South Asia Investor

7/28/2019 South Asia Investor

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SOUT H ASIA INV EST OR REV IEW

S O U T H A S I A I N V E S T O R R E V I E W I S F O C U S E D O N R E P O R T I N G , A N A L Y Z I N G A N DD I S C U S S I N G T H E E C O N O M Y A N D T H E F I N A N C I A L M A R K E T S O F C O U N T R I E S I N S O U T H

A S I A , I N C L U D I N G P A K I S T A N , B A N G L A D E S H A N D S R I L A N K A . F O R I N V E S T O R S

L O O K I N G T O I N V E S T I N E M E R G I N G M A R K E T S B E Y O N D B R I C C O U N T R I E S ( B R A Z I L ,R U S S I A , I N D I A A N D C H I N A ) , T H I S B L O G I S D E S I G N E D T O H E L P I N T E R N A T I O N A L

I N V E S T O R S L O O K I N G T O L E A R N A B O U T I N V E S T I N G I N S O U T H A S I A W I T H F O C U S O NP A K I S T A N . R I A Z H A S A N O T H E R B L O G C A L L E D H A Q ' S M U S I N G S A T

H T T P : / / W W W . R I A Z H A Q . C O M

W E D N E S D A Y , M A R C H 3 , 2 0 1 0

Pakistan's Economy: What Went Wrong 2008-2010?

Guest Post By Prof. Ashfaque Hasan Khan

This post briefly reviews two years of economic performance of the present government.

What it inherited, what it informed the IMF and the people of Pakistan, why it went to

theIMF, and where we stand now - are the subject matter of this article.

Pakistan positioned itself as one of the four fastest growing economies in the Asian

region during 2000-07 with its growth averaging 7.0 per cent per year for most of this

period. As a result of strong economic growth, Pakistan succeeded inreducing

povertyby one-half, creating almost 13 million jobs, halving thecountry's debt burden,raising foreign exchange reserves to a comfortable position and propping the country's

exchange rate, restoring investors' confidence and most importantly, taking Pakistan

out of the IMF Program.

These facts were acknowledged by the present government in aMemorandum of
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Economic and Financial Policies(MEFP) for 2008/09-2009/10, while signing

agreement with the IMF on November 20, 2008. The document clearly (but grudgingly)

acknowledged that "Pakistan's economy witnessed a major economic transformation in

the last decade. The country's real GDP increased from $60 billion to $170 billion, with

per capita income rising from under $500 to over $1000 during 2000-07". It further

acknowledged that "the volume of international trade increased from $20 billion to

nearly $60 billion. The improved macroeconomic performance enabled Pakistan to re-

enter the international capital markets in the mid-2000s. Large capital inflows financed

the current account deficit and contributed to an increase in gross official reserves to

$14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the

government's social policies contributed to a reduction in poverty and improvement in

many social indicators". (seeMEFP, November 20, 2008, Para 1)

Per Capita PPP GDP

A cursory look at the above stated acknowledgment is sufficient to see that the

government deliberately misguided the people of Pakistan by presenting a totally

distorted picture of the economy. While it could misguide the people of Pakistan for

domestic political consumption, it had no option but to tell the truth to the international

financial institutions as these facts were known to them.
http://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://1.bp.blogspot.com/_dj7hueuj-U0/TL5zL6YN7mI/AAAAAAAABrA/URPQnwuGMUM/s1600/Pak+Per+Capita+GDP.gifhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdfhttp://www.imf.org/External/NP/LOI/2008/pak/112008.pdf


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Even the government did not inform the people of Pakistan that it obtained the IMF

Program on the basis of past performance. Pakistan received the extra-ordinary funding

from the IMF under the fast-track Emergency Financing Mechanism which was meant

for the countries "that have a strong track record of sound policies, access to capital

markets and sustainable debt burdens but need rapid help to overcome financial crisis".

(IMF Survey, October 29, 2008) Thus, a government which starts its inning on

distortion can never bring stability in the economy. Most of its time and energy would

be consumed for covering up of its failure.
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The present government inherited a relatively sound economy on March 31, 2008. It

inherited foreign exchange reserves of $13.3 billion, exchange rate at Rs62.76 per US

dollar, the KSE index at 15,125 with market capitalization at $74 billion, inflation at 20.6

per cent and the country's debt burden on a declining path. The government itself

acknowledged in the same document that "the macroeconomic situation deteriorated

significantly in 2007/08 and the first four months of 2008/09 owing to adverse security

developments, large exogenous price shocks (oil and food), global financial turmoil, and

policy inaction during the political transition to the new government". (Para 3 of the

MEFP, November 20, 2008)

What went wrong? Why one of the fastest growing economies in the Asian region until

two years ago has been totally forgotten in the region? Firstly, the speed and dimension

of exogenous price shocks (oil and food) were of extraordinary proportions. Secondly,

the present government found itself totallyill-prepared and cluelessin addressing the

challenges arising out of the shocks. While rest of the world was taking corrective

measures and adjusting to higher food and fuel prices, Pakistan lurched from one crisisto another.
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Despite peaceful election and a smooth transition to a new government, political

instability persisted. For a protracted period there were no finance, commerce,

petroleum and natural resources and health ministers in the country. The government

lost six precious months in finding its feet. It gave the impression of having little sense

of direction and purpose. A crisis of confidence intensified as investors and developmentpartners started to walk away. The stock market nosedived, capital flight set in, foreign

exchange reserves plummeted and the Pakistani rupee lost one-third of its value. In

short, Pakistan's macroeconomic vulnerability had grown unbearable. It had no option

but to return to the IMF for a bailout package. There were no Plan A, B and C. There was

only one plan, that is, to return to the IMF.

While the country was moving rapidly towards the IMF, the ministry of finance had

prepared the plan to bring $4 billion by June 30, 2008 through four transactions. Akick-off meeting was scheduled on April 23, 2008 at the ministry to give a final touch to

the various roadshows. These transactions were canceled on April 20, 2008. Who

ordered the cancellation of $4 billion transaction? This cancellation prompted balance

of payment crisis and the rest became history.

The economy continues to remain in intensive care unit and is breathing thanks to the

injections from the IMF, World Bank and Asian Development Bank. The economy is not

on the radar screen of the government and as such the economic managers have norelevance in the current political set up. The exit ofShaukat Tarinis a classic example. At

least he tried his level best to inject financial discipline but paid the price of teaching

prudent financial management. No matter who replaces Shaukat Tarin, the economy

would continue to lurch from one crisis to another until and unless the government

brings the economy at the center stage.
http://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.htmlhttp://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.htmlhttp://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.htmlhttp://2.bp.blogspot.com/_dj7hueuj-U0/S_cwLkdmIqI/AAAAAAAABlM/-n_lFEoFkxM/s1600/Pakistan+Economy+2008-2010.pnghttp://www.riazhaq.com/2010/02/pakistans-finance-chief-shaukat-tarin.html


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Dr. Ashfaque Hasan Khan is the Dean of Business School at the National University of

Science and Technology in Islamabad, Pakistan.

Riaz Haq's Comments: In rural Pakistan where about 60% of Pakistanis live, people

spend 55% of their income on food, according to a World Resources Institute

(WRI)report.

The bottom two BOP (Base of Income Pyramid) groups alone account for more than

50% of national food spending in Pakistan. Average annual food spending per

household in the BOP in Pakistan is $2,643. While BOP3000 households have 6 times

as much income on average, they outspend BOP500 households in the food market by a

ratio of only 2:1 in Cameroon, 2.3:1 in South Africa and Pakistan, 2.4:1 in Kazakhstan,

1.9:1 in Uzbekistan, and 3:1 in Peru.

