Economic Business Review 070909

Economic & Business Review

[Mon, 07 Sep, 2009 | Ramazan 16, 1430 ]

20pc less charity this Ramazan By Afshan Subohi Monday, 07 Sep, 2009 | 01:31 AM PST |

Initial donations trend for this Ramazan indicate that philanthropists will pay 20 per cent less than last year for charitable purposes. The total quantum of givings during the current year is reckoned to be Rs150 billion. At this rate, the disposable assets, liable for Zakat, in private hands works out to be a whooping Rs6 trillion. A 1998 study by a committee of experts commissioned by Aga Khan Foundation projected the total value of charity at Rs70 billion. In absence of any fresh study, the amount has been doubled keeping in view the increase in value of everything-- from minimum wage to the worth of assets. Initial indicators of an informal survey in Karachi point to a shrinkage of about 20 per cent in donations by the faithful this Ramazan to various philanthropic institutions. There is no method to gauge direct flow of Zakat funds to needy individuals. There is nothing to suggest that the trend would be any different in direct giving from institutional giving as nothing has happened over the last one year that could have led to a sizeable shift in the pattern of giving. The proportional share of direct to institutional giving has not changed which means increase or decrease would probably be about the same in both the categories. With a huge Muslim population, the quantum of annual giving may cross over Rs150 billion. Experts endorse that more than 90 per cent of this amount is contributed by people as Zakat, a mandatory deduction on savings, both in cash and kind. Islam requires Muslims to give to the needy at least two and a half per cent of their accumulated wealth each year. It is believed that the act cleanses savings and protects them from an evil eye. According to a common belief, Zakat is deductible on all accumulated wealth that is not a part of running business including rolling funds that have been in possession over a year and can be liquefied on a short notice. By applying simple mathematics the figure of Rs150 billion throws up an astonishing amount of Rs6 trillion disposable assets to be in possession of individuals, if it is assumed that every eligible Muslim pays Zakat judiciously. (Rs150 billion is two and a half per cent of Rs6 trillion) There are high net worth individuals who might be paying many

times more than Zakat but this does not apply to everyone. There may be many more rich people too engrossed in their business to spare a thought for the less fortunate. Majority, however, comprises middle class people who apply their own interpretation of the obligation but give away something in name of Zakat during Ramazan each year. This in effect implies that the real value of private disposable assets would still be higher. The fact that people seem to be spending more during this Ramadan than earlier indicates that the financial capabilities of spending classes are intact despite inflation and rising unemployment. Why are they not inclined to care more for the poor and increase donation then? There is no clear explanation. An expert on consumer behaviour could give a more credible comment but a possible explanation that comes to mind is that probably people tend to seek God’s mercy by giving more when under stress. As law and order and the economy improves, people get more involved in worldly affairs. A more plausible explanation would possibly be the erosion of asset prices in the last one year which saw the bursting of property and capital market bubble. It must have moderated the value of fixed disposable assets on which Zakat is due. Syed Tariq Ali, research head at the Centre of Philanthropy told Dawn from Islamabad that impulse of charity in Pakistan is higher as compared to many other countries. He considered estimate of Rs150 billion as annual value of charitable donations rather conservative. “It is safe to double the Rs70 billion projected 11 years back. I find Rs150 billion a very moderate figure”, he told this writer from Islamabad over phone. Anwar Kazmi, an old associate of Maulana Edhi, helping him in charitable network of Edhi Foundation told Dawn that so far donations this year are on the lower side. Edhi Foundation is the biggest, the most effective and highly respected philanthropic organisation, known for its work around the world. It receives massive donations each year. Workers of several other organisations endorsed Kazmi’s views. He said, Maulana Edhi believes that middle classes are most generous. The rich evade Zakat as they evade taxes. “They prefer to open their own charitable outfits with the money they want to set aside for the needy. It serves dual purpose of social work and earning tax credits in this world and a reward from God in the life hereafter”. In 1947, Pakistan inherited reputed charitable institutions like Ganga Ram Hospital, Gulab Devi Hospital, Janki Devi Hospital, Sindh Madressatul Islam, and Hamdard Trust to name a few. In the recent past, individual philanthropists set up large-scale public benefit institutions such as the Edhi Trust, Shaukat Khanum Memorial Hospital, the Layton Rehmatullah Benevolent Trust (LRBT), the Fatmid Foundation and the Qarshi Foundation and several hundreds more for the benefit of millions of people.

Will price controls on sugar work? By Nasir Jamal Monday, 07 Sep, 2009 | 01:31 AM PST |

The Lahore High Court ordered the Punjab government Thursday to keep retail sugar price at Rs40 a kilo — Rs7 less than its current level — across the province. It also directed the government to procure the sweetener from mills at Rs36 a kilo instead of Rs45, the ex-factory price fixed by the federal government for the entire country less than a couple of weeks ago, to ensure that its retail price did not exceed in Punjab beyond the court-fixed level. The millers refused to accept the order because it meant a loss of Rs9 a kilo to them. They intend to appeal. Stockists and dealers too got worried because they had purchased the product at the federally fixed rate and stood to suffer huge financial losses if the court order was implemented. The Punjab government pledged to implement the order and deployed on Friday revenue and police officials at the mills to seize stocks and prevent the millers from removing the same. But its food minister told a TV channel that it would take a couple of days to enforce the court order. He seems to be buying some time for the dealers and retailers to exhaust their existing stocks before the court-fixed rate is enforced. But sugar had already begun disappearing from the retail markets at many places in Punjab by that time as retailers did not want to risk arrests and penalties on charges of flouting the court orders. In less than two weeks the consumers were once again facing shortages and running from one place to another to purchase the sweetener for their use during Ramazan and on eidul fitr. Sugar has been at the centre stage of what millers call as politics for almost a month. Initially it was the federal government that asked provinces to take action against stockists and mills for allegedly hoarding the product to make windfall in view of its rising global prices due to worldwide shortages. The government soon realised its folly as administrative actions caused the sweetener to disappear from the market. After talks with the government,the millers agreed to lower their maximum prices to up to Rs49.50 a kilo inclusive of sales tax. The federal government thought it to be good bargain as imported sugar would cost consumers around Rs65 a kilo. In the meanwhile, the Punjab government continued its crackdown against the mills to force them reduce their price to Rs45. The millers refused to oblige and the provincial

government deployed its officials at their warehouses and seized their stocks. The matter was resolved after the prime minister waived 50 per cent sales tax on sugar and re-fixed the millers’ price at Rs45. The market was functioning quite smoothly and the product was available for Rs47 s kilo in spite of reports that some millers were delaying the release of their stocks when the court decision came in to topple the market upside down once more. Price controls have always been very popular with governments worldwide including Pakistan because of their mass appeal. The possibility of political fallout of higher prices makes governments to frequently institute controls to regulate prices, particularly in times of soaring price inflation and shortages. Before 1990s when Pakistan began to pursue free market policies, governments usually tried to control the general level of prices, regulating the prices of a whole range of commodities and products. But the trend changed after the country embarked upon the path of economic deregulation and liberalisation with successive governments selectively imposing price control on specific food and drug items. Some times producers and suppliers are forced to lower their maximum prices to certain level called price ceiling. On other occasions, governments intervene in the market through state agencies like the Trading Corporation of Pakistan to remove the supply and demand imbalances for keeping prices down, though at a heavy cost. In a few cases governments subsidise the producers’ cost of production to prevent prices from rising above the “desired” levels, although not all consumers consider the official determination of that price level as fair to them. Price controls are meant to prevent prices from exceeding a certain maximum level. The idea is always to protect the segments of population that cannot meet price increases. But do they work and produce the intended results? “Price controls never work,” insists Shahid Kardar, a leading economic expert. “It is a supply and demand issue. Do you think that a shopkeeper will sell you a product for Rs10 if another customer is ready to pay Rs12 for it?” he asks. Experts argue that price controls fail to protect most consumers. At the same time, these hurt others. The negative implications -- temporary and long-term, direct and indirect -- of institution of price controls far exceed its benefits to the consumers, contends an economist. “The artificial pricing mechanism never succeeds. It always results in shortages due to sudden increase in demand owing to panic buying as we recently saw in case of sugar and wheat flour in Punjab,” he says.

Official controls also discourage production of quality goods and encourage cuts in output. “Price controls offer incentives for hoarding, blackmarketing, production cuts, etc, forcing many consumers to pay for a product or an item a lot more than what they would have to pay if price controls were not in place,” he argues. The official controls on drugs have invariably resulted in disappearance of cheap lifesaving medicines from the market. The list of negative ramifications of price controls is long. “It encourages smuggling if the global prices are higher than domestic prices of a product and if your borders are porous,” says a Karachi-based analyst. Price controls could not work effectively in countries like Pakistan unless governments have proper tools to enforce them -- like sealing the borders, he says. Take the example of wheat which crossed borders into Afghanistan in huge quantities when the government tried to keep down the prices lower than the commodity’s global prices a couple of years ago. “That forced the government to import wheat -- in spite of a good domestic crop which was initially surplus to our consumption requirements -- at a much higher price to cover the shortages created by smuggling,” the analyst says. More importantly, the prices rise more rapidly once the controls are lifted, triggering high price inflation. “As soon as the official controls are removed the hidden inflation surfaces suddenly. The rapid inflation is always bad for the economy as well as consumers, whom the official price controls intend to protect, than a slower and steady rise in prices,” the economist argues. In addition to the economic costs of price controls, there is also an administrative cost to such an action. We have recently seen almost the entire bureaucracy in Punjab involved in the management of ‘sasta’ atta (cheap wheat flour) in the province. Yet the administration was unable to ward off long queues of consumers scrambling to purchase an extra bag of cheap atta. Shortages, albeit temporary, also emerged in the normal supply chain and people who did not want to avail of the opportunity to purchase subsidised flour were forced to pay extra amount to get it or do without it for days. Economic experts, however, acknowledge that price controls do provide some kind of relief, though only temporarily, to the poorer people battered by soaring prices. “But the economic and administrative cost of this short-term measure is so high that prudent governments would not tread this path,” the analyst says. The best way to help the poorest of the poor is to directly support their in comes through targeted cash subsidy, argues Kardar. “It should be left for the recipients of the cash to decide what do they want to do with it.

They should be able to decide whether they want to buy flour or sugar or something else,” he contends.

Fall in bank profits By A.B. Shahid Monday, 07 Sep, 2009 | 01:31 AM PST |

The January-June 2009 operating performance of commercial banks reaffirms the economic slow down and the consequences of overlooking its build-up beginning July 2007. No one expected the banking sector to grow in a recession that engulfs the world. However, what now must engage banks’ attention is the contraction in their credit portfolios that led to a drop in their earnings. The question that needs addressing is whether this drop is justifiable or could banks do better. The sector’s earnings declined by 31 per cent compared to their June 2008 level but it wasn’t wholly the result of lapses by banks; it was the combined effect of inflation (averaging 20.8 per cent till June 2009) that raised banks’ operating expenses, payment of minimum five per cent per annum on saving deposits (53 per cent of total deposits) that were virtually cost-free earlier, and higher investment in low profit-yielding public sector debt. Banks’ operating expenses went up by 20 per cent in line with inflation in spite of the fact that, in their efforts to cut expenses, several banks went to the extent of laying-off sizeable chunks of their staff. But for smaller banks the burden created by network expansion well into 2008 (despite visible signs of the on-set of a slow down) proved excessive; it contributed to higher declines in their profitability. But, despite the cost cutting measures adopted by banks, their overall performance went down. One indication is that while diminution in the book values of investment in shares cost banks over Rs290 billion during January-June 2008 (courtesy the stock market crash), these losses were just Rs3.2 billion in the first half of 2009. Yet the sector profitability declined by 31 per cent over the corresponding period in 2008. Another factor squeezing bank profits, though not much was the drop in income from trading in currencies. Of the 26 banks whose results have been declared, compared to first half of 2008, only seven banks increased their earnings from this activity; drop in incomes of the other 19 add up to around Rs2.35 billion, with two of them losing large amounts (partly recoverable if the rupee appreciates) on sale of derivative contracts.

