Tuesday, June 18, 2013

Pakistan to Beg and Borrow Billions More to Spend in Budget 2013-14

Pakistan's proposed federal budget 2013-14 includes $36 billion in spending with deficit financing of $16 billion. Of this $16 billion, over $5 billion will be borrowed by the federal government to pay the power sector to settle the so-called circular debt.

Heavy Tax Burden on the Poor:

Direct taxes make up only about 3.5% of Pakistan's federal revenue. The rest comes from indirect taxation, mainly consumption tax, making Pakistan's tax policy among the most regressive in the world. The low-income people who have to spend almost all of their incomes will be paying tax on their entire incomes while the high-income groups who spend a small percentage of their income will pay little in taxes.

While the general sales tax (GST), a consumption tax, has been raised from 16% to 17%, vast swaths of the economy have been left out of the tax net. A major weakness in public finances is the lack of fiscal effort by the provinces. With some of the largest segments of economic activity such as agriculture, real estate, and services in the provincial domain, the provincial tax receipts total an abysmal 0.7 percent of GDP.

To make up the difference between revenue and spending, the government is forced to beg or borrow. It fosters foreign aid dependence , limits national sovereignty and burdens Pakistan's future generations with debt that they will have to repay.

Pakistan needs to revamp its entire taxation system to make it more equitable and progressive with the rich paying a larger share of the taxes and to raise the tax-gdp ratio from the current 9% to at least 15%.

Resolving Energy Crisis:

Paying off $5 billion to the power sector will do little to resolve load-shedding. The previous government paid $14.8 billion to the power sector and the problem of load-shedding only got worse.

What is needed is to clearly identify and fix the root cause which is the flawed finances of the sector. The cost of electricity production needs to come down substantially and the revenue from bill collection needs to increase significantly to bring finances into balance. The fuel mix needs to change to lower the costs. And there needs to be serious law enforcement done to reduce power theft and collect payments  for the use of electricity. In addition, the IPP contracts need to be renegotiated to link payments to fuel efficiency and power generation capacity utilization.

Pakistan needs a long-term and comprehensive energy policy to assure availability of cheap and abundant energy to fuel economic growth and prosperity in the country.

Since the middle of the 18th century, the Industrial Revolution has transformed the world. Energy has become the life-blood of modern economies. Energy-hungry machines are now doing more and more of the work at much higher levels of productivity than humans and animals who did it in pre-industrial era. Every modern, industrial society in history has gone through a 20-year period where there was extremely large investment in the power sector, and availability of ample electricity made the transition from a privilege of an urban elite to something every family would have. If Pakistan wishes to join the industrialized world, it will have to do the same by having a comprehensive energy policy and large investments in the power sector. Failure to do so would condemn Pakistanis to a life of poverty and backwardness.

 Please watch the following video discussion on the subject of Pakistan's budget 2013-14 and resolution of power crisis:

First budget of new Nawaz Sharif government, no relief for poor; Energy Crisis; Reliance on oil from WBT TV on Vimeo.

Related Links:

Haq's Musings

Pakistan's Tax Evasion Fosters Aid Dependence

Pakistan's Vast Shale Oil and Gas Reserves

Pak IPPs Make Record Profits Amid Worst Ever Load Shedding 

Global Power Shift Since Industrial Revolution

Massive Growth in Electrical Connections in Pakistan

Finance Minister Ishaq Dar's Budget 2013-14 Speech


Anonymous said...

Why is atleast 15% tax to GDP ratio required?

India has 20% tax to GDP but this is cartoonishly large for its level of development!

Malaysia with per capita nominal income around 15000 USD has less than 15% tax to GDP ratio.Why does PAkistan need more than this?

What has the PAkistani government done to prove that they deserve to be trusted to spend 70% more than they are currently ??

Its like putting more water in a very badly leaking bucket!

Riaz Haq said...

Anon: "What has the PAkistani government done to prove that they deserve to be trusted to spend 70% more than they are currently ??"

Govt of Pakistan is far from perfect but there are certain functions like security, public infrastructure, education, health care, etc. that only the state can provide.

When the state fails, you see the kind of anarchic situation that prevails in Afghanistan, Congo and Somalia.

Pakistani govt maintains army and police which are both needed now more than ever to fight the militancy plaguing Pakistan.

Pak govt has also built lots of public infrastructure that could not be done by the private sector.

It's also expanding public education and heath care accessible to more and more of the population.

Anonymous said...

Ditto indonesia.theyy do perfectly well with 11% tax gdp ratio.even with 9% pak does better than india with 20% tax gdp ratio on many indicators as you know..I don't understand your obsession with increased taxation......controlling waste increasing accountability I can understand.

Riaz Haq said...

Anon: "9% pak does better than india with 20% tax gdp "

Pakistan govt is spending 15% of GDP by borrowing, much more than the 9% of GDP it collects in taxes. Pakistanis children and grandchildren will have to repay this debt with interest.

Anonymous said...

Pakistan govt is spending 15% of GDP by borrowing, much more than the 9% of GDP it collects in taxes. Pakistanis children and grandchildren will have to repay this debt with interest.

