Pakistan Economy - News & Updates - Archive

[Neo]

Pakistan and China to sign Investment Protocol next week​

BEIJING (October 12 2008): Pakistan and China will ink an agreement on Investment Protocol during President Asif Zardari's visit to China next week. Pakistan's Ambassador to China Masood Khan told newsmen on Saturday that negotiation between senior officials of Ministries of Commerce of Pakistan and China had been completed on Investment Protocol to make free trade agreement (FTA) more comprehensive.

"I am fully confident that during President Zardari's state visit to China both the countries will sign agreement on it, which further push forward their economic partnership", he said. Khan pointed out that negotiations between the two countries on FTA in Trade and Services were going on successfully. "We hope to complete that phase in the coming month of December", he added.

Ambassador Khan said Pakistan was the first country with which China had signed the FTA, adding that when the FTA was fully implemented, it would further give boost to the bilateral trade. First phase of FTA in Goods and Investment had been completed in July this year and became operational, he said.

 

[Neo]

To achieve sustained growth: Pakistan needs structural transformation in three directions: ADB​

FAISALABAD (October 12 2008): To achieve sustained growth, Pakistan needs to deepen its industrial base, as well as to improve its performance in agriculture and services. While the share of the manufacturing sector in total output is not low (nearly 20 percent), it has remained stagnant since the 1970s.

In an updated project report of Accelerating Economic Transformation Program (AETP), prepared by J. Miranda, Director General, Central and West Asia Regional Department of Asian Development Bank and their team, it was pointed out that the share of manufacturing value added accounted for by high-technology products is low and has remained so during the last 40 years.

Pakistan 's exports per capita are low, and it continues to compete with exports from even poorer countries (eg, rice, cotton yarn, undergarments, cotton bed linen, and other woven fabrics). Labour productivity has increased very slowly since the 1970s with an annual growth rate of only 2.6percent.

Unless the production and trade structure of the economy is transformed to enable it to compete effectively in global markets, Pakistan 's 6-7percent real GDP growth per annum is unsustainable. ADB report said that Pakistan's economy has been seriously affected by the skyrocketing international prices of oil and food.

The severity of the exogenous shocks, aggravated by the uncertainties surrounding the recent political transition, has been felt on several fronts over the last fiscal year (June 2007-July 2008) the year-on-year overall domestic inflation reaching 24percent from 7percent; deterioration in the external accounts with current account deficit widening to 8.5percent of GDP from 4.8percent; depreciation of the Pakistani rupee (PRs) by 22percent; foreign exchange reserves declining by more than 40percent to $6 billion (about 1.5 months of imports); and unprecedented fuel, food and electricity subsidy needs, which rose four-fold to PRs 408 billion ($6 billion) from their original budgeted level.

Symptomatic of the declining investor confidence, the Karachi stock index dropped by more than 35percent during April-July 2008, and the spreads on sovereign debt have surpassed 1,100 basis points at end-August 2008 from less than 200 basis points in early 2007. The outcome of all this has been a decline in real gross domestic product (GDP) growth to 5.8percent from 7percent during the previous year.

ADB report observed that these challenges facing Pakistan have come despite steady real GDP growth of 7.3percent on average per year during FY2004-FY2007. But they have also come in the context of, as well as due to, persistent fiscal, trade and investment imbalances and lack of any significant structural changes in the economy.

ADB EXPERTS OBSERVE THAT PAKISTAN NOW NEEDS TO TRANSFORM ITSELF IN THREE DIRECTIONS: First, it has to address the immediate distortions facing the economy, particularly in the agriculture and energy sectors. The pricing and procurement system for wheat needs to be restructured, and subsidies better targeted to benefit the poor and vulnerable.

Untargeted wheat subsidies cost the Government PRs 40 billion ($600 million) in fiscal year (FY) 2008. In the electricity sector, Pakistan does not yet have an automatic tariff adjustment mechanism. The Government needs to reform the subsidy system in the sector, since it has not been able to settle the payments owed to distribution companies, which has resulted in a vicious circular debt problem and debt overhang. This needs to be addressed urgently to resolve the present energy crisis.

Electricity subsidies are estimated to have cost Rs 133 billion in FY2008 ($2 billion). In addition to these subsidy needs, an estimated $1.6 billion is required to partially protect the poor.

Second, Pakistan needs to strengthen financial inter-mediation to facilitate structural transformation. At the macro level, the Government has relied heavily on the central bank for its fiscal requirements, a practice that needs to be reversed. In parallel, the legal and regulatory framework should be strengthened to manage risks more effectively in the financial sector, promote consumer confidence, and deepen financial inter-mediation.

Third, over the medium to long term, the production and trade structure of the economy needs to be transformed so Pakistan can compete more effectively in the global economy. A deeper industrial base is vital, along with a more productive agricultural sector, greater value creation in the service sector, and far greater export sophistication.

To achieve this, the Government has to (i) address short-term policy and institutional distortions, (ii) identify industries where it might compete on a global scale, and (iii) attract private sector investments. ADB has worked in the past with Pakistan alongside other development partners to support reforms and investments in all three directions.