Share of non-performing loans in total loans, although still high, didn’t rise over its March level of 11 per cent partly because banks had provided for bulk of their consumer loan losses in the first quarter. But the view that losses have peaked, is overoptimistic. Besides, risk aversion will cause profits to dip more if the high-yield private sector credit declines further over its 2008 level instead of rising by about Rs200 billion by end-2009. Negative private sector credit off-take – root cause of weak performance by the banking sector – accentuated the economic slow down. What banks and the economy as a whole are going through now is a vicious circle that begins with loan losses rooted in rash lending, risk aversion, credit rationing, and lower growth – a trap that needs breaking to stop the recession in its tracks to sustain civilised existence by millions everywhere. While it is imprudent to ask banks to take on unmanageable risks, it is worth asking whether banks have got their lending priorities right. It won’t add much to anybody’s knowledge to repeat that Pakistan’s bigger problem is not its inability to export enough but its inability to cut its imports; the baffling figures of annual trade deficits of the recent years undeniably manifest this reality. Yet, we consistently refuse to accept this reality. While oil imports can’t be cut in the near future because of consistently flawed oil and gas exploration policies of the state, but to cut other imports, we failed to develop a large enough industrial base to produce import substitutes – a distortion for which the blame lies squarely with the private sector – its visionaries, economists, consultants, investors, and last but not least, bankers. Subsidised lending rates and lower export tariffs remained the focus of our efforts to raise exports. Now the economic slow down, squeeze on tax revenue, and steady rise in fiscal deficit, has forced us to commit to the IMF that by September 2011 mark-up on export finance (presently subsidised by about 5.5 per cent) will be brought at par with market rates; it isn’t hard to imagine its impact on the efforts to increase exports. In such a scenario, with cutting imports not a priority, where shall we end up? Had the private sector and banks adopted self-reliance as the prime national objective, Pakistan would not have been where it now is. Ayub Khan’s ‘decade of development’ was often criticised for the right reasons. That was also the decade in which focus was on developing an industrial base that could make Pakistan increasingly self-sufficient. The temporary relief provided by IMF credit isn’t the solution. IMF-imposed deficitcutting priorities will weaken the industrial sector’s competitiveness. With higher fuel and energy costs, nothing else can be expected. In this backdrop, setting up new import substitution industrial units to achieve ever higher self-sufficiency would become twice as difficult as today. But that’s the only alternative which could deliver. For too long, banks pursued profit as the sole objec tive; it led them and the economy nowhere. No proofs are needed to accept this failure. It is time banks devised attractive loan packages that encourage setting up of import

substitution industries that initially begin assembly (under franchises) using imported inputs, and then through a rapid process of indigenisation, become full-fledged manufacturers (and exporters too). That’s the route to economic revival, and long with it of the banking sector and its earnings. Falling profit shouldn’t be as worrying as the past misallocation of resources and the urgent need for policy correction. Banks and the private sector can still fill the gaps created over the years by flawed objectives e.g. irrational but profit-yielding growth (the number game), skewed vision and planning, and execution thereof suiting banks’ convenience.

Sea buckthorn: a source of herbal medicine By Mohammad Niaz Monday, 07 Sep, 2009 | 01:30 AM PST |

THE sea buckthorn (Hyppophae rhamonides) is a multipurpose hardy shrub, 2-4 meters in height, which produces valuable orange berries. The plant is mostly found in the Northern Areas including Gilgit, Ghizar, Ganche, Astore, Skardu, Baltistan, and Hunza besides Kurram Agency, Chitral and upper Swat. Sea buckthorn has been used over centuries as an herbal medicine to relieve cough, aid digestion, invigorate blood circulation and alleviate pain. The sea buckthorn is not widely tapped for its multifarious benefits despite an estimated natural cover of 7,000 acres with annual production of about 160kg per acre. Earlier, in 1977 the Pakistan Council for Scientific and Industrial Research (PCSIR) had developed, introduced and promoted various products of sea buckthorn and also conducted capacity building programmes to tap the resource in Skardu district. At local level it is used as firewood, hedges, fodder and compost while it’s potential as medicine, food as well as an income-generating source are limited and has not been realised holistically. The Pakistan Agriculture Research Council (Parc) has been promoting various products of the plant in the Northern Areas quite recently through different projects. Because of its severe weather resistant nature and huge root system fixing nitrogen in the soil, sea buckthorn is regarded as an environment friendly plant. It adds to the soil fertility and helps in reclamation of barren lands. Moreover, it also serves as a nurse plant for other vegetative growth. Its strong and extensive root network helps control land slides. The wide adaptation, fast growth, strong coppicing and suckering habits make the plant well adapted for soil conservation, soil improvement and marginal land reclamation. Observations and surveys show that many birds and animals depend on the plant for food and shelter.

Its significance is not only restricted to ecological importance, water conservation and soil stability but has also economic, biochemical and nutritional value with its fruits rich in vitamins. Studies have shown that its fruit is 5-16 times rich in vitamins C than any other fruit and vegetable. Its pulp has high medicinal value because of oil. Preparations of sea buckthorn oils are recommended for external use in case of burns and other skin complications induced by treatment with X-ray or radiation. Recently, clinical studies on anti-tumor functions of sea buckthorn oils conducted in China have been positive. The oil, juice or extracts from oil, leaves and bark of the plant have been used successfully to treat high blood lipid symptoms, eye diseases, gingivitis and cardiovascular diseases such as high blood pressure and coronary heart disease. Its focal medicinal applications include cancer therapy, cardiovascular risk factors, gastrointestinal ulcers, skin disorders, and liver protection. The seed of the plant having iron and phosphorus contents matures in September and October. The flavonoids of sea buckthorn which is mainly found in the fruit pulp as well as in leaves and oils of sea buckthorn which are obtained from its seeds and fleshy part of the fruit have medicinal value and application. A variety of key products such as jams, jelly, syrup, squash, shampoo, can be prepared from the plant. Moreover, its leaves also serve as fodder having 23 per cent proteins. The residue obtained in wake of the processing method applied can also be utilised as valuable animal feed. The leaves are also being used for making a beverage tea. In Northern Areas local communities are reluctant to tap this resource successfully because of time consuming harvesting technique, high labour cost, and high product prices and this has been one of the prime hurdles in proper marketing. Manual harvesting of berries is difficult due to their dense arrangement among thorns on each branch and farmers can’t afford advanced fruit harvesting techniques that are currently applied in developed countries. As there is plenty sea buckthorn untapped in its core regions of the country, they can be collected and exported to European countries besides America and Canada. There is also great need to launch awareness campaigns for adopting sea buckthorn as an economic crop. Farmers who raise the plant should be given incentives in terms of purchasing their produce at subsidised rates. There is also a great need to conduct extensive research and study to qualify the plant on grand scale use to benefit the local communities. Sea buckthorn plantation can be raised and promoted which would generate income and provide fuel wood. Its tapping can prove effective not only in alleviating poverty in Northern Areas but also help people in having access to a variety of its useful products.

Tharparkar peasants in debt trap By Saleem Shaikh Monday, 07 Sep, 2009 | 01:30 AM PST |

POVERTY in Tharparkar district continues to rise as livelihood sources of poor families such as agricultural lands and livestock are fast shrinking owing to low rains and animal diseases, and absence of alternative means of earnings. Although a number of development programmes and microcredit facilities were launched to improve the socio-economic conditions of the people of the drought-hit district, the level of poverty in this backward area has worsened. Over 70 per cent of the poor in Tharparkar were provided with microcredits to boost their meagre income, but it did not make any difference, it was learnt during a visit by this writer to this south-east arid district of Sindh. The visit revealed that a majority of the beneficiaries of the microcredit programme had descended into a vicious circle of poverty on account of their inability to pay back the debt. The borrowers used loans either for buying kitchen items or for livestock fodder or seeds. They held the NGOs responsible for the failure of the microcredit programme. A local philanthropist Ali Khaskheli in Nagarparkar town said: “Instead of giving microcredit to these unskilled and uneducated poor people, it would have been better to first create awareness among the potential borrowers about prudent utilisation of the microcredit.” As the locals are mostly dependent on agriculture or livestock breeding for their livelihood, more than 85 per cent of the microcredit receivers failed to repay their loans owing to persisting drought that damaged their farmlands and killed their cattle, informed a local social worker of the Thardeep Rural Development Programme (TRDP) in Mithi town, which is also involved in microcredit disbursement. Microcredit borrowers in Mithi, Diplo, Islamkot, Umerkot, Chachro and Nagarparkar narrated their appalling stories how the microcredit had deepened their financial woes. A villager in Mithi town said: “Last year I borrowed Rs15,000 from an NGO and purchased seed worth Rs5,000, fertiliser for Rs7,000, and two small goats for Rs3,000 each. Owing to the three-year-long drought, not only the seed was destroyed, but I also lost the goats due to some unknown disease.” “To repay my loan, I had to move to Badin, where I worked on a farm land and managed to pay back my debt in three years. But, by then the high interest on the principal amount

of the loan had increased the debt to Rs38,000,” he said. There were cases of manhandling of loan defaulters, particularly those from lower caste, in the area by some NGOs with the help of local police. The houses of poor defaulters were raided early in the morning for loan recovery. Dewan Meghwal, resident of village Golio in Islamkot town, told this scribe that he was implicated in a case by TRDP recovery officials after he failed to repay his loan. Some other members of the Meghwal caste in Nagarparkar also alleged that those who had defaulted were forced by the NGO to borrow fresh loans from it on a heavy interest rate to pay their previous installments. Approached by this scribe, Jai Parkash, TRDP senior manager for microcredit programme in Mithi, denied such reports. He said: “Although they had sought help of local police for recovery but they never resorted to coercive methods.” A social worker Haneef Khoso in Nagarparkar told this scribe that those who invested the money in their small enterprises were able to repay their loans and the rate of default among such borrowers was zero. On the contrary, those who used microcredit for agriculture and livestock breeding purposes posted high rate of default as these two major activities in this arid zone depend on rain, which was now rare in the area, he observed. The latest rains, received in last July after three years, have brought life to the desert area of Tharparkar. The drought during the last three years caused havoc to agriculture and killed thousands of cattle, he said. “Such a terrible situation pushed thousands of microcredit beneficiaries into a squeezing poverty circle having no tangible assets to repay their loans. While, there were others who had either to mortgage or even sell their precious ornaments, surviving livestock or the arable lands to pay back their loans,” observed Haneef Khoso. According to some studies of the local civil society organisations, 80 per cent of the Thari households in the district are in debt to local money lenders. Quoting one of the studies, a local social worker told this scribe that almost 70 per cent of households in the area were under debts of over Rs15,000-25,000 each and 78 per cent of the households paid 10 per cent (some times 15-20 per cent) per month as interest on their loans. About 80 per cent of the households had borrowed money for food as well as cattle breeding and 15 per cent for other needs. The average yearly earning of each household in the district is hardly Rs25,000, and

about 35 per cent of each household’s earning is spent on food and 55 per cent on health. Given the spending, there is no way that these debts could be repaid, according to a survey. Dr Sono Khangarani, chairperson of TRDP, agreed that microcredit had not yielded the desired results in the area as the living standard of the locals remained at a low ebb. There was lack of income-generation related skill development programme in the area which needed to be introduced to boost the local cultural products, Dr Khangarani said. He said negotiations with the provincial government and some donors were in progress in this respect. Simply giving out money as microcredit to locals would make no difference, he said. He said some efforts were being made to extend Sindh government’s union council-based poverty reduction programme to create employment opportunities through arranging skill–oriented training. This programme would include disbursement of income generating grants in kind to the destitute in the shape of livestock, agriculture equipment and machinery and initiate vocational trainings, particularly in embroidery and handicraft sectors. An official in the Poverty Alleviation and Public Private Partnership Unit (PAPPPU) of the provincial planning and development department, said this year Rs3,000 million Union Council-based Poverty Reduction Programme, implemented in Shikarpur and Jacobabad districts on experimental basis, would also be extended to Tharparkar district. Once the skill-based programmes were put in place, efforts would also be made to provide market access to these skills locals of Tharparkar district for their home-made cultural products, he added.

Issues in date production, exports By Essa Jalbani Monday, 07 Sep, 2009 | 01:30 AM PST |

IN recent years, the annual date production has ranged between 6,00,000-6,20,000 tons. Date markets of Therhi, Khairpur, Karamabad and Agha Qadir Dad Khan on the left bank of River Indus are the hub of date processing and packing for export. Processing of dates involves several stages. The fruit is examined and sorted out manually. The selected dates are fumigated and sterilised for four hours. These are then placed in refrigerator/cold stores, where they can be kept for about two years. Optimum

temperature and humidity levels are maintained in accordance with each variety’s requirement. On demand, the dates are taken to automated washing process and sent to processing and packing areas. At present, there are over a dozen date factories and processing facilities in and around Thehri, where thousands work. Moreover, many thousands males and females from neighbouring districts as well as southern parts of Punjab and Balochistan come to work in date palm orchards in Kairpur Mirs from May to September every year. As many as 5,000 container-loads of dates originate from this place for export. About 90 per cent of export varieties is Aseel of Khairpur Mirs. Pakistan entered the international date trade by sheer chance in early 1980s when Iran and Iraq went to war, and became the number one date exporting nation in the world by selling over 78,000 tons of dates in 2004. But, unfortunately it gets the lowest per unit value for its fruit: $36 per metric ton (MT). Overall export of dates has witnessed a steady growth. In 2006, date exports were valued at $37.65 million rising to $38.69 million in 2007 and to $38.8 million in 2008. The major markets are India, Germany, the UK, Denmark, US, Canada, South Africa, Bangladesh, Nepal, Sri Lanka and Australia. In 2006-07, Ramzan-related export of dates was slightly less than $5 million. In 2007-08 it went down by 30 per cent to $3.1 million. And, in July-June (FY 09), earnings from date export declined to $1.64 million from $2.01 million in 2007-08 (July-January), sliding by 18 per cent. Moreover, exports of dried dates to India are highly underinvoiced. Pakistan imported dates worth around $4.45 million annually during 2004-08. This import was made in spite of domestic production of over 6,00,000 tons a year. When Ramazan will precede date of harvesting season, import of this fruit will increase manifold. Iran and Iraq are again getting ready to re-capture their lost market. To compete in the global market, suitable measures need to be taken on urgent basis. Implementation of the following suggestions would improve the competitiveness of our dates in international market. Date harvesting season coincides with monsoon rains which often causes heavy loss to date growers. Shah Abdul Latif University, Khairpur, has identified bituminised paper which protects date bunches from rain at the time of maturity. Bituminised paper bags may be quite expensive, but losses by monsoon could be huge. The government should provide bituminised paper bags to date growers free of cost. Solar dehydrating system: After harvest, dates are placed in open fields for drying. A heavy downpour can damage the entire crop. Therefore, introduction of solar system for

