The government is naturally at pains to inform us, the public, that the situation has been steadily improving since the time it took over power two years ago. I would not refer to the Pakistani public as Q Public, as they do in the US as that might anger the right wing elements in this country, or indeed use the T letter as that may well provide Friends of Democratic Pakistan (FoDP) with a potent weapon in its argument that this implies tacit acknowledgement of our latent Taliban tendencies and provide them with a rationale for continuing to withhold pledges made in April 2009. Perhaps, referring to the Pakistani public with a small letter of p would reflect the actual picture much more cogently than anything else might.Mohammad Ahmed (MA), our version of John Doe - and one is surely unwilling to further antagonise the Jiyalas by proposing the Pakistani equivalent of a Jane Doe as Sakina Bibi as the PPP as well as their slain leader had, time and again, expressed serious reservations over referring to Ms Bhutto as BB as, according to them, it connotes a level of education and class that she did not belong to. Anyway, MA would, perhaps, challenge the government s contention that the economy has improved, not because he is victimising the PPP or its leadership, but simply because he recently lost his job as his employer was unable to keep his business going due to heavy and unannounced loadshedding and high cost of borrowing.The only way he can get a job is if he is a Jiyala, the present government still proudly handing out jobs to a handful of its loyalists, a policy that is compromising the financial viability of many a state-operated organisation as over-staffing, and that too not based on merit, seems to have swept our institutions yet again. Over-staffing also increases current expenditure that translates into higher taxes for the already taxed and lower outlay on development, which again negatively impacts on our hapless MA.
If MA is lucky enough to have a job he is no doubt, under severe pressure to make ends meet given the dramatic rise in his monthly utility and transport bills due to a steady decline in subsidies, as per the IMF dictates, as well as a rise in food inflation attributed to smuggling as well as profiteering by a handful of influentials.
And what does he think of sleepless nights attributed to loadshedding and of the constant exortation by WAPDA on television as well as by a well coiffed Raja Parvez Ashraf, who appears cool even in the sweltering midday heat raising the distinct possibility of him either being better equipped physically to deal with no electricity in 40 plus degree heat or indeed mayhap not undergoing the same rigorous loadshedding? One is not quite sure, but the PPP wins in recent by-elections have brought it home to those who rule us and, hopefully to those who are sitting on the sidelines, that our electorate continues to vote on the basis of tribal loyalty and that the President, much maligned and constantly held in poor light in comparison to his illustrious wife, is winning seats throughout the country - be they in Gilgit-Baltistan or in Punjab.
And that high inflationary pressures, or stuffing financially weak state operated organisations with Jiyalas, daily scams implicating notable Jiyalas or indeed admitting to presenting fake degrees in the past are not factors that have yet begun to influence the voting pattern of our people. One is forced to conclude, therefore, that there is no linkage between our voting patterns and what is the general perception regarding the government s performance.
Does electoral victory in the by-elections explain some of the recent decisions taken by the PPP, decisions that would have been tantamount to committing Hara Kari in any other country of the world? These include challenging the integrity of the Supreme Court and High Court judges on television, checkmating the court decisions by invoking Article 48 of the constitution and pardoning those loyalists who were directed to be arrested by the courts, refusing to send a letter to the Swiss authorities in spite of the SC verdict on the NRO and last but not least going on the floor of the house and throwing the gauntlet in the face of the judiciary by citing passages from the constitution?
These actions may well have lost the PPP support from the liberals in the country - liberals that are typically better educated and include the media, the civil society and indeed most professionals such as lawyers and doctors. However, grassroots voting patterns have certainly not changed. Need one remind oneself that the number of people of our middle class is not sufficiently large for any particular party to consider wooing them a priority. True, Z A Bhutto was supported by the liberals which, perhaps, gave rise to the military-mullah nexus, yet the PPP led by President Zardari is not focused on this small group of people.
The situation in India, with one of the largest middle classes in the world is, of course, distinct. The major difference in this regard between the two nuclear rivals is evident: higher education levels in India backed by higher annual outlay on education.
The general Pakistani public is quite willing to come out on the streets in protest against specific issues for example against loadshedding or against the failure of law-enforcement agencies to check crime by taking the law in their own hands, but it is not yet ready to come out on the streets demanding a change in government.
Thus one identifiable issue can generate public anger, like the recent public anger against Gilani, Rehman Malik, Wattoo and Kaira by the affectees of the Hunza lake disaster. However, this anger, if stoked by members of the opposition can lead to change, an example being the capitulation of the Zardari government after Nawaz Sharif headed the long march for the restoration of the judiciary. This reflects the fact that the government had misread the writing on the wall, but once it realised that the issue was serious it quickly capitulated.
However, an anomaly in our democratic system continues to exist and is recognised by the country s political leadership: the power of the armed forces to upset the applecart. The SC cannot enforce its decisions implementation with the executive refusing to do so and challenging its person-specific decision (focusing on corruption cases against President Zardari when murder cases against the NRO beneficiaries remain pending) until and unless the armed forces come in aid of the judiciary. That, such is the reading by the PPP loyalists, namely that interference by the army on its non-compliance with the judicial decisions is not on the cards, be it because of their engagement in ongoing operations or be it because of the lack of ambition of General Kayani in this regard, the fact remains that the army has so far remained quiet on the issue of non-implementation of the SC verdicts.
Whether this reading is accurate or not time will tell, but analysts are referring to the external elements, which allegedly, propped up a Zardari government and are extending financial assistance to the army as the real decision-makers. While one may well be tempted to agree with this, yet the fact remains that Musharraf was ousted from power by the same external power brokers because he had lost public support and there was an organised movement, supported by political parties across ideological divides, to get rid of him.
To conclude, be it democracy or a teetering dictatorship power resides with the people. The government would be well advised to turn its attention to certain basics: slash its expenditure, raise taxes on the rich and the influential, break collusion by those engaged in producing commodities like sugar and last but not least enhance development expenditure to deal with the twin evils that beset our country: lack of energy and lack of education. The former would fuel the wheels of productivity, while the latter would, perhaps, be instrumental in the general public linking their votes to the government s performance, an objective that no doubt has never been high on any government s agenda.
Friday, May 28, 2010
Sunday, May 16, 2010
Pakistani cement flooding East African markets
Sunday, May 16, 2010
NAIROBI: Local cement manufacturers are headed for hard times after the Pakistan government offered huge subsidies to its domestic cement makers to increase exports to East Africa, media reported here.
Pakistan government has agreed to give 35 per cent subsidy on transportation expenses for cement meant for export. East Africa is one of the strategic markets for Pakistan cement owing to its proximity as well as the construction boom in the region. Cement demand in East Africa is expected to grow by 33 per cent to eight million tons in 2011 from six million tons in 2009. Pakistanís cement industry says that their government’s move should help generate better volumes as it will strengthen competitiveness over other manufacturers, which in turn can pave way to a fall in local cement prices. An umbrella body representing business associations in East African Community asked East African countries’ governments to support local cement manufacturers compete with imported cement. East African Business Council said cement industry faces increased competition from the imported product from countries with lower production costs.
Executive director Agatha Nderitu said that low cost producers such as Pakistan, China and India were flooding the region. “Pakistan Government recently granted cement manufacturers a generous subsidy on inland transportation of cement for export in what East African Cement Producers Association believe is likely to hurt the local market,” she said.
Cement in East African countries was classified as a sensitive product in 2005 with the import duty set at 55pc, which was to be reduced by five per cent every subsequent year. However, in June 2009, the status was removed and the tariff was cut to 25pct. This, along with the ability to produce at a lower cost and the implementation of 3pc inland freight subsidy, has made Pakistan’s cement manufacturers more price-competitive over African makers. Nderitu said that the drastic drop in duty from 40 to 25pc adversely affected cement industry by opening doors for cheap imported cement into the region. East African Cement Producers Association chairman David Njoroge said transport and electricity costs in East Africa were three to five times higher than in Egypt, Pakistan, and India. “Whereas we recognise the efforts being made by governments to improve the physical infrastructure, we are not yet at the level in terms of costs to compete with the low cost producers,” he said.
NAIROBI: Local cement manufacturers are headed for hard times after the Pakistan government offered huge subsidies to its domestic cement makers to increase exports to East Africa, media reported here.
Pakistan government has agreed to give 35 per cent subsidy on transportation expenses for cement meant for export. East Africa is one of the strategic markets for Pakistan cement owing to its proximity as well as the construction boom in the region. Cement demand in East Africa is expected to grow by 33 per cent to eight million tons in 2011 from six million tons in 2009. Pakistanís cement industry says that their government’s move should help generate better volumes as it will strengthen competitiveness over other manufacturers, which in turn can pave way to a fall in local cement prices. An umbrella body representing business associations in East African Community asked East African countries’ governments to support local cement manufacturers compete with imported cement. East African Business Council said cement industry faces increased competition from the imported product from countries with lower production costs.
Executive director Agatha Nderitu said that low cost producers such as Pakistan, China and India were flooding the region. “Pakistan Government recently granted cement manufacturers a generous subsidy on inland transportation of cement for export in what East African Cement Producers Association believe is likely to hurt the local market,” she said.