The challenges now facing the country are diverse and significant that immediate assistance is needed to address the short term constraints and to provide safety nets for the poor, while paving way for boosting Pakistan 's competitiveness, they added.

To address the present macroeconomic challenges, ADB experts mentioned that Pakistan Government has adopted a four point stabilisation plan, working in tandem with the State Bank of Pakistan (SBP).

It has also sought technical advice from development partners, including the International Monetary Fund (IMF), the World Bank and ADB in developing the plan, which focuses on: (i) ensuring price stability and effective demand management through interest rate adjustments; (ii) pass-through of subsidies while protecting the poor from economic shocks; (iii) shoring up foreign exchange reserves; and (iv) restoring fiscal discipline and reducing borrowing from SBP.

Commenting over the Medium-term agenda, ADB experts said that as it deals with the short-term challenges during the current fiscal year (by June 2009), the Government also plans to launch medium-term structural reforms in two key directions.

Increasing infrastructure investments in power and transport is a key part of its strategy, besides adopting measures to deepen Pakistan's industrial base and making its agriculture sector more productive. The Government plans to achieve this by rationalising its own involvement in key economic sectors, and by attracting greater private sector participation.

The fiscal space generated will help ensure adequate social safety nets as well as adequate spending on health, education and other priorities. In parallel, Pakistan also has adopted a framework for a medium-term financial sector strategy to strengthen financial inter-mediation and promote confidence. The proposal comprises (i) a program cluster for the Accelerating Economic Transformation Program (AETP) with four subprograms totalling $1.8 billion to $2 billion, (ii) two loans totalling $500 million equivalent for subprogram 1 of the AETP, and (iii) a technical assistance (TA) grant of $800,000.

The proceeds of subprogram 1 will be used by the Government mainly to cushion the impact of food and fuel inflation through the provision of targeted safety nets for the affected segments of the population. Of the $500 million for subprogram 1, $200 million will be from Asian Development Fund (ADF) resources.

The AETP will help Pakistan achieve and sustain higher economic growth in the medium term. The expected outcome of the AETP is structural economic transformation through (i) removal of short-term distortions in the agriculture and energy sectors; (ii) strengthening of financial inter-mediation; and (iii) development and implementation of a national structural transformation strategy.

Highlighting Special Features, ADB experts said that the AETP would help Pakistan address the challenges posed by the ongoing food and energy crisis in a systematic manner. Subprogram-1 is also one of ADB's responses to the food crisis in the region, a response that was first announced by the President at the ADB Annual Meeting in May 2008 and recently set forth in the paper ADB's Response to the Food Crisis.

ADB has worked with other development partners on the short-term as well as the medium-term issues. On macroeconomic stabilisation measures, ADB has relied on advice from the IMF and the World Bank and exchanged views with other bilateral partners. Part of the short and medium-term agenda, as it relates to agriculture, infrastructure and finance sector issues, is well grounded in ongoing investment and policy support by ADB and other partners.

Regular dialogue has taken place, including in finalising the AETP actions, with the concerned partners. The structural transformation agenda is new and being developed. Several institutions support investment climate and competitiveness reforms, with some specialising in selected sectors.

Once the principal studies under the AETP are completed by early 2009 ADB will co-ordinate closely with all stakeholders in helping the Government chalk out the future reform directions. The AETP will not only help stabilise the macroeconomic situation but also benefit target groups affected by fuel and food inflation.

IT WILL HELP: (i) Meet the large and immediate fiscal needs. (ii) The Government transition from the current system of inefficient and untargeted subsidies toward a targeted safety net program for the poor. Beginning with about 2 million households immediately, and expanding to cover 5 million households during the 2008-2009 fiscal year if the safety net program implementation is smooth, the AETP could potentially target up to 9 million households.

(iii) It will raise public confidence in the banking system through a depositor protection scheme, and stronger financial intermediaries that are better able to mobilise and allocate resources and risks. (iv) It will open the way for structural transformation. (v) It will cut transaction costs for businesses by reducing red tape and improving the investment climate. (vi) Overall, the AETP framework will enable ADB to sustain policy dialogue on structural reform in sectors where ADB has been actively involved through past and current investments.

 

[Neo]

Pakistan to stabilise economy, encourage growth: Tareen​

WASHINGTON (October 12 2008): Pakistan will pursue a comprehensive plan to stabilise its economy, encourage production in agricultural and industrial sectors and promote public-private partnership to move towards sustained high growth, Adviser on Finance Shaukat Tareen said on Friday afternoon.

In a series of meetings at the World Bank-IMF annual gathering, he held out the elected government's commitment to the policy of privatisation and deregulation as well as bolster competitiveness of the manufacturing sector. He was confident that the policies and reforms introduced by the government would lead to higher economic growth and enhance the international confidence in Pakistan's enormous economic potential.

Tareen met with leaders of international financial institutions including the World Bank, Asian Development Bank, International Monetary Fund and Finance Ministers from China and Saudi Arabia.

