Friday, September 20, 2013

Foreign Investment Up, Load-shedding Down in PM Nawaz Sharif's First 100 Days

FDI is up and load-shedding is down during Prime Minister Nawaz Sharif's government's first 100 days. However, there has been little progress on resolving fundamental issues such as lack of security, growing budget deficits, high current account deficits and continuing heavy subsidies to the power sector and various public sector enterprises like Pakistan Steel Mills, PIA, Railways, etc.

Foreign Inflows Jump: 

Prime Minister Nawaz Sharif's first 100 days in office have seen a significant increase in foreign capital inflows.

Pakistan has $105.4 million foreign direct investment (FDI) in the first two month of the current fiscal year 2013/14 compared to $52.4 million received during the same month of the previous year, according to a Reuters' report. This is a continuation of the trend from the PPP government's last year in office which saw 76% year-over-year jump to reach nearly $1.5 billion foreign investment in fiscal year 2012-13.

Foreign remittances from Pakistani diaspora also saw a 7% increase to reach $2.64 billion in July-Aug 2013. IN addition, Pakistan reached a deal with IMF for $6.6 billion loan and the first tranche of $500 million was disbursed last week.

Load Shedding Decreases:

Circular debt payment of $5 billion by the government has induced power companies to buy more fuel and better utilize installed generating capacity in the last two months. As a result, the people are experiencing fewer hours of load shedding across the country.

The fundamental issue of the gap between cost of generating electricity and the electricity revenue receipts still remains. However, the Nawaz Sharif government is pushing higher electricity rates and lower fuel cost options to reduce this gap. Meanwhile, the circular debt has piled up again to nearly $1 billion in just the last two months. If this debt continues to mount and the government fails to clear it, the load shedding is likely to significantly increase soon.


Prime Minister Nawaz Sharif's government is trying to start talks with the Taliban militants in an effort to reduce the mounting death toll in terrorist attacks. An all-parties conference in Islamabad has endorsed peace talks with the Pakistani Taliban. The TTP leadership has welcomed the talks offer but it has continued to kill soldiers, policemen and civilians to dictate terms to Pakistan government. This was brought in sharp focus when the Taliban killed a top general in Upper Dir recently. The Taliban appear to be exploiting the perceived weakness being communicated by the government in response to continuing attacks.

Recent data from South Asia Terrorism Portal indicates a decline in overall death rate from terrorism but it also shows that more security personnel are continuing to lose their lives in such attacks.

Structural Problems Remain:

Pakistan imports a lot more than it exports. Exports add up to about $25 billion while imports stand at about $45 billion. Similarly, Pakistani government spends a lot more than it takes in as revenue, leaving a budget gap of 6-7% of GDP. It is forced beg and borrow billions of dollars a year to fill this gap. Fundamental structural issues remain in terms of high current account deficits, widening gap between public revenue and spending, and large subsidies to public sector units including the power sector sapping public treasury. FBR is missing revenue target of Rs 2.5 trillion by Rs. 130 billion, according to an International Monetary Fund (IMF) assessment. Debt is accumulating again in the power sector. Economic growth is barely keeping up with population growth.  Creation of new jobs lags growth of new entrants into the work force. National savings rate is only about 10% of GDP which reduces domestic investments needed for the future.


Reviving economic growth is the biggest challenge facing the Sharif administration. It's going to be difficult to revive the economy without structural reforms to increase domestic and attract foreign investments, which in turn requires solving the basic issues of terrorism, energy shortages and  tax collection.

Here's a  video discussion on the subject and other topics:

First 100 Days of Nawaz Sharif Government; Taliban’s Islam is false Islam; Sumbul case; Sheema Kermani from WBT TV on Vimeo.

Related Links:

Haq's Musings

Pakistan to Beg and Borrow Billions More in 2013-14

Power Companies Profits Soar at Taxpayer's Expense

Does Nawaz Sharif Have a Counter-terrorism Strategy?

Pakistan's Tax Evasion Fosters Aid Dependence

Pakistan's Vast Shale Oil and Gas Reserves

Pak IPPs Make Record Profits Amid Worst Ever Load Shedding 

Global Power Shift Since Industrial Revolution

Massive Growth in Electrical Connections in Pakistan

Finance Minister Ishaq Dar's Budget 2013-14 Speech


Hopewins said...

Banker from Islamabad writes....

Hopewins said...

IMF warns that reforms will slow growth further....

Anonymous said...

Nawaz Sharif


Full name Nawaz Sharif
Born December 25, 1949, Lahore
Current age 63 years 271 days
Major teams Pakistan Railways
Batting style Right-hand bat

Batting and fielding averages
Mat Inns NO Runs HS Ave 100 50 4s 6s Ct St
First-class 1 1 0 0 0 0.00 0 0 0 0 0 0
Bowling averages
Mat Balls Runs Wkts BBI BBM Ave Econ SR 4w 5w 10
First-class 1 - - - - - - - - - - -
Career statistics
First-class span 1973-1974
Nawaz Sharif was a right-hand batsman who made a duck in his only appearance for Railways against PIA in 1973-74. He then served two terms as Pakistan's prime minister, firstly between November 1990 and July 1993 and then from February 1997 to October 1999 when he was ousted by a coup led by General Pervez Musharraf. He was subsequently banned from holding public office for 21 years, and was exiled to Saudi Arabia. He returned in 2007 and won the 2013 general elections - in which his main opponent was the former Pakistan captain Imran Khan - and secured his third term as prime minister.
Cricinfo staff

Riaz Haq said...

Yet another attack in Peshawar to dictate terms of surrender as the silence continues from leaders of #PTI #PMLN who still dare not condemn TTP by name. Cowards! #Pakistan

Riaz Haq said...

#PeshawarChurchBlast #TTP linked Jundullah's Ahmad Marwat claims responsibility #Pakistan #PTI #pmln via @reuters

Riaz Haq said...

