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SOUT H ASIA INV EST OR REV IEW
S O U T H A S I A I N V E S T O R R E V I E W I S F O C U S E D O N R E P O R T I N G , A N A L Y Z I N G A N DD I S C U S S I N G T H E E C O N O M Y A N D T H E F I N A N C I A L M A R K E T S O F C O U N T R I E S I N S O U T H
A S I A , I N C L U D I N G P A K I S T A N , B A N G L A D E S H A N D S R I L A N K A . F O R I N V E S T O R S
L O O K I N G T O I N V E S T I N E M E R G I N G M A R K E T S B E Y O N D B R I C C O U N T R I E S ( B R A Z I L ,R U S S I A , I N D I A A N D C H I N A ) , T H I S B L O G I S D E S I G N E D T O H E L P I N T E R N A T I O N A L
I N V E S T O R S L O O K I N G T O L E A R N A B O U T I N V E S T I N G I N S O U T H A S I A W I T H F O C U S O NP A K I S T A N . R I A Z H A S A N O T H E R B L O G C A L L E D H A Q ' S M U S I N G S A T
H T T P : / / W W W . R I A Z H A Q . C O M
W E D N E S D A Y , M A R C H 3 , 2 0 1 0
Pakistan's Economy: What Went Wrong 2008-2010?
Guest Post By Prof. Ashfaque Hasan Khan
This post briefly reviews two years of economic performance of the present government.
What it inherited, what it informed the IMF and the people of Pakistan, why it went to
theIMF, and where we stand now - are the subject matter of this article.
Pakistan positioned itself as one of the four fastest growing economies in the Asian
region during 2000-07 with its growth averaging 7.0 per cent per year for most of this
period. As a result of strong economic growth, Pakistan succeeded inreducing
povertyby one-half, creating almost 13 million jobs, halving thecountry's debt burden,raising foreign exchange reserves to a comfortable position and propping the country's
exchange rate, restoring investors' confidence and most importantly, taking Pakistan
out of the IMF Program.
These facts were acknowledged by the present government in aMemorandum of
http://southasiainvestor.blogspot.com/http://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://southasiainvestor.blogspot.com/2008/02/pakistans-debt-is-it-crisis.htmlhttp://southasiainvestor.blogspot.com/2008/02/pakistans-debt-is-it-crisis.htmlhttp://southasiainvestor.blogspot.com/2008/02/pakistans-debt-is-it-crisis.htmlhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://1.bp.blogspot.com/_dj7hueuj-U0/Szmbj-Fy5BI/AAAAAAAABbM/dwtSgK43hOA/s1600-h/Pakistan+Poverty+Trend.jpghttp://1.bp.blogspot.com/_dj7hueuj-U0/Szmbj-Fy5BI/AAAAAAAABbM/dwtSgK43hOA/s1600-h/Pakistan+Poverty+Trend.jpghttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://southasiainvestor.blogspot.com/2008/02/pakistans-debt-is-it-crisis.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://southasiainvestor.blogspot.com/ -
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Economic and Financial Policies(MEFP) for 2008/09-2009/10, while signing
agreement with the IMF on November 20, 2008. The document clearly (but grudgingly)
acknowledged that "Pakistan's economy witnessed a major economic transformation in
the last decade. The country's real GDP increased from $60 billion to $170 billion, with
per capita income rising from under $500 to over $1000 during 2000-07". It further
acknowledged that "the volume of international trade increased from $20 billion to
nearly $60 billion. The improved macroeconomic performance enabled Pakistan to re-
enter the international capital markets in the mid-2000s. Large capital inflows financed
the current account deficit and contributed to an increase in gross official reserves to
$14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the
government's social policies contributed to a reduction in poverty and improvement in
many social indicators". (seeMEFP, November 20, 2008, Para 1)
Per Capita PPP GDP
A cursory look at the above stated acknowledgment is sufficient to see that the
government deliberately misguided the people of Pakistan by presenting a totally
distorted picture of the economy. While it could misguide the people of Pakistan for
domestic political consumption, it had no option but to tell the truth to the international
financial institutions as these facts were known to them.
http://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://1.bp.blogspot.com/_dj7hueuj-U0/TL5zL6YN7mI/AAAAAAAABrA/URPQnwuGMUM/s1600/Pak+Per+Capita+GDP.gifhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdf -
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Even the government did not inform the people of Pakistan that it obtained the IMF
Program on the basis of past performance. Pakistan received the extra-ordinary funding
from the IMF under the fast-track Emergency Financing Mechanism which was meant
for the countries "that have a strong track record of sound policies, access to capital
markets and sustainable debt burdens but need rapid help to overcome financial crisis".
(IMF Survey, October 29, 2008) Thus, a government which starts its inning on
distortion can never bring stability in the economy. Most of its time and energy would
be consumed for covering up of its failure.
http://1.bp.blogspot.com/-GpPhhMrhPK4/TiHI5OhtZOI/AAAAAAAAB5w/S987LQceSYw/s1600/FDI+in+Pakistan.jpghttp://4.bp.blogspot.com/_dj7hueuj-U0/SgzfNOxVszI/AAAAAAAABEs/6hOpGtrt0m8/s1600-h/Pakistani+Economy+Graphs.gifhttp://1.bp.blogspot.com/-GpPhhMrhPK4/TiHI5OhtZOI/AAAAAAAAB5w/S987LQceSYw/s1600/FDI+in+Pakistan.jpghttp://4.bp.blogspot.com/_dj7hueuj-U0/SgzfNOxVszI/AAAAAAAABEs/6hOpGtrt0m8/s1600-h/Pakistani+Economy+Graphs.gif -
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The present government inherited a relatively sound economy on March 31, 2008. It
inherited foreign exchange reserves of $13.3 billion, exchange rate at Rs62.76 per US
dollar, the KSE index at 15,125 with market capitalization at $74 billion, inflation at 20.6
per cent and the country's debt burden on a declining path. The government itself
acknowledged in the same document that "the macroeconomic situation deteriorated
significantly in 2007/08 and the first four months of 2008/09 owing to adverse security
developments, large exogenous price shocks (oil and food), global financial turmoil, and
policy inaction during the political transition to the new government". (Para 3 of the
MEFP, November 20, 2008)
What went wrong? Why one of the fastest growing economies in the Asian region until
two years ago has been totally forgotten in the region? Firstly, the speed and dimension
of exogenous price shocks (oil and food) were of extraordinary proportions. Secondly,
the present government found itself totallyill-prepared and cluelessin addressing the
challenges arising out of the shocks. While rest of the world was taking corrective
measures and adjusting to higher food and fuel prices, Pakistan lurched from one crisisto another.
http://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://4.bp.blogspot.com/_dj7hueuj-U0/SKsfnoiAeCI/AAAAAAAAASI/aTEJ998TaI0/s1600-h/Pakistan_Economist_SBP.gifhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.html -
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Despite peaceful election and a smooth transition to a new government, political
instability persisted. For a protracted period there were no finance, commerce,
petroleum and natural resources and health ministers in the country. The government
lost six precious months in finding its feet. It gave the impression of having little sense
of direction and purpose. A crisis of confidence intensified as investors and developmentpartners started to walk away. The stock market nosedived, capital flight set in, foreign
exchange reserves plummeted and the Pakistani rupee lost one-third of its value. In
short, Pakistan's macroeconomic vulnerability had grown unbearable. It had no option
but to return to the IMF for a bailout package. There were no Plan A, B and C. There was
only one plan, that is, to return to the IMF.