drying dates is needed, which will drastically reduce the drying period from five long days to just eight hours. Date growers may be provided with incentives to opt for this system. Cold store chains: The domestic date market is also threatened due to inadequate number of cold stores in the growing areas to preserve cured dates. There is, therefore, need for constructing a chain of cold stores across the date cultivating regions. Segment-wise focus: International date market mainly comprises two segments: (a) Dates as table fruit (b) Dates for industrial use. With distinct taste, excellent appearance, longer shelf-life and attractive prices, Aseel, Karbali, Mazawati and Dhaki varieties of dates can compete as table fruit in the lucrative date market in Europe (including Russia and Turkey), North America and Australia. If professionally promoted, dates as table fruit could fetch $2,500-3,000 per ton. Industrial grade dates: There is quite a sizeable market for industrial grade dates. Balochistan’s Begum Jangi, Rabai, Kehraba, and Turbat-mix, Sindh’s Fasli, Aseel (C & D grade) and Khairpur’s Punjmell (KPM) could have a good demand in international market for industrial dates. There is a need for carefully planned programme to promote export of the industrial grade dates. Value-addition: A newly emerging and important segment in date palm industry is high value-added date products. Such products include date syrup, date paste, date spread, date honey, date sparkling juice, date vinegar and date ethanol. Raw material for these products is low-grade and damaged dates. Islamic Development Bank, Jeddah has indicated its willingness to finance up to 65 per cent of the total cost of projects such as manufacturing of value added date products in Pakistan. Interest-free loans: Date palm farming is a tough job. Moreover, date drying mats and wood for boiling dried dates is to be purchased before the season starts. Growers need money. Terms and conditions of commission agents for giving advances to growers are very harsh. The government should provide interest-free loans to growers to increase the yield.

Need to improve cattle breed By Tahir Ali Monday, 07 Sep, 2009 | 01:30 AM PST |

EXPERTS believe that there is huge potential to increase meat and milk production in the Frontier province, if the livestock breed is improved. Because of the poor genetic make-

up and inferior quality of breed, the average yield per lactation in the province stands at just 900 litres for cow and 1200 litres for buffalows. Officials of the directorate of breed improvement, NWFP, said that lactation per an average American cow has been increased to 9,000 litres from 3,000 litres in the last 30 years. They attributed it to artificial insemination (AI) of animals which played a significant role in the improvement of livestock breed. “If more semen production units (SPUs), nitrogen plants, breed improvement farms and AI centres are opened, the objectives of more milk and meat can be achieved,” said an official in the Directorate of Breed Improvement. Livestock provides livelihood to majority of the rural population and utilises about 60 per cent of the rural women in livestock raising practices such as grazing, feeding, and milking. “The sector could lead to economic emancipation of rural women if properly developed ,” he said. According to the livestock census 2006, there were six million cattle and 2.78m buffalos in the province. Of these, 3.03m female cattle and two million female buffalos were of three years of age which could be covered by AI services. But at present, AI programme is covering only 10-15 per cent of the livestock population in NWFP. There is a need to increase this ratio. “Common milk yield per animal per day in NWFP is one to two litres. Animals bred through artificial insemination yield 15-20 litres in cattle farm while farmers themselves take up to 12 litres from these animals,” said the official. He said indigenous cow breeds had comparatively short lactation period -- just 200 days as against the well-bred cows that provided over 5,000 litres of milk for over 300 days. The indigenous animals attended puberty very late, in double the period than the AI animals did. “AI also helps prevent viral diseases which are common. Also, the elimination of danger of hardship by unruly bulls is reduced. The premature use of bulls is avoided. Early detection of infertile, old or crippled bulls is also possible,” he added. “Sperm/semen obtained from local bulls at SPU or imported one is utilised for insemination of 300 to 1,000 cows. The department distributed around 3,000 semen units to farmers per month till now but the sale and provision of semen has dropped by 50 per cent in recent months due to various factors such as law and order,” said another official in Mardan. He said that AI was an easy, cheaper, healthier and safer mode of reproduction. “The AI straw is given to farmers for Rs50. Progeny level is better which means more money for farmers. This is a sure recipe for farmers’ empowerment and economic revival,” said the official.

According to official documents, income from AI services has been falling. In 2006, the directorate provided 0.28 million AI services which declined to 0.25m and 0.23m in next two years. Again, semen production stood at 0.34m, 0.33m and a meagre 0.19m dozes in the said period. The income realised from AI services also went down from Rs16 million in 2006 to Rs14m in 2007 and Rs12m in 2008. However, the production of liquid nitrogen increased to 0.1 million litres from 0.01ml in 2005. Another area for urgent attention of the government is the high demand for semen. There is only one SPU at Harichand that provides semen to AI centres and farmers in the province and tribal belt for insemination purposes. It too has just 31 bulls for getting semen from. Mardan earlier had an SPU which is closed now. More SPUs are needed especially at Mardan which could help cover the livestock-rich Malakand division. There is one cattle breeding farm (CBF) at Harichand, one buffalo farm in Dera Ismail Khan and a sheep breeding farm in Mansehra. More farms should be established in each division and more projects for breed improvement should be started. Imported semen is kept under minus 196 degree centigrade in liquid nitrogen. According to the Mardan-based official, the nitrogen plants are a prerequisite for the AI programme. “There is only one nitrogen production plant in Peshawar. To minimise the shortage of semen and early and easy delivery, more nitrogen plants must be established,” he said. A private veterinarian Imtiaz Ali however said that AI programme also had some disadvantages which should be guarded against. “Success of AI depends to a great extent on the ability to detect heat in female animals. It requires more labour, facilities, management skills and properly trained staff. Also, utilisation of few sires for the AI services can reduce the genetic base. To avoid this, the cattle breeding and dairy farms should assemble as many young and healthy sires as possible,” he said. Another important issue is that though the conception rate for AI is 60 per cent for cow, it is considerably lower in buffaloes. Imported semen is better but its maintenance and preservation requires hefty amounts. To overcome this problem, imported semen should be utilised at the CBFs. Then the government can distribute the semen produced there to farmers. “The existing cattle farms are all milk-oriented. There is not a single beef-oriented cattle or buffalo farm in the province. There should be beef based breeding farm like the one in Sibbi in Balochistan. Animals born through AI can help meet the growing milk and meat shortage in the domestic market as they are heavier than local ones,” he said. Unemployed veterinary graduates and assistants should be given special AI training, and provided necessary inputs to enable them open private AICs.

How to end power theft? By Aftab Ahmad Monday, 07 Sep, 2009 | 01:27 AM PST |

ELECTRICITY theft is a chronic problem in which many in the domestic, commercial and industrial sectors are said to be involved. The problem may be attributed to rampant corruption, widespread poverty and increasing cost of electricity. Only half-hearted efforts appear to have been made so far to check power theft. Electricity theft reduces revenue of power distribution companies and they are perpetually faced with financial difficulties and cannot bring about improvement in their power distribution system. The current circular debt of billions of rupees, which could not so far be repaid to power producers and has been hindering power generation, is also partly attributable to lower receipts of power distribution companies. Electricity theft also leads to waste. If those who steal electricity were asked to pay for it, they would obviously economise on the use of electricity. By effectively checking power theft and minimising transmission losses the current loadshedding could be considerably reduced. According to the US press reports, in the recent past, more than 50 per cent of power distributed by the North Delhi Power Ltd. in India was not paid for by the consumers. But the company succeeded in reducing the theft to 15 per cent during the last seven year. It showed that the problem of theft could be solved if addressed effectively. Poor and rich alike, together with businesses, have been stealing electricity in India. The poor consider free electricity as their right, since for someone with a monthly income of Rs3,000-4,000 it is hard to pay monthly electric bills ranging between Rs600-700. The poor use electricity to run their water-heaters, refrigerators and other appliances through illegal connections. North Delhi Power Ltd. rewards the people informing the company about power theft in their neighbourhood. Besides, the company – backed by police – conducts raids in areas where electricity theft is supposed to be on a large scale. In case of large industrial customers, the company had to introduce an ‘automated meterreading system’, making use of wireless technology, in a bid to prevent these ‘highvalue’ customers from bribing the meter readers to get their electricity bills reduced to the minimum. To train its employees in anti-theft techniques, the North Delhi Power Ltd. runs a training centre in Northwest Delhi, where the employees are taught how meters can be manipulated; powerful magnets can deactivate meter’s mechanism etc. and, above all, what can be done to check such illegal and immoral practices. In

order to keep power thieves from tapping power directly from overhead lines, the employees are taught to replace wires with insulated cables. Attracted by training programmes, utilities across India are reportedly sending their employees to the North Delhi training centre to learn how losses from electricity theft can be controlled. Roughly 20 per cent of all power in India is stolen. If losses from faulty transmission were added, the percentage would jump to an estimated 38 percent. It is considered necessary to address losses of such magnitude in order to keep the system viable. In Pakistan, losses from electricity theft and transmission inefficiencies may even be higher. It is necessary to focus simultaneously on addressing losses from power theft and transmission inefficiencies. Only then can we expect the system to become efficient, viable and start running on smooth commercial lines.

Initiating the white revolution By Humair Ishtiaq Monday, 07 Sep, 2009 | 01:27 AM PST |

IN the last few months, the government has shown some significant signs of giving the national dairy sector the kind of attention it deserved. Prime Minister Yousuf Raza Gilani has called for the formulation of a National Livestock and Dairy Development Policy, while the southern province has decided to set up the Sindh Dairy and Meat Development Company (SDMDC) to harness the potential of a sector that rightly complains of official negligence. Being the fourth largest producer of milk in the world – behind India, China and the United States – the potential of the dairy sector is beyond doubt. Eight million farming households produce around 35 billion litres of milk annually from around 50 million animals. According to a document released by the Lahore-based Institute of Public Policy, the milk produced annually is worth Rs177 billion and is the largest product in the entire agriculture sector. Going a step further, the Pakistan Dairy Development Company (PDDC), which is a public-private enterprise set up in 2005 by the ministry of industries, production and special initiatives, maintains that overall, the contribution of dairying to the national economy is as high as Rs540 billion, with 97 per cent of it being informal nondocumented economic activity. The irony is that the country, far from being an exporter of milk or dairy products,

struggles to maintain fresh supplies to its urban centres. A delegation of potential investors from New Zealand which had visited the country recently estimated that the daily shortage in Karachi alone was worth four million litres. This is so because despite huge production, the industry is hampered by the fact that it has no sustainable Cool Chain which may ensure freshness at source before refrigerated transport may bring it to the cities. Only three per cent of the milk is processed, while the rest is consumed internally. There are two ways in which the demand-supply gap at urban centres is bridged packed and branded milk which is supplied by large-scale operators, and adulteration of the milk – adding water or caustic soda – by dairy farmers. The impact of the missing cool chain can be seen by the fact that about 20 per cent of the total production gets wasted; a massive seven billion litres per year. A couple of years ago, law and order situation had made it impossible to pick up the daily supply from farms situated within Karachi. As a result, 10 million litres of milk had to be dispatched to the drains in just two days. At the time, there were 800,000 cattle milking 2.5 million litres every 12 hours, but the farmers had no facility to store it. They don’t have it even today and the story is worse in rural and remote areas except for farms that have been on the roll of milk processing companies that have made arrangements along professional lines to ensure a cool chain. The establishment of the PDDC – better known as simply Dairy Pakistan – has been a move in the right direction. Targeting what it calls the White Revolution, the PDDC has charted out a three-phase strategy that aims at turning things around in a few years’ time. As part of the first phase, it has set up around 1,200 cooling tanks and 900 model farms in rural areas. The next phase will basically focus on developing community farms, improving farming techniques and providing farm-to-market access to the farmers. Industry sources maintain that without such initiatives, the potential of dairy farming in the country will remain unrealised because the adoption of modern farming techniques is the only way Pakistan can ever hope to increase its per-animal yield which today is abysmal. According to PDDC data, the huge animal population of 50 million suffers from low productivity compared to global players. It is estimated that Pakistan has three times the animals that Germany has, but yields are one-fifth of Germany’s and one-third of New Zealand’s. For the US, the figure is one-seventh, representing a significant loss in potential economic and social value. The main cause of low yield is imbalanced feeding because of shortage of fodder and water two to three times a year. In addition to shortages, feeding of animals is practised according to the farmers’ experience and tradition, without any training or knowledge of

ration formulation based on production levels. One last factor on this count is the primitive milking technique still in vogue in most parts of the country. The initiatives now being planned at the federal and Sindh levels, if executed properly and professionally, will not only increase the national milk production, but will also take a major stride towards inclusive growth and sustainable development because of the mostly rural setting in which the sector operates. As many as 30 million people are associated with the sector directly or indirectly nationwide. The provincial government, according to a recent announcement, is setting up the Sindh Dairy and Meat Development Company (SDMDC) with an initial fund of Rs930 million from the Annual Development Programme. According to the plan, the provincial government would release Rs1 billion for each of the next three years to help the company stabilise its operations. From thereon, it would become a self-financing entity, which would generate business to run its operations. While such steps tend to take a direct approach to the issues involved, they will have an automatic impact on those living on the sectoral periphery which will make the intended white revolution even more broad-spectrum. For instance, fodder supply projects are likely to make the most of the situation. Likewise, in low-cost dairying countries, major items of farm equipment tend to be owned and operated by a rural contractor rather than each farmer owning expensive equipment which may be used only seasonally. Dairy Pakistan’s plan to introduce low-cost practices into the dairy sector is likely to support the introduction of rural contractors.

