Pakistani Economic Stress Watch

Aditya_V · Post by **Aditya_V** » 28 Dec 2010 09:33

gowda wrote:
Ameet wrote:Pakistan asks India to keep up promise of cotton export
Urging India to “help a neighbour,” Mr. Khan expressed the hope that the remaining quantity of nine lakh bales would be shipped at the earliest. Pakistan faces a severe supply crunch on the raw cotton front due to floods in parts of cotton growing areas in the country. Pakistan lost about 25 lakh bales of cotton and faces an overall deficit of 40 lakh bales.

Why the FLOODY BUCK is India exporting cotton to Pakistan? Why don't we ban exports to Pakistan and completely destroy their their crappy textile industry? our textiles industry can use some reduced competition as well as benefit from lower cotton prices. its a double win. Ban cotton exports NOW!!!

Err! We have a strong Trader lobby which puts pressure on the powers that be.

rajpa · Post by **rajpa** » 28 Dec 2010 13:16

time to 'bring back' the terror surcharge on goods imported/exported vide tsp to desh.. flat 33% .. proceeds to go to security forces..

JE Menon · Post by **JE Menon** » 28 Dec 2010 14:32

Any bit of money we can make out of Pakistan we must. And be sure our "baniya" traders know exactly how to extract the last buck out of them...

gowda · Post by **gowda** » 28 Dec 2010 18:53

shiv wrote:^^Gowdre, please add urls to your posts if they are quoting some site. If I need to archive something I need the url for later use.

Roger that

gowda · Post by **gowda** » 28 Dec 2010 18:57

Beggar's loans extended

IMF extends Pakistan loan as economic reforms drag - Reuters

Pakistan’s fiscal deficit may exceed 7 percent of economic output, endangering its standing with international donors, due to a delay in implementing a reformed general sales tax, analysts said on Monday.

The International Monetary Fund said its executive board approved a nine-month extension of Pakistan’s loan to give authorities time to finish the reforms. The loan program was scheduled to end this year, but will now run through Sept. 30, 2011, the IMF said.

“The extension will provide time to the Pakistani authorities to complete the reform of the general sales tax, implement measures to correct the course of fiscal policy and amend the legislative framework for the financial sector,” the fund said in a statement.

The RGST, which is supposed to replace the current general sales tax, was originally scheduled for implementation in July, but has been delayed several times since. Even its latest implementation date, Jan. 1, now seems unlikely.

The delays will squeeze revenue while Pakistan’s spending surges in the aftermath of floods that have caused almost $10 billion worth in damage.

The floods, which began in late July, rolled from north to south in an unprecedented tide of destruction, destroying or damaging more than 1.7 million homes, official figures show.

The revenue shortfall could push the budget deficit above 7 percent of gross domestic product (GDP), analysts estimate, compared with the 4.7 percent target agreed with the IMF for fiscal year 2010-11.

“The rising fiscal deficit is squarely against one of the main covenants of the agreement with the IMF, which is likely to delay future tranches,” said Asad Iqbal, chief investment officer at Faysal Asset Management Ltd.

“If the IMF loses confidence in the government’s ability to manage this deficit, funding from other foreign institutions is also likely to dry up, resulting in severe consequences for the country.” In November 2008, Pakistan agreed to an $11 billion bailout

program with the IMF to avert a balance of payments crisis. It received the fifth tranche of the loan — $1.13 billion — in May 2010.

The fund said its staff was “continuing its dialogue” with the Pakistani authorities on the loan program’s next review.

The United States regards Pakistan as an important ally in its war on militancy in the region and the State Bank of Pakistan reported on Monday it had received $633 million in Coalition Support Funds from the United States.

But the delay in the sixth IMF tranche, a lack of foreign aid and the cost of rebuilding after August’s floods has more than trebled government borrowing from the central bank, to a provisional 324.64 billion rupees ($3.785 billion) from July 1 to Dec. 11, compared with 106 billion rupees in the same period last year.

To try and make up the shortfall, the government is considering a “Plan B,” according to media reports.

This would end the current general sales tax exemptions that have been given to sectors such as textile and fertilizer production.

And while the government has not said there are alternatives being worked out, analysts said the exemptions may be quietly removed to avoid the kind of opposition that has greeted the RGST.

Imposing new taxes at the behest of the IMF, which is hugely unpopular in Pakistan, is a tough sell.

“There is no Plan B as far as I know,” said a senior government official, who requested anonymity because of the sensitivity of discussing tax reforms.

Reform would help curb Pakistan’s endemic tax evasion — its tax-to-GDP ratio is around 10 percent, one of the lowest in the world. But the RGST bill, introduced in November after months of delay, is vigorously opposed by almost every political party.

And while it will probably eventually pass, no one can say when or in what form. Thus, Plan B.

The Federal Board of Revenue has the authority to remove exemptions without the approval of coalition partners to the government.

Analysts said there may not be enough political will to implement even that change.

“The government does not realize the gravity of the situation and the sense of compliance is not there as they are not in pressing need to get a tranche released from the IMF because of the improving current account balance,” said Asif Qureshi, a director at Invisor Securities Ltd, adding that balance could easily deteriorate with the rise in oil prices.

Pakistan’s current account has shown a surplus for the last three months. The IMF bailout was designed to shore up reserves and avert a balance of payments crisis. – Reuters

Source: http://www.dawn.com/2010/12/28/imf-exte ... -drag.html

Ravi Karumanchiri · Post by **Ravi Karumanchiri** » 28 Dec 2010 19:03

As Pakistan nears bankruptcy, patience of foreign lenders wears thin
GRAEME SMITH - ISLAMABAD

Published Tuesday, Dec. 28, 2010 12:14AM EST
Last updated Tuesday, Dec. 28, 2010 12:25AM EST

A terrifying kind of mathematics has become popular among aid workers, analysts and others who spend their lives tracking the fate of Pakistan. It’s a back-of-the-envelope calculation about how the country will get through the coming years without declaring bankruptcy: take the country’s foreign debt ($53-billion), add interest, subtract the $1.8-billion that won’t arrive as scheduled on Jan. 1 from the International Monetary Fund because Islamabad failed to meet loan conditions. Add the staggering cost, perhaps $10-billion, of rebuilding after summer floods.

