Pakistan's Economy - News and Updates

[niaz]

Recent decision of the SC to set aside the agreement with Reko Diq is detrimental to Pakistan interests and Pakistan may have to reimburse total cost plus interest should the Australian Company decide to take this to the International Court. Pakistan has already suffered from the disastrous consequences on the Steel Mill judgement. Pray tell me, why would any company want to invest in Pakistan if after 20 years, the deal is set aside?

It is controversial enough to deserve editorial comment in the Dawn.

It makes one wonder if our SC with the megalomaniac CJ is a boon or bane for Pakistan?



Reko Diq deal

INTO a thicket the Supreme Court has stepped again, and again with uncertain consequences. The Reko Diq deal has been struck down: a 1993 agreement signed under a caretaker government in Balochistan with an Australian mining company, which eventually fell into the hands of its present-day owners, Canadian- based Barrick Gold and Chile’s Antofagasta. At stake are copper and gold reserves that run apparently into tens of billions of dollars. Set aside the legal minutiae and two central issues are at stake here. One, will striking down a 20-year-old contract deliver a devastating blow to foreign investment, particularly in the mining and exploration sectors, in Pakistan? Two, are the mineral reserves of the country, essentially belonging to the people, to be sold off for a song just because the people do not have representatives in government with their best interest at heart? Lying between those two interests — often at odds with one another — is a third question: was the Reko Diq deal fair when assessed alongside similar contracts internationally and given the particular conditions of Balochistan?

To the last question first: privately, virtually all parties to the Reko Diq hearing in the Supreme Court suggest that the contract was not inherently unfair. Having spent $400m on exploration during various phases of ownership over the years, Tethyan Copper Company discovered that there are indeed vast sums of copper and gold to be mined in Reko Diq — with the Balochistan government not having spent a rupee of its own through the life of the project. Could, and should, the Balochistan government have pressed for a better deal than a small amount of royalties, a 25 per cent share of the project and sundry taxes to be imposed? Yes. But was the deal so outlandish that the companies involved should have known at the outset the danger of it being struck down? No.

Therein lies the difficulty with the Supreme Court judgment. Say a government in Balochistan today were to sign a mining lease on lucrative terms in unfavourable conditions: the government doesn’t have the money to even partially finance mega-investment projects; security conditions in the province are a concern for even the hardiest investor; and the medium-term outlook of the Pakistani economy is quite poor. Should the granting of lucrative terms to an investor today, reflecting present security and economic conditions, be struck down 20 years later if conditions at that future time render them ‘too generous’? The silver lining in Reko Diq is that investors are keen to begin mining — meaning the devastating impact on privatisation of the Steel Mills judgment is unlikely to be repeated in the mining sector.

Reko Diq deal | Newspaper | DAWN.COM

 

[Jango]

Recent decision of the SC to set aside the agreement with Reko Diq is detrimental to Pakistan interests and Pakistan may have to reimburse total cost plus interest should the Australian Company decide to take this to the International Court. Pakistan has already suffered from the disastrous consequences on the Steel Mill judgement. Pray tell me, why would any company want to invest in Pakistan if after 20 years, the deal is set aside?

I had a little chat with somebody who has a business for himself regarding IT and all tht stuff, and he told me that the investors are being scared away. Nobody wants to come now because the CJ instead of catching the government that opens tenders and gives away such deals, he catches the investors and companies that are doing business as a result of those government policies/acts.

IMO the CJ is now trying to be the superhero of Pakistan before his retirement, and taking Suo Motu of every other case and trying to be the lone savior. It's gotten to his head a little bit.

 

[xyxmt]

^^^
If our corrupt leader are selling Reko Diq for $8 billion and allowing them to take out all the Gold, any red blooded Pakistani will have objection to it. what is next sell all the natural deposits in Baluchistan to someone for $20 Billion!!
fcuk no keep it for future maybe we get some honest leader, and maybe our people start working for a change and take it out themself because $8 billion will not make a difference for us

 

[niaz]

^^^
If our corrupt leader are selling Reko Diq for $8 billion and allowing them to take out all the Gold, any red blooded Pakistani will have objection to it. what is next sell all the natural deposits in Baluchistan to someone for $20 Billion!!
fcuk no keep it for future maybe we get some honest leader, and maybe our people start working for a change and take it out themself because $8 billion will not make a difference for us

It saddens me to hear such as sweeping statements from intelligent and rational people. Firstly the deal was signed 20 years ago when gold prices were far less. Secondly when the deal was concluded no one knew the full extent of the deposits, because before one can determine the full potential, one needs to spend a lot of ‘venture capital’ meaning that the investor takes a calculated risk and it is quite possible that all the money is wasted.

