Pakistan Economy - News & Updates - Archive

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KARACHI (April 09 2006): For the first time in the country's history, Pakistan's rice exports have crossed the $1 billion mark, to $1.002 billion, as a result of 2.81 million tons rice exported to different countries up to March 31.

According to figures available, 1.5 million tons Irri-6 variety was exported fetching $450 million, while 560,000 tons Basmati variety earned $325 million during nine months of the current fiscal year.

In addition to the above, 250,000 tons rice (both Irri-6 and Basmati varieties), worth $70 million, was exported to Iran, and 250,000 tons, worth $94 million to Afghanistan through land route, while 250,000 tons rice, worth $63 million, was exported to East African countries through container cargo during this period.

During last fiscal year 2004-05, Pakistan's total rice exports amounted to $933 million.

Total rice production in the current year has been recorded at 5.5 million tons, of which around 2.7 million tons was Irri-6 variety and equal quantity of Basmati variety has been produced.

Rice Exporters Association of Pakistan (Reap) Chairman Abdul Majeed, while talking to Business Recorder here on Saturday, said that it was a historic occasion that Pakistan has become a member of $1 billion exporters' club this year. He said that due to a bumper crop, value-addition and exploration of new markets by the rice exporters the exports of this commodity crossed the $1 billion mark this year.

"We would be able to achieve the $1.2 billion target of rice exports, set by the Reap this year", he said, adding that rice exports could cross $1.3 billion mark as there is still three months' time to export this commodity.

He said that this was a tremendous achievement by rice exporters which had been possible due to the positive economic policies of the present government and hard work by the Ministry of Commerce and Commerce Minister.

He also lauded Export Promotion Bureau and other concerned government departments for their co-operation with the exporters.

http://www.brecorder.com/index.php?id=408754&currPageNo=1&query=&search=&term=&supDate=

 

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Pakistan faces stiff competition in textile exports: ADB
RECORDER REPORT ISLAMABAD (April 09 2006): There are mixed gains in the much-hyped Pakistan's textile and clothing exports under the WTO regime since January, 2005. According to ADB's 'Asian Development Outlook (ADO) 2006', Pakistan is facing stiff competition in textile and clothing (T&C) export sector due to several factors.

The ADB's assessment is based on 11 months' data since the advent of WTO regime.

Here is what the ADO says: The elimination of quantitative restrictions on textile and clothing exports since December 31, 2004 has significant implications for the economy.

With T&C accounting for more than two-thirds of total exports, approximately 10 percent of value-added in gross domestic product (GDP) and almost 40 percent of industrial employment, the opening of the global T&C market will have substantial repercussions on Pakistan exports and the economy.

In terms of policy developments, substantial progress in privatisation made in recent years in banking telecom, and oil and gas has started lifting these sectors' performance levels.

Pakistan's policy of free trade in cotton, the liberal import policy for textile machinery and other inputs, and the gradual deregulation of investment approval procedures, all resulted in substantial investment in modernisation of the country's T&C sector over the past few years.

It was generally thought that the T&C sector was well-positioned to benefit when developed countries would open their markets for these exports and, in fact, export data for 11 months from January 2005 bear this out.

T&C exports rose by over 20 percent year-on-year. Bedlinen emerged as the leading contributor to the increase, with receipts surging by 45 percent to $1.7 billion year-on-year.

Volume growth was even more impressive, at 48 percent. This was achieved despite the 13.1 percent anti-dumping duty imposed by the European Union. The second largest contributor was cotton cloth, with exports climbing by 30 percent to 2.1 billion dollars.

Exports of readymade garments, the third largest contributor to higher T&C exports, jumped by 54 percent to 1.3 billion dollars. Exports of knitwear and synthetic textiles, however, fell.

IMPEDIMENTS Notwithstanding the increase in the country's T&C exports, Pakistan's share in the EU, the largest market for the country's T&C exports, declined by 0.6 percentage points to 3.0 percent in 2005.

Its share in the United States market, which is the second largest market for the country's T&C exports, increased only marginally by 0.2 percentage points.

Among competitor exporters of T&C, the PRC's share rose by 7.6 percentage points in the EU and by 6.7 percentage points in the US-India gained 0.7 percentage points and 0.8 percentage points, respectively.

Imposition of anti-dumping duty on imports of bedlinen, as well as the loss of preferential access to the EU market under Generalised System of Preference (GSP), may have disadvantaged Pakistan's T&C exports to the EU. High business costs, coupled with low labour productivity, also seem to have undermined the country's competitiveness in the international export market.

While the action by the EU to reduce anti-dumping duty is expected to boost bedlinen exports, the ineligibility of the country's T&C exports to the EU's 'GSP+', together with the fact that Bangladesh, Sri Lanka and Vietnam have been given this concession, will continue to hurt Pakistan's exports.

Free trade agreements between the US and many of Pakistan's competitors in clothing exports, as well as the trade diversion effect of the May 2005 inclusion of 10 East European countries in the EU (itself one of the top 3 T&C exporters) could also affect the country's potential gains in exports.

 

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KARACHI (April 09 2006): Foreign exchange reserves rose by $1.177 billion to $12.484 billion in the week ending on April 1, the State Bank of Pakistan (SBP) said on Saturday.

Reserves held by the SBP increased to $10.218 billion from $9.062 billion a week earlier, while those held by commercial banks rose to $2.266 billion from $2.245 billion, the SBP said in a statement.

A senior official at the central bank said inflows by the sale of $800 million in 10- and 30-year global bonds and $500 million as part of payment from the sale of a 26 percent stake in Pakistan Telecommunication Company last week supported the reserves.

http://www.brecorder.com/index.php?id=408741&currPageNo=1&query=&search=&term=&supDate=

 

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Salman addresses investment seminar in Tokyo
ISLAMABAD (April 09 2006): Adviser to Prime Minister on Finance, Revenue, Economic Affairs and Statistics, Dr Salman Shah urged the Japanese businessmen and financial institutions to take advantage of the investment opportunities available in Pakistan.

