To everything there is a season, and a time to every
purpose under the heaven. For the economy of Pakistan it is the sowing
season, time is not far away to harvest a rich crop. InshaAllah!
The year 2002 has brought various positive movements
in the spectrum of social, political and economic life in Pakistan.
The installation of an elected government as a result
of general elections in October last is of course the event of the year
which may pave the way for progress and prosperity of the country and
the people respectively, provided the elected representatives dedicate
their energy and time to protect the interest of the people and not the
So far the policies and the decisions taken by the
economic managers have brought us an impressive growth of economic
fundamentals. One can pin the hopes for a bright future of the country
on the basis of handsome growth in our economic fundamentals.
Politically speaking, a democratic set up in the
government has already come in accordance with democratic norms while on
the international fronts Pakistan and succeeded in developing friendly
ties among the comity of the nations. The only area perturbing the minds
was the border tension between Pakistan and India which has also started
subsiding and showing improved signs. On the Afghanistan front, although
the dust has settled down, yet the situation needs more concerted
efforts to bring peace and stability where the entire civic and economic
structure has caved in as a result of attack by the US-allied forces. A
sound and stable Afghanistan is imperative for the social, political and
economic well being of the region.
As far as the economic stability was concern, an all
time growth in the capital market speaks loudly about the economic
health of the country, if the share market is taken as the real
barometer of an economy.
Market experts while analyzing the outstanding
performance of the stock market said that beside enhanced liquidity
position of the market, declaration of better dividends and pay outs by
the listed companies and highly improved inflow of home remittances,
marked shift in investment trend of polarization helped producing
Karachi Stock Exchange made history during last week
of the year when volume of trading touched to its peak the highest ever
besides the index also reaching a new peak over 2600 points at the end
of the year. The volume recorded as the highest ever in the history of
the stock exchange as 617.647 million shares surpassing the previous
best of 536 million shares recorded in may 2000.
Commenting on the phenomenal growth of the capital
market, the financial experts attributed the development to the enhanced
liquidity in the market and the strong economic fundamentals and result
oriented policies of the Security and Exchange Commission of Pakistan.
It may be recalled that the current position of
foreign exchange reserves has improved from an alarming position of $995
million in October 2000 to current status of over $9 billion. Total
foreign exchange reserves in exact terms in the last week of the year
were at $9.104 billion giving an idea about the vibrant economic
conditions in the country.
The privatization of UBL at a price of Rs12.3 billion
with a major chunk in foreign exchange was the most outstanding event in
the financial sector of the country. Another noticeable transaction was
the sale of Bank Al Falah Limited. The Commission had received the
highest bid of Rs27.56 per share against the floor price of Rs26.6 per
share for the remaining 28 per shares (21 million) from Abu Dhabi Group.
They had acquired bank Al Falah formerly known as Habib Credit &
Exchange Bank in 1997 through an open bidding remaining 2 per cent
shares were reserved for employees and in case they do not take up, the
new buyer would have pick the remaining shares. Total sale proceeds for
this transaction are Rs620.1 million. During the year over subscription
for 10 per shares of National Bank of Pakistan was yet another
noticeable event revealing the depth of the market.
Ratifying the economic policies of the country, the
World Bank has acknowledge that Pakistan's economic revival program has
started to produce good results, while it needs to follow its course to
reach its long-standing goals. The improvements in governance of public
entities, the improved creditworthiness, reduced tariff, the
competitiveness and new stability of the exchange rate, the fall in the
interest rates and the expectation of the continuation of the
improvement in the business climate have begun to show up in increased
foreign investments, particularly in the textile and oil and gas
Increased domestic investment has to follow if the
growth in income and employment is to flourish. The "country
Update" released by the World Bank on Pakistan appreciated the
government reforms of the last few years. The public's perception of the
state of governance has improved markedly in the past few years. The
long standing goals include more and better income and employment for
all, and sustained poverty reduction, reaching these goals requires
faster economic growth, improved governance and building human capacity
to develop each citizen's potential.
Structural reforms need to be continued and
implementation accelerated to build upon the recent successes. This is
the only way to enable Pakistan to increase pro-poor growth, reduce
poverty, and maintain macro-economic stability and to make faster
progress towards development goals.
PRO-POOR ECONOMIC GROWTH:
Faster economic growth requires an attractive investment climate. This
is needed both to increase the low investment rates of the past and to
yield better returns and faster growth of employment from the existing
investment. This in turn requires a stable macroeconomic environment,
good governance and a low cost business-operating environment provided
by adequate and efficient government provided business services and
Pakistan has turned around a deteriorating macro
situation of a few years ago to a rapidly improving one. The budget
deficit has fallen and a surplus before paying interest, inflation has
remained below 5 per cent. The current account deficit in the balance of
payments has turned into a surplus; Exports have begun to grow again
after years of stagnation.
Remittances from abroad jumped to double and possible
triple the level of 2000-01.
