Pakistan Economy - News & Updates - Archive

[Neo]

Pakistan has sought help, says IMF​

WASHINGTON, Oct 22: The International Monetary Fund moved on Wednesday to bail out cash-strapped Pakistan in the Fund’s first bid to shore up an Asian economy following global financial turmoil.

The Washington-based fund said Pakistan had sought its help to deal with a balance of payments crisis, which had raised the prospect of the country defaulting on its foreign debts.

“The Pakistani authorities have requested discussions with the IMF on an economic programme supported by financial assistance from the fund to meet the balance of payments difficulties the country is experiencing as a result of high food and fuel prices and the global financial crisis,” IMF managing director Dominique Strauss-Kahn said in a statement.

“A fund mission will begin discussions with the authorities in the next few days on a programme aimed at strengthening economic stability and enhancing confidence in the financial system,” he said.

Strauss-Kahn said the amount of IMF financing had yet to be determined but reports said that Pakistan needed as much as $15 billion for up to three years to extricate itself from a severe financial crisis.

About $4 billion of that was required in the next month.

“We are in dire need of dollars so the situation is that we have no choice,” a senior Pakistani government official said in Islamabad, speaking on condition of anonymity.

IMF officials were holding talks with Pakistani officials in Dubai which could last a “few days” and a bailout package worth “about half” of what is required by Pakistan could be arranged by the IMF within two weeks, sources told AFP.

“Financing could be made within framework of the fund’s Emergency Financing Mechanism,” Strauss-Kahn said, referring to a fast-track process that the IMF has revived to help countries experiencing economic problems from the global financial crisis.

“Emergency financing is done fairly quickly, possibly within two weeks, and the Dubai meeting will basically determine the amount of financial assistance required ahead of a board decision,” one source said.—AFP

 

[Neo]

New petroleum policy finalised: Incentives to exploration firms​

ISLAMABAD, Oct 22: The government has finalised a new five-year petroleum policy which offers various fiscal incentives to exploration companies with a more simplified procedure of licencing and award of contracts, it is learnt.

The policy has been forwarded to the Minister for Petroleum and Natural Resources, Shah Mehmood Qureshi, for approval and would then be forwarded to the Economic Coordination Committee of the Cabinet for final endorsement and approval.

The new policy seeks exploration of 50 new blocks but also suggest 33 to 117 per cent increase in consumer gas prices, sources told Dawn.

Under the new policy, the government has proposed an 80 per cent increase in gas prices by exploration companies in case crude oil prices remain at $100 a barrel.

With this increase, the price of gas which hovers between $2.61 and $2.99 per mmbtu (Million British Thermal Unit) at present will touch $4 to 6.5 per unit.

But if oil price in the international market reaches $150, the companies would be entitled to increase gas prices by 90 to 117 per cent, sources said.

However, if crude oil prices surpass $150 a barrel, any further increase in the price of gas would go to the government and not the exploration companies.

“This means that the government will earn windfall profit, if crude oil prices cross $150 a barrel in the next five years,” a source said.

“Yes, the new petroleum policy is ready. We have prepared it in a record time of four weeks compared to the Petroleum Exploration and Production Policy of 2007, which took more than one year,” Secretary, Petroleum, G A Sabri told Dawn.

He said that the proposed policy provides a number of fiscal incentives to exploration companies. The procedure for award of contracts had also been simplified to encourage investments in oil and gas sectors. He said the new policy tries to plug all loopholes in the previous one.

A source said the new petroleum policy suggested bidding time for new exploration licences to be decreased to 30 days from existing 90 days in order to save time.

There will also be no prequalification involved in this process and companies with “good working programmes” would be awarded contracts.

There is a general impression that the 2007 petroleum policy failed to show any better results. When the policy was approved last year, Pakistan’s average daily production of crude oil and gas in 2005 was 66,500 barrels and 3,800 million cubic feet, respectively. Then, the country’s current crude oil production met only 17 per cent of the total demand for domestic consumption. The balance requirement was imported involving large expenditures of foreign exchange. Hardly anything has changed since then.