Now when the company has invested 20 years and about $400-million, in your wise judgement it is okay to tell the original investor to get stuffed! Pray tell me if it was you on the receiving end, would you still have the same view?

Incidentally, the deal was signed during the interim government with late Ghulam Ishaq Khan as the president and Nawab Balkh Sher Mazari the prime minister. I have not come across accusations that these gentlemen made millions of dollars from this deal.

However, you are entitled to your opinion. Who gives a fig if all the FDI dries up as a result?

 

[niaz]

First an article against my views:

The gold is ours!

Muhammad Hussayn

Friday, January 11, 2013
From Print Edition


The writer is a lawyer and researcher based in Islamabad.

A cash-starved, insurgency-ridden province; the machinations of Big Capital; the sleazy deals of corrupt third-world public officials; and a fight over mineral resources ending in a court room drama. Indeed, the Reko Diq case has all the makings of an epic thriller.

In another country, this episode would have been quickly pictorialised. But given the punch-drunk nation that we are, we can neither tell apart the truly significant events from the mundane, nor sit down to reflect upon them.

Thankfully, this five year-long saga has ended now in a victory for the poorest of Pakistan’s poor – the people of Balochistan. Gold and copper deposits possibly worth several billion dollars, which belong to the deprived people of Balochistan, are now back in their custody. At the eleventh hour, they have been rescued from the deathly embrace of Big Capital.



The legal story is contained in the Supreme Court’s (SC) sixteen-page short order. Although the abstruse legalese is a bit challenging, it is clear that the case has been decided in accordance with the law, not under policy considerations.



Nowhere does the court harp on about the neo-liberal economic model for mining and its devastating implications for poorer countries. Nor does it seem overly bothered about maintaining ‘investor confidence’. Here in the public sphere though, both political and legal aspects are worth discussing. But first let us retell the legal story in plain English.



Experts say that the same Tethyan copper belt which starts in Turkey and goes on to Iran and Afghanistan, also extends deep into the Pakistani part of Balochistan. Folk tradition has it that the existence of copper in the region has been known since, at least, the Mughal era.



In 1991, the Balochistan Development Authority (BDA), which has the statutory mandate for prospecting, exploring and mining in the region, entered into negotiations with BHP Minerals, an Anglo-Australian worldwide mining giant. The negotiations resulted in a concession being granted to BHP, known as the ‘Chaghai Hills Exploration Joint Venture Agreement’ (CHEJVA). The deal, like most such deals between Big Capital and the third-world, was skewed in BHP’s favour: it would get 75 percent of the find, while the people of Balochistan would keep only 25 percent.

In 1996, however, a fateful event transpired. The BHP managed to get various additional concessions from the BDA, through relaxation of the Balochistan Mining Concession Rules. In effect, through a sleight of the legal hand, the deal became further skewed in BHP’s favour.

By 1998, however, BHP came to conclude that the finds were not quite as hefty as they had initially hoped for – in fact, the project seemed more a liability than an asset. They offered their rights in the project to South African Iron and Steel Industrial Corporation (Iscor), another mining giant, which turned the offer down. But some people at Iscor could smell a fortune behind the seemingly dead project. They broke off to form Mincor NL, which then bought BHP’s share in CHEJVA for precisely $1 (one dollar).

Mincor created a subsidiary, the Tethyan Copper Company (TCC), to handle the mines. A little later, Mincor too lost interest and sold TCC to two Chilean and Canadian mining behemoths which, a few years later, ‘struck gold’. The last of the giants had placed its bet in the right place. Today it is one of the world’s largest mining ventures.

However, at least as far back as the year 2000, the legal deficiencies in the deal had begun to surface. That year, an addendum was added to CHEJVA, seeking to make up for those deficiencies. Then in 2002, during General Musharraf’s drive to open up the economy to Big Capital, a new and more investor-friendly set of mining rules was enacted.