India spends 30% by borrowing money+ sale of spectrum etc +disinvestment.

Ras said...

They need to do some serious study of this coal Gasification method:


Riaz Haq said...

Ras: "They need to do some serious study of this coal Gasification method"

That is Mubarakmand's pet project. He's been working on it for years and he has yet to prove any feasibility to produce coal gas on commercial scale. Some people, including scientists and engineers, have grown very skeptical of his approach.

Ras said...

I am vaguely familiar with his work and his approach is not enough.

The sheer size of the Thar Coal source should warrant more intense study.

As our late uncle at the GSP used to tell me:

“In Pakistan where we have quantity, the quality is lacking and where we have quality we don’t have the quantity.”

Thar is a relatively dirty coal which is also water saturated.

It is a challenge but that does not mean it cannot be used.

Riaz Haq said...

Ras: "It is a challenge but that does not mean it cannot be used."

The carbon content of Thar lignite is around 60-80%; the rest is composed of water, air, hydrogen, and sulfur. It's low BTU content coal.

It's hard to transport it but it can used to generate electricity in an integrated mining-generation facility. That's what Engro Power and KESC are working on in Thar.

Coal gasification is an entirely separate effort...more of an experiment by Samar Mubarakmand who's known for his exaggerated claims.

Ras said...

Here is the GSP take on the deposit.


Typical Pakistani effort. All talk/print, no action!

Riaz Haq said...

Ras: "Here is the GSP take on the deposit"

After the 18th amendment, the Sindh provincial govt is in charge of developing Thar and other natural resources in Sindh, not GSP.

Hopewins said...

^^RH: "Direct taxes make up only about 3.5% of Pakistan's federal revenue. The rest comes from indirect taxation, mainly consumption tax, making Pakistan's tax policy among the most regressive in the world. The low-income people who have to spend almost all of their incomes will be paying tax on their entire incomes while the high-income groups who spend a small percentage of their income will pay little in taxes"

What you say is TRUE.

However, IF we shift the tax burden from "those who have to spend almost all of their incomes" on consumption to "who spend a small percentage of their income" on consumption, THEN, BY DEFINITION, our domestic savings rate would be automatically LOWERED.

This rate is now at 8-9%. Do you really think that we can afford to have it go down any further?

If we provide tax relief to the bottom 50%, they will increase consumption. If we impose tax burden on the top 50%, they will decrease savings. This will result in an economy trapped in a cycle of low savings, low investment, low growth, which will perpetuate Third World poverty in our country.

Is this what you want? What have you to say for yourself?

Riaz Haq said...

HWJ: "If we impose tax burden on the top 50%, they will decrease savings. This will result in an economy trapped in a cycle of low savings, low investment, low growth, which will perpetuate Third World poverty in our country."

Pakistan's reported data on incomes, GDP and savings is grossly understated.

Less than a couple of million people file taxes in Pakistan and over 90% of them claim to be in the lowest tax bracket. The rest don't file returns at all.

There's a huge disconnect between lifestyles of millions of high-income folks in Pakistan and the taxes they pay.

A robust effort to force documentation of income and collection of taxes will not only substantially increase tax collection but also show that Pakistan's actual savings rate is much higher than reported in the Economic Survey.


Riaz Haq said...

Anon: "India spends 30% by borrowing money+ sale of spectrum etc +disinvestment."

India runs huge trade and budget deficits...not a good example to cite.

The moment FDI and FII flow slows down or stops, India will have a huge crisis. It may very well end up asking for IMF bail-out if it does not fix its twin deficits.


I. KAMAL said...

This ungrateful nation should remember that Parvez Musharraf had paid off the high-interest IMF loans. The question is, why is the PMLN not asking any questions about the wide-scale corruption under the previous government? On a prior assumption of office, Nawaz Sharif had appointed the Saifur Rehman Commission to investigate and prosecute the corrupt officials of the PP regime. The answer was provided by the late President Farooq Leghari in an interview to Asma Chaudhry on Dunya TV some time before he passed away. President Leghari had described the so-called "Charter of Democracy" as an agreement between the two major political parties to stop playing the blame game in future, and just be careful not to get caught. Hence the "friendly opposition" of Nawaz Sharif. And now it's back to plunder and loot by turn, milking the poor cow dry, and indebting the future generations in Pakistan into bondage and economic slavery for years to come. Borrow and line pockets. Live it up now; the nation will pay later. Who cares. Do dhamal and bhangra.

Hopewins said...

^^RH: "Here's a Nation report on Neelum-Jhelum hydro project.."


Anonymous said...


Riaz Haq said...

Here's a Techinasia report on Telenor's planned investment in Pakistan:

Norwegian telecom group Telenor will invest $1.7 billion in Pakistan after acquiring a 3G spectrum, reports Propakistani. The massive investment, announced by Telenor CEO Jon Fredrik Baksaas at a recent meeting with members of the Pakistan media, should have a large impact on the country; Baksass predicts that it will increase internet penetration and, by extension, the country’s GDP.