The situation, however, has rather deteriorated as law and order situation in the country scared away investments in oil and gas exploration and production.

The domestic gas production and supply presently fails to meet the demand of domestic users, the industrial sector and power generation. The unavailability and shortages of furnace oil and gas supplies to independent power producers is one of the reasons behind the present 5,000 MW power deficit, making the government to officially allow up to 11 hours of load-shedding.

The government had introduced the first petroleum policy document in 1991 followed by new petroleum policies in 1993, 1994, 1997 and 2001. Whenever previous policies were superseded by a subsequent policy document, the existing rights granted under licences/Petroleum Concession Agreements (PCAs) / Production Sharing Agreements (PSAs) were not affected.

The 1997 policy, while preserving the provisions of the 1994 policy with respect to onshore areas, introduced a new offshore package of terms based on production sharing arrangements. Under the 1997 policy, existing licence holders in offshore areas were given an option to convert their concession agreements into PSAs.

The 1997 policy was replaced in 2001 by the Petroleum Policy 2001, coupled with Petroleum (Exploration and Production) Rules, 2001, a model offshore PSA and a model onshore PCA.

In 2003, a revised model offshore production sharing agreement was introduced, complemented by the Offshore Petroleum (Exploration and Production) Rules 2003.

 

[Neo]

ADB to launch trade facilitation plan for Pakistan​

RAWALPINDI, Oct 22: Pakistan will be the first country where the Asian Development Bank plans to launch its Trade Finance Facilitation Programme (TFFP), aimed at attracting private capital to support development in the poorest countries of Asia.

The programme works with private-sector financial institutions to support trade in developing countries by sharing the risk of financing and guaranteeing trade transactions.

These types of risk sharing agreements can be particularly important in developing intraregional trade between smaller developing countries, and in supporting growth of small and medium-sized enterprises (SMEs) involved in international trade.

The Asian Development Bank and the Sumitomo Mitsui Bank Corp (SMBC) announced on Wednesday that they have entered into a risk-sharing agreement that will enhance support for international trade in the developing countries of Asia.

The will broaden SMBC’s risk mitigation capabilities and enhance profile of the underlying trade finance transactions as SMBC would be able to benefit from ADB’s ‘AAA’ credit rating, said an ADB announcement on Wednesday. The programme will assist not only local banks in Asian countries that have been slow to integrate with the global trading system, but can also help maintain, reestablish and enhance trade finance lines for local banks hurt by political or systemic crises.

The programme will be introduced in phases. Phase-I would be launched in Pakistan and Sri Lanka while phase-II will extend coverage to include financial institutions in Cambodia, Lao Republic, Mongolia, Philippines and Viet Nam.

The programme will enable both SMBC and ADB to continue facilitating the growth of trade business in these countries as well as strengthen relationships with financial institution clients.

TFFP plays an important role in ADB’s efforts to develop public -private partnerships through risk mitigation.

The programme aims to help develop member countries’ banks provide trade finance products to private sector importers and exporters.

This is a means to facilitate international trade to, from, and between DMCs.

The TFFP develops the capabilities of local issuing banks. It has two main components which include revolving guarantee facility, without sovereign counter-guarantee, under which ADB guarantees payment to participating regional and international confirming banks, covering commercial and political risks.

 

[Neo]

SSGC serves over 2m customers​

KARACHI, Oct 22: The customer base of Sui Southern Gas Company (SSGC) has risen to 2.072 million, of which 2.045 million are domestic, 22,558 commercial and 3,561 industrial customers.

The SSGC operates 3,309 km high-pressure transmission network and a 31,911 km distribution network extending across the two southern provinces of Sindh and Balochistan, says a press release.

The company’s $800 million 5-year development plan formulated in 2003-04 is designed to expand transmission and distribution (T&D) capacity to 1.8 bcfd by the year 2009, enhance system efficiency and optimise service quality.