Cement in East African countries was classified as a sensitive product in 2005 with the import duty set at 55pc, which was to be reduced by five per cent every subsequent year. However, in June 2009, the status was removed and the tariff was cut to 25pct. This, along with the ability to produce at a lower cost and the implementation of 3pc inland freight subsidy, has made Pakistan’s cement manufacturers more price-competitive over African makers. Nderitu said that the drastic drop in duty from 40 to 25pc adversely affected cement industry by opening doors for cheap imported cement into the region. East African Cement Producers Association chairman David Njoroge said transport and electricity costs in East Africa were three to five times higher than in Egypt, Pakistan, and India. “Whereas we recognise the efforts being made by governments to improve the physical infrastructure, we are not yet at the level in terms of costs to compete with the low cost producers,” he said.
Weekly CSF to be launched soon, KSE prepares mechanism
Sunday, May 16, 2010
By Javed Mirza
KARACHI: The Karachi Stock Exchange (KSE) is likely to launch the standardised 7-day contracts soon to buy and sell stock futures to be settled in cash with no delivery requirement for seller.
The margin in the cash settled futures (CSF) will be payable 100 percent in cash or bank guarantee, besides mark-to-market losses will also be payable 100 percent in cash, said a KSE draft seen by The News on Saturday.
“The value at risk (VaR) margin in CSF does not include worst case margins,” the KSE paper read.
“KSE has resisted and not imposed special margins and profit retention, however, concentration margins will be introduced,” the paper said.
Under the recently approved cash settled 7-day futures contract, the market-wide limit per scrip will be 40 percent of the free float, member-wide limit per scrip is one percent of the free float and client-wide limit per scrip will be one percent of the free float.
“Netting will not be allowed in any buy and sell position, however, spread discounts will soon be available as the volumes pick-up,” the paper added.
Weekly cash settled futures contract will begin every Monday or first trading day of the week and will end Friday or last working day of the week. The mark-to-market will be settled daily on T+1 basis.
The period of the contract will be 7 days with rollover opportunities in current, near and far month. There will be no over-lapping period. The contract value will be the product of futures price and the contract multiplier.
According to the paper, there will be no delivery requirement for seller in the weekly CSF and no requirement to settle principle amount and square-off the open position.
There will be no obligation to deliver shares at the end of the contract, as it does not contain risk of delivery pressures at the end of contract.
The value at risk (VaR) based exposure margin at the rate of 10 percent and mark-to-market will be settled 100 percent in cash on daily basis using daily settlement price.
The traders will be required to offer collateral in shape of cash or bank guarantee while the circuit breakers stand at standard 5percent.
According to the paper, contracts will not be available in week when dividend, bonus, right is expected.
It may be mentioned here that the Securities and Exchange Commission of Pakistan (SECP) has recently approved the proposal sent by KSE regarding 7-day futures contract and asked the stock exchange to develop the mechanism.
By Javed Mirza
KARACHI: The Karachi Stock Exchange (KSE) is likely to launch the standardised 7-day contracts soon to buy and sell stock futures to be settled in cash with no delivery requirement for seller.
The margin in the cash settled futures (CSF) will be payable 100 percent in cash or bank guarantee, besides mark-to-market losses will also be payable 100 percent in cash, said a KSE draft seen by The News on Saturday.
“The value at risk (VaR) margin in CSF does not include worst case margins,” the KSE paper read.
“KSE has resisted and not imposed special margins and profit retention, however, concentration margins will be introduced,” the paper said.
Under the recently approved cash settled 7-day futures contract, the market-wide limit per scrip will be 40 percent of the free float, member-wide limit per scrip is one percent of the free float and client-wide limit per scrip will be one percent of the free float.
“Netting will not be allowed in any buy and sell position, however, spread discounts will soon be available as the volumes pick-up,” the paper added.
Weekly cash settled futures contract will begin every Monday or first trading day of the week and will end Friday or last working day of the week. The mark-to-market will be settled daily on T+1 basis.
The period of the contract will be 7 days with rollover opportunities in current, near and far month. There will be no over-lapping period. The contract value will be the product of futures price and the contract multiplier.
According to the paper, there will be no delivery requirement for seller in the weekly CSF and no requirement to settle principle amount and square-off the open position.
There will be no obligation to deliver shares at the end of the contract, as it does not contain risk of delivery pressures at the end of contract.
The value at risk (VaR) based exposure margin at the rate of 10 percent and mark-to-market will be settled 100 percent in cash on daily basis using daily settlement price.
The traders will be required to offer collateral in shape of cash or bank guarantee while the circuit breakers stand at standard 5percent.
According to the paper, contracts will not be available in week when dividend, bonus, right is expected.
It may be mentioned here that the Securities and Exchange Commission of Pakistan (SECP) has recently approved the proposal sent by KSE regarding 7-day futures contract and asked the stock exchange to develop the mechanism.
Dull week ends flat on KSE, but IMF
Sunday, May 16, 2010
By Javed Mirza
KARACHI: After lackluster trading during the last five trading sessions, leading analysts expect some short-lived excitement on the Karachi Stock Exchange next week on the back of International Monetary Fundís (IMF) approval of $1.13 billion tranche for Pakistan.
“We will witness some excitement next weeks as the long-delayed IMF tranche for Pakistan has finally been approved,” said Samra Ansari, an analyst at InvestCap. “But the excitement will be short-lived as uncertainty regarding the value-added tax (VAT) and capital gains tax continues to haunt investors.”
Last week, trading remained lacklustre amid low volumes as investors remained on the sidelines as they waited for the monetary policy review and government’s decision regarding controversial taxation measures.
The past week saw global indices falling to lowest levels in the year because of the Euro zone debt crisis. It also impacted the local market, which is being driven by foreign investors, who too went for a wait-and-see approach.
Dealers said that the benchmark KSE 100-share Index moved in a narrow band, but the market performance was better compared with the previous week. The KSE 100-shares Index closed 10271.71 with a gain of 0.24 points. KSE-30 Index closed at 10341.30 with a gain of 0.38 points.
The average daily volumes declined by 28 percent to 94 million shares compared with previous week’s levels of 130 million shares.
“Fears regarding European credit crisis spilling in, rumours of upcoming taxation, and pre-budget apprehension have kept investors nervous,” Ansari said. “Despite some recovery in the regional markets, political bickering earlier in the week between coalition parties in Sindh prevented investors from taking fresh positions.” Dealers said that budget fears and rumours of Pakistan not being included on the MSCI led to midweek sell-offs. Buying before weekend restored the benchmark 100-Index to previous week closing levels.
Foreigners continued to dominate the market, purchasing shares worth $6.6 million. Buying spree was sluggish as compared to year-to-date (YTD) weekly average of $12.4 million. Banks emerged as major net sellers during the week, offloading shares worth $7.7 million.
Open interest position on the futures counter increased by six percent to Rs1,020 million during the week. The futures spreads, at the same time, also rose by 9.2pps to stand at 12.65 percent indicating strength on futures counter.
Futures’ volumes were down by 29 percent. Top-5 scrips including OGDC, BAFL, PSO, POL and ENGRO cumulatively represented 54 percent of total open interest during the week.
KASB Research said that the decision on Value Added Tax (VAT) from July 1 and six percent power tariff hike could give near term shape to market sentiment.
“Should the same go smoothly, the next key date to pinpoint is May 24 where SBP is due to announce its Monetary Policy and resultant clarity on monetary stance will be a key to market sentiment. Likewise, any further news flow on implementation of capital gains tax will also be eagerly awaited,” said KASB.
By Javed Mirza
KARACHI: After lackluster trading during the last five trading sessions, leading analysts expect some short-lived excitement on the Karachi Stock Exchange next week on the back of International Monetary Fundís (IMF) approval of $1.13 billion tranche for Pakistan.
“We will witness some excitement next weeks as the long-delayed IMF tranche for Pakistan has finally been approved,” said Samra Ansari, an analyst at InvestCap. “But the excitement will be short-lived as uncertainty regarding the value-added tax (VAT) and capital gains tax continues to haunt investors.”
Last week, trading remained lacklustre amid low volumes as investors remained on the sidelines as they waited for the monetary policy review and government’s decision regarding controversial taxation measures.
The past week saw global indices falling to lowest levels in the year because of the Euro zone debt crisis. It also impacted the local market, which is being driven by foreign investors, who too went for a wait-and-see approach.
Dealers said that the benchmark KSE 100-share Index moved in a narrow band, but the market performance was better compared with the previous week. The KSE 100-shares Index closed 10271.71 with a gain of 0.24 points. KSE-30 Index closed at 10341.30 with a gain of 0.38 points.
The average daily volumes declined by 28 percent to 94 million shares compared with previous week’s levels of 130 million shares.
