Friday, April 6, 2012

Pak Consumer Boom Fuels Underground Economy

Car sales increased 14 percent in February from a year earlier. Cement sales are rising with growing housing demand for increasing population. Lucky Cement, Pakistan’s biggest publicly traded construction materials company, is expected to post record earnings this year. Rising farm prices of bumper crops are pumping hundreds of billions of rupees each year into Pakistan's rural economy.

Contrary to government statistics of a stagnant economy, packed shopping malls and waiting lines at restaurants tell a different story-- the story of growing discretionary incomes of Pakistani consumers today.

So where is the disconnect between these two opposite views of Pakistan's economy? Naween Mangi of Businessweek answers it in her piece "The Secret Strength of Pakistan's Economy". She attributes it to the fast growing informal sector of the nation's economy that evades government's radar, illustrating it with the story of a tire repair shop owner Muhammad Nasir. Nasir steals water and electricity from utility companies, receives cash from his customers in return for his services and issues no receipts, pays cash for his cable TV connection, and pays off corrupt police and utility officials and local politicians instead of paying utility bills and taxes.

Here's an excerpt from Mangi's Businessweek story:

"The rhythms of life in the underground economy remain largely undisturbed. After work, Nasir and his friends sometimes hire a rickshaw to head to the beach or to a religious festival. The driver, part of the flourishing local transport business, doesn’t turn on the meter because he doesn’t have one. On his way home, Nasir stops to buy cooking oil, wheat flour, and sugar at a small grocery store that isn’t officially there. Out of about 1 million shops, up to 400,000 are grocery stores, and most of them are not registered and don’t pay taxes, according to Rafiq Jadoon, president of the City Alliance of Markets Association. In the evening, Nasir unwinds in front of the television. He watches an Indian movie transmitted by a local cable operator to whom he pays a monthly fee—in cash."

The estimates of the size of Pakistan's underground economy vary from 30% to 50% of the official GDP of just over Rs. 18 trillion (US$200 billion). Businessweek's Mangi claims that the government is losing as much as Rs. 800 billion (US$9 billion) in taxes from the informal sector...nearly enough to wipe out Pakistan's current fiscal deficit.

In my view, there are two major problems that arise from the underground economy described by Mangi. First, the massive tax evasion fosters Pakistan's dependence on foreign aid which comes with strings attached and infringes of national sovereignty. Second, the widespread theft of electricity is largely responsible for the huge circular debt and the ongoing power shortages that affect all aspects of life and scare away investors. The sooner the government and the people realize the severe downsides of the underground economy, the better it will be for Pakistan.

Related Links:

Haq's Musings

Rural Consumption Boom in Pakistan

Pakistan's Tax Evasion Fosters Aid Dependence

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

Land For Landless Women in Pakistan

Pakistan's Circular Debt and Load-shedding


Nasser said...

Just like many third world countries and failing states, there is a high amount of distrust of the government. The point becomes circular ; the politicians and the bureaucrats siphon money off so if the common man pays taxes it would be "stolen" anyway so it's a win win situation for him NOT to pay taxes.

On the other hand, informal economy is like a cancer which hurts the formal economy by inefficiently (using electric power with no checks) absorbing resources but hurting the GDP because much of the monies indirectly ends up overseas eventually.

Riaz Haq said...

Nasser: "Just like many third world countries and failing states"

Not necessarily.

Almost every nation, including the US, has an informal economy.

Just look at the chart in my post. Russia's underground economy is the biggest (44%) followed by Brazil (39%), Pakistan (36%), Egypt (35%), Turkey (31%), Greece (28%), Italy (27%), India (22%), Canada (16%), China (13%) and US (9%).

It's hard to characterize them all, or even the top ones, as "third world countries and failing states".

Pradeep said...

India had a similar problem not to long ago. The business culture is changing towards more transparency albeit slowly. For example, when Bajaj was building a new factory it required all the vendors and sub vendors to submit tax returns to back up what previous work was done. Ranbaxy Pharmaceuticals for their in house cafeteria asks their vegetable supplier for proof of legitimacy.

Bottom line is there is a reward by paying taxes and that mentality has to take root. India still has a long way to go however.

Mayraj said...

Just like Greece and Italy and not to mention India and many another developing country.
US is also developing into one;but, In US case it is the corporations and the wealthy who evade taxes using high priced assistance. At present this problem is harming US and why its economy cannot get traction it needs since middle class-the former economic engine is stuck in housing mess or unemployment or low paying jobs (note: most new jobs are low paying jobs)

Since they are in debt upto their eyeballs and also with high cost of living, low pay doesn’t go far in US.
Job Market Recovery Led By Low-Wage Sectors
Economy Creating Mostly Low-Paying Jobs

Riaz Haq said...

Pakistan cement sales rose seven per cent for the first eight months of the current fiscal (July 2011-June 2012) while exports declined by six per cent in the period, data from the All Pakistan Cement Manufacturers Association reports.

Imran said...

In Pakistan, ‘no mai ka baap’ (Zardari, Sharif etc) can touch the underground economy, that’s a sure shot political suicide. If you were the President or PM, would you ?

Riaz Haq said...

Imran: "In Pakistan, ‘no mai ka baap’ (Zardari, Sharif etc) can touch the underground economy, that’s a sure shot political suicide. If you were the President or PM, would you ?"

Here's how Mangi puts it in her Businessweek article:

Securing Parliament’s support for a crackdown won’t be easy. “Different parts of the undocumented sector represent the constituencies of different political parties,” says Syed Shabbar Zaidi, a partner at accountants A.F. Ferguson in Karachi who is a member of the finance ministry’s revenue advisory council. “The rural areas and agriculturists represent one party’s constituency so they won’t touch it. Traders and retailers represent another party’s vote bank so they won’t touch that.” Earlier attempts to capture revenue from the undocumented economy have backfired. After the government imposed the first-ever sales tax—at 16 percent—on tractors in March 2011, above-ground purchases of the vehicles hit a low of just 369 units in January, from 5,673 a year earlier. Tractor makers Fiat and Massey Ferguson suspended local production, forcing the government to cut the tax to 5 percent.

Apparently, the military can. BTW, the tax-gdp ratio was rising from 2005-2008 under Musharraf. It has declined precipitously after 2008.
So it can be done by a military regime.

Anonymous said...

all countries have a informal economy in US think of the mafia/drug cartel or las vegas casinos etc however 50% of GDP is failed state/banana republic territory.

This means the government will never have the means to be solvent or have the funds to make long term investments to make the country competetive.

Anonymous said...

With underground economy of such a magnitude, Pak can forget to get its infrastructure improved. Public investment requires taxed money.

Iqbal Singh said...

"With underground economy of such a magnitude, Pak can forget to get its infrastructure improved. Public investment requires taxed money."

Some of the infrastructure development is done by the military like some of the infrequently travelled motorways but these are important to the military when large scale deployment is necessary just in case a war breaks out with India.

Likewise, the port in Karachi uses military funds for upgrading to suit submarine and frigate ships less for commerce - the reason Gwadar was built using Chinese funding and help.

Riaz Haq said...

Iqbal Singh: "Some of the infrastructure development is done by the military like some of the infrequently travelled motorways...the port in Karachi uses military funds for upgrading to suit submarine..."


Pakistan's civilan infrastructure is not the best in the world, but it's still a lot better than India's as reported by independent observers who have actually seen both.

Neither tax receipts nor military finance any of the civilian infra....part of it is funded by user fees--a common practice in many countries including the United States.

BTW, Karachi port is separate from Navy facilities. KPT handles most of Pakistan's $65 billion in trade.

Iqbal Singh said...

"Neither tax receipts nor military funds any of it....part of it is funded by user fees--a common practice in many countries including the United States. "

Well here is an article from the Daily Times:

In a written reply, the Senate of Pakistan was informed here on Tuesday that NHA was allocated Rs 36.418 billion (local currency component) in PSDP 2010-11. Due to 50 percent cut on overall PSDP, the allocation was reduced to Rs 18.500 billion. To-date, Rs 17.362 billion has been released by Ministry of Finance. Funds to NHA are released as single line budget and not province or project-wise. Total amount required to complete ongoing projects is Rs 371 billion. As funds are not released on time, projects suffer from time and cost overrun.

In this case the foreign fund component comes from China(85%!) and the rest from the government through The Ministry of Finance which is having difficulty procuring the necessary funding.

Maintenance once built comes from user fees.

Riaz, please do your homework before you comment.

Iqbal Singh said...

Here is another article from the Pakistan Army:

"It undertakes large projects of road communication, bridges dams, canals and earthworks. In past thirty years it has constructed 3797 kilometers of roads including Kora Krum Highway"

Almost 4000 km of roads that is tremendous!

Farhan Jalil said...

Is trust the only solution for this predicament? Can such a trust me established between public and government in coming years or perhaps decades? if so then how?

Riaz Haq said...

Iqbal Singh: "Maintenance once built comes from user fees."

Are you justifying your broad claim by offering just one out-of-context newspaper story?

Where does it say "the infrastructure development is done by the military like some of the infrequently travelled motorways" ?

First, tell me if have you heard about BOT (Build-Operate-Transfer) model of funding infrastructure? Do you know that it's been used in motorways and other infra projects in Pakistan?

Second, do you know that the World bank, ADB and other IFIs finance infrastructure projects in developing countries, including India? Do you know that India is the biggest borrower of the infrastructure loans from The World Bank today?

Riaz Haq said...

Iqbal Singh: "Almost 4000 km of roads that is tremendous"

Please don't be disingenuous!

Pak Army Corps of Engineers does not fund these builds them as a contractor, just like the US Corp of Engineers builds and maintains some of the infra in several parts of America.

Riaz Haq said...

FarhanJ: "Is trust the only solution for this predicament? Can such a trust me established between public and government in coming years or perhaps decades? if so then how?"

Trust in any relationship is based on the actions of both parties.

In this case, the trust can be built gradually over time by the following steps:

1. Leaders paying their fair share of taxes honestly.

2. Governing elite delivering better governance and services to the people efficiently and effectively.

There is no guarantee but the above steps might persuade majority of the people to eventually pay taxes voluntarily.

Once that happens, compliance can be increased by enforcing the law fairly and transparently.

Pradeep said...

Riazbhai you mean well when you said --

In this case, the trust can be built gradually over time by the following steps:

1. Leaders paying their fair share of taxes honestly.

2. Governing elite delivering better governance and services to the people efficiently and effectively.

There is no guarantee but the above steps might persuade majority of the people to eventually pay taxes voluntarily.

Human nature is to be selfish with few exceptions of course. People always try to wiggle their way out of paying as little tax or none at all.

First, you need stringent tax laws which are enforced just as strongly. IRS in the US comes close to being the best.

Second, a system of efficient checks and balance. For example, a taxi driver taking his car to the mechanic in your story would need a receipt to claim as an expense etc.

Third, businesses have to see a benefit in being legitimate. The mechanic in your example will be less likely to open and operate multiple locations if he continues the same way.

Imran said...

We don’t want a military regime. It limits innovation and more or less goes into a parenting mode, restrictions on this, you cant do that etc.

Isn’t there a creative way for enticing people to pay taxes or start pushing creative ways to move away from cash transactions. Both these options are very basic in theory but way too complicated or political to put in practice. There must be a way besides a Military regime....

Riaz Haq said...

Imran: "We don’t want a military regime. It limits innovation and more or less goes into a parenting mode, restrictions on this, you cant do that etc. Isn’t there a creative way for enticing people to pay taxes or start pushing creative ways to move away from cash transactions."

Military governments in Pakistan have been much more pro-innovation and pro-development than the incompetent & corrupt civilian govts dominated by feudals. Musharraf did a lot more to fund and promote vibrant media, education, culture and entrepreneurship than the govts before and after his period in power.

In any event, here are some steps that need to be taken to improve tax collection for public funding of basics like education, health care and infrastructure:

1. Leaders paying their fair share of taxes honestly.

2. Governing elite delivering better governance and services to the people efficiently and effectively.

There is no guarantee but the above steps might persuade majority of the people to eventually pay taxes voluntarily.

Once that happens, compliance can be increased by enforcing the law fairly and transparently.

Nishant said...

"Pakistan's civilan infrastructure is not the best in the world, but it's still a lot better than India's as reported by independent observers who have actually seen both."

India's infrastructure is a 100 times better than paks. Look at any of the airports, roads, port, Electricity. Compating one roadway on the the border doesn't make any sense. As for India, pakistan is hardly an important neighbor. FYI pakistan is thinking about buying electricity from India and not the other way around. Most of the Indian ports do more business than your beloved karachi port, We have the world class golden quadrilateral which is longer than all Motorways in pakistan and that is only one example, there are hundreds of other highways in India. pakistan envies Indian railways. So do not simply go by a few articles comparing one or two of the best roads in pakistan with the worst roads in India and come to dramatic conclusions. We have metros present or coming up in every metropolitan and even in some tier 2 cities compared to nothing in pakistan. NHAI has already given highway construction contracts for about 8000km in the current fiscal.

Riaz Haq said...

Nishant: "India's infrastructure is a 100 times better than paks"

Have you personally seen both India and Pakistan to draw that conclusion? Or is it your false national pride?

BTW, I have actually seen and compared, and I beg to disagree with you, as do many others including your own Hindol Sengupta.

"Yes. Yes, you read right. The roads. I used to live in Mumbai and now I live in Delhi and, yes, I think good roads are a great, mammoth, gargantuan luxury! Face it, when did you last see a good road in India? Like a really smooth road. Drivable, wide, nicely built and long, yawning, stretching so far that you want zip on till eternity and loosen the gears and let the car fly. A road without squeeze or bump or gaping holes that pop up like blood-dripping kitchen knives in Ramsay Brothers films. When did you last see such roads? Pakistan is full of such roads. Driving on the motorway between Islamabad and Lahore, I thought of the Indian politician who ruled a notorious —, one could almost say viciously — potholed state and spoke of turning the roads so smooth that they would resemble the cheeks of Hema Malini. They remained as dented as the face of Frankenstein's monster. And here, in Pakistan, I was travelling on roads that — well, how can one now avoid this? — were as smooth as Hema Malini's cheeks! Pakistani roads are broad and smooth and almost entirely, magically, pot hole free. How do they do it; this country that is ostensibly so far behind in economic growth compared to India? But they do and one of my most delightful experiences in Pakistan has been travelling on its fabulous roads. No wonder the country is littered with SUVs — Pakistan has the roads for such cars! Even in tiny Bajaur in the North West frontier province, hard hit by the Taliban, and a little more than a frontier post, the roads were smoother than many I know in India. Even Bajaur has a higher road density than India! If there is one thing we should learn from the Pakistanis, it is how to build roads. And oh, another thing, no one throws beer bottles or trash on the highways and motorways."