During 2007-08, SSGC laid a total of 2,643 km of transmission and distribution pipelines, comprising 2,624 km of distribution and 19 km of transmission lines. The company provided connections to 93,829 domestic customers, 1,733 commercial and 407 industrial customers in the same fiscal year.

 

[Neo]

IMF revisited​

PAKISTAN’S hopes of securing immediate funding from ‘friends’ to overcome its balance-of-payments crisis and avert a possible default on international debt have been dashed. Lenders are no longer ready to trust us with fresh cash handouts to squander on importing luxuries. This in spite of our ‘strategic location’ and us being a front-line state in the war on terror. Even the ‘strong commitment’ of many friends to support the nascent democratic government doesn’t compel them to open their coffers to us. The world expects us to ‘do more’ on the economic front — just as it wants us to do more in the terror war. Pakistan wouldn’t be able to tap global markets to raise cash even if there wasn’t a global liquidity crunch. The international rating agencies have already declared Pakistan the riskiest government borrower after Argentina.

The country’s finance managers are now preparing to appear in the court of the International Monetary Fund (IMF) to secure the funding needed to stave off a possible economic meltdown. It may now only be a matter of days before the government joins a fresh IMF programme. Pakistan and the IMF are already engaged in crucial talks in Dubai to determine the country’s exact cash needs. The IMF says Islamabad requires $10bn in two years to stabilise the economy. The last time Pakistan came off an IMF programme was in December 2004, insisting that it would never borrow from the agency again.

The decision to join an IMF programme now will be unpopular at home. But we have run out of options. The opposition to seeking the IMF’s help doesn’t stem only from the fact that its economic stabilisation recipes have been discredited around the world. The rulers dread going to the Fund because it imposes a tight fiscal framework on their functioning to ensure financial discipline by cutting expenditure. Ordinary citizens dislike it because the IMF conditions hurt them. The government has already removed subsidies on fuel. Subsidies on electricity will be eliminated by June 2009. The measures were taken in order to seek the IMF’s approval that could in turn send a positive signal to bilateral and multilateral lenders and restore investor confidence. With the most difficult measures already taken, there is little for the ordinary man to fear from the other possible conditions attached to an IMF loan. If anyone stands to lose anything from the IMF’s conditions, it has to be the rulers who should understand that this could be their last chance to stabilise the economy on a sustainable basis. And last may mean last this time.

 

[Neo]

Calm returns to market: Banks invest Rs 60bn in three-month bills​

* Interest rates would go up if the government goes to IMF​

KARACHI: Banks invested over Rs 60 billion in treasury bills—mostly in three-month tenor—on Wednesday, indicating that they want their money to be placed in safe avenues keeping in view the current tight monetary conditions.

Banks invested Rs 59.86 billion in three-month treasury bills, Rs 470 million in six-month papers and Rs 443 million in one-year papers.

A banker said the market was interested in investing in three-month paper because after the recent chaos at the market banks have become cautious and they would not be investing their money in high-risk areas. “Banks bought treasury bills because government securities are the safest place to invest money in the current circumstances,” said head of treasury of a large commercial bank. Only one bank invested in six-month and twelve-month papers.

He said the market was mainly interested in three-month paper because interest rates are widely expected to go up. “If the government goes to IMF to seek funding, then the IMF will ask it to raise interest rates to promote savings and curtail money in circulation,” he said.

The State Bank set cut-off yield on three-month paper at 12.5631 percent; six-month paper at 12.6649 percent; and one-year at 12.7873 percent.

The banks had been facing liquidity shortage since the market opened after Eid holidays. Call rates had averaged 30 percent in sessions immediately after Eid. One bank had even borrowed money at 40 percent. This prompted the central bank to announce reduction in cash reserve requirement for deposits of up to one-year maturity by 200 basis points in two phases. But this didn’t help much and the central bank was soon forced to take more measures. It enhanced the eligibility of PIBs towards statutory liquidity requirement and then announced another 200 basis points reduction in CRR for deposits of up to one-year maturity. Besides, it exempted the deposits of one-year maturity and above from SLR. These measures have brought some stability to the banking system, but bankers said the small banks are still facing problems because their advance-to-deposit ratio was very high. Keeping the experience of last 20-22 days in mind the banks have now adopted a very cautious approach and they are more inclined to invest in government securities. Prior to this the banks had been showing little interest in government securities because of expectations of further discount rate hikes. Now banks would take more interest in government securities also because the central bank has restricted them from keeping their ADR at more than 70 percent.

