Pakistan Economy - News & Updates - Archive

[Neo]

Government expecting $5.627 billion inflow through 13 projects ​

ISLAMABAD (April 12 2009): The government is expecting $5.627 billion inflow through 13 projects, which are in the pipeline. According to Board of Investment, the projects in the pipeline are of trade, construction, steel, infrastructure, automobile, telecom, power and banking sectors.

A project of Al-Tawarqui Group of Saudi Arabia for steel manufacturing in Al-Tawarqui Steel Mill is also in the pipeline with an investment of $1 billion. An investment of $200 million and $21 million is in the pipeline for projects in trade, services and consumers products from M/s Metro Cash & Carry and M/s MAF Hypermarkets Pakistan (Pvt) Limited (Dubai) respectively.

An investment of $1 billion is in the pipeline by M/s Al Ghurair and the Giga Group of UAE for World Trade Centre, Gold Crest in DHA Islamabad and $450 million from M/s Pak-Gulf Construction Company (PGCL) for residential towers and hotel in the Centaurs in Islamabad.

A project of Al-Tawarqui Group of Saudi Arabia for steel manufacturing in Al-Tawarqui Steel Mill is also in the pipeline with an investment of $1 billion. M/s Agility Logistics, Kuwait also invest $160 million in logistics centers Warehouses.

M/s Tianjin Renong Pesticide Industries Company and M/s Pak-China Chemical are planning $12 million investment in chemical sector. China National Machinery and Equipment Import Export Corporation have a project in the pipeline for investing $450 to $500 million in Sonda-Jherruk Integrated Coal Mine & Power Plant Project.

A project of M/s Haier to invest $200 million in infrastructure development at China-Pakistan Economic Zone is also in the pipeline. M/s King Long United Automotive Industry of China also wanted to invest $1.3 million in automobile sector. Telenor Norway will invest $1.8 billion in telecom sector. M/s Atlas Group would invest $250 million in power and $33 million in banking sector, according to BoI.

 

[Neo]

Obama seeks $2 billion in aid to Pakistan ​

KARACHI (April 12 2009): US President Barack Obama has proposed over $2 billion in civilian and military aid to Pakistan under his emergency war funding request to Congress, apart from seeking millions of dollars for fortifying American diplomatic missions in the militancy-plagued country, according to Times of India.

The news item titled "Obama seeks $2billion in aid to Pakistan" on newspapers website also said the supplemental request sent to the Congress on Thursday is in tune with Obamas new Afghan-Pak policy that plans to expand the US fight against terrorism across the borders of Afghanistan into Pakistan as well.

Besides proposing $1.4 billion for economic assistance to Pakistan and to support additional civilian personnel, more secure infrastructure and diplomatic operations, Obama requested another $400 million to build the counter-insurgency capabilities of Pakistani security forces, says the news item datelined US capital Washington.

"As the threat to the US embassy in Pakistan has scaled up, mainly due to presence of al Qaeda and Taliban in that country, Obama also requested Congress to release millions of dollars in emergency war funds to increase security of American missions and diplomats in the Islamic nation," the newspaper said.

The newspaper also said that Obama proposed a separate $52.9 million for operating and security costs for the US missions in Pakistan. In addition to this, he requested $806.2 million to construct new secure and safe facilities in Pakistan, including a new US embassy building in Islamabad.

 

[Neo]

Computer industry witnesses 50 percent decrease in business ​

ISLAMABAD (April 09 2009): The computer industry has witnessed over 50 percent decrease in its retail/vendors business, following recent terrorist attacks in various parts of the country, says latest computer sector data issued here Wednesday.

The Pakistan Computer Association (PCA) on Wednesday convened a meeting here to discuss the negative implications of the current law and order situation on the computer business. The meeting shared the data compiled on national basis to ascertain the impact of law and order situation on the computer industry.

Yousaf Jamal, Senior Vice President of PCA Central while chairing a meeting informed the participants about the latest statistics that show a 50 percent decline in computer business after the recent spree of terror in the country. He said that computer industry, which was already confronting with a fragile business environment, was now struggling to survive for its very existence. The acts of terrorism in various parts of the country have badly hampered the business activities.

The SVP of PCA said that Pakistan has already lost sufficient chunk of foreign/domestic investment and business activities due to rising phenomenon of terrorism and bomb blasts is forcing many investors and businessmen to look for safe destination for their investment. He said that the agonising incidents will act as a demoralising factor for prospective investors who will desist from considering Pakistan for investment ventures.

Yousaf Jamal called upon the government to take all possible measures and equip security apparatus with better technology, equipment and tools to forestall such incidents effectively and control the law and order situation so that normal business activities in the country may be revived.

 

[Neo]

Two nuclear power plants approved by government: project to cost Rs 190 billion ​

ISLAMABAD (April 13 2009): The government has formally approved the much-awaited two more nuclear power plants, of 340 MW each (cumulative capacity 680 MW), at Chashma at a cost of Rs 190 billion ($2.374 billion) with foreign exchange component (FEC) of Rs 140 billion ($1.75 billion), sources told Business Recorder.

The projects have been cleared at a time when Friends of Pakistan (FoP) are meeting in Tokyo to help Pakistan out of current financial crisis. Pakistan is expecting $4-6 billion from its Friends.

Sources said that the proposal, which was not made part of the formal agenda of the Executive Committee of the National Economic Council (Ecnec), was distributed among the members and provincial officials at the end of the meeting, lacking necessary details. "Please do not seek any details and clarification about the project. Approve it in national interest," sources quoted one of the officials as saying loudly in the Ecnec meeting.

Pakistan had renewed its efforts to acquire more nuclear power plants from China In 2007 for meeting future energy needs. Beijing had, in principle, agreed to provide two nuclear power plants to help meet Pakistans growing electricity demand, and it was about to sign an agreement during the visit of Chinese President to Islamabad.

However, when the issue was magnified in the media, China shelved the project, arguing that it would not indulge in any controversy, sources said. Though the issue had been almost dead after 2007, but endeavour was made to streamline the negotiations to acquire the nuclear power plants, and then the Joint Chiefs of Staff Committee (JCSC) Chairman discussed the issue in detail with the Chinese leadership during his visit to Beijing.