Currently, food inflation in Pakistan is running at 15.49 percent, hitting the poor the

hardest.

Here's a video clip of British Writer William Dalrymple speaking about Pakistan at a

recent Intelligence Squared debate:

Here is a recent video clip of former President Muharraf talking about the power crisis

in Pakistan:

Related Links:

Incompetence Worse Than Corruption in Pakistan
http://pdf.wri.org/n4b_chapter8.pdfhttp://pdf.wri.org/n4b_chapter8.pdfhttp://pdf.wri.org/n4b_chapter8.pdfhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://www.riazhaq.com/2010/01/incompetence-worse-than-graft-in.htmlhttp://pdf.wri.org/n4b_chapter8.pdf


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Pakistan's Circular Debt and Load Shedding

Pakistan Planning Commission

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

India Pakistan Contrasted 2010

Pakistan's Foreign Visitors Pleasantly Surprised

After Partition: India, Pakistan and Bangladesh

The "Poor" Neighbor by William Dalrymple

Pakistan's Modern Infrastructure

Video: Who Says Pakistan Is a Failed State?

India Worse Than Pakistan, Bangladesh on Nutrition

UNDP Reports Pakistan Poverty Declined to 17 Percent

Pakistan's Choice: Talibanization or Globalization

Pakistan's Financial Services Sector
http://www.riazhaq.com/2010/02/pakistans-circular-debt-and-load.htmlhttp://115.186.133.2/pcportal2.0/http://115.186.133.2/pcportal2.0/http://www.nytimes.com/2009/09/21/world/asia/21aid.html?_r=1http://www.nytimes.com/2009/09/21/world/asia/21aid.html?_r=1http://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.riazhaq.com/2008/07/shaukat-azizs-economic-legacy.htmlhttp://www.riazhaq.com/2008/07/shaukat-azizs-economic-legacy.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2010/01/karachi-tops-mumbai-in-stock.htmlhttp://www.riazhaq.com/2010/01/karachi-tops-mumbai-in-stock.htmlhttp://www.riazhaq.com/2010/01/india-and-pakistan-contrasted-in-2010.htmlhttp://www.riazhaq.com/2008/06/foreign-visitors-to-pakistan-peasantly.htmlhttp://news.bbc.co.uk/2/hi/in_depth/629/629/6922293.stmhttp://news.bbc.co.uk/2/hi/in_depth/629/629/6922293.stmhttp://www.guardian.co.uk/world/2007/aug/14/pakistan.india1http://www.riazhaq.com/2009/12/pakistans-m2-motorway.htmlhttp://www.riazhaq.com/2009/12/pakistans-m2-motorway.htmlhttp://www.youtube.com/watch?v=gTXKs_785uk&feature=youtube_gdatahttp://newshopper.sulekha.com/india-worse-than-pakistan-bangladesh-on-nourishment_news_927008.htmhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://www.riazhaq.com/2009/04/pakistans-choice-talibanization-versus.htmlhttp://www.riazhaq.com/2009/04/pakistans-choice-talibanization-versus.htmlhttp://www.riazhaq.com/2009/03/financial-services-sector-in-pakistan.htmlhttp://www.riazhaq.com/2009/03/financial-services-sector-in-pakistan.htmlhttp://www.riazhaq.com/2009/03/financial-services-sector-in-pakistan.htmlhttp://www.riazhaq.com/2009/04/pakistans-choice-talibanization-versus.htmlhttp://www.riazhaq.com/2009/09/undp-reports-pakistan-poverty-declined.htmlhttp://newshopper.sulekha.com/india-worse-than-pakistan-bangladesh-on-nourishment_news_927008.htmhttp://www.youtube.com/watch?v=gTXKs_785uk&feature=youtube_gdatahttp://www.riazhaq.com/2009/12/pakistans-m2-motorway.htmlhttp://www.guardian.co.uk/world/2007/aug/14/pakistan.india1http://news.bbc.co.uk/2/hi/in_depth/629/629/6922293.stmhttp://www.riazhaq.com/2008/06/foreign-visitors-to-pakistan-peasantly.htmlhttp://www.riazhaq.com/2010/01/india-and-pakistan-contrasted-in-2010.htmlhttp://www.riazhaq.com/2010/01/karachi-tops-mumbai-in-stock.htmlhttp://www.riazhaq.com/2010/01/pakistans-twin-energy-crises-of-gas-and.htmlhttp://www.riazhaq.com/2008/07/shaukat-azizs-economic-legacy.htmlhttp://www.riazhaq.com/2008/12/pakistan-to-swallow-imfs-bitter.htmlhttp://www.nytimes.com/2009/09/21/world/asia/21aid.html?_r=1http://115.186.133.2/pcportal2.0/http://www.riazhaq.com/2010/02/pakistans-circular-debt-and-load.html


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Pakistan's Decade 1999-2009

South Asia Slipping in Human Development

Asia Gains in Top Asian Universities

BSE-Key Statistics

Pakistan's Multi-Billion Dollar IT Industry

India-Pakistan Military Comparison

Food, Clothing and Shelter in India and Pakistan

Pakistan Energy Crisis

IMF-Pakistan Memorandum of Economic and Financial Policies

POSTED BY R IAZ HAQ A T 10 :16 AM

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LABELS : CORRUPT ION, ECONOMY, INCOMPETENCE, PAK I STAN ,PERFORMANCE, REV I EW

4 6 C O M M E N T S :

Riaz Haqsaid...

Pakistan has appointed Abdul Hafeez Shaikh, a Musharraf-era minister, as the

new finance chief to fill the vacancy left by Tarin's resignation. Here's aWallStreet Journalreport on it:

The post of finance minister has been vacant since Shaukat Tarin, a former

Citibank executive who was a vocal critic of government corruption, resigned

three weeks ago citing personal reasons. Prime Minister Yousuf Raza Gilani has
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The International Monetary Fund has earmarked $11.3 billion in emergency

loans for Pakistan since November 2008 when Islamabad faced a balance-of-

payments crisis amid an al Qaeda-linkedIslamist insurgency that deterred

investors.

To get regular disbursements of this money, Pakistan has to meet goals such as

reducing its budget deficit from a current 5.1% of gross domestic product,

reining in runaway inflation and increasing tax collection.

A major challenge for Mr. Shaikh will be energizing the country's struggling

economy. He will also be under pressure to find money to help build much-

needed infrastructure, such as power plants.

MARCH 19, 2010 AT 10:26 AM

Riaz Haqsaid...

Pakistan's economy will grow by 4.3 percent in fiscal year 2010, according to

areportin Business Recorder.

ISLAMABAD (May 15 2010): Pakistan's economy has shown more resilience

than expected and is likely to grow by 4.3 percent in the current fiscal, says an

official document. GDP was earlier targeted at 3.3 percent for 2009-10.

"Pakistan's GDP growth in 2009-10 will be around 4.3 percent because of

rebound in services sector plus a recovery in manufacturing sector," says a

document prepared for the National Accounts Committee meeting.