 

[Neo]

Pakistan goes to IMF — finally​

* IMF Middle East director encourages Pakistan to move fast but says it's their call

WASHINGTON: Pakistan will need $15 billion over the next two or three years to pull itself from its severe financial crisis, with up to $4 billion required, according to Mohsin Khan, International Monetary Fund (IMF) director for the Middle East and Central Asia, according to the Wall Street Journal.

The Associated Press in the meanwhile reported that Pakistan had decided to approach the IMF for a financial bailout.

"I would encourage them to move fast but it's their call," said Khan from Dubai where IMF and Pakistani official began a meeting on Tuesday. He said the country was not at great risk of defaulting on its debts because its only major coming commitment is a $500 million Eurobond payment due in February. But Pakistan’s foreign-exchange reserves are dangerously low, down to $7.75 billion as of October 11, down from $16.4 billion a year ago. In other words, Pakistan is only left with money enough to pay for two months of imports. While Pakistan has been hoping that the Friends of Pakistan group formed in New York will come up with cash, it is not clear if member states are willing to provide the money Pakistan needs. China has failed to announce the cash injection of $3 billion Pakistan was seeking and Saudi Arabia has yet to decide if it will come up with the much anticipated oil facility. Khan said the Pakistanis have "developed a pretty good (economic) programme of their own, which could be a good basis for requesting IMF assistance”. Fuel and electricity subsidies are to be eliminated to help bridge the fiscal deficit.

According to Shaukat Tareen, the newly-appointed financial czar, Pakistan expects to raise $1.4 billion from the World Bank, and it may raise $1.5 billion to $2 billion through an offshore bond issue backed by remittances from overseas Pakistanis. The Wall Street Journal report said an endorsement of Pakistan's economic stabilisation package by the IMF will almost certainly lead to more taxes and a further interest rate hike, at a time when the government is already doing away with subsidies on oil and electricity. The inflation in Pakistan is 25 percent and the interest rate is 13 percent. Economists recommend that real interest rate should be more than the rate of inflation in order to give better returns to depositors.

Elsewhere, former Federal Board of Revenue chairman Abdullah Yousuf said that capital gains taxes on stock market and real estate were the two major exemptions that the government had awarded. However, he added, the current capital loss in the stock market, which was also a global phenomenon, would make the condition unfavourable for withdrawing the exemption. He said the issue of tax on agriculture sector was a provincial subject and the federal government had little to do with it until and unless the constitution is amended. He said the real issues were proper documentation of the economy and proper valuation of the property and the resolution of both these issues could resolve the government's financial problems to a larger extent.

 

[Neo]

IMF moves to bail out Pakistan​

WASHINGTON (October 23 2008): The International Monetary Fund moved Wednesday to bail out cash-strapped Pakistan in the Fund's first bid to shore up an Asian economy following global financial turmoil. The Washington-based fund said Pakistan had sought its help to deal with a balance of payments crisis, which had raised the prospect of the violence-hit country defaulting on its foreign debts.

"The Pakistani authorities have requested discussions with the IMF on an economic program supported by financial assistance from the fund to meet the balance of payments difficulties the country is experiencing as a result of high food and fuel prices and the global financial crisis," IMF managing director Dominique Strauss-Kahn said in a statement.

"A fund mission will begin discussions with the authorities in the next few days on a program aimed at strengthening economic stability and enhancing confidence in the financial system," he said. IMF officials were meeting Pakistani officials in Dubai, sources told AFP.

Strauss-Kahn said the amount of IMF financing had yet to be determined but reports said that Pakistan needed as much as 15 billion dollars for up to three years to extricate themselves from a severe financial crisis. About four billion dollars of that was required in the next month.