2. Alaistair Scrutton of Reuters:

At times foreign reporters need to a give a nation a rest from their instinctive cynicism. I feel like that with Pakistan each time I whizz along the M2 between Islamabad and Lahore, the only motorway I know that inspires me to write.

Now, if the M2 conjures images of bland, spotless tarmac interspersed with gas stations and fast food outlets, you would be right. But this is South Asia, land of potholes, reckless driving and the occasional invasion of livestock.

And this is Pakistan, for many a "failed state." Here, blandness can inspire almost heady optimism.

Built in the 1990s at a cost of around $1 billion, the 228-mile (367-km) motorway -- which continues to Peshawar as the M1 -- is like a six-lane highway to paradise in a country that usually makes headlines for suicide bombers, army offensives and political mayhem.

Indeed, for sheer spotlessness, efficiency and emptiness there is nothing like the M2 in the rest of South Asia.

It puts paid to what's on offer in Pakistan's traditional foe and emerging economic giant India, where village culture stubbornly refuses to cede to even the most modern motorways, making them battlegrounds of rickshaws, lorries and cows."

And others including Yoginder Sikand, William Dalrymple, Tom Wright have offered similar assessments of infrastructure in Pakistan versus India.

Anonymous said...

Nishanth said...

There is nothing false with my national pride especially when it comes to comparing it with a failed pakistan but I am just trying to correct your false obsession of trying to compare pakistan to India, when India is ahead of pakistan in a huge way in every way not just stated by me but people all over the world including your own country.

Leaving that aside, the examples quoted only talk about roads. Infrastructure is a combination of ports, roads, public transport, railways, airports, phone connectivity etc and India trumps Pakistan like crazy in every single of these aspects.

If you look at any of the articles, the authors only talk about some M motorways in pakistan and they compare it either some redundant roads on the border or roads in cities. For that matter, have you ever been on the mumbai-pune expressway, Noida-Greater Noida expressway, DND expressway, Delhi Jaipur NH8 to name very few. I do not know which parts of the country you have seen and by looking at your mentality, it is pretty obvious you would be comparing village roads of India( which are getting better day by day) with tolled motorways in pakistan and feeling extremely proud.

Airports in India, in fact, even small towns like mangalore( forget Delhi, Mumbai, Bangalore, Chennai etc.) are better than your karachi or islamabad airports.

Metro system as i stated above is non existent in any city of pakistan, unlike india which already has it in Delhi NCR, Kolkata, Bangalore, Chennai and getting it in Mumbai, Hyderabad, Ahmedabad, Kochi, Lucknow, Kanpur and more. Infact we are even planning monorails which I donot think anyone in pakistan would have even heard of.

All of this with out being given huge amounts of aide from foreign countries.

These are just a few examples which I've heard and there will be many more.

Hence, It is not me but you who have insane false national pride and a HUGE India complex like your fellow countrymen.

Riaz Haq said...

Nishant: "Airports in India, in fact, even small towns like mangalore( forget Delhi, Mumbai, Bangalore, Chennai etc.) are better than your karachi or islamabad airports."

Oh, really? Have you ever been to these airports and actually compared?

I have. And several independent observers, including Yoginder Sikand, an Indian writer, have done so.

"Islamabad is surely the most well-organized,picturesque and endearing city in all of South Asia. Few Indians would, however, know this, or, if they did, would admit it. After all, the Indian media never highlights anything positive about Pakistan, because for it only 'bad' news about the country appears to be considered 'newsworthy'. That realization hit me as a rude shock the moment I stepped out of the plane and entered Islamabad's plush International Airport, easily far more efficient, modern and better maintained than any of its counterparts in India. And right through my week-long stay in the city, I could not help comparing Islamabad favorably with every other South Asian city that I have visited. That week in Islamabad consisted essentially of a long string of pleasant surprises, for I had expected Islamabad to be everything that the Indian media so uncharitably and erroneously depicts Pakistan as. The immigration counter was staffed by a smart young woman, whose endearing cheerfulness was a refreshing contrast to the grave, somber and unwelcoming looks that one is generally met with at immigration counters across the world that make visitors to a new country feel instantly unwelcome."

Yoginder Sikand

Anonymous said...

riaz jee Pakistan has been stagnant since 2008 India has moved on yes once upon a time PAkistan had better airports than India.Today the Delhi,mumbai,hyderabad,bangalore and Chennai airports are VASTLY superior to PAkistan's.

Delhi aand calcutta already have fully operational metros.Bangalore and Mumbai start this year Chennai,Ahmedabad,Jaipur,Hyderabad all have metros UNDER CONSTRUCTION.

Pakistan is still THINKING about a metro system in Lahore.

BTW when was the last time you visited India?

Anonymous said...

PAkistan is a failed state with Zardari as a leader and tax collection of less than 10% of gdp.

India is investing 35% of GDP in it economy for every year snce you were last these you still think in the past 10 years India hasn't closed and surpassed the infrastructure gap??

What do u offer as proof? Anecdotes here and there?

Look at what Pervez hoodhbhoy,Nisar and other intellectuals say about India vis a vis Pakistan.Are they CIA/RAW agents? Are they idiots?
Given the fact that they live in PAkistan are you trying to say they know less than you do?

As for Infrastructure look at your power crisis ,Oil and gas shortages and collapsing railways.

Riaz Haq said...

Anon: "Pakistan has been stagnant since 2008 India has moved on yes once upon a time"

Sikand was praising the existing airport when he "stepped out of the plane and entered Islamabad's plush International Airport, easily far more efficient, modern and better maintained than any of its counterparts in India".

Now, an even better Islamabad Airport is scheduled to open later this Pakistan is not standing still.

As to you claim that "India has moved on", the fact is that many Indians are still dying of starvation as being reported in a Wall Street Journal series on starvation in India.

India still remains home to the world's largest population of poor, hungry and illiterates.

I also suggest you read another Wall Street Journal piece on how Justice Katju characterizes India.

Riaz Haq said...

Anon: "Look at what Pervez hoodhbhoy,Nisar and other intellectuals say"

If you are so enamored of Pakistani intellectuals, I suggest you read another Wall Street Journal piece on how Indian intellectual Justice Katju characterizes India.

Riaz Haq said...

Here's a Zee News report on crop yields in South Asia:

Productivity of major food crops such as wheat, rice, maize and pulses in India is almost half of that in neighbouring China, according to a data.

In fact, yield of staple grains like maize and pulses in India is even less than that of countries like Pakistan, Bangladesh, Nepal and Myanmar, the data presented in Parliament by Agriculture Minister Sharad Pawar last week said.

The productivity of rice in India is 3,264 kg per hectare, while in China it is 6,548 kg a hectare, the data compiled by UN's agriculture body FAO for the year 2010 said.

It is also high in Bangladesh at 4,182 kg/hectare and Myanmar at 4,123 kg per hectare.

China also tops the list in wheat with yields of 4,748 kg per hectare, whereas for India it stands at 3,264 kg a hectare.

India stands at the bottom in terms of maize and pulses productivity compared to China, Pakistan, Bangladesh, Nepal, Sri Lanka and Myanmar.

Bangladesh leads the tally in terms of maize yields with 5,837 kg per hectare, followed by China at 5,459 kg a hectare, Myanmar 3,636 kg/hectare, Pakistan 3,558 kg per hectare, Nepal 2,118 kg every hectare, Sri Lanka 2,806 kg a hectare and in India it is 1,958 kg/hectare.

In pulses, China tops the list with 1,567 kg per hectare followed by Myanmar at 1,114 kg a hectare, Bangladesh at 871 kg/hectare, Nepal 791 kg per hectare, Pakistan 762 kg every hectare, while in India it stands at 694 kg per hectare.

Pawar said that productivity depends on factors like rainfall, extent of inputs such as fertiliser, micro-nutrients, seed replacement rate, duration of crop, extent of area sown under any crop and the nature of lands used for cultivation.

To enhance the agricultural production, the government is working on frontier areas of research like marker assisted selection, stem cell research, nanotechnology, cloning genome resource conservation, Pawar said.

The National Institute of Abiotic Research Management has been established in Maharashtra to address issues related to impending climate change, he added.

That apart, the National Institute of Biotic Stress Management and Indian Institute of Agricultural Biotechnology are in the pipeline for undertaking high quality research, the minister added.

Anonymous said...

Dr. Haq,

Your blog is certainly interesting and informative, but IMO you could try to stick to some central common-source for all the statistics that you publish or reference.

In this regard, I would you refer to the most current data published by our Finance Ministry & the State Bank of Pakistan (SBP) at:

For data that is more than three (3) years old (i.e. final, confirmed data; and not Provisional Estimates(PE), Quick Estimates (QE) etc.) the most common source used is the Open-Access World Bank (WB) Database that is widely disseminated to the public at:

If you (and all your knowledgeable readers) were to follow the above sources for all your discussions, I think we could avoid the constant and wasteful debates on data-quality that arise when everyone quotes random publications from all over the place.

Thank you for considering my suggestion.


PS: In the event you (or your readers) wish to make references/comparisons to our eastern neighbour(s), I would point everyone to the equivalent source--

Most Current Data (i.e. Including PE,QE etc) at:

Data more than 3 years old (final confirmed; not PE/QE etc) at:

Similarly, for discussions involving other eastern neighbours:
and so on...

Riaz Haq said...

Here's a PakistanToday report on SBP's efforts to increase funding of agriculture and financial literacy among farmers:

Presiding over a one-day ‘Farmers’ Financial Literacy & Awareness Program on Agricultural Financing,’ which was jointly organized by State Bank and Habib Bank Ltd. today at NRSP Training Center, Bahawalpur, he said the agriculture sector has a key role in country’s economy and stressed the need for making necessary finances available to farmers for multiple cropping activities. He outlined SBP’s efforts for creating awareness amongst the farming community and developing capacity of commercial banks through its various training and awareness programmes.
Dr. Saeed Ahmed, Head, Agricultural Credit and Microfinance Department, SBP said the programme is aimed at creating awareness among the farming community about agriculture financing products & services offered by banks, money management techniques and lending procedures, documentations, etc. Besides, it would also develop capacity of agriculture field officers of banks in agri. financing and synergize the efforts of all stakeholders including policy makers, executing agencies, service providers & farming community to improve access to agricultural credit, he said, adding that SBP’s promotional initiatives and policy interventions have translated into around 200 percent increase in the flow of credit to the agriculture sector from Rs. 137.4 billion in 2005-06 to Rs. 263 billion in 2010-11.
However, he pointed out, despite this encouraging growth, the disbursement to the agriculture sector was around 40% of the total estimated credit requirements. ‘SBP has planned to increase the disbursement to 70-80 percent during the next five years covering 3.3 million borrowers by adopting a multipronged strategy,’ he added.
The inaugural session was followed by a technical session for the agricultural credit staff of banks in which senior officials of SBP and HBL made detailed presentations on dynamics of agriculture finance and related policies. The purpose of this session was to train the agriculture finance officials of banks enabling them to conduct farmers’ financial literacy programs at their end and to share the best practices in agriculture lending with the participants.

Sgt. Catsgill said...

According to the Pentagon and the UK foreign service, Pakistan in the next 10 years may see unprecedented domestic terrorist attacks and possibly social upheaval.

The eventual withdrawal of US and other foreign troops would in absence of a foreign enemy internalize an already violent domestic Taliban by going after soft targets in Pakistan. That may spell disaster for an already marginalized economy.

Riaz Haq said...

Catskill: "According to the Pentagon and the UK foreign service, Pakistan in the next 10 years may see unprecedented domestic terrorist attacks and possibly social upheaval."

Pakistanis are no strangers to the oft-repeated apocalyptic forecasts of imminent collapse of their nation that have been regularly dished out by many western leaders, leading analysts and mainstream media over the years. The 2009 Swat valley insurgency and 2010 summer floods sent these pessimist pundits in overdrive yet again as the images of the victims of these crises were widely distributed and discussed at length.

Please

The fact is that Pakistan is too important for the world and too big to fail.

I fully expect Pakistan to survive the current crises, and then begin to thrive again in the near future.

Anonymous said...

The fact is that Pakistan is too important for the world and too big to fail.

Really USSR was not too big to fail.

Besides exactly how is it too important to the world?

Riaz Haq said...

Anon: "Really USSR was not too big to fail."

USSR was an empire, not a country...Russia is a country. It survived and it is thriving today.

Anon: "Besides exactly how is it too important to the world?"

The world has a huge stake. It does not want to see Pakistan collapse because such an event could put hundreds of nukes and missiles in the wrong hands.

Riaz Haq said...

Here's a News report on 15% YoY growth in Pakistan auto sales:

Sales of automobiles in the first nine months (July-March) of the current fiscal year increased 15 percent to 128,576 units, compared to 111,852 units same period last year, according to the data released by the Pakistan Automotive Manufacturers Association (PAMA).

According to the data, in the third quarter (Jan.-March) of this year, automobile sales increased 7 percent to 46,632 units from 43,753 units in the correspondent quarter last year. When compared with the second quarter of this year, sales in the third quarter showed an impressive growth of 22 percent.

Pak Suzuki Motor Company (PSMC) continued to depict strong sales showing a growth of 32 percent in the July-March period to 81,360 units compared with 61,693 units in the same period last year. Analysts attribute strong growth to the yellow cab scheme announced by the Punjab government. In March 2012 alone, PSMC sales stood at 11,198 units, up 16 percent from same month last year and 12 percent from February 2012.

On the other hand, Indus Motor Company sales growth remained subdued during the period under review. The company sold a total of 38,858 units compared to 37,259 units in the same period last year, up by 4 percent. In the third quarter, the company sold 14,792 units against 14,851 units in the same period last year.

Samina Kanji, an analyst at BMA Research, a 15 percent year-on-year growth in auto sales is primarily due to the yellow cab scheme of the Punjab government. On the other hand, motorcycles and three wheelers sales increased on month-on-month basis and sales in March stood at 70,671 units as compared to 65,011 an increase of 5,660 units, the data showed. Total sales of farm tractors decline to 6,229 units as compared to previous month sales of 8,906 units. Sales of trucks and buses sales in March stood at 379 units as compared to 304 units in February 2012.

Riaz Haq said...

Here's a Times of India report on car sales in India:

Car sales in India grew by just 2.2% in 2011-12 , the slowest in two years but industry body Siam on Tuesday said it expects the growth to be around 10-12 % in the ongoing fiscal on better macro economic prospects. Society of Indian Automobile Manufacturers (Siam) that in January had cautioned that car sales growth in India could be in negative territory, said a late surge of sales, specially in March had helped it to stay positive in 2011-12 .

