Pakistan agrees changes to confront economy slide

WASHINGTON - Pakistan’s government has agreed that a shift in fiscal and monetary policy will be necessary to confront a deteriorating economic situation, the International Monetary Fund said Wednesday.

In a statement following a 12-day visit to Islamabad and Dubai to meet with Pakistani officials, the IMF mission said the country is on track to comply with the economic programme agreed to under a $7.6 billion credit facility granted in November. But it said Pakistan’s economy has been hurt by worsening global economic conditions.

“The deterioration in the global economic environment and weaker economic activity call for an update of the economic framework and a recalibration of economic policies,” the statement said. “In particular, discussions focused on the fiscal program and the monetary policy stance.”

To achieve fiscal targets for fiscal years 2009 and 2010, which end in June, there was agreement that additional revenue-boosting measures and spending cuts will be necessary, the IMF said.
Meanwhile, the fund said that the current monetary policy stance is appropriate but that rates could be lowered in the future if both headline and core inflation decline, international reserves remain solid, and the government avoids resorting to central bank financing.

In Dubai, Pakistan Finance Minister Shaukat Tarin told that the IMF had agreed to release the second payment of the programme, worth a little over $800 million.

Sharifs disqualification panics businessmen, investors

KARAHI: The business community and economic experts have termed the disqualification of Sharif brothers a big domestic political upheaval which would derail the process of economic growth, hurting the pace of industrial development and production activities.

The capital market of Pakistan would face another fresh wave of political uncertainty, carrying potential risks for the positive and improved macroeconomic outlook. Therefore, the next few months are going to be crucial for the overall prospects of the economy, economic experts told TheNation on Wednesday.

The first victim of the disqualification decision was the Karachi Stock Exchange. Before the announcement of the decision, the KSE was moving in the positive zone, but as the news of disqualification hit the market, the equities hit the lower locks, landing the investors into a serious problem.

The KSE-100 index quickly lost 294 points and it closed at 5580 points. In other words, the KSE 100-index lost 5 per cent of its worth immediately after the announcement of the SC verdict. The stock market analysts are of the opinion that the market could face selling pressure for another couple of days because of political uncertainty triggered by the disqualification of Sharif brothers.

The stock market witnessed a positive trend in the morning session on Wednesday by gaining above 50 points and a massive change in political activities altered the whole scenario that threw the shares to the bottomline, said Shahid Ali, CEO Habib Metropolitan Financial Services (HMFS). The investors offered for sale their stakes but the buyers sidelined from the market while anticipating more erosion in the value of equities. The volume of KSE-100 index stood at 145.42 million shares, slightly higher than 135.55 million shares traded a day before. However, the market capitalization fell to 36.89 billion dollars (0.94 per cent) on Wednesday when compared with 37.24 billion dollars on Tuesday.

Courtesy: The News

IMF, Pakistan revise downwards macroeconomic targets

ISLAMABAD: The International Monetary Fund (IMF) and Pakistan on Wednesday revised downward all macroeconomic targets including GDP growth rate to 2.5 per cent from earlier envisaged target of 3.5 per cent for the ongoing fiscal year to approve the second tranche of $800 million for Islamabad under Standby Arrangement (SBA) programme.

Both sides also agreed to revise downward inflation target to 20 per cent from earlier set target of 23 per cent, FBR tax collection to Rs1,300 billion from earlier envisaged target of Rs1,360 billion for 2008-09.

Secretary Finance Dr Waqar Masood, while talking to The News from Dubai on Wednesday night, confirmed that the IMF executive Board would approve its second tranche for Pakistan by end March 2009 after both sides agreed on all major issues.

The successful completion of first review of the IMF for gauging the economy of Pakistan till Dec 31, 2008 and envisaging targets for the next two quarters will pave the way for convincing the Bretton Wood Institution to provide an additional $4.5 billion to Pakistan in its bid to further build up its foreign currency reserves that have already gone up to $10.2 billion.

However, the sources told this scribe that the Fund authorities linked decrease in discount rates with reduction in core inflation, which means that the central bank is unlikely to scale down discount rates in near future.

During the policy level talks held at Dubai on Wednesday, Pakistani side was led by Advisor to Prime Minister on Finance Shaukat Tarin while the IMF delegation was led by Masood Ahmed, head of its Middle Eastern Department of the IMF.

The GDP growth target was scaled down from 3.5 per cent to 2.5 per cent for the ongoing fiscal year 2008-09. The GDP growth target was envisaged at 4 per cent for the next budget 2009-2010.

The IMF prescriptions described as, one shoe fit for all, approach will result into lower GDP growth for the ailing economy of Pakistan in the context of tight fiscal and monetary policies for the next fiscal year as well, said an independent economist while talking to this scribe here on Wednesday.