"We are in dire need of dollars so the situation is that we have no choice," a senior Pakistani government official said in Islamabad, speaking on condition of anonymity. Dwindling foreign currency reserves can cover the nuclear-armed Islamic republic's import bill for only six more weeks, and Pakistan's new civilian administration admits rapid action is required.

"Financing could be made within framework of the fund's Emergency Financing Mechanism," Strauss-Kahn said, referring to a fast-track process that the IMF has revived to help countries experiencing economic problems from the global financial crisis.

The Financial Times reported on Tuesday that Pakistan was in "informal discussions" with the IMF and other bodies over a 10 to 15 billion dollar international support package designed to stabilise its economy. Just over half would come in the form of an IMF loan while the rest would come from the World Bank, the Asian Development Bank and donors including Saudi Arabia, the report said.

The move to shore up the Pakistani economy is the first in Asia by the IMF since financial crisis spread across the globe triggered by a US home mortgage debt conundrum. The fund is also nearing agreements to make emergency loans to Iceland and Ukraine and discussing an aid package with Hungary in moves that would draw its direct involvement in helping to contain the global crisis. During the 1997-98 financial crisis in Asia, the IMF loaned billions of dollars to Indonesia, Thailand and South Korea to cover their foreign exchange denominated debt.

Pakistan's finances have "deteriorated significantly" according to an IMF report released this week due to recent political instability, Islamic militant violence, and high oil and food prices. Its foreign reserves have sunk from 14.3 billion in June 2007 to 4.7 billion in September 2008, while the rupee has lost 25 percent of its value this year and the stock market has dropped 35 percent, it said.

Pakistan's precarious financial situation has caused world-wide alarm due to its role as a key ally in the US-led "war on terror" and its position as the Islamic world's only nuclear power. A group of bilateral donors known as the "Friends of Pakistan" - including China, the United States, Britain and the UAE - pledged in September to help the country to stabilise. But the top US diplomat for South Asia, Richard Boucher, warned on Monday that any aid from the group is "not a cash advance" and would only be carefully targeted.

 

[Neo]

International community urged to help overcome crisis​

LONDON (October 23 2008): A respected British daily "Financial Times" has urged the international community to help bail out Pakistan from its current financial problems. "President Asif Ali Zardari must be given the means to try to overcome the current crisis as well as improve the country's long-term prospects. The best hope is an IMF loan, augmented by individual countries, that is flexible on conditions without compromising on the most vital of reforms," said the influential paper in a comment.

The paper said amid global financial turmoil, countries are queuing up to IMF for support and Pakistan is the most precarious one. It noted that Pakistan's economy is in trouble with growth slowing, high inflation, the current account deficit widening in the past fiscal year and the IMF estimates the budget deficit to have been 7.7 percent of GDP.

"A loan from the IMF, possibly jointly with other international institutions and bilateral donors, would shore up confidence. Pakistan may need up to 15 billion US dollar over two years. This should stave off any immediate crisis." However, FT said in order to address long-term problems, structural reforms are needed, as they have been for years.

FT said IMF faces a dilemma of its ability to force reform by attaching conditions to the loan, as heavy-handed intervention would be deeply unpopular in Pakistan. But if some aspects of conditionality look too risky, Pakistan's government should nevertheless be induced to endorse tax reform, to rise spending on education and commit to rebuilding the country's institutions, it added. The paper spoke of Pakistan's strategic importance and said any loan will have a political dimension given country's unresolved conflict with India over Kashmir and has also been sucked into fighting on its Afghan border.

 

[Neo]

Saudi Arabia may buy basmati rice from Pakistan​

CHIANG MAI (October 23 2008): Saudi Arabia, a leading rice importer in the Middle East, is planning to build up a buffer stock for aromatic basmati rice and is in talks to buy at least 200,000 tonnes from India, traders said on Wednesday. "The message that we got is that they will soon visit India to negotiate a deal," said one Indian basmati rice exporter on the sidelines of an industry seminar in Chiang Mai.

