Pakistan Economy - News & Updates - Archive

[Neo]

Green shadow for the textile sector​

ARTICLE (March 22 2009): The textile sector in Pakistan provides 58 per cent of our total exports and about 40 per cent of the prevalent industrial employment. Pakistan is also known to be the 4th largest cotton grower in the world. Although, people abroad and at home have repeatedly reiterated Pakistan having great potential for rapid industrial and monitorial growth in textiles, but there are major obstructions that hamper our exports.

Trade Development Authority of Pakistan (TDAP) has also recently taken a positive step by inviting the Russian delegation to Pakistan to look into the business prospects and has also lined up investors, large companies, small and medium enterprises and traders from Pakistan to visit Russia on government expenditure, to study their market and develop business relationship with their business communities and industries.

The world market is growing fast and the regional market, as well, while the government policies are not yet in line with the trend of these markets, which is likely to pull the countrys export further down. Making our export and industrial policies more consistent and realistic will allow us to be more relaxed and focused towards our endeavours and also attract foreign investors.

The industry humbly suggests that an effective committee be formed of like minded and well versed entrepreneurs from the concerning industry, and their consent be taken into consideration while approving a law or a policy. Export Oriented Unit (EOU) was introduced by customs for the exporters to enjoy duty draw backs, but that policy never moved on to the execution stage.

Duty & Taxes Remission for Export (DTRE) by Sales Tax is being exercised through FAST TRACK system again for exporters to enjoy the duty and taxes drawback on Imports, but the system is so lengthy, mind boggling and tedious that by the time all the formalities are met, the re-export date is already in jeopardy, resulting in cancellation of orders or heavy penalties in form of pre-paid air shipments and discounts by the customers.

Presently, our exposure is limited in terms of countries (USA, UK, Germany, Canada, UAE and etc) that we export to. Ministry of Textiles (MINTEX) and TDAP should make in roads into the untapped and virgin markets and countries which have a great potential to expand into. This can easily be done by taking up the task of promoting and encouraging entrepreneurs and industrialists to exhibit their products in various different parts of the world shows by subsidising the booths and overall package.

A training ground for Administration and Human Resource managers can be formed with the help of associations like Pakistan Hosiery Manufacturing Association (PHMA), which supervises and administers the Institute of Knitwear Technology Karachi (IKTK), to create a knowledge base study on social and environmental compliances and certificates like Documentation (ISO-9000), Social Compliances (SA-8000), Environment (ISO-14000), World-wide Responsible Apparel Product (WRAP) and Customs Trade Partnership Against Terrorism (CTPAT).

A country like China gained a market share in all major developed import markets despite restrictions introduced in 2005 along with India, Sri Lanka and Bangladesh. Some smaller suppliers like Egypt, Morocco and Cambodia who have also expanded their textiles and clothing exports even faster than China and the share of least-developed countries in imports of the US and the EU.

China has once again given some more subsidies to the textile sector to boost export eg 13% VAT refund to garment exporters. Bangladesh has the market access - EU/Canada GSP, they have backward integration, the labour cost is very low and there is financial support eg in local yarns is very aggressive. India has 5% interest rebate (TUF), capital subsidy, Export Duty Drawback, 10 years tax holiday in SEZ/EOU, 4.5% interest subsidy on pre/post shipment credit and government cluster promotion - SEZ/textile parks.

Textile City, Garment City and what not was announced few years back, but unfortunately, no deadlines were set for the project completion and operational date. Regrettably, even to this date no one is sure whether it will commence or not. In our line of trade, time is of the essence or else you loose the boat.

Before venturing into mega projects, the decision makers should neglect the funds to be disbursed off to our existing industrial parks, requiring additional expenditure to update the infrastructure, be it Korangi or Sind Industrial and Trade Estate (SITE).

We unfortunately have not been able to take the devaluation of our currency to our advantage due to the high cost of production and high duties paid by our customers. Zero Rated Duty Status is the need of the hour, which will help us to compete with countries like Bangladesh and India.

The Government must realise that if big buyers like Wal-Mart, J.C. Penney, K-Mart, Kohls and Target choose not to buy from Pakistan, then there is something wrong in our policies that are turning them away. The President of Pakistan has seen to have taken a stand in requesting associations to work hand in hand to find remedies in solving the existing detrimental scenario.

TDAP has further bifurcated its divisions in sub-divisions in order to provide more specialised services to different segments. This will not only allow Small Medium Enterprises (SME) to flourish but will also disallow the big fish to throw their weight around in terms of availing perks, incentives and also manipulating policies to their own advantage.

Government of Pakistan has continuously announced schemes whereby local brands can establish outlets outside Pakistan for which 50% investment will be borne by the government. With the efforts and recommendations of all the associations and Ministry of Textile, Ministry of Finance has finally allocated Rs 4 billion and advised State Bank of Pakistan (SBP) to disburse 40% of R&D claims of exporters of shipments up to 30 June 2008.

SBP vide Circular no.FEOD/6866/R&DS-103-09 dtd. 26 February has asked all banks to submit all claims by 26th March 2009. They should also disburse the 90 days time bar cases which have also been pending for years.

There is a major recession world over and especially in USA, companies are going towards bankruptcies (chapter 11 & chapter 7) and default in payments, our government needs to support our exporters in recovering the payment from the international markets whether it be through credit analysis, credit rating, factoring or by the help of international courts.

Pakistan Export Finance Guarantee (PEFG) was giving umbrella to exporters in pre shipment or post shipment basis, but due to lack of funds is not operational in lending. Government can revive this department so that the exporters can be secured. However, continuous up gradation is required in the modern economic system and educating the public with latest government developments in order for us to survive in the international market.