Earlier, Pakistan was expecting nuclear power plants of 1000 MW and indigenous fabrication of 300 MW nuclear power plants with Chinese assistance. However, now the plants capacity has been reduced. "Ecnec considered the summary of Planning Division on Chashma Nuclear Power Project Unit-3 and 4 of 340 MW each, and approved the project at a cost of Rs 190 billion, with FEC of Rs 140 billion," official documents say.

The Central Development Working Party (CDWP), headed by former Planning Commission Deputy Chairman Dr Akram Sheikh, had approved setting up of Nuclear Fuel Enrichment Plant (NFEP) at a cost of Rs 13.708 billion, including Rs 8.136 billion FEC, so that necessary material could be made available easily for its on-going nuclear activities.

Earlier, China had promised to continue co-operation with Pakistan for building "some more nuclear power plants with the courage that it would not succumb to any pressure of West or the 45-member Nuclear Suppliers Group (NSG)". The 45-member NSG consists of nuclear supplier countries who seek to contribute to non-proliferation of nuclear weapons through implementation of guidelines they set for nuclear and nuclear related exports.

China has provided two nuclear power plants-Chashma I and II-each capable of generating 300 mw electricity. The CDWP has already approved Rs 150 million to prepare feasibility studies of six sites for erecting new power plants.

The Pakistan Atomic Energy Commission (PAEC) had selected these six sites to set up nuclear power plants (NPPs) to materialise a plan aimed at increasing the countrys capacity to generate 8,800 megawatt nuclear power by 2030.

PAEC had selected these sites at Qadirabad-Balloki (QB) link canal near Qadirabad head works, Dera Ghazi Khan canal near Tuansa barrage, Taunsa-Punjnad (TP) canal near Multan, Nara canal near Sukkur, Pat Feeder canal near Guddu, and Kabul River near Nowshera.

 

[Neo]

Rejecting American aid?​

Talking to the media at the State Bank of Pakistan Multan auditorium on Saturday, Prime Minister Yousaf Raza Gilani said that Pakistan would not accept any US aid that came with conditions that go against Pakistan’s interests. He said: “Pakistan is a sovereign country and will not accept conditions that are against its interests and stature”. Since the media knows that the Mullen-Holbrooke visit to Islamabad did not go well, the press has given the statement its top headline.

This is the first message to Washington after the US official duo had a rather icy reception in Islamabad, with Foreign Minister Shah Mehmood Qureshi throwing in his riposte to President Obama’s reference to a “blank cheque”, and what Mr Holbrooke had to say later in New Delhi about India in the context of Afghanistan. If there is a foreign policy red rag for Pakistan, it is India’s presence in Afghanistan and what India is doing in Balochistan and the tribal areas and for which there is now mounting evidence.

The India factor again emerged when Capital City Police Officer (CCPO) Lahore, Pervaiz Rathor, said Saturday that India was involved in attacks on the Sri Lankan team and the Manawan Police Training Centre. If he is right then Baitullah Mehsud is in cahoots with India because the Manawan incident was owned by the Taliban warlord. Also, the terrorists who attacked the Sri Lankan team have been traced to a jihadi militia located in southern Punjab. However, there is some information that India may be indirectly funding these activities which could provide the piece in the puzzle.

The TV channels tended to see the visit of our army chief General Ashfaq Kayani in the same context. Are we about to spurn the crucial economic assistance coming to us from the IMF and the Friends of Pakistan group of countries, all of them being subject to an American veto? The Foreign Office has been upset over the bill being moved in the US Congress to facilitate assistance to Pakistan. Some of the displeasure characterising Foreign Minister Qureshi’s exchange with the Mullen-Holbrooke duo could indeed stem from a reading of the bill.

The Pakistan Enduring Assistance and Cooperation Enhancement (PEACE) Act of 2009, introduced by Representative Howard Berman on April 2 says in sub-clause “J” that Pakistan is “not to support any person or group that conducts violence, sabotage, or other activities meant to instil fear or terror in India”. Sub-clause “K” binds Pakistan “to ensure access of United States investigators to individuals suspected of engaging in worldwide proliferation of nuclear materials, and restrict such individuals from travel or any other activity that could result in further proliferation”.

The direct reference to India, despite the fact that Pakistan has bilaterally assured India that it will not allow any terrorism in India from its soil, may have offended Islamabad, but the next indirect reference to Dr AQ Khan is certainly going to create hurdles in the US-Pak cooperation in the coming days. Of course, the sub-clause will bite only after Washington has made a move on Dr Khan and Pakistan has thwarted it. Sub-clauses “H” and “I” ask Pakistan to get rid of the “Taliban and Taliban-affiliated groups in Pakistan that support insurgents in Afghanistan”.

If Pakistan sees these conditions as being hostile to its interests, it can turn the US assistance down, but others in the Friends of Pakistan group of countries may not favour this decision. Pakistan’s spurning of the money currently pivotal to its economic survival will also depend very much on some “friends” coming to its help and matching the dollars that Pakistan will stand to lose. That the money is a large sum compared to assistance in the past is quite clear; and it is being made available in times of global financial duress. We would assume therefore that Pakistan is in the process of formulating a nuanced response that helps it influence US thinking by informing Washington of the complexities involved in tackling terrorism and the danger of letting India dictate the terms of US-Pakistan alliance. *

 

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Habib, MCB interested in RBS Pakistan unit​

KARACHI: Two of Pakistan's biggest banks, Habib Bank Ltd and MCB Bank, are competing to bid for Royal Bank of Scotland's local assets, which the market values at $266 million, Reuters reports.

The sale is part of moves by part-nationalised, London-based RBS to sell assets globally as it tries to exit up to 36 countries and focus on its mainly UK core businesses.

Habib Bank, which is majority owned by the Aga Khan Fund for Economic Development, and MCB, which is 20 per cent-owned by Malaysia's Maybank, said separately they had expressed an interest to buy RBS's operations in RBS Pakistan.

