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.

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.

"LNG Mashal Project": SSGC report to Supreme Court raises key question

ISLAMABAD (April 24 2010): The report submitted by Sui Southern Gas Company Limited (SSGC) to the Supreme Court has raised the question as to who had recommended Shell Company for multibillion dollars LNG contract as a firm, '4 Gas', had not designated it as a supplier for the 'LNG Mashal Project'. According to the report, '4 Gas' designated GDF, Mitsubishi, BP and Woodside as its designated suppliers.

Price Negotiations Committee held discussions with whoever was willing to discuss supply of LNG to Mashal and choose to recommend the best offer which was that of GDF Suez. But the report submitted by SSGC has not shown how Shell Company was inducted in the project and even its offer was submitted to the Economic Co-ordination Committee (ECC) of the Cabinet as the second lowest bidder for LNG deal under LNG Mashal Project.

According to SSGC, the consultants appointed for the same had also recommended the '4Gas'-GDF Suez combination. The report gives the impression that it had already been decided to award contract to '4 Gas'-GDF Suez combination without any other party following the recommendations of the consultants.

The SSGC said that '4 Gas' participated in the Expression of Interest (EoI) and qualified at every level. '4 Gas' designated GDF, Mitsubishi, BP and Woodside as its designated suppliers. Price Negotiations Committee held discussions with whoever was willing to discuss supply of LNG to Mashal and choose to recommend the best offer which was that of GDF Suez.

According to SSGC, the consultants appointed for the same had also recommended the 4Gas-GDF Suez combination. "It is submitted that there is nothing illegal about the Mashal Project. This Hon'ble court has no jurisdiction, and there is no law to scrap this project if the ECC has approved it and still wants the same to go ahead with it," the SSGC added. But SSGC also missed the point that then ECC chairman Shaukat Tarin had stated many times that he was kept in the dark by Petroleum Ministry when summary was submitted for approval.

It is also pertinent to mention here that this is not a project which is being constructed by government funds. '4 Gas' is a private company that is making investment in the Mashal Project and taking the risks. According to SSGC, GDF Suez is LNG supplier willing to offer the best terms and conditions available in the market today which are acceptable to the government of Pakistan.

There is no reason to end this project. Submission of incomplete summary by the Petroleum Ministry to ECC or holding back information from ECC is the fault of the ministry and not of the gas suppliers or terminal operators. "In the end it is submitted that Pakistan may need more terminals and hence it has been recommended that ECC should approve future projects like Mashal to meet the increasing demand," the report said, adding that any action taken to jeopardise the Mashal Project is unjustified and wrong for the country.

World Bank asks FBR to estimate number of VAT taxpayers: action plan prepared

ISLAMABAD (April 24, 2010): The World Bank (WB) Review Mission has asked the Federal Board of Revenue (FBR) to immediately estimate the prospective taxpayers who are expected to join value-added tax (VAT) net with the start of initial registration process next month for introduction of the VAT from July 1, 2010.

Two weekly holidays notified

ISLAMABAD (April 24, 2010): In its first move after decisions for power conservation, the federal government has issued the notification regarding two-day weekly holiday in government and semi-government offices round the country, whereas the State Bank of Pakistan has also announced two holidays for the banking sector. Interior Ministry issued the notification on Friday for two weekly offs in government and semi-government offices, and working hours in the offices have also been changed.

SBP announces five-day working week for banks

KARACHI (April 24, 2010): Following the federal government directive, the State Bank of Pakistan on Friday announced to observe two weekly holidays to help the government to overcome energy crisis. "All bank, DFIs and exchange companies will also comply with the central bank's directive and will observe two holidays in a week," said Syed Wasimuddin, chief spokesman, SBP.

Six percent power tariff hike: IMF may be approached for waiver

ISLAMABAD (April 22 2010): Pakistan may again approach the International Monetary Fund (IMF) for waiver of 6 percent increase in power tariff, due from April, after a comprehensive strategy based on long-, medium- and short-term measures being announced by Prime Minister Yousaf Raza Gilani to address the energy crisis and resolve the issues of power sector.

Sources said that the issue of waiver on power tariff was not resolved during the recent talks with the IMF delegation and the final decision to this effect was to be taken by political leadership. The relaxation on power tariff was reported to have been linked to the satisfaction of Asian Development Bank and World Bank who wanted Pakistan to devise a clear strategy for addressing the growing energy crisis and the issues of power sector including circular debt.

Sources said that measures to be unveiled on Thursday after three days' deliberation at the energy conference would hopefully address the concerns of ADB and WB and also their suggestion at least to some extend for use of gas as input for power generation through closure of CNG stations and industrial units for one-day a week to divert 150 MMCFD gas to the power sector.

Pakistan wanted waiver with respect of 6 percent increase in electricity tariff that was due from April 1 because of expected strong backlash from the masses who are already protesting across the country against intolerable power outages. This waiver would not have any impact on fiscal deficit and money for other heads would be use for subsidy. They said that total impact of holding on due increase in power tariff would be around Rs 25 billion for the next three months, which would be met by using Rs 25 billion subsidy earmarked in the budget for wheat import.

Under IMF conditions, the government had agreed to raise the power tariff by 24 percent during the current fiscal year, in three phases. Tariff was increased by six percent in the October-December quarter and another 12 percent in January-March, while another six percent was committed by the government to the IMF to become effective from April 1. Sources said that further increase in electricity tariff at this point in time of deepening power crisis was not possible.

Any increase in the electricity tariff would aggravate anger of the masses against the government and they might resort to protest and riots. This would ultimately have negative impact on growth and revenue and increase in the price of power would escalate inflationary pressure as well.