While the country was moving rapidly towards the IMF, the ministry of finance had
prepared the plan to bring $4 billion by June 30, 2008 through four transactions. Akick-off meeting was scheduled on April 23, 2008 at the ministry to give a final touch to
the various roadshows. These transactions were canceled on April 20, 2008. Who
ordered the cancellation of $4 billion transaction? This cancellation prompted balance
of payment crisis and the rest became history.
The economy continues to remain in intensive care unit and is breathing thanks to the
injections from the IMF, World Bank and Asian Development Bank. The economy is not
on the radar screen of the government and as such the economic managers have norelevance in the current political set up. The exit ofShaukat Tarinis a classic example. At
least he tried his level best to inject financial discipline but paid the price of teaching
prudent financial management. No matter who replaces Shaukat Tarin, the economy
would continue to lurch from one crisis to another until and unless the government
brings the economy at the center stage.
http://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.htmlhttp://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.htmlhttp://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.htmlhttp://2.bp.blogspot.com/_dj7hueuj-U0/S_cwLkdmIqI/AAAAAAAABlM/-n_lFEoFkxM/s1600/Pakistan+Economy+2008-2010.pnghttp://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.html -
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Dr. Ashfaque Hasan Khan is the Dean of Business School at the National University of
Science and Technology in Islamabad, Pakistan.
Riaz Haq's Comments: In rural Pakistan where about 60% of Pakistanis live, people
spend 55% of their income on food, according to a World Resources Institute
(WRI)report.
The bottom two BOP (Base of Income Pyramid) groups alone account for more than
50% of national food spending in Pakistan. Average annual food spending per
household in the BOP in Pakistan is $2,643. While BOP3000 households have 6 times
as much income on average, they outspend BOP500 households in the food market by a
ratio of only 2:1 in Cameroon, 2.3:1 in South Africa and Pakistan, 2.4:1 in Kazakhstan,
1.9:1 in Uzbekistan, and 3:1 in Peru.
Currently, food inflation in Pakistan is running at 15.49 percent, hitting the poor the
hardest.
Here's a video clip of British Writer William Dalrymple speaking about Pakistan at a
recent Intelligence Squared debate:
Here is a recent video clip of former President Muharraf talking about the power crisis
in Pakistan:
Related Links:
Incompetence Worse Than Corruption in Pakistan
http://pdf.wri.org/n4b_chapter8.pdfhttp://pdf.wri.org/n4b_chapter8.pdfhttp://pdf.wri.org/n4b_chapter8.pdfhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://pdf.wri.org/n4b_chapter8.pdf -
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Pakistan's Circular Debt and Load Shedding
Pakistan Planning Commission
US Fears Aid Will Feed Graft in Pakistan
Pakistan Swallows IMF's Bitter Medicine
Shaukat Aziz's Economic Legacy
Pakistan's Energy Crisis
Karachi Tops Mumbai in Stock Performance
India Pakistan Contrasted 2010
Pakistan's Foreign Visitors Pleasantly Surprised
After Partition: India, Pakistan and Bangladesh
The "Poor" Neighbor by William Dalrymple
Pakistan's Modern Infrastructure
Video: Who Says Pakistan Is a Failed State?
India Worse Than Pakistan, Bangladesh on Nutrition
UNDP Reports Pakistan Poverty Declined to 17 Percent
Pakistan's Choice: Talibanization or Globalization
Pakistan's Financial Services Sector
http://www.riazhaq.com/2010/02/pakistans-circular-debt-and-load.htmlhttp://115.186.133.2/pcportal2.0/http://115.186.133.2/pcportal2.0/http://www.nytimes.com/2009/09/21/world/asia/21aid.html?_r=1http://www.nytimes.com/2009/09/21/world/asia/21aid.html?_r=1http://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.riazhaq.com/2008/07/shaukat-azizs-economic-legacy.htmlhttp://www.riazhaq.com/2008/07/shaukat-azizs-economic-legacy.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2010/01/karachi-tops-mumbai-in-stock.htmlhttp://www.riazhaq.com/2010/01/karachi-tops-mumbai-in-stock.htmlhttp://www.riazhaq.com/2010/01/india-and-pakistan-contrasted-in-2010.htmlhttp://www.riazhaq.com/2008/06/foreign-visitors-to-pakistan-peasantly.htmlhttp://news.bbc.co.uk/2/hi/in_depth/629/629/6922293.stmhttp://news.bbc.co.uk/2/hi/in_depth/629/629/6922293.stmhttp://www.guardian.co.uk/world/2007/aug/14/pakistan.india1http://www.riazhaq.com/2009/12/pakistans-m2-motorway.htmlhttp://www.riazhaq.com/2009/12/pakistans-m2-motorway.htmlhttp://www.youtube.com/watch?v=gTXKs_785uk&feature=youtube_gdatahttp://newshopper.sulekha.com/india-worse-than-pakistan-bangladesh-on-nourishment_news_927008.htmhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/04/pakistans-choice-talibanization-versus.htmlhttp://www.riazhaq.com/2009/04/pakistans-choice-talibanization-versus.htmlhttp://www.riazhaq.com/2009/03/financial-services-sector-in-pakistan.htmlhttp://www.riazhaq.com/2009/03/financial-services-sector-in-pakistan.htmlhttp://www.riazhaq.com/2009/03/financial-services-sector-in-pakistan.htmlhttp://www.riazhaq.com/2009/04/pakistans-choice-talibanization-versus.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://newshopper.sulekha.com/india-worse-than-pakistan-bangladesh-on-nourishment_news_927008.htmhttp://www.youtube.com/watch?v=gTXKs_785uk&feature=youtube_gdatahttp://www.riazhaq.com/2009/12/pakistans-m2-motorway.htmlhttp://www.guardian.co.uk/world/2007/aug/14/pakistan.india1http://news.bbc.co.uk/2/hi/in_depth/629/629/6922293.stmhttp://www.riazhaq.com/2008/06/foreign-visitors-to-pakistan-peasantly.htmlhttp://www.riazhaq.com/2010/01/india-and-pakistan-contrasted-in-2010.htmlhttp://www.riazhaq.com/2010/01/karachi-tops-mumbai-in-stock.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2008/07/shaukat-azizs-economic-legacy.htmlhttp://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.nytimes.com/2009/09/21/world/asia/21aid.html?_r=1http://115.186.133.2/pcportal2.0/http://www.riazhaq.com/2010/02/pakistans-circular-debt-and-load.html -
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Pakistan's Decade 1999-2009
South Asia Slipping in Human Development
Asia Gains in Top Asian Universities
BSE-Key Statistics
Pakistan's Multi-Billion Dollar IT Industry
India-Pakistan Military Comparison
Food, Clothing and Shelter in India and Pakistan
Pakistan Energy Crisis
IMF-Pakistan Memorandum of Economic and Financial Policies
POSTED BY R IAZ HAQ A T 10 :16 AM
EMA I L TH I SBLOGTH I S ! SHARE TO TWITTERSHARE TO FACEBOOK
LABELS : CORRUPT ION, ECONOMY, INCOMPETENCE, PAK I STAN ,PERFORMANCE, REV I EW
4 6 C O M M E N T S :
Riaz Haqsaid...