The two Pakistan lenders may be interested in RBS's assets to gain clients from multinational companies, its consumer banking network and a few prized branches in main cities, analysts said.

But international banks or midsized domestic players, who have a smaller Pakistan exposure, could derive more value if they buy the local RBS assets than either MCB, Pakistan's most valuable bank, or HBL, the second-most valuable, they said.

The two Pakistani banks have more than 2,500 branches combined in the South Asian nation.

‘The two banks may be after RBS's multinational clients and its prized branch network,’ said Asif Qureshi, head of research at broker Invisor Securities. ‘But if RBS (Pakistan) is bought by Chinese or Saudi players, it could create more synergy.’

The banks are seeking approval from the State Bank of Pakistan to start due diligence.

‘The attractive element for HBL and MCB would be RBS's consumer banking as it is a strong player in that,’ said Farhan Rizvi, analyst at JS Global Capital Ltd.

RBS said in February it intended to explore new ownership of its operations in Pakistan due to its capital constraints and the need for the bank to reduce the size of its balance sheet.

RBS bought into Pakistan last August through its acquisition of Dutch ABN Amro Ltd. It currently operates 79 branches. RBS Pakistan has a loan book of 68 billion rupees ($844 million), deposits of 79 billion rupees and assets of 108 billion rupees.

Analysts said if HBL wins the race for RBS Pakistan, it would become the largest bank in the country in terms of assets, deposits and branches.

RBS Pakistan was trading 8.9 per cent higher at 12.48 rupees on Monday afternoon. Both HBL and MCB gained 5 per cent, while the broader market was up 3.4 per cent.

DAWN.COM | Business | Habib, MCB interested in RBS Pakistan unit

 

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Funding economic development​

Claiming 75 per cent of the total revenues generated, the defence expenditure and the interest cost on debt make a strong dent in development expenditures.

The country’s development needs are critical, both in infrastructure and social sectors. According to one estimate, the total requirements for infrastructure development, over the next five years, are close to $40 billion, in addition to another $25 billion for planned large water dams. The government is facing severe problem of power shortages, with a shortfall of 5000 MW at peak hours, and analysts predict that power consumption is likely to go as high as 36,000 MW within the next few years.

In the social sectors, indicators like primary enrollment rates and child immunisations are at modest levels and far from targets set under Millennium Development Goals (MDGs). Given the current security situation, with rampant suicide bombings and hostage-taking, it may not be possible to slash the defence expenditure. Similarly, the interest cost for debt is beyond government’s immediate control.

The increasing fiscal pressures would make it even more difficult for the government to invest sufficiently in infrastructure or social sector projects. Considering these factors, the government would need to increasingly rely on alternative funding sources for development and economic growth.

Private capital can be one potential source to fund infrastructure or social sector development. However, to encourage such investment, the government needs to develop an effective public-private partnership framework, having robust regulatory, policy, institutional and financing components.

Moreover, the private sector can play an instrumental role in economic growth through increased economic activity and employment generation. Efficient capital markets improve the general investment climate and are one of the key prerequisites for encouraging private investments. While the government introduced a number of capital market reforms in the last two decades, the transparency is still a sore point for general investors.

Apart from introducing other relevant policy reforms such as allowing ‘best efforts’ underwriting, the government must focus on creating a transparent and robust capital market governance regime to prevent manipulation of market by a few investors. Such a step is likely to attract a lot of investment towards capital markets and would encourage new initial public offerings (IPOs). By raising public equity, the businesses can fund their growth and contribute towards overall economic activity.

More efficient capital markets and consequently higher number of IPOs in turn would attract private equity and venture capital firms in the long run, as these firms heavily rely on IPOs for exit strategies. Such flow of venture capital money will result in spurring innovation and value addition in domestic industry. In the absence of these reforms, however, both domestic and international investors are likely to stay away from these markets.

Even some of the public owned funds, recently established at the provincial level for managing pension liabilities or endowment arrangements, are shying away from investing a substantial portion of their capital in public equity markets.

The external assistance from multi-lateral and bilateral donors is another area to fund development needs. Besides IMF’s fiscal support, a number of donors including Asian Development Bank (ADB), UNDP and USAID have been increasing their involvement in Pakistan. For instance, ADB recently announced its five year Country Partnership Strategy outlining support of $4.4 billion, in areas like energy, infrastructure, reforms and urban services.

UNDP has also approved its One Programme to fund interventions in areas like agriculture rural development and poverty reduction, education, health and population, environment and disaster risk management. USAID is coming up with a broad-based economic growth program by the name of Empower Pakistan. Although the bulk of this USAID assistance cannot be spent on infrastructure, the programme is likely to address issues like trade liberalisation, competitiveness, agri-business development, etc. Similarly, the US also plans to create Reconstruction Opportunity Zones (ROZs) to facilitate preferential trade from tribal and border areas.

The funding from donors however, has been often criticised in the past on account of its very little impact. To prevent such an experience in future and to capitalise on this funding effectively, the government needs to play a more pro-active and responsive role. Most of the inefficiencies in the donor-funded projects develop at the project conception stage, where the relevant government agencies make very little input. During the project implementation, the government counterpart departments often find it difficult to act swiftly, resulting in slow fund releases. On the reform side, the government officials often lack the requisite mindset and respond in a lukewarm fashion to these programmes. The government must develop adequate capacity in its implementing agencies to create counterpart responsiveness for effective project designing and seamless implementation.

With the impact of global recession becoming clearer and worsening domestic economic scenario, a dent in development expenditure is likely to restrict and constrain future economic growth. Moreover, with a number of households just hovering above the poverty line, the reduced investments in social sectors can possibly result in significant increase in poverty.

Under these circumstances, the government must act swiftly with a well thought out long and short-term economic management plan, thus raising private investments and capitalising on donor assistance.

DAWN.COM | Business | Funding economic development

 

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Contract farming: protecting growers’ stake​

THE changing pattern of marketing and increasing emphasis on farmers’ security have popularised the concept of contract farming, whereby a farmer enters into a contract with a processing/marketing firm to supply a pre-arranged quantity and quality of produce at a pre-arranged price.