Having taken into consideration all these aspects, sources said, the government may request IMF for waiver in power tariff increase due from April 1. The government has not been able to reduce transmission and distribution losses or improve efficiency; subsidy on electricity would reach Rs 146 billion against Rs 66 billion budgeted for the ongoing fiscal year.

The government had allocated Rs 66 billion for power subsidies in the ongoing budget, while Rs 55 billion approval was sought during the second quarter of on-going fiscal year. At present, approval of another estimated Rs 25 billion is being requested from the IMF.

BRIndex30 up by 10.29 points

KARACHI (April 23, 2010): On Thursday, BRIndex30 opened in the positive zone at 8,842.14. It closed at 8,852.43 with a net positive change of 10.29 points and percentage change of 0.12. It showed intra-day high of 8,935.28 and intra-day low of 8,835.83. The volume of BRIndex30 was 121,940,029, which was 65.66 percent of KSE All Share and 92.93 percent of KSE-100.

Equities move both ways on LSE

LAHORE (April 23, 2010): Equities on Thursday moved both the ways on the Lahore Stock Exchange (LSE) and finally ended with marginal losses amid descending transaction volume on account of investors' behaviour who adopted conscious approach. The LSE-25 index registered insignificant decline of 1.51 points and was ended at 3307.14 against 3308.65 of Wednesday, while trading turnover squeezed to 11.767 million shares, as compared to previous volume of 13.807 million shares.

US Congress takes step towards Iran sanctions

WASHINGTON (April 23, 2010): The US Congress took a critical step Thursday towards imposing new economic sanctions on Iran, as lawmakers warned time was running out to keep Tehran from developing nuclear weapons. "This may be our last chance to apply pressure on Iran before it is too late," said Republican Representative Ileana Ros-Lehtinen, who charged Iran was sprinting "to the nuclear finish line."

Swiss mull laws to allow break-up of UBS and Credit Suisse in crisis

BERNE (April 23, 2010): UBS and Credit Suisse should change their structure to allow their break-up in the case of an insolvency to limit the risks for the Swiss economy, a government commission said on Thursday. In an interim report on the too-big-to-fail issue, the commission urged lawmakers to enable regulators to force the banks if necessary to adopt a structure that allowed to keep key businesses going in case of an insolvency.

Former MPA among five shot dead in Charsadda

PESHAWAR (April 23, 2010): At least five people including Alamzeb Omarzai, a former MPA, were shot dead in an attack by armed men at Charsadda Chowk near Sui-Gas Office on Thursday morning. Talking to APP, PPP-Sherpao spokesman said that four armed men in a double cabin pickup started indiscriminate firing at the vehicle, killing Alamzeb on the spot.

Customs blows the lid off tax frauds involving billions

KARACHI (April 23, 2010): The R&D wing of Pakistan Customs has blown the lid off tax frauds of billions of rupees committed by prominent importers of auto parts, chemical and steel, it is learnt. Sources told Business Recorder on Thursday that the action was taken on a tip-off, which revealed that a large number of importers are involved in tampering of Goods Declarations (GDs) to clear import consignments at nominal duties and taxes through Pakistan Customs Computerised System (PaCCS).

Benazir Smart Card scheme launched

LAHORE (April 23, 2010): Benazir Income Support Programme (BISP) was a revolutionary step by the government that had no precedence, said President Asif Ali Zardari on Thursday. BISP is a step towards making Pakistan a welfare state, and through which efforts are being made to eliminate poverty and strengthen women socially and financially. According to the vision of Quaid-e-Awam Shaheed Zulfiqar Ali Bhutto and Shaheed Mohtarma Benazir Bhutto.

Budget deficit to overshoot target

KARACHI (April 23, 2010): The country's budget deficit may reach 5.5 percent of gross domestic product this fiscal year, officials said on Thursday, overshooting a 5.1 percent target agreed with the International Monetary Fund (IMF). The IMF board is scheduled to meet on May 3 to discuss the approval of a fifth tranche of a $1.2 billion loan for the cash-strapped US ally, which is battling insurgency in its north-west.

Kapco stops power project work

KARACHI (April 23, 2010): The Kot Addu Power Company (Kapco) has announced to do away with the proposed 280MW expansion project due to the impending circular debt and its consequential impact on the fuel supply chain to the power sector. In an information sent to Karachi Stock Exchange (KSE), the company said that the decision has been taken in the company's board of directors meeting held on Wednesday.

MQM condemns Wapda's decision

KARACHI (April 23, 2010): Muttahida Qaumi Movement (MQM) Rabita Committee on Thursday strongly condemned the decision of the Water and Power Development Authority (Wapda) of taking off 300 mega watts electricity from Karachi Electric Supply Corporation (KESC) system.

Karachi traders reject energy saving plan

KARACHI (April 23, 2010): Traders on Thursday rejected the government plan of energy conservation, saying that it would cripple the trade and business activities by 50 percent. In an spontaneous reaction, they also appealed to Chief Justice Iftikhar Muhammad Chaudhry to take suo motu action against the government for its move of cutting 300 MW of electricity from Karachi's power share.

Wapda supply to Karachi reduced by 300 megawatts as government launches radical plan to tackle power shortages

ISLAMABAD (April 23, 2010): Prime Minister Syed Yusuf Raza Gilani on Thursday announced immediate measures proposed by the two-day energy conference and assured that steps would eliminate unscheduled loadshedding and reduce by 30

Job oriented investment in IT sector to be encouraged: Khosa

Adviser to Prime Minister for Information Technology, Sardar Muhammad Latif Khan Khosa has said that equal opportunities will be provided to encourage investment in the Information Technology and Telecom sector in order to create maximum job avenues for the Pakistani youth.
The Advisor was talking to a delegation of Zong which called on him headed by Chief Executive Officer, Qian Li here on Wednesday.
The Advisor lauded the huge investment made by Zong in Pakistan and termed it a success story, which has not only provided a better service to the people but also created job opportunities for them.
The Advisor urged the mobile operating companies to introduce such low-priced packages which can play a role for character building of the future generation instead of subverting them.
He said China is our brotherly country which always extended support to us in the need our hour. We are a flexible and brave nation and always came out of crises what ever it faced. We will also steer out of the energy crisis as all the nation has united for the purpose.
The Advisor assured the delegation to extend all possible help to address their grievances and expressed hope that Zong will invest more in Pakistan aimed at creating more job opportunities for our talented youth.