Pakistan has appointed Abdul Hafeez Shaikh, a Musharraf-era minister, as the
new finance chief to fill the vacancy left by Tarin's resignation. Here's aWallStreet Journalreport on it:
The post of finance minister has been vacant since Shaukat Tarin, a former
Citibank executive who was a vocal critic of government corruption, resigned
three weeks ago citing personal reasons. Prime Minister Yousuf Raza Gilani has
http://www.riazhaq.com/2009/12/pakistans-decade-of-1999-2009-in-review.htmlhttp://www.riazhaq.com/2009/12/pakistans-decade-of-1999-2009-in-review.htmlhttp://www.riazhaq.com/2009/10/south-asia-slipping-in-human.htmlhttp://www.riazhaq.com/2009/10/worlds-top-universities-in-2009.htmlhttp://www.riazhaq.com/2009/10/worlds-top-universities-in-2009.htmlhttp://bseindia.com/about/st_key/index_ratios2010.asphttp://www.riazhaq.com/2009/10/pakistans-28-billion-it-industry.htmlhttp://www.riazhaq.com/2009/10/pakistans-28-billion-it-industry.htmlhttp://www.riazhaq.com/2009/01/india-pakistan-military-balance.htmlhttp://www.riazhaq.com/2009/01/india-pakistan-military-balance.htmlhttp://www.riazhaq.com/2009/10/food-clothing-and-shelter-in-india-and.htmlhttp://www.riazhaq.com/2009/10/food-clothing-and-shelter-in-india-and.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.htmlhttp://www.blogger.com/share-post.g?blogID=8278279504304651957&postID=1833779931672206448&target=emailhttp://www.blogger.com/share-post.g?blogID=8278279504304651957&postID=1833779931672206448&target=twitterhttp://southasiainvestor.blogspot.com/search/label/Corruptionhttp://southasiainvestor.blogspot.com/search/label/Economyhttp://southasiainvestor.blogspot.com/search/label/Incompetencehttp://southasiainvestor.blogspot.com/search/label/Pakistanhttp://southasiainvestor.blogspot.com/search/label/Performancehttp://southasiainvestor.blogspot.com/search/label/Reviewhttp://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://online.wsj.com/article/SB10001424052748703523204575129512245386410.html?KEYWORDS=pakistanhttp://online.wsj.com/article/SB10001424052748703523204575129512245386410.html?KEYWORDS=pakistanhttp://online.wsj.com/article/SB10001424052748703523204575129512245386410.html?KEYWORDS=pakistanhttp://online.wsj.com/article/SB10001424052748703523204575129512245386410.html?KEYWORDS=pakistanhttp://www.blogger.com/profile/00522781692886598586http://www.blogger.com/email-post.g?blogID=8278279504304651957&postID=1833779931672206448http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/email-post.g?blogID=8278279504304651957&postID=1833779931672206448http://online.wsj.com/article/SB10001424052748703523204575129512245386410.html?KEYWORDS=pakistanhttp://online.wsj.com/article/SB10001424052748703523204575129512245386410.html?KEYWORDS=pakistanhttp://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/search/label/Reviewhttp://southasiainvestor.blogspot.com/search/label/Performancehttp://southasiainvestor.blogspot.com/search/label/Pakistanhttp://southasiainvestor.blogspot.com/search/label/Incompetencehttp://southasiainvestor.blogspot.com/search/label/Economyhttp://southasiainvestor.blogspot.com/search/label/Corruptionhttp://www.blogger.com/share-post.g?blogID=8278279504304651957&postID=1833779931672206448&target=twitterhttp://www.blogger.com/share-post.g?blogID=8278279504304651957&postID=1833779931672206448&target=twitterhttp://www.blogger.com/share-post.g?blogID=8278279504304651957&postID=1833779931672206448&target=emailhttp://www.blogger.com/share-post.g?blogID=8278279504304651957&postID=1833779931672206448&target=emailhttp://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.htmlhttp://www.blogger.com/profile/00522781692886598586http://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2009/10/food-clothing-and-shelter-in-india-and.htmlhttp://www.riazhaq.com/2009/01/india-pakistan-military-balance.htmlhttp://www.riazhaq.com/2009/10/pakistans-28-billion-it-industry.htmlhttp://bseindia.com/about/st_key/index_ratios2010.asphttp://www.riazhaq.com/2009/10/worlds-top-universities-in-2009.htmlhttp://www.riazhaq.com/2009/10/south-asia-slipping-in-human.htmlhttp://www.riazhaq.com/2009/12/pakistans-decade-of-1999-2009-in-review.html -
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The International Monetary Fund has earmarked $11.3 billion in emergency
loans for Pakistan since November 2008 when Islamabad faced a balance-of-
payments crisis amid an al Qaeda-linkedIslamist insurgency that deterred
investors.
To get regular disbursements of this money, Pakistan has to meet goals such as
reducing its budget deficit from a current 5.1% of gross domestic product,
reining in runaway inflation and increasing tax collection.
A major challenge for Mr. Shaikh will be energizing the country's struggling
economy. He will also be under pressure to find money to help build much-
needed infrastructure, such as power plants.
MARCH 19, 2010 AT 10:26 AM
Riaz Haqsaid...
Pakistan's economy will grow by 4.3 percent in fiscal year 2010, according to
areportin Business Recorder.
ISLAMABAD (May 15 2010): Pakistan's economy has shown more resilience
than expected and is likely to grow by 4.3 percent in the current fiscal, says an
official document. GDP was earlier targeted at 3.3 percent for 2009-10.
"Pakistan's GDP growth in 2009-10 will be around 4.3 percent because of
rebound in services sector plus a recovery in manufacturing sector," says a
document prepared for the National Accounts Committee meeting.
Manufacturing saw a visible recovery when its large-scale manufacturing
(LSM) sector grew by 4.36 percent positive than minus 7.7 percent, making a
positive change of almost 21 percent for the current year despite an acute
energy crisis in the country. Had there been lesser shortage of electricity
economic growth would have reached near 5 percent, says an official.
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Pakistan is now near an opportunity to turn the tables by maintaining this
growth trajectory to achieve about 5 percent growth rate which can cause a
significant dent in poverty in the next two years, says an official who would be
participating in the National Accounts Committee meeting.
Agriculture sector would be a poor performer at 2.2 percent against an
unrealistic target of 3.8 percent for 2009-10 and against a bigger base of 4.7
percent of last year. Pakistan's agriculture sector hardly crossed 5 percent in its
over 60 years' history.
Services sector came to the rescue this year at 6.59 percent against a target of
3.9 percent and almost similar performance of 3.6 percent last year. Overall
growth in manufacturing sector is at 3.54 percent against a target of 1.8
percent and previous year's negative performance of 3.6 percent.
MAY 14, 2010 AT 7:18 PM
Riaz Haqsaid...
Here is the latest news from State Bank of Pakistan reported byThe
Nationnewspaper:
KARACHI In the backdrop of widespread losses caused by the unprecedented
rains and devastating floods to the economy in the early months of current
fiscal year, the State Bank of Pakistan has predicted that the real GDP growth
would be in the range of 2 to 3 per cent in FY11 against the annual plan target of
4.5 per cent.
The SBP, in its Annual Report on the State of the Economy for the year 2009-10
released here on Monday, stated that the annual average inflation for FY11 is
likely to remain between 13.5 to 14.5 per cent, up from both, the 9.5 per cent
target and earlier SBP forecast of 11.0- 12.0 per cent for the year.
Moreover, the provisional SBP projections indicate that the current account
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1273889888079#c4357654174792570374http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1273889888079#c4357654174792570374http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.blogger.com/profile/00522781692886598586http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1273889888079#c4357654174792570374 -
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deficit will likely to rise between 3-4 per cent while the fiscal deficit is
anticipated to be in the vicinity of 5 to 6 per cent of GDP during FY11. In
addition, it projected that workers remittances are likely to stay between $9.5
billion to $10.5 billion whereas exports and imports are likely to be between $20
billion to $21 billion and $34 billion to $35 billion, respectively in the entire
course of ongoing fiscal year.
The Report pointed out that financing even the moderate increase in the current
account deficit may prove stressful for the economy, with rising pressures on
the countrys foreign exchange reserves and exchange rate.