This new investment should be a boon especially for rural people who may not have internet access, as $700 million of it is apparently earmarked for spreading 3G networks across the country. Baksaas reportedly said that he expects this rollout to have a greater impact on rural residents than urban residents.

This is not Telenor’s first foray into Pakistan, the company has already invested more than $2 billion there. That shouldn’t come as a large surprise given that the company is one of Pakistan’s largest telecom operators, with more than 30 million subscribers in the country


Riaz Haq said...

Prime Minister (PM) Nawaz Sharif on Friday stressed establishing state of the art railway tracks and expressway to connect China with Pakistan through Khunjrab, Gwadar and Karachi, which he said, will usher in a new era of economic prosperity for both countries and the entire region. “Projects to benefit maximum number of population of the region will be pursued that will enhance economic activities, provide jobs and change the destiny of millions,” observed Sharif in a meeting held at the PM’s office. Minister for Planning and Development Ahsan Iqbal briefed the meeting on projects that were underway and areas for future projects with the Chinese government, including railway network, energy sector and road networks. The PM said he had held in-depth discussions on the proposed projects with the Chinese premier, during his recent visit to Pakistan and was happy to note that the Chinese government was equally interested in the project. “We want concrete projects and tangible results to benefit the people of Pakistan and China,” added the premier. He further said the project was in the greater interest of China as it will reduce distance inside the Chinese territory thus resulting in reduction of cost of transportation and giving access to Chinese trade with India, central Asia and the whole region. Sharif highlighted that the future belonged to this region due to its huge potential, thick population and massive business opportunities. He directed the Ministry of Railways to submit solid proposals for building new railway tracks to facilitate fast moving trains for passenger and cargo services, before a delegation leaves for China in a couple of days. He, however, asked for “out of the box” thinking and doable projects to be identified that could benefit maximum number of people. The PM proposed to work on Havelian-Ratodero-Gwadar-Karachi-Quetta and Havelian-Islamabad-Lahore railway track and expressways that would substantially enhance trade activities and open this region to China and the world. He also directed the planning and development division for identification of economic zones alongside the proposed railway and expressway. The PM underlined the importance of special economic zones and converting Gwadar into an international city and economic hub to bring prosperity for the people of Balochistan and the country. He said missing links in existing roads and railway tracks must be built but the need of the day is to establish new linkages to connect China with Pakistan and give access for Chinese trade to India, central Asia etc. Minister for Information Broadcasting and National Heritage Pervaiz Rashid, Minister for Railways Khawaja Saad Rafiq, secretaries for railways, communication, EAD, CDA chairman and other senior officials were also present in the briefing. - See more at: http://www.pakistantoday.com.pk/2013/06/22/news/profit/pak-china-road-rail-link-to-change-regions-destiny-pm/#sthash.37un2a7g.dpuf

Hopewins said...

We are headed for IMF intensive care. Reserves/Debt ratio is now at the LOWEST in the last 20 years. We were even better off in 2008.....

BILLIONS USD 2008 2009 2010 2011 2012 2013
External Debts & Liabilities $46.2 $52.3 $61.6 $66.4 $65.8 $60.9
Official Liquid Reserves $8.6 $9.1 $13.0 $14.8 $10.8 $7.1
Reserves/Debt 18.6% 17.4% 21.1% 22.3% 16.4% 11.7%

Source: Page 123 of latest Report

NOTE the IMPLICATIONS: If circular debt is cleared and private IPP start producing power, they will need to IMPORT oil. This will raise our trade deficit by billions and collapse our meager reserves even further. Either way, we are heading for IMF intensive care.

And what did the IMF bosses say recently in Islamabad? "No Free Lunch this time".

Pakistan is the ONLY country which these people PUBLICLY HUMILIATE. Zaleel hon rahay hain hum; there is no other way to put it. Totally beyghairat is what we have become...

Riaz Haq said...

Here's a Bloomberg report on Nawaz Sharif govt Pakistan seeking IMF bailout:

