PRO 12-07-2012_Layout 1 7/13/2012 6:17 AM Page 1
Friday, 13 July, 2012
China craves the Apple pie Page 02 WHaT aBoUT inFLaTion?
Another feather in SBP’s cap g
g
g
g
Government’s budgetary borrowings from SBP exceed those from scheduled banks Declining commodity prices in international market rids government of inflation woes Budgetary loans from SBP cross Rs 597 billion compared to Rs 592 billion from commercial banks SBP expected to keep discount rate intact at 12pc in near future KARACHI
T
ISMAIL DILAWAR
HE cash-strapped federal government has increased its budgetary reliance on the central bank as the prices of commodities, specially the oil, on international market have shown some ease during the recent months.
Fearing a direct inflationary impact of its borrowings from the State Bank, which caters to the same through printing more currency notes, the funds-starved government has been showing enough restraint during first half of FY2 in borrowing from the State Bank of Pakistan. Instead, it depended heavily on the scheduled banks to finance its ever-widening fiscal deficit. According to offi-
cial figures, the Consumer Price Index inflation in month of June (2012) stood at 11.26 percent against 12.29 percent in May. Further, on average during FY12 the CPI inflation stood at 11.01 percent, lower than SBP expected range of 11-12 percent as well as the average inflation of 13.66 percent last year. “The subdued number in the month of June is a reflection of soft food prices and decline in the petroleum prices on account of decline in international oil prices,” viewed Topline analyst Nauman Khan. Now when the easing international commodity prices, specially that of the oil constituting the costliest head on Pakistan’s import bill, have started unfolding its positive impact on inflation rate at home, still in double-digit however, the government seems to have rolled up sleeves to borrow directly from the State Bank. The SBP data show that during July-June 22 (FY2012) the funds-starved government’s budgetary borrowings from the central bank accumulated to over Rs 597.6 billion, up 90 percent or Rs 6 billion from Rs 592.04 billion the government bor-
rowed from the scheduled banks during the review period. Compared year-on-year (YoY), the government’s budgetary borrowings from the state and commercial banks depict a respective increase of Rs 439.9 billion or 279 percent or Rs 88.7 billion or 18 percent over corresponding months in FY11. In total, during the period under review the government raised over Rs 1.279 trillion from the banking system against last year’s Rs 645.33 billion. This shows a mammoth growth of Rs 634 billion or 98 percent over last year. The borrowing from scheduled banks was made through the auction of the heavily-weighted and risk-free government papers in which the risk-averse banks invested heavily to earn billions without, what an analyst aptly pointed out, “lifting a finger”. This huge investment in the government securities, according to SBP figures, has skyrocketed the Net Domestic Assets (NDA) of the banks to over Rs 1.074 trillion compared to last year’s Rs 583.118 billion. The analysts also cite an improved private sector off-take as a contributing factor in the NDA growth. “This positivity was overshadowed by persistent increase in borrowing for budgetary support,” said Mazhar A. Sabir of InvestCap Resreach. This trend, however, does not augur well in the long run for country’s already
‘Massive trade deficit’ scares Mining sector to grow by 3% this year the daylight out of ICCI ISLAMABAD ONLINE
The current increase in trade deficit will drag our economy towards major downturn which is already in doldrums due to various core issues that need to be addressed by the Government on urgent basis. Asad Farid, Acting President, Islamabad Chamber of Commerce and Industry (ICCI) expressed deep concern over the increasing trend in trade deficit. He said that the country could not afford rise in trade deficit for long term with the current level of foreign exchange reserves. He was responding to the reports that trade deficit has increased by 36.3 percent and crossed the benchmark of $21billion during fiscal year 2011-12 as compared to $15.60 billion in the previous corresponding period. ICCI Acting President said that our export oriented industries have failed to maintain export target due to severe energy shortage and our exports were on decline and recorded at $23.64 billion compared
with $24.81billion in the same period last year, depicting a decline of 4.71 percent which would also put the country in a balance of payments crisis. He said that the higher trade deficit leads to outflow of capital resources from the country and increases economic dependency. To control over the trade deficit, Government should improve the competitiveness of the domestic industries by ensuring uninterrupted power supply which would also improve the exports of the industrial units. Asad Farid said that widening trade deficit would bring pressure on the current account deficit, which could ultimately press the rupee value down and this will further deteriorate the situation. ICCI Acting President called upon the Government to take urgent measures to bring some stability in rupee value against dollar so that rapid increase in import bill could be controlled as it was the major cause of widening trade deficit. He cited the example of China, who was continuously trying to maintain its trade balance by controlling value of its currency.