While addressing the Pakistan Investment Seminar in Tokyo, Dr Shah said the country's economy which was afflicted with stagflation six years ago came out as the second fastest growing economy of Asia by virtue of strong commitment to reform agenda, a message received here on Saturday from Tokyo said.

Advisor said foreign investment, which was close to US $403 million in 1998-99, is expected to surpass US $3.5 billion mark during current fiscal year.

Dr Shah stated that resource allocation system was completely in the private hands, which was being run according to the market check and balance system.

Advisor to PM informed the audience that 85 percent of banking and telecom sectors are already in private sector and the government of Pakistan intends to privatise the remaining public sector's assets like OGDC and utilities very soon. Around 10 to 15 billion dollar assets will be privatised in the near future, he estimated. The Advisor said that 2 to 2.5 billion dollars worth of disinvestment would take place every year.

Rising profitability has created strong demand for credit by the private sector, adding, on account of stable macroeconomic environment, rising foreign investment, sustainable debt, improving social indicators, Pakistan's economic growth is projected to range between 6-8 percent annually, he observed.

He said Pakistan was currently mulling on second generation reform agenda after successful implementation of the first generation reforms.

Earlier, Pakistan Ambassador Kamran Niaz informed the audience that in spite of difficulties and many challenges, Pakistan had in recent years succeeded in achieving an economic turnaround.

"Our economic growth rate of 8.4 percent in the last financial year was among the highest in Asia", he said adding, due to the prudent economic policies of the present government, foreign investment in the country crossed the $1.5 billion barrier last year. Foreign exchange reserves are sufficient to cover our imports for 10 months. Pakistan's exports and imports continue to grow at a healthy rate, Niaz stated.

Ambassador said, "Since the establishment of formal diplomatic ties in 1952, the relations between Pakistan and Japan have been marked by co-operation, understanding and shared perceptions on major international issues".

The friendly ties between the two countries entered a new phase with the visit of Prime Minister Junichiro Koizumi to Pakistan in April 2005 and the return visit of Prime Minister Shaukat Aziz in August last year." He observed, "The recent series of high level exchanges that have become a permanent feature of Pakistan-Japan relations testify to the health and vitality of this important relationship, he added.

General Manager of Marubeni Corporation Katsuhira Yamamoto also presented a case study of Japanese investment in Pakistan.

A large number of Japanese businessmen, representatives of financial institutions and trading houses, Pakistan Embassy officials as well as senior officials belonging to the Japanese Ministries of Foreign Affairs, Economic, Trade and Industry, Japan Bank of International Co-operation, Japan Institute for Overseas Investment, and JETRO attended the seminar.

 

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KARACHI (April 09 2006): The Asian Development Bank (ADB) has accorded approval of loan amounting to Rs 24 billion, while Rs 790 million would also be provided under Technical Assistance for various mega projects of Karachi.

The Acting City Nazim Nasreen Jalil in this connection met with a delegation of Asian Development Bank comprising Asad Aleem, Anjum, Ibrahim and others. The EDO Finance Roshan Sheikh was also present, said a news release issued here on Saturday.

The delegation, while giving details, said the City District Government Karachi would spend Rs 790 million to carry out study on various projects including supply of water and sewerage, transport, solid waste management and other facilities so that in the light of the study various schemes are prepared and implemented.

The loan amounting to Rs 24 billion would be spent on various development projects in the city. Speaking on the occasion, the Acting Nazim called for encouraging local consultants for 'the development projects and to avoid unnecessary participation of foreign consultants.'

She said the appointment of international consultants was a burden on the expenditure of development projects and added there was a need to reduce that expenditure so that the money saved on that account could be spent on other development schemes.

Acting Nazim said it should be ensured that the obstacles pointed out by the Asian Development Bank were not repeated while carrying out various development projects.

She further said the maximum benefit should also be obtained from the experience gained by accomplishing various development schemes. Nasreen Jalil said there was also need to remove obstacles in the way of funds' release from federal government.

She said the city government's priorities included provision of better transport system, water supply and sewerage system, development in health and education sectors and proper lifting and disposal of solid waste.

 

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FAISALABAD (April 09 2006): The Punjab government has approached the World Bank for financial assistance of $100 million to promote economic growth in major cities of the province through metropolitan level, strategic planning, integrated infrastructure, investment programmes and efficient urban service delivery.

According to official sources, specifically, the project would assist cities in developing strategic investment plans and improve service delivery in solid waste management, urban transport and strengthening local finances that support infrastructure investment and sustainable service delivery.

This objective will be met through the creation of three consecutive development policy loan (DPL) reform reports, where each set of reforms built on the previous DPL.

In a project report, Peter D Ellis, an Economist of the World Bank said that Punjab was Pakistan's most urbanised province, with roughly 36 percent population living in urban areas. While its capital, Lahore, is home to about 7 million people, the province has also four other cities with populations in excess of one million, namely Faisalabad, Rawalpindi, Multan and Gujranwala.

Not surprisingly, the population density of Punjab is 31/2 times more than the rest of Pakistan, he added.

According to data from the Development Data Platform (a World Bank Database), Pakistan's largely urban-based manufacturing and services sectors accounted for 77 percent of GDP in 2003, while contributing to over 90 percent of GDP growth between 1999-2003. Given its above average national urban structure and still rapidly urbanising process, the province is perhaps uniquely poised to place its cities at the center of its economic development and poverty alleviation strategies, he added.

However, Peter D Ellis mentioned that major cities in Punjab were facing many challenges, including a projected doubling of the population by 2021 if current growth rates continued.

The cities have inadequate infrastructure to meet current needs. In addition, cities are characterised by inefficient spatial structures (low-density ribbon development), restrictive land use regulations, rent control, and limited supplies of land for commercial, industrial and residential development.

Consequently, land is expensive relative to household and business incomes. Within the large cities of the province (population exceeding one million), responsibilities for service delivery are fragmented and fiscal capacity is limited, he added.

