Pakistan Economy - News & Updates - Archive

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War against terror bill Pakistan to seek release of $1.2bn ​

Tarin says the issue will be taken up with US authorities on sidelines of IMF executive board meeting in Washington next week

Wednesday, March 18, 2009

ISLAMABAD: Islamabad will take up with US authorities concerned the reimbursement of $1.2 billion war against terror bill borne during May, 2008 to March, 2009, on the sidelines of IMF Executive Board meeting due in Washington from March 25 to 27.

Advisor to Prime Minister on Finance Shaukat Tarin told The News in an exclusive talk: “we will ask the US administration to immediately clear the dues amounting to $1.2 billion (Rs 95 billion).”

Tarin said, “Pakistan is experiencing financial constraints and if the said amount gets reimbursed, Pakistan would be at ease to achieve the target of 4.2 percent fiscal deficit set under the IMF bailout package.”

Coming to IMF Executive Board meeting, he said: “I would also place the formal request with Fund seeking the additional $4.5 billion other than $7.6 billion loan under the SBA (stand by arrangement).”

To this effect, Pakistan would be seeking enhancement of IMF funding quota from five times to eight in the IMF Executive board meeting. And in case the IMF increases Pakistan’s quota to eight times, Islamabad would be having additional $4.5 billion in foreign reserves under the stand by arrangement.

“Ukraine and Iceland had been given the eight times quota funding so Pakistan would follow the suit to this effect,” said Tarin.

The executive board meeting will also approve the second tranche of $840 million from International Monetary Fund (IMF) under 23 months $7.6 billion loan. “Pakistan was to get $750 million as second tranche, but now would receive $840 million because of the upward fluctuations in exchange rates against the special drawing rights (SDR).”

To a question, Tarin said that the government and a consortium of major commercial banks would strike the deal by end of the current month for generating Rs98 billion in a bid to erase the circular debt that is affecting the smooth running of energy sector. He said that the government requires Rs80 billion net to resolve the circular debt in energy sector.

He disclosed that the whole details of the projects which are to be marketed in Friends of Pakistan’s meeting to be held in Tokyo on April 17, will be provided to the ambassadors of the member countries of FoP so that respective countries could have ample time to identify the areas in the projects on which they intend to provide funding.

 

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Industrialists plead for rental power plants​

Wednesday, March 18, 2009

KARACHI: Industrialists have urged the government to immediately install rental power plants in order to properly deal with the energy crisis, which is hampering industrial production in the country.

The government should immediately bring in rental power systems and provide electricity for the energy-starved industry, otherwise coming summer would be very fretful for both commercial and domestic consumers.

Naeem Ilyas Khanani, patron-in-chief and founder chairman of Port Qasim Association of Trade and Industry (PQATI), told The News that current shortfall of 500 megawatts in the city owing to the closure of Bin Qasim power plant, made the industry suffer a lot.

He said the Karachi Electric Supply Corporation (KESC) is not utilising its full production capacity despite a visible fall in international prices of furnace oil.

Moreover, unscheduled load-shedding has severe fallout for industrial production which can easily be tackled. The government has been reiterating since last 12 months that rental power plants would be installed to deal with the energy problem in the short term but nothing has been done so far in that regard.

“We request the government to instantaneously bring in rental power plants to feed the industry; if not, then this summer will be devastating for the industrial production,” he said.

M A Jabbar, Chairman SITE Association of Industry (SAI), said load-shedding was the result of circular debt which has to be taken care of. Shaukat Tarin, Adviser to the PM on finance, had repeatedly mentioned tackling of energy crisis by resolving the problem of circular debt during his visit to Karachi. The KESC retains 1,200MW capacity, which shows that the KESC has enough installed capacity which is not being utilised. “The KESC intends to use gas instead of oil, one of many problems why power production falls short in Karachi. The government should pressurize the KESC to increase and deploy its full power production capacity,” he said. In addition, the government should notice that the KESC is violating its own commitments by not investing in power generation to scale up the current production capacity. Moreover, rental power plants are the only viable option for fast track process to grapple with current power crisis. Investment comes where investment is secure and infrastructure is sound; investors are very sensitive to the political instability in Pakistan; “our country is severely hit my terrorism, militancy, and various other problems.”