Capturing that extra share of the market is not simple in the current framework, but it is not impossible either. If we have the right vision, a practical, focused approach, the industry brought up to date, proper co-ordination, respect to time and deadlines, and then we the textile sector strongly believe that we can easily achieve any given target.

 

[Neo]

Pakistan to seek oil facility from Saudi Arabia at FoP meeting: Tarin ​

Tuesday, March 24, 2009

ISLAMABAD: Pakistan is to seek oil facility from Saudi Arabia for 100,000 barrels per day on deferred payment of two year during the meeting of Friends of Pakistan due in Tokyo on April 16, said Advisor to Prime Minister on Finance Shaukat Tarin.

Tarin, who visited Saudi Arabia on March 7 and held vital meetings with authorities concerned dispelled the impression that the visit could not succeed saying that that Saudi Arabia has advised Pakistan to bring the issue of oil facility at the forum of Friends of Pakistan.

“The kingdom has indicated that Saudi Arabia would consider the demand seeking oil facility once it is placed in FoPs meeting,” Tarin said. He said that during the meetings with Saudi authorities, Islamabad asked for increasing the import of Pakistani labour force so that Pakistan would have maximum remittances from Kingdom.

“We also invited Saudi Arabia to come forward and invest in Pakistan’s agriculture sector and import agriculture products from their own agriculture farms in Pakistan to ensure their food security.”

Pakistan has also sought permission to export animals to cater to eating needs of Saudi Arabia.Regarding urea facility, he said that Saudi Arabia would maintain revolving fund to urea facility for Pakistan. “We also briefed governor central bank of Kingdom on securitisation of workers remittances.”

When Pakistan got nuclear, it faced a lot of economic sanctions from USA and all donor countries, but it was Saudi Arabia, which helped Pakistan and extended the oil facility to wriggle the country out of morass. But when Pakistan started experiencing the fast deletion of the foreign reserves, Saudi Arabia refused to extend any oil facility to Pakistan asking Islamabad to first enter the IMF programme only then the Kingdom would consider about the oil facility.

But now Saudi Arabia asked Islamabad, even after getting IMF bailout package, to bring the demand particularly with regard to seeking oil facility in the meeting of Friends of Pakistan. However, Pakistan has managed to get oil facility from Iran to provide sustainability in foreign reserves.

“Although Pakistan has foreign reserves of over $10 billion mainly because of IMF programme, its sustainability can only be maintained if Pakistan manages more resources, which could ensure interest free inflows,” some independent economic experts said.

“This can only be possible by alluring maximum foreign direct investment for which the business and investment friendly climate had to be introduced by the government, which will trigger economic growth in the country too. This would basically help sustain Pakistan’s reserves at a reasonable level,” economists say.

Tarin, mentioning the preparation for projects to be marketed in the FoP meeting, said the details will be provided to the ambassadors of the FoP member countries on March 24 so that respective countries have ample time to identify the projects they intend to fund.

 

[Neo]

Cement exports may keep growing: company official ​

Tuesday, March 24, 2009

KARACHI: Cement exports are growing and the present momentum will likely be maintained in coming months, says Lucky Cement Chief Executive Officer M Ali Tabba.

However, analysts’ opinions are contrary to that projection, who said that though margins of many cement companies had recovered, cement demand would remain under pressure both in domestic and export markets.

Lucky Cement, the country’s largest manufacturer and exporter of cement, has recently started production from its new line with a capacity of 1.25 metric tons per annum, taking the company’s total capacity to 7.75 metric tons.

“It is an assumption that cement exports will decline in coming months, but what we see is that exports have been maintained and we are also hopeful for the future,” said M Ali Tabba.However, cement companies, which have been expanding their production capacities, are now encountering difficulties owing to high interest rates and low demand.

M Rehan Khan of First Capital Equities said local cement companies had successfully met regional demand “but now owing to slowdown in economic activities in countries dependent on oil revenues, cement exports are under pressure.”

This year, he added, margins of cement companies had recovered to over 30 per cent from 15 per cent due to better market prices. A lot of cement companies went for expansion last year, and “these will benefit in coming months owing to the likelihood of a cut in benchmark interest rates.”

Increased cement prices in the local market coupled with better export prices due to depreciation of Pak rupee against US dollar had helped the commodity’s exports.Officials of cement companies said that demand in the Gulf region would remain buoyant owing to huge housing requirements in many regional countries.

The cement companies’ cost of sales has increased owing to a rise in production cost. The cost rose despite a decline in international coal prices as old coal stocks purchased at higher prices were being consumed.

Cement companies use imported coal, which has a major share in the production cost. Fortunately, coal prices have come down from over $190 per tonne to around $130 per tonne in the last couple of months, which will help cement companies reduce production cost.

Though coal prices in the international market have declined considerably, their positive effect would be felt in the months to come because generally cement companies place import orders four months in advance.

Regional countries are trying to improve cement production in a bid to increase their share in exports. Besides, leading European cement companies are planning to park their excess capacity in this region as demand in Europe and the US has dropped sharply due to slowdown in construction activities.

This will probably result in a tough competition for Pakistani cement manufacturers because international cement prices are now under pressure in the wake of a price war between cement suppliers.

Cement demand owing to liquidity crisis amid global recession and completion of pending expansions has started tapering off. Under these unfavourable circumstances, Pak cement exports are likely to take a major hit in fiscal year 2010.

 

[Neo]

‘Economy suffered $68bn loss due to Afghan turmoil’ ​

Tuesday, March 24, 2009

LAHORE: Pakistan’s economy has so far suffered irreparable loss of $68 billion directly and indirectly due to turmoil in Afghanistan.

Speaking as a chief guest at a seminar on “The Role of Economy Towards Survival of the Country” in connection Pakistan Day, founder chairman Pak-US Business Council and VP SAARC CCI Iftikhar Ali Malik said it is on record that Pakistan is the only country in the world which has not only suffered tremendous economic loss but also huge human loss in the war against terrorism.