Peter D Ellis said that the shortfalls in urban services were not merely an outcome of aggregate resource constraints. They are, more fundamentally, a function of the institutional, governance, and financial arrangements that have defined local service delivery and financing.

Historically, investments in urban services have been provided by public operators riddled with operational and cost inefficiencies, as well as weak incentives for ensuring the sustainability of investment.

Uneconomic pricing and inefficient public service delivery mechanisms have limited the delivery of municipal services, and, indeed, most other local services, without providing benefits to the poor, most of whom are not served by existing systems, he added. The Punjab government, therefore, requested that the Bank project would support policy and institutional reforms within the province and large cities through a programmatic DPL, he mentioned.

 

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Analysis by M. Aftab

9 April 2006


ISLAMABAD - Saudi Arabia has come up prominently in Pakistani steel sector. Saudis have invested in two major projects — a state of the art new steel plant, and purchase of Pakistan’s biggest steel mill.
The $ 130 million Tuwairqi Steel Mill (TSM), being built by Saudi Arabia’s biggest steel producer, Dr. Hilal Hussain Al-Tuwairiqi, Chairman of Al-Tuwairqi Group of Companies (ATG), plans to start production within 18 months.
Saudi ATG, and its 3-member consortium has also purchased 75 per cent shares of the country’s biggest industrial project— Pakistan Steel Karachi (PS) for $ 362 million in an auction this week. The two other members of the consortium are: Russia’s M. Magnitogorsk Iron & Steel Works Open JSC and Arif Habib Securities of Pakistan. It outbid the second Consortium that included Noor Financial of Kuwait, the Government of Ras Al Khaimah, Al-Jomaih Holdings of Saudi Arabia, and Industrial Union of Donbass of Ukraine.
Awais Ahmad Leghari, Minister for Privatisation, is highly upbeat over the sale of PS, and said Saudi Arabian, Gulf and Middle East interest "is very high in making new investment and purchase of big ticket state-owned enterprises that are being privatised."
President Pervez Musharraf, this week, performed the Foundation Laying ceremony of Saudi TSM at Karachi, and its construction started. It will annually produce one million tons of steel. The capacity can be expanded to 1.5 tons, and later to three million tons.
President Musharraf applauded Dr. Hilal’s decision to invest in steel in Pakistan, and provide excellent training to its personnel and engineers.
Dr. Hilal said "It is our first venture in Pakistan, but surely not the last. It has now been for more than 25 years of success of ATG Companies. It has been two and a half decades of Commitment and dedication to serve our people. Today, the Group by virtues of its immense diversification stands tall in the field of manufacturing and progressively going beyond the boundaries of the Kingdom of Saudi Arabia. We have always looked at business opportunities that may support and contribute towards the economic development of the countries that we work in, through our corporate goals and responsibilities. The same is our vision for Pakistan," where the Group’s first steel mill is being established at Karachi.
Dr. Hilal said, " We believe, Pakistan is land of extraordinary talent and leadership qualities. The professionals in Pakistan, trained at our state of art steel complex at Karachi will evidently become an asset for the Group and accomplish our mission of expansion worldwide. Our focus remain on the fact track completion of the project." He said, ATG has "selected Pakistan for the modern steel mill for its investment-friendly rules, regulations and policies," he said.
ATG Vice Chairman M. Tariq Barlas said, " the plant, using the directly reduced iron (DRI) technology and will produce one million tons of steel a year in the first phase. It will, later, go up to three million tons a year." It will directly employ 3,500 engineers and technicians and create "massive job opportunities in the services sector."
President Musharraf, speaking at the foundation laying ceremony said, " Pakistani economy will gradually shift its focus from agriculture and textiles to heavy industry and engineering to achieve a quantum jump in the country’s exports." He appreciated ATG’s proposed plan to train Pakistani engineers and technicians. He said, "Pakistan and Saudi Arabia enjoy brotherly relations for years. Trade is improving, but more investment is to be encouraged. Dr. Hilal is exactly doing this to further enhance bilateral relations. The two countries will cement their business and economic relations in the 21st century," he said.
As construction of the new TSM plant started, the highlight of the same week was purchase of the Pakistan Steel Karachi by ATG-Consortium. The Russian-built, state-owned Pakistan Steel went on stream in 1984, with a 1.1 million tons a year capacity. It is the country’s only integrated steel plant. It includes coke oven batteries, a sintering plant, blast furnaces, steel converters, bloom & slab casters, billet mill, hot & cold rolling mills, galvanizing unit, supporting units, and a 165 mw of its own power generation capacity. It has 4,457 acres of land.
Among the three member consortium that has purchased 75 per cent shares of Pakistan Steel, Al-Tuwairiqi Group (ATG) has a 40 per cent share, M. Magnitogorsk Iron & Steel 40 per cent, and Arif Habib 20 per cent. The price of Rs16.80 per share for 1.29 billion shares comes to Rs 21.672 billion, equivalent to $ 362 million. The winning consortium will pay 25 per cent of the total bid money in 20 days, and complete the entire payment in 60 days. The total price of 100 per cent shares was $ 482 million at the rate of the successful bid. The second consortium, that lost the bid, had offered Rs16.50 a share, or Rs21.285 billion.
Recent months have seen considerable Saudi and Gulf FDI inflows into Pakistan. The investment were into telecom, financial, infrastructure, utilities, energy, ports, and real estate sectors, besides steel.
Some of these include purchase of 26 per cent shares, with management control, in March, of the state-owned telecom giant, Pakistan Telecommunication Company Ltd (PTCL), by Abu Dhabi’s Etisalat. Etisalat has purchased the shares for $ 2.6 billion. UAE also has launched its Al-Warid cellular phone company which is growing fast inspite of the fact that there are five more mobile companies in the field. The Abdu Dhabi Group (ADG) that purchased part of the shares with management control, of the big, state-owned United bank Ltd. two years ago, is growing fast. Its profit after tax was 62 per cent in 2005.
"United Arab Emirates will invest in all sectors in Pakistan, including energy, Muhammad bin Dha’en Al-Hameili, the UAE Minister for Energy, had announced during his February visit to Islamabad. A number of UAE investors have also started real estate projects in Karachi, Lahore and Islamabad. Saudi Arabia’s Al-Jomaih Group, joined hands with Hassan Associates-Premium Mercantile of Pakistan Consortium that purchased 73 per cent shares and management control of the big state-owned power monopoly— Karachi Electricity Supply Company Ltd. (KESC) for $ 340 million, in November last. It generates 1,750 megawatt electricity and feeds the big industrial hub of Karachi and the southern part of Sindh province. Germany’s Siemens is the technological partner in the Consortium. The Consortium has announced to invest an additional $ 500 million over five years to expand and upgrade KESC.
Custodian of Two Holy Mosques King Abdullah bin Abdul Aziz, during his recent visit to Islamabad announced that Saudi Arabia is planning to significantly expand its assistance, investment, trade and cooperation in the energy field in Pakistan. Oman this week announced it will invest $ 80 million to develop Gwadar port and infrastructure — a facility that has come up just across from the Straits of Hurmoz, at the western tip of Pakistan’s Mekran Coastline. Omanese Foreign Minister Yousaf bin Alawi bin Abdullah announced said this week during his meeting with President Pervez Musharraf, that his country has already invested $ 20 million in Gwadar infrastructure, including its new international airport. Besides the sea port and airport, Gwadar will be a huge industrial, business, commercial, telecom and transshipment hub to serve Gulf-Saudi Arabia, South East Asia, the Central Asian Republics, most of which are landlocked quickly need a shipping outlet to trade with the Gulf, Middle East and South Asia, and rest of the world.
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KARACHI, April 8: Overseas travels of Pakistanis cost $701 million to the national exchequer during the first half (July-December) of the fiscal year 2005-06. Data obtained from the State Bank publication show that the country also received $91 million through foreigners visiting Pakistan during this period. So, net outflow of foreign exchange on account of overseas travels stood at $610 million during the first half of the current fiscal year. Indications are that spending on this net would not be less than $1.2 billion at the end of the financial year. And that would keep Pakistan’s balance of payments under pressure.