“Fears regarding European credit crisis spilling in, rumours of upcoming taxation, and pre-budget apprehension have kept investors nervous,” Ansari said. “Despite some recovery in the regional markets, political bickering earlier in the week between coalition parties in Sindh prevented investors from taking fresh positions.” Dealers said that budget fears and rumours of Pakistan not being included on the MSCI led to midweek sell-offs. Buying before weekend restored the benchmark 100-Index to previous week closing levels.
Foreigners continued to dominate the market, purchasing shares worth $6.6 million. Buying spree was sluggish as compared to year-to-date (YTD) weekly average of $12.4 million. Banks emerged as major net sellers during the week, offloading shares worth $7.7 million.
Open interest position on the futures counter increased by six percent to Rs1,020 million during the week. The futures spreads, at the same time, also rose by 9.2pps to stand at 12.65 percent indicating strength on futures counter.
Futures’ volumes were down by 29 percent. Top-5 scrips including OGDC, BAFL, PSO, POL and ENGRO cumulatively represented 54 percent of total open interest during the week.
KASB Research said that the decision on Value Added Tax (VAT) from July 1 and six percent power tariff hike could give near term shape to market sentiment.
“Should the same go smoothly, the next key date to pinpoint is May 24 where SBP is due to announce its Monetary Policy and resultant clarity on monetary stance will be a key to market sentiment. Likewise, any further news flow on implementation of capital gains tax will also be eagerly awaited,” said KASB.
Cash-strapped Pakistan Steel manages to pay salaries
Sunday, May 16, 2010
By Salman Siddiqui
KARACHI: After a delay of almost two weeks, Pakistan Steel Mills (PSM) on Friday finally advised banks to release salaries of its 17,000 employees.
The PSM authorities have also submitted a proposal to the Ministry of Industries, requesting a Rs25 billion bailout-package to ensure its smooth operations.
“Salaries are being paid from the sale proceeds of products and employees may draw their salaries on Monday, May 17,” said PSM public relations officer Hafeez Shaikh. The PSM requires about Rs650 million to pay the salaries every month, he added.
The PSM employees get paid by third of every month, but this time around, the liquidity crunch delayed payment of salaries.
Zafar Khan, General Secretary of Pakistan Steel Labour Union, said that employees would get less-salaries this month, as authorities were unable to pay the house-rent because of the liquidity crunch. On an average, officers are given around six to seven thousand per month on account of house rent, while workers get Rs11-12 thousand, he added.
Fazlullah Qurashi, Chairman, Board of Directors, PSM said that the Mills submitted a proposal to the Ministry of Finance on Friday, May 14, requesting it to provide Rs25 billion bailout package to bring the Mills out of financial crisis and run it properly.
Another official said that payment of salaries has been arranged, but PSM remains in a dire need of a bailout package. He said at present, PSM was running at 20-25 per cent capacity owing to financial restraints.
Zafar Khan, General Secretary of Pakistan Steel Labour Union, said that several hundred employees have written letters to Chief Justice of Pakistan, requesting him to look into the corruption committed by the previous management. They requested the CJ to take a strong action against culprits.
By Salman Siddiqui
KARACHI: After a delay of almost two weeks, Pakistan Steel Mills (PSM) on Friday finally advised banks to release salaries of its 17,000 employees.
The PSM authorities have also submitted a proposal to the Ministry of Industries, requesting a Rs25 billion bailout-package to ensure its smooth operations.
“Salaries are being paid from the sale proceeds of products and employees may draw their salaries on Monday, May 17,” said PSM public relations officer Hafeez Shaikh. The PSM requires about Rs650 million to pay the salaries every month, he added.
The PSM employees get paid by third of every month, but this time around, the liquidity crunch delayed payment of salaries.
Zafar Khan, General Secretary of Pakistan Steel Labour Union, said that employees would get less-salaries this month, as authorities were unable to pay the house-rent because of the liquidity crunch. On an average, officers are given around six to seven thousand per month on account of house rent, while workers get Rs11-12 thousand, he added.
Fazlullah Qurashi, Chairman, Board of Directors, PSM said that the Mills submitted a proposal to the Ministry of Finance on Friday, May 14, requesting it to provide Rs25 billion bailout package to bring the Mills out of financial crisis and run it properly.
Another official said that payment of salaries has been arranged, but PSM remains in a dire need of a bailout package. He said at present, PSM was running at 20-25 per cent capacity owing to financial restraints.
Zafar Khan, General Secretary of Pakistan Steel Labour Union, said that several hundred employees have written letters to Chief Justice of Pakistan, requesting him to look into the corruption committed by the previous management. They requested the CJ to take a strong action against culprits.
Five-year plan sees 7pc economic growth in fiscal 2014/15
Sunday, May 16, 2010
By Aftab Maken
ISLAMABAD: Pakistan’s economy is likely to grow by 7.0 percent in fiscal 2014/15, while its overall economic growth would hover around 5.5 percent on an average over the next five years, reveals a copy of the 10th five-year plan 2010/15.
The 10th five-year plan envisages that by fiscal 2014/15, the growth rate for agriculture will be 4.8 per cent, industry 9.2 per cent, and service sector 6.4 per cent.
The target for 2009/10 was 3.3 per cent for overall Gross Domestic Product (GDP) growth. The government estimates a growth of 3.6 per cent in the agriculture sector, 2.3 per cent in the industry and 3.7 per cent in services for the current fiscal.
The average growth rate for the five-year period 2010/15 is expected at 5.0 to 5.5 per cent, according to the plan.
Despite optimistic projections, the next five-year plan cited a number of constrains for achieving the desired growth rate, including resource mobilisation, security situation, energy & water and work ethics, skills and competitiveness.
The plan did not give specific remedies for these constrains, it only suggested cosmetic approaches and solutions including, “close coordination and interaction between key policy-makers - financial and development planners and key ministries.”
The plan estimates the growth rate for Large-Scale Manufacturing to reach 9.5 per cent of the GDP in 2014/15 against one per cent in 2009/10. Services sector and wholesale & retail trade growth rate is seen at 6.9 per cent, and financial & insurance at 9.5 per cent in 2014/15 against 3.5 per cent and one per cent respectively in 2009/10.
The five-year plan foresees that by 2015 wheat output will reach 30 million tons, rice 7.5 million tons, and cotton 20.7 million bales against 25 million tons of wheat, 5.9 million tons of rice and 13.4 million bales of cotton respectively in 2010.
The position of human development indicators that include education, health, water supply & sanitation and social protection will also be much improved in this five-year plan 2010/15.
Some of the indicators of education that include adult literacy rate and net primary & secondary enrolments will be increased to 100 per cent whereas the infant mortality rate will be decreased to 40 per cent and maternal mortality ratio to 140 per cent.
Similarly, the access to improved water sources and sanitation will also be improved to above 90 per cent whereas poverty headcount ratio will be decreased from 30 per cent to 13 per cent and BISP coverage will also be increased from 7 million to 12 million in 2015, said the plan.
The plan also envisages new development strategy of “investing in people” by increasing the share of total expenditures both public and private - in education, health, and meeting the MDGs.
By Aftab Maken
ISLAMABAD: Pakistan’s economy is likely to grow by 7.0 percent in fiscal 2014/15, while its overall economic growth would hover around 5.5 percent on an average over the next five years, reveals a copy of the 10th five-year plan 2010/15.
The 10th five-year plan envisages that by fiscal 2014/15, the growth rate for agriculture will be 4.8 per cent, industry 9.2 per cent, and service sector 6.4 per cent.
The target for 2009/10 was 3.3 per cent for overall Gross Domestic Product (GDP) growth. The government estimates a growth of 3.6 per cent in the agriculture sector, 2.3 per cent in the industry and 3.7 per cent in services for the current fiscal.
The average growth rate for the five-year period 2010/15 is expected at 5.0 to 5.5 per cent, according to the plan.
Despite optimistic projections, the next five-year plan cited a number of constrains for achieving the desired growth rate, including resource mobilisation, security situation, energy & water and work ethics, skills and competitiveness.
The plan did not give specific remedies for these constrains, it only suggested cosmetic approaches and solutions including, “close coordination and interaction between key policy-makers - financial and development planners and key ministries.”
The plan estimates the growth rate for Large-Scale Manufacturing to reach 9.5 per cent of the GDP in 2014/15 against one per cent in 2009/10. Services sector and wholesale & retail trade growth rate is seen at 6.9 per cent, and financial & insurance at 9.5 per cent in 2014/15 against 3.5 per cent and one per cent respectively in 2009/10.
The five-year plan foresees that by 2015 wheat output will reach 30 million tons, rice 7.5 million tons, and cotton 20.7 million bales against 25 million tons of wheat, 5.9 million tons of rice and 13.4 million bales of cotton respectively in 2010.
The position of human development indicators that include education, health, water supply & sanitation and social protection will also be much improved in this five-year plan 2010/15.
Some of the indicators of education that include adult literacy rate and net primary & secondary enrolments will be increased to 100 per cent whereas the infant mortality rate will be decreased to 40 per cent and maternal mortality ratio to 140 per cent.
Similarly, the access to improved water sources and sanitation will also be improved to above 90 per cent whereas poverty headcount ratio will be decreased from 30 per cent to 13 per cent and BISP coverage will also be increased from 7 million to 12 million in 2015, said the plan.