Pakistan said it will discuss a loan program of as much as $7 billion with the International Monetary Fund, as the nation tries to rebuild currency reserves.
“Certainly, we will talk and negotiate for a program,” Finance Minister Ishaq Dar said in an interview late yesterday in Dubai. “We would be looking for anything pragmatic. It would be anything between $5 billion to $7 billion.”
Pakistan’s foreign-exchange reserves slid over 40 percent to $6.24 billion in June from a year earlier, enough to cover about two months of imports, central bank data show. The plunge has weighed on the rupee and adds to other challenges facing the recently elected government of Prime Minister Nawaz Sharif, such as energy shortages and a Taliban insurgency in the northwest.
“An arrangement with the IMF will give the market some confidence,” said Sayem Ali, an economist at Standard Chartered Plc in Karachi. It would calm fears among foreign investors that the rupee is headed for a “drastic” plunge, he said.
The rupee strengthened 0.1 percent to 98.87 per dollar as of 3:01 p.m. local time, climbing for the first time in five days, while the Karachi Stock Exchange 100 index was little changed.
Dar also said the government will clear about $5 billion of so-called circular debt that has choked power generation in the energy industry. Circular debt refers to money owed to power companies from unpaid bills.
The step will boost electricity output by 1,700 megawatts, helping to curb outages that have hurt economic growth, he said.
Policy Changes
Dar said an IMF team is already in Islamabad.
Jeffrey Franks, the head of the IMF’s Pakistan mission, said in January that the lender won’t sign a new loan program without a “deep and clear” commitment on a set of policy reforms to curb the budget deficit.
Dar in his June 12 budget speech pledged to narrow the widest fiscal deficit in over two decades and to spur expansion in an economy he said was “shattered.”
He imposed additional levies, such as a sales-tax increase to 17 percent from 16 percent, to help achieve a deficit of 6.3 percent of gross domestic product in the year starting July 1, compared with 8.8 percent in 2012-2013.
“We have already taken steps for reforms,” he said in the interview yesterday after attending an investment conference.
The State Bank of Pakistan on June 21 unexpectedly cut interest rates for the first time this year to boost economic growth, even as higher taxes and the drop in the currency threaten to revive inflation.
The rupee has depreciated about 4.5 percent versus the dollar in the past year, risking costlier imports. Consumer prices advanced 5.13 percent in May, the slowest pace since at least 2009, according to data compiled by Bloomberg.
Sharif is aiming for 4.4 percent economic growth next fiscal year, up from an estimated 3.6 percent in 2012-2013, and to keep inflation in single digits.
He returned to power in a May 11 general election, more than 13 years after his second period as premier was cut short by a 1999 army coup.


Riaz Haq said...

Here's a Dawn report on MOU with IPPs on new terms:

A meeting presided over by Finance Minister Ishaq Dar decided to make the payment to IPPs to clear a major part of the Rs506bn circular debt with four major conditions for which a fresh memorandum of understanding (MoU) will be signed on Friday morning, followed by immediate disbursements, finance ministry spokesman Rana Assad Amin told Dawn.

In return, the IPPs will commit in writing in the MoU to achieve their maximum generation capacity and provide 1,700MW to the national grid before Ramazan.

The Hubco, Lalpir, Pakgen and Saba plants, having almost 1,800 megawatts capacity, will make a commitment to convert to coal-based power generation within 16 months.

All IPPs have also agreed to reduce their interest rate on receivables by two percentage points from the existing Kibor (Karachi Inter-Bank Offer Rate) plus four per cent and increase their credit period from 45 to 60 days to ease the payment pressure on distribution companies.

Since the two relaxations would require amendments to the existing power purchase agreements, the IPPs would initially sign an MoU, Mr Rana said. Subsequently, the National Electric Power Regulatory Authority and Private Power and Infrastructure Board would approve an addendum to the agreements, he said.

He said the IPPs and the government had agreed to resolve through arbitration their dispute over Rs23bn outstanding amounts currently pending before the Supreme Court.


Riaz Haq said...

Here's a NY Times story on KESC performance in Karachi:

Since Pakistan’s biggest electricity company was privatized, its headquarters has been looted, its employees kidnapped and its boss nearly arrested by the government.

Despite all of that, it is regarded as a roaring success.

Power cuts lasting 12 hours a day or more have devastated the Pakistani economy. The loss of millions of jobs has fueled unrest in a nuclear-armed nation already beset by a Taliban insurgency.

The only city bucking the trend is the violent metropolis of Karachi, Pakistan’s financial heart — and that is thanks to Tabish Gauhar and his team at the Karachi Electricity Supply Co.

“It has consumed every ounce of my energy,” Mr. Gauhar, 42, said in an interview. “But we have helped millions of people.”

The new government of Prime Minister Nawaz Sharif won an election in May partly because it had promised to fix the power cuts. Now many are wondering whether the Karachi utility’s successful privatization will be repeated elsewhere.

Pakistan’s power companies share similar problems. Workers are often corrupt, and influential families rarely pay bills. The government sells power below the cost of production but pays subsidies late or not at all. Plants cannot afford fuel.

At the state-run Peshawar Electricity Supply Co., the majority of workers are illiterate, most new hires are relatives of existing staff members, and 37 percent of the power generated was stolen, according to a 2011 audit funded by the U.S. Agency for International Development.

Karachi Electricity Supply had all the same problems when the Dubai-based private equity firm Abraaj Capital bought a controlling stake in 2008. Mr. Gauhar and his Abraaj team decided to slash the work force by a third, cut off nonpayers and destroy illegal connections.
Many in the populist pro-labor government vilified the power company. Later, legislators tried to arrest Mr. Gauhar on charges that he had not attended subcommittee meetings in the capital.

After the protests dissipated, Karachi Electricity Supply’s next problem was making customers pay. More than a third of the company’s electricity was stolen in 2009. Those who got bills often ignored them.

One wealthy patriarch said he could not possibly start paying because his colleagues would think he had no influence left.

Karachi Electricity Supply started cutting off those who did not pay their bills. When a transformer burned out in an area with high theft, the company asked for two months’ worth of payment from the area’s residents before replacing it.