The foreign exchange market strengthened and the
rupee appreciated against the currencies of its main trading partners,
most rapidly against the dollar. Pakistan's Debt Reduction Strategy is
ahead of schedule, with falls in both external and domestic pubic debt
as a percent of GDP. Combining the increased exports with the increased
workers' remittances, the increased aid disbursements and the
substantial debt reduction received post September 11. Pakistan's
external creditworthiness standing has also improved sharply, said the
World Bank Report.
Domestic public debt services have also begun to
improve, due to the reduced need for budget borrowing and the fall in
interest rates on government debt. Public expenditure on development has
begun to rise as percentage of GDP while spending on interest and
defense has also fallen.
The World Bank however recommended that good
governance requires clear accountability for the use of public
resources, a civil administration serving the public interest, respect
for the rule of law and a level playing field for private activities
through the creation of a sound enabling and regulatory environment.
Pakistan is implementing thorough going reforms in
public accounting and audit. These include the separation of audit and
accounting, the modernization and automation of public accounting
throughout the three tiers of government, a sharp improvement path for
the quality, relevance and timeliness of audits and the revitalization
of public accounts committees and follow-up with consequences where
material irregularities are uncovered. The report has singled out some
of the public entities like WAPDA, KESC, PIA, Pakistan Railways and
Pakistan Steel for poor performance eaten up close to Rs200 billion of
taxpayers' hard earned money during financial year 1999-03.
The ever increasing oil prices always prove
unbearable burden for the developing economies like Pakistan. Due to
disturbed conditions in Iraq which is a major supplier of the oil,
prices always shot up when ever there is a threat of US attack on Iraq?
During the year oil prices jumped even above $30 per barrel costing
heavily on the import bill of Pakistan. It is said that the total impact
on account of oil import is likely to cross $3.5 billion at the end of
the current financial year. This is certainly beyond reach of our
economic strength. In order to reduce the burden the government has
taken various steps to avoid cost push effects on account of increase in
oil prices. These remedial measures include increase use of coal as a
source of energy in the industrial sector and switching over from oil to
gas especially in the power generation and the transport sectors which
the main consumers of the oil.
Pakistan also plans to double its strategic oil
reserves to 2 million ton over next years from existing capacity of one
Major oil companies operating in Pakistan were
directed to raise their reserves to 1.5 million tons, equivalent to 21
days of consumption to face the eventualities arising out of a possible
US attack on Iraq.
WAPDA and KESC the two public sector power generating
companies have also been asked to increase their storage capacity to
60-day consumption so that electricity rates did not go up unnecessarily
in case of oil prices increase in the international market. The oil
prices in the international market usually go up when supplies are
curtailed by Iraq due to disturbances. Historically, country maintains
15 days of strategic reserves or one million tons but was warned last
year by the relevant quarters that it should be raised up to 45 days
requirement or three million tons before the privatization of Pakistan
State Oil, it is learnt. The infrastructure development for increase of
oil reserves could cost up to Rs4 billion.
The government has deregulated the oil pricing
mechanism, which entails fixation of the rates by the oil marketing
companies for the 29 central depots. As a result, prices in outlet level
now vary by 10 to 40 paisa per liter in different areas on the basis of
transportation cost. Pakistan current oil refining capacity is round 12
million tons white another 6.5 million tons are imported that annually
costs $3.5 billion.
GAS PIPELINE PROJECTS
The proposed cross-border gas pipeline projects, each
from Iran and Turkmenistan are no doubt the most significant moves of
the year especially in the development and international energy market
in Pakistan. While Pakistan and Turkmenistan have already signed an
agreement for the $3 billion project, the President of Iran who visited
Pakistan has also talked positively about the pipeline project from his
country to India via Pakistan. These two projects when completed are
likely to change the complexion of the energy sector in Pakistan.
In order to finalize the Framework Agreement of the
project, leaders of Pakistan, Turkmenistan and Afghanistan including
Prime Minister Zafarullah Khan Jamali of Pakistan, President Sapamurat
Niyazov of Turkmenistan and Hamid Karazai, President of Afghanistan met
in Ashkabad. They discussed regional situation and the ways and means to
further improve relations among them.
It is significant to note that Iranian President
Mohammad Khatami has assured that the proposed gas pipeline from Iran to
India via Pakistan is not only economically viable but it is important
to reduce tension between Pakistan and India for the project to go
Iranian leader said that there is no problem from the
Iranian side or from Pakistan but the concern raised by India has to be
addressed. He expressed the hope that in future we will be able to
resolve the problems raised by India. It is important to reduce tension
between Pakistan and India. The two sides in formal talks reviewed the
pipeline issue and also discussed the security part of the project. The
pipeline is proposed to be constructed through Pakistan to India from
Iran's natural gas field. Pakistan has already given guarantee about the
security of the pipeline, as Pakistan will also benefit in transit fee.
Russian company Gazprom signed an agreement with Pakistan earlier this
month to carry out the feasibility study of the pipeline but India has
expressed concern that the pipeline may not be viable in view of tension
with Pakistan. Pakistan and Iran have agreed to enhance bilateral
relations including cooperation in economic trade, science and
technology defense and agriculture.
Construction of a third sea port at Gwadar which is a
focal point in bridging the communication gap between Eastern European,
Central Asian States and Pakistan. This most significant project moved
successfully during the year and heading wards its completion.