The plan also envisages new development strategy of “investing in people” by increasing the share of total expenditures both public and private - in education, health, and meeting the MDGs.
Pakistan to receive $1.13 billion from IMF on 18th: SBP
Sunday, May 16, 2010
By our correspondent
KARACHI: Pakistan will receive the fifth tranche of $1.13 billion from the International Monetary Fund (IMF) on May 18 (Tuesday), the State Bank of Pakistan (SBP) said on Saturday.
The inclusion of fresh disbursement would further increase in foreign exchange reserves, said SBP’s Chief Spokesman Syed Wasimuddin.
The foreign exchange reserves have increased to $15.357 billion by week ending May 7, 2010 due to $656 million released by the United States under the coalition support fund in the war against terrorism.
Ehe executive board of the IMF completed the fourth review of Pakistan’s economic performance under a program supported by a Standby Arrangement and approved $1.13 billion on Friday.
“The Board also approved re-phasing three remaining disbursements into two, while keeping the total access under the arrangement unchanged,” said an IMF press release issued from Washington where the board meeting was held on Friday.
The IMF board approved Pakistan’s request for waivers for the non-observance of two end-March 2010 quantitative performance criteria.
“These waivers were granted for overruns on the overall budget deficit and net government borrowing limits from the SBP on the grounds that their non-observance was in part due to a temporary factor-the delay in the disbursements of foreign financing-and that adequate remedial actions have been agreed upon to address the remaining slippage,” the release said.
In the fourth review the IMF board agreed to a request for modification of end-June 2010 performance criteria for the budget deficit to increase the cumulative end-quarter ceiling by 0.15 percent of GDP to allow space for urgent security outlays and avoid undue cuts in other priority spending, and to raise the floor for the net foreign assets of the SBP by $300 million given a strengthened external position.
The IMF approved the 23-month SBA about $7.61 on November 24, 2008. Later in August 7, 2009 the SBA was augmented to an amount $10.66 billion and extended to end 2010.
The IMF was satisfied with the country’s overall performance and improvement in economic scenario despite adverse security developments and a rapidly changing political environment. “Real GDP growth has begun to pick up and the external position has strengthened. Preparations for important and politically difficult tax reforms have moved forward, and there has been steady progress in financial sector reform,” said the release quoting Murilo Portugal, Deputy Managing Director and Acting Chair.
The IMF, however, expressed reservations on persistent inflation, security-relating spending pressures, energy sector problems, and shortfalls in revenue collection and external financing. “These challenges highlight the importance of pursuing a credible fiscal consolidation, maintaining a flexible exchange rate and a cautious stance to monetary policy, and improving governance,” Murilo said
Pakistani officials have assured the IMF of their commitment to proceed with legal and administrative steps to ensure that the Value Added Tax is introduced by July 1. “Its success depends crucially on prompt passage of consistent VAT laws by parliament and provincial assemblies, harmonization of other tax laws, and an effective refund system,” the IMF said.
The donor agency pointed out that achieving the 2009-10 fiscal target would require strong efforts, including from the political leadership. “Resolute continuation of tax collection efforts, tax administration reform, and expenditure restraint, together with timely disbursement of the pledged foreign financing will be critical to facilitate fiscal management,” the IMF chief said.
The risks posed by quasi-fiscal operations need to be addressed through reforming the electricity sector, cutting back losses at public enterprises, and managing losses from wheat procurement in a transparent manner, the IMF said. “Steps are being taken to ensure that commodity operations do not crowd out credit to the private sector.
“The Pakistani officials determined to accelerate the nationwide rollout of the new targeting system for social safety net, with a view to easing hardship in a period of high inflation and sluggish growth,” Murilo said.
By our correspondent
KARACHI: Pakistan will receive the fifth tranche of $1.13 billion from the International Monetary Fund (IMF) on May 18 (Tuesday), the State Bank of Pakistan (SBP) said on Saturday.
The inclusion of fresh disbursement would further increase in foreign exchange reserves, said SBP’s Chief Spokesman Syed Wasimuddin.
The foreign exchange reserves have increased to $15.357 billion by week ending May 7, 2010 due to $656 million released by the United States under the coalition support fund in the war against terrorism.
Ehe executive board of the IMF completed the fourth review of Pakistan’s economic performance under a program supported by a Standby Arrangement and approved $1.13 billion on Friday.
“The Board also approved re-phasing three remaining disbursements into two, while keeping the total access under the arrangement unchanged,” said an IMF press release issued from Washington where the board meeting was held on Friday.
The IMF board approved Pakistan’s request for waivers for the non-observance of two end-March 2010 quantitative performance criteria.
“These waivers were granted for overruns on the overall budget deficit and net government borrowing limits from the SBP on the grounds that their non-observance was in part due to a temporary factor-the delay in the disbursements of foreign financing-and that adequate remedial actions have been agreed upon to address the remaining slippage,” the release said.
In the fourth review the IMF board agreed to a request for modification of end-June 2010 performance criteria for the budget deficit to increase the cumulative end-quarter ceiling by 0.15 percent of GDP to allow space for urgent security outlays and avoid undue cuts in other priority spending, and to raise the floor for the net foreign assets of the SBP by $300 million given a strengthened external position.
The IMF approved the 23-month SBA about $7.61 on November 24, 2008. Later in August 7, 2009 the SBA was augmented to an amount $10.66 billion and extended to end 2010.
The IMF was satisfied with the country’s overall performance and improvement in economic scenario despite adverse security developments and a rapidly changing political environment. “Real GDP growth has begun to pick up and the external position has strengthened. Preparations for important and politically difficult tax reforms have moved forward, and there has been steady progress in financial sector reform,” said the release quoting Murilo Portugal, Deputy Managing Director and Acting Chair.
The IMF, however, expressed reservations on persistent inflation, security-relating spending pressures, energy sector problems, and shortfalls in revenue collection and external financing. “These challenges highlight the importance of pursuing a credible fiscal consolidation, maintaining a flexible exchange rate and a cautious stance to monetary policy, and improving governance,” Murilo said
Pakistani officials have assured the IMF of their commitment to proceed with legal and administrative steps to ensure that the Value Added Tax is introduced by July 1. “Its success depends crucially on prompt passage of consistent VAT laws by parliament and provincial assemblies, harmonization of other tax laws, and an effective refund system,” the IMF said.
The donor agency pointed out that achieving the 2009-10 fiscal target would require strong efforts, including from the political leadership. “Resolute continuation of tax collection efforts, tax administration reform, and expenditure restraint, together with timely disbursement of the pledged foreign financing will be critical to facilitate fiscal management,” the IMF chief said.
The risks posed by quasi-fiscal operations need to be addressed through reforming the electricity sector, cutting back losses at public enterprises, and managing losses from wheat procurement in a transparent manner, the IMF said. “Steps are being taken to ensure that commodity operations do not crowd out credit to the private sector.
“The Pakistani officials determined to accelerate the nationwide rollout of the new targeting system for social safety net, with a view to easing hardship in a period of high inflation and sluggish growth,” Murilo said.
Fiscal ‘09 economic growth figures revised downward
Sunday, May 16, 2010
Mehtab Haider
ISLAMABAD: Federal Bureau of Statistics (FBS) has revised downward the growth figurers of fiscal 2008/09 (July-June) to 1.2 percent from the earlier official figures of 2.0 percent, which is likely to increase 2009/10 GDP growth rate to 4.10 percent, it was learnt on Saturday.
According to the bureau’s working paper, which will be presented before the National Accounts meeting on May 18 to finalise provisional GDP figures, it was amusing to see that the construction sector grew by 15 percent in fiscal 2009/10. This double digit growth came at a time when Public Sector Development Program (PSDP) has been slashed to Rs250 billion from Rs421 billion and there are hardly any major private sector construction schemes in the pipeline.
In view of this unusual downward revision of GDP growth of fiscal 2008/09, that resulted into low base and set the ground for increasing the growth rate for the current fiscal, there are chances that the figure fudging allegations are going to resurface again.
The Federal Bureau of Statistics’ 2009/10 growth estimates of 4.0-4.10 per cent are even beyond Finance Ministryís expectations, which predicted it in the range of 3.0 to 3.3 percent.
Keeping in view this looming controversy, an official note has been forwarded to the Finance Ministry wizards by the concerned high ups, pointing out that it would be hard for every one to digest such a downward revision in the GDP for the last financial year.
“Who is going to believe that the national economy grew by 4.10 percent in 2009/10 despite severe electricity shortages and suicide bombing in various parts of the country that choked investment and savings,” said a senior official sources requesting anonymity.
The Federal Bureau of Statistics showed a growth in the sale of air conditioners by 70 to 80 percent in November 2009 compared with the same month last year ñ a figure many analysts say remains hard to believe. According to the working paper, manufacturing and service sectors contributed and helped the country achieved these growth figures.
The Large Scale Manufacturing grew by 4.3 percent in 2009/10 despite an acute shortage of electricity in the country and shutter down of businesses in many major cities. The services sector grew by 4.6 percent during the current fiscal.