Manufacturing saw a visible recovery when its large-scale manufacturing

(LSM) sector grew by 4.36 percent positive than minus 7.7 percent, making a

positive change of almost 21 percent for the current year despite an acute

energy crisis in the country. Had there been lesser shortage of electricity

economic growth would have reached near 5 percent, says an official.
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1269019616828#c4791437450597517942http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1269019616828#c4791437450597517942http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.brecorder.com/index.php?id=1056683&currPageNo=1&query=&search=&term=&supDate=http://www.brecorder.com/index.php?id=1056683&currPageNo=1&query=&search=&term=&supDate=http://www.brecorder.com/index.php?id=1056683&currPageNo=1&query=&search=&term=&supDate=http://www.blogger.com/profile/00522781692886598586http://www.brecorder.com/index.php?id=1056683&currPageNo=1&query=&search=&term=&supDate=http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1269019616828#c4791437450597517942


11/94

Pakistan is now near an opportunity to turn the tables by maintaining this

growth trajectory to achieve about 5 percent growth rate which can cause a

significant dent in poverty in the next two years, says an official who would be

participating in the National Accounts Committee meeting.

Agriculture sector would be a poor performer at 2.2 percent against an

unrealistic target of 3.8 percent for 2009-10 and against a bigger base of 4.7

percent of last year. Pakistan's agriculture sector hardly crossed 5 percent in its

over 60 years' history.

Services sector came to the rescue this year at 6.59 percent against a target of

3.9 percent and almost similar performance of 3.6 percent last year. Overall

growth in manufacturing sector is at 3.54 percent against a target of 1.8

percent and previous year's negative performance of 3.6 percent.

MAY 14, 2010 AT 7:18 PM

Riaz Haqsaid...

Here is the latest news from State Bank of Pakistan reported byThe

Nationnewspaper:

KARACHI In the backdrop of widespread losses caused by the unprecedented

rains and devastating floods to the economy in the early months of current

fiscal year, the State Bank of Pakistan has predicted that the real GDP growth

would be in the range of 2 to 3 per cent in FY11 against the annual plan target of

4.5 per cent.

The SBP, in its Annual Report on the State of the Economy for the year 2009-10

released here on Monday, stated that the annual average inflation for FY11 is

likely to remain between 13.5 to 14.5 per cent, up from both, the 9.5 per cent

target and earlier SBP forecast of 11.0- 12.0 per cent for the year.

Moreover, the provisional SBP projections indicate that the current account
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1273889888079#c4357654174792570374http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1273889888079#c4357654174792570374http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.blogger.com/profile/00522781692886598586http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/26-Oct-2010/Floodhit-economy-to-grow-between-23pc-in-201011http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1273889888079#c4357654174792570374


12/94

deficit will likely to rise between 3-4 per cent while the fiscal deficit is

anticipated to be in the vicinity of 5 to 6 per cent of GDP during FY11. In

addition, it projected that workers remittances are likely to stay between $9.5

billion to $10.5 billion whereas exports and imports are likely to be between $20

billion to $21 billion and $34 billion to $35 billion, respectively in the entire

course of ongoing fiscal year.

The Report pointed out that financing even the moderate increase in the current

account deficit may prove stressful for the economy, with rising pressures on

the countrys foreign exchange reserves and exchange rate.

The Report said, Negative shocks stemming from the floods have further

exposed the existing structural weaknesses in the economy. Addressing these

will require improvements in macroeconomic discipline as well as continued

reforms to improve the resilience of the economy. The required reforms include

those to improve productivity, strengthen public institutions, improve economic

governance, and build social safety nets to protect vulnerable segments of the

population.

The Report while referring an independent study, warned that the occurrence of

poverty, which started to decline over the last decade, is expected to increase in

the wake of the floods in the time to come.

According to the Report, the direct impact of the flood-related supply shock is

likely to be limited. For example, the impact of flood/rain damages and

shortages of minor crops are not expected to persist beyond 2 to 3 months as

supply line improves and as fresh crops (e.g., vegetables) enter the market.

Similarly, for some other products, any rise in domestic prices would be capped

by low international prices.

It is important to note here that prices of dairy products were already

continuing on a secular rise, even prior to the floods, due to sustained strong

domestic and external demand. Livestock losses in the flood would exacerbate

this rising trend, but only to a small extent.

It said that the extended persistence of double-digit inflation had already been a

source of concern even ahead of the floods, particularly given the risk that an

upward trend in food-commodity prices (e.g. wheat, edible oil, sugar, corn, etc.)

could be compounded by any weakness in the exchange rate. Moreover,


13/94

inflationary pressures were also expected to strengthen as a result of the recent

50 percent increase in government sector salaries, and anticipated rise in

energy tariffs (as the government continued to reduce subsidies) and removal of

GST exemptions to broaden the tax base.

OCTOBER 26, 2010 AT 11:03 PM

Riaz Haqsaid...

Here is aDaily Times reporton inflation in Pakistan:

In Pakistan, 2007, the rate of inflation was 12.5 percent, during 2006-07 it was

21 percent and in July-March 2010 the inflation has been 11.3 percent. The

cumulative rate of inflation was 44 percent in three years, from September

2007 to September 2010.

The main reason of food prices inflation was the increase in wheat, petroleum

products, electricity and gas responsible to an overall increase in prices. The

rising interest rate, high remittances and depreciation of rupee against dollar

also fueled the inflation. This situation directly hit the poor and increased

poverty level in the country.

A shortfall in the production of some essential commodities also raised food

prices. There are 13 food items in essential items list which also includes wheat

and flour; sugar, poultry, mash pulse, meat, milk, tea, fresh vegetables etc, that

account for almost 23 percent of the total weight in the Consumer Price Index

(CPI). Prices of food items in general have made food dearer in Pakistan. For

instance, the average price of sugar has risen above 41 percent, wheat prices by

17 percent, chicken 24 percent, beef 13 percent and onion prices by 64 percent

since July 2008 over April 2009. With a 23 percent weight in CPI, the

contribution of these few items to the overall CPI inflation was 18 percent.

Although the world price of sugar has fallen unexpectedly since its peak in
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14/94

January 2010, but it is still up 21 percent year on year (YoY) basis. Dairy prices,

on the other hand, have continued to raise their upward march.

Global price increase enhanced inflation sharply and Pakistan has no exception

that has affected both globally as well as domestically. Indias food price

inflation soared to 19.2 percent in December 2009, 16.7 percent in March.

Similarly, food inflation in Bangladesh rose from 3.3 percent in July 2009 to

10.9 percent in February 2010.

Poverty ratio in Pakistan is rapidly rising due to economic slowdown; high

inflation and reduction in subsidies compel 40 percent people of the country to

lives around the poverty line, as per SBP estimates.

The countrys population has jumped to 184 million in 2010, 119 million in 1990,

of which 73 million Pakistanis have fallen below poverty line, SBP said. The

poverty level during 2010 rises by 4 percent to 40 percent, from 36.1 percent in

2009.

In the case of Pakistan, the increase in domestic prices of essential commodities

remained relatively quiet as compared to the international price movements.

However, since January 2010, international prices for some of the commodities

like petroleum have fallen more rapidly than in Pakistan.

NOVEMBER 2, 2010 AT 10:33 PM

Riaz Haqsaid...

Here's Dr. Ashfaque H. Khan, Dean of NUST Business School,opposing SBP's

latest 0.50% discount rate hikein Pakistan:

...another objective of tightening monetary policy is to discourage the

government from borrowing heavily from the SBP to finance fiscal deficit.