According to the latest figures issued by Siam, total car sales in India in 2011-12 stood at 20,16,115 units as against 19,72,845 units in the previous fiscal, up 2.2%.

"This was the first time the car sales in the country crossed the two million units mark. A late surge of sales in the last quarter of the fiscal, specially in March, as buyers advanced purchases ahead of the Budget helped," Siam president S Sandilya said. In March, car sales rose by 19.7% to 2,29,866 units from 1,92,105 units in the same month last year.

Iqbal Singh said...

"Pakistanis are no strangers to the oft-repeated apocalyptic forecasts of imminent collapse of their nation that have been regularly dished out by many western leaders, leading analysts and mainstream media over the years"

Aren't you repeatedly badgering and maiming India by your oft-repeated statistics spun from sources you like?

It seems you are almost gleeful when you spin and site defecation numbers or poverty figures. Haven't India been moving along despite all the doom and gloom you infer?

It is not just the western media, China Japan and other Asian media say the same about Pakistan when it comes to terrorism and it's effect on the economy and the social fabric of the country.

Riaz Haq said...

Singh: "It is not just the western media, China Japan and other Asian media say the same about Pakistan when it comes to terrorism and it's effect on the economy and the social fabric of the country."

Pakistan and its people and economy are victims of terrorism, and they are paying the biggest price for America's misguided policies and continuing wars.

As George Friedman of Stratfor put in in his book "The Next 100 Years", America is "barbaric".

Here are a few more interesting observations about the US conflict with elements in the Muslim world, and the emergence of the Turkish challenge by mid twenty-first century:

1. America is a place where the right wing despises Muslims for their faith and the left wing hates them for their treatment of women. Such seemingly different perspectives are tied together in a self-righteous belief that the American values are superior to Muslim values. Americans, being at a barbaric stage, are ready to fight for their self-evident truths.

2. Perhaps more than for any other country, the US grand strategy is about war, and the interaction between war and economic life. The United States is historically a warlike country. The nation has been directly or indirectly at war for most of of its existence...the war of 1812, the Mexican-American War, the Civil War, the Spanish-American War, World Wars I and II, the Korean War, Vietnam War and Desert Storm. And the US has been constantly at war in Afghanistan and Iraq since the beginning of this century.

3. The United States has achieved its strategic objective of further dividing and destabilizing the Islamic world after 911. The US-induced chaos and deep divisions in the Islamic world are sufficient to fend off any challenges to the US power from any of the large Muslims nations of Indonesia, Pakistan, Iran or Egypt during this century. Even if America loses in Afghanistan, it has already scored a strategic win against the deeply divided Islamic world.

As to the Asian media you refer to, their primary sources are all western news agencies and publications like AP, AFP, WP, NYT, etc etc.

raman said...

Even if the growth in number of cars sold is 2.2%, The fact of the matter is that the number of cars sold per capita is much higher than that in pakistan and also the number of cars per capita in India is higher than pakistan. And you forgot to mention that the growth in car sales in India was 27% last year. The number of cars sold in 3.5 weeks in India is more than the number of cars sold the entire year in pakistan

Riaz Haq said...

raman: "Even if the growth in number of cars sold is 2.2%, The fact of the matter is that the number of cars sold per capita is much higher than that in pakistan.."

Number of cars sold per year in India is higher...about 10 times higher. But the growth rate in Pakistan has recovered and it's now several times higher than in India.

Iqbal Singh said...

Riaz, I have heard and read 'we are the victim' hogwash numerous times. When Pakistan assumes responsibility of poor governance poor decisions and past actions since 1947, only then future progress will come.

It is hard to believe that the US is at fault for corruption and religious intolerance within Pakistan! The US did not give birth to the Taliban. Put some blame on the ISI unless you're afraid to do so.

If the US is so barbaric, why are you here? Most people like you attack the US but given a choice would decide to live here in a heartbeat!

You want to sugarcoat Pakistan to counter all the bad news out of the country. For the most part you want to dramatically highlight the slightest of good news coming from Pakistan yet shamelessly spit on the US - the country that gave you opportunity and economic security.

It is unfortunate that Pakistani intellectuals like yourself are happy NOT to acknowledge the problems facing the common Pakistani but rather offer a foreign distraction like India or the US.

Riaz Haq said...

Singh: "It is hard to believe that the US is at fault for corruption and religious intolerance within Pakistan!"

I absolutely agree. It's an internal problem that plagues Pakistan and many other developing nations in the region including India.

Singh: "The US did not give birth to the Taliban."

US absolutely did. Without massive US support to the "mujahedeen" in 1980s, there would be no Taliban or al Qaeda in Afghanistan or Pakistan.

Singh: "If the US is so barbaric, why are you here?"

My being here is an economic decision by US policymakers to bring in highly educated foreign-born workers who have contributed to the vibrancy of places like Si Valley in the US.

My being here does not mean US should get a free pass to kill and maim innocent people around the world in wars of choice waged on false pretexts.

My being here does not excuse the genocide of native Americans. Nor does it legitimize enslaving of black people and the use of nukes against civilian targets in Japan.

raman said...

haq-"But the growth rate in Pakistan has recovered and it's now several times higher than in India."

Your growth rate numbers are for a single year. Why don't you mention the growth in the number of cars for FY11. You claim to be a critic for investments in South Asia but it only suits you to put up the few upside story's about pakistan and the few downside story's about India instead of the numerous upside story's on India and the numerous downside story's about pakistan.

And by the way, none of your tricks are working as no serious investor will look at the rubbish a pakistani prints (aka you). India's FDI was close to 45 times that of pakistan last year. pakistan receives close to nil FII whereas the Sensex received more than $9bn in FII this quarter.

Riaz Haq said...

raman: "Your growth rate numbers are for a single year"

Instead of arguing with me, please take a look at numbers from Pakistan Automobile Manufacturers Association here.

raman: "India's FDI was close to 45 times that of pakistan last year. pakistan receives close to nil FII whereas the Sensex received more than $9bn in FII this quarter."

Take your own advice and look at longer term data. Here's the cumulative FDI inflow data from 2000-2010 for both India and Pakistan:

India $200 billion---about 11% of GDP

Pakistan $23 billion--about 11.5% of GDP.

raman: "pakistan receives close to nil FII whereas the Sensex received more than $9bn in FII this quarter."

And yet, KSE-100 has significantly outperformed Mumbai Sensex over the last 1 year, 5 years and 10 years.

Riaz Haq said...

Here are excerpts of a David Brooks' NY Times column on why political participation is important for idealistic youth:

Often they are bursting with enthusiasm for some social entrepreneurship project: making a cheap water-purification system, starting a company that will empower Rwandan women by selling their crafts in boutiques around the world.

These people are refreshingly uncynical. Their hip service ethos is setting the moral tone for the age. Idealistic and uplifting, their worldview is spread by enlightened advertising campaigns, from Bennetton years ago to everything Apple has ever done.

It’s hard not to feel inspired by all these idealists, but their service religion does have some shortcomings. In the first place, many of these social entrepreneurs think they can evade politics. They have little faith in the political process and believe that real change happens on the ground beneath it.

That’s a delusion. You can cram all the nongovernmental organizations you want into a country, but if there is no rule of law and if the ruling class is predatory then your achievements won’t add up to much.

Furthermore, important issues always spark disagreement. Unless there is a healthy political process to resolve disputes, the ensuing hatred and conflict will destroy everything the altruists are trying to build.

There’s little social progress without political progress. Unfortunately, many of today’s young activists are really good at thinking locally and globally, but not as good at thinking nationally and regionally.

Second, the prevailing service religion underestimates the problem of disorder. Many of the activists talk as if the world can be healed if we could only insert more care, compassion and resources into it.

History is not kind to this assumption. Most poverty and suffering — whether in a country, a family or a person — flows from disorganization. A stable social order is an artificial accomplishment, the result of an accumulation of habits, hectoring, moral stricture and physical coercion. Once order is dissolved, it takes hard measures to restore it.

Yet one rarely hears social entrepreneurs talk about professional policing, honest courts or strict standards of behavior; it’s more uplifting to talk about microloans and sustainable agriculture.

In short, there’s only so much good you can do unless you are willing to confront corruption, venality and disorder head-on. So if I could, presumptuously, recommend a reading list to help these activists fill in the gaps in the prevailing service ethos, I’d start with the novels of Dashiell Hammett or Raymond Chandler, or at least the movies based on them.

The noir heroes like Sam Spade in “The Maltese Falcon” served as models for a generation of Americans, and they put the focus squarely on venality, corruption and disorder and how you should behave in the face of it.

A noir hero is a moral realist. He assumes that everybody is dappled with virtue and vice, especially himself. He makes no social-class distinction and only provisional moral distinctions between the private eyes like himself and the criminals he pursues. The assumption in a Hammett book is that the good guy has a spotty past, does spotty things and that the private eye and the criminal are two sides to the same personality.

He (or she — the women in these stories follow the same code) adopts a layered personality. He hardens himself on the outside in order to protect whatever is left of the finer self within.

Riaz Haq said...

Mahesh: "It is secondly unclear which year GDP you are considering - 2000 or 2010. Third, the GDP is an annual number however, the FDI is for the whole decade."

Economists often use figures like cum debt and cum fdi as percent of the gdp of the year in which they are makes sense because the effects of debt and fdi are much longer term than one year.

angad said...

With respect to your ET piece,

The fact that bazaars and restaurants are full does not indicate anything. Investment rates are low in pakistan, savings are low, exports are declining, Now please do not tell me that even exports are being done in the black.

Even, Zimbabwe which suffered from hyperinflation and a complete fall of its economy had packed bazaars and restaurants but that does not mean that they were prospering. KSE rising is no indication to the rise of the economy. The fact of the matter is that pakistan has insane power shortages. Government expenditure counts a lot for the economy, and the pakistani government is extremely poor and so are the people.

Looking at some tony areas and the stock market doesn't reflect even 1% about state of the economy and the bottom line is that the pak economy is failing miserably. The government is on the verge of going back to the IMF for more money.

Riaz Haq said...

angad: "Even, Zimbabwe which suffered from hyperinflation and a complete fall of its economy had packed bazaars and restaurants but that does not mean that they were prospering."

My dear Indian reader, it's clear that even partial good news about Pakistan is too much for you to bear.

As to comparisons with Africa, please look up the data and it'll show you that for most of the social indicators such as hunger and poverty, India is actually worse off than sub-Saharan Africa. Look at the Oxford OPHI MPI study, World Hunger Index rankings, World Bank poverty report for 2011, etc etc.

I suggest you look at the 65 year economic history of Pakistan which shows that, in spite of ups and downs, it has grown at a CAGR of 5%....far higher than the "Hindu growth rate" of 2-3% across the border during the bulk of this period.

angad said...

haq-"My dear Indian reader, it's clear that even partial good news about Pakistan is too much for you to bear. "

Well Mr. haq, if pointing out what is sound economics and the truth hurts you so much, you should seriously consider your priorities. The fact of the matter is that your economy is collapsing and it is not just me who is stating it, intellectuals from the world and data provided by your government is proving the point.

"As to comparisons with Africa, please look up the data and it'll show you that for most of the social indicators such as hunger and poverty, India is actually worse off than sub-Saharan Africa. Look at the Oxford OPHI MPI study, World Hunger Index rankings, World Bank poverty report for 2011, etc etc. "

For that my friend, please look up the HDI which gives the full report of social prosperity, rather than your selective choice of indications, while India comes in the middle category, Pakistan comes in the Low category compared to Sub saharan countries.

"I suggest you look at the 65 year economic history of Pakistan which shows that, in spite of ups and downs, it has grown at a CAGR of 5%....far higher than the "Hindu growth rate" of 2-3% across the border during the bulk of this period."

The fact of the matter is that, India has a higher per capita than pakistan, is far more developed than pakistan and is far far less evil intentioned than pakistan. Hindu growth rate was 3.5%, as a matter of fact and for the past 20 years, India has been growing at 7.5% CAGR.

As for evil intentions, please watch the following documentary,

Riaz Haq said...

agad: " far more developed than pakistan and is far far less evil intentioned than pakistan."

Since you insist on asserting your profound ignorance and deep bias, let me ask you the following:

1. Have you ever visited Pakistan and compared it with India to draw your conclusions? I have, and many others like WSJ's Tom Wright, Reuters' Alaistair Scrutton, India's Hindol Sengupta and Yoginder Sikand, William Dalrymple, etc. have. And they have all found Pakistan more developed than India.

2. Do you know that Pakistan has created more jobs, graduated more people from schools and colleges, built a larger middle class and lifted more people out of poverty as percentage of its population than India in the last decade? And Pakistan has done so in spite of the huge challenges posed by the war in Afghanistan and a very violent insurgency at home?

3. Have you seen volumes of recently released reports and data on job creation, education, middle class size, public hygiene, poverty and hunger over the last decade that offer new surprising insights into the lives of ordinary people in two South Asian countries. It adds to my previous post on this blog titled "India and Pakistan Contrasted in 2010".

As to being, let me ask you: Is it not evil for India to be the largest importer of weapons when its has the world's largest population of poor, hungry and illiterates?

Is it not very unfortunate that economically resurgent India still remains home to the world's largest population of poor, hungry and illiterate people? Tragically, hunger remains India's biggest problem, with an estimated 7000 Indians dying of hunger every single day. Over 200 million Indians will go to bed hungry tonight, as they do every night, according to Along with chronic hunger, deep poverty and high illiteracy also continue to blight the lives of hundreds of millions of Indians on a daily basis.

Anonymous said...

sign of the times!

Riaz Haq said...

Here's a Business Recorder summary of packaged food giant Nestle Pakistan:

Nestlé Pakistan seems to be doing well in 2012.

The Companys financials for the first quarter ended March 31, 2012 show that the foods giant posted a profit after tax of Rs1.664 billion.

Nestlés product portfolio in Pakistan is truly diverse, which includes dairy products such as Milk Pak, Nido, Everyday and yogurts; beverages like Fruita Vitals, Milo and Nescafe; and food products like Maggi noodles, Cerelac, breakfast cereals, and confectionaries.

The Companys net sales crossed the milestone of Rs20 billion in 1QCY12, as the milk and nutrient businesses seem to be growing.

The competitive landscape has drastically changed for Nestlé Pakistan in recent years following the arrival of Engro Foods and strong performance of Unilever Foods.

Nestlé has had to deal with multiple competitors across various product lines; however, its consistent revenue growth shows that the size of the pie is expanding as the competition is penetrating deeply into the addressable markets.

