Pakistan Economy



Dawn, Business & Finance weekly, December 28th, 2015


IT is probably a vibrant parallel economy more than the government’s policy interventions that has saved Pakistan from sinking into the black hole of deflation.

The State Bank’s annual report for FY15 deals with the emergence of the risk in the global context, but does not comment on the choice and timing of government interventions or convincingly clarifies what neutralised domestic deflationary pressures within the country.

Deflation occurs when the change in prices is persistently negative for long periods, typically following an economic crisis. The fall in prices of essential food products and energy benefits consumers. However, if the trend persists for too long, it negatively affects stability and growth. As overall prices decline, producers are forced to liquidate their inventories at reduced prices.

This casts a shadow on both consumer spending and investors’ sentiments. Fearing further drop in prices, consumers start holding on to their monies to buy cheaper later. Low capital spending further decreases aggregate demand, threatening economic stability and growth.

Going by anecdotal evidence, there are affluent consumer markets in major urban centres, particularly supported by middle-income groups. Sales of motorcycles have gone up sharply in rural areas And rising remittances by oversees workers for the upkeep of their families at home makes a significant impact on household spending.

Besides, there is the government’s policy to manage a part of the fiscal deficit through currency printing by the SBP.

Even investments in the formal sector are understated to evade taxes. And the general perception is that the undocumented segment is growing faster than the formal economy, with very little evidence from where the money is coming from.

The Planning Commission’s chief economist, Dr Nadeem Javed, termed ‘deflation’ as a major concern for policy advisors who, he said, had been raising red flags over the past six months. He said the commission was working on a set of measures and formulating suggestions for policy adjustments to motivate investors and facilitate growth.

“Fears over deflation have started receding as the current data indicates an uptick in the inflation rate after hitting a decade-low low in September,” he said over phone from Islamabad.

“We are finalising a presentation for the political leadership on the growth strategy that is aligned with the Vision 2025 to realise the goal of 7pc growth once relative stabilisation has been achieved,” he said.

“When the Wholesale Price Index (WPI) turned negative and did not bounce back for the next three quarters, the Planning Commission shot into action and advised the government to intervene and prevent the economy from slipping back into a crisis-like situation.

“The government responded by announcing a series of necessary measures to move up oil and electricity prices and addressed apprehensions about impending deflation in Pakistan,” he added.

An analyst blamed what he called “the government’s myopic policies for a close brush with deflation”.

“The narrow focus on resource mobilisation, lack of focus in policy framework, ad-hoc policy changes and the sale of government papers to banks contributed to the downside risks to the economy.

“It would be naïve to ignore the obvious. The brush-off effect of deflationary pressures in the West since the global financial crisis (2009-11), a slowdown in China, the global commodity price slump and the steep fall in oil rates did leave a mark on the formal economy,” he added.

Pakistan’s inflation rate dipped to a decade-low of 1.3pc in September, exactly a year after prices started their downhill journey. The Consumer Price Index (CPI) increased by 2.73pc last month.

The SBP’s recently released annual report stated that the “WPI is showing a falling trend since May 2014 and its year-over-year (YoY) change is in negative zone for consecutive 11 months since December 2014. This index is closely related to global prices, as imported items constitute a significant proportion. Within WPI, oil prices are the main driver in the current declining trend, which is reflected in the 8.1pc fall in transportation and fuel-related group”.

The report also acknowledged the presence of strong consumer demand but did not explain the reasons behind the phenomenon, probably because it wanted to keep the discussion within the confines of the documented economy for obvious reasons.

After ringing caution, with no reference to the thriving informal economy, the SBP report moved on to reassure readers that Pakistan would perhaps skip a deflationary crisis because of government spending on infrastructure projects, monetary easing, continued growth in remittances, better security situation and a strong revival of the construction industry.

Latest data from the Pakistan Bureau of Statistics also shows deflationary pressures to be receding. After almost a year, consumer prices rose by 2.73pc YoY in November, following a 1.61pc growth in the previous month.

The upward pressure came from food and non-alcoholic beverages (1.3pc); housing and utilities (4.9pc); clothing (4.5pc), and furnishings and household equipment (3.6pc). By contrast, transportation costs fell by 7.1pc.

Monthly inflation edged up to 0.6pc against 0.5pc in October. The historical average inflation rate is 7.9pc. It hit its highest of 37.81pc in December 1973 and lowest of negative 10.3pc in February 1959.


Dawn, Business & Finance weekly, December 28th, 2015


PAKISTAN’S initiatives towards achieving financial inclusion are apparently paying off and some, though nominal, improvement is visible in the outreach of formal financial services.

But at its current level, financial inclusion is still not wide and strong enough to make a real impact on sustainable economic development. Various societal segments and sub-economic groups remain deprived of access to formal financial services, while the distribution of these services remains uneven from various angles. This continues to fuel the growth of the black economy.

According to official data, 16pc of Pakistan’s adult population now has a bank account, including mobile wallets, up from 11pc in 2008. Speaking at the launching ceremony of the SBP’s Access to Finance Survey 2015 two weeks ago, SBP Governor Ashraf Wathra informed that in 2008 only 12pc of adult Pakistanis had access to formal financial services; the number has now almost doubled to 23pc.

More importantly, only 4pc of women had access to formal finance in 2008, but now about three times more women (11pc) have access to this facility.

The central bank has taken several initiatives in this area since 2008 and above-cited statistics speak for the success of these initiatives. They include mobile banking, franchising limited banking services to cellular phone companies, focus on Islamic finance, allowing microfinance banks to spread their wings and reforms in agricultural credit programmes.

The first Access to Finance survey has been launched to achieve the dual purpose of gauging the impact of the SBP’s financial inclusion initiatives and to obtain baseline data for the central bank’s National Financial Inclusion Strategy, which was unveiled earlier this year.

“In our culture, as elsewhere in the world, we see both voluntary and non-voluntary exclusion from financial services,” says a central banker. “Whereas regulatory authorities like the central bank can address the issue of non-voluntary exclusion to promote financial inclusion, other societal segments, including the government, have more direct roles to play to address voluntary exclusion.”

And unless voluntary exclusion is properly analysed and its causes are remedied, financial-inclusion drives are bound to remain wanting, he says, adding that cultural and religious reasons can be bracketed into voluntary exclusion.

“That is where Islamic banking comes into the picture and the SBP is making efforts to promote financial inclusion through Islamic banks and clusters of dedicated IB branches of conventional banks. But religious scholars, academics and the government also have to play more active roles to put an end to voluntary exclusion from formal financial services.”

A former chairman of the Rice Exporters Association of Pakistan once told this writer that he had stopped borrowing money from not only conventional banks but also from IBs because he believed Islamic banking in the country was also not purely Shariah-compliant.

This mindset is promoting individual- or group-lending and borrowing in the markets. Little do these people realise that exclusion from formal financial services is bound to promote informal money transactions and the informal economy.

“From the perspective of financial inclusion, documentation of the economy and blocking of opportunities for wide circulation of ill-gotten money are as much important as the central bank’s drive to push banks to reach out to unbanked people,” says a central banker.

“When a lot of money is circulating in the black economy — currently estimated at around 75-90pc of the formal economy — the need for access to formal financial services is compromised [thus negatively impacting financial inclusion].”

“The challenges for the promotion of financial inclusion are deep, diverse and difficult,” says a former SBP deputy governor. “While there is some voluntary financial exclusion in our society, there are many areas of involuntary exclusion where the central bank alone can make lots of improvement.”

Discrimination, lack of information, weak contract enforcement, product features and price barriers due to market imperfection are generally regarded as some key reasons for involuntary financial inclusion. “Instances of each of these can be found in our recent banking history,” he says.

For example, whereas total assets and deposits of the banking sector doubled since 2008, the ratio of private sector credit to GDP declined from 22pc in 2009 to 14.7pc in June 2014. Similarly, bank credit to small and medium enterprises (SMEs) fell from 16pc of total bank lending in 2008 to 7pc in June 2014.

In a country with a population of over 180m people, just around 71,000 housing loans are outstanding in the banking sector.

Meanwhile, banks have been investing heavily in government debt papers and private businesses now get slightly more than 40pc of overall bank credit. As of June 2014, this supply was “skewed towards larger enterprises with around 0.4pc of bank borrowers accounting for 65pc of all bank loans,” pointed out a SBP report.

This indicates how seriously the central bank and the government will have to work to make the financial inclusion drive a real success, and how long and arduous this journey can be.


The Express Tribune, December 28th, 2015.

 Tehreem Husain

KARACHI: Renowned economist and former finance minister recently rang a warning bell on Pakistan’s external debt position.

According to his estimates, external debt would reach a whopping $90 billion in the next four years and the country would need $20 billion a year just to meet its external financing requirements. Not only would this adversely impact macroeconomic sustainability, but would have a negative impact on growth as well.

Economists have argued that reasonable levels of external debt that help finance productive investment may enhance growth but beyond that, additional levels of indebtedness may cause to reduce it.

Countries have faced severe external debt crises and there have been instances of sovereign debt defaults since 1800. More recently, during the 1980s several countries faced high debt levels and repayments became impossible.

In a seminal paper by Carmen Reinhart and Kenneth Rogoff, the authors have attempted to count all the sovereign defaults from 1800 to early 2000s. They count more than 250 instances of sovereign defaults in 200 years — an average of more than one a year.