Government borrowing from the SBP is the main source of the surge in reserve
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288762382733#c6052885494238761357http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288762382733#c6052885494238761357http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.blogger.com/profile/00522781692886598586http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=19154&Cat=9http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1288762382733#c6052885494238761357


15/94

money growth. During the last four-and-a-half-months, the government has

borrowed Rs265 billion, against Rs16 billion in the corresponding period last

year. As a result, reserve money has grown by 18.4 per cent, against 9.7 percent

last year.

Perhaps the SBP believes that a rise in discount rate will discourage the

government from borrowing from the central bank. The SBP has forgotten that

by raising the discount rate by 100 basis points in the current fiscal year, it has

increased the interest payment of the government by almost Rs50 billion. Thus,

everything being held constant, the budget deficit will increase by Rs50 billion.

Hence, more deficit, more borrowing, a further hike in the discount rate, further

increase in interest payment, and further increase in budget deficit. Do we want

to create a vicious circle?

Perhaps the SBP believes that by increasing the discount rate it will encourage

commercial banks to participate actively in auction of government debt. In

other words, it will shift government borrowings from the SBP to scheduled

banks. Government borrowings from the scheduled banks stood at Rs76 billion,

against Rs164 billion in the same period last year. Perhaps the scheduled banks

are deliberately avoiding participation in the auction to the extent they should

have been. They have thereby signalled that they need a higher interest rate.

Should the SBP, as monetary authority, be guided by the animal spirit of the

scheduled banks, or should it be in the driving seat? Perhaps the governor of the

SBP would like to be guided by the scheduled banks. I personally believe that the

hike in discount rate was unwarranted and the status quo should have been

maintained. The hike was an act of overreaction and could have been avoided.

DECEMBER 12, 2010 AT 6:14 PM

Riaz Haqsaid...
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1292206487778#c432231411774755242http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1292206487778#c432231411774755242http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1292206487778#c432231411774755242


16/94

Here's Pakistani economist Dr. Ashfaque H. Khan writing about "Pakistan: a

forgotten economy" in apiecepublished by The News:

How has that economy been transformed into a forgotten one in just three

years? Unfortunately, the economy never featured on the radar screen of the

present government. Additionally, the government lacked a credible economic

team. In less than three years there have been four finance ministers, four

finance secretaries and three governors of the State Bank.

The government wasted time and energy in downplaying the achievements of

the previous government, while it lurched from one crisis to another, a

rudderless ship with no sense of direction and purpose. The current economic

team is weak and lacks the capacity to handle the multidimensional challenges

it is confronted with, most of which are self-created.

The countrys economic growth has slowed to an average of three per cent per

annum, and unemployment and poverty have risen. Higher double-digit

inflation has persisted and items of basic necessity have gone beyond the reach

of the common man. The debt burden has reached unsustainable levels and the

dependence on donors has grown. Clearly, three years of mis-governance and

poor economic management have brought the economy to near-standstill.

People have lost confidence in the countrys ability to recover from the ever-

deepening economic crisis. The recent unprecedented floods have further

aggravated the impact of the economic ills.

It is not only the economy which is in decline. This is true of things in every walk

of life. To name just a few, this has been evident in the game of cricket, the

inaugural parade at the Commonwealth Games, the Haj operations, the

creation of the sugar crisis, the running of public-sector enterprises like PIA,

Pakistan Railways, the Steel Mills, National Insurance Corporation and TCP,

the crisis in higher education, the deterioration in law and order and the

debacle of the recently concluded Pakistan Development Forum (PDF).
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17/94

The PDF meeting requires special mention. The PDF, the reincarnation of the

Aid to Pakistan Consortium, is jointly chaired by the World Bank and the

Government of Pakistan, represented through its finance minister. The purpose

of this forum is to provide a platform to the government where it can present its

economic and social reforms agenda before visiting delegations. The PDF has

never been a platform for pledging assistance. Unfortunately, this forum was

transformed into a pledging forum because every minister, even the prime

minister, made statements about the financial loss caused by the floods and

asked for financial support. The minister of interior even pleaded for a debt

write-off.

It is unfortunate that we have turned every international forum, including

Friends of Democratic Pakistan (FODP), into an opportunity for begging. No

self-respecting nation begs forever. A beggar cannot command respect in the

comity of nation. Continuing to do so, Pakistan risks nothing less than global

oblivion. How long can we keep on begging like this? Is this the fate to which the

people of Pakistan must resign themselves?

DECEMBER 27, 2010 AT 9:57 AM

Riaz Haqsaid...

Here's aDaily Times reporton Gallup survey finding Pakistanis are pessimistic

about their nation's economy in 2011:

This year, the public opinion in Pakistan is not hopeful as only 13 percent think

that 2011 will be a year of economic prosperity while 34 percent expect it to be a

year of difficulty thus giving a negative score of21 percent on Net Hope, said

Chairman Gallup Pakistan Dr Ejaz Shafi Gilani.

The devastation caused by floods during the middle of the year created a mood

of economic pessimism among the public, despite the fact that the country

fought this calamity with courage and showed extraordinary resilience, Dr
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18/94

Ejaz added.

As the new century enters its second decade, both economic data and perception

data suggest that while wealth is still concentrated in Europe and North

America, while there is a shift of power and prosperity from the West of the

20th Century to the East, he added.

He said these findings have been derived from one of the largest global surveys

covering 53 countries across all continents including all the G7 countries, the

four countries of emerging BRIC (Brazil, Russia, India and China) and another

45 countries from Asia, Africa, Latin America, Australasia and including

Pakistan. Together, a sample of over 64,000 scientifically selected men and

women were interviewed by leading pollsters associated with Gallup

International.

This is the second global survey, which the Group has conducted and released

during this month. The key question in the global survey was: Would you say

that 2011 will be a year of Economic Prosperity, Economic Difficulty or remain

the same. At a global level 30 percent of the world expects that 2011 will be the

year of prosperity and 28 percent expect it to be the year of economic difficulty,

while 42 percent think the economic situation will remain unchanged. The

hopefuls outscore the pessimists by 2 percent. That is the net Global Hope Score.

The data shows that global hope is highly concentrated among the rising

economic powers, the so-called BRIC. The Hope Score for this Group is 35

percent.

In sharp contrast, the Hope Score for the rich countries of the world, known as

the G7 (USA, Canada, Germany, France, UK, Italy, and Japan) is in the

negative: -19 percent.

Among them, the Pessimists (36 percent) outscore the Hopefuls (17 percent) by

19 percent points.


19/94

Briefing the journalists about the survey here Wednesday, Dr Ejaz Shafi Gilani

chairman Gallup Pakistan claimed that comparing the survey data with India,

it must be noted that Hope Score are volatile and can make sharp jumps in short

years.

This would be true of the mood in India. In the latest survey popular opinion in

India shows a Net Hope of 24 percent.

In previous years, India generally scored lower than Pakistan on such

measures. Even now the per capita income in the two countries is not far apart

$3260 in India compared with $2710 in Pakistan, he said adding that our civil

society and the government seem to have a tough task ahead of them in 2011.

app

DECEMBER 29, 2010 AT 7:14 PM

Riaz Haqsaid...