Nestlés topline grew by a strong 24 percent during 1QCY12, but somewhat diluted by a larger, 25.4 percent increase in cost of goods sold.

Resultantly, these costs consumed 72.7 percent of net sales, and brought down the gross margin by 78bps compared to same period last year.

The spiraling prices of key commodity inputs (wheat and milk) along with the energy crisis continue to weigh heavy on the margins.

Nearly 15 percent increase is seen in the distribution & selling expenses, whereas the administrative expenses rose by a whopping 31 percent.

Nestle spent Rs12.53 on these two expense heads for every 100 bucks it earned in the quarter under review.

However, compared to the competition, Nestlés distribution & administrative expenses are controlled due to its vast network and economies of scale.

Nestlés non-operating performance is clearly an area that needs to complement the decent operating performance.

For instance, the finance cost jumped by a whopping 125.7 percent; the other operating expenses increased by 52.2 percent; and the other operating income decreased by 52.17 percent.

Healthy topline growth, coupled with somewhat controlled operating expenditures, ensured that Nestlé posted a double-digit profitability growth during 1QCY12.

Yet the net margin dropped by 93bps to come down to 8.24 percent, owing to the slippages mentioned earlier.

However, the profit of over 1,600 million rupees is sweeter still, especially for shareholders who earned Rs36.71 on each share during the period.

Despite the rising input costs and energy issues, Nestlé is well-placed to capture a bigger slice of Pakistans food market which is forecasted by various estimates to grow in double-digit in the coming years.

Services like Nestlé Professional - which markets food and beverage solutions for out-of-home establishments like restaurants, offices, airports, universities and hospitals - can also boost revenues.

Nestlé may be leading in many of the product lines it operates in.

However, the packaged goods share is still a fraction of the total market, and that is where the promise for sustained future growth lays.

Riaz Haq said...

Here are excerpts of a Marketwatch commentary on India's "fading star":

...China’s economic growth has slowed to its lowest rate in three years. Brazil’s economic growth has fallen to under 3% from around 7.5%. Russia’s economy is heavily dependent on oil and energy prices.

And India? It seems destined to never fulfill its economic potential.
Over the last two decades, India’s economy has almost quadrupled in size, growing at an average rate of about 7% per annum. India’s GDP rose by 43% between 2007 and 2012, slightly less than China’s, which increased by 56%, but much faster than developed economies that grew only 2%.

In late 2011, the Indian government’s 12th five-year plan forecast growth of 9% between 2012 and 2017. Yet by early 2012, India’s growth had slowed to around 6%, high by the standards of developed countries but well below the levels required to maintain economic momentum and improve the living standards of its citizens.
ncreasingly, India’s problems — poor public finances, weak international position, structurally flawed businesses, poor infrastructure, corruption and political atrophy — threaten to overwhelm its potential.

In recent years, India has consistently run a public sector deficit of 9%-10% of GDP, including the state governments and off-balance-sheet items. The problem of large budget deficits is compounded by one major cause — poorly targeted subsidies for fertilizer, food and petroleum which may amount to as much as 9% of GDP.

In March 2012, India brought down a budget that forecasted a fiscal deficit of 5.9%, well above its previous fiscal deficit target of 4.6%. India’s strong rate of recent growth (an average rate of 14% between 2004-05 and 2009-10) made large deficits, on the order of 10 % of GDP, relatively sustainable. Slowing growth will increasingly constrain India’s ability to run continuing large deficits.

India’s government debt is around 70% of GDP. As its debt is denominated in rupees and sold domestically, India faces no immediate financing difficulty. Instead, the government’s heavy borrowing requirements crowds out private business.

But India is running a current account deficit of over 3% of GDP, and trending higher — among the highest in the G-20. The cause is slowing exports as a result of weakness in India’s trading partners, while imports, mainly non-discretionary purchases of commodities and oil, have increased. India imports around 75% of its crude oil.
Slowing growth, tighter credit and other economic problems have increased corporate defaults to the highest level in 10 years. Non-performing loans are now around 2.5%-3% of bank assets. Analysts estimate that the major banks have around $25 billion in bad loans, an amount which is increasing.

The Indian government has already moved to recapitalize state-owned banks to ensure their capital position. In the process, the budget deficit and the government borrowing requirements have come under increasing pressure.

India is plagued by inadequate infrastructure. In critical sectors like power, transport and utilities, there are significant shortages. Yet political pressure to keep utility costs low has impeded investment.

In the electricity sector, for example, state-owned utilities that purchase power from producers and sell to residential users have incurred large losses. State governments are unwilling to raise retail consumer rates despite increases in the price that power producers charge the utilities. Attempts to increase rail ticket prices have failed. The Railways Minister’s own party opposed the proposal and demanded he be removed from his job. ...

Riaz Haq said...

Here's an ET report on expected foreign inflows in Pakistan which should help stimulate the economy:

Federal Finance Minister Hafeez Shaikh, wrapping up a week long tour in Washington, said that Pakistan will be receiving as much as $5.27 billion from the US, UK and international monetary organisations over the next four years.

Having met managing director of the World Bank Sri Mulyani, the Asian Development Bank President Haruhijo Kuroda, US AID administrator Dr Rajiv Shah, Sheikh, and IMF Pakistan mission chief Adnan Mazarei among senior US officials, confirmed that both the Asian Development Bank and the US have reaffirmed investment in to the Diamer Bhasha dam project in Pakistan. “We have told the ADB to send their assessment team to Pakistan soon,” the Finance Minister said.

Addressing a press conference at the Pakistani Embassy in Washington, DC, Shaikh said that the US has also agreed to invest in the renovation of the Mangla Dam, and for the Kurram-Tangi dam project. He said the US government had notified Congress that it would be spending $223 million on the projects.

Shaikh, who is wrapping up a one-week trip to Washington DC where he and his finance team attended the IMF/World Bank Spring Meetings 2012, said the International Finance Corporation, part of the WB group, would also invest $1 billion in various sectors in Pakistan’s private sector, including energy and finance. Shaikh said that the IFC investment was the highest for the group in Pakistan. He also added that the World Bank had increased its spending on Pakistan from $1.6 to $1.8 billion. Dr Shaikh also said that Britain had announced that Pakistan would be its biggest recipient of aid. “Britain will spend over $2.25 billion over the next four years, primarily in the field of education.”

While highlighting the increasing number of remittances, a higher growth rate and growing exports as signs of progress in Pakistan’s economy, Dr Shaikh said that the rising oil prices may impact Pakistani exports in the future. He added that if the economic conditions of Europe worsened, that too could impact Pakistan.

Record breaking foreign remittances expected

Shaikh said that Pakistan is due to receive a record $13.5 billion in foreign remittances this year in a sign of confidence of overseas Pakistanis’ in the economic policies of the government. “Overseas Pakistanis posing confidence in Pakistan, will send $ 13.5 billion this year, reflecting a 21 per cent increase from last year’s $ 11.2 billion,” the finance minister proudly announced at the press briefing.

Claiming that the national economy was now on the path to stability and growth, Dr Shaikh said that Islamabad’s policies are yielding results despite soaring international oil prices and uncertain global economic situation and that this year Pakistan’s economy will grow at four per cent of the GDP, the highest growth seen over the past five years.

He recounted a host of positive indicators including six per cent expansion in exports, which follow a 30 per cent increase in exports last year, and a jump of 25 per cent in revenue collection in the past nine..

Riaz Haq said...

Here's a Daily Times report on Pakistani presentation at a World Bank forum in Washington:

Pakistanis continue to defy economic and security odds with unprecedented democratic reforms, economic recovery and vitality of civil society and march forward in key areas of development.

This was stated by top Pakistani officials at a World Bank forum, where international experts acknowledged that this wide-ranging resilience - which is ignored in the global media - is a major cause of hope and optimism for future of key South Asian nations, according to a message received here on Tuesday.

Finance Minister Dr Abdul Hafeez Shaikh and Ambassador to the United States Sherry Rehman, speaking at the panel discussion on ‘Pakistan: The Untold Story’ highlighted the fact that the Pakistanis are determinedly grappling with challenges as the people and their elected representatives strengthen democratic institutions, vital to development of the country. Ambassador Robin Rahpeh, US Coordinator for Non-Military Assistance to Pakistan, Nancy Birdsall, President of Washington think tank Center for Global Development, Mohsin Khan, a leading Pakistani economist at the International Monetary Fund and Professor Anatol Leieven, writer of Pakistan: A Hard Country, also spoke about Pakistan’s inspiring performance in various fields of endeavour and reforms that the country needs to step up its development. World Bank Vice President Isabell Guerrero moderated the discussion. The finance minister, who led a team of economic managers to the International Monetary Fund (IMF)-World Bank meetings, said he draws inspiration from the strong character of the founder Quaid-i-Azam Muhammad Ali Jinnah and ordinary Pakistanis who face off daily pressures of life and continue to contribute to the development of their country. He said it would take Pakistan a combination of measures - including focus on human development, steps towards sustained high levels of exports and an appropriate mix between the roles of government and the private sector - would help Pakistan tide over difficulties and move forward as a stable economy.

“Underlying all this will be the role of institutions and most remarkable feature in Pakistan right now is the strengthening of the democratic and civil society institutions including the parliament, court, media, the State Bank of Pakistan, Securities Exchange Commission are free and working autonomously.”

He pointed out that overseas Pakistanis have great confidence in their country and are remitting unprecedented amounts back home.

Ms Rehman, spotlighting some of the Pakistani achievements that are not reported in the global media, told the gathering of experts that Pakistan offers a great deal of resilience and hope.

“A historic shift is taking place, institutions are being built in Pakistan, there is movement towards a democratic accountable structure of the government, among the untold stories in the last four-and-a-half-year is that for the first time Pakistan’s democracy is witnessing a peaceful transfer of power, we finished Senate elections recently and the parliament has been empowered.” Pakistan, she said, wishes to live not just as a responsible country but wants to see its people live as global citizens. Pakistan is renegotiating its social contract with its own people. She also cited enactment of a series of laws and constitutional amendments that empower the provinces, ensure protection of women’s rights. She said martyred prime minister Benazir Bhutto remains an inspiration for women’s rights.\04\25\story_25-4-2012_pg5_9

Riaz Haq said...

Here are excerpts of a WSJ Op Ed by Pak finance minister Dr. Shaikh:

For more than a decade, Pakistan has partnered with the United States to combat the extremism and militancy that threatens the stability of our region and the world. This fight has taken an enormous human toll on our people, with over 37,000 civilians killed and more than 5,000 police and soldiers lost. In addition to the enormous human tragedy, this struggle has directly and negatively impacted our economy and the development of our nation.

We have witnessed the loss of more than $100 billion of foreign investment, a tightening of our financial markets, and a freeze on the progress of many social programs. But that trend has now dramatically reversed, and there is an emerging story of a new Pakistan strategically located at the crossroads of the world's most dynamic economies, ready to take its place as a critical emerging market.

We have a consumer base of more than 170 million, a young and educated work force, and a culture of entrepreneurship. The opportunity for our economy to grow is immense. People in the West may not be aware, but the positive change that is sweeping Pakistan as we speak has profound economic and political consequences for the future.
...over the last four years, the Pakistani government has taken difficult but important steps to get our economy back on track. This year real growth in gross domestic product is likely to reach 4%, nearly double last year's rate. During the first nine months of fiscal year 2012, tax collections have surged by 24%, remittances from Pakistanis abroad by 21% (to $9.7 billion), and our exports by 5.5% over last year's base of $25 billion.

Inflation and consumer prices were down in March, easing pressure on small and medium-size companies. The Karachi Stock Exchange KSE100 Index now stands at 14,000, having been at 6,000 in 2008. Pakistan's foreign exchange reserves increased to $18 billion in 2011, the largest in history, and our financial obligations are declining. In 2015, Pakistan's annual repayment to the International Monetary Fund will be a quarter of its 2012 obligation.

Six months ago, Pakistan granted Most Favored Nation trading status to India, a paradigm-shifting policy change driven by the business sectors on both sides of the border. With its complete implementation and the concomitant reduction of India's nontariff barriers, this decision has the power to reconfigure the region's economic landscape and dramatically increase its stability. Today, bilateral trade between India and Pakistan stands at $2.7 billion per year. Business chambers in both countries predict that figure could quadruple to $10 billion by 2015.
Investing in any emerging market has its challenges, but Pakistan is poised for growth. For the first time in our history, a democratically elected government will complete a full five-year term next year. Our judiciary is independent and upholding the rule of law. Our military is working with our civilian government to protect our borders and keep militancy and extremism in check. Our civil society is expanding, and our media are robust and uncensored.

Business contracts have been consistently honored and the return on investment for many investors has been enormous. And though the last decade has taken a toll on our economy and our infrastructure, our resilience is evident and turning the tide. We are building infrastructure and expanding our energy capacity, we are modernizing our agriculture sector, we are a leader in telephone access, our textile sector is one of the largest in the region, and our information-technology companies are some of the best in the world.

Riaz Haq said...

Here's a Bloomberg report on preliminary estimates of Pak GDP growth in current FY 2011-12:

Pakistan’s economy will probably expand 3.2 percent in the fiscal year through June 2012, lower than a previous forecast of 4 percent, the nation’s statistics office said in a preliminary estimate.

Gross domestic product increased 3 percent in the 2010-2011 financial year, more than an earlier report of 2.4 percent, following a change in the base year for calculating the pace of expansion, the Pakistan Bureau of Statistics also said in a statement released yesterday.

Pakistan’s $200 billion economy has been hampered by blackouts from its worst energy crisis, an insurgency on the Afghan border, elevated inflation and diminished aid flows. The nation’s Supreme Court yesterday convicted Prime Minister Yousuf Raza Gilani of contempt of court, adding to political tensions ahead of general elections due by February.

“Growth will remain subdued this fiscal year,” said Khalid Iqbal Siddiqui, the head of research at Karachi-based United Bank Ltd. “Manufacturing industries are suffering from power and gas shortages, while there are signs that the urban economy dominated by the service sector is performing poorly as well.”

Riaz Haq said...

Here's a Nation report on WB loan for education & energy sectors in Pak:

The World Bank’s Board of Directors approved two projects totaling $550 million aimed at supporting Pakistan’s effort to strengthen the education and natural gas sectors, which are critical to Pakistan’s growth and development.

The $350 million Second Punjab Education Sector Project would support the Government of Punjab’s education sector reform program designed to increase child school participation and student achievement.

The $200 million Natural Gas Efficiency Project aims to enhance the supply of natural gas in Pakistan by reducing the physical and commercial losses in the gas pipeline system.