Informal economy and its impact By Rauf Nizamani Monday, 07 Sep, 2009 | 01:26 AM PST |

THE size of the informal economy is believed to have grown to more than half of the $163 billion formal economy. Official estimates are quite conservative as a former chairman of the Federal Bureau of Revenue (FBR) recently said: ‘I believe the informal economy is 30-40 per cent of the total economy and this is quite disturbing. A substantial part of the informal sector needs to be documented so that resources can be mobilised for welfare purposes.’ One report says that the informal economy has reached such proportions that it was upsetting public welfare plans. It puts its size at $83 billion which is more than half of the total GDP. According to an assessment, informal economy has expanded at the rate of nine per cent a year from 1977 to 2000. An independent study in 2005 estimated the underground economy in the range of 54.6 to

62.8 per cent of GDP. The economy is largely undocumented providing space to informal sector to grow and thrive. Similarly, the under-invoicing has gone on for years on a huge scale. Various governments have tried time and again to document the economy but did not succeed due to the strong resistance to it. Only recently, hoarders and speculators of staple food commodities like rice, wheat and sugar were able to make a killing by their covert activities with the active connivance of government officials. According to a newspaper report, mill owners and traders made a profit of about Rs86 billion from the recent sugar crisis, probably outside the company balance sheets. A study conducted by the Lahore University of Management Sciences (LUMS) in 2003 showed that out of estimated Rs100 taxes due, the government receives only Rs38 while Rs62 were pocketed by taxpayer, tax collector and tax practitioner. It was also estimated that tax evasion in 2005 was from 5.7 to 6.5 per cent .of GDP. The informal economy is not just the unregistered street vendors and tiny businesses that form the backbone of market places. It includes many established companies operating in diverse fields such as retail, construction, consumer electronics, software, pharmaceuticals and even steel production. As much as 70 per cent of the nonagricultural workforce is employed in informal businesses. The black economy, of course, is a global phenomenon. The weekly Economist estimated that in 1998 the world’s black economy accounted for a missing $9 trillion worth of output, almost equivalent to that of the US. Later, a study by Friedrich Schneider, an Austrian economist, attempted to measure the size of black economy in 76 developed and emerging economies which revealed that underground activity is equivalent to 15 per cent of the officially reported GDP, on average, in rich economies and about one third of GDP in emerging economies. While most of the underground economy elsewhere in the world revolves around the criminal or illegal activities, the major contributors to the black economy in India are legal businesses and government. According to the Indian Council for Research on International Economic Relations legal businesses controlled by the government, government expenditure and taxes have always been a major source of black money creation. Similarly, America’s fast growing black economy is believed to worth $970 billion or nearly nine per cent of the real economy. It could soon pass $1 trillion. The cost imposed by the informal economy is not limited to loss of tax revenue. More damaging is its pernicious effect on economic growth and productivity. The unearned cost advantage the informal businesses enjoy by ignoring taxes and regulatory obligations which allow them to undercut prices of more productive competitors and stay in business, despite very low productivity. Informal software companies in India appropriate innovations and copyrights without paying for them, reducing the industry’s productivity

and profitability up to 90 per cent. Informal apparel makers in India gain a 25 per cent cost advantage over their law-abiding competitors by not paying taxes. Most policy makers implicitly assume that informal economy does no harm. But research by Mckinsey Global Institute found that informal economies are not only growing larger but are also undermining enterprise level productivity and hindering formal economic development. Thus the rise in the underground economy creates problems for policy makers to formulate economic policies, especially in the monetary and fiscal sphere.

World economies

Bangladesh Bangladesh’s economy will grow six per cent in 2009-10. Even the economy may outpace the target as signs of recovery of economy in the US have started to resurface and a number of giant financial institutions opted to pay back the money they received as bailout packages. The US. is the biggest market for Bangladesh’s multi-billion dollar textile exports, a mainstay of the impoverished south Asian country’s economy. The US buys $3 billion worth of ready-made garments and frozen fish from Bangladesh annually, and hold potentials for more exports. Bangladesh’s exports totaled more than $14 billion and remittances from expatriate workers reached over $9.67 billion in the fiscal year to June 2009. The economy grew 5.9 per cent in the year. But the global financial crisis slowed down exports and remittances in recent months, raising concerns Bangladesh may not achieve a 5.5-6 per cent GDP it hoped for the current year. The government, however, hoped that GDP may exceed the conservative growth projection and officials are focusing on infrastructure development through public-private partnership. Unlike most of other economies in the region and elsewhere, output growth in Bangladesh has so far been mildly impacted by the ongoing global economic downturn with estimated 5.9 per cent real GDP growth last fiscal year following 6.2 per cent growth in 2007-08. Bangladesh’s half yearly monetary policy, spanning from July to December period of 2009, has been designed to accommodate six per cent real GDP growth in the current fiscal year ending in June 2010. To help spur investment and sustain economic growth in context global economic downturn, the Bangladesh Bank will take tougher stance against the commercial banks to compel them ease credit conditions at least for next six months. The July-December monetary policy announced recently and the credit policy for farmers, the mainstream of Bangladesh economy, were “proactive” and “investment

friendly”. If needed the central bank would offer foreign currency support to encourage investment. Emphasis will also be given on small and medium enterprises apart from farming as these sectors are under-served by the markets though they are powerful players of the economy. Special focus will continue to contain prices of food and other essentials to keep inflation at 6.5 this year, down from 7.32 per cent in the year ago. In terms of inflation, the immediate past 2008-09 began with double digit annual average CPI inflation of 10 percent, which later on came down following robust domestic food production and the collapse of global commodity price bubble. The annual average CPI inflation dipped to 7.3 in May 2009 and is likely to decelerate further. The decline in domestic annual average CPI inflation is likely to be slower and smaller, and is projected to be at 6.5 per cent on average in current 2009-10 fiscal year. While the Bangladesh Bank could continue to pursue an accommodative monetary policy in the coming months, trends in inflation and monetary variables are likely to be closely monitored. Bangladesh announced a 1.14 trillion taka ($16.5 billion) budget for 2009/10 aimed at shielding the economy from the global economic crisis. The budget shows a 350 billion taka deficit. The budget would focuses on cutting poverty, boosting agriculture, enhancing rural and industrial development and boosting the social safety net for the poor. Efforts would be strengthened to create more jobs and curb corruption and crime to attract more foreign aid and investment. The budget allocates seven billion taka to cope with the natural disasters that hit the South Asian country almost every year, killing many people and causing huge damage to crops and infrastructure. It is hoped that the infrastructure sector would revive soon as the government would pump in money into the industry. However, infrastructure inadequacies remain severe constraints for rapid growth in all economic sectors in the South Asian country. Nepal Nepal, the youngest republic in the world wedged strategically between India and China and cannot afford to ignore these two countries, both of which have significant regional and global aspirations. Without global ties, the country cannot stand anywhere. The government has limited resources and because of that, it will be impossible to meet the expectations. Unemployment is high; labour is militant and unorganised; and the country is yet to come up with policies that can attract foreign investors. Nepal is in the process of creating a new constitution—this needs to be in place and passed by the assembly before the end of 2010. The size of Nepal’s economy is around $12 billion with a current GDP growth rate of 5.6 per cent. Nepal’s per capita income is $470 per annum, around half of India’s. The financial sector of Nepal is quite diversified with a large number of varied institutions offering a relatively wide array of financial services but the outreach of the financial service providers to poor and low income earners remain limited. The poor and low income earners in Nepal make up around 90 per cent of the economically active population.

The economy could feel the impact of global financial crisis through four different routes- a slowing down in inflow remittances, a recessionary tourism sector, decline in aid, and a demand-deficient manufacturing sector. While a slowing of the first three components will affect poverty reduction and development initiatives, the decline in global demand for Nepali-manufactured products will put direct downward pressure on growth rate. The rate is expected to hover around 5% during 2009. The financial crisis in the West is gradually engulfing the economies of both developed and developing countries, causing the global output forecast to shrink by 0.75 percentage points to hit 2.2 per cent in 2009. The crisis will not directly affect the Nepali financial system, nor put strains on monetary policy, as Nepal is largely insulated from the toxic assets of big investment like in the West. However, it will indirectly affect economic growth, revenue collection, and development initiatives carried out by Non-Government Organizations (NGOs). Potential monetary imbalance may arise from changes in Indian monetary policies and the exchange rate. The economy could feel the impact of global financial crisis through four different routes- a slowing down in inflow remittances, a recessionary tourism sector, decline in aid, and a demand-deficient manufacturing sector. While a slowing of the first three components will affect poverty reduction and development initiatives, the decline in global demand for Nepali-manufactured products will put direct downward pressure on growth rate. The rate is expected to hover around five per cent during 2009. A global economic meltdown will decrease demand for products made in India, where a majority of low-skilled Nepali laborers work. Meanwhile, a slowing down of the construction and service sectors in the Middle East, the other major source of remittances, and in countries such as South Korea, Malaysia, and Japan, will result in lowering demand for Nepali labor abroad. Put simply, fewer workers leaving the country in days ahead will decrease remittances inflow in a number of ways. This could affect the rate of progress made in poverty alleviation and potentially lower domestic demand, as households will be more hesitant to spend money due to declining income. Nepal exports its large number of labour mainly to Gulf countries including the United Arab Emirates, Qatar and Malaysia. Malaysia alone has got more than 300,000 Nepalese migrant workers and is under risk. Malaysia had already sent back 84 Nepalese labourers some two weeks ago. Similarly, the government of United Arab Emirates (UAE) has decided to cut the number of foreign workers by 45 per cent. In this instance, Nepalese workers were expected to be worst-hit by the decision, as hundreds of thousands of them had been working in the major cities of UAE. Large number of unskilled manpower will tempt to commit anti-social activities in society as they will not have any work to engage. Only 2% of Nepalese labourers working abroad are skilled whereas 71% unskilled. Besides unemployment, foreign employment was holding Nepal’s economy through foreign remittance, which is likely to fall soon by 2010. Nepal’s economy is highly dependent on foreign remittance. If foreign remittance falls down, the Nepal’s economy will be badly affected.

Maldives The state of the Maldivian economy has declined sharply since November 2008. The Maldives Monetary Authority reported in May 2009 that the real economy has decelerated in 2009. The MMA’s April 2009 Quarterly Economic Review projects that GDP growth rate will be -0.3 in 2009, as compared to 5.8 per cent in 2008. It projects that real output will contract by 1.3 per cent in 2009. Tourism is forecast to decline by 11 per cent in 2009 while the construction sector is projected to decline by 24 per cent. The consumer price inflation in March 2009 was 11.2, much higher than the 8.2 per cent inflation in March 2008. However, the government had brought national inflation down from 12.06 to 10.38 per cent since last year. Inflation is mostly contributed by the price of food, transport, health and housing. During the first three months of 2009, fish catch increased by eight per cent. However, fish purchasers such as the government company Maldives Industrial Fisheries Company were ill prepared to purchase this catch. Fish purchases by commercial buyers plunged by 45 per cent in Jan-March 2009. This means that, where in 2008, fishermen were able to sell 59 per cent of their catch, in 2009 only 30 per cent of their catch was bought. This would thereby halve their income for the period, as compared to 2008. The volume of fish exports also sharply declined by 54 per cent compared to the corresponding period of last year. Similarly, earnings on fish exports also took a nose dive, falling by 54 per cent from $40.6 million in the first three months of 2008 to $18.6 million in the same period of 2009. This is a $22 million reduction in export earnings to the country in just the first three months of 2009. The overall deficit of the 2009 government budget (minus the recent supplementary budget) is projected to be Rf4.8 billion (28 per cent of GDP). Total revenue is projected to decline by nine per cent, while total expenditure and net lending is projected to increase by Rf1.9 billion (71 per cent of GDP). The decline in revenue comes mainly from the decline in import duty and tourism bed tax. This is in contrast to an increase in revenue in 2008 by five per cent, with a budget deficit of Rf2.2 billion (14 per cent of GDP). Total expenditure and net lending in 2008 was equivalent to 63 percent of GDP. The government expects to finance the 2009 budget deficit from external (70 per cent) and domestic sources. The government has also passed a supplementary budget of Rf.12.5 billion. Although this was eight per cent less than what the government initially proposed at the beginning of the year, the supplementary budget itself has a Rf.2.23 billion deficit. This takes cumulative budget deficit for 2009 up to Rf.7.03 billion. This brings the 2009 budgetary deficit to an alarming 41 per cent of GDP. This is a dangerously high level. It is a 34 per cent jump from 2008 budget deficit of 14 per cent of GDP. Maldives copes with severe regional disparities across its 200 inhabited islands or atolls.

