoirs, urban development, communication and transportation along with other infrastructure requirements of the country; task force on health will recommend the government for improvement in the area of health, population and social protection; task force on education will deliberate on literacy and promotion of education at all levels, which will not only meet the Millennium Development Goals but also improve health related infrastructure; task force on Industry will focus on meeting required infrastructure for rapid industrialisation in the country, which would ultimately help attract local as well as foreign investment.

Keeping in view the importance of the Information Technology for economic progress and bright prospects of the local IT industry, task force on IT would be recommend the government ways and means enabling the country to reap maximum benefits emanating from IT revolution in the world.

All these Task Force wull work under the panel of Economists head by Dr Hafeez Pasha, a renowned economist. According to the official, top brains and policy makers are being selected as members of these five task forces so that local as well as foreign experience could be utilised for country’s economic development and rapid improvement in social conditions of the population.

Conveners of the task forces would ensure consultation with all the relevant stakeholders so that no hurdle is created when the plan goes in to its implementation phase.

Planning Commission is undergoing restructuring phase and renowned advisors and new members are being added to make this important institution of the country viable and active. The recently added advisors are Dr Ishfaq Ahmad, former Chairman of the Pakistan Atomic Energy Commission, Dr Ishrat Hussain, former Governor SBP, Khadija Haq, Director of Mahbub ul Haq Centre for Human Development and Dr Shoaib Sultan Chairman National Rural Support Programme, Dr Pervez Butt former chairman of Pakistan Atomic Energy Commission and Secretary Science and Technology.