Significant shortfalls persist in both school participation and student achievement in Punjab. To address these challenges, the Government of Punjab is implementing the Punjab Education Sector Reform Program (PESRP), which aims to improve schooling outcomes through institutional development and strengthening, improved monitoring, and enhanced governance and accountability. The Bank has supported this program since 2008. During this time, the reform over 850,000 additional students - more than half of them girls – are now enrolled in low cost private schools supported under government subsidies tied to minimum school quality standards; some 400,000 female students receive quarterly stipends tied to school attendance; and free textbooks are provided to all students in public schools. The new results-based project will build on these achievements and support the second phase of the reform program over the period 2012-2015.

Rachid Benmessaoud, World Bank Country Director for Pakistan said that with a target school-aged population of over 12 million children, 30 percent of who remain out of school and with relatively low levels of learning, continuation of our support to the government’s reform program is critical. He said that the second phase of the program aims to take the next evolutionary step and zero in on improving service delivery performance at the school level. A key focus will be improving teacher quality and performance, which is critical for better school quality, and, thereby helping retain students in school and attract new children to school.

The challenges in the gas sector are also significant. Pakistan faces severe scarcity of gas, with production failing to keep pace with demand. Other critical challenges include inadequate allocation of gas, inefficient end-use of gas, and high levels of unaccounted-for gas (UFG). More than 10 percent of gas supplied in Pakistan is unaccounted for, which is unaffordable and a major contributor to the current gas supply crisis. UFG is typically at 1-2 percent in OECD countries.

The main focus of the Natural Gas Efficiency Project is to reduce UFG to about 5 percent by 2017 in distribution areas served by the Sui Southern Gas Company Limited (SSGC). This includes Karachi, interior Sindh, and Balochistan.

Bjorn Hamso, World Bank Senior Energy Economist and project team leader said that Results will be achieved through pipeline rehabilitation, use of cathodic protection to halt corrosion, and installation of automatic pressure management systems and advanced consumer metering systems. He further said that Key to the project’s success is to install hundreds of wholesale meters in the distribution network in such way that network activity can be monitored on a localized level and investments can be put to use where the leakage problem is the largest and the theft problem the most severe.

Riaz Haq said...

Here's a News story on WB panel & Pak's resilient economy:

LAHORE: Pakistan’s economy is resilient and growing with some phenomenal growth in remittances and informal economy, but the people are reluctant to invest due to many reasons including energy crisis.

This was the crux of a panel discussion held under Finance Minister Abdul Hafeez Sheilkh at World Bank headquarter a few days ago. International experts on Pakistan’s financial and social issues were present at the event.

According to the panellists Pakistan being the second largest country of the South Asian region a great potential to explore.

The World Bank Vice President for South Asia Isabel Guerrero posed two questions to the panel: What inspires you about Pakistan and what is the one shift needed to change the country for the better?

“The grace of the people of Pakistan amidst adversity inspires me,” Shaikh responded to the first question, and many of the other answers also cited Pakistan’s resilience in the face of multiple crises. Shaikh noted, “Countries that invested in their people, exported their products, and found the right balance between the public and private sector get ahead.”

Nancy Birdsall, president of the Center for Global Development, said a “culture of philanthropy” has helped Pakistanis embrace displaced people and respond to these challenges. She said the country is similar in this regard to the United States, as well as in its tradition of religious moderation.

Mohsin Khan, a senior fellow at the Peterson Institute cited the growth of the middle class - now 70 million out of Pakistan’s population of about 175 million - the informal economy, remittances from Pakistanis overseas, and the rural economy as encouraging factors.

“The most interesting factors are $75 billion consumer spending - almost 40 percent of the country’s GDP; a booming informal economy; and a 70 million strong middle class population out of 175 million total population are amazing numbers when we think about Pakistan as a poor country,” he remarked.

Mohisn said around 1.5 million motorcycles and half a million cars are registered each year in Pakistan. Toyota Camry has a price tag of around 35,000 dollars in the US, while in Pakistan it costs 100,000 dollars, “and you will see too many these sort of cars running on the roads, exposing the resilience of the (Pakistani) economy.”

He said that opinion about Pakistan going down the drain was wrong in a scenario when country was getting $12 billion annual remittances, $4 billion private transfers and $25 billion exports despite the fact that the industrial sector was producing at 50 percent of its capacity due to energy crisis. He said people were reluctant to pump in this money into the economy due to various reasons. Mohsin appreciated that Pakistan’s migrants had improved their skill level so they were getting higher wages than past so that remittances were growing.

Robin Raphel, senior advisor for Pakistan at the US Department of State said: “The war next door in Afghanistan, the 2005 quake, floods in 2010, recession - Pakistan has coped with all these things.”

Other speakers focused on the growing strength of Pakistan’s democracy, while noting the need for stronger political and governmental institutions.

“There is a historic and strategic shift happening in Pakistan,” Rehman said. “A choice has been made ... that we wish to live not just as a democratic country but as responsible global citizens.”

Anatol Lieven, a professor at King’s College in London, said the most pressing change Pakistan needed to make was to collect more taxes, and Shaikh said revenue collection has increased 25% this fiscal year.

Riaz Haq said...

Here's a Reuters' report on KSE's record close on May 4, 2012:

May 4 (Reuters) - Continued buying by foreign investors and expectations of strong corporate performance by heavily-weighted companies boosted local confidence in the Karachi Stock Exchange, analysts said, leading it to close at its highest level since May 2008.

Foreign investors bought shares worth a net $19,569,904 on Friday according to the National Clearing Company of Pakistan.

The Karachi Stock Exchange (KSE) benchmark 100-share index closed 1.33 percent, or 192.36 points, higher at 14612.28 points, with a volume of 240.9 million shares. The market hit an intra-day high of 14,628.96, and posted its highest close since May 5, 2008 when the index closed at 14,673.13.

"The expectation of good corporate earnings and consistent buying by foreign investors combined to keep the market bullish," said Atif Zafar, a research analyst at the JS Global financial services company.

Among the heavyweights, Pakistan Telecommunication Company closed 6.93 percent higher at 15.42 rupees.

In the currency market, the Pakistani rupee closed almost flat at 90.76/78 to the dollar, compared with Thursday's close of 90.72/77. The rupee has been supported by remittances, which rose 21.45 percent to $9.73 billion in the first nine months of the 2011/12 fiscal year, compared with $8.02 billion in the same period last year.

In March, remittances totaled $1.14 billion.

Riaz Haq said...

Here's an ET story on poverty decline in Pakistan:

Their biggest challenge at the moment is to explain how nearly seven million Pakistanis have come out of the vicious cycle of poverty.

According to the survey, the incidence of poverty has declined from 17.2 per cent in 2008 to slightly over 12 per cent in 2011. It was conducted by a committee constituted to calculate the incidence of poverty on the basis of Pakistan Social and Living Standards Measurement Survey 2010-11.

“The biggest challenge in front of us is how to explain this figure to the masses and economists when the economy grew at an average rate of 2.6 per cent and average inflation remained above 15 per cent during the last four years,” a member of the committee told The Express Tribune requesting anonymity due to political sensitivity attached to the figure.

He said poverty declined to slightly over 12 per cent with sharp declines in both rural and urban poverty. He said rural poverty declined more than urban poverty but, “the behaviour was the same and consistent with previous years’ results.”

In 2007-08 when the Pakistan Peoples Party-led coalition government took over, poverty had been assessed at 17.2 per cent. But the government decided not to release the figure saying poverty was at 35-40 per cent. It shared 40 per cent figure with Friends of Democratic Pakistan in its maiden meeting held in Tokyo.

It is facing the same dilemma exactly after four years, as its own people are now telling that poverty has declined to 12 per cent.

According to the United Nations Multi Dimensional Poverty Index, half of the country’s population lives below the poverty line.
In 2007-08 the country’s estimated population was 164.7 million. By that account in 2008 as many as 28.3 million people lived below the poverty line. In 2010-11, the estimated population was 175.3 million and around 21.5 million people were in abject poverty.

The committee member said that poverty has been worked out on the basis of consumption method. According to this method, if a person takes 2,350 calories per day that costs him slightly over Rs1,700 per month that person is taken as above the poverty line.

The official said that the committee has not formally submitted the poverty report to the Planning Commission, but it is expected to submit the report over the next couple of weeks. However, the committee has already shared its findings with the commission.

A senior government official, who also wished to remain anonymous, said that the concerned authorities were considering the poverty figure and framing their mind whether to release it or not. It is not yet clear whether the government would publish the poverty estimates in the Economic Survey of Pakistan 2011-12.

The committee member, while giving justifications for the decline in poverty despite harsh ground realities, said that poverty declined because of higher support price of major crops, especially wheat, healthy trend in inflows of remittances and impact of assistance provided by both the government and private sectors in the flood affected areas of the country.

raman said...

With respect to your report above, It is clearly a farce and a political gimmick. Like how your country statistical board came up with the true state of your economy and was about to slash your GDP by more than 10% and then politics stepped in to try every possible stunt to increase your growth rate from the original 3.2% ( 2.8% at factor cost) to a measly 3.8%. By the way, India's GDP growth, even after going through a bad phase is 6.9%. Poverty in pakistan is very very high and all these are fudged reportings ( as mentioned by your journalists)by your government to hide the truth.

Riaz Haq said...

Here's Daily Times on rising domestic sales of cement in Pakistan:

The cement sales in domestic market posted fifth straight month of increase as compared to last year but the industry is still passing through difficult times as its exports registered third consecutive month of decline.

A spokesman of All Pakistan Cement Manufacturers Association stated this while discussing performance of the cement industry during first 10 months of the current fiscal.

He said that the total cement despatches up till April 2012 were 26.643 million tonnes, which is 3.31 percent higher than despatches during the corresponding period of last fiscal. The domestic sales during this period increased by 8.51 percent but exports registered a decline of 8.91 percent. He said performance of north and south-based mills depicted different trends both in domestic sales and exports. He said local sales of the north-based mills increased by 7.77 percent to 15.928 million tonnes while the south-based mills registered higher domestic consumption by 11.81 percent to 3.701 million tonnes. In exports, however, the mills in the north suffered comparatively less decline than in the south. The cement producers based in north exported 5.087 million tonnes of cement posting a decline of 6.23 percent over exports made during the same period last year. The exports of south region mills declined by 15.29 percent to 1.928 million tonnes.

Among the export markets, the Afghanistan market remained relatively stable as exports declined nominally by 0.15 percent to 3.778 million tonnes. Exports to India increased by 15.19 percent to slightly over half million tonnes. This includes exports by sea, as well as, through Wagah border. Exports to other destinations through sea however decreased by 16.96 percent to 2.699 million tonnes. Cement industry people said that cement is one the major commodities that is abundantly available in Pakistan and can be exported to India through the land route. Despite tall claims to increase bilateral trade, the respective governments failed to remove non-tariff barriers imposed on Pakistani products. There is currently a labour strike on Indian side resulting in piling up of consignments, which is affecting the movement of trucks from Pakistan.

Besides, merely 10 wheeler trucks from Pakistan are allowed to cross the border and maximum weight may not be more than 40 tonnes per truck. Unfortunately, most of the available transportation for cement has a loading capacity of more than 40 tonnes.

Availability of 10 wheeler trucks with a loading capacity up to 40 tonnes for cement is limited; resulting in the cement industry being unable to export its surplus capacity

There is only one scanner installed at the new gate at Wagah border resulting in long queues creating hurdles and delay for Pakistani exports to India. The Pakistani exporters have demanded of the government to look into the matter and allow trucks with a loading capacity up to 80 tonnes instead of 40 tonnes. They further urged the government that exporters should also be provided all necessary facilities at the border points so that they could easily clear their consignments.\05\08\story_8-5-2012_pg5_2

Riaz Haq said...

PSMC to post PAT of Rs413mn (EPS 5.02), up 351% YoY, 237% QoQ, reports

The company is expected to announce PAT of Rs413mn (EPS Rs5.02) in 1QCY12, up by a massive 351% YoY. The gigantic rise in the profitability is mainly due to 31%YoY increase in unit sales coupled with 9%YoY increase product prices. Moreover, the other income of the company is also estimated to have helped in boosting up the bottomline of the company as it registers a healthy growth of 49%YoY to Rs196mn in 1QCY12. In the light of historical payout trend, we do not expect any cash dividend from the company with the results.

Company’s bottomline is also expected to jump 237% on QoQ basis due to 23%QoQ primarily due to increase in company’s sales volumes. As the customers prefer to book vehicles with the new year registration, therefore, during the last quarter company’s unit sales remained dull. As such, the other income of the company is also expected to decline (income comes from the customers’ advances).

At current levels, the company scrip is trading at a PE of 5.5x and 6.1x based on CY12 and CY13 earnings estimates, respectively. We recommend ‘Buy’ on the scrip with our revised Jun-12 target price of Rs92/share.

Riaz Haq said...

Here's Bloomberg on worsening imbalances in India:

Indian Finance Minister Pranab Mukherjee missed his budget-deficit target by the most in three years and announced a 12 percent increase in debt sales, sending bond yields to a two-month high.

The shortfall in finances in the year ending March will be 5.9 percent of gross domestic product, 1.3 percentage points more than the goal, Mukherjee said in a March 16 speech in parliament. That was the biggest margin of failure since falling short of the aim by 3.5 percentage points in the 12 months through March 2009, the height of the global financial crisis.

Goldman Sachs Asset Management Ltd. and FIM Asset Management Ltd. said the budget didn’t do enough to restore the credibility of Mukherjee, who pledged to cut the deficit to 5.1 percent of GDP in the 12 months starting April. The yield on 10- year bonds had the biggest weekly increase since January to 8.43 percent last week, compared with 3.55 percent in China, where the 2012 deficit was 1.5 percent of GDP.
The finance ministry plans to sell a record 5.69 trillion rupees of debt the next fiscal year, compared with 5.1 trillion rupees in the 12 months ending March 31. Underwriters had to buy unsold bonds at nine auctions this fiscal year, central bank data show, signaling demand didn’t match supply of notes. The government will set the first-half borrowing target on March 23, Shaktikanta Das, additional secretary in the ministry, said on March 16.

Yields on 10-year (GIND10YR) sovereign debt jumped 14 basis points, 0.14 percentage point, last week after data on the website of the Controller General of Accounts showed India’s budget gap widened to 4.35 trillion rupees in the 10 months through January, exceeding the full-year target of 4.13 trillion rupees. A year earlier, the shortfall was 58.3 percent of the annual goal.
The shortfall will reach 5.8 percent of GDP in the year starting April, he predicts. The finance ministry has exceeded its budgeted spending target in eight of the last 10 years, according to government data.