The government should take concrete measures to stabilize its economy for short and medium terms, he urged. Industries in Pakistan are closing down owing to serious crises including high interest rates, power shortage and high cost of production. Moreover, today there are some 10 to 20 per cent industries only in SITE industrial zone which are on the verge of closure, he observed.

Mian Zahid Hussain, Chairman, Korangi Association of Industry (KATI), said power shortage is a big issue for the industry. He said: “Tarin had taken us into confidence that the government would deal with the energy crisis on priority in his meetings with our association.”

 

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European SMEs ready to invest in Pakistan ​

Wednesday, March 18, 2009

LAHORE: A large number of Small and Medium Enterprises (SMEs) in Europe are ready to make investment in Pakistan provided the business community focuses on a new and innovative marketing strategy.

In a statement issued on Tuesday on his return from a 14-day European visit, Lahore Chamber of Commerce and Industry (LCCI) Senior Vice President, Tahir Javaid Malik said the large-scale manufacturing sector the world over, particularly in Europe, was in recession but the SMEs there were flourishing.

He said the middle class industry in Europe was growing only because it had no link with banking channels and was running units with their own resources and this was the only reason of their being on the path of growth.

“The Europeans are seeing opportunities in developing countries, particularly in Pakistan, therefore they wanted to initiate joint ventures with their Pakistani counterparts,” he claimed.

The LCCI official said Tahir Javed had a number of business meetings during his 14-day visit to Europe and almost all entrepreneurs showed their eagerness to visit Pakistan “which is a positive sign for economy of the country.” “Auto part makers in Europe are on top of the list as they wanted to tap the potential available in Pakistan.”

The LCCI Senior Vice President, meanwhile, said the government decision to reinstate Chief Justice, Iftikhar Mohammad Chaudhry had sent a very affirmative signal abroad, particularly to the potential foreign investors.

The government decision would not only strengthen economic indicators but it would go a long way in improving Pakistan’s perception, he added.

 

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Economists hope govt will now attend to economy ​

Wednesday, March 18, 2009

LAHORE: Economists hope now that the political temperatures have cooled down the government would shift its attention to reviving economy. They say that the ‘do nothing and hope for the best’ approach has put the economy in recession.

Factors including high interest rates, inflation, energy cost, falling exports, falling rupee value and rampant corruption need immediate government attention, economists say.

All these factors are inter-related. Reining in inflation, for instance, would lower interest rates and commodity rates. Boosting exports would stabilise the rupee and reduce current account deficit.

Senior economist Naveed Anwar Khan, FCA, says that the type of inflation prevailing in Pakistan could only be controlled through close cooperation with the provincial governments.

He said there is no effective check on prices. The rates of petroleum products, for instance, have declined locally by 30 per cent but the rates of lubricants like engine oil and transmission oil are still at their peak levels because there is no authority to regulate the rates of these items.

Naveed says the retail prices of fruits and vegetables are fixed 30-40 per cent higher than their auction price at the fruit and vegetable markets. The federal government, he added, would have to facilitate the provincial governments in eliminating the role of middlemen that engineer high commodity prices.

Certified Public Accountant Asif Ali Shahid says that the central bank has failed to force banks to give realistic interest rates to the depositors that resulted in a drastic reduction in national savings.

He says despite providing low interest rates to the depositors the banks charge high mark-up from the entrepreneurs who finally stopped borrowing resulting in low GDP growth.

He says the high banking spread benefited the financial institutions only while the labour-intensive industries caved in due to high cost of borrowing rendering large number of workers jobless. He says the banking spread of seven per cent is too high.

Dubai-based chartered accountant Faisal Qamar says that though the exports are suffering in other regional economies as well due to global recession, the textile exports from India, China and Bangladesh have increased by five, six and four per cent respectively while that of Pakistan have declined by over eight per cent during the past eight months.

Yunus Kamran, FCA, says that despite constant inflow of borrowed dollars the rupee is losing value. He said the foreign credits would not be available for an indefinite period. He said Pakistan would have to curb its imports and boost exports to ensure a stable currency vital to attract long-term foreign investment.

 

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Pakistan to raise $500m through ME bonds​

KARACHI: Pakistan plans to raise $500 million over the next year through bonds aimed at Middle East investors, State Bank Governor Syed Salim Raza has said.