Here's Pakistan's latest economic news in brief supplied by Foundation Securities

Research:

The Ministry of Finance has agreed with the proposal of the Tax Reform Co-

ordination Group (TRCG) to create a Fiscal Policy Board to be headed by the

Finance Minister under the reform plan to exclusively deal with the fiscal policy

and taxation issues under the umbrella of the proposed fiscal board. (BR)

The country's trade deficit soared to $8.149 billion in July-December 2010,

18.20 percent up over $6.89 billion for the same period of last year, according

to the Federal Bureau of Statistics (FBS). Official trade figures released by the

FBS here on Tuesday showed an increase in exports of 20.63 percent for the

same period which analysts say could be largely because of per unit price

increase instead of increase in the quantity. (BR)

Remittances sent home by overseas Pakistanis continued to show rising trend as


20/94

$5,291.41 million was received in the first half of the current fiscal year 2010-

11(July-December), showing an increase of $761.23 million, or 16.80 percent,

when compared with $4,530.18 million received during the same period of last

fiscal year. (BR)

The CPI inflation soared by 15.68 percent in December 2010 over the same

period of last year with phenomenal increase in perishable food items, showing

a strong trend of increase in prices of food items which may push more people

below the poverty line. (BR)

Japan has queued up to help Pakistan to plug in widening budgetary gap by

granting it $60 million soft loan in response to Islamabad's call to the friendly

countries for financial support to keep current budget deficit at some reasonable

level. (BR)

Another round of speculations came to an end on Tuesday when President Asif

Ali Zardari issued a notification appointing a PPP stalwart and former

Attorney General Sardar Latif Khan Khosa as Governor of Punjab. (BR)

The monthly Consumer Price Index (CPI) during the month of December

registered a decrease of 0.31 per cent as compared to previous month of current

financial year. (DAWN)

The government has decided to put a freeze on electricity tariff for the

remaining period of the current fiscal year owing to its inflationary impact on

economy and unending loadshedding, according to a senior official. (DAWN)

The Secretary Cabinet Division, Abdur Rauf Chaudhry on Tuesday said 3G

services would hopefully be available to the Pakistani mobile users by the end of

2011 while it was expected that the policy for auction of 3G services licenses

would soon be presented to the government and Economic Coordination

Committee (ECC) for discussion and approval. (DT)

The FBR has started to evaluate alternative proposals to replace the

controversial RGST in case the government failed to get it approved from the

parliament. (TN)

Despite receiving orders from the Ministry of Petroleum, OGDCL has not

replaced one of its directors on board, who also works for a partner company.

(TN)


21/94

NCCPL shows a net inflow of USD2.18 million.

Crude oil is trading at USD91.1 per barrel.

JANUARY 11, 2011 AT 11:19 PM

Riaz Haqsaid...

In addition to significantforeign institutional investments(FII) in Karachi shares

last year, the reports of surging remittances by overseas Pakistanis and the

nation's growing exports are the only two other pieces of good news amidst an

avalance ofbad news on the economic frontin Pakistan in 2010.

The State Bank of Pakistan has reported that overseas Pakistanis sent home

$5.291 billion during July-Dec, 2010, an increase of $761 million or 17 per cent

year over year, according to Pakistan'sDawn newspaper.

Remittances of $863 million were sent by overseas Pakistanis last month, up

23.72 per cent or $165 million compared to December, 2009.

Exports in the July-December 2010 touched almost $11 billion $1.8 billion, or

20.6per cent, higher than last years exports in the corresponding period.

Meanwhile, imports stood at $19.2 billion, marking a growth of 19.6 per cent, or

$3.2 billion, in the first half, according to theExpress Tribune.

Pakistani government has been relying heavily on remittances by overseas

Pakistanis to fund the massive trade imbalance, which exceeded $8 billion during

the first six months of this fiscal.

The increased remittances and rising exports have helped bring down the

nation's current account deficit to $504 million for six months, or 0.6 percent of

GDP, about 30% lower than the same period in the previous year.

Foreign direct investment (FDI) declined 15.5 per centin the first six months of
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22/94


23/94

The governments economic team met with Sharifs party, Pakistan Muslim

League-Quaid, and coalition partners Muttahida Qaumi Movement and Awami

National Party on Jan. 18 to brief them about the state of the economy. Gilani

reached out to the opposition after Sharif demanded the premier implement a

10- point economic agenda within six weeks and move against corrupt officials

or face a campaign for his ouster.

The Karachi Stock Exchanges 100 Index, which advanced 28 percent last year,

fell 1.3 percent to 12,411.87 today in Karachi. The rupee traded at 85.73 against

the dollar, after falling 1.65 percent last year.

Im not too optimistic that this political give-and-take will change things

substantially on the ground, said Asif Ali Qureshi, head of research at Invisor

Securities Ltd. in Karachi. Investors usually get nervous when foreign

exchange reserves start shrinking and the currency comes under pressure. That

hasnt happened so far this year.

Partner Returns

Gilani on Jan. 7 succeeded in winning back the support of his partner, the MQM,

after reversing the fuel-price rise. His Pakistan Peoples Party lost its majority

Jan. 2 when the MQM had quit the coalition. President Asif Ali Zardaris grip on

power was further undermined by the Jan. 4 assassination of a key aide, the

governor of the Punjab province.

The petrol-price rollback, which runs the risk of a wider budget deficit, was

criticized by U.S. Secretary of State Hillary Clinton, who urged Pakistan not to

reverse progress.

We have moved forward in a concrete way, Ishaq Dar, a former finance

minister and a key aide to Sharif, toldreporters after the meeting. Youll see

things moving in the next few weeks.

Maria Kuusisto, an analyst at consultant Eurasia Group, said in a Jan. 14

telephone interview from London, that Pakistans budget shortfall may touch 8


24/94

percent of gross domestic product, or 1.3 trillion rupees ($15.15 billion) in the

year through June from 6.3 percent in the previous year.

The central bank governor last month blamed government borrowing for price

pressures and said raising interest rates may impede investments and

undermine economic growth.

The government borrowed 401 billion rupees from the central bank between

July 1 and Jan. 8, more than double the amount it borrowed in the same period

last year, according to data from the State Bank of Pakistan.

Pakistan is operating without any fiscal order, Sakib Sherani, an economic

adviser in Pakistans finance ministry from July 2009 to December 2010, said

in an interview. The fiscal mismanagement may produce the biggest budget

deficit in Pakistans history in absolute terms.

JANUARY 20, 2011 AT 9:08 AM

Riaz Haqsaid...

Here's a story inthe Economiston economic mismagement in Pakistan:

ON JANUARY 3rd Pakistans central bank began printing rupee notes carrying

the signature of Shahid Kardar, who was appointed governor of the State Bank

of Pakistan in September. Unfortunately inflation has robbed money of over

15% of its value in the past year, and no let-up is in sight for the new notes. It is

the most visible sign of an economy slouching towards another financial crisis.

At the start of the year the government raised petrol prices, prompting the

Muttahida Qaumi Movement (MQM) to quit the coalition government led by the

Pakistan Peoples Party (PPP). It left the PPP with a choice between saving the

government and saving the economy, as Maleeha Lodhi, Pakistans former

ambassador to the United States and Britain, put it in the News, a Pakistani

daily.

On January 6th the PPP made its choice, reversing the price rise. The decision
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295543290016#c8623575950987250318http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295543290016#c8623575950987250318http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.economist.com/node/17913440http://www.economist.com/node/17913440http://www.economist.com/node/17913440http://www.blogger.com/profile/00522781692886598586http://www.economist.com/node/17913440http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295543290016#c8623575950987250318


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has rescued the government but also robbed the exchequer of 5 billion rupees

($58m) a month. By the end of the fiscal year in June, the governments deficit

could reach 6.5% of GDP, according to Sayem Ali of Standard Chartered bank,

or even 8% if oil prices continue to rise, according to Mohsin Khan of the

Peterson Institute, in Washington, DC.