...

http://www.theglobeandmail.com/news/wor ... le1850633/

SSridhar · Post by **SSridhar** » 28 Dec 2010 20:19

The possession of nuclear weapons helps Pakistan in multiple ways apart from stopping India in its tracks on retaliating for terror attacks on it. It also helps Pakistan in getting funds from the 3½ Friends under one more pretext of not seeing a nuclear-weapon country going under with its terrifying consequences. So, Pakistan has insured itself against absolute collapse. It may struggle to survive like an elephant fording a walkable water body with its trunk just above the water even if it is submerged up to its eyes, but survive it will (of course an elephant can swim too). China is deriving all the benefits of equipping the Pakistanis with nukes while not paying hard cash for a failed Pakistan's survival while the other Pakistani benefactors are paying for that. OTOH, China is investing, at minimum cost, for long term in Pakistan and for exploiting its resources and using its facilities for its strategic benefits.

The rentier state is renting itself even more, this time with China.

abhischekcc · Post by **abhischekcc** » 28 Dec 2010 22:12

Greece and now Pakistan. Such are the friends the Muddle Kingdom collects.

Narad · Post by **Narad** » 28 Dec 2010 23:24

Pakis have shown tremendous shamelessness these days in their global begging business. Why do they think the world owe them the charity?? There seem to be lack of a clear cut vision as to how they are going to deal with it. The begging seems to have been turned into an addiction.

SureshP · Post by **SureshP** » 30 Dec 2010 01:13

Pakistan exports surge ahead at a robust pace

KARACHI: Pakistan’s exports showed continued strength as is evident from the latest trade data available.

According to the latest figures provided by Trade Development Authority of Pakistan (TDAP), exports from Pakistan during November, 2010 were $1,776 million, which is 17.04 per cent higher than that of November, 2009.

The cumulative exports for the period July-November, 2010 totaled $ 8,883 million, as against $ 7,533 million during the corresponding period of last year, showing an increase of 17.92 per cent.

Textile sector was the main strength behind this surge, as all its sub-sectors showed significant increase vis-a-vis November 2009, including cotton, cotton yarn, cotton cloth, knitwear, and bedwear.

Growth in export figures also saw an increase in import figures, especially in the import of raw materials.

Imports in November, 2010 were $3,125 million, being 21 per cent higher than imports in November, 2009.

For the period July-November, 2010 imports totaled $ 15,374 million as against $ 13,086 million in the same period last year, showing an increase of 17.48 per cent.

Major commodities driving import figures higher were crude petroleum and petroleum products, sugar, plastic materials, iron and steel, and synthetic a artificial yarn.

Groupwise exports of Pakistan during the month of November 2010 and its comparison with 2009 shows a rapid growth in export of petroleum group which has recorded a growth of 61.9 per cent, while export of textile and clothing group reached the level of $ 1.02 billion and recorded a growth of 19.6 per cent of the same month of last fiscal year.

Analysis of the top 10 highest export value products during the month of November show that the main drivers of this export growth for the last month were: cotton yarn, which earned nearly $ 181 million in export, showing over 54 per cent growth; knitwear, which crossed $161 million registered 9 per cent growth; cotton cloth, which is the third highest export product crossed $161 million mark, registered a growth of 29 per cent.

While other important export items like, bedwear, readymade garment, rice other varieties, petroleum top naphtha, rice basmati, raw cotton and towels, were among the top 10 export items during this month.

Similar is the case with consolidated export figures for July-November period, which was $ 8.88 billion, which is 17.9 per cent higher than same period last financial year. Knitwear and cotton cloth were the driving agents in reaching this level of export, their export value were $928 and $901 million, respectively.

Bedwear, cotton yarn, readymade and garments were the items which have crossed the $ 600 million mark during the initial 5 months of the fiscal year 2010-11.

http://www.dawn.com/2010/12/29/pakistan ... -pace.html

Airavat · Post by **Airavat** » 30 Dec 2010 06:35

Seventy seven percent of Pakistani car owners use CNG

Eighty one percent of CNG consumers stated that they faced problems with the supply of CNG. Forty six per cent blamed the increasing number of CNG stations for its shortage, 19 per cent held more industrial usage responsible, and 19 per cent blamed loadshedding for shortages.

The study was released by Gilani foundation and carried out by Gallup Pakistan, the Pakistani affiliate of Gallup International. The recent survey was carried out among a sample of 2741 men and women in rural and urban areas of all four provinces of the country, during December 2010.

andy B · Post by **andy B** » 30 Dec 2010 07:56

The economy is in a shambles, and unable to meet the International Monetary Fund demands for its continued support. If the IMF terminates its program, Pakistan will be unable to service its foreign debt. Indeed, a senior cabinet minister suggested recently that the international community should write off Pakistan's debts - an amount estimated at $40 billion. The minister of finance forcefully repudiated the suggestion the following day, indicating that the government has not developed a consistent approach towards the faltering economy.

The economy was also badly hurt by this year's massive floods, which caused damage estimated at $10 billion. This damage could lower annual GDP growth by 1-1.5 per cent for several years to come.

http://www.smh.com.au/opinion/politics/ ... 1996h.html

Vinu · Post by **Vinu** » 30 Dec 2010 20:11

IMF Tells Pakistan to Trim Deficit

http://online.wsj.com/article/SB1000142 ... 25448.html

The IMF has withheld $3.5 billion this year from its total $11.3 billion loan package for Pakistan in a bid to pressure the country to take action.

Pakistan's ratio of tax to gross domestic product is below 10% and many of the nation's elite pay no tax at all. Only two million Pakistanis out of a population of 180 million pay tax.