The company divided up the city of 18 million. Areas where 80 percent of people pay bills now have no regular power cuts. Areas with high loss — often crime-ridden, sweltering slums — have long power cuts. Karachi Electricity Supply is widely hated in such places.

Muhammed Fayyaz, who works as a driver, says his neighborhood often has as much as 10 hours of cuts per day. Summer temperatures top 40 degrees Celsius (104 Fahrenheit), and protests are frequent.

“People block the main road and throw stones at passing vehicles,” he said.

Mr. Fayyaz lives in a high-theft area. Stealing power is easy. Makeshift wires with metal hooks festoon Karachi Electricity Supply’s lines in the sun-baked streets. Some lead to roadside businesses. Others head into the distance atop lines of makeshift bamboo poles.

“We clean them up, but in five minutes they are back again,” said Muhammad Siddiq, a manager at the utility.


Hopewins said...

See? See? What did I tell you?

QUOTE: "....It is equally important that investment is financed by a sharp increase in DOMESTIC real savings....."


Hopewins said...

Here is a MARXIST lady from Pakistan....


She sounds just like India's Nehru-Gandhi socialists. And she is just as wrong as them.

The WB/IMF is not Pakistan's problem. Pakistan's problem is its own government. If we don't go to the IMF/WB, then they are not able to impose anything on us. Knowing what they are like, if we keep going back to them, then we are ourselves to blame.

Riaz Haq said...

Here's a Dawn story on US help for Pakistan's energy sector:

ISLAMABAD: Pakistan and United States on Tuesday agreed to enhance cooperation in energy sector with special focus on development of bio-gas and wind energy to help Pakistan overcome power crisis.

Pakistan needs investment, particularly in the most needed energy sector, said Finance Minister Ishaq Dar while addressing a joint press conference along with President Overseas Private Investment Corporation (OPIC), Elizabeth L. Littlefield, who was heading the US delegation in talks with Pakistan.

Earlier, US delegation held detailed discussions with Pakistan’s economic and energy managers led by the finance minister and discussed various issues related to investment in various sectors of economy, particularly in energy sector.

Dar told media representatives that talks with the Opic were the part of government's efforts to bring foreign investment into the country and help enhance economic growth.

He said that both the countries agreed in principle to continue dialogue on Civil Nuclear Technology cooperation. However, he added that no timeline could be given for any future agreement on the issue.

The finance minister said that Independent Power Producers (IPPs) have capability to generate more electricity and the government has paid circular debt to enhance generation capacity.

He said both the sides also agreed to continue dialogue on the pending issues of Bilateral Investment Treaty (BIT) to tap the investment potential.

Terming the terrorism as one of the challenges the country was facing, Ishaq Dar said the government was committed to come up with a comprehensive strategy by taking onboard all political parties to overcome this menace.

He said that ensuring transparency and good governance were among the top priorities of the government.

Earlier, the minister informed the US delegation about the successful passage of federal budget 2013-14.

He said the government, this year, has enhanced the allocations for Public Sector Development Programme to Rs1.155 trillion besides enhancing the allocations of Income Support Programme from Rs40 billion to Rs70 billion.

Dar urged the Opic to bring into investment of private companies in Pakistan's energy sector. He assured the US delegation that Pakistan was a safe as well as lucrative country for investment and provides a conducive atmosphere for foreign investors.

Addressing the press conference, Elizabeth Littlefield said the investment through Opic into Pakistan has increased from $80 million to $300 million, witnessing manifold increase during past couple of years.

She said that Pakistan was facing some challenges. She, however, expressed the optimism that the new government would overcome all these challenges and lead the country towards better future.

Littlefield said her country will enhance cooperation with Pakistan in power generation through wind and bio-gas, besides enhancing technical cooperation to increase power generation through alternative ways.

She said that the US companies have already been involved in development of energy sector of Pakistan as a 50 megawatt electricity project by an American firm was continuing in Sindh province.

Earlier, while briefing the finance minister and his delegation about the operations of the Opic, she said the corporation mobilises private capital to help solve critical development challenges.

The Opic works with the US private sector and helps businesses gain footholds in emerging markets, catalysing revenues, jobs and growth opportunities both at home and abroad.

The corporation achieves its mission by providing investors with financing, guarantees, political risk insurance, and support for private equity investment funds, she added.


Riaz Haq said...