He said that more than three million Afghan refugees harbouring in Pakistan were also posing security risk. He said that entire Pakistani nation including business community and all political parties under the dynamic leadership of President Asif Ali Zardari and sagacious guidance of Prime Minister Syed Yousaf Raza Gilani are united against the menace of terrorism and committed to curb it once for all.

He said due to war on terror, Pakistan’s national economy is exclusively suffering a net loss of $7 billion annually as fallout of the war against terror, which has displaced thousands of people.

In the prevailing scenario, US must provide direct market access to Pak products on zero rate duty to help stabilise the country’s bleak economy in the wake of the war against terror. Iftikhar who is also co-chairman businessman panel, the largest alliance of chambers in the country and ruling group in FPCCI on behalf of entire business community again urged for US assistance to Pakistan to help overcome the economic crisis, by restoring the quota for Pakistan at par with all other under developed countries.He said there is vast scope for US private sector investors in every sphere of life, particularly in the agro, power and IT sectors.

 

[Neo]

Country’s ports charging highest rates in the region.​

KARACHI: The country’s ports not only charge the highest rates in the region but are also not equipped to meet the needs of modern maritime trade where competition, efficiency and fast turnaround of vessels are the hallmark, importers and exporters told Daily Times.

Similarly, container terminals of the country are much costlier than others in the region and are burden on trade as they enhance the cost of their end products. Recently, foreign shipping lines have raised the container handling charges by 15 percent.

The lines have enhanced the handling charges of 20 feet container to Rs 7550, up by Rs 1000 and on 40 feet container increased by Rs 1500 to Rs 11,350.

According to a comparative study of tariffs of the regional ports, the Karachi Port is the costliest port of South Asia followed by Port Qasim Authority (PQA), Jawahar Lal Nehru Port (JNP) in India and Sri Lanka Port.

The other regional ports such as Singapore and Dubai are even cheaper and they provide better cargo handling and quick cargo moving equipments.

“The Pakistani port are unable to improve their working environments by inducing work culture and efficiency, which are necessary for success in this fast and modern era,” traders complained.

The trade and industry had been asking the government to bring down port and terminal charges in line with regional ports but no worth mentioning steps have been taken so far, said Anjum Nisar, president, Karachi Chamber of Commerce and Industry (KCCI).

He said as the business community is already bearing the burnt of high cost of doing business we do not except the increased rates by the foreign shipping lines, but we are going to oppose it, as the rates have been increase without any justification and KCCI will call a meeting of all stakeholders, Pakistan Shipping Agents Association and customs during current week in this regard.

Anjum underlined the need to constitute a powerful regulatory authority from Pakistan Customs to regulate the shipping lines, agents and freight forwarders. He said the proposed regulator should have the authority to cancel the license.

The official figures with regard to tariffs of ports reveal that the KPT charges $27,190 per day on an average size container ship of 35,000 gross registered tonnage (GRT).

Against this, the port charges of PQA are $25,090, JNP $23,027, Dubai $2,890, Sri Lanka $7,192 and Singapore Port $2,975. Besides, these charges, Rs 10,000 to Rs 12,000 are charged under the head of handling.

There are three container terminals in the country—two at the Karachi Port and the other at Port Qasim.

There are two types of charges—wet and dry, which vary according to the size and the cargo the ship is carrying, a spokesperson of KPT said.

Both KPT and PQA do not handle trans-shipment cargo/containers and are thriving on captive cargo related to country’s external trade.

The shipping lines have increased the charges after a year and they are applicable to the imports from Far Eastern countries only, Muhammad Rajpar, chairman Pakistan Shipping Agents Association said.

The shipping lines have long been thinking of increasing the terminal handling charges due to a host of factors like the imposition of 16 percent general sales tax (GST) on the shipping companies.

He said that in our country there are two types of terminal handling charges, one which the shipping line charges and other one is taken by the terminal of the port that is called Receiving and Delivery (R&D) charges.

 

[Neo]

July-February: Non-textile exports post 18.28% growth​

KARACHI: The non-textile goods posted handsome growth of 18.28 percent in the first eights month of current fiscal year compared to textile products’ export which decreased 5.60 percent in the same period.

The non-textile export came to $5.685 billion in July-Feb of current financial year over $4.806 billion in the corresponding period of previous year.

The substantial gains in export of non-textile products also reflected the diversification of Pakistani export base, which remain restricted to mainly textile and clothing.

Textile goods export remained depressed during the current fiscal so far because of stiff competition in the international market. The ongoing global recession also contributed to the woes of textile sector in the shape of slackening demand in USA and European Union, the major market for local products.

Food group posted the heaviest gain by standing at $2.099 billon during the period under review as compared with $1.425 billion in the previous year, depicting 47.31 percent growth.

In this group, rice was the main commodity, which registered the biggest gain of 68.77 percent during this period. Fisheries and its products were also up by 22.45 percent. The meat and its preparations recorded 47 percent growth.

The other manufactures group reflected 9.48 percent growth during the first eight months of current fiscal over the previous year.

The export of footwear was up by 16.60 percent, sports goods 1.74 percent, chemical and pharma products 14.50 percent, plastic materials 16.67 percent, engineering goods 70.11 percent, jewellery and furniture 11.32 percent during this period.

The export of carpets, rugs and mats decreased 29.26 percent, leather manufacturers 13.52 percent, gems 59.36 percent, furniture 17.80 percent during this period.

Textile and clothing export totaled $6.470 billion in the said period against $6.583 billion in the same period of previous year, falling by 5.60 percent.

Raw cotton export shoot up by 154 percent during first eight months, cotton cloth 5.57 percent and towels 10.02 percent.

