Nadeem Malik

Wednesday, January 19, 2005

PakistanNews

PakistanNews
WB offers $300m for banking sector


By Nadeem Malik
Islamabad: The World Bank has approved $300 million for Pakistan to strengthen the regulatory capacity of the central bank to enhance transparency and prevent money laundering.
The Banking Sector Development Policy Project will support the development of an effective regulatory and supervisory capacity at the State Bank of Pakistan (SBP) through changes in banking regulations; enhancing transparency through greater public disclosure; and preventing possible use of the banking system for money laundering, the Bank said.
Pakistan initiated comprehensive banking sector reforms in 1997 with the help of multilateral institutions, as the financial sector entities were on the verge of bankruptcy. Political interference, overstaffing, weak regulatory framework and poor legal environment resulted in the shape of a huge stock of Non Performing Loans (NPLs), which threatened the stability of the system. However, the reform process, like introduction of risk-weighted capital system, and the directive to maintain capital at least 8 percent of risk-weighted assets, coupled with strengthening of the regulatory role of the central bank, improved the situation. "Pakistan has the most safe and sound banking system in South Asia due to far-reaching reforms in the financial sector during the last decade," says John Wall, World Bank's Country Director for Pakistan.
The project supports the completion of the third phase of the reform process initiated by Pakistan in the last decade. It will support the government towards improving sector governance and transparency through the privatization. The government privatized 51 percent stakes in United Bank Limited (UBL) to Abu Dhabi Group and Bestway Holdings for $208 million, Habib Bank Limited (HBL) to Aga Khan Foundation for $389 million, and 75 percent shares of Allied Bank Limited (ABL) to Ibrahim Group for Rs 14.2 billion. With the privatization of two of the three Nationalized Commercial Banks (NCBs), which accounted for nearly 25 percent of the system, and ABL transaction, nearly 80 percent of the country's banking sector assets are now in private hands.
Wall said the banking sector has undergone fundamental changes through a three phased reform programme. The reforms managed to address the root cause of the sector's problems and achieved a complete turnaround in the environment for banking in the country.
According to the State Bank of Pakistan (SBP) deposits of the banking sector grew by 20 percent (Rs 361 billion) from Rs 1.78 trillion at the end of 2003 to Rs 2.14 trillion at end-2004. In 2003 this growth was 17 percent. The growth in advances during this period was a hefty 36 percent or about Rs 420 billion, from Rs 1.17 trillion to Rs 1.59 trillion. The net stock of NPLs has also fallen to Rs 60 billion, due to heavy provisioning made by the banks over the last several years.
"Pakistan's banking system has really gone through a sea change" says Mudassir Khan, a Senior Financial Sector Specialist with the World Bank. Thanks to these reforms, the banking sector is more efficient and competitive and the access, quality and standards of services for the consumers have improved. “We would continue our support to see the transformation to a more equitable, transparent and a market based system and the one that plays its due role in development,” Mudassir said.
The loan, a $200 million from the International Bank for Reconstruction and Development (IBRD) is a fixed spread loan with an 8-year grace period and 20-year maturity. The credit, a $100 million from the International Development Association, the World Bank's concessionary arm, carries a 0.75 service fee payable in 35 years including a 10-year grace period.
ENDS.

Wednesday, January 12, 2005

NEWS POST

Is Pakistan ready for 2005?


By Nadeem Malik
Islamabad: Pakistan enters textile quota-free 2005 cautiously, with pick up in economic activity quite obvious, but concerns about political stability and law and order situation may haunt it during the year.
Textiles and clothing trade among World Trade Organisation (WTO) members was being governed by the Agreement on Textiles and Clothing (ATC). This agreement meant that alongside progressive application of General Agreement on Tariffs and Trade (GATT) rules, there would be progressive phasing out of quotas in the European Union, United States and Canada. These quotas were inherited from the Multifibre Arrangements (MFA). After a 10-year period ending on January 1, 2005, the ATC would expire and all quotas will be abolished. So, in 2005, all WTO members would have unrestricted access to the European, American and Canadian markets. Trade in the textile sector has been characterised so far by an almost one-way flow: from developing countries to industrialized countries, the EU, the US and Japan accounting for 80 per cent of the world’s garment imports.
Almost $8.3 billion, or 68 percent, of Pakistan’s total exports of $12.3 billion last year were just in the textile and clothing sector. Pakistani businessmen hope that the Balancing, Modernization and Replacement (BMR) operation in the domestic textile industry that attracted billions of dollars investment to gear the industry for post-quota period would afford an opportunity to textile exporters to double their exports within a short span of time, once quotas are fully removed. The government has projected $13.7 billion export target for the next fiscal year, and $16.7 billion for imports. Exports from Pakistan totaled $5.4 billion and imports $7.9 billion during first five months of the current fiscal year. According to the WTO estimates textile exports in the world totaled $152 billion in 2002 and clothing exports registered a 3.2 percent further growth to total $201 billion in the same year.
In the light of the eventful year 2004 for Pakistan, beginning with the 12th Saarc summit in Islamabad, peace process between India and Pakistan, change of three prime ministers, political play over the uniform issue and so called reconciliation, buoyant stock market, up-tick in economic activity and rising prices, it is largely expected that the pace of these developments would continue in 2005, with a new vigour.
All studies indicate that China, India and Pakistan could benefit from the quota-free regime under the WTO rules, the quality and competitiveness would matter. The end of Agreement on Textile and Clothing (ATC) would mean elimination of all textile quotas with effect from January 1, 2005. However, the anti-dumping duty regime under the World Trade Organization (WTO) would continue to remain a threat, as imposed by the European Union on bed-linen exports from Pakistan, and by the US on China under safeguard measures till the full accession. The import tariffs by the US, EU and East Asian countries on exports from Pakistan would largely determine the status of Pakistani competitiveness.
The peace overtures between the two South Asian nuclear-armed rivals paved the way for an agreement on South Asia Free Trade Area (SAFTA) when former Indian Prime Minister Atal Behari Vajpayee visited Islamabad in January 2004. The SAFTA framework will enter into force by January 1, 2006 after the completion of the required formalities including ratification by all the member states. Pakistan and India would reduce their tariffs to 0-5 percent in a period of seven years, from the date of coming into force, of the agreement. The Least Developed Countries (LDC) would reduce their tariffs to 0-5 percent in a period of ten years. Each member state would maintain a sensitive list of products on which tariffs would not be reduced. However, other bilateral issues, between the two nations, including the core issue of Jammu and Kashmir, and granting the Most Favoured Nation (MFN) status to India under WTO, remained unresolved.
Pakistan's existing trade in the SAARC region just hovers around $500 million, which could easily increase 4-6 times in a very short span of time, once tariffs and non-tariff barriers are reduced by the member states. The SAFTA deal would also facilitated the way for transit facilities for efficient intra-SAARC trade, especially for the landlocked contracting states, opening up the land routes of India for export of Pakistani goods to Bangladesh, Nepal and Bhutan (under clause g of Article 8 of the SSAFTA framework agreement.).
The World Bank also acknowledged the benefits of SAFTA saying: “The initiatives to facilitate regional trade by improving transport links, communications, market intelligence, regional trade financing, customs and internal tax cooperation, regional travel for traders and other businessmen, and many others would clearly be welfare enhancing for the region, whether achieved under the South Asian Association of Regional Cooperation (SAARC)/ South Asian Free Trade Area (SAFTA) or other auspices.”
Again on textile quota elimination, under the WTO rules, the developing countries, as a whole should be able to increase their exports to industrialized countries. Greater competition should lead to greater economic efficiency, and lower import prices should result in cheaper prices for consumers. Realignments in world production patterns are likely, with important adjustment costs that may be relatively more intense in developing countries, and especially those which are most dependent on textiles: some of the poorer ones, small countries which do not have an integrated textile and clothing industry, and those lacking adequate infrastructure to attract investment and capacity to conform to fast changing market requirements.
However, the dismantling of quotas mat not be enough, if the world fails to address the issue of very high tariffs that still exist in many countries, as well as non-tariff barriers. Here, in case of Pakistan, the most important development in 2005 would be some sort of agreement with the EU over new Generalized System of Preferences (GSP). The European Union has proposed an overhaul of trade discounts to developing countries by introducing a new Generalized System of Preferences (GSP), and promoting regional cumulation in SAARC and ASEAN blocs. Under accumulation of origin, a country can benefit from low tariffs even if the goods it exports are partly sourced from neighboring countries.
After the events of September 11, the EU granted Pakistan a comprehensive package of trade preferences, allowing GSP special incentive regime for combating drug trafficking, which resulted in zero tariffs for Pakistan exports to the EU, and a bilateral MoU under which Pakistan received a quota increase of 15 percent for textiles and clothing in return for lowering its import duties. As a result, the trade volume increased to euro 5.16 billion in 2003. However, these benefits reversed in recent months, when EU imposed 13.1 percent anti-dumping duty, and announced to withdraw the benefit of GSP concession from January 01, 2005. This decision was triggered by Indian protests.
However, under the revised format if approved by the EU in July 2005, and Pakistan is also treated under the GSP concessions, the textile exports would definitely benefit. The GSP plan, which still needs approval from EU governments and the European Parliament, would bring the EU's trade rules in line with the World Trade Organization., which has called for reforms in the EU trade system. The plan would replace five separate trade tariff systems with three, including one that would offer more market access, for up to 72,000 products, if those developing countries that qualify and abide by international human rights, environment and labor standards. They will also have to combat the drug trade. The new system, if approved, would be in force from 2006-2008. Countries that hold more than 15 percent of EU market share of any goods will lose their discounted tariffs. Tighter restrictions will apply in textiles, where a ceiling of 12.5 percent market share will be set. However, new rules do not cut the preferential status of India in clothing and textiles, which has a 10-11 percent market share, which is likely to rise above the 12.5 percent marker soon.