The government is actively pursuing reforms to address these imbalances by enhancing fiscal resources and evolving its role as an enabler of development. By selling a significant stake in the Maldives Airport Company, the government is undertaking the first such initiative to infuse private capital to improve governance and profitability of its state-owned enterprises. This will help the government free up scarce resources to pursue poverty-alleviation policies and measures. The government is committed to strengthen the national economic fundamentals, increase productivity and address the bottlenecks to economic activities. The economy of the Maldives was facing a critical economic situation, the dramatic fall in fiscal revenue since the latter part of 2008 combined with large fiscal and external imbalances had led to budget deficits of worrying proportions. The Maldives could face a severe fiscal and balance of payments crisis in the months to come, unless a substantial policy adjustment is put in place. The government was therefore, committed to implementing a policy programme to stabilize the economy and put it back on a path of sustainable and equitable growth. The key elements of the policy program include: bringing public finances on a sustainable path, including through a continuous reduction in public debt from 2010; mustering adequate multilateral and bilateral assistance; and, strengthening the liquidity and capital position of the banking system. The government’s aim at bringing its finances back to a sustainable medium-term trajectory. Without corrective action, the fiscal deficit would soar to about 33 percent of GDP. The government has begun the implementation of the reform measures following the austerity measures announced by the cabinet on 12th August. These reforms aim to reduce the fiscal deficit to 28 of GDP in 2009, and to 15 per cent of GDP in 2010.

Monetary policy and the central bank’s autonomy By Dr Hamza Ali Malik Monday, 07 Sep, 2009 | 01:20 AM PST |

Over the last few years, a lot has been said about the monetary policy, some writers have criticised it while others recognised its prudence. Overall, the discussions have been very healthy and bode well for a better understanding of the role of the monetary policy in the economy. The discourse also reflects the efforts of the State Bank of Pakistan to be more transparent and accountable. This article explains the monetary policy framework to remove ambiguities and misconceptions in recent comments First and foremost it must be understand that central banks world-wide are essentially creatures of central governments and Pakistan is no exception. A central bank can only be

autonomous within a government and that monetary and fiscal issues cannot be entirely divorced from each other. Effective coordination between the central bank (SBP) and fiscal authority (ministry of finance (MoF)) is the key in understanding a central bank’s performance and its role in the economy. In this context, the SBP is an autonomous organisation and monetary policy is formulated independently under the umbrella of the State Bank of Pakistan Act. The ultimate target of monetary policy is to achieve price stability without prejudice to economic growth. The targets of average CPI inflation and real GDP growth are set by the government and announced prior to the beginning of a fiscal year. These targets provide a basis for setting an indicative target for broad money (M2) expansion, which serves as an intermediate target. Broad money is chosen as an intermediate target because the availability of money in the system helps to determine aggregate demand in the economy. Whether broad money should be an intermediate target or not is a useful debate. However, it is beyond the scope of this article. A practical reason for its use as an intermediate target is that this information is compiled by the SBP on a weekly basis, whereas the information on other macroeconomic variables and sectors becomes available with a considerable lag. Available information on the components of broad money – the net foreign assets (NFA) and the net domestic assets (NDA) of the banking system – and their projections for the next fiscal year are used in understanding and analysing interactions of the monetary sector with the real, fiscal and external sectors of the economy. This helps in assessing the demand pressures in the economy relative to its productive capacity, which mainly depends on structural factors such as availability of energy, productivity etc. NFA is essentially determined by developments in the balance of payments and reserve accumulation/depletion and NDA is composed of the credit extended by the banking system to the government (for budgetary support as well as commodity operations) and the non-government sector (private sector and public sector enterprises) and the (net) other items. Looking at their trends along with their projections, updated regularly, gives SBP a fairly good idea as to how the external, fiscal and real sector developments will influence the broad money expansion and thus the inflation and growth targets of the government. Thus, the projections of equilibrium money growth have to be consistent with not only the projections of the external account and announced federal budget, but also the projected inflation path and the likely real GDP outcome. Herein lie the importance of coordination between SBP and the MoF. Some observers see government borrowing from SBP as a sign of SBP’s weakness and compromise of its autonomy. Government borrows from the SBP for cash flow purposes; the timing of government expenditure and revenues or financing from other sources is generally not in sync with each other. There is nothing wrong with this practice. The

problem arises when the government continues to borrow unabatedly, as it did in fiscal year 2008 and first quarter of fiscal year 2009. Asserting its independence and using its legal powers, SBP has raised this issue of excessive borrowing in writing to the MoF, in meetings at the highest level, and in its Monetary Policy Statements (MPS). Excessive government borrowing creates numerous problems for the effectiveness of monetary policy. Apart from causing inflation, it complicates liquidity management, dilutes the monetary policy stance, puts pressure on foreign exchange reserves, and hurts the private sector credit growth. It also creates a sense of complacency on the part of the fiscal authority that rather than adopting prudent fiscal measures, it tends to rely on the easily available funds. The natural question that arises here is why then SBP does not enforce its recommendations by ‘bouncing government’s cheques’. The reason is that it is not a practical solution and would only result in creating systemic risk for the financial sector and loss of public confidence over its institutions. Thus the conclusion that government is allowed to borrow at will and that the SBP is not independent is misleading. The solution lies in reforming the fiscal policy and its debt operations and enhancing cooperation and interaction with the SBP to ensure consistency between monetary and fiscal policies. Failure to do so will only result in less than optimal policy outcomes. On its part, SBP will continue to do its assessment of developments in the economy, in relation to its targets, communicate the necessary actions required from other policy institutions, and take its monetary policy decisions independently. Nonetheless, the SBP and MoF officials do interact with each other to resolve issues of mutual interest. The result of these efforts is that a comprehensive macroeconomic stabilisation programme was formulated last year, which is being implemented with the IMF support. Almost all the targets of the programme have been successfully met so far, despite fast changing domestic and global conditions. The government borrowing from the SBP is within the quarterly limits, foreign exchange reserve position has improved, and inflation has fallen considerably. Moreover, numerous structural measures have either already been taken or are in the pipeline. All of this would not have been possible without the coordinated efforts of MoF and SBP. Coming back to the description of the monetary policy framework, change in the monetary policy stance is signaled through adjustments in the policy discount rate after assessing the actual trends of NFA and NDA, their underlying interactions with the rest of the economy, and their projections and likely impact on ultimate targets. Not only the current behaviour of economic variables is affected by monetary policy actions (current as well as expected) but also the expected path is influenced via many channels;

monetary policy formulation is essentially a forward looking phenomenon. Thus, forecasting the behaviour of key macroeconomic variables, in particular inflation, is an integral part of SBP’s monetary policy framework. The change in the policy discount rate is complemented by appropriate liquidity management mainly through Open Market Operations (OMOs) and if required changes in the Cash Reserve Requirement (CRR) and Statutory Liquid Reserve requirement (SLR) are also made. The effects of these measures are transmitted to the economy mainly through changes in the numerous market interest rates, starting with the overnight money market repo rate, which serves as the operational target of monetary policy. Effective control of this rate through calibrated liquidity management ensures smooth functioning of the money market, helps in influencing other market interest rates in a desired manner, and thus increases the effectiveness of monetary policy in fostering price stability. The policy discount rate (SBP’s overnight reverse repo rate) serves as the effective ceiling, while the repo rate on the new overnight facility (SBP’s repo rate) provides a binding floor to its downward movement. Prior to the adoption of this new explicit operational target, SBP had already transferred the decision of setting the T-bill cut-off rate to the MoF to separate liquidity management from debt management. The former is the responsibility of the SBP while the latter pertains to fiscal operations and is the responsibility of the MoF. Despite SBP’s clear communication of the rationale of this decision, some commentators have asserted that SBP compromised its authority over monetary policy by handing over this power. In fact, SBP deliberately transferred this responsibility to clearly communicate to the market that cut-off decisions in T-bill auctions should and are taken purely on debt management considerations and do not reflect monetary policy stance. This difference can only be made clear by separating debt and monetary management and was not possible with SBP deciding both the policy discount rate and auction cutoff rates. The writer is director, monetary policy department, State Bank of Pakistan

Piracy and ‘open source’ software By Munawar Iqbal Monday, 07 Sep, 2009 | 01:20 AM PST |

PAKISTAN stands at the crossroads with regards to advancement (or backwardness) in the field of information technology (IT). Recently, one observed raids on computer industry vendors by the FIA and arrests on charges of violation of copy rights. The action taken at the behest of international software companies was a blow for the struggling IT industry.

Of course, nobody favours violation of copy rights. But what is the viable alternative for the IT industry as well as end users, especially, third world countries, where industries are unable to absorb expensive software? Today when multinational companies dominate computing as well as the internet, seemingly a motley collection of free software tools and operating systems - collectively dubbed, “open source” software – offers an alternative solution. Open source technologies are now playing an important role in many developing countries, where governments and corporate entities are moving increasingly towards open standards in an effort to reduce costs or to increase revenues. A majority of the end users--students or low income groups--find it too difficult to buy expensive software after managing a cheaper hardware. Open source technologies are not just another option for reducing costs, but they also represent the only way to eliminate illegal copying of copyrighted software. Piracy has been a huge obstacle in the way of foreign investment in IT sector. The government has taken some initiatives to raise awareness for elimination of piracy and protection of intellectual property. However, conducting raids at various locations has proved counter-productive. The government and private sector need to enhance level of cooperation on this front so that a shared vision may be achieved for educating people about the benefits of using open source software. Industry experts believe that Pakistan can attract a lot of foreign investment, if piracy is properly tackled. Open source has a great potential in terms of reducing costs for our private sector and to eliminate piracy. The stakeholders need to realise the importance of open source and should adopt free alternatives of copyrighted software in the form of Open Source System (OSS) to counter piracy. Many initiatives were launched to build an operating system that could be deployed on multiple hardware platforms. The most prominent example is Unix, which was a product of AT&T Laboratories and published back in 1969. Sharing the source code among developers and researchers was a common phenomenon, which brought about major developments in the field of internet and related technologies. Since then, many open source projects have emerged. However, Linux is gaining popularity because it is completely free of charge. No user or server licenses are required. Another advantage of using Open Source System is that it is developed by hundreds and thousands of people worldwide. Because of this, the system has evolved into a stable entity. Open source came as a fresh breeze for all system administrators as it is much more secure and consumes less system resources to run the services on a highly complex

network. However, the question still arises that with all the benefits of the system, is it successful in attracting wider audiences towards the adoption of free software, especially in Pakistan? Except large corporations and multinational firms, every single computer runs pirated software. Hence, piracy is recognised as one of the biggest problems confronting the IT sector in the country. It is time that the IT professionals realise that we have the option of using software legally in the form of Free and Open Source Software (FOSS). The FOSS is liberally licenced to grant the rights to redistribute and study, change and improve its design through the availability of its source code, something that propriety software developers have dreamed about. It is encouraging that the private sector spearheaded by Pakistan Computer Association (PCA) and Pakistan Software Exports Board (PSEB) have taken some valuable initiatives for free training of vendors and other stakeholders. These trainings are aimed at raising the capacities of individuals, groups, institutions, organisations, societies, and the government by using Open Source for their sustained economic and social development. The number of OSS users still remains under 1000.It is time to realise that the country has long suffered due to software piracy. Analysts and experts of the industry are busy promoting OSS as there is much scope for a rapid development in the IT sector. The free software technology would ease the pressure on the end users, especially those who find expensive software beyond their purchasing power. The writer is central president of the Pakistan Computer Association (PCA). [email protected]

Exports crippled by recession By Anand Kumar Monday, 07 Sep, 2009 | 01:20 AM PST |

EXPORTS account for less than a fifth of India’s gross domestic product (GDP), yet a slowdown in international trade has hurt several key sectors of the economy. The global recession has had a major impact on India’s foreign trade, both in terms of a sharp fall in volumes and in terms of job losses. Nearly half a million people working in nearly a dozen export-oriented sectors (from gems and jewellery, leather and BPOs to textiles and apparels) lost their jobs between October and December last year because of the slowdown, according to the government.

Employment data in India is usually sketchy and unreliable and the country does not have credible data relating to jobs; unemployment rates are not monitored, unlike inflation, GDP, or foreign trade. Yet, the labour ministry does come out with some employmentrelated data. According to the ministry’s figures for April-June, 154,000 workers lost their jobs in the textile sector and 34,000 in the information technology and BPO industries, both overly dependant on exports. Job losses because of a slowdown in foreign trade are evident across the country, especially in export-driven cities such as Tirupur and Coimbatore in the southern state of Tamilnadu, Surat and Rajkot in Gujarat and Ludhiana in Punjab. Tirupur accounts for 80 per cent of India’s cotton knitwear exports. A majority of the 6,000-odd export units in the city are small and medium-sized ones. Exports from Tirupur shot up from less than Rs100 million about 25 years ago to Rs10 billion last year. But the global economic crisis has hit Tirupur badly. According to sources in the export trade, nearly 50,000 workers have been sacked in recent months, as orders for knitwear have dried up. Thousands of other workers have had to take up to 50 per cent cut in wages. In Surat, the country’s diamond capital, thousands of migrant workers from states such as Bihar and Uttar Pradesh have been forced to return home because of a sharp fall in gems and jewellery export. Similarly, about a fifth of workers at the Surat Apparel Park special economic zone have lost their jobs as garment units are facing massive losses because of a fall in export orders from the US, Europe and Japan. According to Nilesh Mehra, secretary, Surat Apparel Park Association, most of the units in the SEZ are planning to shut down their facilities because of lack of export orders. The exporters are demanding denotification of the SEZ and its conversion into a regular park, so that they can then sell their products in the domestic market. ***** INDIA’S ambitious drive to boost exports in recent years has come a cropper. According to government figures released last week, exports in July fell sharply by 28.4 per cent to $13.62 billion, as compared to the corresponding month in 2008. Imports fell by 37.1 per cent to $19.62 billion. In June, exports had fallen by 27.7 per cent and imports by 29.3 per cent. Exports during the first four months of the current fiscal (April-July) dropped by 34.1 per cent to $49.65 billion. India had recorded a surge in exports in recent years; during the first half of 200809, exports had shot up by 30 per cent.