Budget for 2010-11 fiscal year to be tabled in Parliament on June 05

The budget for fiscal year of 2010-11 would be tabled in Parliament house on June 05 or June 12, as work into this effect is underway in Federal Finance Ministry.
A Private TV Channel quoted sources as saying that paper-2 of budget for next financial year would be handed over to standing committees of Parliament by May 15.
In paper-2 of budget, amount would be allocated for non development expenditure a well as development schemes.
The National Accounts Committee would meet on April 21 May to finalize amount allocated for development schemes.
National Economic Council would meet on 31st May under the chairmanship of Prime Minister Syed Yousuf Raza Gilani to approve development expenditures. The budget would not be prepared keeping in view the aids to be given by friends of Pakistan.

Govt contemplates to tap parallel economy

ISLAMABAD – Finding hardly any way out of the economic imbroglio of constantly growing fiscal imbalances, the Government is actively contemplating to tap, as much as it can, so-called parallel or informal economy.
In the wake of delays in inflow of foreign assistance both bilateral and multilateral and war on terror costing beyond estimates besides dampening investment scenario the Government is left with no option but to go for some unconventional measures to generate capital resources.
Well-placed sources informed TheNation that the Finance Ministry had been formulating a proposal that would include multidimensional steps to lure informal businesses towards documentation. The sources were of the view that this time documentation of the economy would be comprehensive more than former Finance Minister Shaukat Aziz’s economic survey that miserably failed.
According to the sources, the Government would seek a prior node from the Bretton Woods institutions before implementing the policy of tapping the informal economy, which independent observers believe has grown much more than the size of the formal economy.
Advisor to the Prime Minister Abdul Hafeez Sheikh and Governor State Bank of Pakistan Saleem Raza are leaving tonight for the US to the attend the spring meetings of the International Monetary Fund and the World Bank Group at Washington on April 24-25. After the spring meetings of the multilateral institutions the Pakistan delegation would hold individual meetings with the both organisations. The Government is seeking a series of wavers on different targets agreed upon under the standby loan programme of over $11 billion. Starting from fiscal deficit to the withdrawal of subsidies on utilities the Government has failed to achieve the targets for the current financial year.

FTA with Pakistan is in initial stage: US official RECORDER REPORT

SIALKOT (April 21 2010): The process of signing Free Trade Agreement (FTA) with Pakistan is in initial stage and after the completion of the process a road map would be chalked out for its implementation, said Political and Economic's section chief of US Consulate, Lahore, Richard Jao.

Addressing the members of Sialkot Chamber of Commerce and Industry (SCCI) here on Tuesday he said that adequate efforts were underway for enhancing business activities between US and Pakistan. In this regard, Business Partner Service has been designed for Pakistani businesses aiming to enrich and enhance their business operation through establishing linkage and collaboration with US companies, he disclosed.

Richard Jao further said: "We understand the gravity of energy problem being confronted by the people of Pakistan," adding that in order to address the issue various projects including Jamshoro project are under active consideration. In his address Vice President SCCI Dr Sarfraz Bashir said that Pakistan was playing pivotal role in combating terrorism saying that Pakistan proved a time-tested and true ally of US in such a campaign.

"It is unfortunate that this devoted contribution of Pakistan was not responded with increased economic co-operation between Pakistan and US," he said. Dr Sarfraz further stated that business community attaches the great importance to US and perceives it as the most important partner in socio-economic development of the country.

Panel expresses serious concern about existence of 'SRO Culture'

ISLAMABAD (April 21, 2010): The 'panel of economists' of the Planning Commission has expressed serious concern over the existence of 'SRO Culture' in Pakistan which facilitates some business units to clear consignments on special concessionary rates of customs duty.

Country in midst of global and domestic economic crises

ISLAMABAD (April 21, 2010): Pakistan is in the midst of twin crisis at this juncture ie, global and domestic economic downturn resulting in high inflation and reduction in employment opportunities and war against extremism displacing large number of people and destroyed infrastructure, noted a panel of economists constituted by Planning Commission of Pakistan.

Refund delay pushed up cost of doing business: Economists Panel's observation

ISLAMABAD (April 21, 2010): The Panel of Economists has observed that the delay in payment of sales tax refunds has substantially increased the exporters cost of doing business. The Planning Commission's report of "Panel of Economists" issued here on Tuesday noted with concern that the delay in refund payment is still a major issue of the exporters.

Inclusive growth with four broad dimensions: structural changes proposed

ISLAMABAD (April 21, 2010): The Panel of Economists has proposed to the government to initiate necessary structural changes and establish institutional framework for sustained inclusive growth. The high profile panel of economists constituted by the present government after coming into power to suggest measures that could be adopted to steer the country out of prevailing economic crisis has submitted 'Medium-Term Development Imperatives and Strategy for Pakistan.

Budget in June

ISLAMABAD (April 21, 2010): The Finance Ministry, succumbing to the political and other pressures, is now set to present the 2010-11 Budget in the month of June instead of earlier planned by end of May, sources said. A Budget Strategy Paper-II (BSP-II), though, will come in the Parliament to soothe the parliamentarians, giving broader outline and framework of the budget for next three years, encompassing the outcome based budgeting for social sector and other sectors.