“The credit-default swap rate for Pakistan is still high so to go to cold-nosed commercial markets wouldn’t suit us,” Raza told Bloomberg.

“The state of global financial markets will decide whether Pakistan can tap them for a bond issue, but currently it looks very difficult,” said Farid Khan, director at Credit Suisse Pakistan in Karachi. “Indonesia [rated four levels above Pakistan] has just raised $3 billion at a prohibitive cost of 840 basis points [dpouble the premium it paid in June] over US Treasuries and Pakistan’s pricing will be worse.”

But, Middle East investors too may be reluctant to buy Pakistan debt as their economies slow amid lower crude oil prices.

The economy of the Gulf Cooperation Council is forecast to contract by 2.4 percent in 2009, after expanding 5.2 percent in 2008, according to a report by the Kuwait-based Global Investment House.

“It would be tough to find buyers given the political crisis there and the credit crisis around the world, including in the Gulf region,” said Krishna Iyer Mohan, head of treasury at Safat-based Kuwait Financial Center, the nation’s second- largest investment bank that manages $5.5 billion of assets. “It’s not just the returns that investors look for, it’s the safety and liquidity of the assets that’s most important in this environment.”

Pakistan’s government debt is the riskiest in the world after Argentina and the Ukraine, according to credit-default swap prices from CMA Datavision. It costs $2.3 million annually to protect $10 million of the country’s debt from default for five years.

Still, the cost to investors of protecting Pakistan debt has more than halved since October.

“The political turmoil is going to hit the economy from all sides, especially hurting foreign investment and consumer confidence,” Credit Suisse’s Khan said. “The timing of the political storm couldn’t have been worse.”

Uncertain domestic politics have also hurt the administration’s efforts to raise investment and boost growth. The economy is forecast by the government to expand 2.5 percent this year, compared with 5.8 percent last year. Pakistan may not necessarily need to ask the IMF for an additional $4.5 billion, Raza said in the March 13 interview in Karachi. Finance Adviser Shaukat Tarin said last month the nation would seek the additional funding.

“No matter how bitter politics get, as long as they’re not disrupting the flow of commerce, it doesn’t really affect the economy much,” said Raza.

Foreign investors are deterred by low ratings on Pakistan. Standard & Poor’s rates the nation’s debt CCC+, seven levels below investment grade.

“If foreign investors see risk in Pakistan, their flows won’t fall off more than now,” said Raza. “Domestic investors have seen periods of instability for so long that they look over the valley towards the hills.” Overseas direct investment in Pakistan rose 1.3 percent to $2.59 billion in the seven months ended January 31.

“I don’t think rating agencies will be very quick to upgrade anyone,” said Raza. “But for Pakistan it looks better and better.”

“A break in fiscal discipline and a revival of inflation worry me the most,” said Raza. The central bank plans to cut interest rates – highest in more than a decade in the next few months. The bank raised borrowing costs four times last year as inflation accelerated to a three-decade high.

“The risk of too sharp a cut is to convey the feeling that the battle against inflation has been won and unfortunately, that’s not true,” Raza said. “But with things going in the right direction, the stage is set within the next couple of months for an opportunity to lower the rate.”

The central bank predicts inflation may slow to 11 percent by June from 21.07 percent last month. “The biggest challenge for Pakistan is that we cannot afford fiscal stimulation. Foreign investment has slowed down and so stimulation has to come from banking,” said Raza. daily times monitor

 

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Summary for Rs 127bn PSDP cut sent to PM​

ISLAMABAD: Keeping in view the financial constraints, a summary of reduced Federal component of Public Sector Development Programme (PSDP) 2008-09 from Rs 337 billion to Rs 210 billion was sent to Prime Minster for approval, sources told Daily Times here on Tuesday.

The proposed cut in PSDP 2008-09 was Rs 127 billion, which is Rs 27 billion higher than the announced cut of Rs 100 billion at a time when the Prime Minister visited Planning Commission on February 13. The sources claimed that the financial constraints further compelled the government to cut PSDP.

The sources further said that allocations for all ministries and divisions would also be reduced accordingly. The government allocated Rs 62 billion for Water and Power Division (Water Sector) in the annual budget 2008-09, which would be reduced to Rs 31 billion. The allocation for Communication Division (including NHA) is reduced to Rs 18.86 billion from earlier allocation of Rs 37 billion.