But the global crisis, triggered off by the collapse of Lehman Bros in September last year, had a devastating impact on exports from India. Exports have shrunk every month since October 2008. During April-July 2008, India’s exports added up to $75.28 billion, but this year they have fallen to $49.65 billion. During financial year 2008-09, India’s exports touched a record $168.7 billion. But this is unlikely to be attained in the current fiscal. The government’s target of $200 billion in exports has had to be shelved by a few years. It has not disclosed its projections for the current fiscal. Commerce and Industry Minister Anand Sharma says India hopes to achieve the $200 billion export target by March 2011. Fortunately for the government, declining imports have resulted in a dramatic contraction of the trade deficit. For April-July 2009, the deficit fell to $28.91 billion, from $41.09 billion a year earlier. Imports have fallen thanks to the sharp drop in global oil prices. Oil imports in the AprilJuly four-month period fell by almost 50 per cent as compared to the corresponding period in the previous year – from $42.21 billion to $21.96 billion. In July, the oil import bill was down to $5.63 billion, from $12.67 billion a year earlier. Non-oil imports also declined by nearly 25 per cent in July to $13.98 billion, reflecting the slowdown in the Indian economy. International rating agency Moody’s expects a further fall in exports from India thanks to the deficit in rains. The south-west monsoon has been erratic this year, resulting in a nearly 25 per cent shortfall across the country. The government has already declared 278 of the 625 districts as drought-hit. “India’s foreign trade is yet to bottom as the decline in exports and imports deepened again in July,” warned a research report from Moody’s. “The biggest current threat to India’s trade outlook is the drought.” ***** CONCERNED about the abrupt U-turn in India’s foreign trade prospects, the government recently came out with a set of incentives to exporters. Unveiling the country’s foreign trade policy (FTP) for 2009-14, minister Sharma said the immediate aim was to arrest and reverse the declining trend of exports and to provide additional support to sectors badly hit by the global crisis. “We have taken a conscious view to expand and diversify our export markets, especially in the emerging markets of Africa, Latin America, Oceania and the CIS countries,” points out Sharma.

Indian exports are overly dependant on the US and Europe, which together account for over a third of total exports. The US is the biggest export destination for India, with a nearly 13 per cent share. According to a recent study by the Reserve Bank of India, the country’s central bank, Africa accounts for just seven per cent of India’s exports and Latin America a mere 3.5 per cent. With the US and Europe crippled by the recession, it was inevitable that Indian exports would also be hurt. The new FTP envisages incentives to exporters targeting countries in Latin America, Africa and Asia-Oceania. The incentives now add up to three per cent of the total value of exports. The new policy has also hiked market development assistance and market access initiative incentives to exporters looking at new geographies. “These new measures would allow exporters to provide exposure to Indian goods in new markets,” explains Ajay Sahai, director-general, Federation of Indian Export Organisations. “Our exports have been impacted due to demand contraction in the US and Europe.” The long-term policy objective of the FTP is to double India’s share in global trade by 2020, from 1.64 per cent at present. Sharma points out that the global slowdown has resulted in some countries raising protectionist barriers, hurting India’s exports. He is also reluctant to discuss export targets for the short term. “Even though economists are talking of emergence of ‘green shoots,’ I remain hesitant to hazard a guess on the nature and extent of this recovery,” he says. “We would like to achieve an annual export growth of 15 per cent over 2010-11 with an annual export target of $200 billion by March 2011.” He is, however, hopeful that exports could expand by 25 per cent annually, especially after 2011. The Planning Commission is also confident of a revival in exports after 201011, when the industrialised countries are expected to see significant growth.

Expanding government By Shahid Javed Burki Monday, 07 Sep, 2009 | 01:19 AM PST |

IN many ways, some of them much too subtle to be grasped easily, the role of the government is likely to change quite significantly in the years – perhaps even decades – to come.

It is known from experience that ideas about economic governance readily flow across national borders. This happened in the 1980s when what came to be called Reaganism or Thatcherism, depending on which side of the Atlantic you happened to be, relegated the state to the sidelines. This economic philosophy had tremendous consequences for policymaking in countries such as Pakistan that had to take advice from Washington and London in order to access the foreign capital that was desperately needed. Under this approach, Pakistan during the period of President Pervez Musharraf, adopted an approach that gave a great deal of space to the private sector and pushed the state to the background. But foreign influence was not the only reason why that happened. Economic policymaking at that time was led by an individual whose own background was in commercial banking with very little knowledge of economics and even less interest in strategic thinking. Under his stewardship, the private sector ascended the commanding heights of the economy while the institutions of the state were allowed to weaken. Two sets of institutions were affected adversely in particular. The Planning Commission was virtually taken out of the business of strategic work and regulatory institutions that could oversee the working of the private sector were not given the autonomy they needed to work effectively. The thinking on the economic role of the state has changed quite dramatically over the last several months. This creates an opportunity for Pakistan to redefine the state’s role since it will not be forced to go in a different direction by institutions such as the IMF on which the country is once again dependent for access to external capital. There are at least four reasons why the thinking has changed. The first, of course, is the deep economic recession across the globe. This started in the United States where the private sector, left more or less to its own devices, showed that the assumption that it could self-regulate was totally misplaced. Alan Greenspan’s belief that the state should keep itself at a long distance turned out to be totally misplaced. With the private financial sector having gotten itself into a series of tight situations, it had to rely on the state to get it out and to have it functioning again. This was done with a great deal of public money doled out to the banks and to the automobile sector. Without formally nationalising parts of the private sector, the US government now owns large chunks of the assets in a number of vital sectors.The second reason for the disillusionment with this philosophy was the growth in income disparities in a number of countries that had followed it aggressively. In the United States the gap between the incomes of the well placed executives and owners of assets and their workers increased to the point that it became a political issue. President Barack Obama owes his impressive victory in last year’s presidential election to the growing public discomfort with growing income and wealth disparities. He promised “change” from the past and won handsomely against a candidate who wanted the continuation of the status quo. The third issue with the philosophy that granted the private sector so much space was the

way a number of corporations and wealthy individuals acted and swindled the state as well as those who were relatively less affluent. Enron Corporation and Worldcom were two companies in which their owners and managers built huge fortunes at the expense of the government – by avoiding to pay taxes – and at the cost of the middle class who owned shares in these companies and relied on the pension funds the companies managed. The fact that a number of these managers went to jail was small comfort for those who has lost a great deal of money and the promise of good life after retirement. They wanted the system to be changed. The fourth reason why the private sector system of economic governance is being replaced by the one in which the state will play a much more important role is that the latter was shown to be demonstrably better than the former. European capitalism that cared more for the poor and the disadvantaged placed less burden on the society than did Reaganism and Thatcherism. The Asian countries also demonstrated that their system of the state being more prominent was also producing better results. The most recent example of this is the crushing defeat of the Liberal Democratic Party (the LDP), at the hands of the newly formed Democratic Party. The LDP, in spite of its name, was as conservative in its approach towards economic management as the Republicans in the United States and the Conservatives in the UK. Yukio Hatoyama, the presumptive Japanese prime minister, rallied campaign crowds with his pledge to shift away from what he said were “excessive reforms” in the economic system. “The recent economic crisis resulted from a way of thinking that was based on the idea that American-style free-market economics represents a universal and ideal economic order”, he wrote in an article first published in a Japanese monthly magazine and reproduced by The New York Times. The American system, he went on to say, was “void of morals or moderation”. These developments in economic and political thinking need careful reflection in Pakistan as the country struggles to revive its faltering economy and put in place a new political structure. Having relegated the state to the background during the period of Pervez Musharraf, the country needs to bring the government back into play. How should that be done; what should be the respective roles of the government at various levels, not just the centre but also in the provinces and at the local level; how should the state be provided the skills and the talent it needs to run an effective system of governance; what is the best way of holding those who hold public positions accountable for their deeds; and how should economic strategies be formulated and what kind of political involvement should be included in this process? These are vital questions and they need to be studied. Some good work was done by the commission headed by Dr Ishrat Husain. The report he prepared appears to have been shelved. Perhaps one way of moving forward in this area is to release the report to the public and to begin a dialogue.

Stocks regain confidence By Mohiuddin Aazim Monday, 07 Sep, 2009 | 01:19 AM PST |

STOCKS continue to regain confidence as the economy shows initial signs of recovery and foreign investors return to the market. Pakistani stocks were the worst performers in the region in 2008 and had lost 55 per cent of their value amidst global recession triggered by a financial market crisis in the United States. But with the start of 2009, the stocks started recovering and picked up pace in July—the first month of the new fiscal year. Since January Karachi Stock Exchange 100-share index has gained more than 3000 points or 51 per cent—helped by the re-entry of foreign investors. In August foreign investors purchased $95 million blue chip stocks that were the most inexpensive in the region yet offered higher yields. This was the largest foreign investment after February 2008 when the market was at its peak. With this trend continuing, the KSE attracted a huge $62 million foreign investment in the first four days of this month. Stockbrokers say, the rising trend in stocks is not a temporary show: It is rooted in growing confidence of foreign investors in the economy and is, therefore, sustainable. “Stocks have rebounded a bit late. Multiple positives in the economy should have lifted them much earlier,” says Mr Arif Habib, a former chairman of KSE. “I hope the rising trend will continue and KSE 100 index will cross 10,000 before the year-end.” The index closed at 9003 on September 4, the highest level so far this year. The global financial crisis and recession had made foreign investors risk-averse. This prompted outflows of foreign funds not from Pakistan and other regional markets. Meanwhile, Pakistan’s economy slowed down and its external sector weakened. Credit rating agencies also lowered Pakistan’s ratings in haste. However, the external sector started showing signs of improvement since the start of 2009. Pakistan secured $7.6 billion IMF standby loan in November 2008 on the back on bilateral assistance. These measures combined sent a positive signal to foreign portfolio investors. “The easing in the severity of global recession has also increased the risk-appetite of foreign investors,” said a foreign banker explaining the recent bull-run on the KSE. “Fundamentals have not only improved. They are consolidating,” says Mr Arif Habib referring to a consistent decline in inflation, a huge buildup in foreign exchange reserves, narrowing of balance of payments deficit in July after months of reduced trade and current account deficits and two cuts in SBP discount rate so far this year.

Efforts to enhance exports and home remittances and secure foreign funding for development and welfare plans would yield some gains to our balance of payments. And the $3.2 billion approved additional IMF financing to meet exigencies, the renewed financial pledges by the Friends of Pakistan and expected inflows from America and Britain in the war on terror would strengthen these gains. “This is very much a likely scenario,” Mr Habib insists adding that foreign investment in stocks was set to rise further. Analysts say, foreign investors are on a buying spree primarily because of attractive pricing. “On virtually every valuation metric, Pakistan’s valuations look compelling versus the rest of Asia,” a recent Bloomberg report quoted Sakthi Siva, Asia Pacific Strategist at Credit Suisse as saying. Stockbrokers opine that trading in stocks would accelerate further once local funds especially financial institutions re-enter the market in a big way. “Right now major funds are making limited buying and financial institutions are almost absent,” said Haji Ghani Usman, a member on the KSE board of directors. “Banks are not lending to the private sector. They are also not investing in stocks. They lend only to the government.” Banks made net recovery of Rs82 billion from the private sector between July 1 and August 22 this year against recovery of Rs19 billion in the same period last year. On the other hand, their net lending to the government rose to Rs55 billion from Rs38 billion during this period. Bankers say, banks are making cautious stocks buying as some of them had incurred huge losses last year and others are evaluating whether the current bull-run on the stock market is sustainable. “But I think banks and financial institutions would invest more in stocks after Ramazan when deposits withdrawal would slow down and the rising trend in bourses consolidate,” said treasurer of a large local bank. “Net private sector lending would not take off before November. So, we’ll have an added reason for investing in stocks.” Stockbrokers say, foreign investment in the stock market is coming mainly in some blue chip companies in the oil and gas exploration, oil marketing and banking sector. Re-entry of local funds and banks and financial institutions would lift the stocks of other sectors as well. “Across-the-board recovery is possible through local investment only,” says Haji Ghani Usman who opines that regularisation of in-house badla can also play a part in it. In-house badla is a financing arrangement between the brokers and their clients. “It is not going to create any settlement issue. So I think Securities & Exchange Commission of Pakistan (SECP) should not reject this idea,” he said adding that some brokers are convincing SECP to allow it formally. A new margin-financing product replacing the old Continuous Financing System (CFS)

is due shortly. Its launching would give added confidence to the stock market. The provisional listing of Nishat Chunian Power Ltd., the launching of the Rs90 billion term finance certificate by the government to minimise intra-corporate debt and the proposed launch of Rs5 billion TFC of Bank Alfalah point towards the return of normalcy in the stock market. Oil prices hovering above $70 a barrel may pose a risk to the external sector. “If the prices range between 70-80 dollar per barrel we’ll be OK but beyond that we anticipate pressure on the external sector,” said a central banker.