Various factors have been attributed to this phenomenon. Reversal of global capital flows, weak revenues and rising interest rates are some of the few reasons which can potentially cause this.

Currently as of September 2015, Pakistan’s external debt stands at $66.5 billion.

External debt is primarily comprised of public debt (government debt, debt from IMF and foreign exchange liabilities), public sector enterprises (PSEs), banks, private sector debt and debt liabilities to direct investors.

Of this total external debt, nearly 84% is public debt. This debt is primarily long term in nature acquired from various multilateral organisations.

International Debt Statistics compiled by the World Bank has claimed that for 2014 almost 55% of external debt in the country is denominated in US dollars.

Moreover, the interest rate for all creditors is 4.3% with a maturity of 17 years. Grant element of this debt has been significantly reduced and stands at 37% which went as high as 66% in 2011.

Regionally, India has a much larger external debt position amounting to $482.9 billion.

Although Pakistan’s external debt is much smaller in magnitude compared to its neighbour, it has been consistently increasing.

It is significant to note that in a period of nine years from June 2006 to June 2015, the increase in external debt has been 75%.

With limited increase in our export base and rising external debt stocks, the ratio of external debt to exports has been creeping up since 2012 and has reached 200% in 2014. Debt servicing to exports has also been rising over the years and stands at 19%in 2014.

Debt sustainability is a critical issue and one that is key to overall macroeconomic stability.

The joint World Bank-International Monetary Fund Debt sustainability framework was introduced in 2005 and is periodically reviewed. It was conducted most recently in 2012 with the next review being scheduled for 2016.

This framework for debt sustainability analysis has three broad policy objectives. One is to assess the current debt situation, its maturity structure, whether it has fixed or floating rates and by whom it is held.

Secondly, to identify vulnerabilities in the debt structure so that policy advice can be introduced before payment difficulties arise and lastly to examine the impact of alternative debt stabilising paths.

Disclosure on debt to all policymakers is key to making decisions that are critical for macroeconomic stability. Recently, the governor of the central bank of the country also hinted on this point when he said that the government should clarify regarding the composition of the much touted investment of China Pakistan Economic Corridor (CPEC) in terms of how much is equity and what proportion is debt.

Importance should be paid not on the magnitude but rather the efficiency of investment. Furthermore, our policymakers should pay serious attention towards debt sustainability before it balloons itself to be unmanageable. Pakistan’s debt to exports ratio of 200% is quite high.

IMF studies have pointed out that halving debt to exports ratio from about 200% of exports to about 100% would boost per capita growth by about 0.5-1%.

Lesser developing countries like Pakistan with weak institutions and policy structures face greater repayment issues and, therefore should pay great emphasis on the implementation of debt sustainability frameworks to avoid any future crises.



Sarkar-i-aala, tomorrow a new year begins. I do not think you believe in New Year night revelry, so you should be up early to begin the second half of your tenure, full of hope that in this third attempt you will be able to complete the constitutionally fixed term.

Tomorrow you will be bombarded with greetings from a large number of people, enjoying a good life during your pleasure, and you will also be greeting many whose pleasure you wish to secure.

Will they include members of parliament whose goodwill you must value more than any other props?

You have remembered them in times of distress but they deserve to be noticed even when those around you tell you sab achha hai (hope you have learnt not to trust such purveyors of opiates).

I have special reason to remind you of parliament, the sole source of your power, because mischief is afoot to undo the 18th Amendment.

There are people with access to nobility who pine for the days when they could have their wants satisfied by going to a single office in Islamabad instead of trudging to four underdeveloped capitals.

Some others are proclaiming that the parliamentary system must be replaced with the presidential system, and if somebody in the robes of amir-ul-momineen is around so much the better.

Many Pakistanis will tell you that Pakistan must become more of a federation and not less of it. If anybody tells you of another way to win over the alienated Bengalis, I beg your pardon, the alienated Baloch, he is not your friend.

If you put your ear to the ground you will not miss the rumbling of discontent in Sindh. And the day may not be far off when the Pakhtuns, especially of Fata, might start thinking of alternatives to your unrealised promises of reform. Pray sit in parliament and find ways of strengthening the federation.

It is possible that tomorrow you will be in Jati Umra, the name you have given to your living quarters near Lahore, because you do not want to erase from your mind the memory of the village near Amritsar where your ancestors settled after escaping from hardship in Kashmir.

Can you not feel the agony of millions of Lahoris caused by schemes to erase their heritage, of which the whole world is proud? All this is happening because of a flawed concept of development.

Development does not mean only building roads and flyovers; more essentially it means the enrichment of human resources.

Before I say something about human capital let me remind you that more people in our country die in road accidents than by any disease. Those who say the remedy lies only in widening roads or such juvenile experiments as signal-free roads in Lahore are masters of ignorance.

Do any of your universities have a department for the study of transport, road traffic and injuries caused in road accidents? Want to know more about it?

Request Mian Shahbaz Sharif that when he goes to meet gaddi nasheens at Nizamuddin Aulia’s mazar he should stop on the way at the Indian Institute of Technology.

My main purpose, however, is to inform you that the present development mantra will not make Pakistan a great land of happiness for the citizens unless they are rid of exploitation, unemployment, illiteracy, hunger, disease and want.

The hideous concrete structures that are being built to fatten contractors and commission agents will not reduce poverty, nor will they serve as your vote banks in the hour of trial, only 29 months away at the most.

What do I mean by human development? I thought you, or somebody among your advisers, knew all about that, but let me try.

By human development I mean first of people’s freedom from bondage and fear. Surely you must have heard of people working like slaves in agriculture and in the brick-kiln industry, usually described as bonded labour.

What has been done in the past 30 months to end this most horrible form of exploitation? Please give priority to ending the curse that bonded labour is.

And the conditions of labour that is not technically bonded also have long been awaiting your attention. You know better than others that industry cannot flourish nor economy grow without the support of a contented labour.

It is possible to win the workers’ goodwill and cooperation for maximising production and exports (GSP+) by respecting their rights, by reviewing the reckless policy of privatisation, and by reviving the state’s role as promoter of a fair accord between employers and employees.

And please do not go on ignoring the people who still depend on agriculture — nearly 35pc of the population. You must find a way to carry out genuine land reforms, which perhaps is in accord with your personal belief.

This is a matter that is part of the need for an overall umbrella of laws, something that the National Commission for Human Rights and the recently resuscitated human rights ministry should be able to explain to you.

Why cannot you, for instance, tell your colleagues to remove the obstacles to legislation to end child labour and child marriage, to eliminate domestic violence, corporal punishment, and a law-policy mix that can offer a decent deal for home-based workers or to rid religious minorities of the fear that is eating into their vitals?

Unfortunately my petition is too long to fit into the space available to me and you too may get easily tired of listening to others.

I will close by drawing your attention to the need to enable half of the population to join the effort to end the state’s ordeal.

Please ask one of your aides to read out to you this year’s Global Gender Gap Report.

Pakistan is at the bottom of the table in all sectors. It is time the state did something spectacular to move towards women’s equality with men.


Dawn, January 1st, 2016


RAWALPINDI: The Punjab government has made a 15pc deduction in funds provided to districts under the provincial finance commission award.

A senior official of the Punjab finance department confirmed to Dawn that the cut had been in order to complete development projects across the projects.

He said under the finance commission award, the government released about Rs9 billion to each of the districts for the payment of salaries and meet other expenditures. However, in November it started deducting from the monthly releases without making a formal announcement.

The shares of the district governments for development projects also faced a 15pc cut with effect from July 2015, he added.

The official said the district governments had been asked to take austerity measures to ensure the payment of salaries to government employees without any delay.

Interestingly, the provincial government released millions of rupees to the districts before the local government elections but stopped the funds even for the development works after the polls.

In the Rawalpindi district, the government allocated Rs30 million each to the four National Assembly and eight provincial assembly constituencies. The funds for the provincial assembly seats were released four months ago but Rs120 million were yet to be provided to the National Assembly constituencies.

Commissioner Rawalpindi Sajid Zafar Dall admitted that the 15pc cent cut had been imposed on the shares of the districts but said it was not a new exercise.

“Basically, the finance department released less funds in the first two quarters to avoid surrendering extra funds by the departments and also for austerity measures.”

He said the PFC award cut was part of the austerity measures and would not affect the expenditures and salaries of government employees. He said the provincial government had also released development funds at the start of the fiscal year and the remaining amount would be released to the new local governments.

“Lahore’s orange line metro train, costing Rs165 billion, consumed the funds for development schemes across the province,” PTI MPA Ijaz Khan alleged.

He said the provincial government was spending taxpayers’ money on metro trains and buses instead of providing basic necessities to the citizens.

“Instead of spending money on education, healthcare and water supply schemes, the government is launching new projects just to make money through commissions.”

He said during the last three years, the provincial government failed to provide development funds to the opposition members for their constituencies and all the development works before and during the local government elections were given to those PML-N leaders who had lost the 2013 elections.

When contacted, PML-N former MNA Malik Shakil Awan said the metro train was being launched through Punjab government’s own resources and loans from a Chinese bank.

He said it was a wrong impression that the metro train consumed the development budget of other districts.

He said the development schemes in the provincial assembly constituencies had been completed before the elections and projects in the National Assembly constituencies would start soon after the release of funds in two to three months.