"They have said 200,000 tonnes, which is a very small quantity for a country like Saudi Arabia. They will require half a million tonnes just for the buffer and they will buy from Pakistan also."

Saudi Arabia imports 800,000 tonnes of long-grain basmati rice annually, with the bulk of 700,000 tonnes from India and the balance shipped from neighbouring Pakistan. Traders said Saudi Arabia was likely to sign a deal this year and it could be a government-to-government deal.

"They will make an agreement within the next two months and by the end of December the business should be concluded," another Indian rice trader said. One Pakistani rice exporter also said he had heard Saudi Arabia was looking for additional cargoes for a buffer stock but had no ideas on the quantity. "They need to build a buffer, like other nations are doing." Indian basmati rice was quoted around $1,250 per tonne FOB (free on board), sharply down from a record high of more than $2,400 in July, when prices shot up due to concerns over supplies.

 

[Neo]

Strategy developed to upgrade Pak-Afghan trade, economic ties​

ISLAMABAD (October 23 2008): Pakistan and Afghanistan have developed a comprehensive strategy to upgrade economic and trade relations for which documents were shared for consideration of the Afghan government, said Foreign Minister Shah Mahmood Qureshi at a joint press briefing with Afghan Foreign Minister Dr Rangin Dadfar Spanta here on Wednesday.

He said that the main areas identified for mutual co-operation are transportation and communication, energy and mineral resources development along with development of trans-border economic zones linking both countries by rail with the help of China.

A Joint Ministerial Commission (JMC) will oversee the implementation of all uplift projects and will meet in Kabul in November. There was also agreement between the two foreign ministers on the modalities and Jeddah talks, he said, adding that regional economic conference would be held on January 18-19 in Islamabad.

Regarding reports that India has dispatched troops to Afghanistan in the garb of bringing peace in the region and also established 16 consulates in Afghanistan, Spanta said: "Neither there is any Indian soldier in Afghanistan nor any person imparting training to Afghan army. There are some Indian engineers working on different reconstruction projects."

"Both Pakistan and India have consulates in Afghanistan. Four Indian consulates were set up before the Karzai government some seven years ago. Similarly, three Pakistani consulates are also working in Jalalabad, Kandahar and Kabul", he added.

"We will not let enemies of Pakistan use Afghan soil for their nefarious designs", Spanta said forcefully. Commenting on the attacks by US drones on Pakistan side of the tribal belt, killing hundreds of civilians, Qureshi said that "we had extensive talks on this issue with our friends and UN members, and showed our concern that such strikes would be counter-productive. The Nato forces have distanced from such actions".

He said that illegal border crossings would be closed and especial security system would be installed at legal crossing points to check infiltration of terrorists.

Qureshi said that parliament is having an in-camera session vis-à-vis policy on Afghanistan, particularly the operation conducted by the army in the tribal belt and future plan of action will be chalked out after comprehensive debate in the parliament to check cross-border terrorism. About authority given to Afghanistan to dismantle terrorist camps inside Pakistan both foreign ministers were of the view that terrorist sanctuaries on both sides would be destroyed by the respective governments in their areas of jurisdiction.

Afghan foreign minister said that "intensity of our interaction shows that how committed both countries are to rid the region of the menace of terrorism and make it more secure place for our future generations".

This was the sixth meeting in six months after coming into power of democratic government in Pakistan, Spanta said, adding that the next meeting between the two foreign ministers will be held in Herat this year. "We are happy that old and new commitments of $51 billion made by the international community will come soon for Afghan reconstruction and fighting militancy", he added.

About eradication of opium production, which is main source of financing extremism and terrorism, Spanta said that this problem had aggravated due to 30 years of violence which Afghanistan faced, and added that in 2007 United Nations was involved to reduce the poppy production which produced good results.