Rental power projects and lurking suspicions By Ashfak Bokhari Monday, 07 Sep, 2009 | 01:19 AM PST |

THE federal cabinet has finally endorsed the decisions of the ECC for purchase of 2,250 mw from 14 rental power companies but in an atmosphere marked by suspicions and allegations of kickbacks, obsoleteness of plants and high cost of power. These apprehensions also echoed in parliament where an opposition member described it as an emerging scam. The cabinet itself was divided over the merit of this venture, seen risky and expensive by many, and it took three hours to settle the matter. Media reports say there was even exchange of harsh words among the ministers. The prime minister remained mostly quiet and neutral, intervened only to break the impasse by proposing a “third party validation system” to satisfy critics. Under it, dealings with the companies will be subject to a transparent system. As a corollary, a special parliamentary committee of members from both the government and the opposition would be constituted with the Auditor-General as one of its members to formulate procedure for acquisition of power from the rental power providers. A reputed firm would be engaged to ensure strict observance of the agreed terms and conditions under which the plants would generate electricity. This is the first time that fast-track rental power producers, normally booked for shortterm tasks as in 2007, are being engaged on such a large scale and being assigned a major role along with other producers. Nowhere, they are considered worthy and credible for such a sensitive responsibility for they are deemed to be mere an enlarged form of generators used in homes, switched on and off as needed and some of them supply power from a barge or a ship berthed in the sea nearby. This is what irritated some members of the cabinet. Finance minister Shaukat Tarin who

does not agree with Raja Ashraf’s argument that ‘this is the only solution to the energy crisis’ is apprehensive of the cost these projects would incur once oil prices go up further in the international market. However, as the federal minister for water and power mentioned himself the hasty measure was being taken to escape the wrath of the consumers who may ‘lynch those responsible’ on the roads and streets if frequent outages do not come to an end. If this is the driving factor behind the decision, then it is just political expediency rather than economic prudence keeping in view the minister’s oft-repeated claim that load-shedding would in any case end by this December. The minister has been raising expectations of the public and then found himself succumbing to their pressure when violence and burnings became frequent. Instead the people should have been convinced of the need for long-term, inexpensive options and told that this money could be better utilised by spending on servicing the circular debt. After all, people have a greater stake in cheaper electricity. As stated by Raja Ashraf, when the rental plants would come on line the overall tariff would rise by six per cent. The easing of the circular debt would have revived the operations of the existing IPPs and again put into motion the wheels of the industry which are lying frozen for long. In fact the whole economy is coming to a dead end because of power crisis. And yet, the irony is that the minister’s proud claim to end load-shedding by December appears unlikely to be met successfully as all the rental power projects take at least six months to come on line after all necessary formalities including money matters have been cleared. It means the rental power plants would start producing electricity not before March 2010. The average power tariff of rental power plants, as decided in the ECC meeting, stands at 13.5 cents per unit while the average tariff of IPPs is 12.5 cents per unit. The maximum tariff of rental plants is 15 cents, which will be applicable in case they have the latest equipment and are installed at the ship. According to calculations worked out by the Centre for Research and Security studies, Islamabad, the rental power plants are 24 per cent more expensive than the new IPPs and 30 per cent more expensive than the existing IPPs. In other words, the cheapest electricity comes from the existing IPPs. Therefore, it makes sense if we opt for full utilisation of our existing IPP capacity and then of the new IPPs. Besides, there exists a great power potential, not fully utilised yet, in our sugar and textile mills. Sugar mills can produce 2,200 mw and supply it to the Pepco at cheapest rates. Regarding cost of rental power, the Centre says if we acquire 2,200 mw – the same that 14 rental power companies are to produce under August 27 cabinet decision – then our annual payment to them will be $3.1 billion (annual fuel payment being $2.3 billion and an annual capacity payment of $862 million). On the other hand, if we bring in 2,200 mw of new IPPs the annual payment will be $2.5 billion, the difference being of a huge amount of $626 million.

Meanwhile, rental power producers in a joint statement issued on July 30 observed that the current widespread criticism against them was reminiscent of a “vilification campaign” of the 1990s against independent power producers (IPPs) as they appeared on the scene. The statement said that there was little excuse for doubt or apprehensions because all rental plants have been transparently and competitively bid for and were technically evaluated to “gauge suitability and affordability” under a policy that has been approved by three successive governments. Their plants, they said, were brand new, zero-rated and also there were secondary market plants and machinery based on a variety of global technology, and are set up in six to eight months after the contract of commissioning which are for three to five years and carry a higher risk for them. The Pepco paid only for power that was produced and delivered, and that too 60 days in arrears. The gas-run rental plants are required to achieve an availability of 92 per cent and RFO-based rental plants are required to achieve an availability of 85 per cent. Any failure to achieve these availability requirements attracts financial penalties calculated on the basis of 1.5 times of the tariff for the shortfall. The government would pay 7-14 per cent machinery mobilisation advance to the providers, which would be deducted from the rent the government is to pay for purchasing electricity. The advances given to them were secured against bank guarantee but there were no government guarantees or support for raising funds. The risk and responsibility are wholly assumed by them and not the government. The government guarantee is issued exclusively to cover any performance default on part of the Pepco. The statement was issued after a meeting of rental power producers attended by representatives of Techno Engineering Services, Young Gen Power, Gulf Rental Power Project, Ruba Energy, Reshma Power, Premier Energy, Pakistan Power Resources and Walters Power International.

Rigging terms of rice trade By Ahmad Fraz Khan Monday, 07 Sep, 2009 | 01:19 AM PST |

THE “intervention paddy price” announced last week suffers from three anomalies. First, the government has reduced it by over 22 per cent as compared to last year’s price despite conceding 24 per cent increase in production cost over the last season …. thus rigging the terms of trade by 46 per cent within a year. Ironically, the new intervention price does not include any “intervention mechanism” —

how would the government ensure even that reduced price if it falls below the officially declared line. The government has, so far, not bothered to explain. Third, no one seems to own the new price, except for the federal government. The farmers have “refused to take it as it belies government’s own calculation about the production cost.” The Basmati Growers Association have opposed it, and written to the ministry against it. Traders say they were not taken “onboard” while fixing the price. How the Economic Co-ordination Committee (ECC) arrived at the figure, which it recently recommended, has become a riddle, especially its claim of finalising the new price “keeping all factors in view.” Last week it recommended an “intervention price” of Rs1,250 per 40kg (against Rs1,500 last year) for Super Basmati; Rs1,000 (against Rs1,250 last year) for Basmati 385; and Rs600 for Irri (against Rs700 last year). The official consultations were restricted to the Agriculture Policy Institute (API) – an attached department of the ministry of food and agriculture (Minfa) – and Task Force on Agriculture. The API made all calculations “keeping in view ground realities,” which seem to have formed the basis of new price. Its estimated costs, as indicated in its summary of production of basmati and Irri paddy in Punjab at Rs972 and Rs606 per 40kg, are higher by 24 and 26 per cent over the last year. The cost of Irri in Sindh has been calculated at Rs490 per 40kg, showing an increase of 24 per cent over the last year. Major factors of higher cost of production are land rent, tractor rates, tube-well water and wage rates. It maintained that domestic price during 2008-09 for Basmati paddy averaged at Rs1,181 per 40kg and in Punjab ranging between Rs1,020 to Rs1,298 per 40kg during OctoberFebruary. The market price of Irri paddy in Punjab averaged at Rs660 per 40kg during the same period, ranging between Rs579 to Rs726 per 40kg. In Sindh, the market price of Irri paddy averaged at Rs585 per 40kg during November-February, ranging between Rs535 to Rs686 per 40kg. The farmers contest these calculations, and say that the government, instead of adding the rise in cost of production in new price, has reduced it 22 per cent below the last year’s price, which is “not acceptable.” They formed a committee – drawing members from Punjab and Sindh – on September 3 to fight for, what they call, “right” price. Though the “intervention price” does not automatically translate into market price, they say, but higher price does strengthen their bargaining position vis-à-vis traders. By lowering the cost, the government has weakened their position, they claimed. The Basmati Growers Association has sent a letter to the ministry questioning the

wisdom of “lowering intervention price, and challenging its calculations.” “Since there is no check on under-invoicing of rice export, the export parity prices did not adequately portray actual prices and were, therefore, of no relevance. The farmers have conveyed their views time and again but to no avail. Without a clear-cut policy of intervention through the Passco and the inability of Minfa to induct the TCP, the whole calculation is based on a false premise,” says the letter of BGA to the government. Pakistan abolished the minimum export price (MEP) on rice exports in August 2008. India’s basmati rice price was above $1,300, which declined to $1,100 in January 2009 and has been further lowered to $800 per ton a week ago. Taking $1,100 dollars as an average benchmark (at exchange rate of Rs82 per dollar), the export parity comes to Rs3,600. Taking Basmati paddy to produce 50 per cent of export quality rice, the price comes to Rs1,800. After deducting Rs300 per 40kg for all processing expenses and profits, the rate of Rs1,500 for Super Basmati is justified, the letter said. The traders, on their part, claim that the federal government neither calculated crop size, nor domestic consumption nor tradable surplus nor included any measure of the international market arriving at new price. Since no one was consulted, it has thus become the sole responsibility of the government to ensure the price – charging it with a duty to not only plan for it now, but also to share that plan with stakeholders in order to keep market sentiment under control. Such a plan would largely determine farmers’ investment – fertiliser and weedicides – on the crop, and its ultimate size. Such a plan is also necessary as market calculations about the capacity of its agencies to play any kind of stabilising role are negative for it, and also for farmers. The provincial food departments, especially in Punjab, are finding it difficult to breath under the weight of massive wheat stocks. The Trading Corporation of Pakistan (TCP) is already neckdeep in sugar arrangements and Pakistan Agriculture Services and Storage Corporation (Passco) is carrying over stocks of 228,000 tons from last year. Thus the federal government needs to clarify how it plans to keep the price, it has promised. How would it cast different agencies in role of the paddy price stabilising effort. How much crop size it is expecting, and how much of the tradable surplus it would purchase. How much money it plans to spare for paddy market. All these questions are crucial for the stability of domestic paddy market and saving the farmers and crop from any major damage from now to September end when Sindh crop hits the market.

Four weeks of upbeat mood

STOCKS remained in an upbeat mood for the fourth consecutive week last week as positive news both from the corporate front in the form of higher dividend and from foreign aid front did not allow investors to take an overview of other irritants including the heating up political scenario and the rigid positions taken by some contenders of power. The benchmark index ended with an extended gain of 461.46 points or six per cent, breaching the barrier of 9,000 points at 9,002.68 and adding Rs122 billion to the market capital at Rs2,623 billion. Major oil and gas discovery by the OGDC, and some other leading oil and bank shares played a dominating role in the current market run-up including, analyst say, foreign buying. Although weekend selling in a overbought market allowed it to finish with clipped gains, the underlying sentiment remained inclined upward despite a lot of pruning at the inflated levels. The market may fall or maintain its upward drive next week, but this year it has broken the myth of a proverbial sluggishness during the holy months of Ramazan in yester years, analyst Ashraf Zakaria said adding that it was a good omen for the market in future. The KSE 100-share index maintained its upward drive for the fourth week in a row and was quoted higher at the week’s highs by 461.46 points, breaching the barrier of 9,000 points as the index-heavy shares remained under squeeze but the local funds were net sellers in some other leading shares. Earlier in the week, it breached through the barrier of 8,900 points at 8,937.93 from the previous close of 8,675.67, signaling that three-digit rise could take it to any highs where the current speculative traders wanted it to be in the coming weeks. The market witnessed a great contrast in investors’ behaviour in the week’s trading. While local funds remained busy in profit-taking where due, the so-called foreign investors kept under squeeze those shares having massive weightage in the index, said a leading stock analyst Hasnain Asghar Ali. “Who was right and who was wrong is pretty difficult to judge,” he said and added: “Any investor in a proper frame of mind may not think of putting money in the risky business of shares at a time when the political scenario is heating up, leading to a major showdown between the two ruling parties. The talk of so-called bull-run triggered by foreign buying appears to be a massive bluff on the general investors,” some others said. The history of stock trading was reminiscent of witnessing many a sustained bull runs when the index was ruling around 15,000 points and daily volume figure touched the

high mark of 1.122 billion shares, another analyst Ahsan Mehanti said adding “the traded volume of Rs12 billion and a volume of 300 million shares could be termed as bull-run.” “It appears to be a trap to net in small investors after having raised the boggy of foreign buying,” he said and added “if that be the case why the cash-heavy local funds are indulging in profit selling rather than having rode the bandwagon.” The developing political confrontation between the two major contenders of power and the blame game could significantly erode the current saving of the genuine investors if they were trapped by the big ones, he added. Most of the leading oil shares, considered an envy of foreign investors, are down in a row under the lead of Pakistan Oilfields, Pakistan Petroleum and covering purchases in the index heavy MCB has more than other reasons including the Nishat Group’s fresh stake of Rs1.08 billion in it. From now onward, the market is expected to follow the local political developments rather than speculative feelers originating from here and there as investors has now become wiser after the successive market crashes, during the last couple of years, which wiped out $13 billion from the small investors’ savings. Forward counter: Much of the activity on the future counter remained confined to leading oil shares such as OGDC, which attained its recent level of well over Rs100 around Rs115 on strong buying on reports of new oil and gas discovery. Others, which also showed firm trend included Pakistan Petroleum, Bank Alfalah, National Bank, Pakistan Oilfields, and the provisionally listed Nishat Chunian Power and some others. —Muhammad Aslam

Market remains sluggish

TRADING on the Karachi wholesale markets last week remained sluggish as both the leading brokerage and commercial houses did not make fresh commitments in the backdrop of corrective steps being taken by the government to check speculative rise in prices of essential items. Most of the essential items, including wheat, sugar and some type of pulses, were traded at the last week level after initial modest increase at the retail levels. Market sources said that as supply position of sugar showed considerable improvement after a crisis followed by official raids, fixation of selling price at Rs47 per kilo seemed to had stabilised the position barring few complaints by retailers on the supply side there was a relative calm on this front.