Pakistan Macroeconomic Performance:
The macroeconomic picture of the country appears to be pretty stable at the moment. The growth rate has picked up, industrial sector and stock markets are buoyant and fiscal deficit had narrowed down. However, on poverty, unemployment, good governance and public sector losses, there has been hardly any good story to tell.
The fiscal deficit has narrowed down to just Rs 22.169 billion or 0.36 percent of full year GDP, against the target of Rs 89.4 billion in the first quarter of 2004-05. The corresponding period of the last fiscal year witnessed a deficit of Rs 40.9 billion or 0.7 percent of GDP. The budget deficit target for the fiscal 2004-05 is Rs 199 billion or 3.2 percent of GDP. The Central Board of Revenue (CBR) is optimistic about a revenue collection of Rs 590-600 billion during the year, against the original budget target of Rs 580 billion for the fiscal year 2004-05. Real GDP is targeted to grow by 6.6 percent in 2004-05, but recent trends show it may surpass the target, due to strong manufacturing sector growth, despite water shortages.
In monetary areas, the overall money supply grew by Rs 407.9 billion or 19.6 percent in 2003-04 over previous year. The monetary expansion during the first four months (July-October) of the current fiscal year amounted to Rs 77.3 billion or up by 3.1 percent as against Rs 89.3 billion or 4.3 percent in the same period last year. The credit to private sector grew by Rs 123.5 billion during the first four months (July-October) of the current fiscal year as against Rs 70.8 billion in the same period last year, thus registering a growth of 37.1 percent over the corresponding period of last year. Given the strong appetite of the private sector for bank credit it is safe to suggest that full year target of Rs 200 billion is likely to surpass by a wide margin.
The inflation during the first four months (July-October) of the current fiscal year is estimated at 9.1 percent as against 2.2 percent in the same period last year. Food inflation is estimated at 13.6 percent as against 1.5 percent of last year. The persistence of relatively high core inflation compelled the SBP to change its monetary policy stance from easy to ‘measured’ tightening.
On external front, the trade deficit is likely to widen more than what was envisaged at the beginning of the current fiscal year. Despite widening of trade deficit the current account balance (excluding official transfers) remained in surplus to the extent of $ 115 million during the first quarter (July–September) of the current fiscal year as against $919 million in the same quarter last year owing to better inflow of private transfers rising from $1489 million to $2045 million – an increase of 37.3 percent. Given the trends in exports and imports there are indications that the current account balance may end up with a deficit of less than 1 percent of GDP in 2004-05. Pakistan has also witnessed pressures on exchange rate during the current fiscal year, with rupee showing almost over 4 percent depreciation against the US dollar.

Credit Rating Improved:
The Standard & Poor's Ratings Services, a New York based firm, raised its long-term sovereign credit ratings on Pakistan by one notch, to 'B+' for foreign currency and 'BB' for local currency, to factor in declining debt and debt-servicing burdens, as well as sustained economic progress. However, the firm maintained that Pakistan's net general government debt, projected at about 85 percent of 2004 GDP, and net public external debt at about 93 percent of current account receipts, are still among the highest of all sovereigns rated by Standard & Poor's, despite having declined from 120 percent and 270 percent, respectively, in 2001. Pakistan hopes that better ratings would help it going to international capital markets in early 2005 with a dollar-denominated Islamic Sukuk bond. Pakistan also prematurely opted out of the three-year Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF) during 2004.

Poverty Remains Widespread:
The last official household survey in 1998-99 showed 32.1 percent poor in the country. Last year, the government claimed 4 percentage point reduction in poverty, but claims are yet to be proved, as the latest survey results would not be available till mid-2005. The unemployment rate also remained at 8.3 percent, with little chances of any positive change due to high growth rate in the labour force. The intermediate outcome indicators for the health and education sectors have yet to show significant improvements. Both as a ratio to GDP and per capita, education and health spending in Pakistan was among the lowest in the world. A cross-country analysis exploring differences in growth rates among low and middle income countries finds that weak human capital indicators are an important constraint to growth in Pakistan. Real wages in the manufacturing sector have declined by 7.5 percent in real terms since 2000-01. Pakistan was also ranked low in the 2004 UNDP human development index.
Almost all the experts are convinced that creating more jobs or sustaining high growth rate to dent poverty in the medium-term depends on new Foreign Direct Investment (FDI) in the country. Total FDI flows last fiscal year were about $950 million. The first five months of 2004-05 attracted $327.7 million FDI, which is not enough for a country like Pakistan. It could be the biggest challenge for the country going into post-quota global trade regime, where the survival of the fittest is the name of the game.
ENDS.


Pakistan wants Iran gas with or without India


By Nadeem Malik
Islamabad: Pakistan and Iran are holding pre-project consultations to determine price, quantity and quality of the gas for the proposed pipeline, after India’s insistence on supply at the doorstep.
“There has been some discussion on the technical aspects between the two sides recently, and we are willing to pursue this project on self-financed basis,” said a senior government official here Saturday. A high level Pakistani delegation headed by Secretary Petroleum and Natural Resources visited Tehran recently to finalize the modalities for a possible signing of the Memorandum of Understanding (MoU) next month during the expected visit of Prime Minister Shaukat Aziz. Pakistan is also in the process of hiring consultants to do the fresh feasibility studies to carryout the project with or without India.
The 2775-KM long gas pipeline, costing $4.16 billion (according to initial feasibility study of BHP), originates in Asaluyeh, Iran on the coast of the Persian Gulf near the South Pars fields, enters Pakistan through Khuzdar (One section goes to Karachi on the Arabian Sea coast), and the main section traveling on to Multan or Rahim Yar Khan, and extends further to Delhi, where it ends. There is international interest in the project from the investment point of view, given the huge demand in the region and growing energy shortfalls. Major names like BHP Billiton, NIGC, Petronas of Malaysia, and French TotalFinElf, are said to be keen in such a plan. As a matter of fact, the BHP has completed the phase-I of the overland route feasibility study. Russian GAZPROM, for the shallow water route, and an Italian firm for the under sea route, were also keen to do the job.
However, the problem remains political decisions by the participating countries on a trilateral arrangement. India has shown interest to join the proposed gas pipeline project, if its security concerns are allayed and gas is delivered at the Pakistan-India border point.
India has demanded guarantees from Iran, and assurances from Pakistan, for continuous supply of gas, without disruptions, and compensation in case of such an eventuality. Secondly, India has maintained its position of linking the gas pipeline deal with a ‘larger context of expanding trade and economic relations’ (a term used by Indian Prime Minister Manmohan Singh in the joint statement after his meeting with President General Pervez Musharraf in New York on September 24, 2004). The trade context explicitly refers to the Indian demand of transit trade facilities from Pakistan for trading with Afghanistan, Central Asia and Iran. Pakistan has refused to accept this demand and proposed India to accept it as a ‘stand-alone’ project. Prime Minister Shaukat Aziz discussed this with his Indian counterpart, and with Indian Oil Minister Mani Shankar Aiyar, when he visited Delhi in his capacity, as Chairman of the South Asian Association of Regional Cooperation (SAARC).
India also reiterated its demand of granting the Most Favoured Nation (MFN) status to India, which Pakistan says was not an issue to be associated with the gas pipeline. “The South Asia Free Trade Area (SAFTA) would enter into force from January 1, 2006, requiring Pakistan and India to reduce their tariffs to 0-5 percent in a period of seven years, from the date of coming into force, of the agreement. So, there is no point to push the MFN issue now, which relates to the WTO,” a senior official said. Under SAFTA, India is bound to allow transit facilities to Pakistan to the land-locked SAARC member states, like Nepal and Maldives, and she demands the same permission from Pakistan.
Pakistan has assured India of uninterrupted gas supplies, and showed willingness to offer all sorts of guarantees to remove Indian reservations. Pakistan is sure to get $500-800 million per annum (depending upon the tariff and security arrangements) in gas transit fees from India, in whatever form the pipeline crosses Pakistani territory. There are also proposals that Pakistan should build emergency gas storages to ensure supplies without disruptions, and some multilateral agencies, like the World Bank or the Asian Development Bank (ADB) should join the project to act as underwriters. Pakistani has sough the ADB help to work on the technical aspects of possible gas storages in the country, linked with the main gas network in the domestic market.
There is another geo-political aspect of the pipeline project. Relations between the United States and Iran are getting worst every day over the nuclear issue, and the former also accuses Tehran for its role in Iraq. “We have good relations, both with the United States and Iran, and we do not want to see any hostility in the region,” a senior government official said.
There are reports that the US administration is not in favour of such a mega-infrastructure energy sector project, between Iran and India and Pakistan, as it would give some leverage to Tehran, and may also compromise the ambitious US plans of an East-West Energy Corridor. The proposed Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project is a good example of it. Pakistani foreign office has denied any US opposition to Iran-Pakistan project, but there are definite concerns about the future Iran-US relations. Michael Krepon of the Henry L. Stimson Center, recently maintained that Washington will oppose, but cannot successfully obstruct a pipeline originating in Iran, if New Delhi, Islamabad, and Tehran can reach an agreement that provides credible assurance of supply.
Interestingly, Mani Shankar Aiyar, renewed hopes of gas pipeline deal after signing the LNG deal with Iran Friday. “We really are very close to an agreement,” he said, after signing an agreement with his Iranian counterpart, Bijan Zanganeh, who also made a brief stopover in Islamabad to review the pipeline project before going to Delhi. A technical and commercial delegation from Iran will visit India on February 14 to continue the discussions on the possible pipeline options, which according to the proposals extended by various stakeholders were three- a pipeline from Iran to Pakistan; Separate pipelines for India and Pakistan; and A bigger pipeline supplying gas to Pakistan, and then to India. Iran and Pakistan support this last option, which is being considered economically more viable and cost effective. Delhi has informed the Iranian Minister that they would buy the gas only if it is delivered to their doorstep, with extended security arrangement and various back-to-back guarantees.
The problems for India and Pakistan in the energy sector are growing every day. Both the countries are energy deficient and heavily rely on imports to meet their domestic needs. India projected its demand for gas in 2025 at about 400 million standard cubic meters per day, against less than 100 mscm per day output at present, which is unlikely to grow faster to meet the rising demand.
Pakistan has 26.8 trillion cubic feet (Tcf) of proven gas reserves, and currently produces around 0.8 Tcf of natural gas per year, all of which is consumed domestically. Pakistan's demand for natural gas is expected to rise substantially in the next few years, with an increase of roughly 50 percent by 2006, and all indications suggest a possible shortfall by 2010, if the pipelines remain a dream. In this case, the government would be forced to have some sort of LNG arrangement with the international buyers.
These are ground realities for the two countries, and both are in desperate need to get piped gas, which is far more efficient and economical, as compared to the imported fuel oil, or LNG, which takes away a major portion of their hard earned export earnings, in the shape of import bills. Some report suggest the gas supply at a very reasonable price of about $2 per million metric British thermal units (mmBtu) if a large diameter pipe supplies gas to both the countries, but the cost would increase if two separate pipes are planned. However, in any case, it would not be as expensive as liquefied natural gas.
India signed a $40 billion deal with Iran to import liquefied natural gas, about 7.5 million tonnes per year (TPY) of LNG starting 2009 and running for 25 years, and joined in developing three Iranian oilfields, Yadavaran and Jufeyr, through service contracts. China would be the operator in these oilfields, and 20 percent stakes for India, or the equivalent of 90,000 barrels per day (bpd).
However, the Indian estimates of energy demand and supply project huge shortfalls, so they are still interested to buy natural gas. India is holding a major Asian Gas Buyers Summit next month, when it hopes to formally initiate discussions on a term-sheet to cover the issues like price, quality and quantity of the gas to be transported through the pipeline.
Iran has offered India that an international consortium of bankers and oil firms could build and operate the project to address it security concerns relating to the 760 Km tract of the pipeline route, which falls in the Pakistani territory. Tehran says it would also offer guaranteed supplies of LNG in case of sabotage of the pipeline.
However, Indians are maintaining their position on the gas line so far, despite various proposals extended by both Iran and Pakistan, and most of the recent discussions have not been able to make any breakthrough.
Manmohan Singh and Mani Shankar Aiyar have both made statements in the parliament that a trans-national onland pipeline from Iran to India transiting through Pakistan was one of the viable options. “The matter was recently discussed at the highest level between the two countries and it was decided to pursue the Iran-India natural gas pipeline via Pakistan in the context of overall bilateral trade and economic cooperation between the two countries. This project would basically be a commercial project supported by appropriate guarantees for security of supplies,” Aiyer made this statement in Lok Sabha recently.
ENDS.


