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Int’l vendors see immense growth potential in Pakistan Page 03
profit.com.pk
Friday, 02 March, 2012
Pakistan holds enormous potential for growth: Yaseen LAHORE
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STAFF REPORT
tate Bank of Pakistan (SBP) Governor Yaseen anwar has said Pakistan holds enormous potential for economic growth. ‘I am personally optimistic about the country’s future, and confident that our economic managers – who have steered the country through much choppier seas – will guide this resilient economy to the path of stability and prosperity,’ he added. Delivering his key-note address on ‘the state of Pakistan’s economy’ at a seminar organised by the Management association of Pakistan (MaP) at a local hotel, he emphasised that our economy’s resilience may well be unparalleled as we have survived two major floods; one catastrophic earthquake; a war on one border and a balance of payments crisis – all in the past decade. ‘this only goes to show the enormous potential for growth that the country holds,’ he added. He said while Pakistan’s economy is going through some testing times, the challenge in front of us can scarcely be classified as daunting. ‘Our twin deficits are, in my opinion, the most significant challenges at the moment. even then, it is not the size that’s the problem; it’s the situation. and unlike the problems that engulf the economies of the West, we know precisely what needs to be done. In that regard, we are extremely fortunate,’ SBP Governor added. anwar said, ‘We know our problems. Unlike many other countries, the solutions to our problems are straightforward. all that is required is a good measure of willpower and determination to make reforms through these interesting and challenging times.’ He said despite the fiscal deficit, the country’s debt to GDP ratio has not increased substantially; in fact, it has declined in the last three years. ‘to put this in perspective, Pakistan’s debt to GDP ratio is half that of most european countries and one-third that of Japan, he said, adding that most of the country’s debt is denominated in rupees and the external debt is long-term in nature. thus, I believe there is absolutely no chance that Pakistan will be facing a Greece-like debt crisis anytime in the near future,’ Mr anwar added that.SBP Governor said the resilience of the economy manifested itself in the pace of recovery that was witnessed after the flooding in Sindh in the early part of FY12. the improvement in food supplies has already dampened food inflation, which has been edging down continuously, he said, adding this is especially good
news for the lower strata of society, which spends roughly half of its income on food. ‘Headline inflation has followed suit and fell to less than 10 per cent for the first time in two years,’ he said. anwar said our textile and sugar industries are expected to do well this year and added that construction activity has also picked up with support from the rise in remittances; a growing population and initiation of public sector development projects. He pointed out growth across the real sector has been constrained significantly by our energy problems. However, the government is very well informed about the energy situation and has been taking steps to alleviate the problem, he said, adding that such step was the debt swap that was recently conducted to free up liquidity for companies across the energy sector, increase power generation and reduce the level of circular debt in the energy sector. SBP Governor said all stakeholders are conscious about the challenges that the economy faces at present, and discussions have been extremely frank and straightforward. to help manage the deficit without too much of an impact on economic growth,
the State Bank has ramped up efforts to broaden and deepen financial markets – both primary and secondary, he said and added ‘We have undertaken an initiative with SeCP to develop debt markets in Pakistan, and we believe that this will go a long way towards mitigating the negative effects on the economy of government borrowing from commercial banks. anwar said we are working towards the development of the corporate debt market that would lead to a secondary market, thereby creating ample liquidity to absorb the circular debt as a long term remedy. ‘the depth and breadth of the market comprising both institutional and individual investors, would also alleviate government borrowing from SBP and the commercial banks, he said, adding that naturally monetary policy would then become more effective in managing inflation. He said SMe, agriculture and housing finance are engines of growth. Our banking structure currently is not performing its key role as a financial intermediary as none of these sectors have been adequately penetrated; he said and added that we are working to develop the corporate debt market to facilitate financing. SBP Governor said it is financing of the current account deficit that will remain a challenge this year. ‘Net financial inflows have slowed down to only $1.9 billion in FY11 after peaking at $8.7 billion in FY07. to manage the situation, the Bank (SBP) has entered into currency swap agreements with turkey and China in order to mitigate the pressure of any adverse development in the developed world on our external accounts and reserves,’ he said, adding that other such arrangements are in the pipeline with other countries that could relieve pressure on our external accounts. ‘aside from the currency swaps, the largest bank in the world, Industrial Commercial Bank of China (ICBC) opened its branches in 2011 in Karachi and Islamabad. Soon I will be announcing another foreign bank’s entry into Pakistan that reflects offshore investor confidence improving. Clearly, there is much to be optimistic about,’ he added. SBP Governor said our reserve management policies are transparent and the State Bank has not experienced any substantial pressure on its reserves yet – despite the recent repayment of a $400 million installment to the IMF as we start paying our loans. ‘the foreign exchange market did not react adversely to this large outflow, reflecting the confidence it places in SBP’s policies and procedures,’ he said, adding the State Bank successfully managed market expectations and avoided any untoward movements in the exchange rate.