Hoping to take retrospective benefit of this change in the rules, the parties to CHEJVA signed a ‘Novation Agreement’ in 2006, hoping to make their gains legally impervious. Fate, however, had something else in store for them.

In 2007, a group of politicians, including the late Senator Maulana Abdul Haq Baloch, took CHEJVA to the Balochistan High Court. The high court turned the case down on technicalities. On appeal, the SC too seemed initially rather disinclined to intervene. Thus in 2011 it sent the matter back to the province.

However, by this time, the provincial government too had realised the magnitude of public resources that were at stake; so it turned its back on CHEJVA. And now, after several weeks of intensive hearing, the SC, ever vigilant of the rights of the people, has declared CHEJVA illegal. Big Capital has been shown the door – the gold and copper reverts to the people.

At first glance, this may seem unjust to Big Capital. After all, they claim to have already spent more than a hundred million dollars. And they were certainly hoping to make billions. But there is a simple and well-known principle of contract law at work here: “caveat emptor” i e “Let the buyer beware!”

When buying those concessions, Big Capital should have known that its title was defective, having been granted in violation of domestic laws. In fact, it seems that it was always acutely conscious of this – thus the addendum in 2000 and the novation in 2006; both ill-conceived attempts to cure the defects inherent in CHEJVA.

So now when the court has declared their claim to be what it is, Big Capital, with its legions of hot-shot lawyers, has no moral right to cry foul. They will, of course, pursue the matter in international arbitration forums. They may even try to bring pressure from international financial institutions to bear on Pakistan. But we should not budge. If Big Capital has lost some small change, it should have known better.

Here ends the legal story. But the policy aspects of the situation are even more interesting. Now that these multi-billion dollar resources are back in the nation’s kitty, what are we to do with them? Shall we, once again, lease them out to some global mining giant in return for a puny share in the finds?

If we go to them once again, they can easily use the ‘investor confidence’ card against us, and broker an even more favourable deal. A vibrant and informed public debate about the correct approach to natural resources is the need of the hour. In this short piece, all I can do is raise some burning questions.

If the verdict has left Big Capital unimpressed, why should we care? Wouldn’t the people be better served if our mining policy was designed to promote consortiums of local mining firms, instead of pandering to the global giants who repatriate all their profits? True, the local firms are small and cannot explore as rapidly or efficiently as global giants. But what about those plethora of skilled and unskilled jobs and the entrepreneurial opportunities they create for our youthful populace?

Shouldn’t the state facilitate small local firms in capacity enhancement, instead of putting them out of business at the altar of Big Capital? Looking back, what good has the neo-liberal mode of mining done to scores of African and South American nations? If our operations are slower, what’s the rush about? We could save some ore for future generations. They too would want something to work on, you know.

These are tough questions that defy simple answers. The Reko Diq epic has brought us back to the point where we can gainfully engage in this discussion again, because the gold and copper is ours! The law has delivered on its promise. Let policy catch up pace.

The gold is ours! - Muhammad Hussayn!

Unquote.

I personally don’t agree with many of the assumptions but the article is based upon sound analysis which is expected from intelligent people, not the sweeping statements such as ‘corrupt politicians’ etc.

Firstly, having no large scale mining industry to speak of, we have lack technical resources to competently exploit this mineral wealth. Secondly, Pak economy is in a bad shape and it is doubtful that Baluchistan Gov’t has the financial or manpower resources to get any benefit out of this project in the near future. We have Thar coal example staring in our face; despite severe shortage of power, have we anything concrete show for from Thar coal as yet?

My main worry is that now that we know there is a fortune in there; there would be a free for all and individuals will make fortunes with nation getting far less than the 25% guaranteed income; something similar to what happened to Nigerian oil wealth. Thus either nothing comes out of it for very long time or the nation comes out even worse than before. Either way it is a loser. Additionally, like it or not, this decision has severely dented FDI prospects.