Commenting on informal talks being brokered between different Afghan warring factions and Saudi Arabia to bring peace in the region he said that Afghan government is not in favour of talking to terrorists until and unless they lay down arms and respect the constitution of the country. However, some clerics from both Saudi Arabia and Afghanistan are engaged in informal talks with Taliban for achieving peace, he said. Adding to the same question, Qureshi said that Pakistan's multipronged strategy is being appreciated by all allies engaged in war against terrorism.

He said that "we have also made some achievements despite security difficulties ie suicide and roadside bombings, which are as under: seven years ago Afghan women were not having voice but now more than 30 percent have representation in the parliament; we have built 7,000 km roads during the last seven years; economy is also growing as per capita income now is $400 as compared to $185 during previous regime".

 

[Neo]

Kabul keen on enhancing trade, economic ties with Pakistan​

ISLAMABAD (October 23 2008): Afghan Foreign Minister Dr Rangin Dadfar Spanta has said that the Afghanistan's doors are open for Pakistan for all kind of co-operation, particularly in the areas of trade and economy. During a meeting with National Assembly Speaker Dr Fehmida Mirza on Wednesday, the Afghan Foreign Minister said that Pakistan and Afghanistan were having tremendous commonalties, and stressed the need for enhancing co-operation to strengthen their relations.

Emphasising the need to enhance co-operation in the fields of trade and economy, he said that Afghanistan's doors were open for Pakistan for all kind of co-operation. "Afghanistan can learn a lot from the experiences of Pakistan in democracy through more interaction between the parliamentarians of the two countries," he added. Speaking on the occasion, Dr Fehmida Mirza said that both Pakistan and Afghanistan were victims of terrorism and both suffered a lot from the menace of extremism.

She said that both the countries needed joint strategy and closer co-operation to address the root causes of terrorism. She said that Pakistan wanted stable, peaceful and prosperous Afghanistan and it was also in the interest of the region. Underlining the need for enhanced interaction between the parliamentarians, she said that parliamentary leaders could play an important role in strengthening relationship between the two countries.

She also underlined the need for greater interaction between women parliamentarians of the two countries. The Speaker added that she was having great expectation from mini-Jirga that would be held in Islamabad on October 27-28.

 

[Neo]

Foreign currency accounts and home remittances​

EDITORIAL (October 22 2008): The State Bank of Pakistan (SBP) has categorically denied that it has the authority to take action against any person maintaining an overseas account beyond 1000 dollars. A historical perspective on this issue is warranted. The 1947 Foreign Exchange Regulation Act, at a time when the rupee was linked to pound sterling, specified a limit of 25 pounds in a foreign account without SBP authorization.

In 1972 through an SRO, which remains on the statute books, the first Bhutto government linked the rupee to the dollar, devalued the rupee and raised the limit of foreign currency to be held by Pakistani residents to 1000 dollars.

In 1992, the Protection of Economic Reforms Act (PERA) was enacted and it allowed freedom to bring, hold, sell and take out foreign currency and immunity from taxation on such accounts: "all citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled to and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form and shall not be required to make a foreign currency declaration at any stage nor shall any one be questioned in regard to the same...and shall continue to enjoy immunity against any inquiry from the Income Tax Department or any other taxation authority as to the source of financing of the foreign currency accounts."

In 1998, the government of Nawaz Sharif froze foreign currency accounts in the aftermath of the nuclear tests. Economic desperation behind this move was quite evident: foreign currency accounts held by private Pakistanis totalled around 11 billion dollars while the SBP reserves were down from $1.53 billion at the end of April to $415 million by November 12, 1998.

The actual impact of this move was catastrophic: money, extremely susceptible to perceptions, left the country. Nawaz Sharif during his remaining stint in government was forced to apologize and reassure Pakistani diaspora abroad that his government would allow foreign currency accounts again. In October 1999, Musharraf took over the reins of government in a bloodless coup and the country was isolated from the international community as a consequence with severe repercussions on the economy.

This forced the Musharraf government to amend the 1992 PERA in December 1999 and a proviso was added: "immunity (granted in 1992) will not be available to citizens of Pakistan residing in Pakistan and to firms, companies and other bodies registered or incorporated in Pakistan in respect of any new foreign currency account opened or deposits created on or after 16 of December 1999 or to any incremental deposits thereafter in an existing foreign currency accounts.