"The leaders are still not willing to take critical measures hoping that Washington would bail the country out," the senior government official said.

The below are the suggestions provided in various forums..

Hope the (Friend in deed) Chinese $ 36B MOUs will kick start the economy
Blame WB and IMF
Print more money as ZAB did
Blame IMF for not allowing to print money
Dig, dig and dig in "Reko Diq" it will last for ever and turn the economy around

If Delusions, wishful thinking and expectations of Miralce is going to be TSPs economic policy, they are in their Rightful direction.

A_Gupta · Post by **A_Gupta** » 30 Dec 2010 21:47

Supposedly Pakistani population growth rate is slowing:
http://www.indexmundi.com/pakistan/popu ... _rate.html

From the Globe and Mail article referenced above:

Tahir Andrabi, an economist at Pomona College who has been working on a four-year study of education in rural parts of central Pakistan, said the country already has the falling fertility rates and a growing cohort of educated women usually associated with strong development.

“It’s remarkable, what’s happening in Pakistan,” Mr. Andrabi said.

“This is supposed to be the most dangerous country in the world, and female education is skyrocketing.”

Who knows what the reality is?

Even though Pakistan has not conducted a census in a long while, sample surveys can give some indication. However, the newest one published here is two (fiscal) years old:
http://www.statpak.gov.pk/depts/fbs/sta ... stics.html

A_Gupta · Post by **A_Gupta** » 30 Dec 2010 21:53

Those interested in detailed price data should look at this:
http://www.statpak.gov.pk/depts/fbs/sta ... report.pdf

Prem · Post by **Prem** » 30 Dec 2010 23:58

Vinu wrote:IMF Tells Pakistan to Trim Deficit
]Pakistan's ratio of tax to gross domestic product is below 10% and many of the nation's elite pay no tax at all. Only two million Pakistanis out of a population of 180 million pay tax.
[If Delusions, wishful thinking and expectations of Miralce is going to be TSPs economy policy, they are in their Rightful direction

184 Million Poakers and ficticious/ shortkut Azized 161 Billion economy = 875$ per Poakhead.
Applying 20/80 rule i.e 20% owns 80% then they are ripe for Islamist revolution withing few years .

Anujan · Post by **Anujan** » 31 Dec 2010 02:17

r_subramanian wrote:When one door closes, another opens
The PPP government is having considerable difficulties in having the Reformed GST ( RGST ) taxation proposal implemented. Failure to implement RGST may result in Pakistan losing some funding from IMF. But fear not! The climate-change issue has given yet another opportunity for Pakistan to beg for money. It is the Green Climate Fund. It is claimed by 2020 under this funding a sum of US $100 billion a year will be available for helping poor nations.
How about, say U$ $5 billion a year, for the nuclear-armed Islamic Power to overcome the problems associated with the melting of Himalayan glaciers?

Two points

1. Green climate fund is a bunch of hot air, western nations are pretty much broke, lets get US to pay its UN dues first.
2. Fund help to poorer countries is in proportion to their energy use and the proportion of that use they are willing to transition to clean energy. Our 4th coujins draw a big 0 in both.

False alarm folks.

gowda · Post by **gowda** » 01 Jan 2011 07:17

Petrol prices hiked.

ISLAMABAD: The Oil and Gas Regulatory Authority gave a new year gift to the nation on Friday by raising prices of petroleum products by up to Rs7.69 per litre, or nine per cent.

Ogra announced the increase in prices after getting a green signal from Prime Minister Yousuf Raza Gilani.

As a result, the rate of petroleum levy, which had been reduced last month, increased to Rs1.71 per litre on diesel, 16 paisa on HOBC, 31 paisa on kerosene and 73 paisa on light diesel oil.

According to a notification issued by Ogra, the price of petrol increased by Rs6.71 (9.2 per cent) per litre to Rs79.67 from Rs72.96, HOBC (high octane blending component) by Rs7.69 (8.9 per cent) to Rs94.36 from Rs86.67, kerosene by Rs4.04 (5.7 per cent) to Rs74.99 from Rs70.95 and LDO (light diesel oil) by Rs4.36 (6.55 per cent) to Rs70.97 from Rs66.61.

Oil marketing companies have been asked to increase the price of HSD (high speed diesel) by Rs4.25 (5.43 per cent) per litre to Rs82.58 from Rs78.33.

Diesel prices are notified by oil marketing companies after the deregulation of the product.

Ogra spokesman Syed Jawad Naseem, who announced the new prices, said that prices of kerosene, HSD, petrol and furnace oil had increased by 8.8, 9.3, 12.7 and 7.4 per cent, respectively, in the international market.

The crude oil price in the Arab Gulf market had surged by 11.6 per cent, Mr Naseem added.

Just before the announcement of petroleum prices, the Ogra website was closed. The spokesman attributed it to a technical fault.

Analysts are of the opinion that the decision will further push up inflation and the cost of industrial production.

The industry has already been under pressure because of higher electricity and gas rates and energy shortfalls.

As a result of the increase in petroleum prices, the size of GST has increased proportionately because the tax at 16 per cent results in higher windfall revenue for the government.

The ex-depot prices also include a petroleum levy of Rs10 per litre on petrol, Rs14 on HOBC, Rs6 on kerosene, Rs8 on high speed diesel and Rs3 on light diesel oil for sale through retail outlets.

In case of direct sale by oil companies, the levy will be higher than the sale through retail outlets.

As such, the government will collect Rs12.36, Rs16.79, Rs6, Rs9.50 and Rs3 per litre, respectively, on petrol, HOBC, kerosene, HSD and LDO.

Source: http://www.dawn.com/2011/01/01/ogra%E2% ... ation.html

Vinu · Post by **Vinu** » 04 Jan 2011 16:19

Lahori Logic in Economics

Elahi said that Pakistani rupee is depreciating, while the currencies of the regional countries are becoming stronger that provide them a competitive edge in the international market for exports.