Rampant corruption impedes investment



By Nadeem Malik
Islamabad: Looking at the data of private sector credit expansion, it appears that there is definitely an up-tick in the economic activity. However, analyzing the foreign private investment and the number of new Greenfield projects shows opposite side of the story.
The credit to the private sector maintained its robust growth rate of last two years and expanded by Rs 224.6 billion till December 18, 2004, clearing the fiscal year target of Rs 200 billion in less than six months. The total flow of Foreign Direct Investment (FDI) during this period also increased to $327.7 million, against $216.9 million of the corresponding period of the last fiscal year. However, the current level was not enough considering the size of the economy and requirements of the industrial sector.
With large scale manufacturing sector already booming, industrial sector working at the maximum capacity, the fundamental question of sustainability of growth rate at 6-8 percent per annum hinges largely on the investment climate in the country, which faces many challenges, ranging from corruption, high cost of doing business and possible political disruptions.
One key factor that impedes investment flows was the pervasive corruption. Pakistan’s score on the Corruption Perception Index (CPI) of the Transparency International has slipped down further in 2004 to 2.1 from 2.5 in 2003 and from 2.6 in 2002. Out of the 146 countries indexed by TI in 2004, Pakistan was one of few countries, which have shown major change in scores, partly attributable to the technical factors, like inclusion or dropping of some of the surveys.
A report about South Asia in 2002 found police, land administration, tax officials and judiciary perceived as the most corrupt public institutions in Pakistan. The survey showed that bribes were a heavy financial burden on the South Asian households, both due to the high frequency of bribes and to the large sums paid.
This, coupled with high cost of doing business in the country, hurts investment climate. It was obvious that slow growth in private investment, particularly in large scale manufacturing, would prove to be a major constraint on Pakistan's future economic growth. Although, the government claims that the existing policies were not restrictive, the bad execution, poor governance and badly functioning state institutions create more hurdles, than facilitation for the investors.
The government, however, claims that FDI flows have been continuously rising in Pakistan since financial year 2001, at annual rate of 45 percent, to reach $951 million in 2003-04. However, the growth rate reflects that fact that it was being measured from a very low base, and secondly the recent data was misleading, as it includes the privatization receipts and license fee of about $600 million of telecom licenses.
“In terms of regulation, it is a common complaint from the private sector that Pakistan still has a fairly regulated business environment. A particular cause for concern is the lengthy delay in customs clearance. Delays at customs make it very difficult for businesses to keep optimal levels of inventories and undermine the notion of 'just-in-time' planning. The investment climate and the uncertain national and regional political situation have kept FDI inflows into Pakistan low,” maintained a report of the multilateral agency.
There is an awareness of regulatory problems, in particular of the need to streamline tax administration. Recently some measures have been introduced to reform the Central Bureau of Revenue. For example, a system of universal self-assessment has been introduced with a view to minimizing contact with tax officials, and there has been an experiment with a new form of customs documentation designed to minimize the number of forms to be completed with a view to speeding up customs clearance.
One way of looking at the degree of regulation is to estimate the time and cost required to start up a new business as a proportion of GDP per capita. From the comparative data available for the late 1990s, Pakistan does not fare well by this criterion. However, it does better than India and Indonesia.
In terms of entry regulations, Pakistan’s total procedure of 11, with 24 days time to set up a business is much better than many other countries. The cost (percentage of income per capita) 36 is high, but gradually coming down. However, Pakistan’s performance in the contract enforcement and bankruptcy procedures was poor. It takes 46 procedures and 395 days to go through the contract enforcement process, costing 35.2 percent of the debt. In case of bankruptcy, the cost of insolvency (percentage of estate) at 4, with 2.8 years time, and recovery rate (cents on the dollar) 38.1 was not good enough. Rigid labour regulations are also a problem factor, discouraging new investments.
However, the key roadblock remains corruption and weak governance, which leaves little room for efficient working of the system. One has to pay bribes for availing utility services, or even to get treatment in hospitals. In countries where the level of corruption was low, investment flows remain high even in the presence of more cumbersome procedures.
ENDS.