The yield on the 8.79 percent note due November 2021 fell one basis point today after climbing seven basis points on March 16. The extra yield investors seek to hold the notes instead of U.S. Treasuries has rebounded 11 basis points from an eight- month low of 601 reached on March 14, data compiled by Bloomberg show.
Spectrum Sale

Rupee-denominated bonds handed investors a loss of 0.3 percent in March, compared with a 0.2 percent return on yuan notes, according to indexes compiled by HSBC Holdings Plc. India’s revenue collection was 69.5 percent of the full-year target in the 10 months through January, compared with 92.2 percent a year earlier, official data showed this month. The rupee advanced 0.2 percent today to 50.0885 per dollar after declining 0.7 percent last week, according to data compiled by Bloomberg.
Still, global investors have cut holdings of Indian debt by $634 million since Feb. 29, pulling money out of the local market for the first time in six months, exchange data show.

The cost of protecting the debt of State Bank of India, seen as a proxy for the sovereign, against non-payment climbed this month. Five-year credit-default swaps on the lender now cost 305 basis points, compared with 300 at the end of February, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value in exchange for the underlying debt should a company fail to adhere to its agreements.

Riaz Haq said...

Here's a Businessweek story on risks to Pak economic growth:

akistan will seek to reduce inflation to less than 10 percent for the next fiscal year as it grapples with the fastest pace of price increases in Asia.

The inflation goal for the 12 months starting July 1, 2012 is 9.5 percent, the prime minister’s office said in a statement in Islamabad yesterday. Earlier this month, the government projected gross domestic product will rise 4.3 percent in the period, up from 3.7 percent in the current fiscal year.

Pakistan’s economy has been hurt by blackouts, a trade deficit, diminished aid flows and an insurgency on the Afghan border. The government plans to boost spending on roads, health care and education to support growth and is due to present its last federal budget next week before elections that must be held by February.

“The economy is facing huge challenges,” said Khalid Iqbal Siddiqui, head of research at Karachi-based United Bank Ltd. “Power blackouts, reduced aid inflows and the law and order situation are the key constraints that will keep growth depressed in the next fiscal year.”

Pakistan’s rupee has weakened about 6.5 percent against the dollar in the past 12 months. Domestic risks and the threat to global growth from Europe’s debt crisis have curbed demand for the currency.

Farm output will climb 4 percent next fiscal year, up from 3.1 percent in 2011-2012, according to yesterday’s statement. The industrial sector may expand 4.1 percent, from an estimated 3.6 percent this financial year, the projections showed.
Inflation Risk

The targets were set in a meeting of the National Economic Council, which is headed by Prime Minister Yousuf Raza Gilani.

Pakistan’s inflation accelerated to an eight-month high of 11.27 percent in April, limiting scope to cut interest rates to support the $200 billion economy. The pace of price increases is the fastest in a basket of 17 Asia-Pacific economies tracked by Bloomberg.

The central bank left borrowing costs unchanged at 12 percent last month for a third straight meeting, after cutting them by 2 percentage points in 2011.

The International Monetary Fund said in February that Pakistan should broaden the tax base, curb some subsidies and curtail central bank financing of the budget deficit. It described the economy as “highly vulnerable.”

The council proposed to spend 873 billion rupees ($9.5 billion) on development projects in the year starting July 1, up 19.5 percent from 730 billion rupees in the current fiscal period. The council originally proposed expenditure of 863 billion rupees yesterday, before increasing the planned outlay by 10 billion rupees in a revised statement later the same day.

The Asian Development Bank has said the power deficit in Pakistan and damage to the cotton crop from floods last year may restrict economic growth to 3.6 percent in the year ending June.

The government will unveil the federal budget in parliament in the first week of next month, according to local media reports.

Riaz Haq said...

Here's a Bloomberg report on Pakistan's 2012-13 federal budget:

Pakistan cut taxes and raised government salaries in an election-year budget that risks missing a target to narrow the deficit from a three-year high.

The government pledged to narrow the budget gap to 4.7 percent of gross domestic product in the year ending June 30, 2013 from 7.4 percent of GDP in the previous 12 months, Finance Minister Abdul Hafeez Shaikh said in his budget speech in Islamabad today. Opposition lawmakers shouted anti-government slogans, held up placards and scuffled during the presentation.

Prime Minister Yousuf Raza Gilani’s government, facing a general election by February at the latest, is under pressure to counter growing public anger over power blackouts, the fastest inflation in Asia and an insurgency on the Afghan border. The government is relying on domestic borrowings after aid flows from the U.S. and the International Monetary Fund dwindled.

“Raising salaries, reducing duties and increasing expenditure means they are likely to miss the fiscal deficit target once again,” said Saad Khan, fund manager and economist at Askari Investment Management Ltd., in Karachi which oversees 25 billion rupees ($267 million) in stocks and bonds.

The budget was unveiled after the nation’s financial markets closed. The Karachi Stock Exchange 100 Index (KSE100) rose 0.7 percent today and has climbed 14.5 percent in the past year. The Pakistan rupee was at 93.67 against the dollar, having declined 7.7 percent over the past 12 months.

Riaz Haq said...

Here's a TOI story on declining violence in Pakistan:

According to the data collated by Pakistan Body Count, an organisation that maintains a 'news-report based database' of suicide and drone attacks carried out in the country, the number of incidents as well as causalities, have witnessed a steep decline compared to 2009 and 2010 - the peak years in terms of causalities. The incidents which failed to reach even double digits in the five years spanning between 2002- 2006 suddenly spiked to 57 in 2007. The bombings claimed over 800 lives in that year. They went unchecked for the next two years and reached a peak in 2009 when 90 suicide bombings claimed over thousand lives.

Although the number of incidents started declining in 2010 but the number of fatalities increased. In 2011 there were 44 blasts killing 625 people- nearly half of the 2009 figures. By March 2012, when the data was last updated, there were only 16 such blasts which took 119 lives.


Year Total Blasts Killed Injured
2002 2 27 91
2003 2 65 115
2004 8 82 399
2005 4 83 230
2006 9 161 230
2007 57 842 2008
2008 61 940 2426
2009 90 1090 3462
2010 58 1153 2954
2011 44 625 1386
2012 16 119 254

Source: Pakistan Body Count

Riaz Haq said...

Here's an ET story on yet another American cultural export to Pakistan:

The fast-food and restaurant market in Pakistan has reached a threshold where it may be recognised as a driving force for new investments. The billion dollar market of Pakistan isn’t only seeing growth of local food outlets but also attracting international food chains.

Fatburger – Santa Monica, California-based fast-food chain – is the latest one to announce its intentions to take a bite out of the local food market. One of fastest growing food chains around the world, Fatburger will be introduced in Pakistan soon by BIL Foods Ltd, a subsidiary of Dubai-based BIL Investments that owns a chain of restaurants and a chemical company.

Fatburger will join the likes of McDonalds, Pizza Hut, KFC, Hardee’s and OPTP that are already operating in the country. Not to mention hundreds of local restaurants and fast-food outlets opening each year to meet the growing demand.

According to industry sources, around 50 new food outlets were due to be operational during the last couple of months in Defence and Clifton areas of Karachi alone. Of those 50 some places, many have already opened while others are in the pipeline, sources said.

The list does not only include restaurants and fast-food chains but also cafes, bakeries and specialty food outlets, the source added.

The growth of the food business has even created a secondary market for young entrepreneurs as many online food portals have opened up and are doing well financially.

While there is no official data available about the size of this market, a conservative study of some 25,000 food centres by Food Connection Pakistan – an online food portal – found that Pakistanis spend at least Rs90 billion ($1 billion) on dining out every year.

“I believe, food is the only entertainment in Pakistan so far,” BIL Foods CEO Samiullah Mohabbat said while sharing his views about international food chains’ interest in Pakistan – in an email to The Express Tribune.

There is still a huge gap for international food chains to enter in the Pakistani market, Mohabbat said.

Referring to the benefits of doing business in Pakistan, the CEO said Pakistan has a strong human resource; English speaking workforce, cost-effective managers and technical workers. Besides, he added, it has a large and growing domestic market.

There are about 180 million consumers with rising incomes, he said, and a growing middle-class moving to sophisticated consumption habits – making it a strong emerging market....

Riaz Haq said...

Here's a report on rising auto & tractor sales in Pakistan:

As per the latest available data of auto sales, recently released by the Pakistan Automotive Manufacturers Association (PAMA), car and LCV sales witnessed a 15.1% YoY growth in 11MFY12. Segment-wise break-up reveals that the economy segment (less than 1,000cc) led the growth with sales increasing by 24.9% YoY during the period under review. This was followed by the 1,000-1,300cc segment, which witnessed sales growth of 19.2% YoY to 26,734 units. The high-end segment (1300cc+) meanwhile remained the sector’s laggard and sales grew by a meager 2.1% YoY to 58,458 units. This lackluster performance can mainly be attributed to the suspension of production at Honda Atlas Car’s (HCAR) plant from Dec-11 to Mar-12, and single-digit sales growth of Corolla. Sales of LCV’s and 4×4’s registered a healthy 27.4% YoY growth in 11MFY12, mainly due to a jump in Bolan (PSMC), Ravi (PSMC) and Hilux (INDU) sales.

Pakistan Suzuki Motor Company Limited (PSMC) witnessed a 31% YoY improvement in sales in 11MFY12 to 100,805 units. PSMC has benefitted from the Punjab Government’s Yellow Cab Scheme, which has resulted in sales of Mehran and Bolan to increase by 39% YoY and 54% YoY respectively. Sales of Swift, Cultus and Alto meanwhile, increased by 67% YoY, 23% YoY and 15% YoY respectively in 11MFY12. Total units sold by the company in May-12, increased by 20% MoM to 10,608 units. On a YoY basis, this figure is 34% higher than May-11’s sales of 7,920 units.

Sales of Indus Motor Company Limited (INDU) decreased by 7% MoM in May-12 to 4,846 units. The primary reason behind this decline is the discontinuation of Coure, with only 63 units being sold during the month. During 11MFY12, the company sold a total of 48,907 units, which is 6% higher on a YoY basis. Hilux has remained at the forefront (with respect to sales growth), and its sales are higher by 56% YoY to 3,625 units in 11MFY12. Sales of Corolla during 11MFY12 increased by 9% YoY to 41,720 units.

Honda Atlas Cars Pakistan Limited (HCAR) reported a 53% MoM increase in total units sold to 1,150 units. The company’s endeavors to clear the backlog of orders of its City model resulted in sales of the model to jump by 533% MoM to 1,050 units. In 11MFY12 however, the company was only able to sell 9,901 units (33% lower YoY) owing suspension of production due to floods affecting its primary parts supplier in Thailand last year.

Al-Ghazi Tractors Limited (AGTL) registered a healthy 20% MoM sales growth to 2,743 units in May-12, helping the segment attain an overall performance improvement of 10% MoM to 6,913 units. On a YoY basis however, the sector recorded 33% lower sales owing to the imposition of GST last year, which resulted in demand for the product drying and production being suspended as a consequence. Millat Tractors Limited meanwhile, reported a 4% MoM improvement in sales to 4,170 units. On a YoY basis, sales of AGTL and MTL declined by 42% and 28% respectively during 11MFY12. This was mainly on account of the suspension of production mentioned above..

Riaz Haq said...

Here's an Express Tribune story of real estate boom in Faisalabad, Pakistan:

Yet unlike stories of most other business shutdowns, Crescent Sugar Mills’ decline came not because of economic slowdown, but rather the economic success of the city – and especially the neighbourhood – it is located in. The factory is 100-acre complex in Nishatabad, a neighbourhood in Faisalabad that used to be on the outskirts of the city, but has increasingly become host to residences that house the city’s growing affluent middle class.

In the 1960s, Nishatabad was on the outskirts of the city, which allowed farmers to bring their sugar cane to the factory easily, using large trailers and trucks. As the decades wore on and Faisalabad’s middle class grew, however, many of the outer areas of the city began going through gentrification, and became residential neighbourhoods.

With the advent of more residences, the city government began placing restrictions on the movement of trucks and trailers that brought in the sugarcane to the factory. Many of the roads that had been used by the trucks were blocked off altogether for heavy traffic. As a result, the company’s logistics cost increased significantly, making it difficult for the mill to compete in the highly commoditised sugar market.

“With every passing crushing season, our mill’s financial health was going from bad to worse. We had no choice but to close down the unit permanently,” said Naveed Gulzar, a director at Crescent Sugar Mills.

But the higher transportation cost appears to be only one reason for the mill’s closure. Another, more compelling reason, appears to be the gentrification of the neighbourhood itself. The Crescent Group owns 150 acres in Nishatabad, with the sugar mill taking up 100 acres and a paper board mill (shut down about a decade ago) taking up the remaining land.

While both of these businesses were going through squeezed margins, the value of the real estate on which they were sitting was skyrocketing. At a certain point, it no longer made sense to manufacture low-margin commodities on prime residential real estate less than 10 minutes drive from the Faisalabad city centre.

And so the group has decided to shut down the factory, sell off the machinery, bulldoze the factory buildings and instead construct a residential colony, with all sorts of amenities, including a shopping mall, a hospital, schools, and colleges, said Gulzar.

The Crescent Group is not looking to exit the manufacturing business altogether but will no longer be in the sugar business. Instead, the board of directors has decided to open up a cotton spinning mill – that manufactures cotton yarn – for export. The factory, however, will be in a rural area, for which the group has already bought land.

“This land is too expensive to set up a factory here,” said Gulzar. “It is prime Faisalabad real estate.”

Riaz Haq said...

Here's a Businessweek story on record profits for DG Khan Cement in Pakistan:

D.G. Khan Cement Ltd. (DGKC), Pakistan’s second-largest producer, reported a fourfold surge in net income on record prices of the building material.

Net income increased to 1.42 billion rupees ($14.8 million), or 3.23 rupees a share, in the three months ended Sept. 30, from 355.5 million rupees, or 0.81 rupee a year earlier, the Lahore-based company said in a filing today. Sales rose 15 percent to 6.1 billion rupees.

Cement makers have relied on price increases amid stagnant sales in the past five years, a move that led the country’s competition commission conduct searches in January this year to investigate price manipulation. Manufacturers of the building material were fined 6.3 billion rupees in August 2009 for price monopoly by the watchdog.

“Cement prices rising to a record saved the day as the quantity sold remained almost the same,” said Syed Asad Ahmed, analyst at IGI Finex Securities Ltd. in Karachi. Local prices on average rose 12 percent to a record 438 rupees per 50 kilogram bag (110 pounds) in the quarter versus 391 rupees in the same period last year, IGI’s Ahmed said.

D.G. Khan’s shares rose 1 percent to 52.30 rupees at the close of trading in Karachi. The stock has rallied 175 percent this year, compared with a 40 percent gain in the benchmark KSE100 index.