One Finance Ministry official said that manufacturing sector was performing well after November 2009 and there were expectation that it would rebound to help achieve a respectable growth for the country.
The growth of agriculture sector stands at 2.2 percent in 2009/10 against the envisaged target of 3.8 percent. Despite negative growth in major and minor crops by 3.1 and 2.2 per cent respectively, the agriculture growth remained positive thanks to the livestock sector, which grew by an estimated 4.1 per cent during the current fiscal.
The growth of wholesale and trade was shown in the range of 4.0 to 5.0 per cent despite this fact that the imports were on the decline in the outgoing fiscal.
Mehtab Haider
ISLAMABAD: Federal Bureau of Statistics (FBS) has revised downward the growth figurers of fiscal 2008/09 (July-June) to 1.2 percent from the earlier official figures of 2.0 percent, which is likely to increase 2009/10 GDP growth rate to 4.10 percent, it was learnt on Saturday.
According to the bureau’s working paper, which will be presented before the National Accounts meeting on May 18 to finalise provisional GDP figures, it was amusing to see that the construction sector grew by 15 percent in fiscal 2009/10. This double digit growth came at a time when Public Sector Development Program (PSDP) has been slashed to Rs250 billion from Rs421 billion and there are hardly any major private sector construction schemes in the pipeline.
In view of this unusual downward revision of GDP growth of fiscal 2008/09, that resulted into low base and set the ground for increasing the growth rate for the current fiscal, there are chances that the figure fudging allegations are going to resurface again.
The Federal Bureau of Statistics’ 2009/10 growth estimates of 4.0-4.10 per cent are even beyond Finance Ministryís expectations, which predicted it in the range of 3.0 to 3.3 percent.
Keeping in view this looming controversy, an official note has been forwarded to the Finance Ministry wizards by the concerned high ups, pointing out that it would be hard for every one to digest such a downward revision in the GDP for the last financial year.
“Who is going to believe that the national economy grew by 4.10 percent in 2009/10 despite severe electricity shortages and suicide bombing in various parts of the country that choked investment and savings,” said a senior official sources requesting anonymity.
The Federal Bureau of Statistics showed a growth in the sale of air conditioners by 70 to 80 percent in November 2009 compared with the same month last year ñ a figure many analysts say remains hard to believe. According to the working paper, manufacturing and service sectors contributed and helped the country achieved these growth figures.
The Large Scale Manufacturing grew by 4.3 percent in 2009/10 despite an acute shortage of electricity in the country and shutter down of businesses in many major cities. The services sector grew by 4.6 percent during the current fiscal.
One Finance Ministry official said that manufacturing sector was performing well after November 2009 and there were expectation that it would rebound to help achieve a respectable growth for the country.
The growth of agriculture sector stands at 2.2 percent in 2009/10 against the envisaged target of 3.8 percent. Despite negative growth in major and minor crops by 3.1 and 2.2 per cent respectively, the agriculture growth remained positive thanks to the livestock sector, which grew by an estimated 4.1 per cent during the current fiscal.
The growth of wholesale and trade was shown in the range of 4.0 to 5.0 per cent despite this fact that the imports were on the decline in the outgoing fiscal.
Saturday, May 8, 2010
PAKISTAN - Market factors to watch - May 7
KARACHI, May 7 (Reuters) - Following is a list of events in Pakistan as well as news stories and press reports which may influence financial markets.
(Reuters News welcomes your feedback and for any queries please contact Chris Allbritton in Islamabad editorial on +92-51 281 0017 or via email at chris.allbritton@thomsonreuters.com or on Reuters messaging chris.allbritton.reuters.com@reuters.net) WHAT IS HAPPENING IN PAKISTAN, ALL TIMES LOCAL FOLLOWED BY GMT: (The inclusion of diary items does not necessarily mean that Reuters will cover the event)
* Federal Bureau of Statistic to release monthly consumer price index (CPI) for April on or soon after Monday. Reuters plans to release a poll on the data on Friday.
MARKET SNAPSHOTS
* The rupee PKR= weakened to 84.20/26 to the dollar on Thursday compared with Wednesday's close of 84.17/22 because of increased import payments.
* The Karachi Stock Exchange's benchmark 100-share index .KSE fell 0.08 percent, or 8.62 points, to end at 10,553.12 on turnover of 153.59 million shares.
* The net outflow of foreign portfolio investment in the stock market was $3.81 million on Thursday.
[here]
* U.S. stocks plunged 9 percent in the last two hours of trading on Thursday before clawing back some of the losses as a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray.
The Dow Jones industrial average .DJI dropped 347.80 points, or 3.20 percent, to 10,520.32. The Standard & Poor's 500 Index .SPX fell 37.75 points, or 3.24 percent, to 1,128.15. The Nasdaq Composite Index .IXIC lost 82.65 points, or 3.44 percent, to 2,319.64. [.N]
* Oil edged up above $77 a barrel on Friday on the back of a weaker dollar, recovering from a 4 percent slide the previous day, caused by a massive sell-off on Wall Street and fears of a looming new credit crunch in Europe.
U.S. crude for June delivery CLc1 rose 20 cents to $77.31 a barrel by 0308 GMT, largely on the back of the softer dollar and on bargain hunting. The contract has fallen more than 10 percent this week, its worst week since the start of 2009.
London Brent crude LCOc1 gained 35 cents to $80.18 a barrel. [O/R]
* Gold edged down on Friday after rising toward an all-time high the previous day on Europe's escalating debt woes and tumbling U.S. stocks, but strong safe haven demand is likely to help the metal test new highs.
Spot gold XAU= was at $1,199.50 an ounce at 0301 GMT, down $7.75 cents from New York's notional close on Thursday, when it jumped 3 percent to its highest since December 2009 at $1,210.35 an ounce -- marking its biggest one-day gain in more than a year. [GOL/]
* For global market news, click on [MKTS/GLOB]
* To see announcements on Pakistan central bank's regular open market operations, please click on SBPK09.
(Reuters News welcomes your feedback and for any queries please contact Chris Allbritton in Islamabad editorial on +92-51 281 0017 or via email at chris.allbritton@thomsonreuters.com or on Reuters messaging chris.allbritton.reuters.com@reuters.net) WHAT IS HAPPENING IN PAKISTAN, ALL TIMES LOCAL FOLLOWED BY GMT: (The inclusion of diary items does not necessarily mean that Reuters will cover the event)
* Federal Bureau of Statistic to release monthly consumer price index (CPI) for April on or soon after Monday. Reuters plans to release a poll on the data on Friday.
MARKET SNAPSHOTS
* The rupee PKR= weakened to 84.20/26 to the dollar on Thursday compared with Wednesday's close of 84.17/22 because of increased import payments.
* The Karachi Stock Exchange's benchmark 100-share index .KSE fell 0.08 percent, or 8.62 points, to end at 10,553.12 on turnover of 153.59 million shares.
* The net outflow of foreign portfolio investment in the stock market was $3.81 million on Thursday.
[here]
* U.S. stocks plunged 9 percent in the last two hours of trading on Thursday before clawing back some of the losses as a suspected trading glitch and fears of a new credit crunch in Europe threw markets into disarray.
The Dow Jones industrial average .DJI dropped 347.80 points, or 3.20 percent, to 10,520.32. The Standard & Poor's 500 Index .SPX fell 37.75 points, or 3.24 percent, to 1,128.15. The Nasdaq Composite Index .IXIC lost 82.65 points, or 3.44 percent, to 2,319.64. [.N]
* Oil edged up above $77 a barrel on Friday on the back of a weaker dollar, recovering from a 4 percent slide the previous day, caused by a massive sell-off on Wall Street and fears of a looming new credit crunch in Europe.
U.S. crude for June delivery CLc1 rose 20 cents to $77.31 a barrel by 0308 GMT, largely on the back of the softer dollar and on bargain hunting. The contract has fallen more than 10 percent this week, its worst week since the start of 2009.
London Brent crude LCOc1 gained 35 cents to $80.18 a barrel. [O/R]
* Gold edged down on Friday after rising toward an all-time high the previous day on Europe's escalating debt woes and tumbling U.S. stocks, but strong safe haven demand is likely to help the metal test new highs.
Spot gold XAU= was at $1,199.50 an ounce at 0301 GMT, down $7.75 cents from New York's notional close on Thursday, when it jumped 3 percent to its highest since December 2009 at $1,210.35 an ounce -- marking its biggest one-day gain in more than a year. [GOL/]
* For global market news, click on [MKTS/GLOB]
* To see announcements on Pakistan central bank's regular open market operations, please click on SBPK09.
Saturday, May 1, 2010
1-IMF board likely to meet mid-May on Pakistan
WASHINGTON, April 23 (Reuters) - The International Monetary Fund's board will likely meet in mid-May to consider the next tranche of Pakistan's $11.3 billion loan, a source close to talks between IMF officials and Islamabad said on Friday.