Poverty remains widespread


By Nadeem Malik
Islamabad: The International Monetary Fund (IMF) says poverty and unemployment remains high in Pakistan, with real wages declining, despite success in macroeconomic stabilization during the last three years.
A detailed report of the Fund released Tuesday says that there is no clear evidence yet on poverty trends, reflecting a lack of comparable current data. The report also outlined some fiscal adjustments, including upward revised revenue estimate of Rs 590 billion and downward revised petroleum development levy projection of Rs 18 billion and development spending of Rs 188 billion, to achieve Rs 199.2 billion, or 3.2 percent of GDP budget deficit during the current fiscal year. IMF also expects Pakistan to achieve 6.5 percent growth during the year, with rate of inflation soaring to 7 percent.
A government sample survey conducted in early 2004 suggests that poverty has fallen over the last three years. The survey showed a decline by 4 percentage points in the poverty rate, to 23 percent. The last official household survey in 1998-99 showed 32.1 percent poor in the country. ”The results of this survey are not fully comparable with those from earlier household surveys, as its sample size was much smaller and the poverty line may have been underestimated.”
The IMF data provided some sectoral indicators showing no major change so far in the social sectors. Many intermediate outcome indicators for the health and education sectors have yet to show significant improvements. Both as a ratio to GDP and per capita, education and health spending in Pakistan is among the lowest levels in the world. A cross-country analysis exploring differences in growth rates among low and middle income countries finds that weak human capital indicators are an important constraint to growth in Pakistan.
Real wages in the manufacturing sector have declined by 7.5 percent in real terms since 2000-01. Pakistan is still ranked low in the 2004 UNDP human development index. “Overall, poverty remains widespread and Pakistan faces a major challenge in trying to meet its Millennium Development Goals (MDGs).”
However, the report said per capita GDP has also grown significantly to a projected total of $2265 in 2004 on purchasing power parity (PPP) basis. Social- and poverty-related expenditures have been raised to 4.7 percent of GDP in 2003-04, from 3.8 percent of GDP in 2001-02. A firm assessment of poverty trends cannot be made until the results of recently launched surveys are known by middle of 2005. Reports from nongovernmental organizations and labor unions meanwhile claim that the poor have yet to benefit from the recovery and that inequality has been rising in recent years, the Fund maintained.
IMF maintained that the political and security situations remain complex. A new government was announced in August 2004. Prime Minister Shaukat Aziz retained the finance portfolio, which bodes well for the continuation of reforms. Pakistan’s National Assembly has approved a bill to allow President Musharraf to continue as both president and army chief, much to the ire of the opposition. Operations against militants in the border areas are ongoing and have prompted retaliation from affected groups, including an attempt on the prime minister. The dialogue with India is progressing, though differences over Kashmir remain.
The IMF report mentioned three key areas: High growth and rising social- and poverty-related expenditures by themselves do not guarantee rapid poverty reduction. Poverty remains widespread and intermediate outcome indicators do not (yet) show significant improvements; Pakistan made major gains in macroeconomic stabilization, but these trends can easily reverse; Structural reforms were pursued forcefully in many areas. But energy pricing and expansion of the tax net have proved politically difficult. It will take a strong sustained effort to enhance the capacity of local governments to improve social services delivery.
The IMF directors viewed Pakistan’s near-term economic outlook as positive. They thought that broad-based growth of over 6 percent could be maintained in 2004-05, and considered the projected shift in the external current account to a small deficit appropriate given Pakistan’s development needs. The directors also welcomed the planned increase in social spending, which they considered a necessary condition to move toward the Millennium Development Goals. Directors emphasized that raising social spending while lowering the still high debt-to-GDP ratio is possible only if the targeted increase in the revenue ratio is realized. In this regard, directors encouraged the government to pursue more ambitious revenue targets and to expand the tax base further into the services and agricultural sectors. They also expressed concern about the new tax exemptions granted in the 2004-05 budget and urged the authorities to safeguard the integrity of the tax system, which has been strengthened over the last years through hard-earned reforms. They noted that the fiscal strategy calls for subsidies to the energy sector to be reduced significantly. They regretted the recent delays in implementing energy sector reforms and urged the authorities to speed up the reform process, in close coordination with the World Bank.
However, the report said that Pakistan has successfully recovered from the 1998-99 crisis. Growth has rebounded to 6.5 percent. Fiscal adjustment, supported by official inflows and debt relief, has led to a substantial improvement in public and external debt indicators. The key policy challenges is sustaining strong economic growth at 8 percent in the medium-term and reducing poverty to help lift a significant share of the population out of poverty. This is ambitious and will require a substantial increase in private and public investment. Improvements in the investment climate through structural reforms, including in the energy sector, are necessary to raise domestic investment and attract more foreign investment.
Achieving such high rates of growth will require a substantial increase in private and public investment, and a major improvement in factor productivity. However, international investors often have a perception of poor security in Pakistan, and this may affect FDI flows. Domestic investors have learned to adapt to the security situation, and if they can obtain sufficient access to domestic and foreign saving—facilitated by a stronger banking system—they could generate the investment levels needed to realize the authorities’ growth objectives.
The report expects the government will continue to deregulate the economy so as to reduce the cost of doing business in Pakistan. A recent World Bank analysis found that it is easier to enforce contracts or to start up a new business in Pakistan than elsewhere in the region—the time for a business start-up has been cut in half to 24 days in 2003—but that labor laws are more restrictive, making it more difficult to hire and fire staff than elsewhere in the region.
The government’s medium-term fiscal strategy aims to balance the need for higher levels of social and investment spending with reducing the debt burden. The 2004-05 budget is consistent with this strategy and aims to limit the overall fiscal deficit (excluding grants) to 3.2 percent of GDP, helping to reduce the public debt ratio to 63 percent of GDP. The rebasing of national accounts resulted in lowering the debt-to-GDP ratio, however, revenue collection and social spending now appear even lower in the relation to the new GDP. The Per capita GDP jumped from $555 in 2004-05 (old base) to $690 (new base) after revision of the national accounts.
Governance in fiscal and financial management has been strengthened, but weaknesses remain in the energy sector, tax and local administration, and the police. The political devolution has laid the groundwork for improving social service delivery, but full administrative and financial empowerment of local governments is still lacking.
In the medium term, the IMF said, maintaining an overall deficit (excluding grants) of about 3 percent of GDP, with 6 percent economic growth in the medium case scenario, and 8 percent in the high growth scenario, would result in a decline in the public debt-to-GDP ratio to about 50 percent by 2008-09. CBR revenues are targeted to increase gradually by 1 percentage point of GDP over the next 4–5 years, owing mainly to administrative measures.
Inflation accelerated throughout 2003-04, reflecting pressures emanating from the partial liberalization of the wheat market, rising oil prices, as well as domestic demand supported by easy monetary conditions. The inflation remained at above 9 percent level, with nonfood, nonenergy (core) inflation continued to increase, to 7.2 percent year-on-year in October. The central bank has started to tighten monetary policy more forcefully in September 2004 with an aim to reduce 12-month inflation to below 5 percent by June 2005, implying an annual average rate of inflation of about 7 percent for 2004-05.
A tighter monetary stance should also alleviate pressures on the exchange rate and reduce the need for exchange market intervention. The SBP has allowed some greater nominal exchange rate flexibility in recent years, while trying to limit volatility in the market. It has also monitored closely Pakistan’s real effective exchange rate with a view to maintaining competitiveness. IMF observed that if substantial pressures were to arise in the foreign exchange market, additional exchange rate flexibility could relieve pressures on monetary policy. Real interest rates for maturities up to three years remain negative.
“While the immediate outlook is good, Pakistan faces major economic and social challenges in the medium term. Poverty is relatively high and social indicators are weak, with little evidence of a strong improving trend recently. Per capita social spending is low and the public debt burden, though reduced, is high. The infrastructure is weak in many areas. There is still some way to go toward creating a modern institutional structure and improving governance,” IMF maintained.
The Fund also released statement of its Resident Representative in Pakistan. It outlined recent economic numbers saying that available data indicate that economic activity continues to show strong growth. Provisional data for the large-scale manufacturing industry show an increase in production by 14 percent in the first quarter of 2004-05, compared to the same period in the previous year. In the agricultural sector, the cotton and rice harvests were considerably higher than in the preceding year.
The budget continues to over-perform. Preliminary fiscal data for the consolidated government through September suggest an overall budget deficit (excluding grants) in the first quarter of Rs 25 billion, which would be considerably less than the projected deficit of Rs 89 billion. This reflects a stronger-than-anticipated revenue performance, as well as some under spending. Notably, both revenue collection by the Central Board of Revenue and the receipt of nontax revenues were considerably higher than envisaged. Social- and poverty related spending in the first quarter of 2004-05 fell somewhat short of projections upwards. The improved revenue position—if maintained—mitigates the risk to the budget posed by the higher oil prices.
The current account recorded a small surplus in the first quarter of 2004-05 (0.1 percent of GDP). Notably private transfers were higher than projected and exports performed somewhat better as well. Gross official international reserves (including the sinking fund), however, fell from $10.6 billion at end-June to $10.3 billion by end-September, and further to $9.3 billion in late-November, partly reflecting efforts by the State Bank of Pakistan (SBP) to alleviate recent pressures on the exchange rate, with the Pakistani rupee depreciating by 5.5 percent vis-à-vis the US dollar from end-June through end-October. However, the Pakistani rupee reversed over half of its losses in November.
Pakistan also plans to issue an Islamic bond (Sukuk) in the international markets by the end of this year or early in 2005, to be followed by Islamic bonds for the domestic market, as the government intends to rely more on markets.
“The continued rapid private sector credit expansion, the further increase in core inflation, combined with the recent pressures on the exchange rate and associated loss in international reserves, underscore the need for the SBP to tighten its monetary policy more forcefully.”
The public information note of the Fund said that the IMF directors expressed concern about the increase in inflation over the past year, urging the authorities to tighten monetary policy promptly and more forcefully to avoid inflationary expectations becoming entrenched.
“Directors noted that a further tightening of monetary policy will also alleviate recent pressures on the exchange rate. Directors considered the level of the real exchange rate to be broadly appropriate, but noted that external competitiveness needs to be monitored closely in view of the uncertainties facing Pakistan, particularly stemming from the removal of quotas on textile and clothes imports by industrial countries. Directors emphasized that competition-enhancing structural reforms are the most effective approach to maintaining Pakistan’s competitiveness.”
IMF also maintained that financial reforms have resulted in a more efficient and resilient financial system. However, it cautioned that banking supervision needs to be vigilant to ensure that rapid private sector credit growth does not weaken banks’ balance sheets. IMG also asked the government to strengthen the pension and insurance system. IMF directors urged the government to divest remaining public ownership of commercial banks, and the early passage of new anti-money laundering legislation in line with international standards.
IMF also expects over $1.1 billion current account deficit with higher than targeted export at $13.6 billion and imports at $16.6 billion.
ENDS.