Pakistans budget has a lot to bear. The World Bank reckons that recovering

from the summers devastating floods, which damaged over 1.6m homes, will

cost up to $10.8 billion. To date, aid has been modest. Donors have pledged just

$2.1 billion, or $11 per person, compared with $363 per person promised to

Haiti after its earthquake a slightly unfair comparison perhaps.

Yet Pakistans fiscal troubles are antediluvian. It is one of the most lightly taxed

countries in the world. Fewer than a quarter of the countrys firms declare any

taxable revenues, and only 11 out of every 1,000 of its citizens pay tax on their

incomes, according to the World Bank. As a result, tax revenues amount to a

mere 10% of Pakistans GDP.

The government had hoped to raise that ratio by broadening its sales tax, which

is riddled with exemptions. Yet it lacked the heart to defy lobbies which slip

through the threadbare tax net. They include exporters who escape tax on their

domestic sales, as well as retailers and wholesalers who elude tax altogether.

The proposed reforms also proved unpopular with the broader public, who

resent paying anything to a government that gives them so little in return.

The governments failure has jeopardised its agreement with the IMF, which is

withholding the remaining $3.5 billion of the bail-out funds it offered back in

2008. At that time, the rupee was tumbling and Pakistans foreign-exchange

reserves barely covered three weeks worth of imports. If the country is not yet

in similar trouble, it can thank Pakistani folk abroad, whose remittances surged

by 16.8% in the second half of 2010, compared with a year earlier (see chart).

This is one reason why the rupee has not sunk further, and why the central

banks reserves still cover six months worth of imports.


26/94

Yet foreign investment has slowed to a trickle, and higher commodity prices will

add to the countrys import bill. Meanwhile, Pakistans foreign debt must be

serviced. The finance minister is in a pickle. If Pakistanis lose heart, too, they

may quit the currency, scrambling for dollars instead. Should that happen,

Pakistans reserves will quickly vanish. And here is the big difference between

2008 and today: Pakistan has already had its IMF rescue.

JANUARY 20, 2011 AT 10:40 PM

Riaz Haqsaid...

In 2008, the PPP government pushed the procurement price of wheat up from

Rs. 625 per 40 kg to Rs. 950 per 40 kg. This action immediately triggered

inflationary pressures that have continued to persist as food accounts for just

over 40% ofPakistan's consumer price index. According to State Bank of

Pakistan (SBP) analysis, cumulative price of wheatsurged by 120 per centsince

2008, far higher than the 40 per cent between 2003 and 2007. it is also many

times greater than the international market price increase of 22 per cent for

wheat in the same period. Similarly, sugar prices have surged 184 per cent higher

since 2008, compared with 46 per cent increase during 2003-07.

The transfer of additional Rs. 300 billion to Pakistan's agriculture sector during

the current fiscal year 2010-2011 by higher prices of agriculture produce and

direct flood compensation to 1.6 million affected families at the rate of one

hundred thousands rupees each willboost economic confidence in the

countryside. It will generate rural demand for consumer items including

consumer durables such as fans, TVs, motorcycles, cars, refrigerators, etc.

Already, the upside of the government policy is that Pakistan's rural economy is

beingspurred by high crop pricesthat may help the GDP growth this year and

next. Increased farm incomes are whetting the rural households' appetite for

industrial and consumer goods in 2011 and beyond.
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295592044111#c7907216675016539082http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295592044111#c7907216675016539082http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.statpak.gov.pk/depts/fbs/statistics/price_statistics/monthly_price_indices/mpi6/cpi_details.pdfhttp://www.statpak.gov.pk/depts/fbs/statistics/price_statistics/monthly_price_indices/mpi6/cpi_details.pdfhttp://www.statpak.gov.pk/depts/fbs/statistics/price_statistics/monthly_price_indices/mpi6/cpi_details.pdfhttp://jang.com.pk/thenews/jan2011-weekly/busrev-17-01-2011/p9.htmhttp://jang.com.pk/thenews/jan2011-weekly/busrev-17-01-2011/p9.htmhttp://jang.com.pk/thenews/jan2011-weekly/busrev-17-01-2011/p9.htmhttp://www.riazhaq.com/2011/01/pakistans-rural-economy-showing.htmlhttp://www.riazhaq.com/2011/01/pakistans-rural-economy-showing.htmlhttp://www.riazhaq.com/2011/01/pakistans-rural-economy-showing.htmlhttp://www.riazhaq.com/2011/01/pakistans-rural-economy-showing.htmlhttp://www.dawn.com/2011/01/03/economy-to-gravitate-towards-agriculture.htmlhttp://www.dawn.com/2011/01/03/economy-to-gravitate-towards-agriculture.htmlhttp://www.dawn.com/2011/01/03/economy-to-gravitate-towards-agriculture.htmlhttp://www.blogger.com/profile/00522781692886598586http://www.dawn.com/2011/01/03/economy-to-gravitate-towards-agriculture.htmlhttp://www.riazhaq.com/2011/01/pakistans-rural-economy-showing.htmlhttp://www.riazhaq.com/2011/01/pakistans-rural-economy-showing.htmlhttp://jang.com.pk/thenews/jan2011-weekly/busrev-17-01-2011/p9.htmhttp://www.statpak.gov.pk/depts/fbs/statistics/price_statistics/monthly_price_indices/mpi6/cpi_details.pdfhttp://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295592044111#c7907216675016539082


27/94

While it is good to see Pakistan's rural farm economy perk up, it is also important

to recognize that the overall national economic outlook can not improve

significantly unless the growing budget deficits and rising inflation are brought

under control. And this will require the rulingfeudal eliteto pitch in by paying

their fair share of income tax on their rising farm incomes. It is time for them to

lead by example.

JANUARY 23, 2011 AT 9:52 AM

Riaz Haqsaid...

There seems to be consensus developing among Pakistani economists that

"prompt measures needed to control rising inflation", according to a report

inDaily Times:

LAHORE: Pakistan is fast heading towards higher inflation and to overcome this

grim scenario; improvement in governance coupled with a drastic cut in

expenditure and revenue generation is crucial.

The doom and gloom scenario needs an urgent handling. Good governance, good

policies, good institutions, good macroeconomic management are the drivers of

economic growth that have gone dormant for quite some time. This was the crux

of the speeches delivered at Economic Dialogue 2011 held at Lahore Chamber of

Commerce and Industry on Tuesday. Senior economist Dr Akmal Hussain said

the country is facing its gravest economic crisis in history after 1971. He said the

economy is in deep recession, poverty along with high inflation is a recipe for

disaster.

Unfortunately, he added, the government has zero fiscal space. He warned that

Pakistan was heading towards higher inflation if immediate improvement in

governance is not accompanied with cut in expenditure and substantial increase

in revenue.
http://www.riazhaq.com/2009/08/ode-to-feudal-prince-of-pakistan.htmlhttp://www.riazhaq.com/2009/08/ode-to-feudal-prince-of-pakistan.htmlhttp://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295805174720#c2638395920231620493http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295805174720#c2638395920231620493http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2011%5C02%5C02%5Cstory_2-2-2011_pg5_10http://www.dailytimes.com.pk/default.asp?page=2011%5C02%5C02%5Cstory_2-2-2011_pg5_10http://www.dailytimes.com.pk/default.asp?page=2011%5C02%5C02%5Cstory_2-2-2011_pg5_10http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2011%5C02%5C02%5Cstory_2-2-2011_pg5_10http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1295805174720#c2638395920231620493http://www.riazhaq.com/2009/08/ode-to-feudal-prince-of-pakistan.html


28/94

The former WB Executive Abid Hassan said that the institutional decay has now

started taking its toll and the government should take appropriate measures on

emergent basis to stop this decay. He said that with every passing day the country

is going deeper and deeper into the economic mire. Today we have reached a

situation where even an economic stimulus would not work. The government

should concentrate on tax collection and controlling unnecessary expenditures.