 

[Gentelman]

Federal Minister for
Finance Dr Abdul Hafeez Shaikh
invited the General Electric Company
(GE) to invest in Pakistan particularly
in sectors where it had global expertise
like aviation, transport, railways,
energy and alternate energy.
General Electric Company Vice
Chairman John Rice expressed keen
interest for investment in various
sectors in Pakistan particularly
supplying locomotives to Pakistan
Railways and set up a wind energy
projects in the country while
exploring other investment
opportunities.
Shaikh said that Pakistan offered a
favourable environment for foreign
investment and assured full support
and facilitation of the government
for investment by the Fortune 500
company.
GE’s vice chairman Rice expressed
his gratitude to the Government of
Pakistan for providing attractive
opportunities for foreign investment
in the country. He thanked finance
minister Shaikh for his continuous
support to the private sector
businesses and attracting
investment by guiding foreign
investors.
Rice appreciated the policies of the
Ministry of Finance in promoting a
business-friendly environment.
GE is a US-based multinational
conglomerate corporation and
operates through four segments:
Energy, Technology Infrastructure,
Capital Finance and Consumer and
Industrial. In 2011, GE ranked
among the Fortune 500 as the sixth-
largest firm in the US by gross
revenue, as well as the 14th most
profitable.

 

[Major.]

Pak loans cannot be written off: IMF - thenews.com.pk

Pak loans cannot be written off: IMF


January 18, 2013 - Updated 160 PKT
From Web Edition

ISLAMABAD: Head of the International Monitory Fund (IMF) mission in Pakistan, Jeffrey Frank said that the IMF cannot write off or restructre Pakistan’s loan.

While speaking to the media, Frank further said that Pakistan has not formally sought a new program, adding that if they did want to seek a new program then their economic strategy must radically change as losses of government institutions had drowned the current economic strategy.

Frank told the media that Pakistan was in need of billions of dollars in revenue in expenditure as it was suffering from a current deficit of 16.24 trillion, adding that Pakistan’s foreign exchange reserves had diminished.

The IMF mission chief also said that taxation on agriculture, retail and sales should be made more effective and tax relaxations and concessions should be done away with.

He further said that Pakistan’s major issue is power deficiency and power theft was behind the increasing deficit.

 

[NP-complete]

ISLAMABAD: The International Monetary Fund (IMF) may sign a loan programme with the caretaker government if all major political parties agree on a broader set of action plans. However, before that is possible, Pakistan will have to take some tough prior actions, says the Fund’s representative for the region.
In a luncheon meeting with a group of journalists here on Friday, Jeffrey Franks, adviser to the IMF for the Middle East and Central Asia, spoke at length on the grave economic situation the country is faced with. He also shed light on the Fund’s ongoing dialogue with the government, aimed at building consensus on a set of conditions needed to be fulfilled before and during the course of a fresh bailout programme. Franks was accompanied by the new IMF Country Representative Mansoor Dailami.
“The current polices will have to be readjusted in order [for Pakistan to become eligible] for an IMF programme. The IMF has discussed with the government what kind of policies would be necessary,” said Franks.

The IMF’s prescription to Pakistan includes a healthy measure of – not surprisingly – increasing taxes, cutting expenditures, withdrawing electricity subsidies and increasing interest rates to check inflation, which is expected to rebound soon and devalue the currency further.
“We have agreed with the government that the deficit eventually needs to come down to 3-3.5% of the GDP in three years, from the current level of over 7%,” revealed Frank. “According to our one-month assessment, Pakistan’s currency is overvalued by 5-10%. Modest depreciation might yield positive results for the economy,” he added. “The monetary policy also needs to be calibrated to bring down inflation to between 5-7%.”
He underscored the need for having “broadest and deepest possible political support for any new programme”. Franks also sought support at the highest levels, besides taking provinces on board, before the government enters into a formal arrangement with the Fund. He said that if political parties agree on a broader reforms agenda, the IMF can be flexible on how Pakistan goes about achieving it.