Cotton yarn declined by 15.28 percent, cotton carded or combed 13.81 percent, yarn other than cotton yarn 51.24 percent, knitwear 2.66 percent, bedwear 10.44 percent, tents, canvas and tarpulin 21.18 percent, readymade garments 12.43 percent, art silk and synthetic textiles 23.45 percent, made up articles excluding bedwear 0.30 percent and other textile materials 15.28 percent.

Textile export orders worth $5 billion were lost at Heimtextil Fair Germany this year while sixty thousand jobs are in danger as a result of the downfall in industrial production in Faisalabad region due to severe load shedding of electricity and gas.

Exporters demand that the units should be exempted from electricity and gas load shedding and the government should refund the duties and levies paid by exporters on raw material and inputs, in order to reduce the cost of doing business in the country.

 

[Neo]

US, France & ADB to help implement Energy Efficiency Programme​

ISLAMABAD: United States, France and Asian Development Bank have shown willingness to assist Pakistan in implementation of Energy Efficiency Programme to overcome energy crisis, official sources told Daily Times on Monday.

United States would extend financial help in implementation of The Empower Pakistan-Energy Efficiency and Capacity (EP-EEC) project. Agence Française de Développement (AFD) of France is considering providing Co-financing for Energy Efficiency Programme. Similarly, Asian Development Bank being major multi-lateral development partner is keen to extend Pakistan Multitranche Financing Facility (MFF) for 5 to 10 years.

Empower Pakistan: United States Agency for International Development (USAID) funded The Empower Pakistan project, which is to start in April 2009, to help Pakistan tackle growing energy demand and supply gap. In this regard, US technical assistance would cover four major areas i.e. completion of cost of service study of Lahore Electric Supply Company (LESCO) to determine minimum benchmark of cost service and set certain targets for loss reduction and service improvement in distribution companies of Pakistan.

A report of the Energy Efficiency and Conservation Consultative Group of the Planning and Development division revealed.

Other components of the USAID technical assistance are integration of grid code with renewable energy (wind projects), development of tariff model for renewable energy projects, and technical assistance to National Electric Power Regulatory Authority.

According to the report representative from AFD informed the consultative group meeting that French government is also considering providing co-financing facilities for the Asian Development Programme.

ADB: Bayanjargal Byam-basaikhan, Energy Specialist at Asian Development Bank said that ADB could provide project preparatory technical assistance as well as keen to extend Multitranche Financing Facility (MFF) for next 5 to 10 years. However, he said that the amount of MFF would depend on quantity and size of various projects and especially the interest, support of government of Pakistan in identifying and preparing various projects and plan to avail this financing facility. He informed that this project aims to help Pakistan to address the current energy crisis on short-, medium- and long-term basis particularly to improve supply of electricity and gas and overcome its shortages.

It was suggested in the meeting that a study should be initiated that may identify role and scope of work to be undertaken in various energy utility companies and may suggest type of framework required to be undertaken by these institutions to implement energy efficiency policy measure.

 

[Neo]

530 bogie-wagons to be built locally: Ecnec likely to approve project on March 26​

ISLAMABAD (March 24 2009): The government has decided to manufacture 530 new high-capacity bogie-wagons locally to replace the existing 1890 four-wheeler wagons, sources in Railways Ministry told Business Recorder. They said that the government had planned, in 2005, to import or manufacture 530 new design wagons for railways at a cost of Rs 5.330 billion.

However, last year the cost was revised downward to Rs 4.589 billion. They said that the project would be financed from Public Sector Development Program (PSDP). Foreign exchange component (FEC) of the project has already been provided by the Islamic Development Bank (IDB). According to sources, the number of container flat bogie-wagons will be 156, high side open bogie-wagons will be 344, and brake vans 30.

The project was considered by Central Development Working Party (CDWP) in its meeting on November 11, 2008, which recommended it for approval of the Executive Committee of National Economic Council (Ecnec), subject to the condition that report on the issue of excess axle load is submitted by the Ministry of Railways to the Planning Commission, which would form part of the summary to the Ecnec.

The Railways Ministry has been directed to rationalise the project cost through a committee under the chairmanship of Planning Commission Member, Infrastructure, with representation at appropriate level from the Railways Ministry and Finance Division. In pursuance of the CDWP decision, the Railways Ministry has submitted a report on the issue of excess axle load.

The committee held detailed discussions on the matter and decided that all bogie-wagons would be manufactured locally, in CKD condition. "Pakistan Railways have developed indigenous expertise to manufacture such wagons" sources said.

They said that the cost of the project has also been slashed further, from Rs 4.589 billion to Rs 4.135 billion. The project is likely to be approved by Ecnec in its meeting scheduled to be held on March 26, under the chairmanship of Advisor to Prime Minister on Finance Shaukat Tarin.

 

[Neo]

July-February 2008-09: export of non-textile products surges by 25.06 percent​

ISLAMABAD (March 24 2009): The export of non-textile products surged by 25.06 per cent in the first eight months of current fiscal to $5.095 billion as against $4.074 billion for the same period of last year mainly because of growth in food and food commodities exports.

The details of trade figures released by the Federal Bureau of Statistics (FBS) revealed that textile exports dipped by 5.60 per cent to $6.470 billion against $6.853 billion for the same period of last year. Except raw cotton, cotton comb and tents, canvas and tarpaulin the exports of all other products of textile have declined during July-February 2008-09.

The food products export soared by 47.31 per cent because of massive growth in export of rice. The export of rice surged by 68.77 per cent to $1.39 billion against $826 million for the period under review, fish and fish apparatus 22.46 per cent to $147 million as against $120 million. Fruits, vegetable and spices export surged by 8.41, 3.88 and 16 per cent respectively. Apart from sugar exports of all other food items showed an upward during the period.