He also addressed a gathering of leading American investors arranged by Pakistan-US Business Council, where he affirmed the government's commitment to facilitate foreign investment. He urged American entrepreneurs from various sectors including energy to avail tremendous business opportunities existing in the country.

The adviser spoke of structural reforms in capital markets in order to transfer economic gains to the people. He informed his interlocutors about the government's focus on technological development as a way to empower people and lift them out of poverty.

The government, Tareen said, accords a high priority to human resource development and will therefore focus on better education and health facilities for the people as well as their skill development. He also apprised the finance and business leaders of the government's programmes to provide safety nets for the poor and reduce poverty.

Tareen also touched on efforts toward rationalising expenditure, increasing tax revenues and establishing Resolution Trust Corporation for running business more efficiently. In view of the rapidly expanding energy requirements of the country, he said the government is following an integrated energy plan to ensure sustainable development.

On the public-private partnership, he said, the government will promote it to shift infrastructure development to the private sector. The Finance Adviser's talks with the World Bank Vice President Isabel Guerrero and Asian Development President Haruhiko Kuroda revolved around Pakistan's program to stabilise the economy and the future course of action. They also discussed fast tracking current year lending program and investment portfolio in education, energy, trade, and other sectors.

The adviser also met with China's Vice Minister of Finance, Li Yong and Finance Minister of Saudi Arabia, H.E. Ibrahim Abdulaziz Al-Assaf and Deputy Managing Director IMF Murilo Portugal. Besides, Shaukat Tareen and the economic managers also attended 80th meeting of the Ministers of Group of 24 developing countries.

 

[Neo]

Analysts foresee GDP growth dip to 4.2 percent in fiscal year 2009​

KARACHI (October 12 2008): The country's GDP growth is expected to slow down to 4.2 per cent in FY09 from 5.8 per cent in FY08 as high input costs coupled with reduced purchasing power will likely to depress manufacturing and services sector growth, analysts said. Agriculture sector is expected to grow by 3 per cent against 1.5 percent last year, on account of higher support prices encouraging output.

The current account balance deteriorated by 64 per cent on year-on-year basis to $2.6 billion in the first two months of FY09, maintaining pressure on the foreign exchange reserves. With Moody's and S&P's downgrading their outlook on Pakistan's sovereign debt, the ability to borrow from international financial markets will suffer, Sarah Mazher at Global Securities Pakistan said. Rising security concerns owing to series of blasts in the past few weeks would likely hinder future investment inflows, she added.

She said that with the IMF analysts team's hurried departure following Marriot hotel blast and the expected Saudi Oil facility flashing into the dark, help is being sought from 'Friends of Pakistan' who will meet this month to discuss the country's critical economic situation. August 2008 recorded highest ever inflation of 25.3 per cent on yearly basis, while core inflation increased to 16.1 per cent in August 08 from 14.7 per cent in July 08.

A fall in SPI inflation for 3 consecutive weeks (from an average 31.4 per cent in Aug08 to 29.7 per cent in Sep08) implies a downturn in September 08 inflation number. However, inflationary pressures in the coming months will remain under fire, fuelled by increased government borrowing.

 

[Neo]

Zardari urges Ministry to work for uplift of rural areas​

ISLAMABAD (October 12 2008): President Asif Ali Zardari on Saturday directed the Ministry of Local Government and Rural Development to come up with concrete and specific proposals to bridge the urban-rural disparity in the country. While talking to Haji Ghulam Ahmad Bilour, Federal Minister for Local Government and Rural Development, the President said the government must work for uplift and development of rural areas, which remained neglected in the past.

The Minister for Local Government and Rural Development (LGRD) briefed the President about the status of various ongoing development projects. He said all projects for the rural areas were formulated in close consultation with the provincial governments.

He said the Ministry of Local Government and Rural Development was ensuring provision of basic necessities of life to the people at their doorsteps. The President said there was a need to study the best practices being followed in other countries with regard to local government and rural development and should benefit from their experience. He also emphasised the need for better co-ordination with the provincial governments to streamline the working of the institutions to make them more effective.

 

[Neo]

Malaysia second largest foreign investor in Pakistan​

ISLAMABAD (October 11 2008): Malaysia has become the second largest investor in Pakistan with 205.9 million dollars whereas Singapore took the first position with 210 million dollars during the first two months, July-August of current financial year 2008-09.

According to a data by Board of Investment (BoI) for the first two months of the current financial year, the total foreign investment inflow reached at 643.2 million dollars as compared to 312.2 million dollars in the corresponding period of last year registering an increase of 105 percent with Malaysia emerging as the second largest country in terms of Foreign Investment Inflow to Pakistan, said a news release here on Friday.

According to BoI data, US with 126.5 million dollars made the largest Foreign Direct Investment (FDI) followed by Norway with 50.2 million dollars, UK 44.4 million dollars, Hong Kong 33.9 million dollars and other making up total of 754.1 million dollars in the first two months of current financial year as compared to 458.9 million dollars of corresponding period of last year registering an increase of 64 percent.