Here's a PakistanToday report on expected addition of nuclear power plants by 2016:

Completion of the Chashma Nuclear Power Plants CHASNUPP-III and CHASNUPP-IV by 2016, 340 megawatts (MW) respectively, will help meet the target of the Pakistan Atomic Energy Commission (PAEC) for generating 8,800 MW by the year 2030 via nuclear power reactors. The plants reactors and other facilities are being built and operated by the PAEC with Chinese support. In November 2006, the International Atomic Energy Agency (IAEA) approved an agreement with the PAEC for new nuclear power plants to be built in the country with Chinese assistance. The 35-member board of governors of the IAEA unanimously approved the safeguards agreement for any future nuclear power plants that Pakistan would construct. According to official sources, the allocation of budget for the PAEC for the financial year 2013-14.is estimated at around Rs49,512.186 million "An amount of Rs34.6 billion has been set aside for Chashma nuclear power plants C3 and C4. The total cost of these two projects is Rs190 billion which will be partially funded by a Rs136 billion Chinese loan,” an official said. The government has so far spent 62.4 billion on the mega-project having a 660 MW generation capacity. With an additional spending of 34.6 billion, the government has already completed almost half of the work, the official said. The 300 MW Chashma nuclear power plant-I is a pressurized water reactor that began commercial operation in 2000.It is located at Kundian in Punjab while the 300 MW Chashma Nuclear PowerPlant-II is part of the Chashma Nuclear Power Complex in the north-western region of Thal Doab. On April 28, 2009 a general engineering and design contract for CHASNUPP-3 and CHASNUPP-4 was signed with Shanghai Nuclear Engineering Research and Design Institute (SNERDI)...


Riaz Haq said...

Here's a Dawn story on a World Bank study of poverty reduction in Pakistan:

A new World Bank study says Pakistan has demonstrated that it can reduce poverty even at relatively low rates of growth of 3.2 to 4.5 per cent but not at growth of GDP per capita of 1pc, noting that it is struggling to sustain that growth.

“International comparisons suggest that Pakistan has been a good performer in turning growth into poverty reduction. Countries that are more successful in reducing poverty tend to be better at generating sustained growth, however the issue for Pakistan will thus be sustaining growth,” according to World Bank policy note on poverty in Pakistan.

The observation that Pakistan is successful in reducing poverty when GDP grows but cannot sustain that growth has two important policy implications. With more growth interruptions, an adequate social protection system becomes more important.

The second implication is that a renewed effort to address the problem that work against sustained growth would be well justified for faster poverty reduction.

This effort should lead to policy priorities for poverty reduction different from those in countries better able to sustain growth but unable to convert that growth into rapid poverty reduction, it says.

The poor are vulnerable to shocks — be they of natural disasters, health or macro policy. An adequate system would ensure that when shocks hit, the poor and vulnerable can still maintain the investments they need to increase their incomes and their children’s welfare.

Describing safety net programme like Benazir Income Support Programme as no substitute for sustained growth, the study says due to stop-go growth and too many natural disasters, Pakistan has to ensure a strong safety net programme as part of an overall poverty reduction strategy.

The study estimates that in Punjab, the largest province, where it says data appears more reliable, poverty has fallen considerably from 33.5pc in 2001-02 to 16.4pc in 2007-08, after adjusting for higher food prices.

This improvement was driven largely by increasing returns in the non-farm sector, in both urban and rural areas.

Over the period, the growth of per capita consumption of the bottom 40pc of Punjab’s population exceeded GDP per capita growth. Subsequently, over 2007-08, 2010-11, per capita real consumption growth in Punjab was stagnant, and the equality of opportunity for primary education completion rates seemed to improve but alongside a slowdown in the rate of improvement in indicators for water and sanitation and for primary enrolment.

The report says that the last three years have seen sizeable differences in the improving social indicators. Sindh has been lagging in its primary completion rates, and Khyber-Pakhtunkhwa has been lagging in coverage of improved sanitation.

According to the report, opportunity is growing in both urban and rural areas for education and sanitation, which is a very positive sign. Urban children have more absolute opportunity than rural children, but the rate of growth in rural areas is growing faster.



Riaz Haq said...

Here's a Nation story on IFI loans for Pakistan:

Pakistan would receive 250 million Euros from Islamic Development Bank (IDB) and also a trade facility of $150 million for import of fertilizer and petroleum products in August as committed by bank last week. Sources in finance ministry informed The Nation that Pakistan would receive 250 million Euros from IDB in the ongoing month of August, which is part of 750 million Euros loan. Similarly, he further said that Pakistan would also avail the trade facility of $150 million for import of fertilizer and Petroleum products in the current month of August. The Islamic Development Bank had agreed to extend loan of 750 million Euros to Pakistan and trade facility of $150 million for import of fertilizer and petroleum products in a meeting between President Islamic Development Bank Dr. Ahmed Muhammad Ali and Pakistan’s Finance Minister Senator Ishaq Dar in Jeddah last week.
“The international financial insinuations like Islamic Development Bank, World Bank and Asian Development Bank will provide loans after Pakistan had reached an agreement with International Monetary Fund in early July”, said a finance ministry official while talking to The Nation on Thursday. He said that agreement between Pakistan and IMF is paving way for other financial institutions like IDB, ADB and WB to give loans to Pakistan, which is desperately needed to build the depleting foreign exchange reserves of the country.
“Pakistan will also receive $500 million from Asian Development Bank and $500 million from World Bank during the current fiscal year after the agreement sign with IMF”, he maintained. Pakistan would receive these $1 billion from WB and ADB in the second half (January-June) of the ongoing financial year 2013-14.
Sources in finance ministry said this loan would help in building the foreign exchange reserves, which is currently around $10.25 billion. Pakistan is also expecting to receive $3.4 billion from IMF during the current financial year. Pakistan and IMF reached on consensus for $5.3 billion bailout package in first week of July 2013, which would need approval from IMF’s executive board on September 4 2013.