The data showed that among textile group cotton yarn export dipped by 15.28 per cent during July February 2008-09 to $732.293 million from $864.359 million of same period of last year, cotton carded or combed by 13.81 per cent to $9.831 billion from $11.406 billion, yarn other than cotton yarn by 51.24 per cent to $17.419 million from $35.724 million, knitwear by 2.66 per cent to $1.203 billion from $1.236 billion, bed wear by 10.44 to $1.128 billion from $1.259 billion, tents, canvas and tarpulin by 21.18 per cent to $39.520 from $50.139, readymade garments by 12.43 per cent to $819.404 million from $935.689 million, art, silk & synthetic textile by 23.45 to $220.260 million from $287.721 million made up articles(excl.towels bedwear.) by 0.30 to $331.291 million from $332.282 million and other textile materials by 15.28 per cent to $150.587 million from $177.740 million.

The data revealed that the exports of textile products during the month of February went down by 13.42 per cent with raw cotton dipped by 26.82 per cent to $5.802 billion against $7.928 billion for previous month of January, cotton yarn by 0.81 to $78.151 million from $77.524 million cotton cloth by 6.32 to$116.226 million from $124.068 million, cotton carded or combed by 50 per cent to $76 million from $152 million.

Exports of knitwear dipped by 18.86 per cent to $113 million in February as against 139 million for previous month, bed wear by 21.71to $109.920 million from $140.405 million towels by 18.81 to $41.033 million from $50.540 million and tents, canvas & tarpulin to $4.380 billion from $5.146 billion. Export of sports goods showed a marginal growth with footwear going up by 16.60 per cent, surgical instruments.

 

[Neo]

Korean firm signs coal mine deal with Pakistan​

SEOUL (March 24 2009): A South Korean energy development firm has signed an agreement with the Pakistan government for a stake in a coal mine in the Thar desert region, the firm said on Monday. South Koreas Pan Energy Development Co (PEDCO), with UAEs Bin Din Group, had secured the stake in coal blocks in the area, which has about 2.56 billion tonnes of estimated reserves, about 40 times the amount of coal used each year by local generators in South Korea.

The Thar region, east of the Karachi, is reported to have the worlds largest coal reserves of about 100 billion tonnes or more. PEDCO said that the Pakistan government is requesting two coal power plants with 500,000 kilowatts capacity and the firm is closely in talks with state-power monopoly Korea Electric Power Corp (KEPCO) PEDCO expects coal production of 2 million tonnes by 2011 from the blocks, and 10 million tonnes from 2015.

 

[Neo]

High poverty level in rural areas due to structural, institutional bottlenecks​

FAISALABAD (March 24 2009): A key finding of the "Poverty Assessment Update of Pakistan", released by Asian Development Bank, disclosed that structural and institutional bottlenecks including distortions in factor markets and market failures particularly land and labour markets, lack of diversified livelihood opportunities, and hierarchical social structures and social exclusion result in high poverty levels in country particularly in rural areas.

ADB assured to continue to focus on supporting necessary institutional, governance, and market reforms to promote improved efficiency and functioning of markets that result in creation of greater employment and livelihood opportunities for the poor. This will also lead to greater inclusiveness in society as empirical evidence has shown that economic empowerment is one of the most effective antidotes to social exclusion.

Strengthening the skill base of the labour force through technical education and vocational training will be important to ensure supply of trained labour that matches the needs of the market and promotes job generation. A focus on strengthening agriculture markets will result in creating greater opportunities in rural areas, and given the agriculture-industry linkages, will lead to more diversification in sources of livelihoods.

Improvement in infrastructure and services, particularly in secondary cities, will lead to improved competitiveness of these centres to support economic growth and job creation, while improving the quality of lives of the urban poor, ADB report added. The Poverty Assessment Report brings out several causes of persistent poverty in the country.

These include the lack of equitable economic and social opportunities that lead to inequality and dent the direct impact of economic growth on poverty. For example, despite some lowering of unemployment, greater job generation needs to accompany growth for it to result in reduced poverty. ADB should expand its focus on creation of new economic opportunities through direct interventions in key economic sectors including infrastructure development, and the financial and industrial sectors.

Supporting the role of the private sector development in strengthening the productive capacity of the economy and creating employment opportunities to absorb the growing labour force in the country will be key to promote inclusive growth in the country. ADB identified two major key issues with respect to poverty in Pakistan.

The first is whether the downward trend in poverty can be sustained at a time of threatened macroeconomic stability, which is manifested in the once again rising fiscal and current account deficits, high inflation averaging around 25 per cent, and squeezing fiscal space for maintaining high investments in pro-poor sectors.

With the deterioration in economic fundamentals, growth is expected to plunge in 2008/09 and cause poverty to rise, hence the reference to Pakistan having come full circle. The second is about the quantum and pace of poverty reduction: that is to say whether the recent improvements in themselves are substantive and fast enough to make a difference in poverty to the lives of those that need to benefit from these improvements the most.

On these two issues, there is a need for an objective assessment to identify the challenges ahead in sustaining poverty reduction and forcing its pace at a time when the living standards of the poor are severely threatened by major price spikes for food and oil commodities in an overall poor economic and social protection environment. Even if the massive 12.2 percentage points decline in poverty is accepted, 22.3 per cent of the population, which translates into roughly 35 million people, still lives below the poverty line.

This is higher than the number of absolute poor in Pakistan in 1996/97 and goes to confirm the insufficient decline in the percentage of the poor in the last 10 years. Further, poverty is inequitably distributed with levels of rural poverty being double to urban poverty.