Dawn, January 1st, 2016

THE economy of Pakistan could be poised for a revival of growth in 2016, after languishing in low-growth equilibrium since 2008. Ever since the growth years of the Musharraf regime came crashing down, the economy has struggled to recover.

For almost five years, the predicament was described by the State Bank as ‘low-growth, high-inflation’ equilibrium. Along with this was a severe power crisis, brought on in large part by a severely constrained fiscal situation and low foreign exchange reserves.

But in 2015, the tide began to change. Reserves reached historic highs, even if on the back of borrowed money. And inflation fell rapidly throughout the year, picking up slightly only in the closing days.

As the tide turns, a window of opportunity opens up for the government in the year 2016, the first of its last two full years in power. Whatever the PML-N government is going to do, this is the year when it must get going.

It is worth bearing in mind that the promise of the moment owes itself almost entirely to fortuitous circumstances. The biggest stroke of luck came in the form of sharply dropping oil prices, which stabilised the current account even as exports and FDI fell. It also contributed in no small measure to the drop in inflation.

But the slide also brought in its wake unanticipated consequences that the government struggled to contain. More pointedly, the fiscal consequences of the slide in oil prices began to bite immediately following the first pass-throughs of the lower price in November 2014, necessitating resort to extraordinary revenue measures such as a sharp hike in the GST rate and an assortment of miscellaneous surcharges, to offset the negative revenue impact of lower oil prices.

So long as they were for the short term and meant to contain the immediate impact of a rapidly changing situation, these measures were fine. But over time, it became apparent that the government did not have many other ideas about compensating for the drop in revenues brought about by the slide in oil prices.

The absence of big ideas to manage the changing circumstances has been this government’s biggest constraint thus far, and 2016 will test this weakness to the maximum.

This is the year when the promise of CPEC has to take shape, but thus far CPEC projects are being executed without an overarching planning and coordination body (notwithstanding the attempts of the Planning Commission to perform that role) and without any serious transparency.

Power-sector reforms do not appear to be advancing, and privatisation appears to be stuck in limbo. Realising the promise offered by improving macroeconomic fundamentals is the big opportunity offered by 2016.

But the year will reveal whether that promise lives up to its transformative potential, or becomes just another short-term burst of unsustainable growth triggered by fortuitous, external developments of the sort that we have seen on many occasions in the past.


The Express Tribune, January 1st, 2016.

LAHORE: “British lawmakers are impressed with development in the health, education, energy and infrastructure sectors in the Punjab. They fully endorse reforms rolled out by our government,” Chief Minister Shahbaz Sharif said on Friday.

He was chairing a meeting regarding his recent visit to the United Kingdom. “British ministers have expressed full confidence in the reforms introduced in various sectors,” he said.

The chief minister said eight agreements had been signed to sustain the pace of development. “The people of the Punjab will soon see fruits of this visit.”

“One of these agreements pertains to training 200,000 primary school teachers in English language,” he said.

The chief minister said at the Energy and Infrastructure Conference in London, several overseas Pakistanis had expressed interest in investing in energy and infrastructure in the Punjab.

The chief minister said British investors had shown interest in investment opportunities emerging from the China-Pakistan Economic Corridor.

 “This augurs well for people from all social and economic backgrounds of the province. These investments will strengthen essential sectors.”

Sharif issued instructions to set up a steering committee under the chief secretary. He said sub-committees would also be constituted for every sector.

“The committee will be responsible for follow-up action regarding the agreements signed during the trip to Britain,” he said.

Sharif said a UK-Pakistan business and trade conference will be arranged in Lahore, where the Pakistani business community would have an opportunity to network with British investors.

“This visit has been the most successful trip of my career,” the chief minister said.

Shahbaz said efforts of his entire political and administrative team in this regard should be appreciated.

MPAs Ayesha Ghaus Pasha, Rana Mashhood Ahmed and Jehangir Khanzada, MNA Khusro Bakhtiar and Punjab Education Foundation Chairman Qamarul Islam were also present at the meeting.

The Planning and Development Department chairman gave an overview of the agreements signed with the British institutions.



The Express Tribune, December 21st, 2015.

Abdul Qadir Memon

KARACHI: Trade statistics for the first four months of the current fiscal year, released by the Pakistan Bureau of Statistics, show a steep decline in the country’s exports.

Total exports are down 13% compared to the corresponding period of last year. Major export items including textiles, rice, sports goods and cement have all shown downward movements both in terms of value and volumes.

The key concern has been the downward journey of textiles for the last two years. The textile sector, contributing nearly 60% to the exports of Pakistan, had a substantial competitive advantage in cotton-based textiles.

Pakistan is the world’s fourth largest producer and third largest consumer of cotton. The cotton industry from production of fibre to manufacturing of value-added products provides livelihood to 25 million people and contributes 10% to the gross domestic product.

Pakistan’s advantage in the textile industry lies in the lower segment of the value chain, predominantly the cotton spinning industry, where 500 units contribute 5% of the global spinning capacity. To fulfill raw material needs, the industry imports on an average one million bales of cotton mainly from India, the US and Central Asia.

Year 2015-16 will be tough for the industry due to the decline in cotton production both locally and globally. According to the industry forecast, global consumption will surpass production in 2016 due to a drop in the cotton plantation area by 6%. Pakistan will miss the production target by 5 million bales.

China has been one of the biggest buyers of Pakistan’s cotton yarn. In 2014, Pakistan exported cotton yarn worth $1.4 billion, 20% lower than exports in 2013. In 2015, the figure is also lower as Vietnam and India have been able to grab a substantial market share of Pakistan.

In the domestic market, the spinning sector is also under pressure from cheaper imports from India. To protect the sector, the government had to take extraordinary measures by imposing a 10% regulatory duty on the import of cotton yarn and processed fabric. This increased the overall tariff protection to the industry to 15% as the regulatory duty was over and above 5% customs duty on imports.

Although the textile value-added sector was not in favour of the regulatory duty as it wanted cheaper inputs, especially yarn and fabric, the government had to come to the rescue of the spinning sector due to its substantial contribution to production and exports.

The textile industry is also suffering due to chronic energy shortages. The government had imposed a gas supply quota for the industry to meet 25% of its gas needs in winter and divert the rest to domestic consumers.

This year has been particularly difficult as the quota has been reduced to 17%. This would further dampen the industry’s confidence, especially the value-added sector, and will increase the cost of doing business.

The electricity shortages have also created sustainability issues for the industry. The magnitude of shortages has turned into a national energy crisis. At present, the country faces a demand and supply gap of 5,000 megawatts with demand growing in double digits annually.

The industry has to make arrangements for in-house power generation through imported furnace oil. This has impacted competitiveness and increased the transaction cost for production.

Textile exports from Pakistan also face tariff barriers in markets of major trading partners. There has been a temporary relief for the industry in the European Union through tariff preference under the GSP Plus scheme.

The textile industry has also been complaining about sales tax refunds and duty drawbacks pending with the Federal Board of Revenue. According to industry sources, more than Rs100 billion in sales tax refunds are pending. The industry would obviously like to see expeditious clearance of all refunds so as to solve its liquidity problems.

The declining trend in exports, especially of the textile industry, should be a cause for concern for the policymakers as the country is pursuing an export-led economic growth model.

The major challenge is the energy shortages which may not be solved in the short term as most of the projects including the recently inaugurated Tapi project will not be online before 2018. In the short run, there may not be many options other than manipulating the exchange rate to promote exports. Most economists believe that the rupee is overvalued by 15% which is hurting exports.

There are compelling reasons for rescuing the textile industry through policy interventions. The rupee devaluation could be one of the viable options.

The writer is a development professional with over 20 years of experience in public and development sectors


The Express Tribune, December 23rd, 2015.

ISLAMABADOn the directives of Prime Minister Nawaz Sharif, the China-Pakistan Friendship Association (CPFA) will bring more than 100-strong delegation of Chinese businessmen comprising private-sector entrepreneurs and investors to Pakistan next month to explore business and investment opportunities.

The delegation will stay in Pakistan from January 18 to 22, 2016. The CPFA, under the umbrella of the Ministry of Commerce, will organise events in Islamabad, Lahore and Karachi.

An official in the Ministry of Commerce said around 100 prominent businesspersons of China will arrive in order to explore trade and investment opportunities in the energy, infrastructure, textile, agriculture, engineering, information and communication technology and mining sectors.

The Ministry of Commerce, Lahore Chamber of Commerce and Industry (LCCI) and Pakistan Business Council (PBC) will invite 100 to 120 eminent Pakistani businesspersons in the corresponding fields to attend events in Islamabad, Lahore and Karachi, the official added.

According to the schedule, the Chinese delegation would kick-start the trip with a two-day Business Opportunities Conference on January 18 in Islamabad. The conference will be organised by the Ministry of Commerce with the support of Board of Investment, Trade Development Authority of Pakistan (TDAP) and World Bank.

The delegation will then travel to Lahore to have business-to-business (B2B) sessions with prominent CEOs and senior executives of top companies headquartered in Punjab.

These sessions will be held on January 20 and will be organised by the LCCI.

The Government of Punjab will arrange field visits for the delegation to major industrial areas on January 21.

At the last leg of the visit, the delegation will proceed to Karachi, where the Pakistan Business Council, with the support of Sindh government and TDAP, would host an event, which would include B2B sessions with premier Karachi-based businesses on January 22.