URL:

http://www.nation.com.pk/pakistan-news- ... fooz-Elahi

gowda · Post by **gowda** » 06 Jan 2011 09:23

No reforms in sight

Although officials of the finance ministry insist there is no stepping back from economic reforms given the international commitments and rapidly growing fiscal deficit and inflation, independent analysts believe the reform agenda may already have been shelved.

In this background, Prime Minister Yousuf Raza Gilani has convened a meeting of all parliamentary party leaders on Thursday so that his economic team could present before them facts and figures on the precarious economic situation and send home a strong message of economic meltdown in case of political expediencies.

Officials said that the government would have to resort to extra borrowing from the State Bank to finance a fiscal deficit that could cross 7.6 per cent of the GDP (Rs1285 billion) against a revised target of 4.7 per cent.

“The more you borrow for budgetary support, the more you contribute to inflation that is already touching the roof,” an official said. The situation was no different when the PPP came to power three years ago.

Government officials said that they would fight till the end for going ahead with the reform programme, which included introduction of additional tax measures worth Rs62 billion.

“We are not in a position to escape the reforms programme. We cannot dodge the international community anymore,” a senior government official told Dawn on Tuesday.

He said the finance ministry had not only opposed delaying taxation measures but also proposals to reverse the hike in prices of petroleum products announced last week.

“We will have to resort to currency printing and snowball inflation if oil prices are curtailed.” But this determination had no buyers outside.

“A lame duck government cannot pursue any economic reform programme. All economic reforms, including introduction of Reformed General Sales Tax, are either already shelved or being shelved,” said Dr Ashfaque Hassan Khan, a former economic adviser in the Musharraf administration and the Dean of the Business School of National University of Science and Technology.

He said the government was currently fighting for its own survival and although it was not serious in implementing reform programme in the first place, chances for such reforms are now negligible.

“There will be a serious budgetary crisis in the near future,” he said. These views were reinforced by Sakib Sherani, who until recently worked as the government’s principal economic adviser.

“All bets are off because of political instability,” he said after Punjab Governor Salman Taseer’s murder. This will have a negative impact on investments and markets.

He said the recent political events and the murder of Mr Taseer would have two or three major casualties, including more uncertainties in the immediate future and reform programme in the long term.

“The unfolding events will make it more difficult for the government to push through reforms.”

Mr Sherani said that the government had not focused on tax administration, a factor critical to the success of RGST.

“Now the government will have to rely heavily on the State Bank of Pakistan for financing 60-70 per cent of fiscal deficit.”

BALANCE OF PAYMENTS
Both Mr Sherani and Dr Ashfaque agreed that there would be no immediate balance of payment crisis.

“There is no immediate threat on the balance of payment front because a couple of buffers are still there,” said Mr Sherani.

He said the precarious balance of payment position that confronted the government in 2008 was not an issue at present.

He said that the country’s foreign exchange reserves were reasonable, repayments to the IMF were to be made after two years and the current account had been in surplus for three consecutive months starting from September this year. Moreover remittances are flowing in.

Mr Sherani, however, warned that the current instability could put pressure on foreign exchange reserves because of the flight of capital and dollarisation of economy as uncertainties grow.

The weak fiscal situation always had a negative impact on current account, although with a lag effect, he said.

Dr Ashfaque Hassan said that foreign inflows were still there on the back of better remittances from overseas Pakistanis and exports, resulting in a narrow current account deficit but if oil prices maintain a rising trend in the international market, then balance of payment problems could arise in six to 12 months.

To top it all, the power sector remains the biggest challenge for policy makers.

Consuming over Rs225 billion per annum through losses, the power sector has emerged as the biggest non-productive drain on the budget.

In contrast, the development programme that should trigger investments and public service programmes for employment and economic activities, has been curtailed by more than half to about Rs175 billion.

Source:http://www.dawn.com/2011/01/06/economic ... ble-2.html

Lalmohan · Post by **Lalmohan** » 06 Jan 2011 14:38

what is the economic base that the jehadis feed off?

abhischekcc · Post by **abhischekcc** » 06 Jan 2011 15:53

Its a small base, and can be mostly internally funded.
Reputedly, LeT needs only USD 6-7 million per year to function.Apart from that, several terror outfits operate industries such as textiles. They can also ask for donations, and doing so during Hajj is a big activity. Drug trade is also there, but it mostly funds Pak Army linked outfits.

-------
PS
The economics of jehad are fascinating and we need another thread for it.

shiv · Post by **shiv** » 06 Jan 2011 19:14

Lalmohan wrote:what is the economic base that the jehadis feed off?

Well Islam is encouraged by the state and the training is given by ex army people. All this counts as invisible inputs - paid for by unkil in the remote past. There was/is a system of pensions for the relatives of those killed while infiltrating into India.

Lalmohan · Post by **Lalmohan** » 06 Jan 2011 19:22

indeed, direct and indirect sources of revenue
and expenditure
a thread is needed indeed

SSridhar · Post by **SSridhar** » 07 Jan 2011 15:07

gowda wrote:Petrol prices hiked.

ISLAMABAD: The Oil and Gas Regulatory Authority gave a new year gift to the nation on Friday by raising prices of petroleum products by up to Rs7.69 per litre, or nine per cent.

The above was on Jan. 1. Now, the Government has reversed the price increase.

US & IMF Criticize the Reversal

US Secretary of State Hillary Clinton says it was a “mistake” for Pakistan to reverse fuel price increase. State Department spokesman Mark Toner said the US did not consider it a wise decision. Increase in prices was vital for Pakistan’s financial stability, he added. The IMF also criticised the decision. “They’re inefficient and untargeted so that the bulk of the benefit from the energy subsidy goes to higher income individuals and large companies,” IMF spokeswoman Caroline Atkinson said from Washington.