The data also revealed that the largest FDI in Pakistan during July-August 2008 was made in communication sector stood at 251.8 million dollars, followed by financial business at 189.3 million dollars, oil and gas sector 78.6 million dollars, and power sector at 34.1 million dollars.

According to BoI, there has been consistent increase in Foreign Investment Inflow in the country since 2001-2002. The total FDI in the year 2001-02 was 585 million dollars that grew to 5,019 million dollars in 2007-08, whereas foreign investment inflow for the month of July-August, 2008-09 alone stood at 754.1 million dollars, which is a reflection of confidence reposed by foreign investors in Pakistan's economy and lucrative investment regime of the country.

 

[Neo]

Inflation to shoot up to 23 percent during current fiscal year​

ISLAMABAD (October 11 2008): Pakistan current account balance is more than double of India's, which is an emerging economy in the region whereas the position of Bangladesh is not alarming in the South Asian region.

According to IMF World Economic Outlook 2008, the current account balance of Pakistan is -8.7 per cent of its GDP in 2008 as compared to -3.9 per cent in 2006 that clearly shows a decline of 4.8 per cent in GDP growth.

The report has projected -6.4 per cent current account balance of GDP growth of Pakistan in 2009 as compared to India that is projected to have -3.1 per cent whereas Bangladesh's current account balance is 0.9 per cent.

Total current account balance of South Asia in 2008 remained -3.3 per cent that is 1.9 per cent less than that of -1.9 per cent in 2006. Similarly, the report shows that the projected current account balance of GDP growth in the region will remain -3.3 percent in 2009.

It is worthy of mentioning that the report has projected four times higher consumer prices in Pakistan than India and more than twice of Bangladesh in 2009. The inflation rate in Pakistan, according to the report, is projected to shoot up to 23 per cent in 2009 as compared to 12 per cent in 2008 whereas the inflation rate was just 7.9 per cent in 2006. This shows an increase of 15.1 per cent in inflation rate in 2009 as compared to that of 2006.

The inflation rate of India in 2009 is expected to be 8.8 per cent that is 16.3 per cent less than of Pakistan's while Bangladesh is expected to have 10 per cent high inflation that is 13 per cent less than of Pakistan's. The average inflation for 2009 in South Asia is projected at 8.8 per cent.

The report shows that Pakistan's economic growth rate may reduce to 3.5 per cent in 2009 as compared to 5.8 per cent in 2008. On the other hand, India and Bangladesh are expected to have 6.9 per cent, 5.6 per cent GDP rate respectively. Earlier, a recent report issued by the Asian Development Bank (ADB) showed that Pakistan GDP growth is expected to decrease to 4.5 per cent in the current fiscal year against 5.8 per cent achieved in the last fiscal, as, according to the report, the country would continue to face the deteriorated state of economic fundamentals and inflationary pressures.

 

[pkpatriotic]

World Bank reiterates pledge for $1.4 billion
By Anwar Iqbal
Monday, 13 Oct, 2008

WASHINGTON: The World Bank, which is providing $1.4 billion for investment projects and budgetary support to Pakistan, has also identified lack of policy action during the past two years and high international commodity prices for the economic crisis the country faces.

The amount, offered during a meeting between President Asif Ali Zardari and
World Bank President Robert Zoellick in New York last month, includes $600 million for investment portfolio and $800 million for budget support.

It is not clear if the money promised to President Zardari is a separate pledge or comes from the Pakistan Country Assistance Strategy fund.

The bank’s country assistance strategy for 2006-09 envisaged a flexible lending programme of up to $6.5 billion, a substantial increase over the previous CAS period. This included between $200 and $850 million annually from International Bank for Reconstruction and Development, one of five institutions that comprise the World Bank Group.

The current portfolio consists of 22 projects, with total commitments of $2.3 billion. In a related report, the bank noted that 'Pakistan faces an economic crisis due to high international commodity prices and a lack of policy action during the past two years.'

The bank also noted that the government of Pakistan was now starting to implement reforms on petroleum and power prices, tightening monetary policy and controlling expenditures. 'But more needs to be done,' it added.

The report noted that Pakistan’s development emphasis remained on social protection, poverty reduction, and infrastructure, particularly in water management, transport, and energy. Over the last few years, Pakistan’s human development indicators had generally improved, but largely lagged behind other countries in the region, the report added.

'Key challenges facing Pakistan include a poorly targeted social safety net, an infrastructure deficit, particularly in energy, transport, and irrigation, and poor delivery of social services.'

The World Bank pledged to deepen its engagement on social protection, community-led development, water management, energy, and infrastructure, while maintaining strong programmes in education, and irrigation.

Meanwhile, Britain’s Department for International Development has doubled its economic assistance for Pakistan to £586 million. DFID is a part of the British government that manages Britain's aid to poor countries and works to get rid of extreme poverty.