The News,December 23, 2015

KARACHI: The All Pakistan Textile Mills Association (Aptma) Chairman Tariq Saud has said that at least 110 textile mills have closed down their operations in the last one year due to the high cost of doing business, particularly the cost of electricity and gas.

In a statement on Tuesday he said the high cost of doing business has started hitting textile industry severely, as further closure of operations of the textile mills was reported to the association. “The current situation is fast getting out of control, which is quite evident from the free fall of exports over the last three months,” he pointed out.

He said the export data for November 2015 suggests that the exports of cotton yarn and cotton fabric have dropped by 45 percent and 22 percent respectively against the corresponding period in quantitative terms, consequently an overall decline by 15 percent in value terms during the same period.

“There is a nominal increase in clothing exports, which constitute $4 billion in total exports of industry as against $8 billion of textiles,” he added.

He said the clothing sector possessed the growth potential of above 20 percent with the availability of GSP plus facility, but it could not happen because of the adverse circumstances.

Meanwhile, he said, both the spinning and weaving sectors, backbone of the textile value chain, have faced the brunt of high cost of doing business, which has made them unviable throughout the country.

He said the government was pressing the textile millers, particularly Punjab to purchase LNG at $10.10/MMBTU after extending an earlier offer of $8.5/MMBTU. “This will make the industry further unviable as against international competitors,” he said.

He said the Punjab-based textile industry was under severe threat of closure because of non-availability of gas. “Some 100 mills have already been closed down and more are heading to the abyss fast,” he added.

Aptma Chairman urged the government to immediately announce the remaining part of the textile package, which includes DLTL to the entire textile value chain, extension of export refinance to spinning and weaving sub-sectors, introduction of safeguards through tariff, non-tariff measures against the inroads of synthetic yarns and fabrics in domestic market, and availability of incentives in the export market by matching the regional support package.


The Express Tribune, December 27th, 2015

KARACHI: Pakistan’s e-commerce market is expected to surpass $1 billion in five years, say local tech gurus who believe “now” is the time to invest in this growing segment and demonstrate leadership to succeed in this industry.

“Pakistan is expected to see a boom in e-commerce in the next five years. This represents a huge opportunity for both start-ups and investors,” said a press release quoting Shayaan Tahir, Founder and CEO of local e-commerce giant, which has partnered with digital agency Creative Chaos to form HSN Ventures.

Currently valued at over $60 million, the country’s e-commerce sector is doubling in size every year – that is, it is growing at a compound annual growth rate (CAGR) of over 100%. The industry analysts predict this trend (rate) will continue during the next three to five years and help the sector surpass the $1 billion milestone in 2020.

Now a fully-owned subsidiary of HSN Ventures, is looking to fully capitalise on these growth projections. “HSN Ventures provides us the platform to scale our business and operations for the growth that Pakistan is expected to see in the next five years,” Tahir said.

Though still in the 12% range, the broadband penetration (number of internet connections per population size) is the real driver for the recent growth in e-commerce.

Since the rollout of 3G, which started in mid-2014, Pakistan has been adding more than one million new users to its mobile Internet base every month. The number of broadband users in the country skyrocketed to 23 million at the end of October, 2015, up from less than 4.7 million a year ago.

“Third-generation (3G) [mobile Internet technology] is reaching remote areas and adding new Internet users thus, boosting our traffic,” Tahir of told The Express Tribune recently, adding 50% of their traffic is now coming from mobile phone platform.

“Pakistan is at a turning point in terms of internet and mobile penetration,” Creative Chaos’ chief Shakir Husain said. “The time to invest in e-commerce in Pakistan is now.

Elaborating his point on leadership, Husain said, “It is how one plans, innovates and finances their growth that will ultimately determine success in this industry.”

Given the country’s overall retail market is worth $40 billion, the industry experts believe e-commerce in Pakistan is still in its infancy – it is barely 0.2% of the overall market.


The News, December 27, 2015

LAHORE: Finance Minister Ishaq Dar on Saturday said the present government is all committed to doing away with major challenges and to double the education and health sectors budget, adding that the budget deficit has been brought to 5.3 percent.

He added that he had a firm belief that Pakistan has great potential to progress and has a bright future. He was addressing the passing out ceremony of Probationary Officers of the 42nd Specialised Training Programme of the FBR at the Directorate General of Training and Research (Inland Revenue).

Prime Minister’s Special Assistant on Revenue Haroon Akhtar Khan, DOT DG Sameera Yaseen, Member IR (Operations) Dr Irshad also addressed the ceremony attended by high ups of the FBR and 57 probationary officers.

He mentioned that the PML-N government had always put the country’s economy on track to speedy growth, citing that in 2012-13, Pakistan’s economy was declared instable and no country was then ready do business with Pakistan or buy Pak bonds but today Pakistan’s bonds, including Sukuk, got an unprecedented response at the global level, because in only two years the present government managed to stabilize Pakistan’s economy.

According to one of the global economic pundits, Pakistan could become the world’s 18th economy from the current 44th till 2050 provided she continued with the same pace of economic development, he mentioned.

The finance minister said the PML-N government managed to bring down the budget deficit to 5.3 percent from 8.8 percent and would soon lower it up to 4.3 percent. “We have curtailed the discretionary funds of the prime minister and ministers,” he added.

He said Prime Minister Nawaz Sharif had the vision and plan to take Pakistan forward on all fronts and the PML-N government did not plan up to its tenure but made long term policies planning with all sincerity to bring Pakistan at par with developed nations.

He said the PML-N government had increased the development expenditure to Rs700 billion from Rs316 billion within two years only. The finance minister said the government was making tax collection system simpler as it wanted to take the tax to GDP ratio to 15 percent so that Pakistan developed on her own finances and resources.

He said Pakistan could easily rise as big economy on the world map for which everyone would have to play their role and separate politics from economy for a while. In this way, he was of the view Pakistan could also easily attain six to seven percent growth rate.

Ishaq said the government was also taking effective steps to end energy crisis and 10,000MW would be added into the national grid by March 2018 and that is not all as the government had planned keeping in view future and industrial needs of power, therefore work had been initiated on a number of medium term power projects.

He said work is underway on another 14,000 MW projects including 4,500 MW Dasu hydro power project, Diamir-Bhasha Dam, Karachi nuclear power project and Tarbela Extension, etc.

The government also managed to restore overall peace in the country, especially in Karachi, Balochistan and tribal areas, he said and added that armed forces deserve great appreciation for making the Zarb-e-Azb a successful operation against terrorists.

The federal minister congratulated the young officers on successful completion of their training. He also announced that Pakistan Tax Medal would be launched after finalizing its modalities with the authorities concerned.

Earlier, Haroon Akhtar appreciated Ishaq Dar and his team for reviving and taking the country’s economy to new heights. At the end, the finance minister gave away certificates and shields among the passing out officers.

Later talking to media persons, Ishaq Dar said the visit of Indian Prime Minister Narendra Modi to Pakistan last Friday was a goodwill gesture.

He said Modi came here to pay greeting and best wishes to Prime Minister Nawaz Sharif on his birthday.

To a question, Dar said Narendra Modi’s visit was not pre-planned as he telephoned his Pakistani counterpart on Friday, and expressed his wish to pay him birthday greetings personally in Pakistan by making a stopover in Lahore on his way from Kabul to New Delhi.

To another query, the federal finance minister said today Pakistan was better and sound economically than what it was in 2013, when PML-N came into power. “Insha Allah, Pakistan will be much stronger by all aspects in 2018,” he added.

The global institutions, which in the past, had been predicting Pakistan to be declared as bankrupt state but today all of them were appreciating our economic developments, he said, asserting that the countries which had stopped trading with Pakistan now restored their business keeping in view the improved economic indicators of Pakistan.

He added that today Pakistan’s GDP growth rate was the highest in the Sarrc region while annual tax collection growth reached up to 16.5 percent from mere three percent in the past.



Dawn, Business & Finance weekly, December 14th, 2015

THE Sui Northern Gas Pipelines Limited announced last week that it would be cutting gas supplies to the entire industry in Punjab from Wednesday ‘until further notice’.

This did not surprise manufacturers and only added to their frustration and anger against the Nawaz Sharif government.

While textile producers, who annually fetch almost 55pc of the country’s total export earnings, issued a couple of statements warning of “the adverse impact of the gas cut on their cost of doing business, exports and jobs,” the industry appeared to have stoically accepted the decision as fait accompli.

Ironically, the SNGPL’s decision coincided with the release of trade numbers for the first five months of this fiscal, which showed that the country’s exports declined by just under 14pc to $8.54bn from $9.9bn a year ago.

Growing energy shortages and the rising cost of doing business over last several years has not only stalled fresh investment in the manufacturing industry but also spawned bankruptcies.

At least 35 textile factories in Punjab, which houses around 70pc of the production capacity, have already closed down. Some manufacturers sold their factories for a pittance and several others have put their mills on the market as part of their plans to exit textile manufacturing.

Others are struggling to survive as one-third of the total textile and clothing (T&C) production capacity in the province — equivalent to export revenues of $3-3.5bn — has shut down primarily owing to high cost of doing business, claims the All Pakistan Textile Mills Association (Aptma).

A variety of factors — energy crunch, high electricity and gas rates, unpaid tax and other refunds, multiple local, provincial and federal taxes on exports, appreciation of the rupee, import of cheap Indian yarn etc — are responsible for the unprecedented surge in the cost of doing business. This has made Pakistan’s products dearer in the international markets than those of competitors like India, Bangladesh and Vietnam.