The contract gives the farmer an access to additional sources of capital, brings in new technology and ensures better price for his produce. The contract system benefits him because it makes smaller demand on scarce capital resources; is a substitute to costly and risky corporate farming, and often provides access to amateur family labour.

Proponents of agribusiness argue that contract farming leads to big jumps in income and employment opportunities in backward and underdeveloped regions. It increases low levels of productivity and eliminates flux in production. Thus, overall, it puts the local economy on a dynamic path to growth and development.

In terms of political economy though, contract farming is viewed as capitalist penetration of agriculture for capital growth. It is seen as a way for agribusiness companies to exploit the weak farming sector in order to maximise their profits.

The production, marketing and distribution of agricultural products have all become gradually more complicated. Advances in technology have made it feasible for agricultural products to be produced to ‘specification’ and preserved in a fresh condition for a longer time. The absolute scale of operations has also been increasing, and new selling methods have emerged, emphasising the need for a brand image based on consistent quality.

Consumers too are becoming more discriminate in their tastes. They demand better quality and year supplies. All this has given an impetus to search ways for improving production, processing and distribution, especially with respect to timing and quality control.

Contract farming is doing this job by providing inputs and production services to farmers. It introduces new technology to farmers and gives them opportunity to learn new skills. It also provides farmers with access to a wide range of managerial, technical and extension services that otherwise may be unobtainable.

There are various types of contracts and to choose the right type is very important to materialise the real objective of contract farming. Since farmers are not always well informed, they could end up signing contracts that may exploit them. Companies can sign contracts with big farmers who use wage labour, with small peasant farmers who use family labour, and even with the landless who lease land for contract farming.

Most agribusiness companies, however, favour big farmers who can deliver in bulk and are better equipped to withstand risk. Small farmers are favoured when they dominate a region, or when they benefit from government support. Various studies have shown unfavourable arguments against contract system like some agribusiness firms are involved in charging high prices for their services, providing low prices and delaying payments to producers.

Some firms look at contracts only as a management tool and a strategy to overcome procurement and related business troubles. Contract farming tends to shift production in favour of exportoriented and cash crops at the cost of crucial food crops for the poor. This could lead to higher prices for food commodities and products, especially for nonfarmers. This contract system could also lead to over-exploitation of resources.

Firms tend to move on to new growers and lands after exhausting local assets such as land and water. They will now have to compete with the multinational firms in terms of providing competitive prices and other incentives to preserve their producer- members.

Only a few studies have been carried out to investigate the implication of contract farming. Studies on potato contract production in Punjab (Districts Okara, Sahiwal, Sialkot, Chiniot, Kasur, Gujranwala, Shiekhupura, and Khanewal) found that net returns from this crop under contract were much higher than from those under noncontract situations, though production costs were also higher.

For local farmers, the potential problems associated with contract farming are increased risk of introducing new crops in the area, unsuitable technology and crop incompatibility, manipulation of quotas and quality specifications. Corruption occurs when staff responsible for issuing contracts and buying crops exploits its position. The monopoly of a single crop by a sponsor can also be a problem for farmers and indebtedness and over reliance on advances.

The main potential advantages for farmers are provision of inputs and production services often provided by sponsors. Contract farming usually allows farmers access to some form of credit to finance production inputs. It usually offers technology more diligently than government agricultural extension services because it has a direct economic interest in improving farmer’s production. Farmers learn skills through contract farming like efficient use of farm resources and their price risk is often reduced as many contracts specify prices in advance, and it makes easy access to reliable market for farmers.

For sponsors, the potential problems include that contracted farmers may face land constraints due to lack of security of tenure, thus jeopardising sustainable longoperations. Social and cultural constraints may affect farmers’ ability to produce to manager’s specifications. Poor management and lack of consultation with farmers may lead to their discontentment; they may sell outside the contract (extra-contractual marketing) thereby reducing processing factory output, and they may divert inputs supplied on credit to other purposes, thereby reducing yields.

The main potential advantages for sponsors are contract with small farmers which is more politically acceptable, working with small farmers overcomes land constraints; production is more reliable than open market purchases and the sponsoring company faces less risk by not being responsible for production; more consistent quality can be obtained than if purchases were made on the open market; and promotion of farm inputs.

The contract forming system is a useful tool to stabilise agricultural economy. In order to make it a valuable development tool, however, strong mechanisms must be in place to supervise contracts and ensure that growers, the more susceptible partners, are not exploited.

One way of doing this is to encourage vigorous bargaining cooperatives or other agricultural producer organisations that can negotiate impartial contracts. Producer bargaining units and farmer’s markets are supplementary tools the farmer should be able to use.

Non-governmental organisations can be involved, both to ensure that the contracts are fair and to provide knowledge inputs. However, the Punjab Agricultural Produce Markets Act 2005 contains some provisions to regulate contract farming. This would include setting out clearly what the parties must do and what they cannot do in the areas of delivery, payment, returning goods and price etc.

The government should introduce insurance policies to provide comprehensive coverage of crops including loss of profit to farmers. They should develop suitable laws of contract, an efficient legal system and should create awareness of unintended consequences of regulation, for a registered contract farming programme.

The government should abolish all fees, taxes, duties, levies on import of agricultural equipment and should eliminate red-tapism in import of varieties / hybrids and should make it mandatory for agricultural students to work on contract farming programmes as a part of their curriculum.

Contract farming may be a good option to regulate agricultural economy, because it is a very useful tool for improving coordination in agriculture production, processing and distribution especially with respect to quality control.

Farmer’s income is increased and food security is also assured. But at the same time there is a need for some practices like future trading in agricultural commodities, leasing of land, formation of land companies, allotment of homestead garden plots, direct procurement of farm commodities and setting up of special purchase centers, so that real benefits of contract farming may be realised.