The Report said, Negative shocks stemming from the floods have further
exposed the existing structural weaknesses in the economy. Addressing these
will require improvements in macroeconomic discipline as well as continued
reforms to improve the resilience of the economy. The required reforms include
those to improve productivity, strengthen public institutions, improve economic
governance, and build social safety nets to protect vulnerable segments of the
population.
The Report while referring an independent study, warned that the occurrence of
poverty, which started to decline over the last decade, is expected to increase in
the wake of the floods in the time to come.
According to the Report, the direct impact of the flood-related supply shock is
likely to be limited. For example, the impact of flood/rain damages and
shortages of minor crops are not expected to persist beyond 2 to 3 months as
supply line improves and as fresh crops (e.g., vegetables) enter the market.
Similarly, for some other products, any rise in domestic prices would be capped
by low international prices.
It is important to note here that prices of dairy products were already
continuing on a secular rise, even prior to the floods, due to sustained strong
domestic and external demand. Livestock losses in the flood would exacerbate
this rising trend, but only to a small extent.
It said that the extended persistence of double-digit inflation had already been a
source of concern even ahead of the floods, particularly given the risk that an
upward trend in food-commodity prices (e.g. wheat, edible oil, sugar, corn, etc.)
could be compounded by any weakness in the exchange rate. Moreover,
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inflationary pressures were also expected to strengthen as a result of the recent
50 percent increase in government sector salaries, and anticipated rise in
energy tariffs (as the government continued to reduce subsidies) and removal of
GST exemptions to broaden the tax base.
OCTOBER 26, 2010 AT 11:03 PM
Riaz Haqsaid...
Here is aDaily Times reporton inflation in Pakistan:
In Pakistan, 2007, the rate of inflation was 12.5 percent, during 2006-07 it was
21 percent and in July-March 2010 the inflation has been 11.3 percent. The
cumulative rate of inflation was 44 percent in three years, from September
2007 to September 2010.
The main reason of food prices inflation was the increase in wheat, petroleum
products, electricity and gas responsible to an overall increase in prices. The
rising interest rate, high remittances and depreciation of rupee against dollar
also fueled the inflation. This situation directly hit the poor and increased
poverty level in the country.
A shortfall in the production of some essential commodities also raised food
prices. There are 13 food items in essential items list which also includes wheat
and flour; sugar, poultry, mash pulse, meat, milk, tea, fresh vegetables etc, that
account for almost 23 percent of the total weight in the Consumer Price Index
(CPI). Prices of food items in general have made food dearer in Pakistan. For
instance, the average price of sugar has risen above 41 percent, wheat prices by
17 percent, chicken 24 percent, beef 13 percent and onion prices by 64 percent
since July 2008 over April 2009. With a 23 percent weight in CPI, the
contribution of these few items to the overall CPI inflation was 18 percent.
Although the world price of sugar has fallen unexpectedly since its peak in
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288159393543#c6629665848551529684http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288159393543#c6629665848551529684http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2010%5C10%5C31%5Cstory_31-10-2010_pg5_13http://www.dailytimes.com.pk/default.asp?page=2010%5C10%5C31%5Cstory_31-10-2010_pg5_13http://www.dailytimes.com.pk/default.asp?page=2010%5C10%5C31%5Cstory_31-10-2010_pg5_13http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2010%5C10%5C31%5Cstory_31-10-2010_pg5_13http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288159393543#c6629665848551529684 -
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January 2010, but it is still up 21 percent year on year (YoY) basis. Dairy prices,
on the other hand, have continued to raise their upward march.
Global price increase enhanced inflation sharply and Pakistan has no exception
that has affected both globally as well as domestically. Indias food price
inflation soared to 19.2 percent in December 2009, 16.7 percent in March.
Similarly, food inflation in Bangladesh rose from 3.3 percent in July 2009 to
10.9 percent in February 2010.
Poverty ratio in Pakistan is rapidly rising due to economic slowdown; high
inflation and reduction in subsidies compel 40 percent people of the country to
lives around the poverty line, as per SBP estimates.
The countrys population has jumped to 184 million in 2010, 119 million in 1990,
of which 73 million Pakistanis have fallen below poverty line, SBP said. The
poverty level during 2010 rises by 4 percent to 40 percent, from 36.1 percent in
2009.
In the case of Pakistan, the increase in domestic prices of essential commodities
remained relatively quiet as compared to the international price movements.
However, since January 2010, international prices for some of the commodities
like petroleum have fallen more rapidly than in Pakistan.
NOVEMBER 2, 2010 AT 10:33 PM
Riaz Haqsaid...
Here's Dr. Ashfaque H. Khan, Dean of NUST Business School,opposing SBP's
latest 0.50% discount rate hikein Pakistan:
...another objective of tightening monetary policy is to discourage the
government from borrowing heavily from the SBP to finance fiscal deficit.
Government borrowing from the SBP is the main source of the surge in reserve
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288762382733#c6052885494238761357http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288762382733#c6052885494238761357http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.blogger.com/profile/00522781692886598586http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288762382733#c6052885494238761357 -
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money growth. During the last four-and-a-half-months, the government has
borrowed Rs265 billion, against Rs16 billion in the corresponding period last
year. As a result, reserve money has grown by 18.4 per cent, against 9.7 percent
last year.
Perhaps the SBP believes that a rise in discount rate will discourage the
government from borrowing from the central bank. The SBP has forgotten that
by raising the discount rate by 100 basis points in the current fiscal year, it has
increased the interest payment of the government by almost Rs50 billion. Thus,
everything being held constant, the budget deficit will increase by Rs50 billion.
Hence, more deficit, more borrowing, a further hike in the discount rate, further
increase in interest payment, and further increase in budget deficit. Do we want
to create a vicious circle?
Perhaps the SBP believes that by increasing the discount rate it will encourage
commercial banks to participate actively in auction of government debt. In
other words, it will shift government borrowings from the SBP to scheduled
banks. Government borrowings from the scheduled banks stood at Rs76 billion,
against Rs164 billion in the same period last year. Perhaps the scheduled banks
are deliberately avoiding participation in the auction to the extent they should
have been. They have thereby signalled that they need a higher interest rate.
Should the SBP, as monetary authority, be guided by the animal spirit of the
scheduled banks, or should it be in the driving seat? Perhaps the governor of the
SBP would like to be guided by the scheduled banks. I personally believe that the
hike in discount rate was unwarranted and the status quo should have been
maintained. The hike was an act of overreaction and could have been avoided.
DECEMBER 12, 2010 AT 6:14 PM
Riaz Haqsaid...
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1292206487778#c432231411774755242http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1292206487778#c432231411774755242http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1292206487778#c432231411774755242 -
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Here's Pakistani economist Dr. Ashfaque H. Khan writing about "Pakistan: a
forgotten economy" in apiecepublished by The News:
How has that economy been transformed into a forgotten one in just three
years? Unfortunately, the economy never featured on the radar screen of the
present government. Additionally, the government lacked a credible economic
team. In less than three years there have been four finance ministers, four
finance secretaries and three governors of the State Bank.
The government wasted time and energy in downplaying the achievements of
the previous government, while it lurched from one crisis to another, a
rudderless ship with no sense of direction and purpose. The current economic
team is weak and lacks the capacity to handle the multidimensional challenges
it is confronted with, most of which are self-created.
The countrys economic growth has slowed to an average of three per cent per
annum, and unemployment and poverty have risen. Higher double-digit
inflation has persisted and items of basic necessity have gone beyond the reach
of the common man. The debt burden has reached unsustainable levels and the
dependence on donors has grown. Clearly, three years of mis-governance and
poor economic management have brought the economy to near-standstill.
People have lost confidence in the countrys ability to recover from the ever-
deepening economic crisis. The recent unprecedented floods have further
aggravated the impact of the economic ills.