“The decision whether or not we will enter into a programme with the interim government will be made by the IMF management: however, if there is very strong and broad political support, going beyond the interim government, it might be possible,” Franks said, while responding to a question asking about the timing of the programme.
The IMF official observed that Pakistan’s problems require long-term solutions, and that any new programme will not last less than three years.
Franks disclosed that, according to the IMF assessment, this year’s budget deficit will remain around 7-7.5% of the GDP. In absolute terms, the IMF projects a Rs1.624 trillion deficit – a whopping Rs516 billion or 2.3% higher than government estimates. Besides the significant shortfall in revenues, Pakistan also may not be able to complete the auction of the 3G telecom spectrum, causing another shortfall of around Rs75 billion.
To add icing to that unsavoury cake, the economy will grow just 3.5% this year according to the IMF’s estimates, as against official projections of 4.3%.
“The number one bottleneck to growth is the energy sector. The number two bottleneck is the energy sector, and the number three
bottleneck is also probably the energy sector,” said Franks.
“Private sector credit growth is very weak; large scale manufacturing is positive, but very low; and we don’t see robust export growth,” observed Franks. He further said that while declining inflation is a good indicator, it is also worrisome because domestic demand continues to remain weak. He also criticised the government’s tax collection efforts, which he said are indicative of weaknesses in the economy.
Even though the IMF has projected a current account deficit of a low 0.7% of GDP, Franks warned that even this low level is dangerous due to drying foreign inflows. As a final blow, he also ruled out any restructuring of IMF loans.
He agreed that tough actions may cause a temporary drop in growth, but insisted that they were necessary for achieving macroeconomic stability.
Franks also hinted that the central bank should be made an independent part of plans for the new programme.
Published in The Express Tribune, January 19th, 2013.

Gifts of democratic government.

 

[A.Rafay]

Al-Tuwairqi to invest $900m to upgrade steel plant in Karachi

KARACHI: Al-Tuwairqi Holding of the Kingdom of Saudi Arabia and Posco – the world’s third largest steelmaker by market value – signed a memorandum of understanding with the Government of Pakistan for backward and forward integration of the Tuwairqi Steel Mills (TSML) – Pakistan’s first private sector integrated environment-friendly steel manufacturing complex. Estimated investment hovers around $900 million for realisation of all these projects.
Forward integration will allow further value addition through a melt shop, producing world standard steel grades, while backward integration will be to the extent of exploring iron ore locally in Balochistan, its beneficiation and pelletisation, said a press statement. Estimated investment hovers around $900 million for realisation of all these projects.
Under the MoU, Pakistan will facilitate TSML in developing mines and utilisation of iron ore as raw material for TSML’s relevant plants.
Posco also expressed interest in exploring business opportunities with Pakistan in engineering, procurement and construction services in the fields of infrastructure and industrial, environmental, electric power and oil and gas facilities.
TSML recently kicked off the commercial production at its direct reduced iron (DRI) making plants with the capacity to produce up to 1.28 million tons per annum of high quality DRIs. The first phase had completed with an overall investment of $350 million.

Al-Tuwairqi to invest $900m to upgrade steel plant in Karachi – The Express Tribune

 

[Edevelop]

Lahore RTO posts 200 percent increase in tax collection

The checking of sales tax and federal excise returns using the computerised risk-based evaluation of sales tax (Crest) prepared by the Federal Board of Revenue has resulted in extraordinary 200 percent increase in revenue collection by one of the Regional Tax Offices (RTOs).

Sources told Business Recorder here on Thursday that the sales tax collection of the RTOs has shown steep rise after implementation of the new IT system - Crest - to verify the sales tax returns. The verification of buyers and sellers within supply chain has been effectively done by the Crest in all revenue generating sectors of the economy. The technology recently introduced by FBR is having visible salutary effect on the domestic sales tax collection. One such example is RTO, Lahore where this technology is in operation.

Astonishingly, the domestic collection posted more than 200 percent growth as compared to actual collection last year. The RTO has significantly surpassed FBR estimates. Such phenomenal growth has been made possible through effective enforcement and efficient use of technology. The growth is not restricted to a specific sector applying coercive measures such as advances or recovery made through any Court decisions.

The Crest segregated the short filers in sugar, pipe manufacturing industry and restaurants. The RTO followed the short filers and posted impressive growth, it did not resort to any harassment measures other than recovery of the due taxes. In RTO now Crest focus is on the steel sector which is infected with chronic defaulters. The Lahore Electric Supply Company (Lesco) which is withholding agent to the steel melters and re-rollers is being asked to show evidence where it has not charged tax amount to any registered persons of this sector.