State Bank officials say people travelling abroad are allowed to take with them not more than $10,000 or equivalent amount in cash. Then there are various slabs of foreign travelling quotas in place depending upon the nature of the foreign trips. So, the more than $700 million spending on foreign tours in six months just reflects the amount consumed in this head and properly documented. Actual amount of foreign exchange flowing out of the country in the name of overseas travels must be much higher.

Financing of foreign tours had consumed $1.034 billion in the fiscal year (July-June) 2004-05. Even on net basis the spending was $993 million as the country had seen an inflow of $41 million through foreigners visiting Pakistan. Huge spending on foreign tours had an adverse impact on the balance of payments in the last fiscal year and it would have the same impact during this year also.

In the first eight months of this fiscal year i.e. between July 2005 and February 2006, Pakistan saw an overall balance of payments deficit of $458 million — thanks mainly to a big current account deficit of $3.668 billion. The current account deficit itself has stemmed from a fast rising trade gap.

The balance of payments position for July-March 2005-06 may be slightly better. The reason is that in March 2006, Pakistan raised $800 million from global debt market by launching a sovereign bond. It also received $500 million as part payment for PTCL from Etisalat — the UAE-based telecommunication company that has bought 26 per cent shares of PTCL for $2.6 billion. Etisalat made another part payment of $640 million in the first week of this month. That would reflect in the balance of payments of July-April 2005-06.

Despite huge inflows on account of privatization and also on account of foreign direct and portfolio investment, Pakistan is bound to see a $5.5-$6 billion current account deficit chiefly because of soaring trade deficit. Trade deficit stood $7.4 billion in eight months of this fiscal year as imports totalled $18 billion and exports stood at $10.6 billion. Even on the basis of free-on-board value of imports and exports (which is the way the trade deficit is reported on the balance of payments), the trade gap stood at $5.317 billion during the first eight months of this fiscal year.

 

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ISLAMABAD (April 10 2006): Pakistan has witnessed $3.668 billion current account deficit in the first eight months of this fiscal year against $1.08 billion during the same period the last fiscal year, depicting an increase of 239 percent or $2.58 billion, the central bank said.

It is worth mentioning that owing to higher than expected trade deficit, the finance ministry has revised target for current account deficit and set it at $5.137 billion (4.2 percent of GDP) against budgeted target of $2.7 billion (2.19 percent of GDP) for the current fiscal year.

The provisional data released by the State Bank show that the country saw a current account imbalance as trade deficit (in goods) jumped to $5.317 billion during July-February 2006 from just $2.988 billion in July-February 2005. The trade deficit figures are arrived at using the free-on-board value of imports and exports.

During July-February 2006, goods imports stood at $15.781 billion, whereas exports totalled $10.464 billion thus leaving a trade imbalance of $5.317 billion. During the last fiscal, imports had valued $12.24 billion and exports at $9.252 billion thus leaving a trade deficit of $2.988 billion.

The import bill in the first eight-month of this fiscal shot up not only because of higher prices of petroleum products, but also because of high import of food items, machinery and automobiles.

The services account also witnessed a large imbalance of $2.857 billion during July-February 2006 as inflows under this account stood at $2.44 billion whereas outflows totalled $5.297 billion.

In July-February 2006, the imbalance in services account was $2.10 billion as inflows under this account were estimated at $2.118 billion and outflows at $4.218 billion.

The break-up of the services account for July-February 2006 is not available, but July-December data provides a clue on why the services sector account has turned negative.

In October-December 2005, the services sector account saw a deficit of $1.121 billion as inflows under this account totalled $930 million, whereas outflows stood at $2.051 billion.

The factors responsible for this huge deficit included higher outflows on account of transportation, travel, insurance, construction services, royalties, and licence fees.