Here's an ET Op Ed by Shahid Burki:

The tax-to-GDP ratio has fallen to a record low; at less than nine per cent of GDP. It is one of the lowest among emerging nations. With such a low rate the government is unable to invest in creating the needed infrastructure and improving the state of human development. Most worrying is the sharp decline in both public and private investment. At about 11 per cent of GDP and with the incremental capital ratio of about four — the proportion of GDP that needs to be invested to produce a one percentage point increase in national output — Pakistan can’t have a GDP increase by more than 2.5 to three per cent. Also troubling is the continuous decline in the country’s share in international trade. In other words Pakistan faces a grim economic future unless the many structural problems the country faces are addressed with some seriousness by the makers of public policy. It is from this perspective that the performance of the Sharif government needs to be viewed.
The manifesto issued by the PML-N for the electoral contest of May 2013, promised to set the economy on a growth trajectory that would match that of the more rapidly growing Asian economies. It set its sight on a rate of growth of six to seven per cent, to be reached by the year 2018, when its term in office will be over. To achieve that target the party promised to deal with both the short-term problems faced by the economy and also to address the long-enduring structural problems. Both were well known to the students of the Pakistani economy, including some of the people who were assigned senior positions in the new Sharif Administration. Energy shortages, of both electricity and natural gas, were taking a heavy toll on the economy. Continual activity by the forces of extremism had foreign capital leave the country. Persistent low rates of domestic savings had increased the country’s dependence on external capital. The government turned to the International Monetary Fund and quickly concluded an agreement that would provide $6.5 billion of capital along with another $5.5 billion to be received from other donors. The total amount of $12 billion would be disbursed over a three-year period, provided Islamabad adopted a whole host of issues that would help not only to pull the country out of the recession it was in but will also make it possible for the country to climb on a higher growth trajectory. For the long-term, the government requisitioned a development programme to cover all sectors of the economy and also, the relationship between the public and the private sector. This would be prepared by the Planning Commission in the form of what it called ‘Vision 2030’.

Anonymous said...

Tax to GDP ratio of 9% is perfectly normal and healthy for a per capita income of around 1200 usd.

Stop comparin with India's cartoonishly high tax to GDP ratio and the most expensive petrol in Asia and many other such anomolies.

Anonymous said...

Prof Riaz ul Haq sb,

I noticed some extremely dangerous statistics. Pakistan was ahead of India in most telecom stats in 2008 but by 2012, India has drawn level or pulled ahead. Looks like politicos have badly mismanaged affairs in Pak. Time for Brigade 111 to march in?


Riaz Haq said...

Supreme court should stay out economic decisions like fixing prices for electricity. Targeted subsidies should be given to low income households to help with energy costs. General subsidies for electricity and petrol take 34% of government's revenue ,bust budget and raise deficits and drive inflation (by printing more money to pay) hurting the low-income people the most. Energy subsidies in #Pakistan take up astounding 34% of gov revenue.Table A.3 of impressive IMF book:

Riaz Haq said...

The U.S. has quietly decided to release more than $1.6 billion in military and economic aid to Pakistan that was suspended when relations between the two countries disintegrated over the covert raid that killed Osama bin Laden and deadly U.S. airstrikes against Pakistani soldiers.

Officials and congressional aides said ties have improved enough to allow the money to flow again.

American and NATO supply routes to Afghanistan are open. Controversial U.S. drone strikes are down. The U.S. and Pakistan recently announced the restart of their "strategic dialogue" after a long pause. Pakistan's new prime minister, Nawaz Sharif, is traveling to Washington for talks this coming week with President Barack Obama.

But in a summer dominated by foreign policy debates over the coup in Egypt and chemical weapons attacks in Syria, the U.S. hasn't promoted its revamped aid relationship with Pakistan. Neither has Pakistan.

The silence reflects the lingering mutual suspicions between the two.

The Pakistanis do not like being seen as dependent on their heavy-handed partners. The Americans are uncomfortable highlighting the billions provided to a government that is plagued by corruption and perceived as often duplicitous in fighting terrorism

Riaz Haq said...

Here's Washington Post on Pakistan's new anti-terrorism law:

After a decade of terrorist attacks, Pakistan is implementing a new legal framework to deal with its growing militant threat — what some are calling a local version of the USA Patriot Act.

The government says the measure will improve an anti-terrorism effort plagued by inefficiency and abuses. At times, security forces have swept up thousands of suspected Islamist militants without charge, outraging human rights activists. When terrorism suspects do go before a judge, however, they are often freed, dismaying Western officials.

“This law is war, declared war, against those who challenge the state,” said Khawaja Zaheer, the senior justice adviser to Prime Minister Nawaz Sharif. “This law is intended to do what should have been done in 2001 or 2002,” in the aftermath of the attacks on the World Trade Center and the Pentagon.

But in a debate that mirrors the controversy over the USA Patriot Act, activists argue that the new measure will lead to widespread abuses.

“People are already being detained, people are already being kept in internment camps, people are already involuntarily disappeared,” said I.A. Rehman, secretary general of Pakistan’s Human Rights Commission, an independent Lahore-based body. “The only thing they want to do with this is give even more special powers to security forces to detain.”

For years, Pakistan’s leaders have lurched between tough talk on terrorism and sympathetic outreach to some militant groups. This week Sharif condemned a U.S. drone strike that killed the leader of the Pakistani Taliban, Hakimullah Mehsud, days before planned talks between the group and the Pakistani government.

Still, with Sharif facing pressure from Western governments to act, he has been quietly building a legal framework that could underpin a potential military offensive against the Taliban should talks fail.

The new ordinance — handed down in mid-October and effective immediately pending a review by Parliament — may first be put to the test in the economic hub of Karachi, where an offensive against criminal gangs and militant groups has netted about 5,000 arrests in the past three months.

The ordinance formally defines an enemy combatant, clarifies the powers of the army to intervene in internal security, establishes new federal courts, offers additional protections to judges, and codifies the use of extended detention.

The measure draws on previous laws, but government officials say it is broader, legalizing detention tactics and other practices that military and intelligence officials have been suspected of using for years. By doing so, Sharif’s government hopes to avoid clashes with a increasingly independent court system.

“The organized mafia is roaming free due to [a] legal vacuum,” Sharif wrote in a letter asking lawmakers to support the plan....
One 30-year-old man, who asked that he be identified only by his last name of Khan, a common Pakistani surname, said in an interview that he was picked up by officers in plainclothes while riding his motorbike in northwest Pakistan in June. He said he was blindfolded and detained for 25 days without being told why.