It is learnt that association led by Hafiz Akbar is helping in recovery of defaulted amount and also bringing persons into the tax net, operating in unorganised sector other area RTO is focusing in scrutiny of withholding of Income Tax where RTO has registered 25 percent increase as compared to last year.

'Crest' implementation: Lahore RTO posts 200 percent increase in tax collection | Business Recorder

 

[Mani2020]

As of now KSE has reached 17310.42 index

 

[Black Widow]

Is this map is turkish ???

 

[Jango]

Is this map is turkish ???

Could you rephrase the question?

Which map?

 

[Gentelman]

Thursday, February 21, 2013
From Print Edition


KARACHI: The Karachi Stock
Exchange’s (KSE) benchmark 100-
index recovered from Tuesday’s
decline and surged by 130 points to a
new record high on Wednesday due to
improvement at the political front,
dealers said.
Ahsan Mehanti, analyst at Arif Habib Corp,
said that improvement at the political
front with an end to nationwide protests
and sit-ins condemning the recent
bombing in Quetta has positively affected
the market. “Global stock markets also
increased yesterday, which played a key
role in the improvement of the local
market,” he added.
The KSE-100 index surged by 129.36
points or 0.73 percent to 17,947.07
points against 17,817.71 points recorded
in the last session. The index, at one time
during the intraday session, reached a
high level of 17,989.70.
The KSE-30 index also increased by
129.11 points or 0.89 percent to
14,715.67 points in the session against
14,586.56 points recorded in the last
session.
The turnover improved by one million
shares to 267.27 million shares from
266.24 million shares, whereas the value
increased to Rs9.27 billion against Rs7.90
billion and market capital increased to
4.47 trillion against 4.44 trillion recorded
in the last session.
Zafar Moti, senior member of the KSE,
said that an end to the sit-ins played a
significant role in pushing the market
upwards. “We are expecting the market
to touch the 18,000 mark on Thursday,”
he said. “On Wednesday, institutional
buying was witnessed in energy and
banking sectors, while foreign investment
was low.”
The highest increase was recorded in the
shares of Nestle Pakistan Ltd, which
increased by Rs99.99 to Rs4,900.00 per
share, followed by Colgate Palmolive,
which increased by Rs75.00 to
Rs1,575.00 per share. Major decline was
noted in the shares of Unilever Pak, which
declined by Rs23.90 to Rs10,358.60 per
share, followed by Indus Motor Co that
declined by Rs6.55 to Rs304.45 per
share.
Significant turnover was recorded in the
stocks of Pakistan Telecommunication
Company Ltd (PTCL), NIB Bank Limited,
Maple Leaf Cement, Jahangir Siddiqui Co
and Telecard Limited. PTCL remained the
volume leader with 32.74 million shares
with a decline of 14 paisas to Rs21.75 per
share, followed by NIB Bank Limited with
24.16 million shares with a decline of 22
paisas to Rs2.58 per share.
Shares turnover in the futures market
increased to 39.04 million shares from
32.01 million shares traded in the
previous session.
Of a total of 359 companies’ stocks
traded, 172 advanced, 150 declined and
37 remained unchanged.
Nestle Pak Rs99.99
Closing Rs4,900.00
Colgate Pak Rs75.00
Closing Rs1,575.00
Bata Pak Rs40.00
Closing Rs1,480.00
Unilever Pak Rs23.90
Closing Rs10,358.60
Indus Motor Rs6.55
Closing Rs304.45
Abbott Lab Rs4.11
Closing Rs217.39

Could you rephrase the question?

Which map?

trooling.....

 

[muse]

The hidden economy
Khurram Husain

GOING by the numbers alone, it would appear that no significant economic activity takes place west of the Indus. Look at the provincial GDP numbers, the revenue figures and you see no movement, no activity on any significant scale.

More detailed metrics of economic activity also show great ‘tranquillity’ in the west. Detailed figures on consumption of electricity by industrial and commercial categories of consumer, for instance, show very little change over the years.

The number of bank branches operating in the western provinces doesn’t change much, nor does the provincial ratio of deposits to total bank deposits in the country.

But take a closer look and you’ll find something odd. The State Bank has a data series on its website that shows something enormous, of truly gigantic proportions, stirring beneath the tranquillity suggested by the formal macroeconomic data.