Pakistan’s share in the world T&C trade of an estimated $718bn has plunged to 1.7pc from 2.2pc less than a decade ago, with regional rivals capturing a greater market share. Bangladesh’s share has increased from 1.9pc to 3.3pc and India’s went from 3.4pc to 4.7pc during the same period.

“The textile and clothing industry [in Punjab] was getting only 17pc of its gas requirements for producing [cheaper] electricity and running processing mills. Even that has stopped,” says an exporter from Lahore. “By doing so, the government has sent a very bad message to the industry: we don’t care if the industry operates or closes down.”

Manufacturers like Shahid Mazhar argue that the export-oriented large-scale textile industry in Punjab could be saved from total collapse if it is provided continuous power supply at regionally competitive prices or if 24/7 gas supplies for captive power generation are restored for it, like it is in Sindh and Khyber Pakhtunkhwa.

Asghar Ali, chairman of the Faisalabad-based Pakistan Textile Exporters Association (PTEA), says gas cuts will have ‘multi-dimensional’ consequences for the industry.

“This decision will not only lead to production cuts but also put thousands of jobs at stake. At a time when industrial production and exports are declining, the curtailment of gas to factories will leave industrialists with no other option but to shut down their mills.”

An Aptma-Punjab spokesman also voiced similar concerns. “The discontinuation of gas will lead to export and job losses in the province on a bigger scale. At least 200,000 jobs in the textile industry in Punjab have already been lost in the last five years.”

A textile producer from Faisalabad, who asked not to be identified, said the government’s seriousness could be gauged from the fact that it had not announced the relief package it claimed it had put together to restore the viability of the industry.

“Who should we turn to when the prime minister does not fulfil his commitment,” he asked. “The solution to the country’s problems lies in investing in manufacturing and in producing exportable surpluses and not in borrowing from global lenders like the IMF.”

According to the State Bank of Pakistan, the country has been facing a slowdown in industrial growth since 2009.

“The persistent energy shortages, difficult security situation and low investment rate are some of the reasons for this slowdown. Despite low cotton prices (reflecting better crop) in the local market, the production of cotton yarn and cloth saw a slowdown in 2014-15. The domestic industry continues to face multiple constraints, such as delays in the settlement of sales tax refunds and persistent gas shortages, especially in Punjab.

“A further setback came when the depressed external demand held back growth in production,” reads the SBP’s state of the economy report for the last fiscal year.

The report admits that Pakistan could not take advantage of the trade concessions allowed by the EU’s GSP Plus scheme.

“During the initial months following the granting of GSP-Plus, the textile industry successfully expanded its export share in the EU market. However, this came at the expense of other markets (e.g. China and the US). In fact, Pakistani yarn is losing export market in China to India and Vietnam.

“Even in the domestic market, low-cost Indian yarn has been gaining grounds. In fact, Pakistan could not contain its imports of Indian yarn. The industry is, therefore, demanding a higher import duty on yarn imports from India.”

Although the report celebrates an ‘improvement’ in the external sector, it admits a boost in exports is necessary along with foreign direct investment (FDI) to sustain it.

“Two factors are critical for sustaining this stability over a longer time period: exports and FDI. As things stand, exports declined by 3.9pc last fiscal (mainly in quantum), whereas FDI inflows more than halved. In fact, it is the weakness in these two indicators over the past few years that made Pakistan increasingly dependent on external borrowings.

“How to boost these indicators and build servicing capacity against fresh borrowings, therefore, remains our major concern,” the report adds.

In the case of exports, global factors appear predominantly responsible. Many emerging economies are struggling with lower export revenues as depressed commodity prices weigh on nominal export values.

“However, despite this commonness, there are three concerns that are distinct for Pakistan: [First], in the case of other emerging economies, export volumes were mostly unhurt. But [for] Pakistan, exports were pulled down primarily by quantums; this suggests that even if prices had stayed the same as last year, Pakistan’s exports would have declined.

“[Second], Pakistan’s share in world exports has begun to taper from fourth quarter of FY15 onwards. Intuitively, this period has coincided with divergence in the real effective exchange rate (REER) trend between Pakistan and other countries: while the rupee appreciated in real terms during Q4FY15, other Asian currencies posted real depreciations.

“And [third], while the weakening in the euro has made the EU a tough market for almost every exporting country, Pakistan has failed to benefit from the booming US market.

In fact, Pakistan’s exports to the US have actually declined at a time when the US’ overall imports have increased to record-high levels,” the report concludes.

While the SBP report largely confirms the claims of the textile and clothing producers and exporters, it is unclear if the government is prepared to support the distressed industry.


Dawn, Business & Finance weekly, December 14th, 2015

WHILE local people and companies are worried sick about the country’s ‘image’ and the possible ‘fallouts’ of terrorist acts even when they occur as far away as in San Bernardino, global investors focusing on frontier markets vouch for Pakistan’s future.

Frontier markets, a term coined in the 1990s, refer to countries with investible stock markets that are less established than those in emerging markets. Such economies are pursued typically by investors willing to take the risk for potentially higher returns.

Some of the risks associated with frontier markets include political instability, poor liquidity, inadequate regulations in certain areas, substandard financial reporting, volatile currency market and disproportionate dependence on volatile commodities.

Pakistan descended from emerging to frontier market category in 2008 after the capital market crash followed by a shutdown for days in the period of major political upheaval. The MSCI, known for benchmarking world equity markets, hinted earlier this year that it was actively considering reclassifying the Pakistan Index from ‘Frontier’ to ‘Emerging Market’ in 2016.

“Mark my words: as the political system stabilises and the security situation improves, there is nothing stopping Pakistan’s ascent. It has all it takes to hit the next level,” said a frontier market specialist.

While introducing the country to their Swedish investor base, Tundra Fonder describes Pakistan’s capital market on its website as “one of the more developed…Most of the largest companies listed…have a track record of 30-40 years…There is deep-rooted corporate culture…80pc of trade is transacted by locals and market liquidity is good comparatively. It is easier to analyse companies in Pakistan since all listed companies are obligated to follow international accounting and disclosure standards…Pakistan remains one of the world’s cheapest markets”.

“We are truly excited over our discovery of real Pakistan, which tops the category of frontier markets by a sizeable margin. We entered the market by investing at the Karachi Stock Exchange and were astonished by the returns, which were 60pc higher than our performance benchmark. Within three years, we launched the first country-dedicated fund, Tundra Pakistan, and signed it in on the platform created in Sweden for pension fund investment in capital markets. [Sweden has allowed 17pc of the huge pool of state pension fund investment in capital markets]. Today, Tundra Pakistan is among the top performers listed on the platform,” a senior Swedish executive said.

“About 40,000 Swedes out of a total population of a mere 10m already have their money invested in the capital market of Pakistan through multiple investment funds, against 100,000 local retail investors in a population of 191m,” he threw numbers to support his view of the comparative charm of Pakistan’s capital market and the growing interest in Europe to place it on the continent’s investment map.

Talking to Dawn last week in their office by the seafront in Karachi, Jon Scheiber and Johan Elmquist, respectively the CEO and a partner at a Swedish investment company, Tundra Fonder, were visibly excited about the country and its future.

The company opened its office in Karachi this year to conduct market research, profile listed companies on sustainable standards, direct interactions for greater insight on work ethics and future direction of companies of interest, and to launch an advocacy drive for adopting of standards that Swedish investors care about.

Tundra Fonder manages six mutual funds that invest in four frontier markets: Pakistan, Bangladesh, Vietnam, Sri Lanka and Nigeria. One dedicated fund with a geographical focus invests exclusively in Pak­istan. According to background research, the company has invested $145m in the country since 2011, making up about 68pc of the total assets it is currently managing.

“Now is the right time to invest here as we believe the market is under-valued. We are long-term investors and take at least a 10-year view unlike footloose investors who are in and out on a daily basis. We leverage risk by choosing big established consumer and infrastructure-related companies over those in more cyclical sectors such as energy and commodities,” Scheiber said while discussing the dominance of bears in the capital market this year after a three-year-long bull run.

Selling by foreign investors has been stated as one of the key reasons for the depressed capital market in 2015; outflows from the KSE have amounted to around $290m so far this year. In sharp contrast, Tundra has increased its investment exposure in the country by 33pc since January.

Explaining the purpose of their visit, the duo said besides supervising organisational affairs in their newly established office, they were in Pakistan to speak at a seminar arranged in collaboration with the KSE.

“We wished to explain to the management of listed companies the value of adopting new standards of sustainability and social audit to attract investment from more aware investors in Europe, who tend to be more discrete in their choice of companies they like to support,” the visiting investment strategist said.

Commenting on their experience in Pakistan, they said the indoor environment is as comfortable and professional as in any developed country with the pleasant exception of access to cheaper, qualified and motivated pool of young people. But on the outside is an unknown territory that looks risky.

“Never in my life have I seen such a high visibility of heavy armament on roads in otherwise perfectly normal cosmopolitan cities as I have in Karachi. I find it abnormal and scary,” Elimquist commented.


The News, December 15, 2015

LAHORE: With 70 textile mills already closed in Punjab due to commercial non-viability, another 100 mills have submitted to All Pakistan Textile Mills Association (Aptma) in writing to close their units if the government failed to restore their competitiveness, a statement said on Monday.