According to the proposal, the allocation for Higher Education Commission would be reduce to Rs 12 billion from Rs 18 billion. The proposed reduction for Ministry of Food, Agriculture and Livestock would be Rs 14 billion from earlier annual budget allocation Rs 20 billion, the sources maintained.

Till approval of new PSDP 2008-09 by Prime Minister, the sources claimed that the Planning Commission would not take any new case of re-appropriation. As a routine the cost of majority of projects were increased and the Planning Commission made adjustment keeping in view higher cost construction materials.

The sources said the government has cut PSDP 2008-09 of the Social Sector by Rs 79.5 billion.

For the last several months the officials of Planning Commission had initiated rationalisation process with ministries/divisions and other departments.

However, the sources said that all these projects would not be scraped from the PSDP and some would be transferred to the Infrastructure Project Development Facility (IPDF) for execution with the private sector investment.

For total 65 different agriculture related development projects, the government has allocated Rs 20.015 billion in the PSDP 2008-09.

The demand of cement and steel are expected to decline as it is positively correlated with the PSDP.

 

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US aid for Pakistan will remain unaffected: Haqqani​

* Ambassador to US says Washington legitimately concerned about domestic developments in Islamabad​

WASHINGTON: Pakistan’s Ambassador to the United States Husain Haqqani expressed hope on Tuesday that US assistance for Pakistan would remain unaffected by domestic political developments, saying it is aimed at uplifting the people and stabilising the country.

He was commenting on a story in The Washington Post on Tuesday that claimed the recent political turmoil could upend the Obama administration’s near-completion plan for expansion in economic and security aid for Pakistan. “The United States support and aid should be for the Pakistani people and should remain unaffected by developments in domestic politics. We expect the relationship between Pakistan and the US to remain strong and stable,” Ambassador Haqqani said in response to a question.

Legitimate concerns: The Post story said both the US administration and Congress intend to aid Pakistan in anti-terror efforts, saying they want to be certain about the efficacy of such efforts following last week’s protests on the streets. “As an ally of Pakistan, the United States has legitimate concerns about domestic developments but it has no role in our domestic politics. Pakistan’s domestic politics are a matter for the Pakistanis alone,” Haqqani told APP. He stressed the recent moves towards political reconciliation were a “Pakistani solution to a Pakistani problem”, adding, “No one should exaggerate any American role in the outcome.” He said Islamabad welcomes Washington’s support for the democratic process in Pakistan. The elected leaders would continue to be the interlocutors with the international community on behalf of Pakistan, he added. “Democracy is not about the daily news cycle or monthly opinion polls but is based on the strength of institutions,” he emphasised.

According to the Post, the Obama administration officials are putting the finishing touches on a plan to greatly increase economic and development assistance to Pakistan, and to expand its military partnership. It is aimed at breaking the extremist networks operating in the border region that are considered to contribute partly to sustaining the Taliban insurgency in Afghanistan. Final recommendations on the new strategy might go to President Barack Obama as early as Friday, the newspaper cited unnamed officials as saying.

The administration plans to send Congress a supplemental 2009 appropriation, including aid to Pakistan, in the coming days, and the Senate Foreign Relations Committee is formulating a plan on a long-term assistance proposal of $1.5 billion annually over 10 years, the report added. app

 

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To explore coal deposits, set up 1,000MW power plant: Thar coalfield block allotted to 2 foreign firms​

KARACHI: The Thar Coal and Energy Board decided on Tuesday to allot Block-8 of the Thar coalfield to UAE’s Bin Daen Group Dubai and Korea’s PEDCO for exploring the coal deposits and establishing a 1,000 MW mine-mouth thermal power plant in Tharparkar.

The decision was taken at the third meeting of the board held at the Sindh Chief Minister’s House, under the chairmanship of Sindh CM Qaim Ali Shah. Federal Minister for Water and Power Raja Pervez Ashraf and other concerned officials of the federal and provincial governments attended the meeting.

According to an official handout, it was decided that a Memorandum of Understanding would be singed soon with the Dubai and Korean firms, with the signing ceremony likely to be held in Karachi. The board was informed that this will be the first and largest single thermal power plant in Pakistan, which will provide electricity to more than two million households and 600,000 factories, besides creating approximately 90,000 jobs for both skilled and unskilled labourers.