DAWN.COM | Business | Contract farming: protecting growers? stake

 

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Benazir Income Support program to be expanded​

RAWALPINDI: The government plans to increase the number of families benefiting from the ‘Benazir Income Support Programme’ (BISP) by five million during the next financial year implying budget expenditure of Rs65 billion, official sources revealed to ‘Dawn’.

For 2010-2011, the government envisages further increase in the number of beneficiary households to seven million. In addition, the province of Punjab is expected to continue its own programme during the next fiscal year (2009-10).

The government is also considering reforming other components of the social safety net system, including the merger of the cash transfer component of Bait-ul-Mal with the Benazir Income Support Programme, sources further stated.

The government, under the poverty scorecard system adopted to improve targeting of the Benazir Income Support Programme (BISP), is expected to be completed in sixteen districts as a pilot programme by the end of next month.

An official government report says the roll-out of the scorecard to all 130 districts is planned to be completed between December 2009 and June 2010. As the roll-out of BISP turned out to be more complicated than originally envisaged, BISP disbursements did not take place in the first half of the fiscal year, points out the report.

However, the government has now approved 1.5 million beneficiary families, using the pre-scorecard targeting system and expected to disburse the budget amount of Rs34 billion. Additionally, the government was continuing the implementation of Bait-ul-Mal with a budget of Rs6.7 billion and the province of Punjab has commenced its own cash transfer programme with an envelope of Rs17 billion in the fiscal year 2008-09.

The Small Public Works Programmes of Rs28 billion also provide a social safety net for the rural and urban poor through small-scale employment opportunities.

Looking forward, the report says, the number of families benefiting from BISP cash transfers will be increased to 5 million in 2009-10 using the new scorecard system, implying budgetary expenditure of Rs65 billion. For 2010-11, an increase in the number of beneficiary households to 7 million is envisaged.

DAWN.COM | + Pakistan | Benazir Income Support program to be expanded

 

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Policy rate and market expectations​

RELAX! There is no need to be bullish! That’s the message sent out by the State Bank of Pakistan in its second quarterly report on the state of the economy. The report has been released weeks ahead of the bank’s quarterly review at the end of this month of its monetary policy for May-July.

The report dimmed hopes of a sharp cut in interest rates being anticipated by the market in view of a declining headline inflation (consumer price index), and the decreasing benchmark Karachi inter-bank overnight rate (KIBOR), which fell to 12.50 per cent, well below the SBP’s key policy discount rate of 15 per cent, in three months.

The money market reacted immediately to the bank’s cautious stance on the economic recovery and KIBOR rose sharply after a broad-based rise in the cut-off yields on T-bills last week. The stock market also pushed away bulls to welcome bears.

‘The money market had been misreading the earlier decline in the T-bill rates as signals from the central bank of a sharp U-turn in its monetary stance,’ contends Asad Farid, an analyst with AKD Securities.

Considering that the T-bill cut-off yields are now determined by the ministry of finance and not the SBP, movement in the market interest rates do not indicate future trajectory of the monetary policy, he says.

Although the SBP has separated ‘debt management from monetary management,’ the decline and hike in T-bill rates reflect the market sentiments on the SBP monetary policy stance. Asad attributes the fall in market yields primarily to improved liquidity conditions coupled with an expectation of a sharp reversal in the monetary policy.

‘The current rise in T-Bill rates clearly shows that the money market has now adopted a cautious stance,’ he says. He anticipates upward pressure on KIBOR and treasury bill rates to remain if the central bank fails to reverse its monetary stance in line with the money market expectation of 200 to 300bps cut in the policy discount rate. In the long term, however, he expects the liquidity position of the banking sector to improve further and help sustain the downward trend in market interest rates.

But the SBP report cautiously celebrates improvement in the macroeconomic indicators and contraction of aggregate demand in the economy because of stabilisation programme. If it talks of stabilisation gains, it also speaks clearly of the risks to the economy and fragility of the recovery seen after the International Monetary Fund (IMF) agreed in November to give $7.6 billion balance of payments loan. ‘Demand pressures in the economy are easing due to improvement in fiscal discipline, which has complemented a tight monetary policy and improved prospects for low inflation, ‘the report says.

The report says, ‘the fiscal consolidation has been a major priority under the macroeconomic stabilisation agenda during the current year, which seems to be having an impact as the fiscal deficit for the first half of the year to December is estimated to have dropped to 1.9 per cent of the projected annual GDP compared to 3.4 per cent a year earlier.

‘The fiscal deficit for the first half appears to be in line with the annual target set in the budget as well as that agreed with the IMF.’ But the bank warns that the fiscal improvement thus far has largely been brought about by eliminating oil subsidies and cutting development spending. Non-development spending, especially defence and debt servicing, remain rigid and continue to constrain the government’s ability to free up resources for development for economic recovery. ‘While inflation is still very high, there is an expectation that it will decelerate sharply in the final quarter of the financial year to June.’

After peaking to 25.3 per cent year-on-year in August, the headline consumer price index (CPI) inflation started easing to fall to 21.07 per cent in March. But the bank warns that this inflation is higher compared to 20.5 in January and 11.3 per cent in the same month previous year. Also it cautioned that annualised CPI inflation will be in the range of 19.5 to 20.5 per cent.

The bank says there is a distinct improvement in the external sector, with a fall in the cumulative trade deficit in the first eight months of the fiscal to February. Trade gap declined to $11.6 billion from $12.478 billion as imports fell year-on-year by 1.52 per cent to $23.77 billion and rose by 4.25 per cent to $12.155 billion in eight months.

It is the first reduction for this period in seven years. The narrowing trade deficit and robust remittances have triggered a reduction in the current account deficit, which surplus of $146 million in February, allowing for a build up of the foreign exchange reserves to above $11 billion. The continued compression in the imports, principally attributed to weakness in domestic demand and lower import unit values, will reduce the current account deficit, allowing Pakistan to build-up foreign exchange reserves further.

‘Thus, the aggregate 68.6 per cent growth in overall external account deficit during the first eight months of this fiscal is accrued essentially during the first four months of the period to October,’ it argues.