DFID’s Permanent Secretary Nemat Minouche Shafik told the Pakistani delegation attending World Bank’s annual meetings in Washington that her department plans to expand its development work to federally administered tribal areas and Balochistan.

Mr Tareen also had productive meetings with German Minister for Economic Cooperation and Development Wieczorek-Zeul, US Undersecretary of State for Economic, Energy and Agricultural Affairs Reuben Jeffrey and Assistant Secretary of State for Economic, Energy and Business Affairs Daniel Sullivan.

The German minister vowed to provide support for social safety nets and also offered debt swap for HIV AIDS and Malaria Global Fund. US officials reaffirmed Washington’s continued support for Pakistan’s economic development.

Mr Tareen also discussed bilateral cooperation with Afghan Finance Minister Anwar ul Haq Ahady. He briefed his interlocutors on current economic challenges confronting Pakistan and on the impact of the war on terrorism which is also affecting the country’s economy.

Mr Tareen sought donors’ support for Pakistan’s efforts to pull itself out of the current economic crisis. He also highlighted the impact of global financial crisis on developing countries, particularly on those intending to access capital market but cannot do so because of liquidity crunch.

 

[Neo]

Pakistan Seeks Expatriate Funds to Support Stocks, Tarin Says ​

Oct. 13 (Bloomberg) -- Pakistan, seeking $10 billion from overseas to avoid defaulting on its debt, will set up a fund for expatriate investors to buy stocks, before lifting emergency trading curbs that have prevented a rout in equities.

The fund will invest in state-run companies including Oil & Gas Development Co., National Bank of Pakistan, and Pakistan Petroleum Ltd., Shaukat Tarin, the Prime Minster's finance adviser, said in a telephone interview from Washington yesterday. Tarin, appointed on Oct. 8, didn't provide further details.

``We are looking at creating a fund for non-resident Pakistanis to consist of government stocks,'' Tarin said by telephone. ``The values are very good so we want to create a bouquet to offer to non-resident Pakistanis this month.''

Pakistan has twice imposed trading restrictions, bailed out individual investors, and promised an earlier fund to buy equities in failed measures to support a market that lost a third of its value this year. The Karachi Stock Exchange will meet today to review six-week-old rules that prevent stocks from falling below their Aug. 27 closing prices after rejecting calls from brokers to shut the exchange.

``There was a proposal to close the market for two weeks till the government resolves the fund issue,'' Arif Habib, chairman of Arif Habib Securities, a brokerage firm, said by telephone from Karachi. ``Then it was suggested issues should be resolved while the market stays open.''

The restrictions have prevented Pakistan from following a global sell-off in stocks on concern the escalating credit crisis will push more economies into recession. The KSE100 index ended little changed on Oct. 10 as the MSCI Emerging Markets Index fell 4 percent, extending the biggest weekly decline in the global benchmark since the index was established in 1987.

``The market will open as normal,'' Adnan Afridi, managing director of the exchange, said by telephone from Karachi.

Suicide Bomber

The exchange first imposed the trading restrictions Aug. 28 and extended them on Sept. 25 after a suicide bomber destroyed the capital's Islamabad Marriot Hotel and economic conditions deteriorated. Since the curbs were imposed Pakistan's credit rating has been cut to the world's second-lowest. Tarin said he didn't know about the proposal from brokers to halt trading.

Tarin, a 25-year veteran of Citigroup Inc., is in the U.S. seeking to raise $10 billion in emergency aid, in his first assignment since his appointment by President Asif Ali Zardari.

The World Bank will provide $1.4 billion this year to help narrow the nation's budget deficit, which is at a 10-year high, state-run Associated Press of Pakistan reported.

The offer was first made to Zardari last month and reiterated yesterday to Tarin, who met with the World Bank's Managing Director Ngozi Okonjo-Iweala, APP reported, without saying where it got the information.

Remove Curbs

Pakistan was forced on July 11 to remove the first curbs it imposed after trading in Karachi slumped to the lowest in 10 years. Regulators had banned short-selling and narrowed the limit on declines in measures announced late on June 23.

Hundreds of investors stoned the exchange and shouted anti- government slogans on July 16 after the bourse removed a 1 percent daily limit on price declines.

The exchange also banned short-selling Sept. 23, bailed out individual investors in July and announced a 20 billion rupee ($256 million) fund to buy stocks last month.

 

[Neo]

UK decides to double economic aid to Pakistan​

LONDON: The British organization for international development decided to double the economic aid for Pakistan. This aid now will be up to 586 million pounds.

 

[dr.umer]

Pakistan seeks joint ventures with Iran​

Posted: 10/13
From: MNN

A Pakistan provincial minister has called for joint economic ventures with Iran, especially in IT and Telecom sectors.

Minister for Industries and Commerce in southern Sindh province, Rauf Siddiqi in a meeting with the Iranian Consul General Masood Mohammed Zamani and Economic Counsellor, Gholam-Reza Tajik, called for expansion of bilateral economic cooperation.