Pakistan had to spend $724 million on transportation account, whereas its earning under this head was only $251 million. Thus, the net deficit in the services account due to chartering of vessels for imports, exports shipment was $473 million.

Another factor responsible for a big services account deficit was a net outflow of $373 million on account of overseas travelling.

Pakistan had to spend $422 million to finance personal and business-related travelling abroad of individuals and groups whereas it earned only $49 million under this account.

A higher spending on transportation and travelling as witnessed in the second quarter of this fiscal year is believed to have continued through the third quarter as well.

Hence the services account deficit in July-February 2006. The same applies on spending on insurance and royalties and licence fees paid to international organisations and their employees operating in Pakistan.

The imbalances in the trade and services were so large in July-February 2006 that the current account turned negative despite a strong build-up in current transfers. Net current transfers rose to $6.262 billion in July-February 2006 from $5.625 billion in corresponding period last fiscal year.

Current transfers went up in the first eight months of this fiscal year as Pakistan received $2.804 billion in workers' remittances or foreign exchange sent back home by overseas Pakistanis during this period, up from $2.606 billion in a year-ago period.

A big increase in foreign currency deposits held by the resident deposit holders also boosted current transfers. However, it declined to $227 million during the period under review than $565 million in corresponding period primarily because of the stable rupee.

The rupee kept stable its value against the US dollar in July-February 2006, providing less incentive to those willing to maintain foreign currency deposits.

 

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KARACHI (April 10 2006): On March 31, SBP received foreign exchange worth $1.3 billion on account of sovereign bonds ($800 million), floated in later part of March, and a payment instalment by Etisalat Telecom of UAE ($500 million) on account of PTCL' sell-off.

These receipts pushed up Pakistan's liquid foreign exchange reserves from $11,307.5 million on March 25 to $12,484.3 million on April 1--a level which roughly ruled during June/July 2005. Reserves could have been higher still if the liquid foreign exchange reserves of the country had not faced loss of $123 million over the week, visibly to finance more imports.

On Friday, April 7, Etisalat deposited the second instalment of $660 million with the State Bank to complete $1.4 billion upfront payment. Hopefully, after the addition of $660 million during the week ending on April 8, liquid foreign exchange reserves must have risen to $13 billion mark.

Earlier on, Pakistan's liquid foreign exchange reserves had touched the $13 billion mark in April 2005.

In the meanwhile, latest monetary update (April 8) showed that private sector borrowing, which at Rs 330.5 billion on March 18 had crossed the full-year credit target only marginally, reached Rs 340 billion on March 25 after scoring a quantum jump over the week.

In the previous two weeks, credit to this sector had been increasing at a nominal rate of about Rs 3 billion per week and, apparently, gave the feel that the State Bank's tight credit policy had started working. It did not appear during the week under report.

If the economy is going to grow by about 6.3 percent then one needs to inquire from the private sector where this huge chunk of credit is going--to add to physical production; to services financing; or just to add fuel to speculation in shares, hoarding certain commodities, real estate or precious metals?

Meanwhile, budgetary borrowing by the government increased to Rs 161 billion on March 25 compared with Rs 154 billion on March 18. With borrowing under commodity operations and other heads still showing credit retirement of well over Rs 33 billion, net government borrowing stood lower at about Rs 128 billion though, compared with the previous week, it is higher by about Rs 6 billion.

It is hoped that, other things remaining constant, budgetary borrowing on April 1 would have stood reduced to Rs 81 billion, ie, well below the Credit Plan target of Rs 98 billion, as the government is stated to have retired the State Bank's debt worth about Rs 80 billion on March 31--the date the aforesaid $1.3 billion were sold to the State Bank. It would stand reduced by another Rs 40 billion on April 8 marking the end of the next week.

As in the previous week, other items (net) or OINs of the banking system continued exerting contraction impact (indicating higher liabilities than assets) on domestic credit and as such on money supply. The contraction impact on this account rose to Rs 92.6 billion during the week under report compared with Rs 91 million in the previous week.

These upward changes in government and private sector borrowings, adjusted for downward movements in OINs, led to an overall credit expansion of Rs 375 billion on March 25 compared with Rs 362 billion on March 18. However, overall monetary expansion during the year so far was lower at Rs 282 billion compared with Rs 267 billion on March 18 because of the contraction of money supply originating from the unusually large draw-down of foreign reserves amounting to Rs 93 billion as on March 25 compared with Rs 94 billion a week ago. Last year, during this period, overall credit expansion was lower, at Rs261 billion, mainly because of very low credit off-take by the government sector (viz Rs 11.5 billion only), though money supply was higher, at Rs 313 billion, mainly because of accumulation of reserves worth Rs 52 billion with the banking system.

It is important to explain the impact of the government sale of foreign exchange worth about $2 billion to the State Bank--$1.3 billion on March 31 and about $0.7 billion on April 7.

It would be interesting to see that when the actual effect of these transactions would appear on the balance sheet of the central bank for the weeks ended on April 1 and April 8, budgetary borrowing would have depressed by Rs 80 billion on April 1, and by another Rs 40 billion on April 8. This would scale down the overall government borrowing from the banking system by about Rs 120 billion by April 8 which, in turn, would lead to an overall credit contraction in the economy.

Would reduced overall credit creation lead to an equivalent reduction in money supply? The answer is 'no', because though the government borrowing would stand reduced by Rs 120 billion by April 8 debt retirement to SBP earlier used as a substitute for foreign financing of the fiscal deficit as envisaged in the budget, the equivalent increase in NFA or foreign would neutralise the contraction impact of domestic bank borrowing for budgetary purpose.

There would, therefore, be no effect of domestic credit contraction on current money supply but it could moderate future money creation because of the resultant lower NDA (net domestic assets) of the State Bank and, hence, reserve money.