“They did not torture me, just kept me alone,” he said.

The measure also states that enemy aliens “may be detained by the government for such period as may be determined by it from time to time.”

The 1.5 million to 3 million Afghan refugees in Pakistan could be especially vulnerable to that provision, activists say, noting that many do not have proper documentation and that the ordinance considers “crossing national boundaries” as “waging war against Pakistan.”

Riaz Haq said...

Here's a Daily Times story on Pakistan economy as seen by the government:

Dar expressed satisfaction over the positive development that Large-Scale Manufacturing (LSM) had increased by 12.8 percent during the month of September. This sector has experienced a growth of 8.4 percent during the first quarter of the financial year 2013-14, mainly because of the proactive approach of the government in liquidating the circular debt resulting in increased generation. Consequently growth in the large-scale industrial sector experienced an increase of 6.0 percent in June 2013 which gradually increased to 12.8 percent in September because of the addition of 1,700 megawatts (MW) in the national grid.

The meeting was informed that foreign remittances have reached $5.2 billion in the first quarter of FY 2013-14, 6.3 percent more than the corresponding period last year and the foreign direct investment has increased by 85 percent in the first quarter of this financial year. “This speaks volumes about the seriousness of the PML-N government in the economic uplift of the country,” the finance minister said.

Dar, expressing concern over the inflation and price hike in the country said, “It was mainly due to the increase in international fuel prices and expressed hope that there will be lesser adjustments in the future. The government is sensitive to the hardships of the people of this country and was on average providing a subsidy of around Rs 2.2 billion every month just to lessen the burden of the rise in fuel prices on the common man.

The ECC also decided to appoint Asian Development Bank as the transaction adviser (TA) in the Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline Project. Dar said that ‘involving a credible financial institution as the TA will ensure greater transparency in the deal’.

The ECC also discussed in detail the rise in the prices of onions and tomatoes in the domestic markets. The ECC was told the shortage of both the vegetables is the main cause of the rise in prices which will soon be overcome when fresh stocks of onions and tomatoes reach the markets. Officials representing the Ministry of Food Security told the ECC that during the past three days a survey was conducted in the local markets and it was observed that the prices are already going down and by the end of this month they will improve further. However, Dar, advised the officials of the Ministry of Food Security to bring a better and much more practical proposal to check the rising prices on long-term basis. The ECC also directed the Ministry of Food Security to keep a watch over the prices and deferred the matter till the next meeting.

As regard Energy Efficiency Audit of the captive power plants, the ECC decided to form a committee under the chairmanship of Ministry of Water and Power secretary and comprising representatives of ministries of industries and production and petroleum and natural resources, commerce, National Electric Power Regulatory Authority (NEPRA) and Oil and Gas Regulatory Authority (OGRA). The committee will propose a viable plan for the capacity building for energy efficiency audits and to introduce transparency in the system. The finance minister said, “We shall start the process of conducting energy efficiency assessment from the public sector and will initiate awareness campaigns for the private sectors to use methods that could save energy and help in bringing the country out of its present energy crisis.”

Riaz Haq said...

Here's a Wall Street Journal report on Pakistan's KSE-100 performance in 2013:

..The benchmark index traded in the financial capital Karachi jumped 49.4% last year, ranking as one of the world's top performers. The market jumped another 2.8% Thursday, the first trading day of 2014.


Flows from foreign investors into Pakistan reached $283 million from the beginning of May, the month of the election, to the end of 2013, according to the National Clearing Company of Pakistan. Global investors have also snapped up Pakistani government bonds with yields, which move inversely to prices, falling to 7.54% recently from as high as 11.69% in April on the 10-year bond.

In a further sign of growing confidence, the government said last month it is also aiming to sell billions of rupee debt aimed at the Pakistani diaspora. A spokesman for the finance ministry said there is currently no specific time frame on the issuance of the bonds.

The optimism stems from the government paying off $5 billion in debt that was weighing on the energy sector, freeing up funds at fuel importers and power producers and distributors. The country also agreed to a long-term bailout loan of at least $6.6 billion from the International Monetary Fund to avoid a potential balance of payments crisis. The government has in addition announced a far reaching privatization program which will include the national airline and electricity producers.
"Pakistan as a market has very many companies that are trading below their fair value, but as it goes you get distracted by other more important markets," said Arnout van Rijn, chief investment officer at Robeco Asia Pacific in Hong Kong, who manages the $1.2 billion Robeco Asia-Pacific Equities fund.

The market has been volatile too, the currency and stocks plummeted in 1998 following a test of nuclear weapons that attracted international sanctions when Mr. Sharif was last in power.

The market has been up since the end of 2008 however, with shares soaring 329% to the end of 2013—despite the country being hit by a bloody Islamic insurgency, the economy nose-diving and Karachi being torn apart by gang violence during that period.

Some investors say that those companies that survive both a weak economy and regular violence throughout the country are well run, resilient and especially appealing. Unilever Pakistan Foods Ltd., a unit of the consumer goods giant, shot up 116% last year.

"When you have to deal in this kind of environment, I think you have to be extremely good as management to deal with it and survive," said Thomas Vester, fund manager at Lloyd George Management, who runs the firm's frontier market investments, and manages assets worth $656 million as of Oct. 31.

And the relative political stability now is encouraging more investors to focus on the country whose population of around 180 million makes it the sixth most populous country in the world and a potential draw for those betting on rising incomes and more consumer spending. The market remains cheap even after the strong run-up earlier this year—currently trading at over nine times trailing 12 month earnings—a common valuation measure used by stock analysts.

"Pakistan has a fairly diverse economy with a large and young population that needs to be fed and supplied basic infrastructure such as electricity," said Caglar Somek, global portfolio manager at Caravel Management in New York, which manages around $650 million.

"If you find the companies that supply those basic needs, growing at double digit with high profitability, you can buy them at valuations that are on average 30% to 40% cheaper than their emerging market peers," said Mr. Somek.

Riaz Haq said...