Unless and until these two measures are not taken, the economy would not be

able to be back on rails, he said. The PIDE Vice Chancellor Dr Rashid Amjad

said that the present day doom and gloom scenario could be changed by

overcoming the acute energy shortage being witnessed by the country. The issue

of circular debt needs to be taken care of by those sitting at the helm of affairs.

PSDP has a multiplier effect on the employment and economy. It should not be

cut, he said.

Former chief Economist Planning Commission Dr Pervaiz Tahir blamed the

political chaos for our economic woes and termed the dictatorship democracy

cycle as mother of all ills.

Energy sector expert Munawar Baseer, ex Executive committee member Almas

Hyder and LCCI President Shahzad Ali Malik while appreciating the input

provided by the economists said that most of the issues and challenges faced by

the country are more of political. The political leadership while realizing the

sensitivity of the situation should come up with a solid solution with close

coordination with the chambers. The policies are being made in isolation

without the consultation of real stakeholders and thats why the economic

situation today has become more complex and directionless, he said. The

speakers said that the business community should be involved for the sake of

correct decision-making.

They urged the government to evolve a more realistic and pragmatic framework

by putting an end to inter-provincial disparity and the disparities within the

province. The government should re-do its priority list and concentrate on the


29/94

few areas that come on the top of that priority list.

It is very unfortunate, the speakers said, that the country has become the most

inhospitable for both the local and the foreign investors for security reasons.

Our inability to reach a consensus on water issue and inability to tap

hydrocarbon potential of Balochistan has virtually pushed us to the wall, they

said. staff report

FEBRUARY 4, 2011 AT 6:49 PM

Riaz Haqsaid...

Here's an interestingassessment of Pakistan's economy in 2H-2010:

...The countrys exports, money sent by overseas Pakistanis, balance-of-

payments position and foreign exchange reserves have reflected an

encouraging growth during July-December FY11, showing strong signs of

improvement in the economy, Saad-bin-Naseer, CEO of Pearl Capital, told

Central Asia Online January 28. Pakistans exports were $10.97 billion, an

increase of US $1.88 billion, in the first six months of FY11.

That 21% increase was a very positive sign for the growth of export-oriented

industry and the national economy, he said.

In FY11 exports could cross the $22 billion mark for the first time because of a

significant increase in the value of Pakistani products on world markets, Naseer

added.

The textile industry had taken the lead by fetching $1.28 billion in additional

foreign exchange through exports, Anisul Haq, secretary of All Pakistan Textile

Mills, told Central Asia Online.The textile industry had taken the lead by

fetching $1.28 billion in additional foreign exchange through exports, Anisul
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1296874141916#c7036583223786127124http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1296874141916#c7036583223786127124http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.centralasiaonline.com/cocoon/caii/mobile/en_GB/features/caii/features/pakistan/main/2011/02/08/feature-01http://www.centralasiaonline.com/cocoon/caii/mobile/en_GB/features/caii/features/pakistan/main/2011/02/08/feature-01http://www.centralasiaonline.com/cocoon/caii/mobile/en_GB/features/caii/features/pakistan/main/2011/02/08/feature-01http://www.blogger.com/profile/00522781692886598586http://www.centralasiaonline.com/cocoon/caii/mobile/en_GB/features/caii/features/pakistan/main/2011/02/08/feature-01http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1296874141916#c7036583223786127124


30/94

Haq, secretary of All Pakistan Textile Mills, told Central Asia Online by

telephone from Lahore. From July-December FY11 textile exports increased to

$6.28 billion compared to 2010 figures.

Total annual textile exports could exceed $13 billion for the first time, he added.

In 2009-10, they totalled $10.5 billion.

The textile industry had taken the lead by fetching $1.28 billion in additional

foreign exchange through exports, Anisul Haq, secretary of All Pakistan Textile

Mills, told Central Asia Online.

---------

Another pillar of the economy is remittances from overseas Pakistanis. The

money they sent home increased by $780m in the first half of FY11, to $5.3

billion, Haq said.

We hope the country would receive $11 billion from overseas Pakistanis in

2010-11 with major increase in inflows from Pakistanis staying in Arab

countries and other western countries, Haq said.

Foreign aid from institutions and countries, not just individuals, helped. The

disbursement of $633m in coalition support and the extension that the IMF gave

the government for imposing the Reformed General Sales Tax (RGST) helped

improve some of the major economic indicators, Naseer said.

The picture did much to bolster Pakistans balance sheet, which has had its ups

and downs. Pakistan recorded a current account surplus in the first six months

of the fiscal year, which enabled growth in foreign exchange reserves and

stabilised the dollar-rupee exchange rate, Pearl Capitals Naseer added.

In 2009-10, the country incurred a $2.5 billion current account deficit from

July-December, but for the same period in 2010-11 it enjoyed a surplus of $26m

a dazzling switch from red ink to black, he said.

The robust performance of exports and remittances enabled Pakistan to accrue


31/94

a record $17.3 billion in foreign exchange reserves by January 21, he said.

Investor confidence has grown in response to these positive indicators. The

stock market capitalisation grew to $36 billion in January 2011 from $32 billion

in October 2010, he said, adding that such growth would encourage foreign and

local investment.

-----

warned.

Islamabad, which still hasnt imposed the RGST the IMF wants, doesnt collect

enough taxes, Khan said. It levies only about 9% of GDP against the required

international standard of a minimum 15% tax-to-GDP ratio, Khan said.

The government must implement tax reform, reduce reliance on borrowing

from the IMF and generate its own resources to enhance tax revenues and to

bolster economic growth, he added.

Serious efforts to solve chronic gas and power shortages are also imperative, he

said.

FEBRUARY 11, 2011 AT 5:37 PM

Riaz Haqsaid...

Here are some excerpts from an Op Ed inNewsweek Pakistanby Meekal Ahmed,

a former IMF official:

The government hopes to generate Rs. 53 billion during the last quarter of the

current financial year, which concludes on June 30. It hopes to achieve this by

imposing a 15 percent surcharge on income taxpaid by Pakistans paltry 1.7

million registered, individual taxpayers. Given the small tax base and modest

yield, the surcharge seems unfair and not worth it. In a move that is regressive

and potentially inflationary, depending on the market, excise duty on certain
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1297474661044#c4155108329232234365http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1297474661044#c4155108329232234365http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.newsweekpakistan.com/the-take/275http://www.newsweekpakistan.com/the-take/275http://www.newsweekpakistan.com/the-take/275http://www.blogger.com/profile/00522781692886598586http://www.newsweekpakistan.com/the-take/275http://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1297474661044#c4155108329232234365


32/94

import items has been increased from 1 percent to 2.5 percent until end-June.

While these measures are better than doing nothing at allwhich is what

happened during the first three quartersthey are far from ideal, and dont go

far enough to address the big problems with the economy.