They said that official reports that TCP was importing another 0.1m tons of sugar from various foreign sources, indicated that supply position would improve further. The sugarcane crushing season was expected to resume by Oct 1, and the new crop to arrive on the market by early November which would have a stabilising impact on the prevailing prices, they said. On the wholesale market, sugar prices remained stable despite minor either-way changes earlier in the week as supply gaps were filled by stockholders and hoarders. After the fixation of wheat flour price at Rs10 per kg to provide relief to common man, wheat prices on the wholesale market did not show much change and were firmly held at last levels amid reports of modest mill off-take, some dealers said. Arrival of a consignment of 10,000 tons of yellow peas from abroad, price of widely consumed pulses notably gram whole and dal did not show much change amid active trading, they said. Fixation of new prices of rice crop at Rs1,250, Rs680 and Rs600 per 40 kg of fine type of basmati including kernal and sela, basmati and IRRI type, was welcomed by private sector exporters but growers said they were on the lower side of their cost of production. However, the support prices, which were said to be on the lower side of the prevailing market prices, had no immediate impact on the ruling prices, they added. Prices of most of the essential items remained stable around the previous levels after midweek either-way changes amid alternate bout of buying and selling. While prices of sugar earlier moved modestly lower by Rs2 per kg on reports of Punjab court ruling to sell it at Rs40 per kg, later it came in for active support from retailers and ended unchanged. Active trading was witnessed in wheat as some leading flour mills resumed fresh buying to supplement their stock positions to line up supplies to the government to sell it on subsidised rates to general consumers. On the pulses sectors, prices of gram whole and gram, after early modest downward changes, managed to finish at previous level and so did others including moong and mash. On the other hand imported types of masoor and masoor dal remained under pressure and were quoted lower by Rs100-500 per bag of 100kg respectively. The cereal sector again ruled dormant as prices of bajra, maize and jowar were held unchanged amid modest ready off take, but on the industrial sector prices of guar seeds were marked down by Rs200 per 100 kg on reports of fall in mill demand and steady

arrivals from Sindh markets. The oilseeds sector showed firm trend followed by active demand from oil mills but prices remained unchanged at the last levels owing to oversupply. Cotton was, however, an exception which rose modestly higher early but at the weekend ended unchanged at the last levels on late selling. Oilcakes came in for active selling on reports of steady arrivals from ginneries and fell by Rs20 per 40 kg, while rapeseed cakes were firmly held at last levels amid modest activity.—M.A.

Rupee firm on dollar inflows

The inter-bank market observed a rising trend in the rupee/dollar parity this week. The rupee opened the week on a positive note gaining 8 paisa against the dollar over the previous week close level of Rs83.10 and Rs83.15 with dollar trading at Rs83.02 and Rs83.07 on August 31. The rupee managed to extend its overnight firmness versus dollar on the second trading day posting further gains of 10 paisa on the buying counter and nine paisa on the selling counter. The dollar traded at Rs82.92 and Rs82.98 on September 1. On September 2, the rupee on the inter-bank market made sharp advances against the dollar which resulted in 22 paisa gain on the buying counter and 23 paisa gain on the selling counter enabling the dollar to trade at Rs82.70 and Rs82.75 despite rising demand. However, rising dollar demand on September 3 dragged rupee down against the dollar. The rupee lost 15 paisa, trading against the dollar at Rs82.85 and Rs82.90. Persisting demand for dollars on September 4, further pushed the rupee down against US dollar losing five paisa to trade at Rs82.90 and Rs82.95. However, increased dollar inflows did not allow the rupee to fall sharply against the dollar despite heavy demand. During the week in review, the rupee in the inter-bank market managed to gain 20 paisa against the dollar over last week close. In the open market, the rupee/dollar parity remained almost stable moving both ways in narrow ranges this week. It commenced the week on a happy note with rupee inching up by 5 paisa against the dollar which closed the day trading at Rs82.95 and Rs83.05 on August 31 after closing last week at Rs83.00 and Rs83.10. The overnight firmness in rupee/dollar parity on the opening day proved short lived as the parity retreated to its last weekend’s position after rupee slipped by five paisa on

September 1, when dollar was changing hands at Rs83.00 and Rs83.10. On September 2, however, the rupee managed to rebound against the dollar, gaining 30 paisa to trade at Rs82.70 and Rs82.80. It extended its firmness over the dollar on September 3, when it managed to hold its overnight level trending unchanged at the previous day’s close rates of Rs82.70 and Rs82.80. The rupee continued unchanged for the second consecutive day on September 4, trading against the dollar at Rs82.70 and Rs82.80. On cumulative basis, the rupee in the open market managed to recover 25 paisa against the dollar this week. Versus European single common currency, the rupee displayed a fluctuating trend this week in the local currency market opening the week on a positive note, as it gained 50 paisa over the previous weekend’s level of Rs117.80 and Rs118.30 and traded against euro at Rs117.30 and Rs117.80 on August 31. But it failed to retain its overnight firmness against euro on the second trading day, losing 5 paisa to trade at Rs117.35 and Rs117.85 on September 1. On September 2, however, the rupee managed to rebound against the European single common currency, recovering 20 paisa to change hands at Rs117.15 and Rs117.65. But then it again failed to hold its overnight firmness versus euro on September 3, posting sharp losses of 60 paisa to trade at Rs117.75 and Rs118.25. Finally, the rupee in the local currency market closed the week on a positive note gaining 20 paisa more against the European single common currency which was changing hands at Rs117.55 and Rs118.05 on September 4. This week, the rupee recovered 25 paisa against euro. On the international front, the yen rose broadly touching a seven-week high against the dollar on the opening day of the week, buoyed by a decisive opposition victory in Japanese elections and concerns about a global economic recovery. In late New York trade, the dollar was down 0.6 per cent at 93.05 yen after earlier hitting a low of 92.53 yen, its weakest level since mid-July. The dollar lost 1.7 per cent against the yen in August at current prices, matching July’s monthly loss. The dollar also gave up gains against the euro to hit session lows as euro rose 0.3 per cent against the dollar to $1.4337. Sterling rebounded to last trade 0.1 per cent higher against the dollar at $1.6283. On September 1, the yen and dollar both rose as fears of further US bank failures overshadowed unexpectedly strong manufacturing data, boosting the two currencies’ safe-haven appeal. In New York the dollar was down 0.1 per cent against the yen at 92.89 yen, above previous day’s seven-week low of 92.53. The euro was down 0.8 percent against the dollar at $1.4212, well below a session high of $1.4377. Sterling was down 0.7 per cent at $1.6155, after touching a six-week low. On September 2, the yen touched a seven-week high against the dollar amid gains across the board as a worse-than-expected US private-sector jobs report boosted the safe-haven appeal of the Japanese currency. In late New York trading, the dollar fell 0.8 percent to 92.14 yen after hitting a low of 92.07, according to Reuters data, its lowest since midJuly. Against the dollar, the euro recouped earlier losses and last traded up 0.3 per cent at

$1.4264. It touched $1.4175 on September 2, the lowest since August 19. Sterling traded 0.4 per cent higher at $1.6230, having climbed as high as $1.6253 hit in early trade. On September 3, the yen slipped from a seven-week high against the dollar, while euro erased gains against the dollar after the European Central Bank offered no signs of an exit from unconventional measures aimed at stimulating the economy and signalled that interest rates will remain low for some time. In New York trading, the dollar rose 0.5 per cent to 92.62 yen, after falling as low as 91.92 yen, according to Reuters data, its lowest since July 13. The euro was little changed at $1.4254, off a session peak of $1.4348. Sterling was up 0.5 per cent on the day at $1.6355. At the close of the week on September 4, the dollar dipped 0.1 per cent from late US trading to 92.59 yen on September 3, and was capped by offers between 92.80 and 93.05 in Tokyo. The greenback hit a seven-week low of 91.94 yen on September 3. The euro was steady at $1.4252, down from levels above $1.4300 a day earlier. Sterling initially held gains against the dollar before falling to day’s lows as investors adjusted positions before a long weekend in the United States where markets are shut on September 7 for a public holiday. It fell almost one cent against the dollar to $1.6288, pulling further away from a one-week high of $1.6415 the previous session.

Cut off yield on PIBs reduced

On September 2, the State Bank of Pakistan received bids worth Rs25.79 billion for the auction of PIBs of various maturities. The SBP accepted Rs15.315 billion. The cut off yield on the PIBs was reduced in the auction. For 10 year PIBs it was reduced to 12.5 per cent from 12.6303 per cent, on 15 year PIBs from 13.39 per cent to 12.9295 per cent, for 3 year PIBs from 12.5018 per cent to 12.2961 per cent. The SBP set cut off yields of 12.3689 per cent for 5 year PIBs, compared with 12.4151 per cent in the last auction. For 7 and 20 year papers it was reduced to 12.4593 per cent and 13.2993 per cent against 12.5807 per cent and 13.8004 per cent in the last auction respectively. According to the weekly statement of position of all scheduled banks for the week ended August 29, 2009, deposits and other accounts of the scheduled banks declined in the current week and stood at Rs4,115.251 billion, higher by Rs142.522 billion over preceding week’s figure of Rs3,972.729 billion. Compared with last year’s corresponding figure of Rs3,788.611 billion, the current week’s figure is larger by Rs326.64 billion. During the current week, commercial banks deposits showed a rise of Rs142.211 billion over the week to Rs4,102.098 billion, against preceding week’s Rs3,959.887 billion. Specialised banks deposits stood at Rs13.153 billion, against preceding week’s Rs12.842 billion, a rise of Rs0.311 billion.

Borrowings by all scheduled banks decreased in the week. It fell to Rs459.292 billion over preceding week’s figure of Rs511.587 billion, a fall of Rs52.295 billion. Compared to last year’s corresponding figure of Rs377.992 billion, current week’s figure is higher by Rs81.3 billion. Commercial banks borrowings fell to Rs378.034 billion against previous week’s Rs430.343 billion, or by Rs52.309 billion. Borrowings by specialised banks stood at Rs81.258 billion, higher by Rs0.014 billion over earlier week’s figure of Rs81.244 billion. Gross advances stood at Rs3,147.207 billion in the week under review, a fall of Rs0.058 billion over preceding week’s figure of Rs3,147.265 billion. Compared to last year’s corresponding figure of Rs2,899.138 billion, current week’s figure is larger by Rs248.069 billion. In the week under review, advances by commercial banks declined to Rs3,041.369 billion against earlier week’s figure of Rs3,041.743 billion, or by Rs0.374 billion. Advances of specialised banks stood at Rs105.838 billion, higher by Rs0.315 billion over earlier week’s figure of Rs105.523 billion. Investments of all scheduled banks increased in the week by Rs6.938 billion to Rs1,383.107 billion against preceding week’s figure of Rs1,376.169 billion. Compared to last year’s corresponding figure of Rs1,030.846 billion, current week’s figure is larger by Rs352.261 billion. In the current week, commercial banks investment rose to Rs1,371.676 billion, from earlier week’s Rs1,364.773 billion, or by Rs6.903 billion. Specialised banks investment stood at Rs11.431 billion, against preceding week’s Rs11.396 billion, higher by Rs0.035 billion. Cash and balances with treasury banks of all scheduled banks rose by Rs22.743 billion during the week to stand at Rs364.257 billion against earlier week’s Rs341.514 billion. Current week’s figure is smaller by Rs73.503 billion compared to last year’s corresponding figure of Rs437.760 billion. In the current week, the figure for commercial banks stood at Rs359.481 billion against preceding week’s figure of Rs336.904 billion, a rise of Rs22.577 billion, while of specialised banks it stood at Rs4.777 billion over previous week’s Rs4.610 billion. Total assets of scheduled banks stood at Rs5,573.319 billion, higher by Rs1.438 billion, over preceding week’s figure of Rs5,571.881 billion. Current week’s figure was higher by Rs497.021 billion compared to last year’s corresponding figure of Rs5,076.298 billion. In the current week, commercial banks assets stood at Rs5,442.150 billion, higher by Rs1.222 billion over previous week’s figure of Rs5,440.928 billion. Specialised banks assets rose to Rs131.169 billion, or by Rs0.216 billion over previous week’s Rs130.953 billion.