Credit scheme for job creation likely



By Nadeem Malik
Islamabad: The government intends to launch a credit guarantee scheme to channel Rs 6 billion to the small and medium establishments through the banking system, says the Ministry of Finance.
In a quarterly review on the poverty-related spending during the first quarter of the current fiscal year, the Ministry maintained that this scheme is being conceived to boost employment opportunities in the private sector. The official unemployment rate increased from 7.8 percent in 1999-2000 to 8.3 percent in 2001-02. The unemployed were estimated just 3.1 percent in 1990. “The gap of skilled manpower will be filled through public-private partnership for providing a crash programme in technical and vocational training to 300000 people annually. To promote self employment in the country, coverage of credit programmes will be extended from the current level of 500000 households to 5 million households in the next five years.”
According to the official Labour Force Survey for 2001-2002 the unemployment rate for women in even higher at 16.5 percent, and if partially unemployed are also considered the unemployment rate jumps to 9.7 percent. A major reason of rising unemployment could be the difficulties faced by the agriculture sector, which according to the survey offers jobs to 42.1 percent in 2001-2002.
The poverty-related social sector spending, as identified in the Poverty Reduction and Strategy Paper (PRSP), totals Rs 53.8 billion during the first quarter of 2004-5, as against the annual target of Rs 278 billion. The government claimed that the level of PRSP expenditures was on track. The sector-wise data shows roads and highways, education, health, irrigation, food support program, housing, administration of justice and law order witnessed increase, but spending on water supply and sanitation, population planning, rural development and food subsidies declined. The development budget in the education sector had also fallen, with a meager Rs 739 million spending in the whole country, which would definitely not help achieve the Millennium Development Goals (MDGs) of universal primary education or halving poverty by 2015.
“The important dimension of education and health expenditure is that the share of development component in total expenditure has been low. There is a need to prioritize the allocation of resources within the education and health sectors in line with education and health policies.”
The detailed data shows that the spending on Water supply and sanitation declined by 40.59 percent, Population Planning by 44.62 percent, Rural Development by 19.58 percent and Food Subsidies by 98.71 percent. “There is a need to allocate sufficient resources for ‘water supply and sanitation’ sector so the people have access to safe drinking water and sanitation,” the Ministry of Finance observed.
Data on Zakat shows that only a small amount of Zakat could be disbursed during the first quarter of the current fiscal year, and this disbursement was only in NWFP.
Data on four intermediate health indicators - utilization rate of FLCF/day, births attended by skilled birth attendants, FLCFs not experiencing stock-out, and availability of contraceptives at FLCFs - have also not shown in improved situation, at best the current situation in being maintained. The utilization rate of FLCFs has, however, shown some steady recovery to 120 in 2003-04 from 113 in 2001-02.
No improvement could be witnessed in the number of births attended by skilled birth attendants; it remained stagnant as 14 percent for the last two years, as against the target of 18. “This indicator has serious implications for the achievement of several outcome indicators, particularly for the reduction in maternal mortality, which, at present, is very high in Pakistan. The common observation is that unless a large proportion of births is attended by skilled birth attendants or delivered at the hospital, it is hard to bring a substantial reduction in maternal mortality.” The other two indicators of experiencing stock-out of key supplies at the FLCFs also remained at 35, while the availability of contraceptives at the FLCFs was reported to be at 86 percent. However, the coverage of DPT-III and TT-II has gradually improved to 66 and 45 respectively.
With respect to the development of social sector, 80000 illiterate people will be imparted adult literacy in the next five years. The number of Lady Health Workers (LHWs) will be increased from 70000 to 100000 to cater a population of 100 million, the PRSP report says.
The report maintained that the increase in price levels results in eroding the purchasing power of the people; therefore for the welfare of the people prices have to be stabilized. For price stabilization, the economic strategy aims to have sufficient stock of wheat, sugar, and fertilizer, the report added. Inflation during the first four months is estimated at 9.1 percent as against 2.2 percent in the same period last year. Food inflation is estimated at 13.6 percent as against 1.5 percent of last year.
On macro front the report hoped that the 6.6 percent GDP growth target would be easily met.
ENDS.


Japan may resume Yen loans shortly


By Nadeem Malik
Islamabad: Japan is considering resumption of Yen loans for Pakistan, with the likely approval of proposed projects early next year, said Keishiro Fukushima, Parliamentary Secretary for Foreign Affairs of Japan.
Keishiro said Japan will provide technical and financial assistance to Pakistan in a number of areas, mainly focusing on human resource development, strengthening infrastructure and urban renewal particularly that of Karachi, as these are the three priority areas of Japan’s Country Assistance Programme for Pakistan. It was stated in a handout issued by the Ministry of Finance after meeting of the Japanese delegation with Salman Shah, Advisor to Prime Minister on Finance and Hina Rubbani Khar, Minister of State for Economic Affairs Division (EAD).
Pakistan was one of largest recipients of the Japanese Official Development Assistance (ODA), averaging about $500 million per annum, till its suspension in 1998 after imposition of nuclear-related sanctions. These sanctions were removed recently, but resumptions of new loans was yet to take place. After signing of the debt rescheduling agreement of about $4.5 billion that Islamabad owed to Tokyo, under the Paris Club agreement, there was a political opposition for new Yen Loans to Pakistan. Under the Japanese law, only those countries did not qualify for new Yen packages, which had sought debt cancellation. Pakistan had not sought cancellation of debt, but sought comparable treatment under the concessional terms agreed with the Paris Club. The reports of nuclear leaks from Kahuta to North Korea, Libya and Iran also added to the problems.
The resumption of the Japanese Official Development Assistance (ODA) would be crucial for the poverty alleviation and social sector development of Pakistan. With almost one-third of its population living below the poverty line, it would be hard for Pakistan to provide adequate resources for pro-poor projects without such aid packages. Recent Japanese assistance includes $27 million for the third phase of the ongoing Kohat Tunnel Construction Project. In response to September 11, Japan also provided $300 million package.
The official statement said the proposed projects are being scrutinized by the Central Bank of Japan, and that the final approval was expected early next year. Salman Shah also proposed Keishiro Fukushima setting up of Pak-Japan International Company or Pak-Japan Joint Fund to increase Japanese investment level and joint ventures in Pakistan.
ENDS.


Pakistan Perceived More Corrupt in 2004



By Nadeem Malik
Islamabad: Pakistan’s score on the Corruption Perception Index (CPI) of the Transparency International has slipped down further in 2004 to 2.1 from 2.5 in 2003.
Out of the 146 countries indexed by TI in 2004, Pakistan is one of few countries, which have shown major change in scores, partly attributable to the technical factors, like inclusion or dropping of some of the surveys. However, it is a second year in a row, when Pakistan got poor results. In 2002, Pakistan scored 2.6 on CPI index, out of a clean score of 10.
The CPI reflects perceived levels of corruption among politicians and public officials in the surveyed countries. It is not the actual measurement of corruption, but the perception of it. The survey calculated that at least $400 billion is lost to corruption every year around the globe with oil-producing nations among the worst offenders.
Pakistan scored 2.25 in 1995, 1 in 1996, 2.53 in 1997, 2.7 in 1998 (highest so far), 2.2 in 1999, no result for 2000, 2.3 in 2001, 2.6 in 2002 and 2.5 in 2003, but now the latest survey assigned it 2.1 in the Corruption Perception Index (CPI) 2004, which is not good for the government, which had a declared objective of good governance.
The Corruption Perception Index 2004 also noted that corruption is hobbling the fight against poverty and robbing oil-rich countries of their development potential.
"Corruption in large-scale public projects is a daunting obstacle to sustainable development, and results in a major loss of public funds needed for education, health care and poverty alleviation, both in developed and developing countries," TI noted. It added that if the Millennium Development Goal of halving the number of people living in extreme poverty by 2015 is to be achieved, the governments need to seriously tackle
corruption in public contracting.
The CPI ranked Haiti and Bangladesh at the bottom of the list among the worst perceived levels of corruption among public officials and politicians. At the top of the ranking for the least corrupt countries were Finland, New Zealand, Denmark and Iceland. A rise in perceived corruption had been observed in the last year in Bahrain, Belize, Cyprus, Dominican Republic, Jamaica, Kuwait, Luxembourg, Mauritius, Oman, Poland, Saudi Arabia, Senegal, and Trinidad and Tobago, while a drop in graft was seen in Austria, Botswana, the Czech Republic, El Salvador, France, Gambia, Germany, Jordan, Switzerland, Tanzania, Thailand, Uganda, the United Arab Emirates and Uruguay.
The report finds that oil wealth and corruption go hand in hand, and oil companies should provide more information about their dealings to help clean up the market. "Oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen all have extremely low scores," a TI official said.
Various reports on the TI index revealed that the post-war reconstruction of Iraq could be ruined by rampant corruption, adding that the future of Iraq depended on transparency in the oil sector. "Without strict anti-bribery measures, the reconstruction of Iraq will be wrecked by a wasteful diversion of resources to corrupt elites," TI official said.
In other reports, political parties, the courts and the police were identified as the three areas most in need of reform in TI's Global Corruption Barometer, a survey of the general public in 48 countries, launched in July 2003. "Their bribes and incentives to corrupt public officials and politicians are undermining the prospects of sustainable development in poorer countries." Political parties, the courts and the police were identified as the three areas most in need of reform in TI's Global Corruption Barometer, a survey of the general public in 48 countries, launched in July 2003.
A similar report for South Asia found police, land administration, tax officials and judiciary perceived as the most corrupt public institutions in Pakistan. The judiciary was identified as the second most corrupt area, after police, in all South Asian countries except Pakistan, where land administration and the tax authorities were identified as the second and third most corrupt areas respectively.
In India, Pakistan and Sri Lanka, 100 percent of respondents that interacted with the police during the past year reported encountering corruption. In their experiences with the judiciary, nearly all Indian, Sri Lankan and 96 percent Pakistani households reported paying bribes. In Pakistan, 100 percent of respondents with experience with the land administration authorities reported corruption.
The survey, conducted in Bangladesh, India, Nepal, Pakistan and Sri Lanka between November 2001 and May 2002, was carried out on households, both urban and rural, in each country, ranging from 2,278 households in Sri Lanka to 5,157 in India, and 3,000 in Pakistan. Same methodology was applied to assess service delivery and corruption in seven public services: health care, education, power, land administration, taxation, police, and the judiciary.
The survey showed that bribes were a heavy financial burden on South Asian households, both due to the high frequency of bribes and to the large sums paid. In Pakistan, 92 percent of households that had experience with public education reported having to pay bribes; the average amount paid was Rs 4,811 ($86).
In Pakistan, 65 percent of all patients visiting a hospital reported irregular admissions and 96 percent of those who were admitted said they were victims of corruption. Hospital staffers were identified as the key facilitators of corruption by 65 percent of the users and direct extortion was reported in 60 percent of the total cases of corruption. Lack of accountability and monopoly power were quoted as key contributing factors.
A very high percentage of 65 percent of users with access to electricity reported irregular processes in acquiring it; a much higher percentage reported of corruption in regular interaction with the department. Meter readers and billing employees were identified as the key facilitators; extortion was reported by 72 percent of the victims. A lack of accountability and low salaries of employees were identified as major contributory factors.
These figures were startling in a region where 45 percent of the total population of 1.4 billion lives in poverty. When asked about the source of corruption, most respondents answered that public servants extorted bribes. Middle and lower level civil servants were identified as the key facilitators of corruption in all sectors probed.
The report strongly supports the case for empowering regulatory bodies, such as the office of the Ombudsman to oversee the activities of public agencies, which across the region were the sole providers of many basic necessities. The findings also indicated that where the law was silent on standards of service, agencies simply provide poorer services.
The report observed that a major factor contributing to the poor impact of huge public investments in critical sectors like health, education, and power across South Asia was the lack of effective monitoring systems. It was now a fairly established fact that corruption was severely undermining development objectives in South Asian countries by hindering economic growth, reducing efficiency, acting as a disincentive to potential investors and, above all, by diverting critical resources meant for poverty alleviation.
Though of late there had been a growing awareness of the need to address the systemic spread of corruption, most of the reform agenda was top-down and in many cases donor driven, with little or no space for civil society to play a meaningful role, TI observed in the Survey.
The Survey also maintained that if Pakistan were to reduce its level of corruption to be on at par with Singapore, GDP growth rates could increase by two percentage points.
Talking about the key governance indicators in Pakistan, the report assigned a score of -6 on Polity Index (which reflects institutional factors for democracy, 57 for press freedom (which means partial freedom), -0.48 for government effectiveness and -0.78 for graft and corruption (these two indicators were based on the World Bank's approach on a scale of -2.5 to 2.5, higher is better).
In a press statement, Shaukat Omari, Executive Director of Transparency International Pakistan, said: "In spite of more vigorous enforcement of anti-corruption laws under the regime of President Pervez Musharraf, Pakistan is still perceived to have an unacceptably high level of corruption.”
In the TI Corruption Perceptions Index 2004, Pakistan scores 2.1 against a clear score of 10, indicating persistent rampant corruption. In the Corruption Perceptions Index, Pakistan has consistently featured among the most corrupt 10 per cent of countries ranked, with scores ranging between 2.1 and 2.7. “This is not a very enviable position," states the National Integrity Systems TI Country Study Report Pakistan 2003.
A total of 106 out of 146 countries score less than 5 against a clean score of 10, according to the new index. Sixty countries score less than 3 out of 10, indicating rampant corruption. Corruption is perceived to be most acute in Bangladesh, Haiti, Nigeria, Chad, Myanmar, Azerbaijan and Paraguay, all of which have a score of less than 2.
ENDS.