Riaz Haq said...

Here are latest profit reports in The Nation of KSE listed firms:

Lucky Cement Limited declared a profit after tax of Rs2,014 million for the quarter ending 30th September 2012. The Earnings per Share (EPS) of the company increased to Rs6.23 per share versus Rs4.66 per share achieved in the same period last year.Gross profit for Lucky Cement, which is Pakistan’s largest cement manufacturer increased by 32.87pc during quarter as its net sales revenue improved by 18.09pc to Rs 8,852 million against Rs. 7,496 million of the same period last year. Higher sales volume in the domestic markets in line with the company’s strategy attributed to the increased profits.The local sales volume during the quarter under review registered a growth of 5pc that rose to 0.86 million tons sold as compared to 0.82 million tons sold during the same period last year. However, the export sales volume declined by 9pc from 0.62 million tons to 0.56 million tons during the first quarter ending 30th September 2012. This was mainly due to intentional focus on the domestic markets, which contributed in increasing the overall profitability of the company. The company also managed to decrease its financing cost by 76pc during the quarter under review as compared to the same period last year.Meanwhile, Nishat Chunian Limited (NCL) has announced an impressive 1QFY13 result, posting a PAT of Rs375m (diluted EPS: Rs2.06) compared to a loss of Rs86m (diluted loss per share: Rs0.47). Main reason for the growth in bottom line was high gross margins of 17.6pc compared to 8.7pc in 1QFY12. Meanwhile, 1) other income of Rs70m (up 19pc YoY) and lower finance cost of Rs302m (down 5pc YoY) further supported the growth in core operations. Note that QoQ EPS is down 6pc sequentially. This is primarily due to lower other income mainly due to exchange gains. On the margins front gross margins are up 480bps. Meanwhile, Nishat Mills Limited (NML) announced its 1QFY13 result. As expected, the company posted a growth of 3pc YoY in its bottom-line to Rs1.1b (EPS: Rs3.02). Higher gross margin in 1QFY13 was the major reason behind this growth. Recall that margins during last year came under pressure as the company had booked expensive inventory of the previous year.

Other than the core operations, lower finance cost and healthy dividend income continued to lend support to cumulative profits of the company. Although, dividend income in 1QFY13 was on the lower side due to lower payout of Pakgen Power, it still provided support to the bottom line.

Riaz Haq said...

Here's some interesting tidbits from a Dutch website about Pak middle class:

Over 80% buy no more than a single pair of shoes a year
A survey conducted by Gallup Pakistan during May 2012 found that 62% of respondents purchased just one pair of shoes for personal use during the previous 12 months. An additional 21% did not purchase any shoes at all during this period. According to Euromonitor International estimates, unit sales of shoes in Pakistan rose by 75.4% between 2006 and 2011, with real value sales increasing by 27.1%, to US$805 million.
Just how big is the middle class?
Writing on, Saki Sherani argues that “two parallel universes existing side by side in Pakistan: an expanding middle class with a voracious appetite for consumption, and a [larger] swathe of population that is increasingly food-insecure.” The consensus estimate is that around 40 million people fall into the former category, but taking the black economy into account, he estimates that the true figure is actually 70 million. He adds that “In absolute terms, it is the fourth largest middle class cohort in Asia, behind China, India and Indonesia. Affluent, educated, urbanised, and increasingly 'globalised,' Pakistan's middle class is not only growing, but is already a voracious consumer.” He also cites an e-mail he received from a friend who recently visited the country: “This place is rocking. The pizza parlours, coffee houses, swank new malls are all packed, brimming with consumers. It took us nearly a month to get a reservation in Karachi's top restaurant!” According to Euromonitor International data, the proportion of Pakistanis with an annual disposable income of at least US$10,000 (at purchasing power parity) increased from 29.2% to 52.3% between 2006 and 2011.
M-commerce: huge potential but many obstacles remain
Speaking to The News Pakistan, against the backdrop of the 5th International Conference on Mobile Banking in Pakistan, which took place in Karachi during mid March, Lito Villanueva of Visa International said that there was huge potential for m-commerce in Pakistan because most people are still unbanked and the rate of mobile penetration is relatively high. However, Amer Pasha, country manager of Visa Pakistan cautioned that levels of financial literacy were still low, even among literate people. He added that most shopkeepers and traders “prefer cash so that they can remain in the undocumented economy.”
Skin creams popular during winter
A survey conducted by Gallup Pakistan during January 2012 has found that 91% of Pakistanis use some method to protect their skin during the dry winter months. 57% said they used cream or lotion to protect their skin, while 24% claimed to use oil, and 8% soap or facewash, while 2% utilised homemade remedies. According to Euromonitor International data, value sales of skin care products in Pakistan were worth US$92.9 million during 2010....

Riaz Haq said...

Here's an excerpt of a story in The News about the size of Pakistan's informal economy:

ISLAMABAD: Pakistan’s informal economy has expanded, reaching 91.4 percent of Gross Domestic Product (GDP). At a PIDE conference on Thursday, economist, M Ali Kemal said, “according to data for 2007-08, our formal GDP is half our actual GDP. However, it is still an under-estimated figure since investment data is not adjusted. The informal economy is 91.4 percent of the formal economy.”

He further said that the formal economy contributed Rs10,242 billion of the estimated Rs19,608 billion that the economy generates. Moreover, the informal economy stands at approximately Rs9,365 billion.

“Estimating the size of the underground economy is crucial for policy makers,” said Kemal. According to Economic Survey findings, total consumption for the entire population of the country is Rs17,261.6 billion and private consumption is Rs7,835.31 billion.

The sum of Rs9,426.29 billion is not reported in the formal economy.

During the session on poverty and household consumption, Dr Ashfaque H Khan, Dean NUST Business School (NBS) and Umer Khalid cited findings from a research paper on the consumption pattern of male and female-headed households in Pakistan.

According to their findings, marginal expenditure shares were highest for housing, durables, food and drink for households headed by men while they were highest for durables, followed by housing and food, and drinks for households headed by women. Higher marginal expenditures by households headed by females on education and durables were found in comparison with their male counterparts as these results were consistent in urban and rural areas of Pakistan.

Further, households headed by women were found to have higher budget shares for education, housing, fuels and lighting, clothing and footwear and lower average expenditure on food, drink, transport and communication compared to those headed by men.

The study also examined the consumption behavior of both types of households to determine consumption patterns and how they vary with change in economic status.

This analysis revealed that in the first three expenditure quintiles, the consumption expenditures of households headed by men were higher than those by women.

Moreover, in the last two quintiles, the consumption expenditures for households headed by women were slightly higher than those headed by women.

Riaz Haq said...

Here's an excerpt of a Dawn story on informal business sector in Karachi:

Unlike the Sind Industrial Trading Estate and other big industrial and commercial zones in Karachi, Orangi, Shershah and other katchi abadis on the outskirts of the city can be taken as self-created special economic zones for the poor. Unfortunately the government has failed to provide necessary infrastructure for development of formal sector and as such a major chunk of economic activity is the preserve of informal sector.

The OPP’s micro credit programme has given fillip to micro businesses not only in Karachi, but also has expanded in other cities of Sindh. The youth initiated Technical Training Research Centre (TTRC) provides housing support service to the community and trains youth to become architects specialising in low cost housing. In a way the OPP promotes Katchi Abadis as franchise all over the country as youth of Karachi from low and middle income class learn construction and other trades skills from TTRC and then move to other settlement to set up their businesses. These katchi abadis and slums are not only working class settlements, but also have growing population of doctors, engineers, architects and business administration graduates who, in large numbers, are mainstreamed in economic process every year.

Although the government is responsible for providing main sewerage lines and treatment plants yet the Orangi Pilot Project works as a link for developing partnership between poor residents of the area and the government for accomplishing the task.

This, apart from facilitating the work of government for developing and regulating these settlements, has given impetus to construction and also construction material supply business in these areas, providing employment and self-employment to thousands of people.

Almost all katchi abadis in Karachi have business clusters in their folds, particularly of garments and leather goods manufacturing establishments. Garment factories have proliferated throughout katchi abadis which make women and children outfits including exportable fashion and designer dresses. A lot of embroidery works and small printing factories are coming up in these areas which handle the work of large scale textile industries producing fashion fabrics on sub- contracting basis.

Another important economic feature of these settlements is that all recycling operations of discarded plastic and news prints is done here. Thousands of people are employed in this business. In a way these squatter ‘bastis’ are helping clear the waste and improve the environment.

Along with the OPP quite a number of NGOs and CBOs operating in katchi abadis have initiated micro enterprise credit programmes to enable the poor to set up home- based family businesses. The OPP alone has so far expanded its micro credit programme to more than 12 cities and 50 villages of Sindh.

The Sindh government’s recent initiative to regularise katchi abadis will promote a sense of security among its dwellers.

Riaz Haq said...

An Express Tribune article cites a World Bank report to conclude Pakistan has low rates of people who keep their money in a bank.

I believe the lower rates of banking in Pakistan is the key reason for the nation's huge undocumented economy and massive tax evasion.

Growing gap between dismal official economic statistics and consumption boom coupled with strong corporate profits in Pakistan is a challenge for many analysts around the world. Most believe that Pakistan's GDP is, in fact, much larger and growing faster than the government data indicates.

Riaz Haq said...

Here's a Dawn Op Ed by Economist Sakib Sherani on Pak informal economy:

NEW estimates indicate that Pakistan’s informal economy is larger than previously approximated, and is expanding at a rapid pace. On the other hand, the formal sector appears to be on the retreat.

Indications to this effect have been around for several years. These indicators have included, among others, a rising share of informal jobs in total employment, a static share of output and employment of the formal manufacturing sector, a growing level of cash transactions in the economy, and an increase in estimates of the “tax gap”.

In addition, firm-level behaviour has also provided clues to the underlying trend in the economy. There are fewer listings on the stock exchanges, and some prominent de-listings, while a fairly significant number of previously formal small and medium enterprises have chosen to become Association of Persons over the past few years, according to some tax experts. Finally, according to some reports, the number of firms on the tax register (for income as well as sales tax) has declined in the past five years.

In fact, anecdotal evidence suggests that in the past few years, there have been instances of even large manufacturing units that have either completely or partially “shifted” production to the underground economy. Evidence to this effect has come from the Federal Board of Revenue (FBR) in the case of at least one significant sector of the economy — cigarettes — where a sharp dip in federal excise duty collection in 2009-10 was attributed to this phenomenon.

Having set up and run my own small business in the formal sector for the past two years has given me some unparalleled insights. While Jamil Nasir in his article in January (in another newspaper) believes the tax structure is not a big contributor, and the regulatory burden is a bigger factor, my own experience suggests that it is both, the tax and regulatory burden, that are either preventing informal businesses from formalising, or are driving already documented firms into the informal economy.

Here’s how. For starters, a formally registered firm filing an income tax return has a 20 per cent disadvantage compared to an enterprise that is operating in the undocumented sector (the tax arbitrage for informal firms). But this is not the end of it. The direct costs of maintaining books, having the firm’s accounts externally audited by a professional auditor, hiring tax consultants and an accountant etc. are not insignificant.

More annoying from my perspective is the opportunity cost of devoting roughly 10-15 per cent of my management time to tax and SECP-related issues, not least of which are chasing up on tax deduction certificates and acting as a withholding tax agent for the government.

In addition, the number of corporate and tax-related filings that the company has to make each month, every quarter, and then on an annual basis is absurd. To incentivise informal sector players to formalise, both the Federal Board of Revenue (FBR) and the Securities and Exchange Commission of Pakistan (SECP) will have to reduce the number of filings, while the transactional relationship with FBR will need to be converted to “arm’s length” via the use of automation.

Finally, the government should consider a system of tax credits and rebates on investment and hiring by small registered businesses, and an initial lower income tax rate for newly corporatised firms as a powerful incentive.
At the other end of the spectrum, the tax and regulatory burden on large, formal firms also needs to be reduced by a comprehensive broad-basing of the tax regime.

Riaz Haq said...

Here's a Dawn Op Ed by Khurram Husain on Pakistan's hidden economy:

...More detailed metrics of economic activity also show great ‘tranquillity’ in the west (Balochistan & KP). Detailed figures on consumption of electricity by industrial and commercial categories of consumer, for instance, show very little change over the years.


But take a closer look and you’ll find something odd. The State Bank has a data series on its website that shows something enormous, of truly gigantic proportions, stirring beneath the tranquillity suggested by the formal macroeconomic data.

Here is what the data reveals: the amount of money passing through the clearing houses of Quetta and Peshawar is so large that it rivals the amounts in clearing houses of cities like Faisalabad, Multan and Rawalpindi.

First some background. Every time you write a cheque and the other party deposits that cheque in their account, it goes through a process called “clearing”. Because banks don’t hold your money themselves — much of it is held by the State Bank — the task of actually taking the money out of the books of one bank and transferring it to the books of another every time a cheque is cleared, is performed by the State Bank at its clearing house.

The State Bank operates 16 clearing houses in cities all over the country. Every month it releases data on how many cheques were presented for clearing in each of these, and what the total amount cleared by cheques was.

If you take this data, which stretches back to 1999, and plot it for each city in Pakistan, you notice something very interesting. Remove the cities of Karachi and Lahore from the sample for the time being, because these are global cities in a sense with long-distance connections. Compare only the regional cities and here is what you’ll find.

Following 9/11, half the cities in the total sample will show a sharply rising trend in the amount of money going through their clearing houses. For the other half, the line is flat.

The cities that show a rising trend are led by Peshawar, with Faisalabad, Multan, Rawalpindi and Quetta in close succession. For Peshawar, the amount of money being cleared via cheque in the year 2011 crosses Rs1.3 trillion! For Quetta, in the same year, the amount is just under Rs900 billion, meaning between them these two regional cities are seeing almost Rs2tr going through their clearing houses in one year alone.

This figure compares with Faisalabad at Rs1.3tr, Rawalpindi at Rs1.4tr, and Multan at Rs826bn. Cities that show a flat trend over the entire reporting period include Sukkur, Hyderabad, Sialkot and D.I. Khan.

What the data shows is a steep intensification of transactions being cleared by cheque in some cities, and no change in others, meaning the pace of economic activity accelerated unevenly over the decade, sweeping some along its path and leaving others behind.

But what are Peshawar and Quetta doing on this list? With Faisalabad and Multan, it’s easy to understand. These are regional hubs, productive centres, large seats of agrarian operations.

In fact, after Karachi and Lahore, it is Multan, Faisalabad and Rawalpindi that account for the bulk of transactions in branchless banking, which shows the intensification of activity in the clearing houses of these cities is accompanied by an overall deepening of the financial sector.