He invited Iranian industrialists and investors to cooperate in agro-based industries under joint venture, including production of tomato paste and juices as well as processing of dates and fresh fruits.

Meanwhile, Zamani outlined Iran's expertise in basic and light engineering and oil and gas machinery, stressing that such potentials provide an opportunity for investment by Pakistani industrialists and investors.

The two sides discussed setting up industrial exhibitions in the two countries and called for exchange of high-ranking delegations. --IRNA

 

[pkpatriotic]

Banks hit by speculative withdrawals
By Afshan Subohi
Monday, 13 Oct, 2008

The domestic financial market experienced a mild shock last week following rumours about the viability of 2-3 banks to the freezing of foreign currency accounts and seizure of bank lockers.

It led to noticeable withdrawals of money from the banking system experiencing liquidity crunch. Post-Eid illiquid money markets saw volatile call money rates surge to 40 per cent before settling back to 20 per cent later in the week.

Many experts contacted by Dawn for comments termed the statements by Governor of State Bank of Pakistan Dr Shamshad Akhtar and the newly-appointed advisor to Prime Minister on finance Shaukat Tareen timely, strong and well-worded. While others considered these very people partially responsible for the situation: Madam Governor for letting banks indulge in imprudent consumer financing ( the policy initiated by Dr Ishrat Hussain) and Shaukat Tareen for patronising brokers by introducing a new brand of badla — the CFS (continuous funding system).

As the currency market turned volatile, the SBP intervened to ease liquidity by injecting $20-100 million (different sources quoted different amounts) in the currency market and lowering the limit of cash reserve requirement (CRR) for banks from nine to seven per cent. The two per cent phased lowering of CRR is expected to release an estimated Rs60 billion to the banking system for credit expansion.

Experts felt that in the short-run the government can cut cash reserve requirements and statuary liquidity requirement (SLR) but in the long-run change in discount rate could be used to manage the market.

However, the government is currently more focused on mobilising funds from friendly countries to come out of the financial distress.

All financial managers including the finance minister, secretary finance, financial advisor and SBP Governor are attending the annual meetings of the World Bank and the IMF in Washington. Some officers of the ministry of finance said the meetings could provide an opportunity to ‘pursue the donors’.

Several bank branches in Karachi confirmed that they were approached by customers with queries of all kinds. There were reports of withdrawals from few not-so-strong small banks but the activity was within manageable limits.

As of June 2008, according to figures given out by the State Bank, there are in all 24.816 million depositors in the country in all the banks combined.

Approximately two-thirds of these people primarily use banks to draw their salaries. Many of the rest, with their savings parked in banks, demonstrated some uneasiness in the post-Eid week.

Several bank branches in Karachi confirmed that they were approached by customers with queries of all kinds. There were reports of some withdrawals from certain banks but the activity was within manageable limits.

“People remember the co-operative and financial companies’ fiasco of 1980s and 90s. They have not forgotten nor forgiven how the government breached their trust by freezing their foreign currency accounts in 1998. If they get swayed by rumour mongers it is because they have sour memories”, said a depositor.

There were some reports of more than normal activity at the branches of banks with locker facilities. “Generally people expressed anxiety but the level was not high enough to motivate them to take their valuables out of lockers.

Besides, in the current law and order and security situation what other options are available”, a bank manager asked. He argued that people would not touch their lockers even when they made uncomfortable by rumours.

“Let the fog of suspicion created by the whispering campaign settle and sanity prevail.The banking sector has a strong foundation. It would be wrong to confuse the liquidity crunch in the money market or falling value of rupee with the fundamentals of the banking sector,” an ex-banker close to ruling party said.

The financial and corporate circles differ on factors responsible for the current pass and also on the most appropriate measures to sustain the confidence level in the banking system.

Some blamed economic policies of demand-led growth of the previous government. Others held brokers-bureaucrats-politicians nexus responsible for creating a bubble economy by diverting the country’s financial resources to speculative capital market.

Yet another group blamed the imprudent financial conduct of the present and the last government and their reliance on the State Bank for their liquidity needs. They said they have drained liquidity from the market.

The government borrowing rose by over 100 per cent in the first 11 weeks of the current fiscal year to a total of Rs173.23 billion from July 1 to Sept 13.

Pakistan is already struggling with a high inflation rate at more than 25 per cent and a widening current account deficit. Foreign exchange reserves are fast depleting. The rupee lost about 23 per cent in its value since the start of the year.

Pakistan’s rating by Standard & poor has been revised to CCC-plus, a few notches above default level. The S&P said: “Pakistan’s worsening external liquidity may imperil its ability to meet about $3 billion in upcoming debt payments”.

 

[Neo]

Zardari heads to China amid strained US ties ​

ISLAMABAD ( October 13, 2008): President Asif Ali Zardari flies to China on Tuesday seeking economic investment and support for his country as its ties with the United States come under increasing strain. Pakistan is one of China's closest allies in Asia, with Beijing seeing the country as a counter-balance to India.

Though the four-day visit is Zardari's first state visit since he assumed office in September, he met US President George W. Bush in New York late last month for the UN General Assembly.