Pakistani finance officials are in Washington this week for spring meetings of the IMF and are also talking to the World Bank and the Asian Development Bank over steps being taken to raise electricity tariffs and other taxes that are unpopular with the public and politically risky for the government.
The IMF's board had originally been scheduled to meet on March 31 to approve the next portion of the emergency package, which was first agreed on in November 2008 to avert a balance of payments crisis in Pakistan and shore up reserves.
Pakistan's budget has also been strained by the cost of battling Taliban insurgents along its border with Afghanistan.
The source, who asked not to be named as the issue is sensitive, said talks with Pakistani officials would continue this weekend and the board meeting would likely be in mid-May to release the fifth installment, worth about $1.2 billion.
He said no definite date had been set, but ruled out the meeting would be held on May 3, as announced by the Pakistani prime minister's office last week.
"They are moving forward and things are going to be resolved very soon," the source said of current negotiations.
Experts said the Pakistani government was coming under increasing pressure from financial institutions, but there appeared to be some flexibility on the part of the IMF, which understood Islamabad was in a tight political and fiscal spot.
"The IMF understands the dynamic here and will give some breathing space," said Maria Kuusisto, a Pakistan expert with the political risk research firm Eurasia Group in London.
"It (Pakistan) needs the next tranche, but it cannot afford the political backlash against it by increasing tariffs now."
POWER ISSUE IS MAJOR CONSTRAINT
Pakistan is battling a chronic electricity shortage, with rolling blackouts countrywide, and is also struggling to keep its budget deficit at the levels required under IMF reforms.
Under the IMF program, the deadline for another increase in electricity tariffs was April 1, but Pakistan failed to meet that and has also been slow in implementing a value-added tax.
The IMF board meeting was delayed in part because the IMF has been waiting for the World Bank and Asian Development Bank to say it was satisfied Pakistan would keep its commitment to deal with both the power tariff issue and "circular debt."
The World Bank said on Friday that Pakistan's government had told the IMF if would make its pending tariff increase effective from April 1, a commitment that "satisfied" the ADB and the bank and had been conveyed to the IMF in a memorandum.
The bank believed Pakistan's government was "serious" about implementing the reforms, it said.
Pakistan is also under pressure to tackle the problem of circular debt, which creates a chain reaction. Distributors cannot pay power producers, who in turn cannot pay fuel suppliers, resulting in even greater electricity cuts and putting more strain on the economy and industry,
"This is really the key issue that the government is struggling with and causing huge liquidity problems for banks and the government," said Eurasia Group's Kuusisto.
Seeking to ease IMF concerns, Prime Minister Yusuf Raza Gilani announced this week the government would pay off 116 billion rupees ($1.38 billion) of the circular debt.
The IMF has cited the power shortage as a serious economic constraint. The electricity crisis is so chronic that the country's central bank announced on Friday that it and all commercial banks would be closed on Saturdays as part of measures to cut state electricity use.
Lengthy power outages, known as load-shedding, can last six to eight hours a day in cities, while cuts are lengthier in rural areas and have led to protests.
Adding to Pakistan's economic woes, the United States is in arrears paying back about $2 billion in military aid it owes to Pakistan under a program called the Coalition Support Fund.
Last month, Pakistani Foreign Minister Shah Mehmood Qureshi said a "substantial" amount of the money would be paid by the end of April, with Washington promising the remainder by the end of June.
Pakistani finance officials are in Washington this week for spring meetings of the IMF and are also talking to the World Bank and the Asian Development Bank over steps being taken to raise electricity tariffs and other taxes that are unpopular with the public and politically risky for the government.
The IMF's board had originally been scheduled to meet on March 31 to approve the next portion of the emergency package, which was first agreed on in November 2008 to avert a balance of payments crisis in Pakistan and shore up reserves.
Pakistan's budget has also been strained by the cost of battling Taliban insurgents along its border with Afghanistan.
The source, who asked not to be named as the issue is sensitive, said talks with Pakistani officials would continue this weekend and the board meeting would likely be in mid-May to release the fifth installment, worth about $1.2 billion.
He said no definite date had been set, but ruled out the meeting would be held on May 3, as announced by the Pakistani prime minister's office last week.
"They are moving forward and things are going to be resolved very soon," the source said of current negotiations.
Experts said the Pakistani government was coming under increasing pressure from financial institutions, but there appeared to be some flexibility on the part of the IMF, which understood Islamabad was in a tight political and fiscal spot.
"The IMF understands the dynamic here and will give some breathing space," said Maria Kuusisto, a Pakistan expert with the political risk research firm Eurasia Group in London.
"It (Pakistan) needs the next tranche, but it cannot afford the political backlash against it by increasing tariffs now."
POWER ISSUE IS MAJOR CONSTRAINT
Pakistan is battling a chronic electricity shortage, with rolling blackouts countrywide, and is also struggling to keep its budget deficit at the levels required under IMF reforms.
Under the IMF program, the deadline for another increase in electricity tariffs was April 1, but Pakistan failed to meet that and has also been slow in implementing a value-added tax.
The IMF board meeting was delayed in part because the IMF has been waiting for the World Bank and Asian Development Bank to say it was satisfied Pakistan would keep its commitment to deal with both the power tariff issue and "circular debt."
The World Bank said on Friday that Pakistan's government had told the IMF if would make its pending tariff increase effective from April 1, a commitment that "satisfied" the ADB and the bank and had been conveyed to the IMF in a memorandum.
The bank believed Pakistan's government was "serious" about implementing the reforms, it said.
Pakistan is also under pressure to tackle the problem of circular debt, which creates a chain reaction. Distributors cannot pay power producers, who in turn cannot pay fuel suppliers, resulting in even greater electricity cuts and putting more strain on the economy and industry,
"This is really the key issue that the government is struggling with and causing huge liquidity problems for banks and the government," said Eurasia Group's Kuusisto.
Seeking to ease IMF concerns, Prime Minister Yusuf Raza Gilani announced this week the government would pay off 116 billion rupees ($1.38 billion) of the circular debt.
The IMF has cited the power shortage as a serious economic constraint. The electricity crisis is so chronic that the country's central bank announced on Friday that it and all commercial banks would be closed on Saturdays as part of measures to cut state electricity use.
Lengthy power outages, known as load-shedding, can last six to eight hours a day in cities, while cuts are lengthier in rural areas and have led to protests.
Adding to Pakistan's economic woes, the United States is in arrears paying back about $2 billion in military aid it owes to Pakistan under a program called the Coalition Support Fund.
Last month, Pakistani Foreign Minister Shah Mehmood Qureshi said a "substantial" amount of the money would be paid by the end of April, with Washington promising the remainder by the end of June.
Thursday, April 29, 2010
ECONOMIC UPDATES
A. REAL SECTOR
After several months of output decline/sluggishness, the real sector of the economy – large scale manufacturing and exports, in particular – is signaling an incipient recovery.
− Production in the Large Scale Manufacturing (LSM) sector grew by positive 0.9 percent in August 2009 versus August 2008 – after recording 13 successive months of negative growth till July.
− August’s figure represents the fifth consecutive month of improvement since the trough of -19.7 percent contraction in LSM output hit in March 2009.
− Adjusted for a decline in Petroleum Products (-6.3 percent, weight in LSM: 5.3 percent) due to the circular debt issue, and in Steel (barring Coke, weight in LSM: 3.5 percent) on account of ongoing production difficulties, the rate of growth in overall LSM production was positive 1.01 percent in August. On the flip side, a 25 percent jump in Cement production (weight in LSM: 4.1 percent), due in large part to domestic sales, provided an unusually large fillip to headline LSM growth.
− After recording a -5.4 percent year-on-year decline in August, the lowest contraction since December 2008, export growth has slipped to -14.2 percent for September. This has interrupted the trend of a moderating rate of decline since the near term trough of -26 percent registered in March this year.
− On a positive note, however, forward-looking indicators such as the level of export orders are depicting a strong upward trend for the near term, especially in the textile sector.
· However, given the shortfall in electricity availability, combined with the disturbed internal security situation, particularly in NWFP, it is more than likely that the early signs of improvement in parts of the economy are restricted so far to the formal, large-scale sector.
B. INVESTMENT
· Investment conditions, as well as intentions, appear to have improved noticeably over the past few months, but are still subject to considerable uncertainty.
− Net bank credit to the private sector has contracted over the past several months, declining by 6.2 percent as of August 2009 versus August 2008.[1] However, nearly half of the decline is attributable to a steep rise in provisioning for non-performing loans. On a gross basis (before provisioning), off-take of bank credit by the private sector has declined a more modest 3 percent.
− A number of factors appear to have contributed so far to the sluggish off-take of bank credit by the private sector, including:
◊ A sharp slowdown in domestic economic activity since 2008 on account of:
I) Stabilization policies put in place to rectify the large imbalances in the economy built up since 2007;
II) The transmission of the large external terms of trade shock experienced over 2007-2008;
III) A marked deterioration of the internal security situation;
IV) Growing energy shortages; and,
V) The fall-out on investment levels from the global financial crisis.