'BOI, SBOI preparing investment projects'

KARACHI (April 21, 2010): Board of Investment (BOI) in collaboration with Sindh Board of Investment (SBOI) is preparing comprehensive investment projects. Director General, BOI, Nasreen Ali informed the business community during a meeting of Korangi Association of Trade and Industry (KATI) held here on Tuesday. Nasreen Ali emphasised the need of investment in those projects, which can create more jobs to absorb larger number of unemployed youth.

THE RUPEE: mixed pattern

KARACHI (April 19, 2010): The rupee drifted lower against dollar during the week ended on April 17, 2010. However, it posted fresh gain versus euro. On the interbank, the rupee shed one paisa in relation to dollar for buying at 84.05 and three paisa for selling at 84.10.

Pakistan standing as bulwark against forces of extremism: Prime Minister

BAHAWALPUR (April 19, 2010): Prime Minister Syed Yousuf Raza Gilani said Pakistan is standing as a bulwark against forces of extremism and militancy while bearing a very heavy cost to its economy and prosperity. Addressing participants of the military exercise Azm-e-Nou here on Sunday. The Prime Minister said, "the world today finds Pakistan standing as a bulwark against forces of extremism and militancy."

OMCs gasoline price differential: ECC may clear Rs 3.3 billion claims

ISLAMABAD (April 19, 2010): The Economic Co-ordination Committee (ECC) of Cabinet, scheduled to meet on Monday, April 19, may clear Rs 3.3 billion for Pakistan State Oil (PSO) and Shell on account of imported motor gasoline differential claims, as Finance Ministry has refused to arrange the money, Business Recorder has learnt.

Energy summit begins today

ISLAMABAD (April 19, 2010): In pursuance of Prime Minister Syed Yousuf Raza Gilani's directive, a two-day energy summit to finalise a concrete roadmap to tide over existing energy crisis begins today (Monday). All provincial chief ministers, provincial power ministers, minister for petroleum, advisor to Prime Minister on finance and other relevant cabinet members will attend the summit.

Pakistan asked to focus on energy import sources: World Bank supports IPI for the first time

ISLAMABAD (April 19, 2010): The World Bank (WB) has insisted that Islamabad should realise the importance of import of electricity from Central Asia, liquefied natural gas (LNG) import project, gas import through Iran-India-Pakistan (IPI) pipeline and Turkmenistan-Pakistan-India (TAPI) pipeline to meet the increasing energy demand, official sources told Business Recorder.

Bullion Rates

KARACHI (April 20, 2010): Gold and silver rates in rupees per 10 grams prevailing in major cities on Monday (April 19, 2010).

BRIndex30 down 18.32 points

KARACHI (April 20, 2010): On Monday, the BRIndex30 opened at 8,935.70 points and closed at 8,917.38 with a negative change of -18.32 points, or -0.21 percent. The volume was 119,402,935 shares, which was 71.53 percent of KSE All share volume and 97.74 percent of KSE 100 volume. The KSE All Share volume was 166,922,959 shares and KSE100 volume was 122,167,397 shares.

ISE gains 3.62 points

ISLAMABAD (April 20, 2010): Mixed trend was observed at the Islamabad Stock Exchange (ISE) where gainers and losers had a close fight under the lead of hot favourite amid increase in index. ISE Ten Index showed an improvement of 3.62 points as the ISE Ten Index moved from 2,541.55 to 2,545.17 points.

Index gains 10.67 points

KARACHI (April 20, 2010): Karachi share market on Monday witnessed positive trend and the benchmark KSE-100 index gained 10.67 points to close at 10,669.88 points from 10,659.21points. The KSE-100 opened in green zone with a gain of 15.12 points and during the session the index hit 10,691.79 points intra-day high and 10,632.36 points intra-day low.

EU-Pakistan Summit postponed

ISLAMABAD (April 20, 2010): The Second EU-Pakistan Summit scheduled to be held in Brussels on April 21, 2010 has been postponed due to halt in European air travel resulting from volcanic ash clouds. A statement issued by the Foreign Office said that Pakistan attaches great importance to its partnership with the EU based on commonality of interests.

US pledges to strengthen Pakistan, help overcome challenges

WASHINGTON (April 20, 2010): Hailing recent progress in the US-Pakistani strategic partnership as "tremendous step forward," the Obama Administration on Monday assured Islamabad of robust co-operation in dealing with the key regional country's economic, water and energy challenges.

Rs 2.2 billion paid for R&D to 1,146 textile units

ISLAMABAD (April 20, 2010): The Ministry of Textile has disbursed Rs 2.2 billion among 1146 registered units on submission of their research and development (R&D) claims. Sources in the Textile Ministry told Business Recorder that the government had earmarked Rs 5.6 billion for R&D. To claim R&D dues it was mandatory to register all textile units with the Ministry of Textile.

Violation of securities laws: 22 stockbrokers, stakeholders penalised

ISLAMABAD (April 20, 2010): The Securities and Exchange Commission of Pakistan (SECP) has imposed penalties on 22 members of the stock exchanges and other market stakeholders for violation of securities laws pertaining to insider trading, price manipulation, short/blank selling, wash trades, broker misconduct and non-compliance of the listing regulations during last one year.

VAT regime: verification of invoices biggest challenge for FBR

ISLAMABAD (April 20, 2010): The verification of invoices and cross-matching of reported sales and purchases within the entire supply chain is the biggest challenge being faced by the Federal Board of Revenue in the implementation of the Value Added Tax from next fiscal year.

Working of centralised II&P Karachi RTO suspended

KARACHI (April 20, 2010): The Federal Board of Revenue (FBR) has suspended operations of centralised Intelligence, Investigation and Prosecution (II&P) established at Regional Tax Office (RTO), Karachi. Sources told Business Recorder on Monday that Karachi RTO Chief Commissioner had established the centralised II&P by using administrative powers to maintain transparency in the operational units.