 

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PESHAWAR (April 10 2006): Khyber Safari train, a majestic steam train service of Pakistan Railways, which is run between Peshawar to Landi Kotal (Khyber Agency) from time to time, is a great source to promote the dwindling tourism industry in Frontier province besides projecting the soft image of NWFP.

The Pakistan Railways arranged day-long trip for the domestic as well as foreign tourists to explore the hidden potential of historical Khyber Pass by ridding through majestic Khyber Steam Safari train.

A great enthusiasm and zeal have been witnessed among the participants before they were departed from here to Landi Kotal.

"The railway track was designed by Victor Belay, a British engineer 1880 with an estimated cost of Rs 210 million in 1920. There are 18 tunnels between Jamrud and Landi Kotai and 16 Tunnels between Landi Khana-Landi Kotal," Moatabar Khan, Station Manager of Jamrud railway station.

 

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9 April 2006


ISLAMABAD — The Asian Development Bank (ADB) has projected 6.3 per cent GDP growth rate for Pakistan in 2005-06 against the targeted 7 per cent mainly due to slower agricultural growth. However, it said that Pakistan should be able to manage 7.3 per cent GDP growth in 2006-07 by accelerating its industrial growth in the country.
"South Asia's growth is expected to moderate to 7.3 per cent in 2005-06 as a result of some slowing in India and Pakistan, but then will rise slightly close to 7.5 per cent in 2006-07", according to a major ADB report released here yesterday. The region grew 7.8 per cent in 2005.
Pakistan, it said, grew 8.4 per cent in 2004-05, its fastest rate of growth in the past two decades, but inflation also pushed higher and the current account slipped from surplus to deficit. The Bank also believes that the tightening of monetary policy is expected to bring inflation down to 8.5 per cent this year and to 7.6 per cent in 2006-07.
The medium-term outlook is favourable for growth in the range of 6-8 per cent for Pakistan assuming continued robust performance in economic management, greater investment to ease infrastructure bottlenecks, continued security and political stability, the Bank added.
Average inflation for the region in 2005-06 is expected to increase to 6.1 per cent as removal of subsidies on some petroleum products in a number of countries boosts domestic prices. Most countries are projected to see somewhat larger current account deficits with the regional average projected at 3 per cent of GDP.
"Evidence is growing that South Asia is moving on to a higher growth path. But future growth will require progress on reforms across the region," said ADB Chief Economist Ifzal Ali at the launching the 2006 edition of ADB's flagship annual economic publication, Asian Development Outlook (ADO).
Focused investment aimed at breaking infrastructure bottlenecks in key economies would also open the door to stronger growth in the medium-term, he said.
India's growth has averaged more than 8 per cent over the past three years driven by broad based domestic demand and expansive business dynamics. GDP is projected to grow 7.6 per cent in FY2006 and 7.8 per cent in FY 2007 as consumption and investment demand are slightly held back by price adjustments to reduce domestic petroleum subsidies and somewhat higher interest rates. India faces two key policy challenges as it continues its structural transformation. First, it must maintain consolidation of its fiscal position while ensuring spending on infrastructure improvements to support industry and services development, and investment to advance rural productivity and human development. Second, it needs to improve the investment environment by lowering the cost of doing business.
http://www.khaleejtimes.com/DisplayArticle.asp?xfile=data/business/2006/April/business_April184.xml&section=business&col=

 

[Neo]

Dark clouds over ‘shining economy’ euphoria


By S. M. Naseem
DESPITE their virtual isolation from each other for over half a century, the elites of both India and Pakistan are aspiring to a remarkably common future. That future seems to be defined uniquely in terms of one parameter: the rate of economic growth.

In India, which recently triumphed over its fixation of overcoming the “Hindu growth rate” that had tormented its economic planners in the past, are now dreaming of a 10 per cent growth rate, as a means of catapulting it to the coveted club whose current membership is confined to China and East Asia, notwithstanding some deceleration in their growth rates.

Pakistan’s economic managers, who have always day-dreamed of graduating into the “middle-income” group and have periodically declared the economy’s take-off, leaving the announcement of the “crash-landing” to successor governments, are again hoping to achieve their unrealized dream.

Although Pakistan’s long-term growth record has been considerably better, if more erratic, than India’s, its main driving force has been external rather than domestic impulses. Pakistan’s savings and investment rates have always lagged considerably behind India’s, necessitating a much larger proportion of external flows.

While Pakistan’s growth resurgence in the past three years, propelled by the massive infusion of external finance induced by the change in its political stance since 9/11, along with the uncritical adoption of the neo-liberal agenda is rather thinly based, India’s economic revival has a firmer, domestic-based foundation.

Nonetheless, the almost manic preoccupation with high growth rates is a shared attribute of the two neighbouring nation states, who remain at odds on many public policy issues, notwithstanding the tortured attempts to improve their official relations.

Indeed, the elites of both countries are busy putting more gloss on the “shine” of their respective economies that they presume would delude those living in the darkness of poverty and misery with their chauvinistic appeals as a new superpower or as the “enlightened” leader of a besieged faith.

How shining are the economies of India and Pakistan? Take Pakistan first, whose “success story” has been highlighted by the Newsweek, in its March 27 issue, which is studded with some incredible statistical inaccuracies, along with some revealing insights. Besides claiming that “in many ways the country has become the world’s most surprising economic success story”, the magazine quotes the prime minister as saying: “in the past three years we have seen the emergence of a middle class that is creating demand and driving a lot of the growth. Our per capita income has gone up to $800. Two years ago it was $400.”

One doesn’t know whether the Newsweek interviewers or the prime minister’s advisers who prepared his brief realized that this implies an annual growth rate of over 40 percent per annum in per capita incomes, which is a preposterous claim even for a short period of two years, unless the country’s coffers have been filled by a source known only to the prime minister.

Neither can the claim that the “emergence of middle class”, which normally takes decades rather than years in its formation, has been achieved during the last three years of Mr Aziz’s stewardship of the economy, can easily be swallowed by any one besides the regime’s sycophants. That the “middle class” is driving “a lot of growth” is true only in the sense that “growth” is synonymous with the growth of bank-credit financed automobiles, which are crowding metropolitan roads, with heavy associated environmental and business costs.