Here's an AFP report on Pakistan economic recovery:

Pakistan's finance minister Ishaq Dar on Wednesday said he was optimistic about an economic recovery after the rupee breached the psychologically important 100 to the dollar mark.
The currency had been losing its value against the greenback since Sharif's PML-N government came to power in June last year, sliding from 97 rupees to the dollar to a low of 108 in December.
Since then it has mounted a recovery and as of Wednesday evening the rupee was trading at 97.90 to the dollar.
Addressing a press conference Wednesday, Dar said: "The price of onions, tomatoes and dollars has been brought down to the level when Prime Minister Nawaz Sharif took oath."
"It is a positive development for the economy and will boost investors' confidence into Pakistan," Dar said, adding the government was not resorting to injecting reserves from the state bank in order to stabilise the currency.
"We did not use State Bank money to strengthen the rupee, but persuaded exporters to bring back their money to Pakistan and checked currency speculation, which resulted in the rising value of the rupee," he added.
Dar said that revenue from tax collection, which has traditionally been problematic, had increased by 17.7 percent and the budget deficit was down to 3.1 percent as compared to 4.1 percent in the first eight months of last year.
He added that overseas remittences by Pakistanis abroad stood at $9.23 billion, representing an 11 percent growth compared with last year.
Dar said that exports have also shown a 6.2 percent growth while the rate of inflation was currently 8.6 percent.
"We are on track to achieve six percent GDP growth rate in three years and Pakistan can emerge as a strong economy in the region," Dar said.
The IMF approved a $6.7 billion bailout loan package for Pakistan in September last year to help the struggling nuclear-armed country achieve economic reforms, particularly in its troubled energy sector.
The IMF said Pakistan's economy was picking up, with growth expected to reach about 3.1 percent in 2013/14 compared to its earlier estimate of 2.8 percent.
Cash-strapped Pakistan, plagued by a bloody homegrown Taliban insurgency, is battling to get its shaky economy back on track and solve a chronic energy crisis that cripples its industry.
The IMF made an initial payment of $540 million, and in November fund officials said during a monitoring visit that Pakistan was "broadly on track" with reforms.
In December, Pakistan received $554 million as a second tranche of the loan.

Riaz Haq said...

Here's a Financial Times report on Saudi aid for Pakistan:

Saudi Arabia has given $1.5bn to Pakistan to bolster the country’s falling foreign currency reserves and help cement security ties between the two countries.
Senior officials at the finance ministry in Islamabad and the central bank in Karachi said that at least half of the funds, which were deposited in March, came as a grant

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“The Saudi leadership has given these funds to Pakistan to help the rupee,” said one central bank official. “The other half [of the funds] could also eventually become a grant.”
The injection of Saudi money will lift Pakistan’s liquid foreign reserves about 18 per cent and offer a boost to a struggling economy.
The Saudi support to Pakistan follows a mid-February visit by Salman bin Abdul Aziz al-Saud, Saudi crown prince, amid suggestions that Saudi Arabia is seeking an expansion of its security ties with Pakistan.
In February a senior Pakistani intelligence official told the Financial Times that Saudi Arabia was seeking “a large number of [Pakistan] troops to support its campaign along the Yemeni border and for internal security”.

The official confirmed that Pakistan’s agreement, during Prince Salman’s visit, to support the establishment of a “transitional governing body” in Syria was an important aspect of the deal. Islamabad had previously remained neutral and urged Syrian president Bashar al-Assad and his opponents to end the conflict peacefully.

The Pakistani rupee has appreciated more than 4 per cent in the past three weeks with officials pointing to the Saudi assistance as one of the reasons for its strengthening. But some believe there are inherent risks for Pakistan, which is fighting an internal battle with Taliban militants, in getting closer to Riyadh.

Historically, Pakistan has sought to maintain an even hand in public in its relations with predominantly Shia Muslim Iran and Sunni Muslim Saudi Arabia.
During Prince Salman’s visit an Iranian minister threatened to send troops across the border in to Pakistan if Islamabad failed to secure the release of five Iranian border guards kidnapped in the country. Officials in Tehran alleged the guards were taken by hardline Sunni militants backed by Saudi Arabia. The Iranian guards have still not been released.
“We have to be careful in how we pursue our relations [with Saudi Arabia],” said Farooq Hameed Khan, a retired brigadier and commentator on security affairs. “As long as our security relations with Saudi Arabia are for internal security duties, that can be managed but we must not extend ourselves beyond that.”
The Saudi assistance may help to support Pakistan’s weak economy though it cannot fund a long-term recovery, economists said.
“The Saudi money for now has helped our reserves,” said Sakib Sherani, a former chief economist at the finance ministry. “But it’s early in the day. We need to build up on our progress. Pakistan’s economy needs to be put through other reforms too.”
Last year, the IMF agreed to a $6.7bn loan programme for Pakistan. However, western diplomats say, Pakistan is riddled with challenges, notably energy shortages and domestic insecurity, which continue to deter investors.
“In a country with major energy shortages, a low number of taxpayers and corruption in many areas, the Saudi money will help but only temporarily,” said one western diplomat in Islamabad.

Riaz Haq said...

Pakistan's exports up, FDI up in first 8 months of fiscal 2013-14:

Pakistan's trade deficit fell 4.89 percent in the July-February of the fiscal year 2013/14 to $12.542 billion compared with a deficit of $13.187 billion for the same period last year, according to the Pakistan Bureau of Statistics.

Exports rose to $16.866 billion in (July-February) from $15.882 billion, and imports to $29.408 billion from $29.069 billion.

On a monthly basis, the trade deficit fell to $1.433 billion in February from $2.076 billion the previous month. Exports totaled $2.167 billion in February and imports were $3.600 billion. (Compiled by Reuters Karachi newsroom)

Foreign direct investment (FDI) in Pakistan increased by 17.9 percent to $606.3 million during the first eight months of the current fiscal year, according to figures released by the State Bank of Pakistan (SBP) on Friday.

FDI inflows stood at $514.2 million during the same period of last fiscal. FDI has been on the decline since 2008 in the wake of security concerns, weak law and order situation and energy and power outages in the country. And while the increase in the pace of FDI inflows is reasonable, the volumes the country received during July-February FY14 are far from satisfactory, economists say.