THE RUPEE: dollar changes marginally

KARACHI (April 20, 2010): The rupee managed to recover against dollar slightly on the local currency market on Monday, experts said. On the interbank market the rupee gained two paisa against dollar for buying at 84.03 while it rose by four paisa at 84.06 for selling, they said. In the first Asian trade the low-yielding yen rose to its strongest levels this month, gaining on higher-yielders such as the Aussie dollar as investor appetite for risk took a hit on fears about broader fallout from charges against Goldman Sachs.

No senior military officials present

ISLAMABAD (April 20, 2010): The amendment was an election promise of Zardari, whose popularity has been battered by graft controversies, violence and economic woes. No senior military officials attended Monday's ceremony.

Proposal of two holidays a week supported

ISLAMABAD (April 20, 2010): Provinces have supported the proposals of two-day holidays a week and closing commercial markets at 7 PM if the decision is taken across the board throughout the country, Business Recorder has learnt. Sources said that a two-day National Energy Summit, which started on Monday at Prime Minister's Secretariat with Federal Minister for Water and Power, Raja Pervez Ashraf in the chair would finalise the proposals in the concluding session on Tuesday.

'Energy Summit' on power crisis begins: chief ministers propose short-term measures

ISLAMABAD (April 20, 2010): A two-day National Energy Summit to finalise a concrete roadmap to overcome the current power crisis started here on Monday at Prime Minister's Secretariat with Federal Minister for Water and Power, Raja Pervaiz Ashraf in the chair.

UAE company likely to invest $150 million on fresh water supply to Site

KARACHI (April 20 2010): A UAE-based company is likely to inject an investment of at least $150 million shortly to establish 20 mgd desalinated water and wastewater treatment and recycling plant for supply of fresh water to Sindh Industrial Trading Estates (Site) Limited, it is learnt.

According to sources, Shuaa Capital, a UAE-based firm, has shown keenness to bring an investment of $150 million to set up the desalination plant for the industries of the Site to recycle the industrial wastewater and make it useful again, which would ensure smooth supply of potable water for industrial purposes.

The desalination plant would also generate more than 50 mw electricity for the industries, which are facing very several serious problems due to the prevailing energy crisis in the country, they said. The problems of water shortages in different areas of the city would also be resolved after establishment of this desalination plant as the Karachi Water and Sewerage Board (KW&SB) would divert the water quantity of SITE Ltd to the areas facing paucity of potable water, sources added.

"Yes, Shuaa Capital is interested in bringing an investment of at least $150 million to set up 20 mgd desalinated water and wastewater treatment and recycling plant in the Site Ltd soon", confirmed Sindh Minister for Industries and Commerce Rauf Siddiqui while talking to Business Recorder.

"The shareholder of the Septech Holdings Limited - Shuaa Capital had invited me to visit their offices in the United Arab Emirates to further discuss the project opportunities in the city. I went to UAE and held a meeting with Septech's executive management team that gave briefing about the project on April 18, 2010", he added.

The meeting was also attended by the representatives of Australian Trade Commission and the World Bank (WB). The minister said he had assured the firm of all possible government co-operation to install water desalination and recycling plant for the industries of SITE Ltd, adding that the plant would be established on public-private partnership (PPP) basis.

It was also recommended that representation of SITE Ltd Board of Directors be made necessary in this project so that it could be operated successfully, he added. Siddiqui said that the firm had completed the study of the project and it would soon visit the site of the proposed project and present a demonstration of the desalination plant after which it would be formally allowed to establish the plant.

The desalination plant would fulfil the water requirement of the industries of the SITE Ltd, which would help the KW&SB to ensure supply of adequate potable water to all the city areas, he said and added that the plant would also generate its own electricity at the later stage.

Economy of Pakistan

The economy of Pakistan is ranked 26th in terms of purchasing power and 47th in absolute dollar terms. Pakistan’s economy encompasses textiles, chemicals, food processing, agriculture, and other industries. Conflict with bordering India and the U.S. war with Afghanistan are having an effect on the country’s growth. Pakistan also has to deal with internal political disputes, a fast-growing population, and mixed levels of foreign investment. This topic covers the latest news on Pakistan’s Economy.

Pakistan Economy is part of Business Exchange, suggested by Jacques Surveyer. This topic contains 1,588 news and 96 blog items. Read updated news, blogs, and resources about Pakistan Economy. Find user-submitted articles and reactions on Pakistan Economy from like-minded professionals