It is easy to point out other gaping holes in the story. Shahid Javed Burki, rightly points out that the magazine, following the script provided by the government, exaggerates the downward slide of the economy in the 1990s, without taking into account the various constraints, especially the sanctions against nuclear explosions, which limited the government’s room for manoeuvre.

The magazine, however, hits the nail on the head when it says that what really turned the country’s fortunes around was September 11 and quotes an emerging Lahore media, hotel and telecom tycoon and an ex-PPP legislator as saying: “The 9/11 attack was the best thing that ever happened to Pakistan.”

Another leading Lahore industrialist, who heads some of the country’s biggest joint-venture companies, including Coca-Cola and Nestlé, is quoted as saying “This is the best government we’ve had in the past 30 years.”

The interviews were astutely focused on the real beneficiaries of the present boom and of the regime that engineered it and their euphoria about the current boom is understandable.

How much of this razzle-dazzle is for real? The surrealistic growth picture painted by the con artists in P and Q blocks in Islamabad is beginning to fade away. The 8.5 per cent growth rate registered last year, seems to have been a blip rather than a steady trend, which the government has been claiming to be.

This year, the growth rate is likely to be 6-7 per cent, although the spin doctors in the Finance Division are doing their best to pressure the national accountants in the Statistics Division to produce as rosy a picture as possible by using various gimmicks, including change of bases, underlying benchmarks and deflation procedures. By frequently changing personnel more amenable to pressure, the government can still fix or doctor the numbers to suit its purpose.

As pointed out by the US weekly ,the government may be motivated in putting the gloss on its performance by the possibility of an impending election next year. An unnamed foreign banker is quoted as saying: “The government is running the [economy] like it’s heading for elections.” The rush to build controversial dams and other arcane projects in insurgency-affected areas of Balochistan and NWFP is indicative of the government’s intentions.

Unless the government builds a firewall of non-interference and transparency, its economic management and statistical machinery will remain suspect and lack credibility.

The highly-politicised way in which the government has handled the earthquake relief and reconstruction efforts clearly points towards its intentions in manipulating the forthcoming polls.

Even if one were to take the GDP growth numbers for 2004-2005 on their face value, the quality of growth inherent in them is far from impressive. Both the growth in agriculture and manufacturing were the result of low growth in these sectors for the past few years: in agriculture because of an extended period of drought and in manufacturing because of the existence of widespread existence of excess capacity in the large-scale manufacturing sector, which the liberalization of trade policies have been able to help remove.

However, this is unlikely to recur in the future, unless more productive capacity is created through new investment. The evidence for this is still weak, despite the spiralling of the stock market index.

A rather disconcerting feature of the growth pattern in the last five years has been the lack of any significant structural transformation in the economy, which is the most robust sign of sustainable growth.

The share of agriculture in GDP is still well over 20 per cent, having declined from 26.2 per cent in 1990-91 to 23.1 per cent in 2004-05, an average yearly decline of less than a per cent during the 5-year period. In 2005-04, the year which is being celebrated as Pakistan’s best year of growth, agriculture’s share in GDP remained almost static.

The share of manufacturing did rise from 14.8 to 18.3 per cent, with the large-scale manufacturing sector’s share rising from 9.2 to 12.6 per cent, largely due to better capacity utilization during the period. However, large-scale manufacturing is known for its low elasticity of employment and, therefore, results in largely “jobless growth”.

 

[Neo]

The Indian growth experience in the past five years has been broadly similar, with two notable exceptions. India’s agricultural growth has been marked slower than Pakistan’s (India’s four per cent against Pakistan’s 5-6 per cent), while the growth in manufacturing has been about the same (about 10 per cent), but the service sector in India has grown almost twice as fast as in Pakistan(India’s 12 per cent, against Pakistan’s six per cent).

As a result, the Indian economy relies much less on the agricultural sector and much more on the knowledge-intensive service sector, because of its better record in human development and investment in human capital.

Pakistan, however, continues to rely on its large agricultural sector while its industrial sector is much less diversified and its service sector consists largely of low-skilled labour with low productivity.

While both India and Pakistan continue to be enamoured of high growth rates and India seems to have an edge in achieving that goal, both countries have continued to have a cavalier attitude towards the problem of equitably distributing the fruits of growth.

However, India does have a democratic political system which helps to some extent intermediate the problem of ensuring a better distribution of the fruits of growth, but it can’t be satisfactorily solved until growth and distribution are treated as an integrated whole, rather than as disjointed issues, as continues to be the case in both countries.

How can the goal of high growth be reconciled with the objective of a more balanced and equitable development? Past efforts to do so, often initiated by the World Bank and IMF to repair the damage done by their earlier more market fundamentalist policies, have failed to have a desirable effect on the pattern of development, except in the most superficial terms.

In a recently published book, Development with Dignity, the noted Indian economist, Amit Bhaduri, has succinctly presented a more integrated and realistic strategy for development which aims to syncretize the objectives of growth and distribution through fashioning institutions and policies in a more effective and durable way. I hope to discuss his contribution and its likely applicability in Pakistan on another occasion.

 

[Neo]

Globalisation and de-industrialisation


By S.H. Zaidi
OF late, the PM has claimed a reduction in both poverty and unemployment, but neither ground reality nor independent experts substantiate this view. Though the prices of real estate have soared, fuelled mainly by speculation and lack of avenues of productive investment, income levels, especially of small business, have substantially declined, and income disparity has increased, flow of aid and ‘loan re-scheduling’ after 9/11 notwithstanding.

The policy of privatization and ceaseless reiteration of the free market and foreign investment mantra have not helped. They have benefited a privileged certain class only.

PM’s frequent exultation over Pakistan’s performance as certified by the IFIs notwithstanding, the lot of the common man has continued to worsen.

