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TAPI STANDSTILL
50 cent’s worth of deadlock No progress on TAPI transit fee between India and Afghanistan g Afghans want 54 cents per MMBTU, India wouldn’t go higher than 45 g Both parties might end up settling for 50 cents g
ISLAMABAD AMER SIAL
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crucial meeting of the three participating nations to finalize the transit fee for the $ 7.6 billion Turkmenistan Afghanistan Pakistan and India (TAPI) gas pipeline project failed to make head way on Tuesday Kabul and New Delhi failed to finalise the fee. An official source said that Afghanistan side had sought price of 54 cents per MMBTU for the transit of gas through its territory from India which was deemed high by the Indian officials who were ready to pay upto 45 cents per MMBTU. The two days talks between the three participating nations were held here to finalise the transit fee before the signing of the gas sale purchase agreement between the seller and the buyers later this month in Ashgabat. The source said that Afghanistan said mentioned that they were ready to reduce the price to 50 cents per MMBTU which the Indian side considered still too high and after much deliberation they showed intention to take their offer to 47 cents per MMBTU. But they said they still had to consult their higher authorities to make final decision. Pakistan also participated in the talks but it did not take aggressive part in the debate, as the source said that it has already told the two countries that it would be charging same transit fee from India as finalised with Afghanistan. He said that they would be sending the final transit fee to the ECC for approval.
Wednesday, 18 April, 2012
Inflation is here to stay Inflation to linger as money supply peaks to 9pc, thanks to soaring government budgetary loans g Govt borrowed Rs959b from banks during July-April FY12 g Growth–oriented private sector could secure only Rs 223b g Over 8.6pc hike in board money not in synchrony with 2.4pc GDP growth g Backbreaking CPI inflation stood at 10.79 percent in March g
KARACHI
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ISMAIL DILAWAR
HE economic observers foresee big distortions in long-term inflationary outlook as monetary expansion in the poverty-stricken country grows beyond 8 percent, far higher than the current pace of GDP growth. The central bank reported Tuesday that monetary expansion in the country grew to 8.6 percent during July-April 6 (FY12) compared to 8.92 percent of corresponding period in FY11. In monetary terms the Broad Money, also called as M2, swelled to Rs 580.769 billion as against Rs 515.080 billion of same period last year. On the other hand, growth in the country’s Gross Domestic Product (GDP) is staggering between two and three percent. “For last four years all averages in the monetary sector are distracted,” recalled the economist Asfar Bin Shahid. Fiscal indiscipline the analysts cite as a sole reason for this disproportionate and therefore negative growth in the monetary expansion or, in other words, the supply of money. During the period under review,
the central bank said currency worth Rs 201.59 billion was in circulation, slightly less than last year’s Rs 257.29 billion. “This is because of government’s excessive budgetary borrowing (from banks) that is adding greatly to supply of money,” viewed A.B Shahid. According to State Bank figures, the cash-strapped government’s borrowing from the risk-averse banks had peaked to almost Rs 1 trillion, accumulating to over Rs 959 billion during first 10 months of FY12 against last year’s Rs 417.520 billion. The funds-starved government in the center and provinces, respectively, borrowed Rs 296.895 billion and Rs 662.280 billion from the state and commercial banks during JulyApril period. The review period last year had seen government’s budgetary credit from the banks standing at Rs 106.69 billion and Rs 310.826 billion. “This (government borrowing) has a huge multiplier affect that translates the Rs 300 billion government bank loans at least into Rs 1 trillion,” economist A.B Shahid said. The currency notes, he said, were circulating in the economy for non-productive
purpose. “The money is just traveling into the economy without any goods being produced.” Nauman Khan, an analyst at Topline Research, opines that above 8 percent growth in broad money would have been a positive indicator had it attributed by the private credit off-take. This, however, is not the case here as the banks’ advances to the growth-oriented private sector could hardly touch the Rs 223 billion mark during the months in review. “The long-term inflationary outlook would be on the higher side,” said Khan. Ideally, the analysts said the monetary expansion should grow in accordance with the GDP growth in the country. “The supply of money should increase at a pace slightly higher from the GDP growth as this would help the economic managers contain profits,” A.B Shahid suggested. The backbreaking inflation in the poverty-stricken country is staggering beyond 10 percent, the Consumer Price Index stood at 10.79 percent in March. The State Bank predicts that the price hike would continue to remain in double digits even during the next financial year, FY13.
COMMENT
Europe’s example
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HERE are important lessons for Asia in Europe’s repeated breakdown, especially now as many years of all sorts of efforts have apparently failed to stem the tide, and a breakup of the single currency union seems imminent. With Greece expecting a hole-in-the-dyke scenario any moment, and austerity failing to sooth strained Italian and Spanish economies (Europe’s 3rd and 4th largest), there just isn’t money with European monetary authorities – while harsh austerity has left little further to milk out of the people – to keep the union together any longer. Defaults are going to follow, with cataclysmic spillover in commodity and currency markets. Unfortunately, contraction across Europe will bite into Asia’s most profitable business – exports. Recovery on the other side of the Atlantic too is shaky at best, though far, far better than Europe. little surprise, then, that even the growth engines of India and China have begun slowing down. And that will unsettle the other end of the emerging market supply chain. Commodity plays like Australia, New Zealand, etc, that provided the raw material for the furious expansion, will also decelerate, causing Asia-Pacific to slow in general. Even though Pakistan has remained largely decoupled from mainstream globalization, Islamabad has increased its trade and investment outreach of late, betraying a special liking for the emerging market phenomenon. Therefore, it must factor in from the European example that employing austerity at a time of low indigenous growth tends to strain international linkages. Any growth drive must now be prompted by wide mobilisation of capital and unclogging of capital markets. The exercise will require both increased public spending in the form of fiscal expansion, and stimulated private sector growth, easing the job market.