◊ Heightened risk-aversion on the part of banks, following rising loan defaults and payment difficulties by borrowers;
◊ A process of de-leveraging and balance sheet repair underway in the corporate sector.
− Following the recent upgrades of Pakistan’s credit ratings by Standard and Poor’s, and of the sovereign outlook by Moody’s, market as well as investor sentiment has been boosted. The KSE has rallied sharply, rising 31 percent since end-June 2009, before a recent sell-off, for a cumulative gain of 63 percent from January 1 to September 30. Foreign portfolio investment has risen to US$ 208 million in July-September 2009, after recording a decline of US$ 1,032 million during fiscal year 2008/09.
− Reflecting a more buoyant investor sentiment, Pakistan’s 5 year Credit Default Swap (CDS) has fallen dramatically, improving from a peak of 3,000 basis points to a current 800 basis points. Similarly, the prices of the country’s outstanding dollar-denominated sovereign Eurobonds have rallied strongly, depicting a turnaround in investor expectations regarding Pakistan’s economy.
− The incipient improvement in domestic business sentiment is reflected in the findings of the recently released PIDE Business Barometer, which attempts to capture the expectations of firms regarding economic conditions for the six months ahead period via a survey of companies listed on the Karachi Stock Exchange (KSE). Nearly 60 percent of the firms surveyed expected higher production for the July to December 2009 period.
− A marked improvement in investor sentiment notwithstanding, a recent spate of high-profile militant attacks across the country threatens to interrupt the continuation of the turnaround.
In addition, other potential risks to the growth and investment outlook, many of which are not insignificant, emanate from the following factors:
· The continuing mis-match between electricity demand and supply;
· The painfully slow pace of materialisation of Friends of Democratic Pakistan (FoDP) pledges, which is severely constraining the budgetary position and is hampering the government’s efforts to reflate the economy via fiscal stimulus;
· A faster pace of release of external assistance is critical on another front. Without external support, the government’s reliance on the domestic banking sector has increased sharply, leading to valid fears of possible pre-emption at some stage by the government sector of private sector credit needs;[2]
· A projected water shortage for Rabi crops of 24 percent over last year’s availability;
· An ongoing virulent attack of leaf curl virus on the cotton crop in parts of southern and central Punjab;
· A seasonal gas shortage during November to February which is expected to be substantially higher this winter, with some estimates suggesting a shortfall exceeding the 1 billion cubic feet per day (bcfd) mark in January 2010;
· The operation of a base effect in agriculture;
· Any further deterioration of the internal security situation following the start of a new military campaign against militants in South Waziristan.
Given the magnitude of uncertainty associated with the growth outcome in the current fiscal year, the range for estimated growth in the economy for 2009/10 is wider than usual. On current trends, our estimate of real GDP growth for 2009/10 is between 2 and 3 percent.
C. PRICES
· The trend of dis-inflation (a positive, but declining, rate of inflation) in the economy has continued for the eleventh consecutive month.
− Inflation as measured by the Consumer Price Index (CPI) has declined to 10.1 percent year-on-year in September (versus 23.9 percent in September 2008). The rate of inflation (year-on-year) has nearly halved in the past six months.
− The decline in the rate of inflation has occurred due to both the Food as well as Non-food categories. Core inflation, measured as the rate of change in Non-Food, Non-Energy CPI, has decelerated to 11.9 percent in September.
− In addition to the adoption of prudent macroeconomic policies, a strong base effect has also played a significant role in inducing disinflationary trends in the economy, with the unwinding of the effects of the sharp rise in energy and food prices that occurred during 2008. While month-on-month CPI inflation has decelerated in September after several months of elevated levels, the environment for price pressures in the economy appears less benign going forward, based on the following factors:
· The base effect will wash out by December this year;
· International oil prices have reversed near term course and crossed US$80 as of third week of October, a rise of 15 percent since July 1;
· The possibility of still higher electricity tariffs under the World Bank/Asian Development Bank-sponsored power sector reform;
· The possibility of higher gas tariffs for end-users after the review of wellhead prices in December/January 2010.
D. BALANCE OF PAYMENTS
· The external account position has continued to improve, but prospects for the balance of payments in 2009/10 hinge significantly on the magnitude and timing of external inflows, as well as on the outlook for international oil and commodity prices.
− The external current account balance swung to a surplus in September (US$174 million) after posting a nominal deficit in August (US$19 million). Lower imports and record-breaking inflows of worker remittances have contributed most to the turnaround.
− After recording an annual increase of 25 percent in 2008/09, remittances have continued to surge in the first quarter of 2009/10, crossing US$800 million for the first time in September.
− Following a moderation in the rate of decline for five successive months, exports have recorded a fall of 14.2 percent year-on-year in September.
− However, reflecting a continuous, albeit gradual, improvement in global economic conditions especially in external trade (see Charts below), order books of Pakistani textile and apparel exporters are reported to be full for several months in advance.
− Improvements in the Real Effective Exchange Rate (REER) since March, coinciding with the Indian Rupee’s rapid appreciation and a decline in Pakistan’s inflation rate since, are expected to underpin a firmer trend in the near term in exports.
− The contraction in imports has accelerated, with headline imports declining 36 percent year-on-year in September, led primarily by a sharp fall in oil payments (lower by US$628 million) and food imports (down by US$340 million).
− Import of autos in kit form for local assembly (i.e. in Completely Knocked Down, or CKD, mode) has remained 5 percent higher, reflecting the pick up in domestic auto sales and production even in the absence of bank financing.
E. TAX REVENUE
· Reflecting the extent of the slowdown in the economy in 2008/09, and the impact of a change in tax filing dates, FBR tax collection for the first quarter of 2009/10 is up nominally.
− A sharp fall in sales and corporate profitability in prior periods, a 19 percent decline in the value of dutiable imports during July to September 2009, the impact of the internal restructuring of FBR, the fall out of the internal security situation on business conditions, and a change in the dates for filing advance tax (from September 30 to October 15), have all contributed to a nominal increase of 0.2 percent in overall tax collection.
− However, tax collection for the first quarter should be viewed in the context of a 35 percent increase in tax collection during July to September 2008 (versus corresponding period 2007), providing an unusually high base for comparison. In addition, adjusted for the estimated impact of advance tax collection shifted to next quarter (approximately Rs 25-29 billion), the tax collection effort has been above par under challenging circumstances.
− A pick up in economic activity, an early resolution of the energy crisis, an improvement in the internal security situation, a continuation of the trend of improvement in the global economy, and results of the restructuring of tax administration should all contribute towards achievement of the full year tax revenue target.
F. CONCLUSION
Leading indicators appear to be pointing to the fact that Pakistan’s economy is tentatively in a recovery phase after a deep and broad slowdown. If this trend is confirmed in the months ahead, with the economy still having to navigate through significant potential challenges and headwinds, the slowdown, for all its intensity, would have lasted for a lesser duration than initially feared.
Despite the fact that the economy appears to be recovering, however, moving to a sustained expansion is conceivably some way off. While an improvement in global economic conditions will be helpful in fostering the turnaround in the domestic economy, the biggest contribution will be made by the continuation of a deep and sustained commitment to wide-ranging structural reform.
After several months of output decline/sluggishness, the real sector of the economy – large scale manufacturing and exports, in particular – is signaling an incipient recovery.
− Production in the Large Scale Manufacturing (LSM) sector grew by positive 0.9 percent in August 2009 versus August 2008 – after recording 13 successive months of negative growth till July.
− August’s figure represents the fifth consecutive month of improvement since the trough of -19.7 percent contraction in LSM output hit in March 2009.
− Adjusted for a decline in Petroleum Products (-6.3 percent, weight in LSM: 5.3 percent) due to the circular debt issue, and in Steel (barring Coke, weight in LSM: 3.5 percent) on account of ongoing production difficulties, the rate of growth in overall LSM production was positive 1.01 percent in August. On the flip side, a 25 percent jump in Cement production (weight in LSM: 4.1 percent), due in large part to domestic sales, provided an unusually large fillip to headline LSM growth.
− After recording a -5.4 percent year-on-year decline in August, the lowest contraction since December 2008, export growth has slipped to -14.2 percent for September. This has interrupted the trend of a moderating rate of decline since the near term trough of -26 percent registered in March this year.
− On a positive note, however, forward-looking indicators such as the level of export orders are depicting a strong upward trend for the near term, especially in the textile sector.
· However, given the shortfall in electricity availability, combined with the disturbed internal security situation, particularly in NWFP, it is more than likely that the early signs of improvement in parts of the economy are restricted so far to the formal, large-scale sector.
B. INVESTMENT
· Investment conditions, as well as intentions, appear to have improved noticeably over the past few months, but are still subject to considerable uncertainty.
− Net bank credit to the private sector has contracted over the past several months, declining by 6.2 percent as of August 2009 versus August 2008.[1] However, nearly half of the decline is attributable to a steep rise in provisioning for non-performing loans. On a gross basis (before provisioning), off-take of bank credit by the private sector has declined a more modest 3 percent.