It is not only the economy which is in decline. This is true of things in every walk
of life. To name just a few, this has been evident in the game of cricket, the
inaugural parade at the Commonwealth Games, the Haj operations, the
creation of the sugar crisis, the running of public-sector enterprises like PIA,
Pakistan Railways, the Steel Mills, National Insurance Corporation and TCP,
the crisis in higher education, the deterioration in law and order and the
debacle of the recently concluded Pakistan Development Forum (PDF).
http://thenews.com.pk/TodaysPrintDetail.aspx?ID=16718&Cat=9&dt=12/7/2010http://thenews.com.pk/TodaysPrintDetail.aspx?ID=16718&Cat=9&dt=12/7/2010http://thenews.com.pk/TodaysPrintDetail.aspx?ID=16718&Cat=9&dt=12/7/2010http://thenews.com.pk/TodaysPrintDetail.aspx?ID=16718&Cat=9&dt=12/7/2010 -
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The PDF meeting requires special mention. The PDF, the reincarnation of the
Aid to Pakistan Consortium, is jointly chaired by the World Bank and the
Government of Pakistan, represented through its finance minister. The purpose
of this forum is to provide a platform to the government where it can present its
economic and social reforms agenda before visiting delegations. The PDF has
never been a platform for pledging assistance. Unfortunately, this forum was
transformed into a pledging forum because every minister, even the prime
minister, made statements about the financial loss caused by the floods and
asked for financial support. The minister of interior even pleaded for a debt
write-off.
It is unfortunate that we have turned every international forum, including
Friends of Democratic Pakistan (FODP), into an opportunity for begging. No
self-respecting nation begs forever. A beggar cannot command respect in the
comity of nation. Continuing to do so, Pakistan risks nothing less than global
oblivion. How long can we keep on begging like this? Is this the fate to which the
people of Pakistan must resign themselves?
DECEMBER 27, 2010 AT 9:57 AM
Riaz Haqsaid...
Here's aDaily Times reporton Gallup survey finding Pakistanis are pessimistic
about their nation's economy in 2011:
This year, the public opinion in Pakistan is not hopeful as only 13 percent think
that 2011 will be a year of economic prosperity while 34 percent expect it to be a
year of difficulty thus giving a negative score of21 percent on Net Hope, said
Chairman Gallup Pakistan Dr Ejaz Shafi Gilani.
The devastation caused by floods during the middle of the year created a mood
of economic pessimism among the public, despite the fact that the country
fought this calamity with courage and showed extraordinary resilience, Dr
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1293472654468#c6327938500777554100http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1293472654468#c6327938500777554100http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2010%5C12%5C24%5Cstory_24-12-2010_pg5_6http://www.dailytimes.com.pk/default.asp?page=2010%5C12%5C24%5Cstory_24-12-2010_pg5_6http://www.dailytimes.com.pk/default.asp?page=2010%5C12%5C24%5Cstory_24-12-2010_pg5_6http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2010%5C12%5C24%5Cstory_24-12-2010_pg5_6http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1293472654468#c6327938500777554100 -
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Ejaz added.
As the new century enters its second decade, both economic data and perception
data suggest that while wealth is still concentrated in Europe and North
America, while there is a shift of power and prosperity from the West of the
20th Century to the East, he added.
He said these findings have been derived from one of the largest global surveys
covering 53 countries across all continents including all the G7 countries, the
four countries of emerging BRIC (Brazil, Russia, India and China) and another
45 countries from Asia, Africa, Latin America, Australasia and including
Pakistan. Together, a sample of over 64,000 scientifically selected men and
women were interviewed by leading pollsters associated with Gallup
International.
This is the second global survey, which the Group has conducted and released
during this month. The key question in the global survey was: Would you say
that 2011 will be a year of Economic Prosperity, Economic Difficulty or remain
the same. At a global level 30 percent of the world expects that 2011 will be the
year of prosperity and 28 percent expect it to be the year of economic difficulty,
while 42 percent think the economic situation will remain unchanged. The
hopefuls outscore the pessimists by 2 percent. That is the net Global Hope Score.
The data shows that global hope is highly concentrated among the rising
economic powers, the so-called BRIC. The Hope Score for this Group is 35
percent.
In sharp contrast, the Hope Score for the rich countries of the world, known as
the G7 (USA, Canada, Germany, France, UK, Italy, and Japan) is in the
negative: -19 percent.
Among them, the Pessimists (36 percent) outscore the Hopefuls (17 percent) by
19 percent points.
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Briefing the journalists about the survey here Wednesday, Dr Ejaz Shafi Gilani
chairman Gallup Pakistan claimed that comparing the survey data with India,
it must be noted that Hope Score are volatile and can make sharp jumps in short
years.
This would be true of the mood in India. In the latest survey popular opinion in
India shows a Net Hope of 24 percent.
In previous years, India generally scored lower than Pakistan on such
measures. Even now the per capita income in the two countries is not far apart
$3260 in India compared with $2710 in Pakistan, he said adding that our civil
society and the government seem to have a tough task ahead of them in 2011.
app
DECEMBER 29, 2010 AT 7:14 PM
Riaz Haqsaid...
Here's Pakistan's latest economic news in brief supplied by Foundation Securities
Research:
The Ministry of Finance has agreed with the proposal of the Tax Reform Co-
ordination Group (TRCG) to create a Fiscal Policy Board to be headed by the
Finance Minister under the reform plan to exclusively deal with the fiscal policy
and taxation issues under the umbrella of the proposed fiscal board. (BR)
The country's trade deficit soared to $8.149 billion in July-December 2010,
18.20 percent up over $6.89 billion for the same period of last year, according
to the Federal Bureau of Statistics (FBS). Official trade figures released by the
FBS here on Tuesday showed an increase in exports of 20.63 percent for the
same period which analysts say could be largely because of per unit price
increase instead of increase in the quantity. (BR)
Remittances sent home by overseas Pakistanis continued to show rising trend as
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$5,291.41 million was received in the first half of the current fiscal year 2010-
11(July-December), showing an increase of $761.23 million, or 16.80 percent,
when compared with $4,530.18 million received during the same period of last
fiscal year. (BR)
The CPI inflation soared by 15.68 percent in December 2010 over the same
period of last year with phenomenal increase in perishable food items, showing
a strong trend of increase in prices of food items which may push more people
below the poverty line. (BR)
Japan has queued up to help Pakistan to plug in widening budgetary gap by
granting it $60 million soft loan in response to Islamabad's call to the friendly
countries for financial support to keep current budget deficit at some reasonable
level. (BR)
Another round of speculations came to an end on Tuesday when President Asif
Ali Zardari issued a notification appointing a PPP stalwart and former
Attorney General Sardar Latif Khan Khosa as Governor of Punjab. (BR)
The monthly Consumer Price Index (CPI) during the month of December
registered a decrease of 0.31 per cent as compared to previous month of current
financial year. (DAWN)
The government has decided to put a freeze on electricity tariff for the
remaining period of the current fiscal year owing to its inflationary impact on
economy and unending loadshedding, according to a senior official. (DAWN)
The Secretary Cabinet Division, Abdur Rauf Chaudhry on Tuesday said 3G
services would hopefully be available to the Pakistani mobile users by the end of
2011 while it was expected that the policy for auction of 3G services licenses
would soon be presented to the government and Economic Coordination
Committee (ECC) for discussion and approval. (DT)
The FBR has started to evaluate alternative proposals to replace the
controversial RGST in case the government failed to get it approved from the
parliament. (TN)
Despite receiving orders from the Ministry of Petroleum, OGDCL has not
replaced one of its directors on board, who also works for a partner company.
(TN)
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NCCPL shows a net inflow of USD2.18 million.