The board also decided that the approval of proposed addition of members would be presented at the next board meeting. It was also decided to appoint legal consultants for the board. The meeting discussed in detail the 11-point agenda, which included reviewing of the ‘Letter of Intent’ for Bin Daen Group, Pan Energy Developing Company (PEDCO), Korean Electric Power Corporation (KEPCO) and Deloitte Anjin L.L.C to explore coal in Tharparkar district.

The chief minister said that the present government fully intends to utilise coal resources of the province and various internationally experienced groups are approaching for coal mining and power generation projects.

 

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Review of $7.6 billion stand-by arrangement: IMF may release second tranche of $840 million on March 30​

ISLAMABAD (March 18 2009): The International Monetary Fund (IMF) will approve the first review of 7.6 billion-dollar stand-by arrangement on March 30 and may release the 840 million dollars within days of approval, says an official. "The tentative date set for the approval of first review for the IMF second tranche is March 30", says an official, requesting not to be named.

The second tranche of 850 million dollars would be released just after the approval, said the sources. The IMF held first review of end-December performance and Annual Article IV Consultations in Dubai from mid-February to February 27 and downgraded the countrys growth rate estimates at 2.5 percent for current fiscal year - 2008-09.

The IMF has already said that Pakistan met all its target set for end-December. For current year, growth target o 2.5 percent with average inflation of 20 percent, which would be brought to 10 percent in June with estimates of improvement with four percent GDP growth rate and six percent inflation rate.

Pakistan fixed GDP growth rate of four percent with inflation six percent and fiscal deficit of 3.3 percent for the next fiscal year of 2009-10, says Prime Minister Advisor on Finance Shaukat Tarin.

This approval would help improve public sentiments too as a political crisis had held up everything and some economic activity would pick up as the system gets stability. Current years fiscal deficit would be at 4.3 percent and would be reduced to 3.3 percent of the GDP for the next year.

Broad money growth is estimated to be eight percent as against 12 percent set earlier for the current fiscal year, the IMF staff agreed that current monetary stance was Suitable, but in coming weeks and months they were now looking at reduction in interest rates as core inflation comes down. The government expects to achieve economic stability within 24 months with four percent of current account deficit next fiscal, the signs of which are started emerging now.

 

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Rice worth $2.5 billion lying unsold​

LAHORE (March 18 2009): As the next season of rice crop planting is not far off, rice growers, traders and millers are in a state of gloom for, the present stock of exportable superior quality rice worth $2.5 billion is lying unsold and no one in the government is in mood to do anything to retrieve the agriculture economy from collapse.

Representatives of growers and millers told Business Recorder that instead of self-reliance and exploiting the indigenous resources for capital formation, the government has found an easy way out to get loans from the International Monetary Fund and other financial institutions such as the World Bank, the Asian Development Bank, etc.

Painting a very dismal picture of the countrys second major foreign exchange fetching cash crop - rice, President Basmati Growers Association Hamid Malhi said that rice production during 2008 season was 6.5 million tons for the first time in history. The harvested crop in Sindh was mostly damaged due to the unexpected rains in early December 2008. The rice crop in Punjab remained safe and the 3.0 million tons of production along with last years stocks today pose a big challenge for the whole stakeholder chain, he added.

He said the government inducted Passco to procure 0.5 million tons of Basmati paddy from Punjab and 0.5 million tons Irri-6 paddy from Sindh; later TCP also floated tenders for purchase of a few thousand tons of Basmati and Irri-6 rice of new and old crop (a target of 0.25 million tons each was set for Basmati and Irri-6 rice).

Malhi said the current situation in the rice sector is very precarious. Passco has wound up operations of Basmati paddy purchases since December 31, 2008 (with 50,000 tons less than target purchases of Basmati paddy) while it continues purchases of Irri-6 paddy/rice in Sindh.

He said the Basmati paddy purchase price of Rs 1500 per 40 kg announced by Minfa managed to keep the market at Rs 1300-Rs 1400 per 40 kg during November-December, 2008. The rates of paddy in the first half of January 2009 were supported by the news of TCP tenders but later TCP cancelled all tenders and only 2300 tons of Basmati rice have been purchased while there have been no purchases of Irri-6 rice.