In rural areas, skewed access to assets (land) and power, and the inability of the poor to mitigate income fluctuations, challenge their ability to emerge from poverty, and result in "poverty of opportunity". In the urban areas, the deteriorating living environment, inadequate access to basic amenities, problems of slum dwellings, and crippling infrastructure are some of the major issues that are still to be addressed.

One of the worrying aspects of the present situation is the growing economic inequality in the country. The Government in the latest Economic Survey for 2007/2008 has accepted this as a critical issue. According to available data, the gap between the rich and the poor between 2001 and 2006 has significantly widened, with the Gini coefficient having increased from 0.2752 to 0.3018 in this period.

As another testimony to growing inequality, the ratio of income of the richest 20 per cent to the poorest 20 per cent has gone up from 3.76 to 4.20. Despite some improvement, ADB report said that Pakistans progress on human and social development has not been commensurate with the surge of economic growth witnessed in recent years.

The 2005 Human Development Index (HDI) rating for Pakistan in the Human Development Reports for 2007-2008 gives it a very low rank of 136 out of 177 countries. Although Pakistans net primary enrolment ratio and adult literacy have increased during the last four years, accompanied by a reduction in infant and child mortality, progress in health and education is marked by the continuance of spatial (rural/urban, inter-provincial) variations.

Large gender disparities also continue to persist in literacy, primary enrolment, and educational attainment and labour market. The Pakistan Millennium Development Goal Report for 2005 has noted that even if the net primary enrolment continues to increase at the rate of 2.5 percentage points per annum, as observed in the last four years, it will only become 77 per cent by the year 2015, which is well below the MDG target of 100 per cent.

A similar shortfall exists for health-related MDG targets such as infant and maternal mortality. Imbalances in distribution also exist in the levels of nutrition among regions. Pakistans manifold challenges described above arise as a result of longstanding and interwoven economic, social and political inequalities in Pakistan.

These inequities are manifested in the type and nature of institutions and rules that then emerge through an endogenous process to govern society. The ways in which these institutions function and are sometimes hijacked by powerful vested groups affect opportunities of ordinary people and their ability to invest, advance, prosper, and benefit from high growth episodes in the country.

Quoting empirical evidence, ADB report mentioned that this poverty assessment update shows that different groups, depending on their location, socio-cultural status, and access to opportunity, experience poverty in Pakistan differently. Some groups, by virtue of their superior bargaining power as bestowed by the existing institutions, are able to prevail over other groups that have relatively weak power base and institutional support.

Thus the correlation between the unequal distribution of assets and opportunities and inequitable institutional support and bargaining power gives rise to a circular flow of mutually reinforcing adverse patterns of poverty and inequality. According to ADB report, traditional economics literature highlights growth constraints in terms of low savings, inadequate infrastructure, low human capital, poor macroeconomic management, and various types of market distortions and inefficiencies.

Recent literature, however, has cited weak institutions and poor governance as causes for the failure of conventional market-oriented policies in generating growth and reducing poverty. There are many examples from Pakistan on this failure.

Thus, for instance, market asymmetries whereby poor farmers pay more for inputs than richer ones due to the local and national institutional structures, not only result in a loss of income for the poor, but these structures of power also mediate access of farmers to markets that constrain their future economic opportunities. Similarly jobs in many cases, for example, are provided across ethnic biraderi lines.

A growing consensus in the development literature is that market-oriented reforms might not work without more serious attention to institutions. This is corroborated in the background field studies on poverty undertaken for this update. The report highlighted that the extent to which growth reduces poverty depends on growth being politically, geographically, socially, and economically more inclusive and equitable.

Creating a better understanding of the overall political economy and constraints to inclusiveness will contribute toward identifying initiatives for promoting the kind of growth that would have the greatest impact on reduction of poverty and inequity in society. In conclusion, ADB stated, high and sustained economic growth rates are important for overall reduction in poverty in Pakistan.

The non-economic institutional factors are, however, critical determinants of the "spread" of the benefits of growth and the relative access to opportunities of the different socio-economic groupings. Addressing such "social gaps" is, therefore, a matter of addressing the structural and institutional barriers to emerging from poverty.

The different spatial and social status-related experiences of poverty and growth (rural, urban, ethnic background, gender, and others) in Pakistan contribute in a significant way to first, the way in which poverty manifests itself; second, the ability to benefit from growth; and third, the development of contextually-appropriate and institutionally-enabling responses to address the needs of the poor.

 

[Neo]

Leather exports fall by 20pc in eight months ​

Tuesday, 24 Mar, 2009

ISLAMABAD: Leather and its products’ exports fell by 20 per cent during July-February 2008-2009.

Tanner Association vice-chairman, Sheikh Afzal Hussain told a local news channel that leather and its products’ exports in the previous fiscal year amounted to Rs1.24 billion, but in the current year during July-February leather exports fell by 20 per cent and in the backdrop of global slowdown further fall was feared.

He said that Turkey, Bangladesh and Indian governments as compared to Pakistan have given several incentives to their exporters, which has rendered Pakistan products uncompetitive.

 

[Neo]

U.S. plans to boost civilian aid to Pakistan​

The assistance would rise to $1.5 billion or more as part of a new Afghanistan strategy aimed at curbing support for insurgents.​

By Julian E. Barnes and Paul Richter
March 24, 2009

Reporting from Washington -- The Obama administration plans to dramatically increase civilian aid to Pakistan as part of its new strategy on Afghanistan and the surrounding region, hoping the overture will lead to more effective steps by the Pakistani military to shut down insurgent sanctuaries, U.S. officials said.

A threefold increase in civilian aid would come on top of more than $10 billion in mostly military assistance since 2001. In addition to the aid, the administration will seek similar contributions from other nations, the officials said, describing the conclusions of a strategy review on condition of anonymity because it has not been made public.