Here is what the data reveals: the amount of money passing through the clearing houses of Quetta and Peshawar is so large that it rivals the amounts in clearing houses of cities like Faisalabad, Multan and Rawalpindi.

First some background. Every time you write a cheque and the other party deposits that cheque in their account, it goes through a process called “clearing”. Because banks don’t hold your money themselves — much of it is held by the State Bank — the task of actually taking the money out of the books of one bank and transferring it to the books of another every time a cheque is cleared, is performed by the State Bank at its clearing house.

The State Bank operates 16 clearing houses in cities all over the country. Every month it releases data on how many cheques were presented for clearing in each of these, and what the total amount cleared by cheques was.

If you take this data, which stretches back to 1999, and plot it for each city in Pakistan, you notice something very interesting. Remove the cities of Karachi and Lahore from the sample for the time being, because these are global cities in a sense with long-distance connections. Compare only the regional cities and here is what you’ll find.

Following 9/11, half the cities in the total sample will show a sharply rising trend in the amount of money going through their clearing houses. For the other half, the line is flat.

The cities that show a rising trend are led by Peshawar, with Faisalabad, Multan, Rawalpindi and Quetta in close succession. For Peshawar, the amount of money being cleared via cheque in the year 2011 crosses Rs1.3 trillion! For Quetta, in the same year, the amount is just under Rs900 billion, meaning between them these two regional cities are seeing almost Rs2tr going through their clearing houses in one year alone.

This figure compares with Faisalabad at Rs1.3tr, Rawalpindi at Rs1.4tr, and Multan at Rs826bn. Cities that show a flat trend over the entire reporting period include Sukkur, Hyderabad, Sialkot and D.I. Khan.

What the data shows is a steep intensification of transactions being cleared by cheque in some cities, and no change in others, meaning the pace of economic activity accelerated unevenly over the decade, sweeping some along its path and leaving others behind.

But what are Peshawar and Quetta doing on this list? With Faisalabad and Multan, it’s easy to understand. These are regional hubs, productive centres, large seats of agrarian operations.

Faisalabad hosts Suter Mandi, one of the world’s largest yarn markets, where settlements are made largely using banks. It’s where more than $5bn of exports are produced, where massive fixed investment was installed precisely during this decade.

Multan is a major site for agricultural procurement, which is conducted entirely using cheques, as well as being an industrial city in its own right. In both these cities, large-scale economic activity is visible in many other indicators too, from bulk consumers of electricity to massive growth in branchless banking.

In fact, after Karachi and Lahore, it is Multan, Faisalabad and Rawalpindi that account for the bulk of transactions in branchless banking, which shows the intensification of activity in the clearing houses of these cities is accompanied by an overall deepening of the financial sector.

But in Peshawar and Quetta, there is no other accompanying trend, not in branchless banking, TT transfers, bulk consumption of electricity. There is only one lone spike, showing an increase in clearing house transactions that keeps pace with the agricultural and industrial heartland of the country.

The obvious question is: what is driving this spike in Quetta and Peshawar? Where is the economic activity that is sending such spectacular sums of money through the clearing houses of these two cities? And why does this money leave no trace on any other economic indicator of the city or the province?

Perhaps the answer is a simple one. Maybe the spike is explained by the fact that there is only one clearing house each in Khyber Pakhtunkhwa and Balochistan, while there are at least five in Punjab and four in Sindh. Or maybe it’s just the Afghan transit trade. But that still doesn’t explain why the clearing house spike isn’t showing up in any other provincial indicator.

Here’s another explanation: these cities are engulfed by a very large hidden economy, from where a massive river of transactions briefly appears on the official record, then disappears from view again.

This intersection between the hidden and the formal economy generates an accidental record which gives us a glimpse of something massive stirring beneath the tranquillity of the macroeconomic indicators of the western provinces. The amounts involved tell us that the size of this hidden economy rivals Faisalabad and Multan, which is impressive if you know anything about those cities.

It is crucial for us to develop a better understanding of this hidden economy because its interaction with the settled economy to the east of the Indus is likely to become an important fault line in the near future.

The writer is a Karachi-based journalist covering business and economic policy.