APTMA Punjab Chairman Amir Fayyaz addressing a press conference said that the government’s priority is not only to boost exports, but also increase the foreign exchange reserves through borrowing at a mark-up of six to eight percent.

He said the millers are not demanding any subsidy, but simply to withdraw the unjust surcharge imposed on the power tariff to deny the industry the benefit of low power cost due to decline in the furnace oil rates.

Fayyaz said that this step was taken despite the fact that the power rates in Pakistan are higher than the regional economies.

He was appalled at the speed with which the subsidy on sugar export was approved to facilitate influential. He said the government is denying tax refunds paid by the exporters during production despite the fact that exports are zero-rated.

Sugar mills would not be charged sales tax on exports and in addition will be subsidised by Rs13 per kg on exports, Fayyaz said.

The lopsided power rates are hurting Punjab industries, as industries in other three provinces produce power from natural gas that is 35 percent cheaper, he said, adding that the industry in Punjab has been deeply disappointed by the anti-industry stance of the present regime.

“It was considered a pro-business government having large following in the textile sector,” he said.

Aptma Group leader Gohar Ejaz said that it is ironical that the government has not appointed any textile minister.

The industry runs from pillar to post for redressal of its grievances, he said, adding that the Ministry of Commerce has also failed in announcing the trade policy even after six months of the announcement of the federal budget.

Aptma would call a conference of stakeholders of entire textile chain this month to evolve a joint protest strategy, he added.



Dawn, December 9th, 2015


Towards the end of December, budgetary reappropriations, ie moving budgets from underspent heads to other account heads, will take place. Although there are some elementary efforts to include citizens in the budget-making process in Pakistan, there is no such avenue available when it comes to budget re-appropriations.

Globally, avenues for citizens’ empowerment and listening to their voice in policymaking are being explored and implemented with reasonable success. However, public participation in more technical areas like budget-making, ensuring transparency in the process and more importantly holding governments accountable, is a nascent exercise.

Despite some preliminary efforts, the concept of public participation in budget-making has not taken root in Pakistan as subsequent governments have disenfranchised people from using this right of participation. Referring to the Open Budget Survey 2015, Pakistan scored a poor 10 points out of 100 on public participation in the budget process. Pakistan’s score is the lowest in South Asia.

The governments of KP and Punjab have started developing ‘citizens’ budgets’ aimed at providing citizens, civil society and parliamentarians with non-technical and easy-to-grasp information about budgets. Despite being a first step towards enabling public participation, one may wonder about the benefits of going through these documents.

Questions like ‘what’s in it for me?’, ‘would knowing the budgetary allocations do me any good?’ etc are not unheard of when citizens debate these documents. Merely providing comprehensible data will not suffice unless citizens are provided avenues for participation in the process. It would be relevant to see how various countries are providing opportunities to their citizens for participating during the budget cycle.

A number of countries have started realising the potential of participatory budgeting (the process of providing a chance to the community to prioritise the spending of public budgets) and now allow for citizens’ input. Apart from developed countries, some developing countries also encourage citizens.

Mexico has a federal law of budget and fiscal responsibility which, among other provisions, calls for promoting mechanisms for citizen participation in tracking public expen­­­diture and publishing budget information which is transparent and accessible to the public. It also seeks promotion of participation of beneficiary communities in the planning, implementation, control, monitoring and evaluation of projects to be undertaken.

In South Africa, a planning commission comprising government and non-government representatives was established to set long-term priorities until 2030. These priorities feed into short-term plans and budgets. In South Korea, the process of public participation and seeking input on wasteful spending and budget misappropriations has resulted in revenue increases of around $11bn and expenditure savings of around $2bn.

In Kenya, the constitution and statutory laws allow for participation of citizens and civil society during the budget formulation and approval process. The Philippines has adopted a mixed approach to public participation by introducing the grass-roots participatory budgeting concept through which poverty reduction action teams are created comprising an equal number of government and non-government representatives, and consultations with CSOs.

There are also a number of examples where local governments are promoting public participation in the budget process. In Porto Alegre, Brazil, since 1989, citizens can voluntarily contribute to budgetary decision-making and their decisions have a strong impact on the spending of municipal budgets.

In La Plata, Argentina, since 2008, the engagement of citizens in the allocation of city budgets is ensured through face-to-face deliberations and some innovative channels. In Rosario, Argentina, since 2002, over 4,000 residents discuss the city’s budget-spending ideas at neighbourhood assemblies.

The potential for citizens’ participation during the complete budget cycle is thus being acknowledged across the globe with an aim to promote transparency and accountability during the process and ensure the best value for money. In Pakistan, public participation during the budget cycle has a long way to go.

Despite some initiatives to provide easy public access to information, citizens do not have any incentive to participate in the budget process. Neither does their input have any impact on the government’s budgetary decisions, nor are there mechanisms to hold governments accountable for its priorities.

It is time the federal and provincial governments took steps to ensure citizens’ involvement in the budget process, not only at the planning level but also when it comes to monitoring the implementation of these documents. This can be ensured by establishing reliable mechanisms like public hearings, social audits, surveys and focus groups where public perspectives on budget matters are heard and concerns duly entertained..


Dawn, December 13th, 2015

KARACHI: The State Bank of Pakistan’s (SBP) annual report issued on Friday included some concerning reports of the World Bank and analysed the situation that is alarming and threatening for the country’s economy.

“Even if Pakistan grows at an average growth of 8.3 per cent, it will not be able to reach the income level of OECD (Organisation for Economic Cooperation and Development) countries before the year 2050,” the SBP report said, quoting a World Bank report on development.

However, with such growth Pakistan would be able to absorb the labour force and get closer to developed economies. The Vision 2025 already targets GDP to grow above 8pc from 2018 and onwards; this performance will elevate the country from lower-middle-income to upper-middle income level, it said.

“Certainly, this will be a challenging task, as a review of historical trends clearly shows very few occasions when the GDP growth had exceeded the 8pc level,” said the report.

The SBP report said that more than 40pc of the workforce in Pakistan is still engaged in low-productive agriculture sector (and also vulnerable to potential climate changes), which contributes only one-fifth of GDP.

“On the other hand, industry (where labour productivity is highest) absorbs 23pc of the labour, and it has performed poorly in recent years,” said the report. Low and falling share of industry in GDP and its concentration in a few sub-sectors (like textile and sugar) is a major concern, the SBP said, and suggested: “We need policies to absorb skilled labour in most productive sectors of the economy.”

The central bank noted that Pakistan’s rank in Global Competitiveness Index has slipped from 83rd (out of 131) in 2006-07 to 129th (out of 144) now. “In this situation, the burden to steer productivity growth and create sufficient jobs for growing workforce falls on the service sector.”

However, even the growth of the service sector is far lower than peer countries in the region, said the report.

We need to transform the economy by improving productivity across all sectors. Investment is an essential pillar of growth; Pakistan will have to substantially raise its investment rate from the current 15.1pc of GDP (public and private sectors).

Pakistan is one of the most water-stressed countries in the world. According to World Bank estimates, per capita availability of water in Pakistan is well below Afghanistan, India, Bangladesh and Somalia. This stress is likely to worsen further in view of growing population and stagnant supply.

Moreover, despite being categorised as one of the most water-stressed countries in the world, Pakistan still allows large losses and inefficient use of water, the report said. “This is alarming as water scarcity is likely to only worsen going forward due to growing population and urbanisation.”

In this situation, conservation of water through containing losses and improving productivity becomes the only viable option, it added.

Addressing the water scarcity, an equally important issue, is far more complicated as it requires close coordination between federal and provincial governments, it said, adding: “What we need is more storage to capture seasonal surpluses, and an appropriate pricing to incentivise water conservation.”


Dawn, December 13th, 2015

ISLAMABAD: The government should make efforts to minimise its reliance on debt by increasing exports, reducing imports and increasing revenue collection, said economists at a conference on Saturday.

The day-long ‘National Debt Conference’, organised by PRIME Institute, was aimed at increasing awareness about debt structure, sustainability and management for intelligentsia, policymakers, debt managers and business community.

Speaking on the occasion, Dr Hafeez A. Pasha stressed the need for enhancing domestic exports by 20 per cent by 2018-19 to bring down the current account deficit.

He said that Chinese investment inflow of about $46 billion under the China-Pakistan Economic Corridor (CPEC) would increase the debt burden in local economy. However, investment in energy generation and LNG projects should be used as a multiplier for national economy.

He said that investment in mega energy generation projects would help overcome the energy shortages that would also help rapid industrialisation and job creation in the country.

The current programme with the IMF would come to an end by next September, he said, adding that by prioritising the exports, enhancing tax-to-GDP ratio and curtailing the non-developmental expenses, Pakistan could avoid another programme.

Dr Pasha asked the government to make a new medium-term growth strategy after initiation of CPEC project for next five years as well as to meet the foreign and domestic debt challenges.

Speaking on the occasion, Dr Kaiser Bengali asked for using local coal reserves in power generation to reduce burden on forex reserves, besides making measures to boost exports of coal from Thar.

He stressed the need for upgrading the transmission and distribution lines besides installing the power generation plants and making appropriate measures to increase recovery of electricity bills to reduce circular debt.



Dawn, December 1st, 2015

ISLAMABAD: The government introduced on Mon¬day a ‘mini-budget’ envisaging additional tax measures of over Rs40 billion by imposing 5-10 per cent regulatory duty on import of 61 items, increasing duty by 5pc on another 289 items and levying 1pc additional customs duty on thousands of other items.