Pakistan may diversify forex reserves



By Nadeem Malik
Islamabad: Pakistan seeks help of the World Bank to manage its debt more professionally, after suffering huge revaluation losses during last three years.
The debt management strategy, desired composition of foreign debt and percentage of various currencies, various aspects related to the options of hedging, setting up of a debt office in Pakistan, training of personnel to mange the debt office were discussed between Salman Shah, Advisor to Prime Minister on Finance and the World Bank mission on Debt Management.
Pakistan’s total external debt and liabilities should have been $32 billion at the end of last fiscal year, as against about $35 billion, due to exchange rate losses. Some of these losses may have been partially reversed in recent months due to over 4 percent depreciation of rupee against the US dollar. Salman Shah requested the Bank to assist Pakistan in setting up a debt office and identify some international experts in debt management who can supervise Pakistan's debt office in the initial stages.
The government is expected to diversify official foreign exchange reserves away from the US dollar to stem the growing losses, by hedging against major currencies, like Euro and Yen, after seeking detailed reports from the multilateral financial institutions. One estimate of losses indicate that Pakistan lost $1.8 billion between 2001-2003, as rupee appreciated against the dollar during this period, and dollar faltered against leading international currencies.
Most of these losses are translational losses due to adverse fluctuations of the exchange rate. Like one analysis indicate that massive borrowing in the Special Drawing Rights (SDRs), which included Deutsche Mark and French Franc, before the advent of the Euro, also proved to be a major mistake. These currencies, within the SDR basket, were replaced by the Euro after its inception. When the Euro appreciated against dollar, resultant impact on the rupee value, which was already appreciating against the US currency proved to be a double-edged sword in terms of accounting numbers. It does not mean that appreciation of the rupee was a bad thing for the economy. As a matter of fact, maintaining most of the reserves in one currency was the mistake, which could have been avoided if the debt managers had made an effort to look at the future foreign exchange obligations and current exchange rate trends.
One most glaring example of how translation losses affect the system could be judged from the fact that the central bank suffered almost Rs 25 billion reduction in profits during 2002-03, which was mainly due to the revaluation of SBP’s foreign exchange assets and liabilities required under the international accounting standards. “The SBP accumulated large net foreign assets, totaling $7.986 billion in financial year 2002-03, which were reported in rupees in its profit and loss statement. Thus, as the Pakistani Rupee, appreciated vis-à-vis the US dollar by Rs 2.21 during the financial year (from Rs.60.02/US$ in June 2002 to Rs.57.81/US$ by end June, 2003), the SBP suffered a revaluation loss of Rs 17.65 billion (the actual loss was compensated by gains of Rs.6.6 billion on forward cover),” the central bank admitted in one of its reports. The other major component of the reduction in SBP’s profits was due to a decline in T-Bill rates. However, the reduction in interest rates was very beneficial for the government and the economy, as it helped the government to reduce the debt servicing payments to Rs 207.8 billion from the original estimates of Rs 264.0 billion in 2002-03, in addition to providing a real impetus to the economic activity.
The central bank’s policy of outright dollar purchases helped it build a huge reserve level through non-debt creating instruments. The State Bank bought $5.654 billion from offshore money changes (after nuclear tests of May 1998 to FY02) and a net $6.856 billion through the interbank market (SBP purchased $10.838 billion from the inter-bank market in the period between FY99 and March 2004, at the prevailing inter-bank without paying any premium, and sold $3.982 billion during the same period). These reserves have great significance in ensuring economic and foreign exchange stability in the country.
However, there is an associated cost too. “The foreign exchange reserves held with SBP are carried at the cost at which they were purchased from the market. Subsequent changes in the exchange rate affected SBP's profitability when the balances were revalued on a mark-to-market basis as per the International Accounting Standards. When the rupee took a reverse turn and started appreciating sharply, the State Bank as per the requirements of international accounting standards had to book revaluation losses on its Gross Foreign Assets since the prevailing exchange rate in the market at the year end was less than the rates at which purchases were made. Moreover, the Net Foreign Assets position of the Bank also remained positive due to the unprecedented increase in the foreign exchange reserves held, adding further to the net exchange loss. On the other hand, interest rates in the international foreign exchange market continued a declining trend and SBP's income on its investments of foreign exchange assets was therefore significantly lower,” the central bank explained in the annual report of 2002-03.
The rupee gained 6.2 percent against the US dollar in 2001-02, after falling 22.4 percent in 2000-01. The massive inflow of dollars following September 11 turned around the rupee fortunes, as the exchange rate appreciated from Rs 63.98/dollar in 2000-01 to Rs 60.02/dollar in 2001-02. The rupee appreciated further by 3.7 percent (Rs 57.81 per dollar) in 2002-03. “Contrary to popular perception, a strong and appreciating rupee will lead to exchange loss when the value of foreign reserves (net of liabilities) are positive and translated into rupees.”
It was only since April 2004 that this trend had changed again largely due to higher demand of dollars. The steep rise in the imports bill and the end of the Saudi Oil Facility has widened the rupee-dollar parity in the official interbank market. The central bank has already sold almost one billion dollar in recent months to keep the exchange rate stable and avoid sharp adverse changes. The central bank should have realized exchange gains on its Gross Foreign Assets during last couple of months, as rupee depreciated against the dollar.
Since the East Asian financial crisis, the central banks across the region have been stockpiling dollars. Almost all the central banks intervened to prevent appreciation of currencies, like the State Bank, which further added to the reserve build up. Most of this money was consumed to pay down foreign debts, and a major portion went back to the US market after accumulating it at higher rates. However, the trend had just started reversing in recent years, when Venezuela, China and few other countries made a conscious effort to move away from the dollars, by accumulating some Euros. The second problem that surfaced was an attempt of leading holders, like Japan and China, of the US Treasuries to offload a part of it due to falling returns and depreciating dollar. According to estimates, foreigners own more than one-third of the US debt market.
The SBP is also facing a similar dilemma now. It had squirreled away every possible dollar since the nuclear tests of May 1998, which exposed external sector vulnerabilities of the country. The reserve build up was the right way, as it was being done by most of the countries, like China and India.
However, the authorities need to develop flow charts of long-term debt with cross-currency evaluation reports to avoid translational losses in future.
ENDS.