Crude oil is trading at USD91.1 per barrel.
JANUARY 11, 2011 AT 11:19 PM
Riaz Haqsaid...
In addition to significantforeign institutional investments(FII) in Karachi shares
last year, the reports of surging remittances by overseas Pakistanis and the
nation's growing exports are the only two other pieces of good news amidst an
avalance ofbad news on the economic frontin Pakistan in 2010.
The State Bank of Pakistan has reported that overseas Pakistanis sent home
$5.291 billion during July-Dec, 2010, an increase of $761 million or 17 per cent
year over year, according to Pakistan'sDawn newspaper.
Remittances of $863 million were sent by overseas Pakistanis last month, up
23.72 per cent or $165 million compared to December, 2009.
Exports in the July-December 2010 touched almost $11 billion $1.8 billion, or
20.6per cent, higher than last years exports in the corresponding period.
Meanwhile, imports stood at $19.2 billion, marking a growth of 19.6 per cent, or
$3.2 billion, in the first half, according to theExpress Tribune.
Pakistani government has been relying heavily on remittances by overseas
Pakistanis to fund the massive trade imbalance, which exceeded $8 billion during
the first six months of this fiscal.
The increased remittances and rising exports have helped bring down the
nation's current account deficit to $504 million for six months, or 0.6 percent of
GDP, about 30% lower than the same period in the previous year.
Foreign direct investment (FDI) declined 15.5 per centin the first six months of
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The governments economic team met with Sharifs party, Pakistan Muslim
League-Quaid, and coalition partners Muttahida Qaumi Movement and Awami
National Party on Jan. 18 to brief them about the state of the economy. Gilani
reached out to the opposition after Sharif demanded the premier implement a
10- point economic agenda within six weeks and move against corrupt officials
or face a campaign for his ouster.
The Karachi Stock Exchanges 100 Index, which advanced 28 percent last year,
fell 1.3 percent to 12,411.87 today in Karachi. The rupee traded at 85.73 against
the dollar, after falling 1.65 percent last year.
Im not too optimistic that this political give-and-take will change things
substantially on the ground, said Asif Ali Qureshi, head of research at Invisor
Securities Ltd. in Karachi. Investors usually get nervous when foreign
exchange reserves start shrinking and the currency comes under pressure. That
hasnt happened so far this year.
Partner Returns
Gilani on Jan. 7 succeeded in winning back the support of his partner, the MQM,
after reversing the fuel-price rise. His Pakistan Peoples Party lost its majority
Jan. 2 when the MQM had quit the coalition. President Asif Ali Zardaris grip on
power was further undermined by the Jan. 4 assassination of a key aide, the
governor of the Punjab province.
The petrol-price rollback, which runs the risk of a wider budget deficit, was
criticized by U.S. Secretary of State Hillary Clinton, who urged Pakistan not to
reverse progress.
We have moved forward in a concrete way, Ishaq Dar, a former finance
minister and a key aide to Sharif, toldreporters after the meeting. Youll see
things moving in the next few weeks.
Maria Kuusisto, an analyst at consultant Eurasia Group, said in a Jan. 14
telephone interview from London, that Pakistans budget shortfall may touch 8
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percent of gross domestic product, or 1.3 trillion rupees ($15.15 billion) in the
year through June from 6.3 percent in the previous year.
The central bank governor last month blamed government borrowing for price
pressures and said raising interest rates may impede investments and
undermine economic growth.
The government borrowed 401 billion rupees from the central bank between
July 1 and Jan. 8, more than double the amount it borrowed in the same period
last year, according to data from the State Bank of Pakistan.
Pakistan is operating without any fiscal order, Sakib Sherani, an economic
adviser in Pakistans finance ministry from July 2009 to December 2010, said
in an interview. The fiscal mismanagement may produce the biggest budget
deficit in Pakistans history in absolute terms.
JANUARY 20, 2011 AT 9:08 AM
Riaz Haqsaid...
Here's a story inthe Economiston economic mismagement in Pakistan:
ON JANUARY 3rd Pakistans central bank began printing rupee notes carrying
the signature of Shahid Kardar, who was appointed governor of the State Bank
of Pakistan in September. Unfortunately inflation has robbed money of over
15% of its value in the past year, and no let-up is in sight for the new notes. It is
the most visible sign of an economy slouching towards another financial crisis.
At the start of the year the government raised petrol prices, prompting the
Muttahida Qaumi Movement (MQM) to quit the coalition government led by the
Pakistan Peoples Party (PPP). It left the PPP with a choice between saving the
government and saving the economy, as Maleeha Lodhi, Pakistans former
ambassador to the United States and Britain, put it in the News, a Pakistani
daily.
On January 6th the PPP made its choice, reversing the price rise. The decision
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has rescued the government but also robbed the exchequer of 5 billion rupees
($58m) a month. By the end of the fiscal year in June, the governments deficit
could reach 6.5% of GDP, according to Sayem Ali of Standard Chartered bank,
or even 8% if oil prices continue to rise, according to Mohsin Khan of the
Peterson Institute, in Washington, DC.
Pakistans budget has a lot to bear. The World Bank reckons that recovering
from the summers devastating floods, which damaged over 1.6m homes, will
cost up to $10.8 billion. To date, aid has been modest. Donors have pledged just
$2.1 billion, or $11 per person, compared with $363 per person promised to
Haiti after its earthquake a slightly unfair comparison perhaps.
Yet Pakistans fiscal troubles are antediluvian. It is one of the most lightly taxed
countries in the world. Fewer than a quarter of the countrys firms declare any
taxable revenues, and only 11 out of every 1,000 of its citizens pay tax on their
incomes, according to the World Bank. As a result, tax revenues amount to a
mere 10% of Pakistans GDP.
The government had hoped to raise that ratio by broadening its sales tax, which
is riddled with exemptions. Yet it lacked the heart to defy lobbies which slip
through the threadbare tax net. They include exporters who escape tax on their
domestic sales, as well as retailers and wholesalers who elude tax altogether.
The proposed reforms also proved unpopular with the broader public, who
resent paying anything to a government that gives them so little in return.
The governments failure has jeopardised its agreement with the IMF, which is
withholding the remaining $3.5 billion of the bail-out funds it offered back in
2008. At that time, the rupee was tumbling and Pakistans foreign-exchange
reserves barely covered three weeks worth of imports. If the country is not yet
in similar trouble, it can thank Pakistani folk abroad, whose remittances surged
by 16.8% in the second half of 2010, compared with a year earlier (see chart).
This is one reason why the rupee has not sunk further, and why the central
banks reserves still cover six months worth of imports.
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Yet foreign investment has slowed to a trickle, and higher commodity prices will
add to the countrys import bill. Meanwhile, Pakistans foreign debt must be
serviced. The finance minister is in a pickle. If Pakistanis lose heart, too, they
may quit the currency, scrambling for dollars instead. Should that happen,
Pakistans reserves will quickly vanish. And here is the big difference between
2008 and today: Pakistan has already had its IMF rescue.
JANUARY 20, 2011 AT 10:40 PM
Riaz Haqsaid...
In 2008, the PPP government pushed the procurement price of wheat up from
Rs. 625 per 40 kg to Rs. 950 per 40 kg. This action immediately triggered
inflationary pressures that have continued to persist as food accounts for just
over 40% ofPakistan's consumer price index. According to State Bank of
Pakistan (SBP) analysis, cumulative price of wheatsurged by 120 per centsince
2008, far higher than the 40 per cent between 2003 and 2007. it is also many
times greater than the international market price increase of 22 per cent for
wheat in the same period. Similarly, sugar prices have surged 184 per cent higher
since 2008, compared with 46 per cent increase during 2003-07.