Former army general Talat Masood told AFP that Zardari was still "learning on the job" and had a difficult diplomatic balancing act to pull off.

"Both the US and China have a strong presence in Pakistan and Zardari will seek to ensure that their joint presence is used to find maximum benefit for the country as it faces further difficult times," he said.

With Pakistan also feeling the economic pinch -- it has been forced to ask its Western backers to stave off bankruptcy -- Zardari will be looking for aid and investment in gus talks with President Hu Jintao and Prime Minister Wen Jiabao.

China, described by Pakistan as its "all-weather friend," has boosted its economic interests in the country, funding major infrastructure, engineering and mining projects including a deep sea port at Gwadar in the southwest.

"This is the first official bilateral visit of President Asif Ali Zardari abroad, and is to a country with which we have always enjoyed a high degree of understanding, trust and goodwill," the foreign ministry said.

The Beijing government has said it hopes Zardari's visit will "deepen the strategic partnership between China and Pakistan."

Other topics for discussion are likely to include the fate of two Chinese telecoms engineers kidnapped by pro-Taliban militants six weeks ago near the Afghan border.

China made an official request for the Pakistani government to rescue the hostages.

 

[Neo]

World Bank to lend $1.4 billion, DFID doubles aid​

WASHINGTON (October 13 2008): The World Bank has pledged to provide $1.4 billion support for Pakistan in the current year, which can be front-loaded to fast track investment projects and budgetary lending. The amount includes $600 million for investment portfolio and $800 million for budget support as macroeconomic stabilisation programme moves forward.

The offer, first made by World Bank President Robert Zoellick at a meeting with President Asif Ali Zardari last month in New York, was reiterated Saturday as Pakistan's Adviser on Finance met with the Bank's Managing Director Ms. Ngozi Okonjo-Iweala.

Tareen and his team of top economic mangers had also discussed development co-operation with WB Vice President on Friday. Meanwhile, Department for International Development has doubled its economic assistance for Pakistan to UK pounds 586 million. Minouche Shafik, Permanent Secretary of DFID told the Pakistani delegation that the Department plans to expand its development work to federally administered tribal areas and Balochistan.

The Advisor to Prime Minister also had productive meetings with German Minister for Economic Co-operation and Development Ms Wieczorek-Zeul, United States Under-secretary of State for Economic, Energy and Agricultural Affairs, Reuben Jeffrey and Assistant Secretary of State for Economic, Energy and Business Affairs Daniel Sullivan. The German Minister vowed to provide support for social safety nets and also offered debt swap for HIV AIDS and Malaria Global Fund. The U.S. officials reaffirmed Washington's continued support

for Pakistan's economic development. Tareen also discussed bilateral co-operation with Afghan Finance Minister Anwar ul Haq Ahady.

Shaukat Tareen briefed his interlocutors about the current economic challenges and blow impact of the war on terrorism that Pakistan being the Front Line State has to face on its economy. He spoke of the tough and difficult measures that have been taken by the elected government. He also expanded on Pakistan's program to deal with these challenges including social safety nets for targeted subsidies. The Finance Adviser urged donors' support for Pakistan's efforts to pull itself out of the current difficult phase. He also highlighted the impact of global financial crisis on developing countries, particularly on those intending to access capital market but cannot do so because of liquidity crunch.

The World Bank, DFID, US and German officials appreciated the courageous measures taken by Pakistan to correct the macroeconomic imbalances and reaffirmed their commitment to support the country in meeting its economic challenges and establishing safety nets for the poor.

The Pakistani delegation including Governor State Bank Dr Shamshad Akhtar, Finance Secretary Dr Waqar Masood, Secretary Economic Affairs Division Farrukh Qayyum and Economic Minister at the Pakistani embassy in Washington Wajid Rana also participated in a number of events including the WB-IMF Constituency Meeting, SAARC Finance Governors Meeting and the International Monetary and Finance Committee meeting.

 

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Pakistan urged to check remittances inflow through illegal means​

ISLAMABAD (October 13 2008): Pakistan should take appropriate steps to check flow of foreign remittances through illegal channels to get optimum benefits of the expats hard earned money with annual inflow of more than $9 billion.

In an exclusive interview with the Daily Business Recorder, Bashir A. Tahir Chief Executive Officer (CEO) Dhabi Group shared his international banking experience; rupee-dollar parity, future investment plans and role of banking sector in current economic situation for improving the economy.

Terming "Hundi and Hawala system" as a major hurdle in foreign remittances through legal banking channel, he said that why Pakistan could not get rid of the "hundi system" which India effectively tackled during the tenure of Indra Ghandi.

He said that the late Indian Prime Minister Indira Gandhi with the imposition of emergency banned illegal means of transmitting expats money. She not only plugged all the channels but also confiscated the assets of people dealing in it. This sent a strong message to both the dealers and expatriates that the money they send through illegal means was not safe.