The administration is expected this week to unveil the new strategy on Afghanistan, where commanders have said that 70,000 U.S. and NATO troops are unable to prevent Taliban fighters and other extremists from expanding their influence.

Top administration aides have briefed European counterparts on the strategy, and Secretary of State Hillary Rodham Clinton will attend an international conference on the war next week in the Netherlands. President Obama, who will soon meet with NATO allies, has sketched a new approach that lowers U.S. objectives and fixes an exit strategy.

The focus on Pakistan in the administration's new strategy reflects both frustration over years of cross-border attacks against U.S. and allied forces in Afghanistan and the view that extremism, violence and instability have roots across the region.


It also underscores concerns among U.S. and allied officials about the stability of the government in Islamabad, the Pakistani capital. Clinton and other U.S. officials brokered a compromise this month to defuse a political standoff over the country's judiciary, but they remain fearful that the country is deeply unstable.

Under the plan, the administration would boost Pakistani civilian aid to $1.5 billion a year or more, a move first proposed by Vice President Joe Biden when he was chairman of the Senate Foreign Relations Committee.

In addition, the administration will seek major increases from China, Saudi Arabia and other Arab states in the Persian Gulf, according to an administration official.

A dramatic boost in aid could help stabilize the civilian government and improve governance, the justice system and, importantly, schools, the officials said.

Officials also believe an increase in civilian aid will help the administration gain greater influence over the Pakistani military and its operations against Al Qaeda and the Taliban in the border areas. The country's military now views any American threat to cut off military aid as empty, because the U.S. is so dependent on cooperation from Islamabad, officials said.

"All our military aid right now is unleveraged," said a government official. "Right now the Pakistan military thinks any threat to withdraw aid is a bluff."

Significant amounts of nonmilitary aid could encourage pro-Western public sentiment and increase pressure on the Pakistani military to act rather than risk a public backlash over the possible loss of the civilian aid, administration officials believe.

Besides sending aid to Pakistan, officials have said they will use the 17,000 new U.S. troops being sent to Afghanistan to undermine extremist leaders by strengthening local groups and district governments, and will expand the Afghan armed forces.

Some analysts doubt that enlarging the flow of U.S. aid would overcome deeply rooted anti-Americanism in Pakistan, but they agreed that a different approach is needed.

The new money might strengthen American influence with the Pakistani armed forces but is unlikely to curtail the military's focus on rival India, said Arif Rafiq of the New York-based Pakistan Policy Blog. Because of that, the new aid "is not a game changer in itself," he said.

Nonetheless, the West must find ways to encourage the Pakistani public to become enthusiastic about government action against extremists.

"Yes, we need to make the money flow, but it is not as if our money is the deciding factor," said Frederick Barton, a scholar at the Center for Strategic and International Studies. "What is really deciding is: Do we have relationships beyond the military? Are we showing we are in touch with what the Pakistani people need and want?"

 

[Neo]

Govt likely to impose income tax on real estate ​

Agriculture will remain exempt from tax for two years: Tarin​

Wednesday, March 25, 2009

ISLAMABAD: Advisor to Prime Minister Shaukat Tarin on Tuesday indicated the imposition of income tax on real estate in the next budget in a bid to increase the tax to GDP ratio.

“Although it is a provincial subject, the government would chalk out a modus operandi to levy tax on this very important sector.”

However, he ruled out the inclusion of agriculture sector in the tax net for at least two years, advocating that the sector needs to stabilise first and then the government would not hesitate to levy tax on the sector. He said that in the past farmers were not given the right prices for their produce. “We would first increase the farmers’ income, and then levy income tax.”

After a meeting of the Standing Committee of National Assembly on Finance, which was given briefing over the Budget Making Process for 2009-10, Tarin while talking to media said that capital gain tax on stock exchange businesses would not be levied in the next budget for 2009-10, as bourses were given a two-year exemption from any sort of taxation by the government before making the budget for 2008-09.

He unveiled that Pakistan would also seek financial help from Friends of Pakistan to strengthen security forces such as Frontier Constabulary to effectively fight out militants, so that Pakistan’s territory can be purged from the menace of terrorism. On the issue of no progress on new NFC, Tarin said he would soon place a request with the prime minister, seeking power to chair the NFC meeting so that thorny issues pertaining to the future mechanism of sharing the divisible pool between provinces could be chalked out.

Earlier during the proceedings of the Standing Committee headed by Fauzia Wahab, Tarin lambasted the previous governments for not enhancing the tax to GDP ratio to a reasonable level for the last 60 years. He said: “Tax to GDP ratio right now stands at 9.6 per cent which needs to increase to 15 to 17 per cent if we want GDP growth at 8 to 9 per cent.” He stressed that at 9.6 per cent tax to GDP ration it is not possible for a country like Pakistan to grow at 8 per cent.

Tarin was visibly at pain disclosing the fact that FBR collects 60 to 64 per cent tax revenue from the manufacturing sector while it gathers 40 per cent on imports, meaning that there is huge room to expand the tax net.

“There was a time when the manufacturing sector was growing at 13.5 per cent, which has now dropped to negative zone. Now it is sheer injustice to add more taxes on this sector. The time has come to impose taxes on sectors like agriculture, services, real estate and stock markets to broaden the tax base.”

He said that under budget estimates the government would, other than IMF tranches, get inflows of $4.4 billion under which World Bank will extend $1.4 billion (for projects), ADB $1.7 billion (both for projects and Balance of Payments), IDB $500 million and DFID $235 million. “There are also indications that World Bank would increase its loan.” “ADB is said to have indicated to double its loan to Pakistan, which may increase to $3 billion,” Tarin mentioned.

During the meeting, Advisor to Prime Minister on Social Sector Shehnaz Wazir Ali took on the finance ministry saying that expenditure on education has alarmingly dropped to 1.2 per cent and on health to 0.57 per cent of GDP.