But its not all bad. The elimination of tax exemptions for agricultural inputs

(including tractors, fertilizers, and pesticides) was long overdue. With a strong

agro-lobby preventing taxation on their handsome incomes in a sector that

contributes 21 percent of GDP, the government might as well tax the inputs. Tax

exemptions for export quality textiles sold within Pakistan have also been nixed

despite resistance from the fierce textile lobby. The freeze on additional hiring in

the public sector, and the 50 percent cut in several spending categories should

also be welcomed.

Then there is the profusion of what many Pakistani media outlets call petrol

bombshighly unpopular oil price adjustments at the start of each month. The

government announces the adjustments, and then rolls them back under

popular and political pressure. The fuel price adjustments are unavoidable.

Pakistan is a net oil importer and cant insulate itself from global price shocks.

Oil prices have risen steeply in the last three months, and have now crossed the

psychologically important 100-dollar mark. Pakistans fuel subsidiesat an

estimated Rs. 5 billion per month that could have been spent on development

are unaffordable and unsustainable. Oil prices will remain high for a while.

Pakistanis must adjust to this reality. .....

...

Despite the new measures, doubts remain about the revised tax-revenue targets

and the states capacity to achieve them. The Federal Board of Revenue is

notorious for its chronic underperformance. The justification that there is a tax

revenue shortfall because the economy is in recession holds no water. An

economy expected to grow at around 3 percent is not, technically speaking, in

recession, but is growing below its potential. There is no cycle for fiscal

revenues in Pakistan: whether the economy grows at 3 percent or 7 percent,

whether inflation is 2 percent or 25 percent, tax revenues fail to keep up. If they


33/94

did not, there would be a constant tax-to-GDP ratio, which is actually falling.

This trend points to the existence of deep-rooted structural deficiencies in the tax

system, which is regressive, anti-poor and plagued by too many exemptions and

concessions. Then theres also corruption, abuse of the system, and evasion.

Even taxes withheld at source are not deposited in the governments account

because of alleged connivance between withholding agents and tax officials.

MARCH 25, 2011 AT 8:25 PM

Riaz Haqsaid...

Here are some excerpts from anADB reporton Pakistan as quoted byDaily

Times:

Pakistans budget deficit may cross 5.5 percent of the gross domestic product

(GDP) due to less than expected revenues, excess expenditure on floods, security

and subsidies.

---------

According to the report, severe floods in July-August 2010 have affected fiscal

year (FY) 2011s prospects. Damage was less severe than initially feared, but

agriculture and communications were hit hard.

The report says that Pakistans public debt (excluding guarantees) as a share of

the GDP continued to climb in FY 2010. Government domestic debt amounted to

37.0 percent of the GDP, including commodity debt and liabilities of State

Owned Entities (SOEs). External debt rose to 31.9 percent of the GDP, including

0.6% of the GDP in external liabilities of SOEs. Interest payments due on

domestic debt represent a heavy burden, accounting for 3.9 percent of the GDP

in FY 2010, or 43 percent of the Federal Board of Revenues (FBR) revenue.

External debt amortisation payments, excluding amounts owed to the IMF, are

relatively stable for FY 2010 FY 2013 at about $3.3 billion. Amounts due for

FY 2012 and beyond will be raised substantially by repayment obligations to the

IMF. The report maintains that the inflation accelerated after the floods, to 15.7
http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1301109926389#c1981860025303487230http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1301109926389#c1981860025303487230http://www.blogger.com/profile/00522781692886598586http://www.blogger.com/profile/00522781692886598586http://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.blogger.com/profile/00522781692886598586http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.dailytimes.com.pk/default.asp?page=2011%5C04%5C07%5Cstory_7-4-2011_pg5_13http://www.adb.org/documents/books/ado/2011/ado2011-pak.pdfhttp://www.blogger.com/profile/00522781692886598586http://southasiainvestor.blogspot.com/2010/03/pakistans-economy-what-went-wrong-2008.html?showComment=1301109926389#c1981860025303487230


34/94

percent in September, reflecting actual and expected shortages. It remained

above 15 percent through December, falling to 14.2 percent in January owing to

a government-freeze on oil and electricity prices. It is expected to stay high

through FY 2011, for an average annual 16.0 percent, and is then expected to

recede in FY 2012 to 13.0 percent (moderation in international food prices is

likely to be at least partly offset by electricity price rises).

ADB expects Pakistans economy to continue to build on the vital signs of

recovery. The good news is that Asia is maintaining a strong growth trajectory,

and expanding South to South links presents supplementary opportunities for

developing Asia, including Pakistan. Pakistans recent entry into Central Asian

Regional Cooperation (CAREC) opens up new trade and development corridors

... but it all depends on getting back on course in implementing the fiscal

reforms and creating an enabling environment for the industry and job creation

for the youth in the years ahead, the ADB country director added.

The total disbursements made to Pakistan by ADB during the calendar year

2010 were $799.18 million that were 117 percent more than the projected

amount of $683.28 million.

---------

According to the report, Pakistans external reserves reached a record-high of

$17.4 billion in early February 2011, amounting to more than five months of

imports of goods and services. This build-up essentially reflects IMF releases of

$7.1 billion under the Stand-by Arrangement programme, an additional $450

million in emergency support in September 2010, and support from the

Coalition Support Fund ($633 million).

APRIL 6, 2011 AT 6:26 PM

Riaz Haqsaid...


35/94

Here's blog post from today'sDawn newspaper:

GLORIOUS countryside lies between Rahim Yar Khan and Bahawalpur.

Travelling across six districts in Punjab, before a blazing summer sets in, I

experienced endless fields of wheat waiting to turn golden, of freshly harvested

mustard, acres of ripe sugarcane and sprawling mango orchards.

Far from the drudge and gloom of metropolitan Pakistan, economic privation,

traffic snarls, extreme religion and the cricket World Cup agony, this is another

Pakistan. Over a quarter of a century after the green revolution ended the rural

economy is back in boom, this time on the back of rising prices. The feel-good

factor is all around.

------------

Alongside the cash economy, the place is also brimming with ideas, and with an

entrepreneurial spirit. A young man I meet at Rahim Yar Khans chamber of

commerce has an IT degree and owns an ice cream distribution business

spawning an elaborate cold chain across three districts. He tells me that sales

are surging because rural society is transitioning to modern desserts which are

now more affordable than traditional sweets like mithai and khoya.

Meanwhile, hes toying with the bigger vision of an electronic marketplace for

agricultural produce. Live connectivity to grain mandis and markets for fresh

produce and milk will empower farmers to obtain prices online and through

their cellphones. He wants to materialise this and wants tips. I give him my two

cents worth: study similar models, write a concept paper, galvanise partners

around it, put in seed money and get the venture to mezzanine level.

For now the agricultural economy is growing more in value than in volume. As

it does, it pulls in a rising demand for inputs. Fertiliser and agrochemical

companies, some listed on the stock exchange are making record profits. Still,

few find time to complain about rising input prices. With a population of

400,000, Rahim Yar Khan sports showrooms displaying cars, motorcycles and

generators, fast food outlets and even private healthcare clinics.
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Even then, not all the cash would appear to go into consumption. Pakistan now

ranks amongst the worlds top 10 markets for tractors. Alongside, and despite

constrained credit to agriculture, farmers are investing in agricultural

implements, irrigation channels and farm modernisation.

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Simple, he explains, this year the ginners got together with the local utility

company, Mepco. Weve instituted a system whereby instead of intermittent

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