He said that $9 billion would be a huge amount that Pakistan can get annually through legal means provided it takes measures to break the illegal channel, which has been causing enormous damage to foreign exchange reserves.

Declaring "no risk" in Pakistani banking system, he said that the banks are not facing any kind of risk during the current economic scenario in Pakistan. Presently, Pakistani banking sector is robust with no sign of default. The general public should not be worried and need not to pay any heed to rumours of default. Such kinds of rumours are created by the vested interest, who want to distort the image of Pakistan aboard.

According to him, Pakistan banking system was sound for which the credit must be given to the Central Bank that has been playing a proactive role. No country of the world could develop without a strong banking system and the responsibility to make it stronger lies equally with the people as well as the regulator, he added.

It is the responsibility of the regulator to closely monitor all the banks and take measures against those who are not functioning properly within the laid down parameters. As far as Pakistan is concerned, the regulator is very strong which examines each and every aspects of bank in a critical way and sends report to the all banks individually. He said that the systems within the banking sector have to remain stable. If one system is being disturbed, it might hurt the entire banking system.

To a question, he said that prevailing international economic turmoil will also have an impact on Pakistan economy as well but at the same time there are positive signs for Pakistan with reduction in oil prices that according to international experts are likely to stabilise somewhere in $70s per barrel. The declining oil prices as well as remittances could help Pakistan manage its balance of payments to some extent. The legal transmission of foreign remittances by overseas Pakistanis could be a ray of hope for economy in the prevailing economic situation.

He regretted that there was a huge capital flight during last two years from Pakistan to the UAE and the government must have acted and taken into confidence the investors by addressing their fear and anxieties. Still the government can do a lot to restore local investors' trust for which it has to have meaningful talks with them aimed at giving them the message that it was fully supporting them on their legitimate demands, he added.

About the current depreciation of Pak rupee against the dollar, Bashir A. Tahir said that there is a need of policy with national interest to check this phenomenon in Pakistan. The currency exchange dealers sometimes indulged in the phenomenon of "talking the currency up", which means speculation by the dealers to create panic for extracting more value of the currency in consideration.

Comparing US with Pakistani media, he said that you would never see negative images in the Western media which could have negative impact on their economy. Similarly, the Western media never projected the terrorism casualties. The media in Pakistan also need to understand that exaggerated portrayal of terrorism incidence could immensely hurt Pakistan's economy.

Sharing a study conducted by him, the CEO of Dhabi Group said that the comparison of expatriate workforce between Pakistan and Philippines showed interesting results. Over 80 percent of the workforce of Philippines comprises of women against Pakistan's 95 percent male workers. The foreign remittances have been substantially increased from $9 billion to $10-$11 billion for Philippines. However, our situation has not improved, pointing towards some problems in our systems. About the future plan of the Dhabi Group, he said that the group would continue its investment plan for Pakistan, as the group has not budged from its plans in the worst scenario.

Bank Alfalah stands as one of the fastest growing financial institutions in Pakistan, expanding on local as well as International frontiers and working on the most modern dynamics of customer care and asset growth in banking. Bank Alfalah has recently unfolded a new phase of expansion by planning 49 new branches across Pakistan in order to meet the growing demand of reliable and Innovative banking products. The commencement of these branches is scheduled by the end of the current year.

Bank Alfalah is now ranked as the fifth largest bank of Pakistan within only ten years of its operations. To this date, the Bank has become the leading credit cards brand, and has innovated consumer products by redefining market dynamics. Presently, the Bank has 225 branches across 88 cities in Pakistan with eight foreign branches across Afghanistan, Bangladesh and Bahrain. The phenomenal corporate success of the Bank has been made possible through expanding its customer base and focusing on client needs.

He said that the Bank Alfalah is working on an extremely sound financial rooting and is in a progressive mode. Bank Alfalah for the half year ended June 2008 has shown remarkable growth. The deposits have grown to Rs 287.7 billion against Rs 270.6 billion in June, 2007, the Advances have grown to Rs 184.9 billion from Rs 158.6 billion, the Foreign Trade business has increased to Rs 150 billion from Rs 131 billion and profit before provisions and taxation has increased to Rs 3.28 billion from Rs 2.4 billion registering an impressive growth of 35% during the period under review.

He added that the Bank Alfalah is backed by an extremely strong investment commitment or the Abu Dhabi Group which has experienced growth on extraordinary scale across the Middle East and has Investments in Pakistan exceeding US $10 billion.

The Consortium is headed by the visionary HH Sheikh Nahayan Mabarak Al Nahayan who has always demonstrated keen Interest to invest in Pakistan. Alongside Bank Alfalah, the Group's other Investments comprise United Bank Limited, Alfalah Securities (Pvt) Limited, Alfalah Insurance Company Limited, Alfalah GHP Investment Management Ltd, UBL Insurers Company Limited, Wateen Telecom (Pvt) Ltd and lastly, Taavun (Pvt) Limited (a real estate joint Venture between Dhabi Group and Government of Punjab) in which Dhabi Group has announced an Investment of $1.2 billion, he added.