The balances in the foreign currency accounts and income therefrom shall continue to remain exempted from the levy of wealth tax and income tax and compulsory deduction of zakat at sources," provided that such exemption was on interest earned post December 1999. One would have expected further capital flight however after 9/11 Western governments began freezing accounts held by the so-called suspect Muslim individuals, groups and charities.

This fuelled the flow of capital held by Muslims to Muslim countries, mainly the Central Asian Republics, and Pakistan benefited from such capital as well. This money inflow stimulated real economy or manufacturing in Pakistan. It is critical to note that both the SBP and the Federal Board of Revenue (FBR) are in favour of protecting the provisions of the 1947 Act.

And the latter would also like to see the 'no question asked' policy in respect of foreign remittances received in rupee accounts to be rescinded. SBP has argued that if the 1947 Act comes into force again then its current depleted foreign exchange reserves will be augmented considerably; and the FBR has argued that the protection to remittances received in the rupee accounts would increase tax collection.

Ignored however is the fact that if the 1947 Act comes into effect then capital flight, through hawala or hundi, would negate any short-term gains that SBP expects and rescinding of the protection to foreign remittances in the rupee accounts, as promoted by FBR, would lead to the banks losing considerable deposits, ballooning of the informal sector and choking up investment.

Be that as it may SBP was successful in convincing former Finance Minister Naveed Qamar to protect the 1947 Act and include this provision in the Finance Bill, and, thereby override the 1992 Act. Serious reservations on this move were voiced in the Senate as the Finance Bill was not considered an appropriate forum for this amendment and the Finance Minister was forced to withdraw this on the floor of the House.

Besides its overall negative fallout if the amendment was allowed, it would have had a devastating impact on the private finances of the two mainstream parties that had been in exile for the past eight years. However if accounts are held offshore and not under their own names then it is extremely difficult if not impossible for the revenue authorities of the country where these accounts are held to inform FBR under the avoidance of double taxation treaties with these countries.

It is true that apart from Pakistan no other government allows foreign currency accounts to its residents. However it is significant for those in favour of the 1947 Act to understand that money is unlikely to remain in a country by decree.

If a new law is enacted it is a foregone conclusion that money will exit the country through the hundi and hawala system. The only effective way to keep money in the country is essentially to generate confidence amongst the people about its safety and about the macroeconomic fundamentals in the country.

 

[jupiter2007]

Instead of posting varies articles we should brain storm and come up with ways to help Pakistan.
List things Pakistani government can do to improve Pakistan economy.

 

[pkpatriotic]

Pakistan | Special committee announces power tariff relief
By Sher Baz Khan
Friday, 24 Oct, 2008

ISLAMABAD: A special committee constituted to review the recent hike in power tariffs announced on Friday that consumers across the country will pay only 60 per cent of their total bills for this month.

Penalties for late payments have also been waived and the last date for deposit of bills has been extended by ten days.

The Pakistan Electric Power Company (Pepco) will issue instructions to all distribution companies, including the much-criticised Karachi Electric Supply Company (KESC) to make arrangements for deducting 40 per cent from electricity bills.

This relief facility will apply to all consumers - domestic, commercial and industrial.

The decision was reached after hours of deliberations amongst committee members, which include representatives from parliament, trade associations, distribution companies and the Ministry of Water and Power.

Headed by Water and Power Minister, Raja Pervez Ashraf, the committee decided that consumers should not pay full bills until a sub-committee found the 31 per cent increase to be justified.

Consumers who have already paid the new bills will receive adjustments in future bills as soon as a decision is announced.

The controversy over the increase in power tariffs has caused nationwide anti-government protests, with angry mobs attacking government property and power distribution companies.

On the directive of Advisor to Prime Minister on Finance and Revenue, Shaukat Tareen, a sub-committee has been constituted to further investigate the tariff increase and provide recommendations to the committee for a final decision.