Spat over Kashmir options


By Nadeem Malik
Islamabad: Eight weeks ago Indian Prime Minister Manmohan Singh and Pakistani President General Pervez Musharraf were upbeat about discussing all possible options in New York for a peaceful negotiated settlement of Kashmir. Musharraf tried to expedite the process with his ‘breaking-the-fast’ proposal of demilitarization and changing the status of Kashmir. Singh promptly rebuked him by saying redrawing of borders was not an option.
Now Prime Minister Shaukat Aziz, wearing a traditional Pakistani dress, has once again reiterated that ‘Kashmir was still the core issue between the two countries.’ After the 45-minutes talks between Aziz and Singh at Hyderabad House in New Delhi, Shyam Saran, Indian Foreign Secretary, said two leaders were satisfied that the dialogue process was moving forward, including the issue of the Jammu and Kashmir. Diplomatic observers, however, feel that it was hard to see any progress on the issue, which Aziz said ‘was still the core issue between the two countries.’
“Regarding Jammu and Kashmir, we believe this is an issue we all need to discuss and address. Progress on other issues will be made in tandem with progress on Jammu and Kashmir," Aziz said after his meeting with his Indian counterpart. "No proposals were presented to India. No reaction was expected from India," he said, according to various news reports emanating from New Delhi.
Aziz, on the last leg of the regional visit, in his capacity as Chairman of the South Asian Association of Regional Cooperation (SAARC), was expected to help push the tardy peace process forward, between the two uneasy neighbours. One of expected outcome of his visit could be the new realization in Islamabad about the mood in New Delhi.
In Islamabad many believe that India was not ready to concede more than a few kilometers of land to Islamabad across the Line of Control (LoC), in return for accepting it as a permanent border. However, the expectation in Islamabad, where many Muslim Leaguers talk about the so called ‘Chenab Formula’ was to get most of the areas where Muslims were in majority, which definitely includes the Valley.
According to the seven region identified by President Musharraf, two were on Pakistan’s side Azad Jammu and Kashmir (AJ&K) and Northern Areas. In the Indian Held Kashmir (IHK), there were 14 districts. Musharraf divided them in five regions. First region known as Valley, includes Kupwara, Baramula, Sri Nagar, Badgam, Pulwama and Islamabad; Second Rajauri region, includes Punch, Rajauri and Doda; Third Jammu region, includes Jammu, Kathua and Udhampur; Fourth Kargil region, includes Kargil; and Fifth Leh region, includes Leh, Shyok, Zaskar and Indus valleys.
“Identify a region, demilitarize it and change its status.” Musharraf said there were three basic options, including independence, joint control or UN mandated territory. There were also reports in the Indian press about the Andorra plan, which was said to be one of the options.
However, it appears that nothing is moving forward. There is a definite reduction in tensions, but no tangible progress on Kashmir. Aziz, however, may feel some accomplishment, if his visit helps the divided All Parties Hurriyat Conference (APHC) to join hands again. He met both factions of the APHC, but outcome of his talks would not be clear unless he talks to President Musharraf on his return to Islamabad.
Otherwise, the traditional position Pakistan demanding plebiscite, under the UN resolutions, and turning LoC into permanent borders by India are back in the business once again, with suggestions of ‘soft borders, self rule, people to people contacts between the two Kashmirs’.
In Islamabad, perhaps, there is a hope that re-elected US President George W. Bush would urge India to show some flexibility to resolve the Kashmir dispute, but in practical terms US policy on Kashmir has not shown any signs favouring Pakistani position, beyond some public pronouncements addressing the popular aspirations of the Kashmiris.
President Musharraf had shown optimism time and again, hoping an early settlement with India, particularly after his meeting with Manmohan Singh in New York on the sidelines of the UN General Assembly. But assertions of Singh, perhaps, forced him to say: “We would like to meet India halfway. We want India to also move halfway. We will leave our position, when India leaves her stated position.”
Talks between Aziz and Indian leaders discussed key bilateral and regional issues, like the Most Favoured Nation (MFN) Status for India, Gas Pipeline, regional economic and trade ties, and water disputes. But the conclusive discussion on all issues remained in the pipeline.
ENDS.


Trade to reduce Indo-Pakistan tensions



By Nadeem Malik
Islamabad: The expansion of trade ties between India and Pakistan may anchor the recent rapprochement, and trade relations would create new constituencies favoring reduced tensions, says a new report of the World Bank.
The Bank says that the gradual expansion of trade ties between India and Pakistan as a consequence of steps toward implementing the proposed SAFTA agreement may anchor the recent rapprochement. Expanded trade creates new constituencies favoring reduced tensions. However, a lesson of the study is that Regional Trade Agreements (RTAs) can only play this role if they are well designed and create trade rather than divert it.
A new report of the Bank: Global Economic Prospects 2005: Trade, Regionalism and Prosperity, observed that the trade as a share of GDP remains smaller in South Asia than in any other developing region. “But things are changing, including prospects for greater intra-regional trade as indicated by the recent SAFTA agreement. The challenge is to ensure that regional integration does not occur behind a wall of protection.
Improved relations between India and Pakistan, the Bank says, have opened up opportunities to promote development through greater regional integration. “The South Asian Free Trade Area (SAFTA), proposed in January 2004, would spur intra-regional trade, provided that most products are included and the regional strategy is embedded in the larger trade strategy of gradually opening to international markets.”
Economic growth in South Asia, while still strong, has declined to 6 percent in 2004, from 7.5 percent in 2003. The slowdown in the region can be attributed to adverse weather conditions and a decline in agricultural output due to poor rainfall. The 2004 growth numbers are supported by robust manufacturing in Bangladesh and Pakistan, and strengthening services and agricultural sector growth in Nepal and Sri Lanka. Regional GDP is forecast to accelerate, expanding by 6.3 percent in 2005, before moderating somewhat in 2006. The acceleration is largely driven by an anticipated recovery of agricultural growth in 2005; it is forecast despite slower GDP and trade growth elsewhere in the world. Long-term growth in South Asia is forecast to average about 5.5 percent during 2006–15 as the contribution to growth from the private sector accelerates. Per capita incomes are projected to advance significantly in the coming decades, expanding by an average of 4.1 percent per year for the period 2006–15 as reforms quicken and begin to pay productivity dividends.
On the trade issue, the Bank says, no South Asian country has a bilateral trade deal with a developed country. India has concluded, or is negotiating, limited arrangements with Mercosur and Thailand. Aside from Sri Lanka, no South Asian country had liberalized trade or FDI rules prior to the 1990s. Removal of the most extreme forms of anti-export bias and gradual domestic reforms, together with textile preferences, produced a rapid expansion in garment/textile exports from South Asian countries. This prompted growth in exports overall since 1990, and in exports' share of South Asia's GDP.
South Asian exports as a share of world trade remained low up to 2000, as the region's countries maintained the world's highest levels of average applied tariffs. But this is changing. Nepal launched trade liberalization in the early 1990s, and Sri Lanka and Pakistan have begun reducing border barriers and increasing external trade. India began to reduce border protection in the early 1990s, and in early 2004, announced up to one-third tariff cuts. Bangladeshi border protections remain among the world's highest, although reductions were announced in 2004. South Asia remains only minimally integrated in world capital markets. Net inflows of FDI, although higher than the early 1980s, are less than 0.8 percent of GDP, the lowest among developing regions.
Regional Economic Prospects
India's services sector made strong advances, supported by productivity gains and greater market penetration. The manufacturing sector continued to post high growth. GDP in South Asia is estimated to have slowed in 2004, if from a rapid pace, increasing by six percent, down from 7.5 percent in 2003.
Donor assistance and incipient peace, combined with a recovery in agriculture after a prolonged drought, helped boost real GDP growth in Afghanistan by an estimated 16 percent, excluding opium (which accounts for about one-third of output).
With regional trade agreements (RTAs) having increased six fold since the 1980s and now covering more than one-third of global trade, the World Bank’s report advises countries concluding bilateral and regional trade pacts to keep them open, so as not to divert trade or cause market distortions that penalize other developing countries.
Multilateral market openings, which are being sought in the Doha Round of WTO Negotiations, hold the promise of greater potential gains to all developing countries, the report says. A multilateral agreement is the only way to open agricultural markets and reduce or end subsidies in rich countries, says François Bourguignon, World Bank’s Chief Economist. These reforms are of critical importance to the poor but they are not on the table in regional trade talks.
In addition to its analysis of regional trade agreements, the report notes in its review of global prospects that 2004 is likely to be the best year for growth in developing countries since 1974.
ENDS.


Arab targets inhabit tribal belt



By Nadeem Malik
Islamabad: Some valuable ‘Arab targets’ do exist in Pakistani tribal areas, including Abu Faraj al Libbi, who is believed to be head of the al-Qaeda operations in the country, claims western diplomatic sources.
On the condition of anonymity, these sources believe that the American CIA had captured valuable evidence through satellite images and radio equipment that suggests presence of some of the most wanted men around. Pakistani sources also confirmed that there was a possibility of some 100 militants present in the South Waziristan agency, without identifying their names or ranking on the list of wanted al-Qaeda figures.
Pakistan has made some more than 600 arrests of Taliban and al-Qaeda figures after joining the US-led war against them after the 9/11 events, including the key high profile catches like Khalid Sheikh Muhammad (known as KSM), Abu Zubaida, Ramzi Bin Alshibh and more recently Ahmad Khalfan Ghailani. All of them were arrested from major Pakistani cities, generally tracked down by their cell or satellite phones by the intelligence gathering gadgets of the US security apparatus.
Abu Faraj, believed to be the right hand man of KSM is said to have taken over the role of his former senior colleague, as mastermind of the al-Qaeda’s Pakistan operations. Besides some of the other terror incidents, Abu Faraj was held responsible for two attacks on President General Pervez Musharraf in December 2003, through his contacts in banned religious outfits in the country, like Amjad Farooqui. President himself had hinted at the possibility of Abu Faraj’s existence in Pakistan during his recent visit to the United States. Referring to al-Qaeda figures, he said: “These people take the names like Al Libbi and al Arabi.”
There was also speculation about Osama Bin Laden and his deputy Ayman al-Zawahri. Senior diplomatic sources say there has been no new information linking to OBL, but there are indications about active role of al-Zawahiri. However, no one was in a position to confirm or deny the presence of two in the tribal areas. If fact, the operation in tribal areas has not yielded any significant target so far. All key arrests were made from the major urban centers of the country. However, there were suspicions that the rugged mountain terrain was perhaps the safe haven, as it was easy to move in and out from the Afghan side and get refuge there. Pakistani Interior Ministry believes that law enforcement agencies have marked the target areas, after identifying tribes which were providing cover to the foreigners. The ministry believes there are around 100 foreigners in the South Waziristan agency.
The latest round of crackdown against al-Qaeda kicked off after the arrest of a young Pakistani computer engineer Mohammed Naeem Noor Khan, which was accused to be handling the communication set up of the terror network. His arrest also led to the arrest of Ghailani and provided information about Abu Faraj. Authorities forced him to send coded email messages to various al-Qaeda contacts in a string operation, which unfolded new information about the terror network in the country.
There are also indications that Washington wants Islamabad to step up anti-terrorism activities to produce some more high value targets ahead of the forthcoming US Presidential elections, which are scheduled for November 2.
ENDS.