The calm before the storm World economy fragile, faces ‘uneasy calm:’ IMF WASHINGTON
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REutERS
lOBAl growth is slowly improving as the U.S. recovery gains traction and dangers from Europe recede, but risks remain elevated and the situation is very fragile, the International Monetary Fund said on Tuesday. Another flare-up of the euro-zone sovereign debt crisis or sharp escalation in oil prices on geopolitical uncertainty could disrupt the world economy finding its feet now tensions in the have subsided, the IMF said. “An uneasy calm remains. One has the feeling that at any moment things could well get very bad again,” IMF chief economist Olivier Blanchard told reporters as he detailed the Fund’s World Economic Outlook. “Our baseline forecast is for low growth in advanced countries, especially in Europe, but with downside risks being extremely present,” he said. The global economy is on track to expand this year by 3.5 percent and by 4.1 percent in 2013, up slightly from 3.3 percent and 3.9 percent GDP output respectively that the IMF had forecast in January, when market concern was rampant that could default and Italy and Spain were facing budget crises. Since then, Greece has restructured its debt, and Spain are adopting tough fiscal measures and eurozone leaders have agreed to enlarge their bailout fund, causing financial market tensions to ease. The United States, meanwhile, is gradually gaining momentum while and other emerging economies appear on track for gradual slowdowns without crashing, the IMF said. But the gains are precarious. Should the euro zone crisis erupt once more, it could trigger a widespread dumping of risky assets and rob 2 percent from
global growth over two years and 3.5 percent from the euro zone, the Fund warned. Additionally, a 50 percent increase in the price of oil would lower global output by 1.25 percent, it said. To secure the global recovery, the IMF urged central banks in the United States, euro zone and to stand ready to deliver further monetary easing; governments to exercise caution over the pace of budget cutbacks wherever feasible; and Europe to consider using public funds to recapitalize banks. EURO ZONE SHAKY, U.S. IMPROVES: While European leaders have made “major progress” in building firewalls against financial contagion, the region faces a tricky balance of cutting government debt and restoring competitiveness without excessively stifling growth, it warned. European banks also are deleveraging, which will reduce their balance sheets by $2.6 trillion over the next two years and slice about 1 percentage point from growth this year alone. “Bad news on the macroeconomic or political front still carries the risk of triggering the type of dynamics we saw last fall,” the IMF said. The euro zone is likely to endure a mild recession this year, shrinking by 0.3 percent and then posting 0.9 percent growth in 2013, the IMF said. That is a minor improvement from the 0.5 percent 2011 contraction followed by 0.8 percent growth that it forecast in January. The United States, meanwhile, is “pulling itself up by its bootstraps” as domestic conditions improve, the IMF said, though the pace of growth remains constrained by an indebted consumer, high unemployment and a weak housing market. The IMF lifted its forecast for the U.S. to 2.1 percent this year, up from 1.8 percent in January. For 2013, it nudged up the forecast to 2.4 percent from 2.2 percent. It sees unemployment this year holding at
its current level of 8.2 percent and inching down in 2013 to 7.9 percent. Despite the improvement, the fate of the United States remains deeply intertwined with that of the euro zone, where renewed problems could rob 1.5 percentage point from the outlook. “A flare-up in the euro area from increased sovereign and bank stress could easily undermine confidence in the U.S. corporate sector and thereby squeeze investment and demand, undermining growth,” the IMF said. The United States faces its own fiscal challenges, made worse by political fights that have delayed work on crafting a medium-term plan to reduce its budget deficit. If tax cuts expire at the end of this year and planned budget cuts kick in, the United States will face an abrupt fiscal tightening. “Such massive adjustment could significantly undermine the economic recovery,” the IMF said. EMERGING ECONOMIES RESILIENT: The IMF is sanguine on the outlook for China, leaving its growth forecasts unchanged at 8.2 percent this
year and 8.8 percent in 2013. Strong domestic investment and growing consumption as the middle class expands are supporting growth offsetting a slowing exports. IMF’s deputy director of research Joerg Decressin, speaking at a news conference, welcomed Beijing’s decision last weekend to allow China’s currency to fluctuate within a narrow band and said more flexibility would help in rebalancing its economy toward internal consumption. He said it was unclear whether the Chinese yuan was fairly valued, since the IMF is reviewing its methodology for evaluating . Emerging and developing economies overall are seen growing by 5.7 percent this year and by 6 percent next year, upwardly revised from 5.4 percent and 5.9 percent from January. Their challenge is to prevent overheating while retaining room for fiscal and monetary stimulus should dangers from the euro zone or high oil prices spill over, the IMF said.