The fact that the US criticism came swiftly and that too from Ms. Clinton indicates that the US is closely monitoring the Pakistani reform process agreed with the IMF/WB.

neeraj · Post by **neeraj** » 08 Jan 2011 23:31

Economic indicators show dim performance

ISLAMABAD - Apart from the fiscal deficit, the main four economic indicators showed deteriorated performance in the first five months (July-Nov) of the current financial year against the same period of last year, as all of them remained in negative zone.
The fiscal deficit has already surged to 3.3 per cent in the first half (July-December) of 2010-11 against the target of 2.3 per cent for the said period, which is an alarming situation for the government, as the Central Bank chief has already hinted for 6 per cent deficit of the GDP which would be covered by borrowing more than Rs 1000 billion.
Meanwhile. the economic indicators including inflation rate, Foreign Direct Investment, trade deficit and Large Scale Manufacturing’s growth remained on the negative side in July-November period of the current fiscal year over the corresponding period of last year. According to the independent economists, the government would not be able to achieve the revised economic targets keeping in view the so far progress in the ongoing fiscal year of the main economic indicators.
The people’s government instead of providing any economic relief to the masses raised the inflation rate to a record level as inflation based on Consumer Price Indicator recorded at 14.4 per cent in July-Nov 2010 against 10.3 per cent in July-Nov 2010. Food inflation based on CPI increased to 18.1 per cent in the first five months of 2010-11 against 10 per cent in the same period of previous year.

svinayak · Post by **svinayak** » 09 Jan 2011 00:14

SSridhar wrote:
]US Secretary of State Hillary Clinton says it was a “mistake” for Pakistan to reverse fuel price increase. State Department spokesman Mark Toner said the US did not consider it a wise decision.

Is it not sad that US Secretary of State has to discuss about price of fuel of a third world state which is on the verge of deep shambles.

pgbhat · Post by **pgbhat** » 09 Jan 2011 05:44

Well Unkil is showing his takleef because now he would have to include the rollback in annual US budget.

arun · Post by **arun** » 09 Jan 2011 13:02

'Rise in debt risk premium threatens launch of global bonds’

Sunday, January 09, 2011
By Khurram Bari Khan

KARCAHI: Pakistan’s plan to issue global bonds is likely to hit snag as the credit default swap (CDS) rates on its debt and yield on the Eurobond saw a major increase after the government’s withdrawal of fuel price hike, analysts said on Friday.

The CDS rates of Pakistan that show the international investors risk perception of the government’s default probability, jumped by a massive 275 basis points (bps) on Friday, increasing from 556bps to 830bps. Yield on the Eurobond also went up by 15 bps to 9.99 percent. …………

The News

SSridhar · Post by **SSridhar** » 09 Jan 2011 13:34

"Working with IMF" - article in this week's TFT

Excerpts

Two years after the government entered into a Stand-by Agreement (SBA) with the IMF, the Fund’s representative gave a somewhat depressing account of progress on the Agreement in the Pakistan Development Forum held in November 2010. As he pointed out, even prior to the floods of August 2010, the government had ended the last fiscal year having overshot the target on the fiscal deficit as well the ceiling on borrowing from the State Bank. Inflation continued to be high, although it had come down from the record levels of FY2009.

Pakistan is obviously unlikely to be able to complete the 2008 SBA on schedule. The fifth and sixth reviews of the Agreement have not even been held (the fifth review was supposed to be completed by September 2010). As things stand now, the government has asked for (and the IMF has agreed to) the Agreement being extended to September 2011. Essentially, the government is still looking to access two tranches of about $1.8 billion each (or SDR 1.15 billion) over the next 9 months, under the 2008 SBA. Earlier, analysts had speculated that the government would be happy to scupper the present SBA and go for a new negotiation altogether. This doesn’t seem to be the case, and indeed one can understand why the government would be reluctant to negotiate a new loan at a time when the Fund holds all the aces in the deck. {If they try to go in for a new SBA, it may not even fructify and even if it does, because the 3½ do not want to see a nuclear Pakistan go down the tube, it may have more stringent conditions attached that no Pakistani government will be able to meet. It is better that PML-N does not push PPP too much on these issues because if PML-N comes to power, it will have to face the same music too}

So what are the chances that the 2008 SBA will be completed successfully over the next nine months (in that the two remaining tranches will be released)?

It’s fairly clear that the main sticking point hindering the completion of the fifth review is the implementation of the RGST. The 2008 SBA was fairly explicit about the need for such a tax, saying that: “Following the seminar in December 2008, the government will initiate a process to implement a full VAT with minimal exemptions, to be administered by the FBR. Draft legislation for the VAT is expected to be ready for public debate by end-2009.” The introduction of the VAT was part of an initiative to increase tax revenue by at least 3.5 percentage points of GDP over the medium term (till 2011), a key requirement of the SBA.

Most of 2009 went by without the government doing much on the introduction of the VAT, firefighting as it was on multiple fronts, not least the security situation which, in the first part of the year, was threatening to swing out of control. It was only after the completion of the Swat offensive that the government could take a breather and start sending out feelers on the new tax. Even then, it wasn’t until the new Finance Minister took over in May 2010 that the introduction of the VAT emerged as an issue.

The budget for FY2011 showed sales tax increasing from Rs 143.8 billion (revised estimate) in FY2010, to a projected Rs 328.6 billion in FY2011. This 229 percent increase was predicated on the imposition of a reformed sales tax from October 2010 which would significantly reduce existing exemptions, broaden the tax base and allow for input crediting – in effect act as a somewhat imperfect VAT or as close to VAT as possible in an economy which is still not fully documented.

Draft legislation for the reformed sales tax on goods was introduced in the National Assembly in November 2010, while legislation on the tax on services (which will accrue to the provinces) has yet to be tabled. It now seems unlikely that it the National Assembly will vote on the bill in the near future.

Meanwhile, the country’s exchequer badly needs that injection of $3.6 billion that the IMF is withholding. Without it, the government will only resort more and more to borrowing from the State Bank, which will add a far greater impetus to inflation than the imposition of RGST ever could.