He said Basmati paddy prices are at rock bottom @ Rs 1000 and Basmati rice prices are @ Rs 2000 per 40 kg now a days. "The big stockists and exporters are making a kill while the trade sits as a lame duck in the absence of a clear government intervention," he contended.

Malhi maintained that the surplus production of Basmati which is valued at $2.4 billion (2.0 million tons x 1200$/ton) needs export marketing as the existing pace is unable to cater for the required outflow. "Around 1 million tons of Basmati rice is consumed in the country and the remaining 2 million tons is available for export" he added.

He said most of the export during the last eight months (July 2008 to February 2009) was from the 2007-08 crop while the current crop lies unsold, whereas the cost of doing business is also higher as compared to last year. Malhi pointed out that in another eight months the new Basmati crop would be in the market with no buyers, therefore it is extremely essential that a strategy is evolved to deal with the current situation.

He said the country can earn around $2.5 billion (Rs 200 billion) just from the export of 2008s Basmati crop. "This would not only relieve the whole stakeholder chain from the extra burden of stocks but would also give a positive signal for increased production of the next crop thus further boosting export earnings.

Former President, Rice Exporters Association of Pakistan and a prominent rice mill owner Azhar Akhtar told this scribe that there is a total chaos and mismanagement in the rice trade and export business. He suggested that the government should immediately call a meeting of all stakeholders to take corrective measures for putting the rice export business on sound track.

"Rice is too precious a commodity to be left at the mercy maverick exporters." President of Pakistan Agri Forum Ibrahim Mughal stated that the rice growers have been able to sell only 75 percent of the 2008 crop whereas 25 percent paddy was still lying with them and there was no buyer of the left over commodity.

He said the rice millers and traders have not paid price of the sold paddy to the growers and according to his network information nearly Rs 50 billion of the poor farmers money was stuck up with the traders and millers. He warned that if the rice growers dues were not cleared off forthwith, they would be unable to make any fresh investment in the sowing of next rice and other crops.

 

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Government urged to cut manufacturing cost: Pakistan losing export market​

KARACHI (March 18 2009): Vice President of Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Haji Aftab Barlass has urged the government to take appropriate steps to reduce cost of manufacturing to survive in the export market. Talking to newsmen here on Tuesday, he said that Pakistan losing its export market while India, China, Malaysia and Indonesia are capturing Pakistans shares in the world market.

He said that export of sports goods, musical instruments, and other items have reduced considerably from Pakistan owing to high cost of production which reducing the demand of Pak goods. The vice president said that China is the major supplier of goods at very low price in export market. Holding government of Pakistan responsible for declining Pak exports, he said that the government has done nothing to reduce cost of doing business and providing level playing field to Pakistani manufacturers and exporters.

Replying to a question, he said that government has no option but to reduce power and gas tariffs, pass on benefit of oil prices reducing in international market to general public. He said that foreign buyers are already reluctant to visit Pakistan due to law and order situation and added that recent political turmoil and judges issues further pushed them to stay away from Pakistan.

 

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Judges restoration to take country towards economic uplift​

MULTAN (March 18 2009): Former Punjab minister for industries, ex-president of MCCI and ex-chairman of APBUMA, Khawaja Muhammad Jalal-uddin Roomi, said on Tuesday that political stability always leads to economic stability and Prime Minister has taken sensible decision at the crucial time by bridging the gap among politicians and lawyers that would help take the country towards the path of economic development, and would also help attract huge investment.

Roomi said this while referring to a decision of the government to reinstate the deposed judges including Chief Justice Iftikhar Mohammad Chaudhry. He suggested that the government should re-engineer the economy by shifting its focus to agriculture and manufacturing sectors from the next budget 2009-10. "Government should work on re-engineering the economy which should be reflected in the next budget," Room added.

Ailing economy of the country is facing a negative impact of global recession as well as Mismanagement in accumulating huge subsidies, misappropriation in funds and revenues in the past, moreover, global recession have caused sharp decline in GDP, export, investment on one hand, while rise of inflation, current account of deficit and import, he maintained.

Moreover, Jalal-uddin Roomi said that the government should provide a level-playing field to attract foreign and local investors in Pakistan. "But our first priority should be achieving macroeconomic stability that will pave the way for attracting investments," he added.