Tarin responded that he needed cooperation of the political leadership in enhancing the tax to GDP ratio so that the government has ample revenue, which can be used in education, health and improving infrastructure.

He mentioned that 2.2 million out of 160 million people posses NTN (national tax number), but out of them only 560,000 people file returns, which also includes 16000 companies. “This state of taxation is much too alarming.”

He also sought cooperation from the government to help him bring agriculture, real estate and stock exchange sectors under the tax net so that the country can be put on a track to development in the real sense.

He also objected to distortions in the taxation system and stressed to make it more simplified. Painting the future outlook of taxation, he advocated levying two taxes only, one being income tax and the other consumption tax.

Tarin disclosed that the government is going to revamp CDNS (Central Directorate of national Savings) as its present state is simply unacceptable. Right now CDNS is working with no automation, no services and no new products.

To make it successful, CDNS has to come up with a positive rate of return on its various schemes. He said that when inflation comes down, discount rates would also tumble and in this scenario CDNS would be able to come up with positive rate of returns to its clients.

Mentioning the appalling condition of the Planning Commission in terms of capacity issues, Tarin vowed to revamp the Planning Commission.

To a question, Tarin said that he and Planning Commission deputy chairman would monitor top 25 projects every month to ensure smooth running of the said projects.

He said construction of the projects, which have got 40 to 50 per cent allocation, would continue.

 

[Neo]

Govt likely to impose income tax on real estate ​

Agriculture will remain exempt from tax for two years: Tarin​

Wednesday, March 25, 2009

ISLAMABAD: Advisor to Prime Minister Shaukat Tarin on Tuesday indicated the imposition of income tax on real estate in the next budget in a bid to increase the tax to GDP ratio.

“Although it is a provincial subject, the government would chalk out a modus operandi to levy tax on this very important sector.”

However, he ruled out the inclusion of agriculture sector in the tax net for at least two years, advocating that the sector needs to stabilise first and then the government would not hesitate to levy tax on the sector. He said that in the past farmers were not given the right prices for their produce. “We would first increase the farmers’ income, and then levy income tax.”

After a meeting of the Standing Committee of National Assembly on Finance, which was given briefing over the Budget Making Process for 2009-10, Tarin while talking to media said that capital gain tax on stock exchange businesses would not be levied in the next budget for 2009-10, as bourses were given a two-year exemption from any sort of taxation by the government before making the budget for 2008-09.

He unveiled that Pakistan would also seek financial help from Friends of Pakistan to strengthen security forces such as Frontier Constabulary to effectively fight out militants, so that Pakistan’s territory can be purged from the menace of terrorism. On the issue of no progress on new NFC, Tarin said he would soon place a request with the prime minister, seeking power to chair the NFC meeting so that thorny issues pertaining to the future mechanism of sharing the divisible pool between provinces could be chalked out.

Earlier during the proceedings of the Standing Committee headed by Fauzia Wahab, Tarin lambasted the previous governments for not enhancing the tax to GDP ratio to a reasonable level for the last 60 years. He said: “Tax to GDP ratio right now stands at 9.6 per cent which needs to increase to 15 to 17 per cent if we want GDP growth at 8 to 9 per cent.” He stressed that at 9.6 per cent tax to GDP ration it is not possible for a country like Pakistan to grow at 8 per cent.

Tarin was visibly at pain disclosing the fact that FBR collects 60 to 64 per cent tax revenue from the manufacturing sector while it gathers 40 per cent on imports, meaning that there is huge room to expand the tax net.

“There was a time when the manufacturing sector was growing at 13.5 per cent, which has now dropped to negative zone. Now it is sheer injustice to add more taxes on this sector. The time has come to impose taxes on sectors like agriculture, services, real estate and stock markets to broaden the tax base.”

He said that under budget estimates the government would, other than IMF tranches, get inflows of $4.4 billion under which World Bank will extend $1.4 billion (for projects), ADB $1.7 billion (both for projects and Balance of Payments), IDB $500 million and DFID $235 million. “There are also indications that World Bank would increase its loan.” “ADB is said to have indicated to double its loan to Pakistan, which may increase to $3 billion,” Tarin mentioned.

During the meeting, Advisor to Prime Minister on Social Sector Shehnaz Wazir Ali took on the finance ministry saying that expenditure on education has alarmingly dropped to 1.2 per cent and on health to 0.57 per cent of GDP.

Tarin responded that he needed cooperation of the political leadership in enhancing the tax to GDP ratio so that the government has ample revenue, which can be used in education, health and improving infrastructure.

He mentioned that 2.2 million out of 160 million people posses NTN (national tax number), but out of them only 560,000 people file returns, which also includes 16000 companies. “This state of taxation is much too alarming.”

He also sought cooperation from the government to help him bring agriculture, real estate and stock exchange sectors under the tax net so that the country can be put on a track to development in the real sense.

He also objected to distortions in the taxation system and stressed to make it more simplified. Painting the future outlook of taxation, he advocated levying two taxes only, one being income tax and the other consumption tax.

Tarin disclosed that the government is going to revamp CDNS (Central Directorate of national Savings) as its present state is simply unacceptable. Right now CDNS is working with no automation, no services and no new products.

To make it successful, CDNS has to come up with a positive rate of return on its various schemes. He said that when inflation comes down, discount rates would also tumble and in this scenario CDNS would be able to come up with positive rate of returns to its clients.

Mentioning the appalling condition of the Planning Commission in terms of capacity issues, Tarin vowed to revamp the Planning Commission.

To a question, Tarin said that he and Planning Commission deputy chairman would monitor top 25 projects every month to ensure smooth running of the said projects.

He said construction of the projects, which have got 40 to 50 per cent allocation, would continue.