Between July 2013 and February 2014, overseas investment by businesses declined by 11 percent to $1.262 billion against $1.418 billion in the corresponding period last year. Similarly, outflow was recorded at $656.2 million in the period under review against $904.4 million for the same period in the previous fiscal, revealed SBP data.

The oil and gas exploration sector emerged as the biggest recipient of FDI with $296.2 million, followed by the financial sector with $102.8 million in the July-February period in FY14. Foreign investment in food, chemical and tobacco and cigarette sectors was recorded at $75.1 million, $71.6 million and $55.5 million, respectively.

FDI stood at $79.2 million in February 2014 against outflow of $14 million in the corresponding month of the last year. The numbers on foreign investment showed that portfolio investment fell drastically from $169.9 million for the July-January period in FY13 to $54 million over the same period in the current fiscal – a drop of over 68.2 percent.

Total foreign investment for the first seven months of the current fiscal was up 6.5 percent to $724.6 million against $680.4 million for the same period in the previous fiscal.

“The level of FDI is still too low to have much of an impact on the country’s financial account,” said economist Muzzamil Aslam.

However, foreign portfolio investment at the Karachi Stock Exchange is encouraging despite no listing of new companies at the local equity market, he added.

“In the financial sector, the reason behind the rise in FDI is investments by foreign shareholders and sponsors in banks which were short of the minimum capital requirement fixed by the State Bank of Pakistan for the year 2013,” he said.

The sponsors of the noncompliant banks issued right shares to raise capital. “Once the process of the privatisation gets momentum, foreign investors will come to the country, subsequently improving financial account prospects,” he added.

Riaz Haq said...

“So, if you look around the world you’ll see cases of countries that have had, you know, serious insurgency problems, or civil wars even, but have managed to maintain a relatively robust economic growth. Now, of course if they didn’t have those security problems, the robust economic growth would certainly have been even higher,” (IMF's Jefferey)Franks said, adding, “But, you know, from the point of view of an economist who is advising the Pakistani authorities on economic issues, what I would say is that regardless of the security conditions, pursuing good economic policies will bring dividends in terms of better economic reforms.”

The mission’s chief said the overall economic situation in Pakistan is gradually improving. “We revised in this round our forecast for economic growth for this fiscal year of 2013-14, from 2.8 percent to 3.1 percent. That 3.1 percent may still be a bit on the conservative side, so we see indicators of growth that are relatively strong considering the fiscal adjustment that has taken place.”

A transcript of the conference call available on the IMF’s official website shows Franks adding that inflation has been somewhat better than anticipated at around eight percent currently, although “we do expect some rebound in the inflation rate in the coming months”. He said the balance of payments situation for Pakistan has been quite difficult, and reserves were declining quite sharply during calendar year 2013. However, so far in 2014, there is a positive turn with reserves beginning to move upward.

The IMF also foresees the further strengthening of the country’s reserves. The IMF country chief said, “Right now we have IMF inflows helping to boost preserves, balance of payment flows are beginning to turn more positive for the country, and of course there has been an influx of money from gold states, which is also helping. In the coming months we expect that this trend of recovering central bank reserves to continue with important inflows coming from other international partners, particularly the World Bank, the Asian Development Bank, and some bilateral donors to Pakistan.”

Franks said that during the review the fiscal deficit target was observed with a substantial margin. “Revenues are coming in roughly as we did forecast, although they are somewhat worse than was in the original Pakistan budget.” However, the IMF official said, expenditures have been very tightly controlled, leaving a substantial margin of over-performance on that target.

“This leaves us with significant confidence that by end of [fiscal year] 2013-14 in June, they will likely meet the deficit target for the year as a whole, bringing the deficit down in the range of 5.5 percent of GDP from around 8 percent of GDP last year.”

The IMF official said that there were two other smaller targets which however were not met. “One was a ceiling on government borrowing from the State Bank of Pakistan. They over-borrowed at the end of December, but that over-borrowing has since been rectified and we expect that they will meet that target for end March. The other target that was met is a target that we have to gradually reduce the State Bank of Pakistan’s open swap forward position. They missed that target by a small margin but here, again, we think that they are now on track to make the target for end March.”

The IMF Mission chief added: “Overall, we saw satisfactory performance by the government in pushing forward the structural reforms under the IMF programme. They are making good progress in reforms in the energy sector, and they are working hard to push forward their privatisation agenda, although there do seem to be some delays in some of the key milestones along the stage to bring certain firms to the market for secondary public offerings, or initial public offerings.”

Riaz Haq said...

Here's NY Times on contrast between Karachi and Lahore:

At a literature festival here not long ago, I bumped into a school friend who had recently relocated from Karachi, the southern port city where we both grew up. Karachi has all the buzz, and violence, of a megalopolis — more than 2,700 people were killed there in 2013 — and none of the greenery and historic charms of Lahore, the capital of Punjab Province. “I’m loving Lahore,” she told me. “I feel like I’ve moved to Switzerland after living in a war zone.”

The contrast is not as exaggerated as it sounds. In recent years, Punjab has suffered less than the rest of the country from the suicide attacks and bomb blasts that have killed some 49,000 people since 2001. There have been dramatic exceptions: terrorist attacks against the visiting Sri Lankan cricket team and at a major Sufi shrine in Lahore, at army headquarters in Rawalpindi, and at a five-star hotel and courts in the capital, Islamabad. Anti-India militant groups like Lashkar-e-Taiba and anti-Shiite organizations like Lashkar-e-Jhangvi are based in Punjab and draw most of their recruits from the province. But these groups mostly stage their attacks elsewhere in Pakistan to maintain benign relations with the local authorities.

And so the perception that Punjab has suffered less from violence than the rest of the country prevails, creating much resentment. For non-Punjabis, the province’s relative stability is just the latest demonstration of how Punjabi elites rally to protect their own interests at the expense of their compatriots. And such interprovincial rivalries could be as great a challenge for the country’s stability as the Taliban.

It is commonly said that Punjab is synonymous with Pakistan, and vice versa, which seems to relegate the other provinces and autonomous regions to the status of outliers. Some of Punjab’s good fortune is an accident of geography: the name means “land of five rivers,” referring to the Indus River and the tributaries that flow through the province, making it the agricultural and industrial heartland of Pakistan. But politics matters even more.