The decision was announ¬ced by Finance Minister Ishaq Dar at a news conference after presiding over a meeting of the Economic Coordination Committee of the cabinet to comply with a pre-condition of the Interna¬tional Monetary Fund on the last day of its deadline.

“Additional revenue measures have been taken to make up for a shortfall of Rs39.8bn in the revenue target for the first quarter of the current financial year,” he said. The committee also imposed 30pc regulatory duty on import of maize and kept unchanged the support price for wheat at Rs1,300 per 40kg.

He said the ECC extended the applicability of 0.3pc withholding tax (ins¬tead of 0.6pc imposed in the current year’s budget) on banking transactions and filing of income tax returns to Dec 31.

The meeting did not take up a proposed $16bn contract for import of liquefied natural gas from Qatar.

Mr Dar said additional measures would generate Rs4.5bn through imposition of 5-10pc regulatory duty on 61 items which had no such duty. He said the Federal Board of Revenue had identified around 1,400 non-essential imported luxury items that had eaten away almost half of around $3bn savings in the shape of lower oil import bill, but being a member of the World Trade Organisation it was not possible for Pakistan to ban them.

Mr Dar said another Rs4.5bn would be generated by increasing by 5pc the duty on import of 289 items. The government would also get Rs21bn through 1pc additional duty on all items in the 5th schedule of the Customs Act currently being charged at up to 20pc customs duty.

Nine categories having impact on common man would remain exempt from 1pc additional duty. The list includes all non-dutiable imports, agriculture machinery, essential raw materials and inputs for textile, agriculture, pharmaceutical and aviation sectors, socially sensitive items like vegetables and priority industrial items of coalmining and renewable energy given protection under the 5th schedule, excluding the poultry sector.

Other exempted areas from 1pc fresh import duty include import of fertilisers, seeds and spores for sowing, plant and machinery for manufacturing of goods, the telecom sector and raw materials of 25 sectors like artificial leather industry, pesticides, sugar mills, fan and flat rolling steel industry, electric motors, etc.

Another Rs6.5bn would come out of increased Federal Excise Duty (FED) on locally produced cigarettes and Rs2.5bn through 10pc increase in duty on import of second-hand vehicles above 1,000cc capacity.

The minister said the FED on locally produced cigarettes valued at Rs3,600 per 1,000 cigarettes would attract Rs3,150, instead of Rs3,030 while lower valued cigarettes would be charged Rs1,420 per 1,000 cigarettes duty, instead of Rs1,320.

He said the import duty on 800cc and 1000cc used vehicles would remain unchanged at $4,800 and $6,000 per car. The duty on 1000-1300cc vehicles was increased by 10pc to $13,200. The duty on all bigger capacity vehicles was increased by 10pc to $18,500 on 1300-1500cc, to $22,500 on 1501-1600cc and $27,900 on 1601-1800cc. The luxury vehicles would also attract 10pc additional duty.

The duty on locally assembled vehicles had not been changed.

In reply to a question, Mr Dar said the government would fight out a high court’s stay order on collection of super tax to preserve its right to impose tax and file a reference before the apex court to restrict such prohibitive orders which hamper smooth functioning of the revenue team.

List of items

Some of the 61 items that have attracted fresh duties of 5-10pc are: live poultry, frozen fish including fillets and fish meat, coconuts, brazil nuts and cashew nuts, almonds, preserved meat including offal or blood, cocoa paste and cocoa butter, ground nuts, pineapples, citrus fruit, pears, apricots, cherries, peaches, strawberries, tea and coffee essences and concentrates, trunk and suit cases-brief cases apparel and clothing accessories of leather, men’s, women’s and boy’s overcoats, jackets, baby garments and clothing accessories, garments like track suits and swimwear, handkerchiefs, ties, shawls, scarves, mufflers, curtains and interior blinds, tarpaulins and tents, footwear and their parts, imitation jewellery, watches, diapers and sanitary towels.

Some of the 289 items on which regulatory duty was increased from 10 to 15pc are: yogurt, butter, dairy spreads and others, cheese, curd, grated or powdered cheese of all kinds, natural honey, pineapples, avocados, guavas, mangoes, frozen mango, mango pulp, oranges, kino (fresh) , grapefruit, dried litmus products, watermelons, papaws (papayas), apples, pears, quinces, apricots, sour cherries, peaches, plums and sloes, strawberries, raspberries, blackberries, mulberries and loganberries, black, white or red currants and gooseberries, kiwifruit, durians, persimmons, pomegranates, strawberries, raspberries, blackberries, mulberries, loganberries, black, white or red currants and gooseberries, cherries, apricots, prunes, apples, cherries, pine nut (chilgoza), peaches (aaroo), plums (aloocha), lichis, raisins, mixtures of nuts or dried fruits of this chapter, peel of citrus fruit or melons (including watermelons) fresh, frozen, dried or provisionally preserved in brine, in sulphur water or in other preservative solutions, chewing gum, whether or not sugar- coated, white chocolate, cocoa powder, containing added sugar or other sweetening matter, chocolate preparation, malt extract, preparations other than in retail packing, not containing cocoa, containing eggs, vermicelli, stuffed pasta, whether or not cooked or otherwise prepared, other pasta, couscous, corn flakes, prepared foods obtained from unroasted cereal flakes or from mixtures of unroasted cereal flakes and roasted cereal flakes or swelled cereals, bulgur wheat, crisp bread, gingerbread and the like, sweet biscuits, waffles and wafers, rusks, toasted bread and similar toasted products, cucumbers and gherkins, pickles, tomatoes, whole or in pieces, tomatoes paste, mushrooms of the genus agaricus, potatoes and other vegetables and mixtures of vegetables.


The Express Tribune, December 2nd, 2015.

ISLAMABAD: Inflation increased by 2.7% in November on the back of spike in prices of essential food items, amid concerns that rates of other consumer items will also significantly increase in the coming months due to the mini-budget announced by the government this week.

Inflation, measured by Consumer Price Index (CPI) that captures prices of 481 commodities every month in urban centres, rose 2.73% in November on a year-on-year basis, said the national data-collecting agency.

The sudden spike in prices was expected due to bottoming out of commodity prices and erosion of base effect. However, the jump was more than expectations, as inflation stood at 1.6% in October.

For the first time in more than one and a half years, the non-food non-energy inflation, commonly known as core inflation, increased to 4% in November over a year ago. The core inflation had been recorded at 3.6% in October. This shows that the underlying inflationary pressures have started building up, as the experts give more importance to food and fuel-adjusted inflation, which is not susceptible to seasonal price shocks.

The downward inflationary trend reversed due to increase in prices of essential food items, said Shaukat Zaman, Director Prices of the national data collecting agency.

The government on Monday introduced a mini-budget to raise Rs40 billion. It has increased regulatory duty rates on 350 items besides imposing additional 1% customs duty on thousands of imported items. The importers would pass on the taxes to the consumers, which economists fear will fuel inflation.

In near future, the impact of increase in customs duties would not be significant, as the commodity prices remain low. However, as soon as the commodity prices in the international market bounce back, the country may see a surge in imported inflation, said experts.

They said increase in prices of commodities would also allow domestic producers to increase their rates. Out of 350 items that saw further increase in regulatory duties, as many as 183 are food items.

The five-month average CPI-based inflation rate in July-November period also slightly picked up to 1.9%, said the PBS. It will not affect the overall inflation target of 6%. For the current fiscal year, the government has set the inflation target at 6%.

In an anticipation of increase in prices, the State Bank of Pakistan kept the key policy rate – rate at which it lends to commercial banks – unchanged at 6% in its last monetary policy announcement.

According to the PBS, prices of food and non-alcoholic beverage group increased 1.3% in November over a year ago. In October, the food group prices had contracted by 1%. The food group has over one-third weight in CPI basket and any change in price trend has an effect on overall prices.

Prices of perishable food items increased 3.7% year-on-year basis in November while non-perishable food items group saw an increase of about 1%, according to the PBS.

Prices of tomatoes jumped almost 100% in November, followed by 84% increase in prices of onions, 56% in pulse gram and 38% to 50% in the prices of pulses. Cigarettes prices increased 17%, which are expected to see further hike due to 7.5% increase in federal excise duty rates on cigarettes.

There was also upward trend in prices of garments, tailoring and education. The cost of education increased 8.8%, according to the PBS. Contrary to upward adjustment in CPI-based inflation, the Wholesale Price Index (WPI) remained negative. The WPI-based rate of inflation contracted 1.7% in November over the previous year, said the PBS.


Dawn, December 3rd, 2015

ISLAMABAD: At the cost of slowdown in disbursements for development projects of federal ministries, the overall spending under the Public Sector Development Programme increased by 82 per cent to Rs216 billion during the first five months of the current fiscal year, mainly because of a surge in security-related spending in the tribal region.

During the same period last year, an amount of Rs118.6bn was spent under the PSDP.

Some projects in road network and power generation are also being initiated under the $46bn China-Pakistan Economic Corridor (CPEC) this year.

In its latest report on development spending, the Planning Commission said the government had disbursed over Rs52.6bn for special development projects for security enhancement and temporarily displaced persons during the first five months (July-November) against an annual allocation of Rs100bn.

This was the biggest spending so far this year by any sector but, according to an official, details of expenditures on various projects under this head have been kept as a ‘guarded secret’ because of their utilisation by the armed forces.