Most of what ‘foreign investment’ has come in, is either in service sector or in low-skill technologies. Things like KFC, Macdonald’s and Pizza Hut have only introduced Pakistanis to junk food—of a highly expensive kind. Other ‘foreign investment’ has consisted in handing over lucrative, captive local markets, such as in the fields of power and communications, to foreign interests rather than in new fields in industry and technology.

This dream of our economic managers alone cannot take us far unless foreign investment comes into fields where transfer of new technology occurs. We have not even succeeded in taking significant advantage from outsourcing of services.

Lack of interest by foreign capital has sometimes been blamed on the law and order situation. The fact is that terrorist threat emanating from ‘Islamic fundamentalist’ elements has been exaggerated under foreign influence. While this policy may have been of benefit politically to the regime, productive ‘foreign investment’ has been driven away precisely because of this policy. The ‘threat of terrorism’ in any case stands accentuated due to involvement in the US ‘war on terror’ in a big way.

Economic growth has been driven mostly by workers remittances and grants and loans obtained after 9/11 at great political cost but has failed to translate into benefits for the common man.

No concerted policy to face the challenges of globalisation is in evidence, except that the ministers and officials repeat in a stereotyped manner the line orchestrated by the IFIs and the industrialized world. Being an elitist government, most of its policies have served privileged class. Globalisation, in its current form, is in the interest of the industrialized West’s elite.

Our elite apparently have a tacit alliance with them. Consequently, they do not view it as a threat. Prior to January 2005, government departments had been placing big advertisements in the newspapers at state expense about the ‘opportunities’ offered by globalisation after WTO provisions take effect.

While they do pay lip service to people’s welfare and talk of transferring “benefits of macroeconomic stability and growth” to the common man, their main objective is to ‘stay on course of reform.’

Globalisation is like a tidal wave. The prime minister said in an interview with a foreign magazine: If you ride it, you will go far. If you try to stop it, you will be blown away. We decided to ride it.” In the same interview, he outlined the fundamentals of reform as “deregulation, liberalization and privatization.” About privatization, he said: “It is not the business of government to be in business. We decided to open everything up. We just sold 26 percent of Pakistan Telecom—which was overstaffed and inefficient—for $2.6 billion. We eventually want nothing in the public sector.”

Similarly, claiming to alleviate poverty while opposing government intervention and favouring privatization of health and education sectors, are contradictory in nature. Government must seriously consider its role in development of education and health facilities. Without this, no economy could take off. There are costs associated not only with action but also inaction. Inaction in the realms of health and education leads to deterioration of these two sectors with associated costs.

Expenditure on public health projects is not an ‘unproductive expense,’ as some unimaginative planners believe. It improves productivity by reducing wastage of man-hours due to poor health and sickness, and leads to a more healthy and enthusiastic workforce.

Misguided imported ‘experts’ fail to realize the tangible and intangible benefits of providing education and health facilities to the populace through the state system.

Current trends of indirect, regressive taxation, downsizing government organizations, and establishment of ‘elite institutions’ of learning while ignoring public sector universities, all ultimately increase poverty.

The notion that ‘poverty alleviation,’ and even development of underdeveloped regions within the country, is some sort of a ‘charitable obligation,’ is itself uncharitable. Charity can at best provide emergency relief in cases of dire necessity. The failure of ‘compulsory Zakat deduction’ instituted during the tenure of another military ruler, General Ziaul Haque to make a dent in poverty is proof, if one were needed. In fact, economic development requires not merely administrative measures but social change.

Economic stability, that they worry so much about, is negated by the policy of frequent change in the prices of inputs like petroleum and power. The OCAC, a cartel of oil companies, is authorized to fix oil prices fortnightly, based on “international market prices.”

After hue and cry by the press and public and some opposition politicians, the government has now changed this policy and from April 2006, OGRA (Oil and Gas Regulatory Authority) is to oversee the OCAC price fixing. Still it cannot fix oil prices. Perhaps to placate public sentiments, or to give a smooth finish to the farce, NAB has been designated the task of finding the ‘methodology’ behind the oil prices fixed by OCAC in the past.

A strange but interesting thing had come to light in the debate on oil pricing mechanism in the Senate in February, 2005 when Opposition Senator Farhatullah Babar disclosed that the petroleum development levy which was Rs9.5 per litre in May, 2004, had been reduced to 0.92 per litre in December, 2005, while the inland freight charges, which are paid back to marketing companies by the OCAC, were increased from Rs1.64 to Rs9.70 per litre. Under this juggling, the government stands deprived of the petroleum development levy, which is used by it for oil exploration.

The real question is why the government authorized the OCAC, a group of oil marketing companies and refineries, which had vested interest, to fix oil prices. The policy of increasing price of utilities in deference to the wishes of the IFIs has also had an adverse effect on industrial development as well as commerce.

The poor in general lose out under the kind of elitist authoritarian rule that has prevailed in Pakistan. The maladies of elitism and VIPism are becoming stronger by the day.

If we go by tall claims, we have a dynamic economy and soon will join the ranks of the Asian tigers. In reality, we are heading towards de-industrialisation. The globalizers, however, seem to be content with carving out a role for Pakistan as a supplier of raw materials and semi-finished goods, or at most, of textiles! The policy of reduction in the rate of interest under the belief that this would bring down the cost of capital and thus spur economic activity has, in this milieu, translated into benefits for the speculator and the influential.

Domestic policies are one side of the picture. The ‘unequal exchange’ between the rich and poor nations, which the West is trying to sustain through corporate globalisation is another cause of endemic poverty in developing countries.

The impact is accentuated in those developing countries, such as Pakistan, where the elite is more fully in league with the developed world’s elite. The neo-imperialist policies being pursued by the United States further complicate and exacerbate this situation, but the contribution of the developing countries’ governments in the process cannot be discounted. Beggars may not be choosers but they can at least develop the will not to beg! It remains to be seen whether we ride the tidal wave or the tidal wave rides us.