Pakistan’s elites, political, bureaucratic and military have long hailed from Punjab and shaped the country’s policies to the province’s advantage. Until recently, Punjab received the lion’s share of national revenues simply by virtue of having the largest population; never mind its actual needs or contributions to the national budget. (The formula was finally revised in 2009, benefiting Sindh, Baluchistan and Khyber Pakhtunkhwa provinces.) Also, the government and the military have long allotted prime agricultural land and urban real estate in other parts of Pakistan to Punjabi officers and senior bureaucrats.
Likewise, the P.M.L.N. government at the center started pushing for peace talks with the Taliban in September and then even more in November, when the Taliban threatened to carry out attacks in Punjab to avenge the killing of their former leader in a U.S. drone strike in North Waziristan. The central government is considering concessions, including swapping prisoners, granting an amnesty to Taliban fighters and even giving the group a political role in the Federally Administered Tribal Areas along the border with Afghanistan.

Government officials have repeatedly stated that a peace deal is necessary because military strikes against the Taliban would lead to reprisal attacks. Given the carnage that Karachi, Quetta and Peshawar have endured in recent years, many Pakistanis describe that policy as a ploy to sacrifice the tribal areas in order to save Lahore. Such perceptions only heighten interprovincial tensions, just at a time when the country needs to be more united than ever.

Anonymous said...

Washington, April 9. 2014—The World Bank said today it was cautiously optimistic about economic prospects in South Asia in 2014 because of growing exports and investment as it emphasized that the risks to growth were becoming more domestic, including an increasingly vulnerable banking sector.

In its twice-a-year “South Asia Economic Focus”, the World Bank forecast that economic growth would rise to 5.8% in 2015 from 5.2% this year and 4.8% last year. South Asian countries – which include Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka – appeared to have largely recovered from last year’s financial turmoil caused by changes in US Federal Reserve monetary policy. Many were rebuilding currency reserves while curbing current account deficits.

But these successes on the external side were accompanied by looming problems in the domestic economy. Economic growth could be held back by unstable banking sectors, inflation, fiscal deficits and debt, and persistent shortfalls in energy and transport infrastructure across the region.

“Now that external pressures are waning, it’s time to refocus on addressing problems within the economies in South Asia so that countries can boost growth and reduce poverty,” said South Asia Chief Economist Martin Rama. “The good news is that across South Asia there is a growing momentum in support of reforms to increase growth because governments recognize this is the best way to overcome poverty.”

Over this year, the report saw a strengthening of economic growth for most South Asian countries.

The region’s largest economy, India, would see growth rise to 5.7% in fiscal year (FY) 2014 from 4.8% last fiscal year with activity receiving a boost from a more competitive exchange rate and many large investment projects going ahead. Pakistan’s economic growth could increase to 4% this fiscal year from 3.6% in FY2013 as its economy benefitted from a reduction in electricity blackouts, resilient remittance flows from Pakistani workers abroad, rebounding manufacturing exports and a more buoyant services sector. Nepal was recovering from a difficult year affected by setbacks in the agricultural sector and with its government budget. Helped by strong remittance flows boosting consumption and the services sector, the economy should grow by 4.5% in FY2014 after 3.6% in FY2013. Sri Lanka would continue to grow at 7.3% this year as the economy was sustained by new capacity from infrastructure investments and rebuilding after the country’s recent conflict.

Economic activities recovered in the second half of FY14 in Bangladesh, driven by resilient exports and domestic demand, following setbacks suffered in the first half due to political uncertainty and turmoil. A recovery in export growth and increases in public expenditure are likely to help achieve 5.4% GDP growth in FY14, slightly lower than last year’s 6%.

The economy in Afghanistan will be weighed down by the persistent uncertainty caused by the withdrawal this year of international forces and the subsequent reduction in foreign aid for the economy. In addition, the country’s agricultural sector’s output has declined. Economic growth was therefore projected to fall to 3.2% this year after 3.6% in 2013. Depending on security and whether agriculture rebounds and mining output increases, Afghanistan could see growth recover in 2015 and 2016 to around five percent.

The report made a point of focusing on the banking sector because of its centrality for South Asia’s economic stability and growth.

Riaz Haq said...

Here's an report on Pakistan's "power grid looking brighter":

Pakistan’s national energy grid will add more than a dozen power projects, including two dams and a coal mine, increasing electricity capacity in one of the worst shortages in the country’s history.

Pakistan’s power sector can generate about 16,000 MW, short of requirements by about 5,000 MW and worsening as demand grows, projected to swell to 26,000 MW by 2020, according to Pakistan’s 2013 National Power Policy report.
Capacity in some Pakistani industries, like the fertilizer industry, fell to nearly 50 percent in the last six months, forcing interruptions to gas supplies and closures. Importing expensive energy over the past few years, when the country had the capacity to produce it, has eroded Pakistan’s foreign exchange reserves.
Work is underway in advanced stages at Gaddani Power Project and two power projects at Bin Qasim, Pakistan Minister for Planning and Development Ahsan Iqbal told Parliament in Islamabad on Wednesday, Pakistan Today reported. He also said work has begun on Thar Coal Project, which includes a mining and three power projects that will begin producing electricity within three years.

China has agreed to ten power projects at Thar, Iqbal added. Chinese banks offered to finance up to $900 million of the $1.2 billion for the Thar coal in December, asking the Pakistani government for a loan guarantee. London-based Oracle Coalfields, the owner and developer of the coal plant project, expects to finalize detailed agreements with two Chinese partners, CAMCE and SEPCO, by the end of the year.
Two hydroelectric projects, the Diamer-Bhasha and Dasu dams, will also help lift Pakistan from its energy shortage and usher in economic progress, analyst Nasir Jamal told Radio Pakistan Thursday.'s-power-grid-looking-brighter-278179

Riaz Haq said...

India (score 25.6) ranks at 19, higher than Pakistan (score 21.9)at 28 on world misery index rankings compiled by Washington's Cato Inst.