The effects of this are already visible. Year on year inflation was 15.5 percent in November 2010 as opposed to 10.5 percent in November 2009. What is more worrying is the hike in food inflation, which, year on year, exceeded 20 percent in November 2010 according to the State Bank’s data. It’s not difficult to see where this is coming from. As of October 2010, the State Bank’s net claims on the central government stood at Rs 1.3 trillion; of which Rs 192 billion were added on just in the four months from July to October. In other words, the government is borrowing something like Rs 1.8 billion a day, probably just to keep the wheels of administration running (since the development budget has more or less been slashed).

anupmisra · Post by **anupmisra** » 09 Jan 2011 19:25

Vinu wrote:Lahori Logic in Economics

Elahi said that Pakistani rupee is depreciating, while the currencies of the regional countries are becoming stronger that provide them a competitive edge in the international market for exports.

Elahi is looking at the depreciating trend as a net borrower (a long-term paki reason to live). His nation's borrowing capacity is being depleted.

SSridhar · Post by **SSridhar** » 16 Jan 2011 13:07

Budget deficit reaches record 510 Billion

The government has plans to implement some painful economic decisions from February 1 as budget deficit has grown to unprecedented Rs 510 billion and it has decided that subsidies on power tariff, oil prices and others will be withdrawn, official sources said on Saturday.

The political leadership has been informed of the country’s economic situation, which has no space to meet additional demands of subsidies on oil and other sectors, they said.

A five-member committee constituted by Prime Minister Yousaf Raza Gilani during economic review meeting on Friday, would hold meetings with the heads of all political parties to develop a consensus on economic decisions, the sources added.

They said the painful economic decisions have become necessary as the government has missed its initial upward revised target of containing the budget deficit at 2.6 percent of the GDP. The budget deficit for the first half (July-December) of the ongoing fiscal year 2010-11 has now been estimated at 3 percent of the GDP or around Rs 510 billion against the initial target of Rs 442 billion, they continued.

The sources said power tariff subsidies over and above parliament’s approved limit, withdrawal of increase in POL prices and additional security expenditures {what are these ?} were the main causes that resulted in increase in budget deficit. The economic review meeting was informed that if subsidies were allowed during the second half of the fiscal, they would put unbearable burden on the economy and would leave no option but to increase borrowing from the market on higher interest rates.

They said the government would also try to develop consensus on the implementation of the performance benchmarks agreed with the International Monetary Fund (IMF), World Bank (WB) and Asian Development Bank (ADB), until June 2011.

A nine-month extension allowed by the IMF has provided Pakistan with time for completing the RGST, implementing a set of measures to correct the fiscal policy and amending the legislative framework for the financial sector.

They said implementation of a reformed GST involving a broader base, reduced exemptions, and input crediting, both at the federal and provincial level, parliamentary passage of the amendments to the State Bank Act and the Banking Companies’ Ordinance, agreement on measures to achieve the revised fiscal deficit target, including a realistic envelope for energy subsidies in 2010-11 based on a plan that is yet to be endorsed by the Asian Development Bank and the World Bank, and third-quarter fiscal performance that was consistent with achieving the full-year target were among the actions that would be critical for the completion of the fifth review. The government has plans to bring State Bank of Pakistan borrowing from existing Rs 180 billion to nil by June 30, 2011 and in this regards many proposals were under discussion at the Finance Ministry, the sources maintained

The IMF is expected to hold discussions with Pakistan for the fifth review soon and propose a set of performance criteria for end June and structural benchmarks that would form the basis for the sixth and final review under the Stand-By Arrangements.

joshvajohn · Post by **joshvajohn** » 16 Jan 2011 13:25

A disintegrating Pakistan: Choices for US and India
http://www.sify.com/news/a-disintegrati ... heiee.html

Recent events in Pakistan - particularly celebrating the killing of a judge who called for Blasphemy Law by the public and making the terrorist as hero are unfortunate events of Pakistan. It shows how public are hijacked by terror minded groups.
This can be dangerous for any non-Muslim countries in the world as anything could be interpreted as if it is against Islamic basic thrust and people would immediately be available for terror attacks on any country.

In such cases making Pakistan as a powerful country to fight terrorism against within is not going to work. The best way is to bring her down by putting pressures through economic measures. Will it make worse? yes. Unless there is a heat in their house the Pakistanit fundamentalists and the government are not going to realise this. I think any future attack on the West will be planned and organised by the terror groups with the knowledge of some Pakistani intelligence. Because their cooperation with Western government is essential, Pakistani intelligence and army cannot survive or get money from West without such events in the west. So they had to either allow it or happening and thus US will seek cooperation in finding these things out and fighting these things by giving money to Pakistani army and so on.

It is in this area that India and US can cooperate and work together against any agencies of terror and also create a fear in the mindset of Pakistani so that in the case of any attack on any country which is planned and operated from Pakistan will leave Pakistan being divided into small states even if they threat or use nuclear arsenals against US warships or any other country including India and Israel. Pakistan has to hold this responsibility of not supporting any terror acts around the world nor if they know they should immediately inform to the UN or other countries about any terror attacks in their country.

Brad Goodman · Post by **Brad Goodman** » 17 Jan 2011 19:01

Another storm heading Pakistan’s way

The reference here is to the imminent increases in the prices of commodities on which Pakistan is heavily dependent. We saw that happen once before three years ago when the rise in the price of oil, food and several raw materials on which the industry depends depleted foreign exchange reserves. It was the loss in reserves that then drove the country once again into the arms of the International Monetary Fund.