Another big disbursement was made for the power sector, which received about Rs37.5bn in the first five months, compared to a meagre amount of Rs2.96bn allocated during the same period last year, showing an increase of 1167pc.

Of this, a lion’s share of Rs10bn each was released for LNG-based power projects at Balloki and Haveli Bahadur Shah in Punjab. No details were given about other projects for which Rs17bn had been disbursed.

Ironically, the allocation for the water sector was reduced by about 60pc to Rs5.6bn from last year’s Rs14bn, although the country is fast heading towards water scarcity.

Another major chunk of Rs29.3bn was provided to the National Highway Authority (NHA). It received about Rs19bn last year.

Wapda and NHA were jointly disbursed Rs66.8bn against Rs21.9bn last year, indicating an initial pick up in the projects planned under the CPEC.

On the other hand, total disbursements for development projects of all 37 federal ministries were contained at only Rs58.9bn against last year’s Rs80bn. Last year’s PSDP expenditures were scaled down to the level of fiscal year 2013-14 in the first five months to make up for a fiscal deficit higher than the commitment made to the IMF because of failure to meet revenue collection target.

The disbursements for special areas under the federal control like Azad Kashmir, Fata and Gilgit-Baltistan were kept frozen at the level of last fiscal year – Rs15.5bn in the first five months this year.

The disbursement for the Pakistan Atomic Energy Commission was reduced by 75pc to Rs5.9bn from last year’s Rs24bn.

Projects under the interior ministry received Rs3.33bn in the first five months against Rs1.44bn during the same period last year. The disbursement for the Higher Education Commission was raised by 142pc to Rs18.7bn from Rs7.7bn.


Dawn, December 3rd, 2015

KARACHI: The government’s borrowing surged 93 per cent to Rs595 billion during the first five months (July 1 to Nov 20) of this fiscal year compared to Rs309bn it raised from the scheduled banks in the corresponding period last year, the State Bank reported on Wednesday.

Recently the finance minister claimed that the strategy is now to push growth and create employment, but the government has accelerated the pace of borrowing creating severe liquidity problem for banks and the State Bank has to inject Rs1.3 trillion into the system every week.

While the finance minister stressed financing for small and medium enterprises (SMEs) sector being the backbone of the economy, the government leaves no liquidity with banks to finance SMEs or other sectors of the economy.

A record borrowing of Rs1.413tr was made by the government from the scheduled banks in the last fiscal year. However, the government retired Rs227bn loans of the State Bank.

The private sector was the direct victim of heavy government bank borrowings reflecting in poor credit-off take of just Rs40bn in first five months of this fiscal compared to Rs58bn in the same period last year.

Analysts say the debt retirement of the central bank helped keep the inflation at low level. The inflation is currently at decades low and the interest rate has gone down to 6 per cent.

Despite this very attractive scenario, the private sector credit offtake failed pick up. Analysts have been suggesting the government to avoid borrowing from scheduled banks to push up economic growth.

The large borrowing supplemented the budgetary deficit but revenue shortfall is still haunting the government. The borrowing for budgetary support rose to Rs206bn during the period under review.

The revenue shortfall compelled the government to tax more to bridge the Rs40bn gap in the revenue collection.

The new tax has been widely criticised but the government is bound to raise this much amount as per the agreement with the IMF. The trend shows the government will continue to borrow in the wake of low growth and low revenue collection.


The Express Tribune, December 3rd,  2015.


KARACHI: The government fired its latest measure to increase tax collection to meet an ambitious target for fiscal year 2016, saying the mini-budget is targeted at those consuming “luxury goods”.

What the government was unable to do was spare infants from its expanding tax claws.

Besides cheese, mangoes and cars, regulatory duty has also been enhanced on import of infant milk products, which are considered essential items for babies who are not fed by their mothers.

More than half the infant milk demand is met by imports, which are already subject to between 29% and 30% taxes, including regulatory duty, federal excise duty and withholding tax.

Now duty on infant milk has been increased by another one per cent. However, a pressing concern for industry executives is the 5% increase in duty on nutritional supplements for pregnant mothers.

“I seriously think this is a mistake,” said S M Uzair, CEO of Global Brand Marketing, which sells Meiji products in Pakistan. “It’s a case of oversight because infant milk is no luxury from any angle whatsoever.”

Barring income tax that gradually increased over the years, import duty has remained unchanged on infant milk for the last 10 years.

The fact that the government does not levy any sales tax on infant milk products has made the recent increase in regulatory duties even more of “a matter of omission”.

Manzoor Ahmed, the CEO of Nutrico, which markets Morinaga products, says he fails to understand the rationale behind the duty.

“You know very well that sales tax is applicable on almost all products. Infant milk was among that small category of things, which had been exempted from sales tax. Obviously this means that successive governments have considered it as an essential product like medicines,” he said.

Both executives believe the additional 1% duty on infant milk would not impact sales. But it is rather a matter of principle on which they vehemently oppose the tax.

However, increase in the regulatory duty on nutritional or lactating milk for pregnant women has become a matter of concern.

“The regulatory duty on such products has been increased to 15% from the previous 10%, putting the products in the category of cosmetics like lipsticks,” says Uzair of Meiji.

The two dominant players in the industry bitterly opposed the notion that only ‘rich’ mothers would want to use such supplements. “Some of the products are used by pregnant mothers who are malnourished,” says Uzair. “Others are for premature and underweight babies. It’s sort of an imperative.

“It’s a misconception that this is a kind of a luxury for the rich. In Pakistan, 95% of the babies are still breast-fed. Our products are for those 5% cases where there is some problem,” Manzoor concurred.

The infant milk market is divided between Morinaga, Meiji and Nestle – which makes the products in Pakistan.  Morinaga and Meiji are imported from Japan and sell at a premium.

Size of the market in terms of sales revenue and quantity is around Rs25 billion and 25,000 tons a year, respectively. Roughly around 10,000 tons of infant milk is imported.

However, the Pakistan Bureau of Statistics (PBS) combines infant milk with milk cream when reporting import numbers. As per the PBS, import of milk cream and milk food for infants in fiscal 2014-15 was 77,000 tons. It cost $289 million.

Industry officials say that latest regulatory duty would not yield government more than Rs120 million, making it a miniscule part of the Rs40 billion mini budget.


The News, December 03, 2015

Mansoor Ahmad

LAHORE: The increase in import duties and intact petrol and diesel prices again prove that the government lacks the will to generate revenues from tax evaders and under-fillers, and has failed to improve the efficiencies of the public sector enterprises.

Senior economist Naveed Anwar Khan said, “Finance Minister Ishaq Dar boasts that the government does not take dictation from the International Monitory Fund (IMF). Yet it was on the IMF dictate that he was forced to announce enhancement in import and excise duties.”

Despite that the revenues could have been increased by other measures, the government avoided to do so, Khan lamented, citing it would have annoyed some influential.

He said Dar’s assertion that the increase would have no impact on the common man was far from reality. One percent increase in import duty has an impact of at least 1.35 percent on the cost, as almost all imports are subject to 16 percent sales tax and 3-6 percent advance withholding tax. He said as far as higher increase in import duties on luxury items was concerned, most of these imports should not even be allowed. He said that these luxury items were consumed by the rich that constitute only two percent of the population and account for almost 35 percent of the import bill.

Khan said the country needs more revenues and fewer expenses. More than Rs40 billion could be saved simply by faithfully following the merit order in power production. He said the National Transmission and Distribution Company (NTDC), was bound by law to only order power supplies from companies that produce energy at the lowest rates. The public sector generation companies produce the most expensive power using furnace oil. Unfortunately, he added the NTDC never fails to place power purchase orders with the most expensive power producers.

“This persistence with the most expensive power producers gives credence to the rumours that the inefficiencies in these companies are falsely documented to mint money which is distributed across the chain in the power management,” Khan said, adding there was otherwise no logic to stick to buying energy from the public sector. He said merit based power purchase would save Rs80 billion per year.

Citing smuggling as another drain on the economy, Khan said the government circles concede that Rs260 billion in revenue was lost annually due to smuggling.

“Some serious efforts can save at least 1/3rd of this amount per year. The rest could be gradually saved by plugging smuggler routes along the borders,” he said, adding this would again mean nabbing some influential people.

Economist Faisal Qamar said that taxpaying companies and individuals were like a hen laying eggs made of gold. He said by increasing the tax burden on the compliant sectors, the government was slaughtering the hen to take out whatever it can in one go and forget about collecting future taxes. He said untaxed sectors should be brought in the tax net.

“Some quarters wonder as to what will happen when the government misses the revenue target for next quarter,” Qamar said, adding the new taxes would cover the deficiencies of the last two quarters till June.

Calling the finance minister a competent accounts expert, the economist said Dar has not passed on the benefit of low petroleum prices to the consumers for the last two months. This will cover some of the deficiencies in collection of taxes, he added.

Qamar said the weakness in revenue collection would remain in the system until the government musters courage to bring full transparency and accountability. The economy in the 21st century could not be run on inefficient institutions and rampant corruption. He said the state run institutions have to be strengthened and modernised with the help of technology. Higher transparency could be achieved through e-government.

The economist said the civil society should play a greater role in opposing and defying measures taken on whims by one person.

The parliament, he added should assert its role by opposing all taxes levied without its approval.

He asked the civil society to proactively ensure the accountability of government actions on a day-to-day basis.