The inflation, the official said, would be aimed at bringing down from 23 per cent to 20 per cent by June 2009. For the next fiscal year 2009-2010, the inflation target was envisaged at 6 per cent.

Both the IMF and Pakistan also evolved consensus for revising downward the FBR tax collection target from Rs1,360 billion to Rs1,300 billion for the ongoing fiscal year. Pakistani side explained to the IMF that the FBR was facing revenue shortfall by Rs20 billion alone in January 2009 and the same trend persisted in Feb 2009, leaving no other option to scale down the annual tax collection target.

The IMF agreed to reduce the tax collection target by Rs60 billion keeping in view shortfall being faced by the FBR, said the official sources.

The adjustment in nominal GDP growth by scaling down the real GDP as well as inflation paved the way for reduction in overall FBR tax target from Rs1,360 billion to Rs1,300 billion, which will be equivalent to 10 per cent of the GDP.

The IMF and Pakistan also agreed to set 10.6 per cent of the GDP for tax collection target of the FBR for the next budget 2009-2010, said the official.

The IMF had approved $7.6 billion loan under 23 month SBA program on November 2008 and provided front loaded $3.1 billion to Islamabad. The second tranche of $800 million by end March will help Islamabad to build up reserves position in months ahead.

Courtesy: The News

Gwadar may lose business to Iranian port of Chabahar

KARACHI: The Gwadar Port that was envisioned to become a trans-shipment port and shipping hub for the landlocked Central Asian States (CAS), Afghanistan and Western China may lose this opportunity to the fast developing Iranian port of Chabahar, a Gwadar Port official said.

The Gwadar Port is yet to become fully operational. The running of the port affairs was given to Port of Singapore Authority (PSA), one of the biggest port operators, so that it will fetch considerable business for making Gwadar Port a success.

The PSA has not fulfilled its business plan of making the port fully operational by 2008. The PSA says the government has failed to provide basic infrastructure including road and rail links that are the main impediments in Gwadar Port development.

To ensure that the port stays a viable destination the Gwadar Port official suggested resuming container business immediately even if in small amount through PSA or if they fail through own resources.

The government should bear the cost of road transportation to resume export activity from Gwadar Port, he said.

The official suggested restricting PSA to the present terminal and the areas adjacent to the terminal handed over to them may be retrieved and handed over to Gwadar Port Authority.
The official further said that master plan of Gwadar Port need to be approved, presently it is approved in principle but nothing so far has been done. Master Plan will protect the entire east bay and coastline east of Surbandar. By securing Master Plan, the basic theme of converting Gwadar Port into a hub port will be secured.

In order to attract sustainable business like Afghan Transit Trade or container cargo at Gwadar Port, one of the viable options is to complete road connectivity of the Port with Chaman and Afghanistan followed by shifting total or part of Afghan transit trade to Gwadar Port.
The land required for Free Zone has been dropped due to its high cost (Rs6.7 billion). It is suggested that the concerned agency at the Federal Government level may be requested to remand the case to the District Government authorities for review and submission of a workable plan, the official said.

The construction of East Bay Expressway may be undertaken on a fast track as the present arrangement for passage of the cargo truck within town has lot of repercussions. The concerned agency may be directed to execute the development work on priority.

According to government official it is justified to extend Rs.585million subsidy to the Gwadar Port to make it viable. Government supported Port Qasim for ten years to make port fully functional, he reminded. Similarly this will help the Gwadar Port to operate and serve the basic purpose of the port and generate revenues and job opportunities for the people.

He further stated that Stevedoring/Clearing/Ship Agency License to be given to locals and training should be given to the locals in cargo handling to reduce their grievances.

It is learnt that Port of Singapore Authority is trying to attract Afghan Transit Trade and get mining sector to export copper and chrome from Gwadar Port. In this regard PSA is briefing the government of Balochistan to work on connectivity.

It is also said that PSA is pursuing the government to add Gwadar Port in Afghan Trade Notification so that some trade should be started from Gwadar as well.

However ports and shipping industry shows reservation on PSA role and said that PSA submitted plan for 40 years specifying business in Gwadar.

According to the PSA business plan the port was to be operational by 50 percent in 2007 and 100 percent in 2008 and had indicated business comprising of coal and container cargo.
The plan also indicated approximate revenue generation for Gwadar Port Authority during the period 2007 and 2008. But PSA, so far relied totally on TCP to have business and lucrative subsidies. It has totally failed in bringing in business to Gwadar Port specially containers.
However PSA says that ports are not run in isolation, port are catalyst for trade and in the absence of basic infrastructures, free zone industrial areas and most importantly the connectivity links to the ports which are major hurdles in running the ports. PSA has fulfilled all agreed requirement but government so far has failed to fulfil the agreed requirements of the ports.

Courtesy: The News