− A number of factors appear to have contributed so far to the sluggish off-take of bank credit by the private sector, including:
◊ A sharp slowdown in domestic economic activity since 2008 on account of:
I) Stabilization policies put in place to rectify the large imbalances in the economy built up since 2007;
II) The transmission of the large external terms of trade shock experienced over 2007-2008;
III) A marked deterioration of the internal security situation;
IV) Growing energy shortages; and,
V) The fall-out on investment levels from the global financial crisis.
◊ Heightened risk-aversion on the part of banks, following rising loan defaults and payment difficulties by borrowers;
◊ A process of de-leveraging and balance sheet repair underway in the corporate sector.
− Following the recent upgrades of Pakistan’s credit ratings by Standard and Poor’s, and of the sovereign outlook by Moody’s, market as well as investor sentiment has been boosted. The KSE has rallied sharply, rising 31 percent since end-June 2009, before a recent sell-off, for a cumulative gain of 63 percent from January 1 to September 30. Foreign portfolio investment has risen to US$ 208 million in July-September 2009, after recording a decline of US$ 1,032 million during fiscal year 2008/09.
− Reflecting a more buoyant investor sentiment, Pakistan’s 5 year Credit Default Swap (CDS) has fallen dramatically, improving from a peak of 3,000 basis points to a current 800 basis points. Similarly, the prices of the country’s outstanding dollar-denominated sovereign Eurobonds have rallied strongly, depicting a turnaround in investor expectations regarding Pakistan’s economy.
− The incipient improvement in domestic business sentiment is reflected in the findings of the recently released PIDE Business Barometer, which attempts to capture the expectations of firms regarding economic conditions for the six months ahead period via a survey of companies listed on the Karachi Stock Exchange (KSE). Nearly 60 percent of the firms surveyed expected higher production for the July to December 2009 period.
− A marked improvement in investor sentiment notwithstanding, a recent spate of high-profile militant attacks across the country threatens to interrupt the continuation of the turnaround.
In addition, other potential risks to the growth and investment outlook, many of which are not insignificant, emanate from the following factors:
· The continuing mis-match between electricity demand and supply;
· The painfully slow pace of materialisation of Friends of Democratic Pakistan (FoDP) pledges, which is severely constraining the budgetary position and is hampering the government’s efforts to reflate the economy via fiscal stimulus;
· A faster pace of release of external assistance is critical on another front. Without external support, the government’s reliance on the domestic banking sector has increased sharply, leading to valid fears of possible pre-emption at some stage by the government sector of private sector credit needs;[2]
· A projected water shortage for Rabi crops of 24 percent over last year’s availability;
· An ongoing virulent attack of leaf curl virus on the cotton crop in parts of southern and central Punjab;
· A seasonal gas shortage during November to February which is expected to be substantially higher this winter, with some estimates suggesting a shortfall exceeding the 1 billion cubic feet per day (bcfd) mark in January 2010;
· The operation of a base effect in agriculture;
· Any further deterioration of the internal security situation following the start of a new military campaign against militants in South Waziristan.
Given the magnitude of uncertainty associated with the growth outcome in the current fiscal year, the range for estimated growth in the economy for 2009/10 is wider than usual. On current trends, our estimate of real GDP growth for 2009/10 is between 2 and 3 percent.
C. PRICES
· The trend of dis-inflation (a positive, but declining, rate of inflation) in the economy has continued for the eleventh consecutive month.
− Inflation as measured by the Consumer Price Index (CPI) has declined to 10.1 percent year-on-year in September (versus 23.9 percent in September 2008). The rate of inflation (year-on-year) has nearly halved in the past six months.
− The decline in the rate of inflation has occurred due to both the Food as well as Non-food categories. Core inflation, measured as the rate of change in Non-Food, Non-Energy CPI, has decelerated to 11.9 percent in September.
− In addition to the adoption of prudent macroeconomic policies, a strong base effect has also played a significant role in inducing disinflationary trends in the economy, with the unwinding of the effects of the sharp rise in energy and food prices that occurred during 2008. While month-on-month CPI inflation has decelerated in September after several months of elevated levels, the environment for price pressures in the economy appears less benign going forward, based on the following factors:
· The base effect will wash out by December this year;
· International oil prices have reversed near term course and crossed US$80 as of third week of October, a rise of 15 percent since July 1;
· The possibility of still higher electricity tariffs under the World Bank/Asian Development Bank-sponsored power sector reform;
· The possibility of higher gas tariffs for end-users after the review of wellhead prices in December/January 2010.
D. BALANCE OF PAYMENTS
· The external account position has continued to improve, but prospects for the balance of payments in 2009/10 hinge significantly on the magnitude and timing of external inflows, as well as on the outlook for international oil and commodity prices.
− The external current account balance swung to a surplus in September (US$174 million) after posting a nominal deficit in August (US$19 million). Lower imports and record-breaking inflows of worker remittances have contributed most to the turnaround.
− After recording an annual increase of 25 percent in 2008/09, remittances have continued to surge in the first quarter of 2009/10, crossing US$800 million for the first time in September.
− Following a moderation in the rate of decline for five successive months, exports have recorded a fall of 14.2 percent year-on-year in September.
− However, reflecting a continuous, albeit gradual, improvement in global economic conditions especially in external trade (see Charts below), order books of Pakistani textile and apparel exporters are reported to be full for several months in advance.
− Improvements in the Real Effective Exchange Rate (REER) since March, coinciding with the Indian Rupee’s rapid appreciation and a decline in Pakistan’s inflation rate since, are expected to underpin a firmer trend in the near term in exports.
− The contraction in imports has accelerated, with headline imports declining 36 percent year-on-year in September, led primarily by a sharp fall in oil payments (lower by US$628 million) and food imports (down by US$340 million).
− Import of autos in kit form for local assembly (i.e. in Completely Knocked Down, or CKD, mode) has remained 5 percent higher, reflecting the pick up in domestic auto sales and production even in the absence of bank financing.
E. TAX REVENUE
· Reflecting the extent of the slowdown in the economy in 2008/09, and the impact of a change in tax filing dates, FBR tax collection for the first quarter of 2009/10 is up nominally.
− A sharp fall in sales and corporate profitability in prior periods, a 19 percent decline in the value of dutiable imports during July to September 2009, the impact of the internal restructuring of FBR, the fall out of the internal security situation on business conditions, and a change in the dates for filing advance tax (from September 30 to October 15), have all contributed to a nominal increase of 0.2 percent in overall tax collection.
− However, tax collection for the first quarter should be viewed in the context of a 35 percent increase in tax collection during July to September 2008 (versus corresponding period 2007), providing an unusually high base for comparison. In addition, adjusted for the estimated impact of advance tax collection shifted to next quarter (approximately Rs 25-29 billion), the tax collection effort has been above par under challenging circumstances.
− A pick up in economic activity, an early resolution of the energy crisis, an improvement in the internal security situation, a continuation of the trend of improvement in the global economy, and results of the restructuring of tax administration should all contribute towards achievement of the full year tax revenue target.
F. CONCLUSION
Leading indicators appear to be pointing to the fact that Pakistan’s economy is tentatively in a recovery phase after a deep and broad slowdown. If this trend is confirmed in the months ahead, with the economy still having to navigate through significant potential challenges and headwinds, the slowdown, for all its intensity, would have lasted for a lesser duration than initially feared.
Despite the fact that the economy appears to be recovering, however, moving to a sustained expansion is conceivably some way off. While an improvement in global economic conditions will be helpful in fostering the turnaround in the domestic economy, the biggest contribution will be made by the continuation of a deep and sustained commitment to wide-ranging structural reform.
Saturday, April 24, 2010
IMF board likely to meet mid-May on Pakistan
WASHINGTON (April 24 2010): The International Monetary Fund's board likely will meet in mid-May to consider the next tranche of Pakistan's $11.3 billion loan, a source close to negotiations between IMF officials and Islamabad said on Friday.
Pakistani finance officials are in Washington this week for spring meetings of the IMF and are also talking to the World Bank and the Asian Development Bank over steps being taken to raise electricity tariffs and other taxes that are unpopular with the public and politically risky for the government. The source, who asked not to be named as the issue is sensitive, said talks with Pakistani officials would continue this weekend and the board meeting would likely be in mid-May to release the fifth instalment, worth about $1.2 billion.
He said no definite date had been set, but ruled out the meeting would be held on May 3, as announced by the Pakistani prime minister's office last week. "They are moving forward and things are going to be resolved very soon," the source said of current negotiations.
Pakistani finance officials are in Washington this week for spring meetings of the IMF and are also talking to the World Bank and the Asian Development Bank over steps being taken to raise electricity tariffs and other taxes that are unpopular with the public and politically risky for the government. The source, who asked not to be named as the issue is sensitive, said talks with Pakistani officials would continue this weekend and the board meeting would likely be in mid-May to release the fifth instalment, worth about $1.2 billion.
He said no definite date had been set, but ruled out the meeting would be held on May 3, as announced by the Pakistani prime minister's office last week. "They are moving forward and things are going to be resolved very soon," the source said of current negotiations.
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