Prem · Post by **Prem** » 20 Jan 2011 09:24

XXX POST
Pak food imports up by 75pc
http://www.nation.com.pk/pakistan-news- ... up-by-75pc
IMRAN ALI KUNDI

ISLAMABAD - Despite being an agricultural country, Pakistan’s food imports had increased by over 75 percent during the first half (July-December) of the current financial year against the same period previous year.
The country had imported foodstuff worth of $2.708 billion in the first half of the ongoing fiscal year, as compareD to $1.547 billion in the same period of 2009-10, which reflects an increase of 75.03 percent.
According to the data released by the Federal Bureau of Statistics, the pulses imports surged by 98.92 percent during July-December 2010-11 against same period of 2009-10, sugar imports went up by 368 percent, palm oil, 60.60 percent, soyabean oil, 680.75 percent, species, 52.41 percent, tea, 26.41 percent and dry fruits 13.25 percent.
Meanwhile, food imports haVE registered an increase of over 121 percent only in December 2010 against the same month of 2009. The economic experts believed that the main reason behind the huge food imports is short run disruption to the supply chain in agriculture sector post floods situation.
Meanwhile, the import of petroleum products also went up by over 17 percent during the first half of the current financial year, as the country imported products worth of $5.467 billion in July-December 2010-11 against $4.641 billion of July-December 2009-10. Machinery group’s imports enhanced by 1.76 percent, transport group’s imports up by 3.82 percent, textile group’s imports 67.70 percent during July-December 2010-11 against July-December 2009-10.
On the other hand, the country’s textile exports had increased by 25.79 percent during the first half of present fiscal year, as it exported textiles goods worth of $6.284 billion against $4.996 billion in the same period last year. In textiles groups, raw cotton exports surged by 13.91 percent, cotton yarn, 26.49 percent, cotton cloth, 30.63 percent, yarn, 43.11 percent knitwear, 24.07 percent, bed wear, 16.01 percent, towels, 7.23 percent and readymade garments 35 percent in July-December period.
Meanwhile, food exports increased by 6.16 percent during July-December 2010-11 against the same period last year. The rice’s export enhanced by 7.56 percent, fish, 5.83 percent, fruits, 35.25 percent, meat, 54.56 percent and tobacco by 73 percent in the period under review.
The exports of cement decreased by 11.55 percent, and handicrafts 80.74 percent.

gowda · Post by **gowda** » 20 Jan 2011 20:39

Pakistan’s crippling inflation rate has left trader Mohammad Farouk with a painful task at the end of each day — throwing out a large quantity of his fruits and vegetables because it’s too expensive to sell.

Soaring prices also mean he often has to purchase stocks on credit from wholesalers.

“We can’t make money anymore because prices have been high for so long,” said Farouk, sitting beside other idle merchants, warming their hands over a fire burning in a large can.

“We are losing big profits. I wish the government would help. They are just stuffing their pockets with the country’s money.”

Pakistan is saddled with a long list of troubles. A Taliban insurgency, rampant poverty, corruption and power cuts are just a few. Inflation is fast becoming one of the most potentially explosive problems for the unpopular government.

Pakistan’s central bank increased its key policy rate to 14 per cent in November, its third consecutive hike in six months because of persistent inflation due primarily to government borrowing from the State Bank of Pakistan.

Other factors fuelling prices include the damage caused by the summer floods, estimated at around $10 billion, to crops and related industries.

At the same time, wages have not kept pace with price hikes, making it harder for ordinary Pakistanis to survive.

According to some statistics, more than 60 per cent of the population lives on less than $2 a day.

It’s not just ordinary Pakistanis who are frustrated.

Pakistan’s economic lifeline — the International Monetary Fund (IMF) — is losing patience with what it sees as an intransigent political leadership.

Inflation stood at single digits for many years.

But Pakistanis have been hit with an average inflation rate of 15 per cent over the past three fiscal years.

Economists say reckless government policies are likely to keep it high.

Cash-strapped Pakistan finances its deficit through heavy borrowing from the central bank, which is then forced to print money.

Uncontrollable forces, like a spike in global commodities prices, add to inflationary pressures. Pakistan’s consumer price index rose 15.46 per cent in December from a year earlier.

LACK OF POLITICAL RESOLVE

The Pakistan People’s Party (PPP)-led government doesn’t have the political courage to take measures such as imposing a new sales tax demanded by the IMF to ease the fiscal deficit, analysts and economists say, making it impossible to tame inflation.

The administration set a dangerous precedent this month.

To lure back an estranged ruling coalition partner and appease opposition parties, it reversed a fuel price hike, angering ally Washington, which says Pakistan must have economic and political stability to support its global war in militancy.

The decision will force the government to fund subsidies by again borrowing from the central bank. That will fuel inflation and further expose the government to criticism from its political enemies, who sense an opportunity for scoring points but who have offered no alternatives.

“The opposition and some of the PPP’s coalition partners have now woken up to the reality that economic issues are very popular populist issues in Pakistan and are very useful sticking points against the current government,” said Eurasia Group analyst Maria Kuusisto.

Opposition parties, and even some members of the ruling coalition, fiercely oppose IMF-recommended reforms, saying they will hurt ordinary Pakistanis.

But that will only prolong their suffering. Pakistanis have watched the price of tomatoes jump 30.21 per cent in December. Cooking oil was up 4.17 per cent and eggs rose by 10 per cent over the previous month, official figures show.

Mrs. Ashraf walked through an Islamabad market carrying a plastic bag with a few chicken breasts, now a luxury item for the mother of five married to a government employee. “We can only afford to buy this once a month. The government should raise my husband’s salary,” she said, a move that would further drain state coffers.

The IMF — which is keeping Pakistan’s economy afloat with a $11 billion loan that averted a balance of payments crisis in 2008 — says only bold reforms can really help Pakistanis, by strengthening the economy in the long run.

In Pakistan, however, political expediency often takes precedence over wise economics in key sectors like agriculture, which accounts for over 21 per cent of GDP.

Current inflationary pressures in the agriculture sector can be traced back to a PPP decision in 2008 to sharply raise the price it pays to farmers for wheat to encourage them to grow more, critics say.