Property bubble is about to burst


By Nadeem Malik
Islamabad: Senior Pakistani bankers and independent experts believe that real estate price-bubble is about to burst in Pakistan.
Following the 9/11 events, when remittances sent by overseas Pakistanis increased from a meager one billion dollar to $4 billion, on an average, during the last two years, the direct beneficiary was the real estate business and the stocks. Without propelling the construction boom in major urban centers of the country, like Islamabad, Lahore and Karachi, property prices have increased 3-4 times. But it is just the papers of plots and built-up houses changing hands, not the new housing development that is taking place.
This phenomenon, which many believes was the result of rising inflows of remittances, more liquidity in the banking sector and lack of any other profitable and secure ventures for the holders of the black money in the country. Head of a largest Pakistani bank recently proposed that the government should aggressively move to address this potential scam, by imposing a minimum holding period on plots purchased and strictly enforcing the registration and land title rules. A mushroom growth of various housing schemes is being witnessed in the country. Most of them carrying names of prominent figures, generally retired Army Generals.
The World Bank in a report on Pakistani housing sector said that the property development industry suffers from low public confidence. A history of scams, financial weaknesses, and the absence of clear, uniform and fair business practices have tarnished its credibility.
As a matter of fact, there is a contradictory situation in the market. On the one hand there is growing shortage of housing units, and on the other sky-high prices, forced by the land mafias, have made it impossible for the middle class families to even dream of a house in the big cities. Pakistan faces a critical housing shortage. Nationally, the average occupancy rate per dwelling is over six and estimates of unmet annual demand for housing units hover around 1.5 million, according to a study of the World Bank. The housing shortage is especially burdensome in cities and towns where half the population lives in slums or irregular settlements. In urban areas, over 600,000 new dwellings are needed to satisfy current demand, yet only about 300,000 are being built according to current estimates.
Affordable housing finance is scarce compared to housing demand. The supply of housing finance decreased from 1.5 percent of GDP in 1994 to approximately 0.5 percent in 2001. Yet the ratio of the price of a basic Pucca to the median individual income per year stands between 3.5 and 4 (based on 1996-1997 figures). This is a lower level than that in many emerging markets. The ratio of the typical market price of a housing unit to the median annual household income was 7 in Egypt and Morocco in 1992, 8 in India (New-Delhi) or Malaysia (Kuala-Lumpur) in 1998, and 7.5 in Algeria (Algiers) in 2002.
The government announced several measures during the last two years to promote the housing sector in the country. However, these measures have only given rise to black marketers and fortune-hunters. Genuine people are still without a house. Senior economists believe that the market trend is not sustainable. Most of the ill-gotten wealth is going to real-estate business in Pakistan, as well as to Dubai. Even a smallest shock due to any domestic or regional political or security concern would be enough to burst the property bubble, they say.
Now, commercial banks have been experimenting with new housing finance products for the last two years as part of a broader strategy of consumer finance based on cross-lending products targeted to higher income groups, especially car loans and credits cards.
According to the World Bank the lack of finance is primarily a supply problem. Most housing finance comes from personal resources. The next source, the informal lending sector (10 percent), is poorly regulated, particularly in consumer protection (developers’ advances for instance). The housing sector is plagued by a restrictive banking environment, inadequate long term funding resources, and a complex web of ineffective property titling and land registration systems which do not reliably guarantee or enforce property rights, or list charges and transfers on individual properties. Mortgage lending is still perceived as risky.
According to the World Bank if mortgages with maturities of 15 to 20 years and rates of 8 percent to 10 percent were available to households earning Rs 6000 a month -- the lower threshold of the middle-income category (1999-2000 figures) - such households could afford without subsidies, housing valued at Rs 250,000.
The World Bank is likely to assist the government in addressing issues that inhibit growth in the housing sector. Like, legal and regulatory uncertainties undermine existing land administration systems. Although mandatory, property registration is often neglected because procedures are costly and lengthy. Consequently, record-keeping is incomplete and unreliable, and multiple sales of the same property with related ownership disputes are commonplace. The number of institutions and registration procedures required to execute property transactions remains high. Multiple institutions and procedural differences between, and within states, create market distortions and inefficiencies in the property development market. The distortions result in improper registrations and a culture favoring informal property transactions - an obstacle to effective liens and asset securitization. Better ways to collect and disseminate data are required to improve efficiency and minimize fraud and financial abuse. Computerized information and registration systems, property and ownership databases, effective title regularization processes and cadastral surveying, and an effective land information system can increase transparency and creditor rights enforcement, says the Bank report.
According to the government, with a population of about 150 million, Pakistan requires 25 million housing units, against the actual availability of 19 million houses, leaving a gap of 6 million. The cumbersome procedures, duties/taxes and limited scope of the Housing Finance Companies (HFCs) are some of the major roadblocks, which need to be resolved. For development of housing schemes, the land acquisition remains major challenge. Then there are no uniform building laws, transfer fee of houses is high, and there are multiple agencies dealing with the issuance of NOCs.
Allocation of land for genuine and approved new housing schemes along with clean title deeds, developer financing, provisioning of infrastructure and individual mortgage financing have to become available in an integrated fashion, the State Bank observed on the issue of housing finance in the past. The useful experience of Sindh Katchi Abadi Authority in promoting low-cost housing should be replicated in other parts of the province and the rest of the country, the SBP said, adding the HBFC, Khushali Bank, First Microfinance Bank, First Women Bank, Punjab Provincial Cooperative Bank, Bank of Punjab and Bank of Khyber which are well positioned should examine the possibility of participation in financing of these schemes.
Anyway, these are some of the structural issues confronting the development of affordable housing in the country, the rapidly booming land prices through the ill gotten cash flows are entirely different phenomenon. The land prices have in fact reached to a stage where a quick-reversal could take place any moment. This is even more likely due to the fact that after three-years of reverse-capital flight in the country from Middle East and elsewhere, the capital flight has again been taking place through investments in the new housing schemes in the UAE. Senior bankers believe that capital flight to Dubai is very strong for the last couple of quarters, which also slowed down the rate of growth in remittances, hence reserve build up also slowed down. This trend, if persisted, could be the beginning of real-estate crisis in the major urban centers of the country.
ENDS.


Power sector losses continue unabated



By Nadeem Malik
Islamabad: The transmission and distribution losses of the state-owned electricity companies have not shown any signs of reduction, despite tall claims of good governance in the public sector enterprises (PSEs).
According to the official data of the Ministry of Finance, the Water and Power Development Authority (Wapda) suffered 27.6 percent, and Karachi Electric Supply Company (KESC) about 38 percent, line losses at the end of the fiscal year 2003-04, which were extremely high and much beyond the sustainable limits.
The state-owned businesses have already eaten up almost Rs 400 billion out of the hard-earned taxpayers’ money in recent years, largely in the power sector. The situation of Wapda and KESC remains as bad as it was ever before despite induction of army and all sorts of tactics by the authorities. Senior officials of the power sector companies say that bad health of their companies is the result of a huge stock of bills receivable in certain areas of the country, which have put Peshawar, Hyderabad and Quetta Electricity Companies in the Red. The security operations in the tribal belt since 9/11 events have provided another excuse to tribals for non-payments of their long overdue bills. As a result, the overall system losses of Wapda (including auxiliary consumption of the power-houses) remained at 27.6 percent, as against the Financial Improvement Plan (FIP) targets of 25.8 percent. Generation from hydroelectric stations was recorded at 34 percent of total power generated against the targets of 31.8 percent, which actually shows better hydrology condition. In the case of KESC, actual T&D losses during the said period were 37.9 percent.
Pakistan Railways has claimed improved performance during this period due to increase in passenger traffic, goods transportation, provision of networking of ten stations, computerized ticketing system, one window reservation system etc.
The Pak-Steel achieved 92 percent capacity utilization during the 4th Quarter 2003-04. The unit earned better than expected profit due to much higher steel sales, as domestic demand is booming and prices have gone sky high.
Pakistan International Airlines suffered a huge loss of Rs 789 million, against the target of Rs 79 million profit during the last quarter of 2003-04. Sharp increase in fuel prices, legacy provision for stock obsolescence, translation exchange loss on recently acquired loans for Boeing 777 & Airbus A310 aircraft and payment of Sales Tax for prior period as per ruling of CBR contributed to sudden upsurge in the losses. The rupee-dollar exchange impact of new loans alone was Rs 245 million.
ENDS.


NADEEM MALIK LIVE

NADEEM MALIK LIVE

Nadeem Malik Live is the flagship current affairs programme of Pakistan. The programme gives independent news analysis of the key events shaping future of Pakistan. A fast paced, well rounded programme covers almost every aspect, which should be a core element of a current affairs programme. Discussion with the most influential personalities in the federal capital and other leading lights of the country provides something to audience to help them come out with their own hard hitting opinions.

http://youtube.com/NadeemMalikLive