The transfer of additional Rs. 300 billion to Pakistan's agriculture sector during
the current fiscal year 2010-2011 by higher prices of agriculture produce and
direct flood compensation to 1.6 million affected families at the rate of one
hundred thousands rupees each willboost economic confidence in the
countryside. It will generate rural demand for consumer items including
consumer durables such as fans, TVs, motorcycles, cars, refrigerators, etc.
Already, the upside of the government policy is that Pakistan's rural economy is
beingspurred by high crop pricesthat may help the GDP growth this year and
next. Increased farm incomes are whetting the rural households' appetite for
industrial and consumer goods in 2011 and beyond.
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While it is good to see Pakistan's rural farm economy perk up, it is also important
to recognize that the overall national economic outlook can not improve
significantly unless the growing budget deficits and rising inflation are brought
under control. And this will require the rulingfeudal eliteto pitch in by paying
their fair share of income tax on their rising farm incomes. It is time for them to
lead by example.
JANUARY 23, 2011 AT 9:52 AM
Riaz Haqsaid...
There seems to be consensus developing among Pakistani economists that
"prompt measures needed to control rising inflation", according to a report
inDaily Times:
LAHORE: Pakistan is fast heading towards higher inflation and to overcome this
grim scenario; improvement in governance coupled with a drastic cut in
expenditure and revenue generation is crucial.
The doom and gloom scenario needs an urgent handling. Good governance, good
policies, good institutions, good macroeconomic management are the drivers of
economic growth that have gone dormant for quite some time. This was the crux
of the speeches delivered at Economic Dialogue 2011 held at Lahore Chamber of
Commerce and Industry on Tuesday. Senior economist Dr Akmal Hussain said
the country is facing its gravest economic crisis in history after 1971. He said the
economy is in deep recession, poverty along with high inflation is a recipe for
disaster.
Unfortunately, he added, the government has zero fiscal space. He warned that
Pakistan was heading towards higher inflation if immediate improvement in
governance is not accompanied with cut in expenditure and substantial increase
in revenue.
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The former WB Executive Abid Hassan said that the institutional decay has now
started taking its toll and the government should take appropriate measures on
emergent basis to stop this decay. He said that with every passing day the country
is going deeper and deeper into the economic mire. Today we have reached a
situation where even an economic stimulus would not work. The government
should concentrate on tax collection and controlling unnecessary expenditures.
Unless and until these two measures are not taken, the economy would not be
able to be back on rails, he said. The PIDE Vice Chancellor Dr Rashid Amjad
said that the present day doom and gloom scenario could be changed by
overcoming the acute energy shortage being witnessed by the country. The issue
of circular debt needs to be taken care of by those sitting at the helm of affairs.
PSDP has a multiplier effect on the employment and economy. It should not be
cut, he said.
Former chief Economist Planning Commission Dr Pervaiz Tahir blamed the
political chaos for our economic woes and termed the dictatorship democracy
cycle as mother of all ills.
Energy sector expert Munawar Baseer, ex Executive committee member Almas
Hyder and LCCI President Shahzad Ali Malik while appreciating the input
provided by the economists said that most of the issues and challenges faced by
the country are more of political. The political leadership while realizing the
sensitivity of the situation should come up with a solid solution with close
coordination with the chambers. The policies are being made in isolation
without the consultation of real stakeholders and thats why the economic
situation today has become more complex and directionless, he said. The
speakers said that the business community should be involved for the sake of
correct decision-making.
They urged the government to evolve a more realistic and pragmatic framework
by putting an end to inter-provincial disparity and the disparities within the
province. The government should re-do its priority list and concentrate on the
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few areas that come on the top of that priority list.
It is very unfortunate, the speakers said, that the country has become the most
inhospitable for both the local and the foreign investors for security reasons.
Our inability to reach a consensus on water issue and inability to tap
hydrocarbon potential of Balochistan has virtually pushed us to the wall, they
said. staff report
FEBRUARY 4, 2011 AT 6:49 PM
Riaz Haqsaid...
Here's an interestingassessment of Pakistan's economy in 2H-2010:
...The countrys exports, money sent by overseas Pakistanis, balance-of-
payments position and foreign exchange reserves have reflected an
encouraging growth during July-December FY11, showing strong signs of
improvement in the economy, Saad-bin-Naseer, CEO of Pearl Capital, told
Central Asia Online January 28. Pakistans exports were $10.97 billion, an
increase of US $1.88 billion, in the first six months of FY11.
That 21% increase was a very positive sign for the growth of export-oriented
industry and the national economy, he said.
In FY11 exports could cross the $22 billion mark for the first time because of a
significant increase in the value of Pakistani products on world markets, Naseer
added.
The textile industry had taken the lead by fetching $1.28 billion in additional
foreign exchange through exports, Anisul Haq, secretary of All Pakistan Textile
Mills, told Central Asia Online.The textile industry had taken the lead by
fetching $1.28 billion in additional foreign exchange through exports, Anisul
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Haq, secretary of All Pakistan Textile Mills, told Central Asia Online by
telephone from Lahore. From July-December FY11 textile exports increased to
$6.28 billion compared to 2010 figures.
Total annual textile exports could exceed $13 billion for the first time, he added.
In 2009-10, they totalled $10.5 billion.
The textile industry had taken the lead by fetching $1.28 billion in additional
foreign exchange through exports, Anisul Haq, secretary of All Pakistan Textile
Mills, told Central Asia Online.
---------
Another pillar of the economy is remittances from overseas Pakistanis. The
money they sent home increased by $780m in the first half of FY11, to $5.3
billion, Haq said.
We hope the country would receive $11 billion from overseas Pakistanis in
2010-11 with major increase in inflows from Pakistanis staying in Arab
countries and other western countries, Haq said.
Foreign aid from institutions and countries, not just individuals, helped. The
disbursement of $633m in coalition support and the extension that the IMF gave
the government for imposing the Reformed General Sales Tax (RGST) helped
improve some of the major economic indicators, Naseer said.
The picture did much to bolster Pakistans balance sheet, which has had its ups
and downs. Pakistan recorded a current account surplus in the first six months
of the fiscal year, which enabled growth in foreign exchange reserves and
stabilised the dollar-rupee exchange rate, Pearl Capitals Naseer added.
In 2009-10, the country incurred a $2.5 billion current account deficit from
July-December, but for the same period in 2010-11 it enjoyed a surplus of $26m
a dazzling switch from red ink to black, he said.
The robust performance of exports and remittances enabled Pakistan to accrue
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a record $17.3 billion in foreign exchange reserves by January 21, he said.
Investor confidence has grown in response to these positive indicators. The
stock market capitalisation grew to $36 billion in January 2011 from $32 billion
in October 2010, he said, adding that such growth would encourage foreign and
local investment.
-----
warned.
Islamabad, which still hasnt imposed the RGST the IMF wants, doesnt collect
enough taxes, Khan said. It levies only about 9% of GDP against the required
international standard of a minimum 15% tax-to-GDP ratio, Khan said.
The government must implement tax reform, reduce reliance on borrowing
from the IMF and generate its own resources to enhance tax revenues and to
bolster economic growth, he added.
Serious efforts to solve chronic gas and power shortages are also imperative, he
said.
FEBRUARY 11, 2011 AT 5:37 PM
Riaz Haqsaid...
Here are some excerpts from an Op Ed inNewsweek Pakistanby Meekal Ahmed,
a former IMF official:
The government hopes to generate Rs. 53 billion during the last quarter of the
current financial year, which concludes on June 30. It hopes to achieve this by
imposing a 15 percent surcharge on income taxpaid by Pakistans paltry 1.7
million registered, individual taxpayers. Given the small tax base and modest
yield, the surcharge seems unfair and not worth it. In a move that is regressive
and potentially inflationary, depending on the market, excise duty on certain
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import items has been increased from 1 percent to 2.5 percent until end-June.