He said that government should introduce health insurance facility in months ahead as committed by the government." Roomi further said that GDP target was really in danger because the non-agriculture sector was severely affected owing to halt of all economic activities. The tax collection target of Rs 1, 300 billion is a headache for the incumbent regime because the recent political turmoil had negatively impact the system of tax collection. There is no possibility for achieving the tax collection target of Rs 1,300 billion by the end of June 2009.

 

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Export proceeds: better lose the saddle than the horse ​

EDITORIAL (March 18 2009): Global recession has begun to bite the Pakistan economy, thereby ending speculation by local analysts that Third World countries in general and Pakistan in particular would remain largely unaffected by the recession.

While it is relevant to note that the impact of the global financial crisis on our economy has been limited due largely to the fact that our financial sector is not inextricably linked to the global financial sector; yet the fact that our exports are suffering as a consequence of a recession in the economies of our major buyers has finally been brought home.

According to a Business Recorder exclusive, 200 containers carrying Pakistani textiles with an estimated value of 0.3 million dollars per container, have been refused acceptance by the buyers in the European Union, the United States and Russia. That the orders have been rescinded due to the slowdown in demand, a direct consequence of the recession, is not in debate.

What is in debate is the impact of this 60 million dollar loss on the textile sector and its overall impact on our balance of trade. A recession is marked by a decline in productivity that almost invariably leads to rising unemployment levels which, in turn, impact on domestic demand.

Products whose purchase can be put off are the first ones to be affected by lower demand as a consequence of a recession. Given that Pakistani textile exports consist largely of cotton yarn and semi-finished grey cloth it was originally thought that they would be minimally affected.

However within our export categories those at the high end in terms of price such as: garments and home textiles (towels, drapes, bed sheets etc) are being affected due to slowdown in retail sales in the developed world. The State Bank of Pakistan has lent a helping hand by extending the repayment cycle of export refinance from 180 to 210 days.

The cost of the extended credit will be borne by SBP. However, the problem pointed out in the news item relates to fears of non-receipt of export proceeds from buyers of Pakistani goods.

In the case of Russia, for example, the devaluation of the Russian ruble from 24 to 35 to a dollar makes it difficult for the Russian companies to meet their commitments. Exports against confirmed letters of credit (LCs) are being delayed by raising frivolous objections.

Exports on documents against acceptance (D/A) or Documents at Sight (D/S) are more problematic. Buyers are required by SBP regulation to ensure that Bill of Lading must have the clause to have the Bills of Exchange endorsed by a bank before taking delivery of goods from shipping companies. This SBP rule is being flouted by some exporters.

SBP needs to enforce this regulation in order to ensure repatriation of export proceeds. As it is, there are $600-700 million of outstandings piled up from yester-years. SBP could see a blip in the $200-250 million in the pipeline from April onwards. It is better to lose an order than to lose money.

Ministry of Textiles, TDAP and SBP need to consult the stakeholders to reinforce this regulation to protect future receivables. What must be worrying the government is the fact that 70 percent of Pakistans total exports are accounted for by just three product categories: cotton manufacturers account for 54 percent of our overall exports, rice and leather 13 percent and synthetic textiles 3 percent.

What must be of further concern is that the bulk of our exports find their way into the US and the European Union - countries which account for a total of 36 percent of our total exports. Thus the impact of a recession in these countries on Pakistani exports will be considerable.

 

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Current account deficit narrows 14pc ​

Thursday, March 19, 2009

KARACHI: Pakistan’s current account deficit narrowed by 13.7 per cent between July and February 2008-09 over the same period of previous year after improvement in trade balance and overseas Pakistanis sent home more remittances.

In the first eight months of the current fiscal year, the deficit in current account balance shrank to $7.45 billion from $8.64bn in the same period of 2007-08, showed the State Bank of Pakistan’s data released on Wednesday.

Trade deficit came down to $8.8bn from $9.2bn as exports slightly improved while falling international commodity prices slowed import growth, it revealed.

A freefall in international prices of commodities like crude oil and edible oil, which Pakistan heavily imports, has helped improve a worsening trade balance, one of the reasons which compelled the country to seek International Monetary Fund’s loan to avert a balance of payments crisis.

Exports between July and Feb 2008-09 totalled $13bn against $12.4bn recorded in the corresponding period of previous year. In the same period, imports were $21.8bn against previous $21.7bn.