TECHNICAL ASSISTANCE COMPLETION REPORT

TA DESCRIPTION (Background and Rationale)
During the early 1990s, large fiscal and external imbalances together with long-term
structural problems in Pakistan’s economy have caused serious economic instability, eroded
foreign exchange reserves, and undermined investors’ confidence. Given this situation, the
Government of Pakistan (GOP) requested the ADB to provide a TA program to examine the most
important macroeconomic and governance areas and provide the Government with specific and
practical policy recommendations from a long-term perspective over the next 15 years. The GOP
also wished to learn from the experience of high-performing Asian economies and requested that
the TA undertake a comparative analysis of Pakistan and these economies.
The GOP, the ADB, and the World Bank (WB) jointly initiated in 1995 a study entitled
“Pakistan 2010” to prepare a long-term development strategy. The ADB and the WB, with the
concurrence of the Government, agreed on a division of labor covering the topics to be studied.
Under this agreement, the ADB intensively looked into issues related to long-term socio-economic
development strategy, governance, private sector-led industrialization, technology and productivity,
trade liberalization and export expansion, while the WB examined issues on human resource
development, infrastructure development, implications of the conclusion of the Uruguay Round on
the General Agreement on Tariffs and Trade (GATT) and the environment.
TA OBJECTIVES AND SCOPE:
In order for Pakistan to smoothly follow an efficient path to industrialization, it firstly needs to
foster the private sector investment market development and encourage exports under a liberal
trade regime. Furthermore, it needs to streamline regulations and practices to become more
effective in moving toward a dynamic and competitive economy.
The TA aimed to systematically analyze the above and to prepare policy recommendations
from a long-term perspective, covering the period until 2010. The end product would be a longterm
strategic development plan dealing with economic goals, specific policies, and their time
frame. The TA undertook a comprehensive study to (i) define socioeconomic development targets
over the next 15 years in Pakistan; (ii) identify developmental challenges, obstacles and parameters
that will pursue these targets; (iii) formulate development options and scenarios; and (iv) examine
strategically important areas and provide policy recommendations based on sound theoretical and
empirical analysis.
TA INPUTS EVALUATION:
Five international experts and five domestic experts were recruited for a total of 42 personmonths
to implement the TA. All the consultants were competent and delivered their research
results according to the terms of reference.
The Government, for its part, established the Pakistan 2010 Programme Unit at the Ministry
of Planning and Development in order to successfully undertake the TA. The Government also
appointed a Minister for Pakistan 2010 to implement the TA program. A TA inception workshop
was organized followed by a mid-term review workshop to formally launch the Bank project and to
highlight its importance to the Bank and to the Government.
TA OUTPUTS EVALUATION:
The main outputs of the TA included 6 individual reports on the following topics: (i)
Enterprise 2010 – Realising Pakistan’s Full Potential, a holistic summary of all the main reports; (ii)
Socio-Economic Progress in Pakistan to 2010; (iii) Private Sector-led Industrialization; (iv) Trade
Liberalization and Export Promotion; (v) Building Pakistan’s Technological Competence; and (vi) An
Agenda for Effective Governance.
The principal output of the Study was (i) findings and conclusions on the development
experiences of the East and Southeast Asian economies as well as those of Pakistan; (ii) proposed
policy measures to enable Pakistan to tackle the developmental challenges of an increasingly
competitive, open and globalized international economy; and (iii) suggestions for the management
of change, including institutional changes where needed.
The consultant’s Draft Final Report was submitted to the Government and the ADB in
November 1997. Subsequently, the consultant’s Final Report was submitted in April 1998. The
final report was endorsed by the ADB’s Publication Committee for printing as an ADB publication.
However, with the political uncertainty in 1998/1999 and the subsequent change in Government in
October 1999, no agreement was reached between the Government and the ADB on the nature of
the final document, the statistics to be used and the report projections. Finally, in July 2000, the
ADB decided to print and make available the consultant’s Final Report and take no further action
towards publishing a Project Report by Oxford University Press. Copies of the consultant’s Final
Report were subsequently provided to the Government for future reference.
TA OVERALL ASSESSMENT/RATING:
Based on the TA, the Government announced its ‘Pakistan 2010 Programme’ in March 1998.
In addition, the TA contributed to the formulation of the Ninth 5-year Development Plan which
covers 1999-2003. By contributing to the development strategies and the plan, this TA assisted in
the formulation of policies for the promotion of economic growth, poverty reduction, and governance
reforms. The overall rating of the TA is generally successful despite the failure to publish a formal
GOP/ADB Project Report.
MAJOR LESSONS LEARNED:
Major operations of the ADB in Pakistan are now geared towards the main concerns of this
TA including trade reforms, judicial and legal reforms and governance. The program could be
considered as the ADBs continuing effort in preparing for Pakistan’s new millenium.
Close working relationships with counterpart staff and other key Government agencies were
a key to the successful implementation of the TA. Extensive consultations and dialogue through
stakeholders consultations by the Executing Agency (EA) as well as with ADB staff, were also
made at the national level to ensure that the voices of all sectors were represented. These were
found to be very effective in achieving the TA’s objectives.
However, during the implementation of the TA program, it was found that more strengthened
ownership of the EA was vital for expediting implementation without delays. In addition, failure of
coordination and cooperation and departmental rivalries between Ministries made it impossible to
agree on ownership and follow-up.

Pakistan Economy Update

During the last fiscal year the stress on macroeconomic stability mainly emanated from unsustainable balance of payments position and the falling value of rupee, escalating food and non-food inflation, and structural problems like power shortages resulting in perceptible slowdown in economic activity. The domestic socio political upheavals and rapidly changing global economic environment added to multifaceted problems. After endorsement of Economic Stabilization program by the IMF, the economy got confidence back. By February 2009, early signs of improvement in economic variables such as inflation, foreign exchange reserves, import growth, and government borrowings from the SBP are evident.

The fiscal deficit target of 4.2 percent of GDP and the current account deficit of 5.9 percent of the GDP is now achievable. However, recent global financial crisis and extremely vulnerable security environment added risks to the economy. The trade data for the month of February 2009 though not representative for months to come, still provide food for thought about imminent risks to the external sector. If the trade data in the month of March 2009, follow the same trend then it will be taken very seriously. The two extremes in the remittances data like massive growth in remittance inflow from UAE and negative growth in US again need some assessment because if somebody has lost a job in UAE, he has to return with retained savings immediately while a person in similar situation in US can wait for the better tomorrow by consuming part of his retained savings. The external data for the March 2009 will provide ample evidence of the impact of global financial crisis on our external sector.