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Progress on Balochistan
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eRe’S how to begin proper, progressive forward movement on the Balochistan issue. It didn’t take much to get the additional 70mw power supply from Iran, and making the province’s coastal division ‘loadshedding free’ will bring multiple gains. One, it signals the right kind of attention from the centre, that the people’s basic issues are very much on the agenda in Islamabad. two, the success of the present exercise will bring more such projects, in turn generating related economic activity and employment. two more projects citing import of 1100MW are already in the pipeline. three, employment generation and energy availability can, under the right patronage, stimulate entrepreneurship and consumerism, a phenomenon that can help the neglected province in an unprecedented manner. threats from extremist tendencies, be they of nationalistic or sectarian persuasion, are best countered by progressive treatment of genuine grievances. Balochistan has suffered in more ways than one, though the economic aspect stands out the most. and even if its claims of long years of political and financial isolation remain disputed, there can be no two views about the pressure it has faced as the natural waste-pool of the war on terror spillover. Its rehabilitation is essential, both financial and political, and in exactly that order. It is also essential to keep the Baloch economically engaged in the province’s uplift, and not just for an ultimate politically correct posture. Once the locals increase earning and spending in the local market place, they will engineer the multiplier, and there are few better ways of turning minds from extremist bias.
Budget Review Committee formed to determine budget needs ISLAMABAD
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AMER SIAL
He National assembly Standing Committee on Finance was informed on thursday that the government has constituted a five member Budget Review Committee under the chairmanship of the Deputy Chairman Planning Commission to review and determine the budget needs of the federal ministries and divisions for the next fiscal year. Secretary Finance Wajid Rana assured the committee which met under Fauzia Wahab in the chair that there would be no irrational increase in the budget of the federal ministries and divisions for the next fiscal year. the committee was informed that the agriculture growth is expected to increase to 3.8 per cent against the downward revised target 2.5 per cent is to help achieve Real Gross Domestic Product (GDP) growth target of 4 per cent during the ongoing fiscal year 2011-12. Secretary Finance informed that the directives of the federal cabinet, MoF has notified a five member committee under Dr Nadeem-ul-Haq which will have two members from government and two
private sector. explaining the reasons for re-emergence of the circular debt, he said that the main reason was tariff determination by the National electric Power Regulatory authority and its notification by the government. the government had been notifying power tariff 54 per cent lower than the tariff determined by NePRa. at present the notified power tariff is 20 per cent lower than the determined tariff. Secretary Finance said during the July-January period total expenditure was targeted at 58 per cent of the total budget, however, due to the austerity measures the expenditure had remained at 53 per cent of the total budget with a saving of 5 per cent. about the utilization of Public Sector Development Program, he said no cut had been made in the development budget and the government had released Rs221 billion for the development projects. explaining the demand of IFIs for imposition of RGSt, he said even friendly donor countries were also demanding to expand the revenue base by bringing the rich in the tax net. He said RGSt was essential for documentation of economy and for increasing tax collection in coming years. He said handsome increase in
revenues was made due to the withdrawal of GSt exemptions announced on March 15, 2011. He said the GDP growth for FY 12 was projected to 4.2 per cent due to 3.4 per cent growth in agriculture, 2 per cent growth in LSM and 5 per cent in services sectors. torrential rains in Sindh during august 2011 compelled the government to revise its GDP growth target to 3.6 per cent from 4.2 per cent on the basis of 2.5 per cent growth in agriculture, 1.5 per cent in LSM, and 4.4 per cent growth in services sector. the recent data of crop arrivals suggests that cotton production of 13 million bales as the cotton arrival have already reached at 12.5 million bales and positive growth in LSM sector indicates that the better crops production in Punjab particularly cotton
has compensated losses in Sindh resultantly agriculture growth as well as LSM and services sector would be adjusted upward and GDP would be close to 4 per cent. the LSM data for the period July to December FY12 suggests that its output is increased by 0.83 per cent as compared to decline of 1.8 per cent in the corresponding period of the last year. the inflation recorded in January 2011 increased to 10.1 per cent. this was primarily on account of adjustment of energy and gas prices; however, the food inflation remained at single digit 9.2 per cent. the fiscal deficit was projected 4 per cent of GDP. this was estimated to be financed through net external borrowing of Rs135 billion, non bank borrowing Rs412 billion and bank borrowing Rs304 billion. However, during
the course of the period the projection for fiscal deficit has been revised to 4.7 per cent. For the period July-December FY 12, overall fiscal deficit was Rs.533 billion or 2.5 per cent of GDP, while total expenditure in first half of the current fiscal year was only 45 per cent of total planned expenditure. the trade deficit witnessed a deterioration of 38.7 per cent as it increased from $6.5 billion in July-January FY11 to $9.05 billion in FY12. Substantial increase of 17.7 per cent in imports surpassed a healthy growth of 7.2 per cent in exports during the period under review. the current account deficit has increased to $2.633 billion during first seven months of FY12 against the deficit of $96 million in the comparable period of last year. the foreign direct investment during July-January FY12 fell 41 per cent to $597 million as compared with $1 billion in the comparable period of the last year. the worker’s remittances during July-December FY12 reached to $6.3 billion against $5.3 billion in FY11, showing an increase of 19.5 per cent. However, during July-January FY12 it increased to $7.4 billion as against $6.1 billion in the comparable period of last year showing an increase of 21.5 per cent.