Riaz Haq said...

Here's a news report on upsizing of IMF bailout for Pakistan to $6.6 billion:

The International Monetary Fund has agreed that Pakistan can seek a loan package worth $6.6 billion, two top finance ministry officials said, a boost for Prime Minister Nawaz Sharif as he seeks to fix the moribund economy.
The Fund had settled on an initial package of $5.3 billion after an IMF delegation held weeks of talks in Pakistan in July. Pakistan had requested $7.2 billion.
“The IMF has raised its offer following further consultations in the US and now agreed to $6.6 billion. The official announcement will come very soon,” said a top finance ministry official.
The IMF’s executive board will formally approve the package for Pakistan sometime in early September, as long as Pakistan has made some fiscal reforms, the IMF said on its website.
The government has already slashed costly subsidies on electricity and sent out notices to 10,000 delinquent taxpayers last month as part of the conditions set by the IMF.
Pakistan has one of the lowest tax-to-GDP ratios in the world and the IMF wants it to do more to tackle rampant tax evasion by the wealthy elite.
The Saudi Islamic Development Bank Group Ltd. has also pledged a $997 million credit line and a $200 million trade facility for Pakistan to buy petroleum products, said Shafqat Jalil, the Finance Ministry’s spokesperson.
“We will end up with a shortfall of $600-700 million, which we will bridge through other donors like the ADB (Asian Development Bank),” Jalil said.
The ADB, one of Pakistan’s major lenders, estimates that Pakistan needs $6 billion to $9 billion to meet its obligations, including about $5 billion in outstanding debt on an earlier $11 billion IMF loan package that was suspended in 2011.
The new loan will come just in time.
The central bank has only about $5 billion left in foreign currency reserves, enough to cover less than five weeks of imports.
Pakistan averted a balance of payments crisis in 2008 by securing the $11 billion loan, but this was suspended two years ago after economic and reform targets were missed.
Chronic gas and electricity shortages, violent crime and a Taleban insurgency have all hampered growth and contributed to a dramatic drop in foreign investment.
The $230 billion economy grew 3.6 percent in the last fiscal year, below a target of 4.3 percent.
The new government has already made some steps toward reforms and has set an ambitious deficit target of 6.3 percent growth for 2013/14 — although some analysts say that might be hard to meet.
It also plans a new energy policy to tackle power cuts, which frequently last 12 hours a day and have devastated the economy and fueled unrest.


Riaz Haq said...

Here's a excerpt of Pakistan budget analysis by Nadeem Haq:

Pakistan’s provinces, where much of the welfare and infrastructure lies, are all running balanced budgets as required by the constitution. The federal government has obligations to smaller regions that it administers, such as the federally administered tribal areas (Fata), Gilgit-Baltistan and Azad Jammu and Kashmir, but these don’t even account for 1% of GDP. The much maligned defence accounts for 3% of GDP, which may not be as large as it seems given that the country is at the forefront of the war on terror. The running of the federal government only accounts for about 1.5% of GDP. Debt service obligations account for the largest chunk about 4% of GDP. All in all, the federal government does not appear to be a spendthrift locked up in colossal administrative and defense expenditures that cannot be reversed. Where then is the problem?

The federal deficit borders on about 8 to 9% of GDP. Our revenue is only about 9% of GDP. Adding up the above mentioned items, our expenditure commitments are only about 9.5% of GDP. Our deficit should then be about 1% of GDP at most, rounding out errors.

Well the government wants a public investment programme, also known as the Public Sector Development Programme (PSDP), which accounts for about 3% of GDP. Can this be contained? Used more wisely? Absolutely.

For years the PSDP has been used as a slush fund by all political factions, politicians, dictators, defence establishment, and the bureaucracy. There is a rush for development without purpose. Indeed, much of it is brick and mortar with a low rate of return and often times developed for non-economic ends.

But the other major drain the budget is the public sector enterprises, especially in the energy sector. Over the years, the PSEs have been enmeshed in administrative bureaucracy and often used for their own slush funds and repositories of perks. The DMG gets positions in boards and often even as executive heads of the PSEs. The rules of business make the secretary the principal accounting officer (PAO) of the PSE. This status allows the PAO to raid the PSE for vehicles and real estate.

For some reason, despite agriculture being a provincial subject now, the federal government for its own political needs wishes to intervene in agricultural markets. It subsidises fertiliser and chooses to set the procurement price with a commitment to buy wheat. While the fiscal cost of these commodity operations is only about 0.5% of GDP, they do involve large and expensive government guarantees (almost 2% of GDP worth of bank credit is used). In addition, they distort the agricultural market. Cleaning out this operation i.e. rescinding government involvement is expected to increase GDP growth by about 0.5% annually.
The net result

Summing up these figures we can see that our fiscal deficit of about 7-8% comes from PSE losses, PSDP and commodity operations.