The economic growth target at around 2.5-3.0 percent is still getable in the given circumstances. The massive negative growth in the LSM for the month of January 2009 may be purely a base effect because the growth in the sector for January 2008 was huge one. The coming month may witness lower intensity of negative growth because the base effect will be favourable in the coming month. Similarly, the surge in inflation for the month of February 2009 was again not representative because February 2008 had witnessed rare deceleration in the CPI index for the last one and half year. The persistent negativity in the SPI during the month of March 2009 reinforces the optimism that the CPI inflation for March onward will be sharply decelerating. In this backdrop it is most likely that average CPI inflation for the fiscal year will be around 20 percent with end-year inflation of around 10 percent. The most optimistic estimate for the next year inflation will be around 6 percent.

The pressure on monetary, fiscal and exchange rate policy will be mitigated by lowering financing needs emanating from lower fiscal and current account deficits as envisaged in the Stabilization Program. Elimination of subsidies, partial transfer of oil payments to the foreign exchange market, and fall in the international oil prices will provide great help on this count. The downside risk to the stabilization program may come from slippages on account of FBR revenue collection and slowdown in exports neutralizing to some extent steep fall in import growth. The negative large-scale manufacturing (LSM) growth and falling credit to the private sector are indication of falling real economic activity, however, still better growth prospects in the agriculture and the services sector will keep hope of real GDP growth at the targeted level in 2008-09.

pakistan's collapsing economy

Dr. S Akbar Zaidi talks to Tabinda Naeem on Pakistan Economy and US Aid.

Review of Pakistan’s economy rescheduled: IMF

The International Monetary Fund (IMF) said the fourth review of Pakistan’s economy has been rescheduled for the first half of April in order to allow for the submission of VAT laws to the provisional assemblies, which have now been submitted. Disbursement of the funding will take place when the IMF Executive Board completes the review, said Gerry Rice, Deputy Director External Relations Department on Friday. To a question on Pakistan, Rice said I could tell you the IMF mission recently held discussions for the fourth review. Pakistan’s program is progressing well. All performance criteria for end-December 2009 were observed except for the budget deficit target, which was missed by a small margin. To another question, whether the regional assemblies actually have to pass those laws before the issue will go to the Board, Rice said he doesn’t have the details of the regional assemblies, however, the Board discussion for the fourth review is now rescheduled for the first half of this month in order to allow for the submission of those VAT laws to the provisional assemblies, which they understand have now been submitted. He also informed that the Managing Director would be in Amman, Jordan for meetings with the authorities on recent economic developments in the region and a town hall discussion with students from eight universities in the Middle East/North Africa and Pakistan on ways to address policy challenges
facing the economies of the region and its youth. staff report

World Bank urges more economic reforms

ISLAMABAD: Pakistan's economy has made progress through tough reforms but still needs to boost tax revenues and increase power supplies to improve finances, the World Bank said on Friday.

During two days of meetings with officials, including Abdul Hafeez Sheikh, the new Finance Adviser to the prime minister, World Bank Vice President for South Asia Isabel Guerrero noted substantial economic progress since her last visit in 2008.

She noted Pakistan's reserves had rebounded, the World Bank said in a statement. But Guerrero said further action was needed.

“To become independent of foreign aid, Pakistan needs to strengthen its own revenue generation,” she said in a statement.

The government has pledged to keep the fiscal deficit at 4.9 per cent of gross domestic product (GDP) in the 2009/10 (July-June) fiscal year under its agreement with the International Monetary Fund, but it has said it could rise to 5.3 per cent.

GDP growth this fiscal year is forecast at 3.3 per cent but could go up to 3.4 percent, compared with 2 per cent last year, officials say.

But revenue collection is a chronic problem which successive governments have failed to come to grips with.

Pakistan's tax-to-GDP ratio of 9.2 per cent is one of the lowest in the world. The government aims to raise it to at least 15 per cent.

Shaikh, a former privatisation minister, will be put to the test as Pakistan's weak government attempts to energise a struggling economy battered by a Taliban militant insurgency and starved of foreign investment.

He must also try to strike a balance between policy demands by the IMF, which provides critical financial support for Pakistan, and the government's desire not to alienate voters who could be hurt by those policies.

“The World Bank will provide strong support to expand power supply in the coming years, and at the same time, work with the sector to continue to improve its financial health and quality of services,' said Guerrero.

Pakistan clinched an emergency loan package of $7.6 billion with the IMF in November 2008 to avert a balance of payments crisis and the Fund is likely to approve disbursement of the delayed fifth tranche next month.—Reuters

Optimistic signs for Pakistan economy

Pakistan’s 6.875 percent dollar bond maturing in June 2017 yielded 18.62 percent last month, versus a record high of 26.30 percent on Nov. 3, 2008, according to data compiled byBloomberg. The price has climbed to 52 cents on the dollar, from as low as 35 cents last year. “Broadly, we believe that it definitely doesn’t look as bleak for Pakistan,” said Joel Kim, who helps oversee $433 billion globally as head of Asian debt at ING Investment Management in Hong Kong. “They’ve passed the worst point. The IMF money has helped stabilize things.” But Pakistan's bond risk still remains high: Five- year credit default swaps based on Pakistan’s bonds show investors need to pay $2.2 million annually to protect $10 million of Pakistan’s debt for five years, the third-highest in the world, according to CMA Datavision. As recently as June of last year, Pakistan sovereign debt credit default swaps (CDS) traded at 530 basis points in Hong Kong, meaning it cost $530,000 a year to protect $10 million of Pakistan's debt from default for five years.

Terrorism has cost Pakistan $35 billion in economic losses and damage to infrastructure, according to a statement given to reporters by President Asif Ali Zardari’s aide on April 17. More than 3,500 terrorist incidents have occurred since 2007, killing an average of 84 people per month this year, the aide said.

In addition to the $7.6 billion loan from IMF, Pakistan has been promised $5.3 billion in aid by more than 20 countries to help shore up its economy and combat al-Qaeda and Taliban militants. While the political risk in the country remains high, the flow of loans and aid is helping shore up the nation's economy. Pakistani business officials say the perception of political risk is overstated and international investors are starting to return.