Riaz Haq said...

Here's an excerpt of Express Tribune report on LG Electronics investment in Pakistan:

“We have decided to expand our operations by enhancing production capacities to capture growing consumer demand in Pakistan,” said DY Kim, President of LG Electronics Gulf, while talking to The Express Tribune on Thursday.
“Currently, our production in Pakistan is only limited to televisions and LCDs, but in a couple of months we will start producing other household items like microwaves and washing machines,” he added.
LG Electronics is a global leader and technology innovator in consumer electronics, mobile communications and home appliances with 117 operations around the world.
LG achieved global sales of $49 billion in 2011. It is offering products in four segments – home entertainment, mobile communications, home appliances and air conditioning & energy solutions.
In Pakistan, LG is increasing investment to enhance production capacity, but Kim did not divulge exact figure and only said it would be in billions of rupees.
The company is looking to compete with Samsung, which has increased its market share in recent years.
“We want to give consumers with some other option and we are hopeful this will not take much time,” Kim said.

Riaz Haq said...

Here's Express Tribune report on rising consumption of branded packaged products in Pakistan:

Stocks of major consumer goods and food companies listed on the Karachi Stock Exchange have appreciated 73.1% to date in 2013, outperforming the benchmark KSE-100 index, which has gained 50.8%.
The numbers were taken from a sample of MNCs listed on the Karachi bourse including Unilever Pakistan, Unilever Foods, Nestle Pakistan, Colgate-Palmolive and Gillette Pakistan. The current year’s market performance of these stocks, according to statistics compiled by Topline Securities, is 10.2 percentage points higher than 62.9% they gained last year.
The Express Tribune, in this report, tries to analyse what factors have been contributing to this growth and keeping these giants interested in a market confronted by deteriorating law and order and crippling power outages.
“Pakistan, with its nearly 200 million population, is simply a too large and attractive market to ignore,” Unilever Pakistan CEO Ehsan Malik said, explaining why the Anglo-Dutch food and consumer goods giant is interested in this market.

If being the world’s sixth largest consumer base is not enough, it is the country’s population growth rate that will create a high demand for food and consumer goods in the years to come.
Pakistan will soon become the fourth most populous country in the world, Nestle Pakistan’s Head of Corporate Affairs Waqar Ahmed said.
Pakistan’s population is growing at four million people a year and in four years, he says, the increase in food consumers will be larger than the population of Switzerland (15 million).
“The growth of consumption within the Pakistani market dictates that we spend more in order to be able to supply the consumers with the value they deserve. Hence for us, the investment climate within Pakistan is as good as it ever was.”
Nestle is a very good example of the country’s growth potential, Topline Securities Manager Research Zeeshan Afzal said. The Swiss giant almost doubled its sales from Rs41 billion in 2009 to Rs79 billion in 2012.
The data highlights the performance of listed MNCs but unlisted foods and consumer goods companies have also grown manifold.
Mondelez International – a subsidiary of Kraft Group based in Chicago – says Pakistan has been one of their top-five growth markets in the world.

The confectionary giant saw a significant growth in their snack brands in Pakistan, which is among the highest in the world. Their Cadbury Dairy Milk and Tang brands alone earn Rs1 billion a year in sales.
In food and consumer goods business, says Afzal, law and order is not that big a problem. The goods are produced by MNCs but the rest is done by distributors who are local people. What matters in this business, he says, is the growth and in Pakistan the growth is driven by volumes and not the price.
Beverages giant Coca-Cola, for example, didn’t need investment from its parent company, it rather invested in its new plants from profits generated by its local operations, the analyst said.
The energy shortage, he said, is also not an issue for most MNCs because of their high profitability.
Explaining the population demographics that have driven this growth, Afzal said more women are entering the workforce contributing to a rise in their family’s incomes.
Rising urbanisation, growing middle class and sophisticated consumption habits, he said, have all contributed to this growth. A big chunk of its population is young while it is one of the top countries adding 20-year-olds to the world.
These people get jobs and establish families, thus contribute to the growth of the consumer goods business.
The country’s food consumption is very high but there is still a lot of room for further growth, believe analysts as well as industry officials...

Riaz Haq said...

Jaitley Hails #India's Tax-Free, Job-Rich Informal Economy Estimated At 40% of Official GDP #Modi #BJP via @business

India’s underground economy is booming, and Finance Minister Arun Jaitley wants to keep it that way.
The informal sector is estimated at $780 billion, or about 40 percent of India’s official gross domestic product. It employs more than 90 percent of India’s workforce, according to the government.
“I’m a great supporter of this informal sector," Jaitley said in an interview on Monday. “The informal sector generates more jobs than the organized industry."
The approach goes against the advice of many economists, including those at the International Monetary Fund, which recommends widening the tax net to alleviate India’s chronic shortfalls in fiscal revenue. Indian governments often need to slash infrastructure spending to meet deficit targets that are still among Asia’s highest.
India ranks among the world’s top employers in the informal sector, according to the International Labour Organisation. It puts to work about 400 million people -- more than the entire U.S. population.
In India, it’s nearly impossible to avoid. Retail stores offer discounts for customers if they pay cash, and landlords often take a portion of the monthly rent in stacks of 1,000-rupee notes. Back-alley hawalas transfer billions of dollars around the globe with no questions asked, and thousands of unregistered and underpaid chauffeurs and housemaids don’t file annual income declarations.
“The black economy is growing faster than the white economy and everybody is involved -- the entire country," said Arun Kumar, author of “The Black Economy in India," who came up with the $780 billion estimate by looking at wages, under-the-table transactions and cash-based real estate sales. “This isn’t just a problem among the wealthy -- almost everyone with disposable income participates in the black economy and it’s accepted."

Total corporate and personal income tax payers in India amount to about 40 million -- roughly 3 percent of the country’s 1.2 billion people. To expand that, a Finance Ministry-created panel suggested putting levies on farmers in the untaxed rural sector who make more than 5 million rupees ($76,000) per year -- an approach backed by the IMF.
“We think there’s scope to bring the fiscal deficit down in particular with the revenue side," said Thomas Richardson, the resident representative of the IMF in India. “It’s really a task of widening the tax net -- not raising rates, but bringing more people into the tax net."
“Neo-Middle Class"
Jaitley, for one, rejects that idea. Most farmers don’t make much money anyway, he said, and the rest could use the extra cash.
“We need to strengthen the neo-middle class and put more money in their pockets," Jaitley said. “So bringing tax violators into the tax net, yes, but bringing people with marginal incomes into the tax net -- I’m not so excited about it at all."
Instead, Jaitley wants to finance them. This year the government started a program to boost lending to small entrepreneurs like shopkeepers, fruits and vegetable vendors and artisans. Government-run banks have so far disbursed nearly $6 billion in increments of as much as about $15,000.
Part of the problem is India’s strict labor laws for companies with more than 100 employees. They incentivize businesses to stay small, leaving workers with few rights. The government so far has tweaked only a few minor labor laws, and it’s unclear when they will push for more changes.
While Jaitley this year is again struggling to raise revenue, he’s confident he’ll hit his deficit target of 3.9 percent of GDP without slashing funds for roads, bridges and ports. Shortfalls in direct taxes and state assets sales will be compensated by higher-than-expected indirect taxes -- including payments on services and exports.

Riaz Haq said...

Shadow Economies All over the World
New Estimates for 162 Countries from 1999 to 2007
Friedrich Schneider
Andreas Buehn
Claudio E. Montenegro

Pakistan's shadow economy estimated at 36%

Activities associated with shadow economies are facts of life around the world. Most societies
attempt to control these activities through various measures such as punishment, prosecution,
economic growth or education. To more effectively and efficiently allocate resources, it is
crucial for a country to gather information about the extent of the shadow economy, its
magnitude, who is engaged in underground activities, and the frequency of these activities.
Unfortunately, it is very difficult to get accurate information about shadow economy
activities, including the goods and labor involved, because individuals engaged in these
activities do not wish to be identified. Hence, doing research in this area can be considered a
scientific passion for “knowing the unknown.”
Although substantial literature5
exists on single aspects of the hidden or shadow economy and
comprehensive surveys have been written by Schneider and Enste (2000), and Feld and
Schneider (2009), the subject is still quite controversial as there are disagreements about the
definition of shadow economy activities, estimation procedures utilized, and the use of their
estimates in economic and policy analysis.6
Nevertheless, there are some indications that the
shadow economy has grown around the world, but little is known about the development and
the size of the shadow economies in developing Eastern European and Central Asian (mostly
former transition) countries, and high income OECD countries over the period 1999 to
2006/2007. The period was chosen as it has the most comprehensive data availability. This
study is an attempt to fill this gap by using the same estimation technique and almost the same
data sample used in Schneider and Buehn (2009) and Schneider and Enste (2000).
Therefore, the goal of this paper is twofold: (i) to undertake the challenging task of estimating
the shadow economy for 162 countries in various stages of development and located in
several regions throughout the world7
and (ii) to provide some insights about the main causes
of the shadow economy. To our knowledge, such an attempt has not been undertaken so far;
hence, we provide a unique database of the size and trends of the shadow economy in 162
countries over the period 1999 to 2006/2007. This is an improvement compared to previous
work – we used the MIMIC (Multiple Indicators Multiple Causes) estimation method for all
countries, thus creating a unique data set that allows us to compare shadow economy data.

Riaz Haq said...

Informal Savings in Pakistan

According to research by Oraan, around 41pc Pakistanis saved via committees (or Rosca), whereas Karandaaz puts that figure at 34pc. Assuming the informal economy accounts for roughly 30pc, as suggested by research from the Pakistan Institute of Developing Economics, it translates into annual committees of Rs4 trillion at base prices, using conservative inputs.

While this back-of-the-envelope calculation is far from scientific, it helps contextualise how big the informal savings market really is. Everyone from a widow looking to save up for her children’s education to young adults trying to save up for their marriage, committees are what they turn to.

This phenomenon is not exclusive to Pakistan. According to a note by Middle East Venture Partners (one of the investors in Bykea), “the global market is largely untapped and ripe for disruption with 2.4 billion people using money circles through traditional channels.”

They recently participated in the Egyptian digital committees’ startup MoneyFellows’ $31m Series B.

Apart from the traditional financial institutions’ general apathy towards the customer, committees appeal to an average Pakistani for several reasons: they are a community-based instrument with some level of flexibility and there is no interest involved.

Most importantly, it helps them manage cash flow better due to habitual change. For women, the product enjoys particular popularity since the former financial services are largely inaccessible.

However, since committees are primarily cash-based with virtually no money trail involved, it poses massive risks, as we saw recently when a girl, Sidra Humaid, who ran a network of committees through social media, defaulted on Rs420m of payments.


Even beyond this, committees have flaws by design, only amplified by Pakistan’s macros. For instance, the person receiving the first lump sum amount will always be at an advantage since their instalments in the subsequent months would be worth less due to both inflation and rupee depreciation. The recipient of the last payment would see the amount’s purchasing power eroded substantially by the time they get it.

Moreover, due to the community-based nature of the product, the risk of network defaulting is higher as people of usually similar risk profiles would be pooling in their money.

For example, if employees from an organisation have running office committees, delayed salaries or layoffs within the organisation would lead to a bad equilibrium, creating losses for the rest of the group, often resulting in default.

However, there are ways to address some of those challenges. First of all, to (partially) protect your lump sum from depreciation or devaluation, you can enter a committee with a duration of up to 10 months. Given Pakistan’s macros of late, you’d still lose money in real terms but to be fair, that’d most likely be the case in any other instrument as well, including the risk-free government papers.

In fact, contrary to popular perception, there are certain ways to further alleviate the inflation problem. Digital committees have an option of gamifying the experience by rewarding good payment behaviour through loyalty programs and/or brand partnerships to provide discounts on utilities-based services and products.

Secondly, digital committees help create a trail of money which, coupled with a centralised authority (the platform itself), brings in accountability and recourse in the event of a default. The receipt and/or ledger helps with basic accounting in committees creating transparency for people within the group.

The third benefit of digital committees is the security factor. The participant has to go through a know-your-customer and credit check process to make sure there is no fraudulent behaviour that could negatively impact the group, along with the participant’s ability and willingness to pay to create an overall environment for responsible finance.

Riaz Haq said...

How Informal Sector Affects the Formal Economy in Pakistan? A Lesson for Developing Countries

There have been multiple estimates for the informal sector of Pakistan (Ahmed & Ahmed, 1995; Ahmed & Hussain, 2008; Arby et al., 2010; Aslam, 1998; Gulzar, Junaid, & Haider, 2010; Iqbal, Qureshi, & Mahmood, 1998; Kemal, 2003; Kemal, 2007; Kemal & Qasim, 2012; Kiani, Ahmed, & Zaman, 2015; Mughal, Schneider, & Hayat, 2018; Shabsigh, 1995; Yasmin & Rauf, 2003), yet most of the studies are limited to measuring the informal sector only. However, Shabsigh (1995) explored the relationship between fiscal deficit and informal sector, while Yasmin and Rauf (2003) and Kemal (2007) attempted to explore the nexus between informal and formal sectors. The estimates of the first author were based on simple ordinary least squares (OLS) without accounting for cointegration among variables. On the other hand, Kemal (2007) used vector autoregression (VAR), and his results showed unidirectional causality from informal sector to nominal GDP. Further, they used Johansen Cointegration test and Error correction model to conclude that shadow economy has a positive effect on the formal sector in short- as well as long run. We, however, argue that the effect of the informal sector on official economy may be of asymmetric in nature in the long and short run, emanating from two contrasting propositions:
First, the informal sector, being more dynamic and extensive, is considered a safe haven for informal employment and production activities stemming from its capacity to avoid the bureaucracy and legalities. This may be supporting the economic activity in the long run when the income and savings from the informal sector are spent on consumption goods being produced by the formal economy. Furthermore, countries with relatively high incidence of poverty and weak social welfare institutions may use the informal sector as a substitute for social security.
On the contrary, informality is a burden on exchequer, particularly when it comes to revenue collection in the short run; hence, it restrains the formal economic activity by raising the cost of being formal; that is, taxpayers have to bear the cost of tax evaders. Lower tax collection implies less expenditure on public utilities and lower productivity and economic growth.
The above contrasting propositions also seek strength from Khan, Khwaja, and Olken (2015) who used an experimental study on performance-based incentives to tax officials in Pakistan. Although they showed that the tax revenue increased, however, bribe requests also increased by 30 per cent, which depicts a clear burden on economic growth in the short run. Therefore, we hypothesize that the informal sector may affect the formal economy positively in the long run and negatively in the short run.