While these measures are better than doing nothing at allwhich is what
happened during the first three quartersthey are far from ideal, and dont go
far enough to address the big problems with the economy.
But its not all bad. The elimination of tax exemptions for agricultural inputs
(including tractors, fertilizers, and pesticides) was long overdue. With a strong
agro-lobby preventing taxation on their handsome incomes in a sector that
contributes 21 percent of GDP, the government might as well tax the inputs. Tax
exemptions for export quality textiles sold within Pakistan have also been nixed
despite resistance from the fierce textile lobby. The freeze on additional hiring in
the public sector, and the 50 percent cut in several spending categories should
also be welcomed.
Then there is the profusion of what many Pakistani media outlets call petrol
bombshighly unpopular oil price adjustments at the start of each month. The
government announces the adjustments, and then rolls them back under
popular and political pressure. The fuel price adjustments are unavoidable.
Pakistan is a net oil importer and cant insulate itself from global price shocks.
Oil prices have risen steeply in the last three months, and have now crossed the
psychologically important 100-dollar mark. Pakistans fuel subsidiesat an
estimated Rs. 5 billion per month that could have been spent on development
are unaffordable and unsustainable. Oil prices will remain high for a while.
Pakistanis must adjust to this reality. .....
...
Despite the new measures, doubts remain about the revised tax-revenue targets
and the states capacity to achieve them. The Federal Board of Revenue is
notorious for its chronic underperformance. The justification that there is a tax
revenue shortfall because the economy is in recession holds no water. An
economy expected to grow at around 3 percent is not, technically speaking, in
recession, but is growing below its potential. There is no cycle for fiscal
revenues in Pakistan: whether the economy grows at 3 percent or 7 percent,
whether inflation is 2 percent or 25 percent, tax revenues fail to keep up. If they
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did not, there would be a constant tax-to-GDP ratio, which is actually falling.
This trend points to the existence of deep-rooted structural deficiencies in the tax
system, which is regressive, anti-poor and plagued by too many exemptions and
concessions. Then theres also corruption, abuse of the system, and evasion.
Even taxes withheld at source are not deposited in the governments account
because of alleged connivance between withholding agents and tax officials.
MARCH 25, 2011 AT 8:25 PM
Riaz Haqsaid...
Here are some excerpts from anADB reporton Pakistan as quoted byDaily
Times:
Pakistans budget deficit may cross 5.5 percent of the gross domestic product
(GDP) due to less than expected revenues, excess expenditure on floods, security
and subsidies.
---------
According to the report, severe floods in July-August 2010 have affected fiscal
year (FY) 2011s prospects. Damage was less severe than initially feared, but
agriculture and communications were hit hard.
The report says that Pakistans public debt (excluding guarantees) as a share of
the GDP continued to climb in FY 2010. Government domestic debt amounted to
37.0 percent of the GDP, including commodity debt and liabilities of State
Owned Entities (SOEs). External debt rose to 31.9 percent of the GDP, including
0.6% of the GDP in external liabilities of SOEs. Interest payments due on
domestic debt represent a heavy burden, accounting for 3.9 percent of the GDP
in FY 2010, or 43 percent of the Federal Board of Revenues (FBR) revenue.
External debt amortisation payments, excluding amounts owed to the IMF, are
relatively stable for FY 2010 FY 2013 at about $3.3 billion. Amounts due for
FY 2012 and beyond will be raised substantially by repayment obligations to the
IMF. The report maintains that the inflation accelerated after the floods, to 15.7
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1301109926389#c1981860025303487230http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1301109926389#c1981860025303487230http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1301109926389#c1981860025303487230 -
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percent in September, reflecting actual and expected shortages. It remained
above 15 percent through December, falling to 14.2 percent in January owing to
a government-freeze on oil and electricity prices. It is expected to stay high
through FY 2011, for an average annual 16.0 percent, and is then expected to
recede in FY 2012 to 13.0 percent (moderation in international food prices is
likely to be at least partly offset by electricity price rises).
ADB expects Pakistans economy to continue to build on the vital signs of
recovery. The good news is that Asia is maintaining a strong growth trajectory,
and expanding South to South links presents supplementary opportunities for
developing Asia, including Pakistan. Pakistans recent entry into Central Asian
Regional Cooperation (CAREC) opens up new trade and development corridors
... but it all depends on getting back on course in implementing the fiscal
reforms and creating an enabling environment for the industry and job creation
for the youth in the years ahead, the ADB country director added.
The total disbursements made to Pakistan by ADB during the calendar year
2010 were $799.18 million that were 117 percent more than the projected
amount of $683.28 million.
---------
According to the report, Pakistans external reserves reached a record-high of
$17.4 billion in early February 2011, amounting to more than five months of
imports of goods and services. This build-up essentially reflects IMF releases of
$7.1 billion under the Stand-by Arrangement programme, an additional $450
million in emergency support in September 2010, and support from the
Coalition Support Fund ($633 million).
APRIL 6, 2011 AT 6:26 PM
Riaz Haqsaid...
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1302139603408#c610670993731614493http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1302139603408#c610670993731614493http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1302139603408#c610670993731614493 -
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Here's blog post from today'sDawn newspaper:
GLORIOUS countryside lies between Rahim Yar Khan and Bahawalpur.
Travelling across six districts in Punjab, before a blazing summer sets in, I
experienced endless fields of wheat waiting to turn golden, of freshly harvested
mustard, acres of ripe sugarcane and sprawling mango orchards.
Far from the drudge and gloom of metropolitan Pakistan, economic privation,
traffic snarls, extreme religion and the cricket World Cup agony, this is another
Pakistan. Over a quarter of a century after the green revolution ended the rural
economy is back in boom, this time on the back of rising prices. The feel-good
factor is all around.
------------
Alongside the cash economy, the place is also brimming with ideas, and with an
entrepreneurial spirit. A young man I meet at Rahim Yar Khans chamber of
commerce has an IT degree and owns an ice cream distribution business
spawning an elaborate cold chain across three districts. He tells me that sales
are surging because rural society is transitioning to modern desserts which are
now more affordable than traditional sweets like mithai and khoya.
Meanwhile, hes toying with the bigger vision of an electronic marketplace for
agricultural produce. Live connectivity to grain mandis and markets for fresh
produce and milk will empower farmers to obtain prices online and through
their cellphones. He wants to materialise this and wants tips. I give him my two
cents worth: study similar models, write a concept paper, galvanise partners
around it, put in seed money and get the venture to mezzanine level.
For now the agricultural economy is growing more in value than in volume. As
it does, it pulls in a rising demand for inputs. Fertiliser and agrochemical
companies, some listed on the stock exchange are making record profits. Still,
few find time to complain about rising input prices. With a population of
400,000, Rahim Yar Khan sports showrooms displaying cars, motorcycles and
generators, fast food outlets and even private healthcare clinics.
http://www.dawn.com/2011/04/10/the-other-pakistan.htmlhttp://www.dawn.com/2011/04/10/the-other-pakistan.htmlhttp://www.dawn.com/2011/04/10/the-other-pakistan.htmlhttp://www.dawn.com/2011/04/10/the-other-pakistan.html -
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Even then, not all the cash would appear to go into consumption. Pakistan now
ranks amongst the worlds top 10 markets for tractors. Alongside, and despite
constrained credit to agriculture, farmers are investing in agricultural
implements, irrigation channels and farm modernisation.
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Simple, he explains, this year the ginners got together with the local utility
company, Mepco. Weve instituted a system whereby instead of intermittent