Strong growth and job creation in both India and Pakistan over the last five years were fueled in large part by huge inflow of cash and investment. Investment accounted for about 39 percent of India's gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment in India fell by nearly a third, to their lowest level in more than two years, according to a report in New York Times.Foreign direct investment in Pakistan fell to $5.19 billion in the year ending June 30, 2008, from a record $8.43 billion a year earlier, government data show.

“There is now very early signs of portfolio investment starting to come back,” Asad Umar, the president of Karachi- based Engro Chemical Pakistan Ltd., told Bloomberg TV in a recent interview in New York. “Pakistan is going to come out of it earlier than the rest of the globe.”

Pakistan’s trade deficit narrowed by almost 50% in March, as imports declined faster than exports. In the same month, worker remittances were a record high at US$743 million an increase of 23% over last year. While Japan’s exports plummeted by 50%, China’s by 26% and India’s by 33%, Pakistan’s exports were down by 25%. Even though, the competitive peer group is formidable, Pakistan is the best performer.

On the corporate profitability front, during the worst global down turn in a century, Pakistan’s corporate profitability of listed companies declined by a mere 3% in aggregate in the 3rd quarter of 2009.

At the end of calender year 2008, remittances topped 7 billion dollars, an increase of 17 per cent year over year, led by higher remittances from oil-rich GCC countries, which grew by 30 per cent year over year. Similarly, FDI inflows jumped 100 per cent year over year to 708 million dollars in December, 2008, as the telecom, oil and gas, and financial-services sectors continued to attract foreign inventors, according a report in the Nation newspaper.

The IMF forecasts the economy will expand 2.5 percent in the 12 months ending June 30, the slowest pace in eight years, after growing at an average annual pace of 6.8 percent since 2002. The State Bank of Pakistan forecast in April that economic growth for the year through June will slump to between 2.5 percent and 3.5 percent, far below the 5.5 percent the government has projected -- and too slow to create the 2.5m jobs a year for its fast-growing population of about 170 million people. During 2002 to 2007, Pakistan's economy grew at an average rate of 7% annually, creating about 2.5m jobs a year, barely keeping up with the number of young people ready to join the work force each year, according to Salman Shah, senior economic adviser to former President Musharraf of Pakistan. However, the current economic slowdown has resulted in significant job losses in almost all private sectors of the economy, increasing visible signs of poverty. According to a BBC report last year, three times a day, hundreds of men, women and children line up outside dozens of Karachi restaurants for meals which are paid for by philanthropists and charity donors. These lines were considerably shorter, or non-existent until early 2008. Many of those lining up are industrial workers who have lost their jobs.

Pakistan's future, as India's, lies in the nation's ability to move workers from farms to manufacturing and in engaging more with the world rather than retreating from it. Pakistan, like India, also is relatively light on exports as a part of the overall economy. In Pakistan, exports account for less than 15% of gross domestic product, according to Shah, compared with about 25% in India and 40% in China. While India's economy must create 11-12 million new million jobs a year, Pakistan's economy needs to add 2.5-3 million jobs annually to employ all the young people entering the job market each year.

Ms. Ann Patterson, the US ambassador to Pakistan, believes that ultimately the security will depend on economic growth in Pakistan. She is working on a U.S.-sponsored investment-aid-trade based economic revival that would help offset the resentment created by America's "12- year divorce" from the region after the first Afghan War. "We're trying to get people to see that we're committed by helping with investment, Patterson told Forbes magazine, "because you meet older people and they will say to you, "Oh, I remember dam such-and-such, and the Americans built that." That's the kind of synergy we look for, because it builds goodwill for both of us."

Regardless of the foreign assistance to deal with the current crisis, I think all Pakistanis must demonstrate their care and concern by donating and volunteering to help the refugees. The key for Pakistani military's success in defeating the Taliban is in how well Pakistani government can maintain public support for the military action.

Pakistani military's robust response to the rising militancy appears to be backed by a significant majority of the people. If the Pakistani political leadership can deal with its fall-out, such as the refugee crisis, and sustain the popular support for the ongoing military action, and the government executes a rational set of economic policies, it is quite reasonable to expect an economic rebound within a year. Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis should be temporary as well. A relatively rapid rebound can be expected in 2010, with a projected revival of GDP growth to 7 per cent, spurring job growth again.

Saving Pakistan’s Economy

On December 3 the Atlantic Council, in collaboration with Asia Society Washington, hosted a panel discussion on the Pakistan economy. This event was the second in a series of events about Pakistan; the first, on October 22, dealt with civil-military relations in the country. The December 3 discussion featured Dr. Mohsin Khan, until recently Director of the Middle East and Central Asia Department of the International Monetary Fund, and Khaleel Ahmed, Chief Investment Officer in the Global Financial Markets Department of the International Finance Corporation. Dr. Khan discussed the current economic crisis in Pakistan and the recent agreement with the IMF that has provided some relief. Mr. Ahmed’s presentation dealt with Pakistan’s banking system and its role in the economy.

Pakistan: Key facts

Pakistan is a predominantly agricultural country, with over 65% of its population living in rural areas. Its major industries are textiles, leather and food processing.

A growing population has put pressure on land, leading to urban migrations. But a narrow industrial base has not been able to absorb this workforce.

Since 2001, considerable direct foreign investment and remittances have bolstered Pakistan's foreign exchange reserves, stimulating high growth rates.

But most development has taken place in the services sector, with marginal impact on urban employment. The rural sector continues to lag behind.

Uneven development sees high inflation, especially for food. A widening trade gap threatens to draw down foreign exchange reserves and dampen GDP growth.