ISLAMABAD: The growth rate of mining sector of the country has been set at 3 percent during the current fiscal year (2012-13), according to official sources. Focus of the mineral policy is on oil, gas, coal, iron ore, copper, and chromites to reduce import dependence, official documents revealed adding Public Sector Development Programme (PSDP) allocation of Rs.268 million has been made for mining this year. During the year 201213 an area of about 3,900 sq. km is planned to be mapped in different parts of the country whereas about 300 samples will be collected and analyzed under geochemical surveying. Efforts will be concentrated on exploration and evaluation of coalfields in Punjab, Sindh and Balochistan. These studies aim at enhancing coal resource base and supplementing power generation and substituting furnace oil in different industrial units in the country. According to the document, copper, lead-zinc sulphide and iron ore occurrences in Chagai and Lasbela-Khuzdar Districts in Balochistan will be further explored. A total of 2 bore holes are tentatively planned to be drilled for a cumulative depth of 500 meters under different development projects. The ongoing projects namely including Up gradation/strengthening of Geosciences Advance Research laboratories, Accelerated Geological mapping and Geo chemical exploration of the out crop areas as well as the project review/updation of Mineral Policy will continue in the year 2012-13. AGENCIES
troubled economy which, the analysts say, is still grappling with challenges like an enhanced money supply, the resultant double-digit inflation and reduced bank advances to the private sector, considered to be the engine of growth in developing economies. The economic observers believe that the Broad Money supply figures show a “dramatic rise” in money supply by Rs 181 billion during last week of June, posting the cumulative increase of 14.4%YTD till June 29. “The current trend in M2 growth is single-handedly driven by massive surge in the government borrowing,” said Mazhar. The analyst said, cumulatively, the government’s budgetary borrowings had contributed 67.2 percent in incremental supply growth compared to the previous year. The positives like improving Pak-US ties and expected inflow of $ 1.1 billion under Coalition Support Fund and the current declining trend in international commodity prices, would provide the government with an alternative source of budget financing and keep the price hike lower in the coming months. “The monetary mechanism could get some relief, however, we expect that the SBP would hold the current stance and maintaining the DR at current in near future,” Mazhar observed.
Romanian aid?
Romania can help Pakistan tap EU market: envoy ISLAMABAD APP
Ambassador of Romania to Pakistan Emilian Ion has invited Pakistani business community to participate in Romexpo to be held in Bucharest, to explore business opportunities aimed at boosting bilateral trade. He said that improved links between the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and the Federal Chamber of Romania was his dream which would come true soon. Ambassador Emilian Ion was talking to Chairman of the FPCCI Standing Committee on Diplomatic Affairs Sheikh Humayun Sayeed, who called on him here. Chairman Media FPCCI Malik Sohail, First Secretary Romanian Embassy Dragos Cosmin Luca and others were also present on the occasion. The envoy of the largest market in the South-Eastern Europe said that historical and friendly nature of the relations between the two states since 1964 called for more concentrated efforts to work together at all levels and promote cooperation in the political, economic, trade and cultural arenas. Pakistani and Romanian business communities should take advantage of the huge opportunities offered by the two economies, the representative of the seventh largest EU market underlined. Pakistani businessmen can export their products especially textile, garments, leather etc. to Romania and also to other EU countries through Bucharest, Emilian Ion informed. On the occasion, Chairman FPCCI Standing Committee on Diplomatic Affairs Chairman Sheikh Humayun Sayeed assured participation of business community in Romexpo. He thanked Romania for taking interest in Pakistan’s coal, energy, pharmaceutical, hydropower and other sectors. Sayeed offered full support of FPCCI to Romanian investors in exploring opportunities, developing linkages, holding exhibitions and exchanging business information.