‘In the short to medium-term, it would be imperative to rely on concessional external assistance to finance development expenditure,’ the bank says. Also, given the drying up of capital flows, official assistance seems to be the only option for countries like Pakistan to stimulate its economy to put it back on sustainable path of growth and development.

Farid says the March CPI inflation however clears the likely direction of the monetary policy: the reversal, though inevitable, will only be gradual. ‘The process of monetary policy reversal will begin this month and speed up in the first half of next fiscal year,’ he says. Farid expects revival of domestic demand and economic growth from the next year onwards. But former finance advisor Salman Shah wants a substantial reduction in interest rates to kick off economic growth and recovery. He argues that the monthly movement of CPI and other indices since October shows that the economy is experiencing ‘deflation’, except for February when the index rose slightly, or zero inflation.

‘That is a clear case against the SBP’s tight monetary policy stance,’ he contends. He says Pakistan, like the rest of the world needs quick economic growth to come out of the present troubles. ‘The rest of the world is cutting interest rate to zero while we have raised it to prohibitively high level and put credit out of reach of the industry,’ he says.

Salman insists that the economy will suffer hugely if the State Bank did not cut cost of credit immediately. ‘Once the manufacturing is closed, it will not be easy to revive it. The responsibility will rest with the central bank,’ he warns.

First Capital Equity Limited’s Mohammad Imran Khan however favours tight monetary stance to preserve price and exchange rate stability.

The economy is improving but is not back on the path of recovery. ‘The deflation in monthly inflation seen by Salman is only because of higher base effect of the CPI. The index base has moved up to 192 from 146 in July 2007. That shows that even a slight upward movement in the index base will signify pretty big movement in the prices,’ he argues. He says the economy is still in a precarious situation in the face of huge risks as underlined by the central bank. ‘We need to move cautiously. There’s no need to be bullish at this moment,’ Imran maintains.

DAWN.COM | Business | Policy rate and market expectations

 

[sohailbutt]

British advertising company to expand business in Pakistan​

LONDON: Pakistan has received a strong endorsement of its economic prospects from one of the biggest names in the global advertising company, says a report in the influential British daily ‘The Financial Times’.

Sir Martin Sorrell, the chief executive of WPP, has said his company intends to expand its business in the south Asian country in spite of a growing Islamist insurgency and a fall in economic growth this year.

“Despite all the political and security issues our businesses in Pakistan continue to grow strongly,” said Sir Martin, chief executive of WPP, which employees 131,000 people and has 2,000 offices in 106 countries.

“We plan to continue to grow there and develop our industry's leading position in the country.”

According to the newspaper, Sir Martin is not alone.

Public and private companies, including Antofagasta, the Chilean mining company, and Abraaj Capital, the Dubai-based private equity group, are seeking opportunities in Pakistan. Some small-scale investments, particularly in the energy and infrastructure sector, show companies taking a cautious approach, however.

Acquisitions by UAE, Singapore and Malaysian investors account for more than half of the cross-border deals of the past five years.

Abraaj Capital, the Middle East’s biggest private equity firm, agreed a $361 million deal to buy half of KES Power, the holding company of Karachi Electric Supply Company (KESC).

“Our focus in Pakistan is to purchase defensive assets, like power, infrastructure, distribution, or downstream oil and gas,” said Omar Lodhi, executive director of Abraaj Capital. “We work with them to develop them for sale to strategic groups.”

CDC Group, the UK state-owned private equity group, invested in Pakistan in 2006, putting $40 million in the debut fund of Karachi-based JS Private Equity.

“With its huge and young population and good commercial history it is still an attractive investment,” said Richard Laing, chief executive of CDC.

.:: SAMAA - British advertising company to expand business in Pakistan: report

 

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Prime Minister to announce special development package for Sialkot soon​

SIALKOT (April 13 2009): A comprehensive strategy is being prepared for initiating mega projects in Sialkot, which is the export-oriented city and nucleus of cottage industry of the country. Prime Minister, Syed Yousaf Raza Gilani, would soon visit to Sialkot and announce a special development package for the city, the Federal Minister for Population Welfare, Dr Firdous Ashiq Awan expressed her views while addressing a news conference held here on Sunday.

During the conference she said that the government has accorded its special attention on promoting better working relationship between employers and employees aimed at ensuring smooth productivity in the country.

The government was making ample efforts for reducing the problems and difficulties confronted by the business community, she said. She revealed that a Workers Welfare Project (WWP) would soon be developed to facilitate the industrial workers of Sialkot and land for the proposed project had been acquired at village Rai Pur.

The proposed project would facilitate not only the industrial workers but also the workers of Sialkot Dry Port, Sialkot International Airport and Sialkot Export Processing Zone she added.

In order to provide clean drinking water to the masses a project costing Rs2 billion with help of World Bank would be started shortly in Punjab and under the programme Sialkot district would get its due share, she revealed. She pointed out that water filtration plants were installed in various parts of the country previously had become checked due to the lack of proper look after.

Dr Firdous further informed that the development work on Sialkot-Lahore motorway would be undertaken soon and under the revised formula 50 per cent Punjab government and 50 per cent federal government would share in the project and hopefully the mega-project would be accomplished by 2010.

To reduce the traffic load a ring road would also be constructed in Sialkot for diverting the heavy traffic towards this track, she added. The federal minister said that the arrangements were being made for starting Hajj flights from Sialkot International Airport from upcoming Hajj season to facilitate the people of Sialkot, Gujranwala, Gujrat, Narowal and many adjoining areas.

Business Recorder [Pakistan's First Financial Daily]

 

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ROVERS DIARY: The concerns are genuine​

ARTICLE (April 13 2009): Everybody talks about sovereignty of the country and sovereignty of the parliament these days. While the first is a cherished goal, the second is a debated slogan by the jurists who believe that in any polity the real sovereignty has to be of the constitution. (An issue I might take up some other time). The troubling issue is why after over 61 years we have not been able to achieve both the objectives. Lets examine briefly the two issues.