Even though imports are a little higher, their growth has been substantially controlled when compared with the first July-Sept quarter of 2008-09. Trade deficit almost doubled to $4.1bn in the first quarter compared to previous year’s $2.3bn.

Another factor which greatly contributed to improving the current account deficit was workers’ remittances, which went up to $4.9bn from $4.1bn in eight months.

Foreign investment drops: The SBP also released foreign investment figures, which showed that investment from abroad decreased by 34.2 per cent in July-Feb 2008-09. Foreign investment fell to $1.8 billion from previous year’s $2.8bn after a massive outflow of portfolio investment.

Approximately $902 million were pulled out by portfolio investors, something which overshadowed the resilient foreign direct investment of $2.79bn.

 

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LSM shows 5pc negative growth during July-Jan ​

Thursday, March 19, 2009

ISLAMABAD: Large-scale Manufacturing (LSM) in the first seven months of current fiscal has recorded an overall negative growth of 5.35 per cent, showed the Federal Bureau of Statistics (FBS) data released on Wednesday.

Overall indices for July-Jan 2008-09 depict a fall of 5.35 per cent over July-Jan 2007-08. The index for Jan 2009 shows decrease of 8.91 per cent over 1.64 per cent in Jan 2008, said the FBS data.

Analysts attributed the consecutive decline in LSM growth to the government’s increase in interest rate for the industry and power outages multiplying the cost of production, thus making business costly.

The LSM negative growth has forced financial managers to further revise growth targets for this fiscal year and it will hover between two and three per cent, they said.

The Oil Companies Advisory Committee (OCAC) compiled data for petroleum products showed a negative growth of 8.08 per cent. Except motor sprit (0.42), all the petroleum products including jet fuel (7.66), kerosene (14.38), high speed diesel (3.79), diesel oil (33.26), furnace oil (8.97), lubricating oil (10.44), jut batching oil (9.34), solvent naphtha (19.24), Petroleum products (20.6) and LPG (18.75) registered a negative growth when compared with the corresponding period, said the FBS data.

The Ministry of Industry index registered a negative growth of 5.91 per cent comprising 35 main industries in the quantum index numbers of large scale manufacturing, it added.

The industries showing positive growth include, cigarette (12.92), jute goods (5.92), sacking (34.80), paperboard (0.58) phosphatic fertiliser (36.37), glass plates and sheets (18.87), cement (5.03), coke and Pakistan steel (55.26), tractors (7.60) and Light Commercial Vehicles (2.20).

Besides sugar which remained uncharged, the industries showing negative growth are cotton yarn (0.52), cotton cloth (0.46), nitrogenous fertilizer (0.30), hessian (31.10), soda ash (0.39), caustic soda (3.65), pig iron (12.08), billets/ingots (42.69), trucks (27.53), buses (51.89), jeeps and cars (46.32), motorcycles (17.65) and others (42.02), the figures said.

The industries in FBS data showing positive growth include tea blended (4.22), starch and its products (9.30), sole leather (15.25), footwear (20.70), cotton (ginned) (3.56), plywood (42.84), injections (5.33), soaps & detergents (7.46), paints & varnishes (S) (19.72), paints & varnishes (L) (15.10), hydrochloric acid (9.18), polishes & creams (1), matches (3.87), motor tyres (4.08), motor tubes (37.74), safety razor blades (14.36), diesel engines (2.76) and wheat thrashers (79.86).

Similarly, the industries showing negative growth include vegetable ghee (11.69), cooking oil (5.38), wheat and grain milling (10.16), beverages (5.32), woollen & carpet yarn (16.84), knitting wool (14.15), upper leather (2.10), tablets (0.19), galenicals (100), toilet soaps (19.61), synthetic resins (7.87), cycle tyres (39.80), cycle tubes (35.87), chaff cutter (11.44), sugarcane machine (43.10), power looms (36.86), bobbin & shuttle (20), refrigerators (6.90), deep freezers (21.70), air conditioner (16.46), electric bulbs (22.16), electric motors (22.34), electric meters (9.70), switch guns (16.02), television sets (38.28) and bicycles (27.52).

The provisional quantum index numbers (QIN) has been computed in FBS on the basis of latest production data of 100 items received from OCAC, Ministry of Industries & Production and Provincial Bureaus of Statistics.