Careful and well articulated reform in these areas could not only make the budget manageable but have the additional payoff of increasing annual economic growth by about 5 to 6%. The quick fix of arbitrary taxes and chasing false revenue numbers is a bad strategy that is exacerbating the ailment of poor governance and low growth not fixing it......


Riaz Haq said...

Here's an Op Ed piece in The News by columnist Farrukh Saleem:

Myth 1: The allocation for defence is the single largest component in our budget. Not true. The single largest allocation in Budget 2013-14 went to the Public Sector Development Programme (PSDP). The second largest allocation in Budget 2013-14 went to servicing the national debt. The third largest government expenditure, including off the budget allocations, are the losses at public-sector enterprises (PSEs). Yes, the fourth largest government expenditure goes into defence.

Myth 2: The defence budget eats up a large percentage of the total outlay. Not true. In Budget 2013-14, a total of 15.74 percent of the total outlay was allocated for defence. PSDP and debt servicing were 30 percent each. What that means is that more than 84 percent of all government expenditures are non-defence related.

Myth 3: The defence budget has been increasing at an increasing rate. Not true. In 2001-02, we spent 4.6 percent of our GDP on defence. In 2013-14, twelve years later, our defence spending has gone down to 2.7 percent of GDP.

Myth 4: We end up spending a very high percentage of our GDP on defence. Not true. There are at least four dozen countries that spend a higher percentage of their GDP on defence.

They include: India, Egypt, Sri Lanka, the United States, the United Kingdom, South Korea, France, Eritrea, Oman, Saudi Arabia, Israel, Jordan, Liberia, Brunei, Syria, Kuwait, Yemen, Angola, Singapore, Greece, Iran, Bahrain, Djibouti, Morocco, Chile, Lebanon, Russia, Colombia, Zimbabwe, Turkey, Georgia, Guinea-Bissau, Ethiopia, Namibia, Guinea, Turkmenistan, Kyrgyzstan, Algeria, Serbia and Montenegro, Armenia, Botswana, Ukraine, Uganda, Ecuador, Bulgaria, Lesotho and Sudan.

Myth 5: The Pakistan Army consumes the bulk of the defence budget. Not true. In the 1970s, the Pakistan Army’s share in the defence budget had shot up to 80 percent. In 2012-13, the Pakistan Army’s share in the defence budget stood at 48 percent.

Now some facts:

Fact 1: The Pakistan Army’s budget as a percentage of our national budget now hovers around eight percent.

Fact 2: Losses incurred at public-sector enterprises can pay for 100 percent of our defence budget.

Fact 3: Pakistan’s armed forces are the sixth largest but our expenses per soldier are the lowest. America spends nearly $400,000 per soldier, India $25,000 and Pakistan $10,000.

Fact 4: Of all the armies in the world, Pak Army has received the highest number of UN medals. Of all the armies in the world, Pak Army is the largest contributor of troops to the UN peacekeeping missions.

Mark Twain once remarked, “Get your facts first, and then you can distort them as much as you please.”


Riaz Haq said...

#Nawazsharif #PMLN Government will forfeit right to rule if energy crisis not resolved http://www.dawn.com/news/1121503 #Pakistan #loadshedding

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

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

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

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

Power ministry hopes new strategy to cut losses will pay off

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

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

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

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

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

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

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

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

Riaz Haq said...

#Pakistan to borrow another $3.5b in commercial debt by floating #Eurobonds http://www.pakistantoday.com.pk/?p=497133 via @ePakistanToday

Amid concern over high cost of unconventional borrowings, Pakistan is planning to raise another $3.5 billion from international debt markets by floating Eurobonds over a period of three years to retire earlier loans. A new medium-term debt management strategy that the ministry of finance unveiled this week gives a plan for floating dollar-denominated Eurobonds up to fiscal year 2018-19.

Last month, the Senate Standing Committee on Finance decided to summon representatives of three international banks that the government hired for offering $500 million worth of Eurobonds after it suspected that the money invested by foreigners had actually flown from Pakistan. The government insists that the resources mobilised by the bonds were used to retire the expensive domestic debt in the past. It intends to raise $1 billion in 2015-16 and thereafter $500 million each in 2016-17 and 2017-18, according to the debt strategy.

The new debt strategy largely focuses on diversification of financing and lengthening the maturity of debt profile. However, it has completely ignored implications of the off-budget fiscal risk for the country’s debt projections. A recent report of the International Monetary Fund (IMF) has given broader pillars for strengthening the debt and public finance management to reduce fiscal risks. “A debt management strategy based on building funding buffers, assessing off-budget fiscal risks, diversifying financing from both domestic and external sources and lengthening the maturity profile of domestic debt will help mitigate these risks,” said the IMF.


The debt strategy has used ambitious macroeconomic projections for its calculations, unlike the IMF that is taking a conservative approach. The government has projected that the economy will grow at a pace of 6.5 per cent in 2016-17 while the IMF puts the expansion at 4.7 per cent