According to a analysis published by the Cato Institute, Venezuela holds the disreputable top spot as the most miserable nation in the world.
The 90 countries listed in the misery index were selected based on data from the Economist Intelligence Unit and calculations from Steve Hanke, a professor of Applied Economics at Johns Hopkins University.

The formula used to compile the list involves inflation, lending rates, and unemployment rates minus year-on-year per capita GDP growth.

Venezuela's much higher misery score of 79.4 is much higher than every other country except Iran (61.6), and the top 22 countries are above 25 on the index.

Inflation is the major contributing factor plaguing three of the top four nations listed. The other countries are either hampered by high unemployment or interest rates.

Riaz Haq said...

Here's a Dawn report on additional $400m from ADB for energy projects in Pakistan on top of $900m for coal power at Jamshoro:
The Asian Development Bank (ADB) has approved $400 million loan to help Pakistan carry out reforms for overcoming power shortages.

An agreement in this regard was signed by Secretary Economic Affairs Division Nargis Sethi and ADB's Country Director for Pakistan Werner E. Liepach here on Monday. Finance Minister Ishaq Dar and ADB's Governor witnessed the signing ceremony.

“The ADB has approved a soft and concessionary loan for Pakistan, which has the best terms and conditions with interest rate of even less than 2 per cent annually,” said Ishaq Dar.

He said the ADB had also recently approved a loan of $900 million for Jamshoro coal power project to produce cheaper electricity.

Speaking on the occasion, Werner E. Liepach said the loan would support key reforms in the energy sector to ensure uninterrupted supply of cheaper and dependable power to millions of industrial and private consumers, who were presently adversely affected by long power outages.

“This important energy sector assistance will propel growth, boost businesses, and create jobs that are critical to reduce poverty in the country,” said Liepach.

In line with Pakistan's National Power Policy approved in 2013, the sustainable energy sector reform programme targets robust policy, capacity development and institutional strengthening action to reduce crippling power shortages that according to estimates, are costing the country about 2 per cent of its GDP growth every year.

The ADB along with Japan and the World Bank have been working with the Pakistan government to formulate and implement a five-year plan targeting increased power supply, reduction of losses and boosting the efficiency of the power sector.

The programme would support government's plans to rationalise tariffs and eliminate subsidies by 2016, except for low income customers.

“The reforms will improve transparency and accountability, which will also go a long way in leveraging stronger private sector led investments in the power sector,” said Werner Liepach.

The full programme, set to complete by June 2018, spans a total of $1.2 billion investment by the ADB, and for the first sub-programme, co-financing is expected from Japan with $49 million and the World Bank with $600 million.

The ADB is the lead development partner in Pakistan's energy sector supporting a wide range of power sector development activities, including energy efficiency, transmission, distribution, cross-border natural gas pipelines, power generation, and renewable energy projects.

The ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.

In 2013, ADB assistance totalled $21 billion, including co-financing of $6.6 billion.

Riaz Haq said...

Arab News on Nawaz Sharif's "palatial home" in Jeddah: " Two days ago, Prince Muqrin called on Sharif at his palace in Al-Hamra district. “This was an unprecedented gesture,” said a Pakistani diplomat. “Prince Muqrin’s visit to the prime minister’s palatial home in Jeddah proves the nature of our ties with Saudi Arabia.”

Riaz Haq said...

#Nawazsharif #PMLN Government will forfeit right to rule if energy crisis not resolved #Pakistan #loadshedding

WASHINGTON: The government will forfeit its right to rule if it fails to resolve the energy crisis, says Musadik Malik, Special Assistant to the Prime Minister on Energy.

“It happened to the previous government and it will happen to this government too if we do not end the load-shedding,” he said.

Addressing a seminar on Pakistan’s energy crisis at the Woodrow Wilson International Centre for Scholars, Washington, Secretary Water and Power Nargis Sethi emphasised the need for a multi-pronged approach to end this crisis.

“The power sector subsidies had been costing about 2 per cent of GDP and taking 15-17 per cent of the revenues,” she warned. “This is not sustainable.”

Power ministry hopes new strategy to cut losses will pay off

In a power-point presentation, Mr Malik said the government had developed a new approach, based on “meritocracy, transparency, automation and accountability” to overcome this crisis.

“We will encourage competition by developing energy corridors and favourable tariffs for low cost energy sources, and by creating a key client management system,” he said.

He identified load-shedding, theft, receivables and poor collection of revenues as the key distribution issues causing circular debt and compromising the viability of the power sector.

Mr Malik said there’s considerable variance in load-shedding across feeders; ranging from as little as 3 hours a day to as much as 23 hours.

“In addition to human suffering, the load-shedding is causing a loss of up to 3 pc of GDP each year; in 2013-14 this loss amounted to Rs 630 billion,” he said.

Nearly all DISCOs had losses that were considerably higher than acceptable levels indicating that “theft is occurring across the board,” he said.

Mr Malik said that more than 90 pc mixed feeders had theft / under-billing, hidden often by overbilling remote or rural feeders. “In industrial connections (3 per cent loss), 30 feeders steal 64 per cent of all stolen electricity,” he explained. “This theft is hidden by over-billing other companies.”

The government had created loss targets for each feeder length and linked it with load-shedding, he said. “Meeting these targets will save Rs 40 billion to the national exchequer just from 6 DISCOs, (27 Billion rupees from MEPCO and LESCO alone).”

Riaz Haq said...

With its shiny new articulated buses, freshly dug underpasses and dedicated flyovers, Islamabad’s new public transport system is supposed to be a symbol of a government that gets big things done.

But as a December deadline approaches before thousands of civil servants supposedly start taking the 15-mile Metro Bus journey for their commute into the heart of Pakistan’s capital, the final section of the route along the city’s main avenue is a mess of giant holes and ripped up concrete.

Frantic construction work on the £265m scheme ground to a halt in August when thousands of anti-government protesters, led by opposition politician Imran Khan and a cleric called Tahir-ul-Qadri, flooded into the city.

It is not just an important project that has been held up. The protesters also succeeded in paralysing prime minister Nawaz Sharif’s government.

The industrialist won a landslide victory in 2013 with promises of reviving a dying economy, forcing a meddling army to finally accept the authority of elected civilians, and making peace with India. More than 18 months later and every part of Sharif’s ambitious agenda is seriously off track.