Source: http://www.dawn.com/2011/01/20/raging-i ... -woes.html

anupmisra · Post by **anupmisra** » 21 Jan 2011 00:02

Prem wrote:XXX POST
Pak food imports up by 75pc
http://www.nation.com.pk/pakistan-news- ... up-by-75pc

Something to ponder about. Some of that increase may be due to devaluation of the paki currency (10%) and inflation (15%). Some because their needs arose (5% increase in population), some due to increase in world commodity prices (5 to 10%), and some because of the loss from floods (10% loss of arable areas). Lets assume all that amounts to 50% increase. But is the rest of the food bill increase (25%) because the pakis are eating more or are they stocking up for some event?

Hmmm..

gowda · Post by **gowda** » 22 Jan 2011 21:45

FIRST, the good news. The reforms package mooted by the PML-N and to be `implemented` by a bipartisan committee has some good stuff in it.

Now to the bad news: even if implemented fully, something only the chronically delusional could hope for, the reforms package doesn`t even begin to address the immediate, and far more dangerous, economic threat.

Essentially, the government is in desperate need of money. Lots and lots and lots of money; perhaps as much as a trillion rupees in the year ahead.

(It`s simple math, really: the government spends twice as a much as it earns. For various complicated reasons, the spending side isn`t the fundamental problem — government spending of around 20 per cent of GDP is par for the course for a country with Pakistan`s economic profile. The revenue side is the main problem, hovering as it is around 10 per cent of GDP, putting us in the league of economic basket cases.)

Scan through what`s been mooted by the PML-N and the measures the bipartisan PPP-PML-N committee is supposed to debate, though, and there`s nothing meaningful about revenue generation.

Which means the government is still left with a VERY, VERY BIG PROBLEM: where will it find a trillion rupees?

Good ol` Zardari asked Obama for a bail-out, hoping to cash in on the ultimate moral hazard with Uncle Sam. Except it didn`t quite work: get real, Zardari was told, we`ll help you guys out when you guys get serious about reforms. So, tail between its legs, the government will end up pounding on the doors of Shahid Kardar. Print us some more money, it will demand of the State Bank, or else we`ll find someone who will.

Governor Kardar will relent, as would anyone else in his place.

But here`s the problem. In December 2009, a certain esoteric piece of data read Rs1.35 trillion. That, for simplicity`s sake, was pretty much the currency in circulation in the economy.

In December 2010, this figure had gone up to Rs1.6tr. Rumour has it that the State Bank may be pumping as much as Rs2bn a day into the economy at present.

The impact isn`t very difficult to explain. Higher and higher amounts of money sloshing around the economy are chasing the same amount of goods; inflation is the obvious outcome.

But just how much inflation?

Quick back-of-the-envelope calculations reveal the full horror of what is in store for Pakistan. Between the end of 2009 and the end of this year, the currency in circulation may well double. But the size of the economy won`t have grown by more than a smidgen.

Twice the money, the same amount of goods and services — figuring out the impact on prices isn`t very difficult.

Now to the $64,000 question.

Why would the government, the PPP, the party of the awam , flirt with triggering disastrous inflation in this way?

And why would the PML-N, the GT Road party, the party of the trader, let the PPP drive the economy off a cliff?

The PML-N calculus revolves around winning the next election, now or later. Let the PPP sink in a mess of its own creation, and the PML-N`s odds of inheriting power get better and better.

But the PML-N also has to look like it cares about things like the economy, so the 10-point agenda was a clever ruse. It burnishes the N-League`s credentials with its trader base, eschewing tax reforms while at the same time making the party look serious on the economy.

So the N-League`s game is fairly clear.

The PPP`s is less obvious. Why would a government with a vote bank among the poorer segments of society willingly preside over a disastrous inflationary spiral?

It`s not like the PPP is clueless about what`s likely to happen in the months ahead. The finance guys sounded the alarm long ago.

The answer, depressingly, appears to lie not in how little the PPP knows about politics, but in how much. Patronage politics, that is.

Plan A is a bailout from the Americans or the IFIs. If Plan A doesn`t work, there`s Plan B: shell out patronage.

In the convoluted, upside-down world of constituency politics, the very government that has made your life miserable through terrible macroeconomic management can be the one to rescue you at the personal level.

Not enough cash to feed the mouths at home? No problem, Benazir Income Support Programme to the rescue. A couple thousand bucks every other month, and don`t forget to vote for the party of Shaheed Mohtarma.

Next, you, your home got damaged in the floods? Lost your goat and sickly cow? Here, take a Watan Card. Twenty thousand cash down, eighty to come. Remember, Shaheed Mohtarma made it all possible. Including the eighty thousand that will come later…

Village needs a road? Here`s a few million for a shoddily built one, enough to drive wagons full of voters to the nearest polling booth come the next election. Gas connection? Local school? Irrigation project? Cheque, cheque and cheque.

Actually, to figure out the PPP`s road map to the next election, look no further than the Musharraf strategy in 2007-08. Subsidies ballooned as the prices of electricity, petrol and other commodities were frozen. `Project money` was thrown around willy-nilly, political expediency trumping economic sense.

But wait, wouldn`t throwing around even more money only compound the problem when too much spending and too little earning was the problem in the first place?

The future is another country. Right now, there are votes to be won.

Source:http://www.dawn.com/2011/01/21/a-bird-a ... ation.html

RajeshA · Post by **RajeshA** » 22 Jan 2011 22:00

Can't India print the trillion rupees and give it to the government in waiting - the TTP?

krisna · Post by **krisna** » 24 Jan 2011 04:33

TSP to face power outages for many years

Hit by acute power shortage, Pakistan will continue to face the problem of loadshedding for many more years, a top official has admitted.

According to official data, the power shortfall in the country stands at 3,852 megawatts (MW), with total power production hovering around 10,439 MW.

He said that top priority was to provide power supply to the industry and agriculture sector while uninterrupted electricity to the domestic consumers was not the priority.

AOA, truly going to 6th century ad to meet their araps. keep the bious abduls in darkness.