Whether it is an issue of unabated drone attacks or the frenetic diplomatic activities every time we have a political impasse in the country, we shout from the pulpit that our sovereignty is being violated by the big powers. But very seldom these protagonists of sovereignty mull over the fact that why our political and territorial boundaries are breached by other countries.

We have so far failed to manage our affairs in Pakistan. It has resulted in the US drones incursion, assistance to disgruntled armed groups by India and intervention of the US, Britain and some Arab diplomats in our politics. When we speak against the drone attacks or the interference of foreign powers in our politics, and rightly so, we should keep in mind the basic principle of international laws regarding sovereignty. These laws have evolved over the last many centuries.

The concept of sovereignty of state is roughly four hundred years old. For centuries many states felt free to invade and conquer other states to establish their empires - the Roman, British and Muslim empires are some examples. But in 1648, over 130 European Princes resolved to stop intervention of states in one anothers domestic affairs and signed the Peace of Westphalia. This brought an end to the bloody Wars of Religion.

Most scholars like Morganthau Carr and Fowler agree that this resolution was the first formal acknowledgement of state sovereignty. Ideally, this theory has come to express the idea that the state "is a final and absolute authority in the political community."

Students of political science know that sovereignty is based on the democratic principle of equality of states. Both the concept of sovereignty of states and evolution of a democratic state have grown together drawing strength from each other. Hence sovereignty of a state is closely linked with the sovereignty of an individuals human rights.

According to Professor Dr Douglas Stuart "state sovereignty still remains an ambiguous and convoluted theory. As one looks at the role of state sovereignty in todays international system it is important to set some basic guidelines." He argues that "the empowerment of local movements by strong international non-state actors poses a serious challenge to the theory of state sovereignty."

This is where Pakistans predicament begins. We have been working on secession of Kashmir from India since 1948. Though our claim is that Kashmir should have come to us because majority of the population residing there was Muslim, the main concern of the government is the control of India over water resources. Pakistan has not accepted accession of Kashmir with India and thus may feel justified in supporting the local movements.

This is a legitimate concern, but not a typical problem. Many states in the world share the rivers and the lower riparian states have been wary of the advantages of the countries from where the rivers originate. In the case of water distribution between Pakistan and India the issue was resolved under the Indus Water Treaty which was signed by both the countries. This treaty has survived the two wars between the two countries.

But in the last couple of years Pakistans concern that India would eventually deprive it of its due share of water has gained ground. India has started constructing dams on the rivers assigned to Pakistan, claiming that these are for producing electricity and not for agriculture. Owing to the trust deficit between the two countries Pakistani establishment is seriously worried that India might use these dams to twist our arms by diverting the water flow.

This fear is coupled with the paranoia about India. These apprehensions are the logical outcome of the basic political formulation on which the edifice of Pakistan was built. In reaction the establishment has always felt the need to nurture militant "non-state actors." Now the problem is that instead of finding a solution to the problem remaining within the norms of the international law that govern the sovereign states, our governments have been happy over "non-state actors" intrusions. Dictated by the same sense of insecurity and myopic view our establishment has got itself stuck in the quagmire of Afghanistan. The desire to have a client state in Afghanistan which shuns Indian overtures has made us pushy to the extent that most governments in Kabul have remained unhappy with Islamabad.

Pakistani establishment has not been able to win any war against India, but has been successful in engineering resistance against the Afghan and Soviet army. And it has the Indian army bogged down in Kashmir. At the face of it this looks like a great victory that our short-sighted nationalists love to celebrate.

But the fact is that such a policy has given an opportunity to the US and Nato forces to violate our sovereignty; and to the Indians to fuel the nationalist upsurge in Balochistan. If we want the drone attacks to stop, we should stop our land from being used by the militants who want to capture the government in Afghanistan. We will have to deal with the Kashmir and water issue politically, remaining within the norms of international law. And not through breeding a number of Frankensteins, who are now up to tear our social fabric and dictate a belligerent foreign policy.

Those who support the establishments national security policy argue that Pakistan can only check-mate Indian influence in this region by keeping these trouble-makers alive. They forget that the best recourse for smaller and weaker sides in any conflict is to invoke the laws that are made to protect their interest. These laws are needed by smaller countries and if they violate them the other side gets the chance to use power. States like Pakistan cannot match the Indian economic and military power, no matter what the protagonists of hidden support to the Muslims talk about. Some have blamed this realistic observation as a defeatist cry. These are the same people who were telling us in 1965 and 1971 that we are winning by sheer will power, and were rudely kicked in the shin by the reality, when we lost half the country.

Our demand that drone attacks should be stopped is legitimate, but then what should be done with the local and Afghan terrorists who openly claim that they are using Pakistans territory to launch attacks inside Afghanistan. The obvious answer is we are fighting to hold them back. Its true that Pakistans army is fighting against some of these elements in FATA and has lost many soldiers. But the world is not convinced that we are fighting the real Taliban who are interfering in Afghanistan. They know it well that we are upset about the growing influence of India in Afghanistan and their activities close to our Northern borders. We have never tried to hide it. And to check this growing Indian influence we keep our own favourite Taliban humoured.

That the Indians are making roads close to our borders is worrying our war strategy planners. What they do not realise that these roads look dangerous to us because we only think in war terms. We have never bothered to think about peace time relations, in which we can use the same roads to connect Pakistan with the central Asian market. We have never realised that if we allow the Indian goods to pass Pakistan by road how much money we can make. But then it is only possible when we stop thinking in military terms and start thinking about building regional economic co-operation in this region. One thing is certain that we cannot fight our way through; we can only take advantage of peace and subsequent economic development.

Now, on the issue of foreign interference in our politics. The concerns are genuine. But if we should stop and ponder on the issue, we would realise that these foreign diplomats get their opportunity because our politicians are like rowdy and brawling school children. The foreign powers role is that of a teacher of democracy and the army is a self-appointed monitor. Does the blame stop here? No. The reason that our political parties and political culture has not developed to establish the sovereignty of constitution and the parliament is that frequent military interventions have retarded their growth. If the political system is allowed to evolve through its natural course, I am sure our politicians will rise to the occasion and act with maturity required by a democratic society.