India has responded to Sharif’s peace overtures with an unprecedented upsurge in cross-border firing. At home the government has been badly bruised by ferocious disagreements with the military, which earlier in the year succeeded in forcing the closure of one of country’s most popular private news channels, against the government’s will.

And international investors have been seriously put off by the sight of thousands of protesters overwhelming the government quarter of the capital and smashing their way into the grounds of parliament in late August.

“Before the protests we had a brilliant story to tell about Pakistan,” said Mohammad Zubair Umar, chairman of the privatisation commission.

Last year, 2013, had been a turning point for Pakistan, he said, pointing out that it was the first time a government had survived a full five-year term without being ousted in an army-backed coup. It also saw the first successful transfer of power to another elected government.

“We told investors that we now had the kind of political stability Pakistan never witnessed in its first 60 years,” Umar said.

But many observers feared Pakistan might be reverting to type when Khan descended on Islamabad to protest against the 2013 election, which he claims was stolen from him – something independent election observers are highly sceptical about.

Multimillion-dollar transactions to offload shares in the country’s Oil and Gas Development Company had to be postponed – foreign lawyers and financial advisers stayed clear of the country, let alone Umar’s office, which overlooks the parade ground Khan has taken over for his sit-in.

But despite the damage done, Sharif is determined to regain the initiative. On 4 November he tried to inject some energy into the government’s effort to eradicate polio, which Pakistan has struggled to bring under control. And on Friday he jetted off for a visit to Beijing following the deep embarrassment caused by the decision of China’s president, Xi Jinping, to cancel a trip to Islamabad in the wake of the protests.

Sharif has told his cabinet to press on with implementing unpopular decisions, including weaning the public off unaffordable electricity subsidies as part of an effort to end rolling power blackouts that have badly stunted economic growth.

“His political room to manoeuvre has narrowed and everything that was hard, on the economic reform programme, has got harder,” said one diplomat.

Riaz Haq said...

#NEPRA accuses #Pakistan Power Ministry of ‘deliberately’ resorting to #LoadShedding: report via @ePakistanToday

The National Electric Power Regulatory Authority (NEPRA) in its annual report has blamed the Ministry for Water and Power for purposefully not supplying required amount of electricity to the consumers, hence deliberately resorting to load shedding.

The report also found that TOU (Time of Use) electricity metres of 70 per cent consumers were outdated, which either loot the consumer or deprive the government from justified charges.

“TOU meters of 70 per cent consumers were outdated due to which some consumers were billed off-peak rates and some with peak rates.”

The report said that TOU meters help the consumers to pay less while in other cases it makes them pay more than what they had actually consumed.

Some of the observations made in the report are as follows: The connected/running load of most of the consumers under domestic, commercial and industrial B-2 consumers was more than their sanctioned load. However, no action in the form of issuing notices or extending the load has been taken by DISCOs. Transformers are running on 80% to 100% overloading due to which frequent tripping was occurring; TOU meters of 70% consumers were outdated and out timed due to which some consumers were billed off-peak rates and some with peak rates; 11KV metering rooms were found in miserable conditions, having no protection (relay) system; Lines and poles were found in poor condition, which is also a reason for increased number of interruptions, resulting in non-achievement of reliability standards.”

Riaz Haq said...

Glimmer of light in #Pakistan’s blackout crisis. #loadshedding #CPEC … via @FT

The households and small businesses that crowd the narrow lanes of Gazdarabad, Karachi, are used to blackouts. Until recently, residents here, as in many parts of Pakistan’s biggest city, suffered between eight and 10 hours a day without electricity.

It has taken years for engineers from K-Electric, the local power company, to unpick the tangle of loose wires and illegal connections that were symptomatic of a city deprived of regular electricity for the past decade.

“We would have up to 10 hours of load-shedding,” says Tariq Gulsher, a local resident, referring to the area’s power cuts during the latest of Pakistan’s energy crises. “Although we could pay people for access to a back-up generator, it was expensive and fluctuations in the power often meant our equipment broke.”

Gazdarabad’s residents now have reliable, 24-hour power — but they are the lucky ones. Pakistan is facing an unprecedented power crunch, which has left households and businesses either in the dark or relying on back-up generators for large portions of the day.

It poses a risk to economic growth as Pakistan becomes a more attractive place for foreign consumer businesses, which are enticed by its young and growing population and cautiously optimistic about improving security.

Ehsan Malik, chief executive of the Pakistan Business Council, says the energy shortfall “is business’s biggest difficulty right now”.

Electricity in Pakistan is both insufficient and expensive. Peak demand surpasses maximum generating capacity by 6 gigawatts — equivalent to about 12 medium-sized coal power plants.

Pakistan plans to remedy this by building coal-fired power stations funded by more than $35bn in Chinese loans — part of the $50bn-plus China-Pakistan Economic Corridor scheme to improve Pakistan’s infrastructure. Several large power stations are under construction and the government says at least one will come online every month until next March, producing eight gigawatts of new capacity.

These schemes are intended eventually to take advantage of the 175bn tonnes of coal reserves discovered at Thar, about 400km east of Karachi. The amount of fuel there puts Pakistan in the top 10 countries in coal reserves.

Pakistan has some of the highest power prices in the region, at $0.13 per unit of electricity, compared with $0.12 in India, $0.11 in China and $0.09 in Bangladesh. Furnace oil is burnt to produce 40 per cent of the supply, with hydroelectric dams accounting for 30 per cent and gas 25 per cent. Virtually none of the energy comes from coal, which is far cheaper,

“We are sitting on some of the largest coal reserves in the world but the government in the 1990s was completely focused on furnace oil,” says Syed Murad Ali Shah, chief minister of Sindh province. A concern is the financial risk. The falling cost of solar energy could render coal power plants useless, and energy suppliers complain the electricity tariffs set by authorities are too low for them to make a profit or attract new investment.

Energy regulators have slashed the tariffs of a range of suppliers in the last year, causing three of them to slide from profits into losses. Since virtually all the electricity distribution companies are state owned, it is up to the government to fill the holes its policies have created.