The moral of the story is that our sovereignty would only be respected if we start respecting the sovereignty of our neighbours. Similarly sovereignty of the parliament would only be established if the politicians would accept the sovereignty of constitution and respect each other.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

Tunnel farming getting popular ​

Tuesday, April 14, 2009

LAHORE: Tunnel farming is gaining acceptance among educated farmers as it provides them with an opportunity to grow vegetables in off-season by using less than 40 per cent water and managing required temperatures by capturing heat during winters.

Agricultural experts point out that three main impediments that impact agricultural growth in the country are chronic water shortages, low per acre yield and low value of crops. They said these drawbacks could be overcome by growing high value summer vegetables during winter through tunnel farming.

They claim that by adopting tunnel farming technique farmers can obtain 80,000 kg of cucumber, 30,000 kg green chillies and 30,000 kg of capsicum from one acre. This is 2-2.5 times higher than the average harvests the farmers get for these crops.

The farmer earns from Rs200000 per acre to Rs500000 per acre if he markets the produce in the local market. Since all of those involved in tunnel farming are educated farmers they are now exploring export markets as well where they expect to earn 100 per cent more.

The experts say that the tunnel farming operates on the principle that of creating conditions during winter that are equivalent to those in summers. The vegetables sown in summer are then cultivated in these tunnels during winter. The entire farming area is covered by transparent plastic fixed over D-shaped steel pipes. The entire soil is also covered with black coloured plastic sheet with small holes from where the seeds are sown.

The sunlight during the day passes through transparent plastic sheet and is absorbed by the black sheet spread over the soil. This raises the temperature to desired levels. The plastic sheet on the soil serves three purposes. First it traps heat, second it reduces water loss and third it eliminates growth of weeds as seeds germinate from the holes made in the plastic sheet.

Former President Lahore Chamber of Commerce and Industry Mian Shafqat Ali who has closed his steel pipe factory to concentrate on tunnel farming says that Pakistani farmers have adopted a low cost version of tunnel farming that is cost effective compared with foreign models that use electricity as a major input to control temperatures. He said one acre of tunnel of Pakistani version costs Rs300,000 to Rs1.5 million while foreign version may cost almost Rs5 million.

He said it must be borne in mind that the farmers procure quality hybrid seed of reputed brand. Moreover he added the PH of the soil should be adjusted to 7-7.5. The total dissolved solid (TDS) contents should not be more than 600. He said the underground water in most of Punjab is suitable for tunnel farming but the farmers should always check the quality of their water source.

He said another aspect that the farmers should know is that the soil takes some time in adjusting to tunnel farming technique. He said the farmer might get 60pc of the potential yield of the seed in the first year and the productivity potential would be achieved in the third year.

The News found that a progressive farmer Mian Shaukat who is currently heading the Punjab Agriculture Marketing Company (PAMCO) has been practicing tunnel farming for the last 10 years. He has 350 acres of tunnel farms. The farmers point out that the income from tunnel farming could double even locally if the role of middleman is eliminated.

 

[Neo]

Pakistan to seek $4bn budgetary support from FoDP: Tarin ​

Says militancy caused closure of 22,000 industrial units in NWFP, Balochistan​

Tuesday, April 14, 2009

ISLAMABAD: Pakistan will seek $2 billion for security related projects; $4 billion as budgetary support for health and education for next years and $1-2 billion for Trust Fund to cater to development needs of NWFP and Balochistan, said Advisor to Prime Minister on Finance Shaukat Tarin

Flanked with Federal Information Minister Qamar-uz-Zaman Kaira, Tarin during the press briefing on Meeting of Friends of Democratic Pakistan here on Monday said that Pakistan having sustained $35 billion loss in the war on terror during last 7 to 8 years will sensitise the Friends about worsening law and order situation that has arisen out of fight against militancy.

He mentioned that because of the increase in militancy, some 2,200 industrial units in terrorism-hit NWFP and troubled Balochistan have been closed down and about 590 units are in operational form.

“This has triggered huge poverty in the said federating units, which has given impetus in militants’ activities in general in the whole country and in particular in NWFP.” Tarin said: “During the FODP and Donors moot, broad based problems of Pakistan will be identified.”

Pakistan diverted huge resources from other sectors of economy to fight war on terror, which is why main social sectors of education, health and projects to erase poverty remained neglected.

Pakistan is in dire need of $4bn for allocating maximum budgetary allocation for education and health, which will ultimately help erode the poverty. “Pakistan is at present spending 15pc of GDP on education while 0.5 to 0.6pc of GDP on health which is very low while India is spending 4 to 5pc of GDP on health and education.”

He said that on security front, Pakistan needs Special Forces equipped with latest equipment and training to deal with militants, as the conventional forces of Pakistan do not have capacity to deal with this menace.

To a question he said that Pakistan would seek $2 billion for security related schemes. He said that because of the ongoing war Pakistan has now about 300,000 Internally Displaced People who need to be taken care of properly, but Pakistan lacks resources to handle IDPs.

When his attention was drawn to the fact that donors are ready to come up with about 60 billion dollars commitments but they want the transparency of international standards to gauge the right utilization of funds, Tarin said that Pakistan would ensure the transparency in utilisation of funds and good governance while getting the commitment of about $30 billion for medium to long terms partnership for development in various sectors of economy.

The advisor said that Pakistan needs to get its house in order and the commitment for transparency and good governance has been included in the 9-point agenda, which Pakistan would share from FoDP.

Coming to the initiative that the government is undertaking to address the poverty, safety nets would be ensured under Benazir Income Support Program. For this purpose, with the help of World Bank, poverty census has been initiated in about 16 districts.

“Once this process gets completed, every house which falls in the poverty census will be given Benzair Card of Rs1,000 per month. Moreover one person of the said house will also be given skill keeping in view the needs of their particular areas so that he could get the jobs there. The skill development would also be given for overseas employment.

“This will help reduce the poverty in the country.” He said that Health Insurance of Rs20,000 for below poverty people would be introduced.