The Chinese Export and Import bank has agreed to
release the first installment of $58 million soon which is the part of
its commitment to financially support the construction of Gwadar deep
President of the Exim Bank of China Yang Zilin and
Pakistani Ambassador Riaz Mohammad Khan signed a related agreement in
The Chinese government will offer preferential loan
to support the building of Gwadar port.
According to the agreement, the $58.21 million of
preferential loan will be used to support the first phase construction
of the port. Total investment in the first phase of construction is $248
million which will come from China. The first phase construction will
last three years, during which three multi-purpose berths will be
developed. The Gwadar sea port has been among the priorities of
President Pervez Musharraf who wants the country's third port to serve
as a hub of international trade and a link between East Asia and Europe.
The first phase is expected to complete by 2004, following which the
government aims to start second phase with a cost of about $200 million
dollars. The total cost of the project is about $480 million.
President Seyed Mohammad Khatami is the first head of
state to visit Pakistan after the installation of a civilian government
in Pakistan. Iranian president and President Gen Pervez Musharraf held
wide ranging talks and agreed to work together to forge unity in the
The two leaders held talks on bilateral, regional and
global issues. They underline the importance of relations for mutual
security and progress as well as for regional peace and stability. They
expressed resolve to strengthen ties and cooperation between the two
countries. President Musharraf specially emphasized the need for
enhanced bilateral economic cooperation.
President Khatami stated that peoples of Pakistan and
Iran were united by history and geography and there was a need to
strengthen relations between the two countries.
Briefing President Khatami on the India Pakistan
relations, resident Musharraf reiterated Islamabad's desire to
peacefully resolve all outstanding issues particularly the core dispute
General Musharraf invited the visiting dignitary's
attention to the massacre of Muslims in Indian state of Gujarat. The two
leaders also discussed the situation in Afghanistan and hoped to work
closely for restoration of the war-ravaged country and establishment of
durable peace there.
Palestinian issue also figured in the talks with the
two leaders reiterating their support for the struggle of the
Palestinian people for their national rights.
The 110 member Iranian entourage includes ministers
for foreign affairs, defense and road transportation.
President Khatami declared that Iran's borders with
Pakistan are the borders of security, peace and friendship.
We are quite confident of the security of our eastern
borders and Pakistan too is keen on ensuring the security of its common
border with Iran, he said in his speech at a banquet hosted in his honor
by President Pervez Musharraf.
In our neighborhood, nevertheless, there have existed
various issues and problems that have left harmful impact on both of us.
"To solve these problems we are in need of further
Fortunately, he said both the governments were
determined to solve all issues and difficulties that "linger in our
We consider our commercial and economic relations
with Pakistan of top priority and we sincerely hope for the extension of
these relations, both quantitatively.
Recent economic reforms in Iran, the valuable
experience we have acquired in the industrial and economic fields and
the new role we have afforded to the private sector in our economy have
prepared the ground for enhancing of our cooperation these areas,
Khatami said. Iran, he said, had been trying to encourage its private
sector to do business with its neighboring countries. However, we still
have to provide certain facilities to them, so that they find it
economically beneficial, he said. Iran and Pakistan have, throughout
history been very good friends and very good neighbors with least
instances and causes for discord, President Khatami said. Our regional
cooperation is manifold. We work in several regional organizations side
by side. Our interests are the same and dangers threatening us are very
much alike. The security of Pakistan has always been of great importance
to us and we have therefore been quite preserved to further enhance our
all-round strategic cooperation with Pakistan.
Fortunately, the mutual economic cooperation
commission has prepared the ground for our economic activities. The
thirteenth session of the Mutual economic cooperation commission has
already completed its work with great success and we certainly hope that
the agreements reached will be smoothly put into execution and followed
up by the people in charge.
President Pervez Musharraf said Iran could pay a very
important role in resolution of long standing Kashmir Issue. Iran enjoys
good position in the region and can help resolve the Kashmir issue,
President Musharraf said during his meeting with Iranian president Dr.
Seyed Mohammad Khatami in Islamabad.
He was of the view that Iran enjoyed a very good
position to help forge lasting peace in the region. The visit of
President Khatami would help both sides to broaden spectrum of bilateral
relations in all fields of mutual interest. President Khatami while
talking to press said that Iran was endeavoring to help Pakistan and
India to resolve their issues through peaceful means.
Pakistan and Iran have replaced trade agreement of
1982 with a new agreement to boost bilateral trade between the two
countries. The agreement was signed by commerce minister Humayun Akhtar
Khan and a visiting Iranian Minister on Tuesday in the foreign office.
In the new agreement the two counties would set up
trade offices in their respective countries for close cooperation and
consultations at the official level. Both countries have agreed to
constitute committees to resolve trade related disputes. Pakistan and
Iran would facilitate exchange of trade delegations to boost bilateral
trade which was almost stagnant for the last several years.
Iranian Chamber of Commerce has proposed to establish
joint chamber and joint venture companies in association with Pakistani
businessmen. The visiting delegation of Iranian Chamber suggested this
during its meeting with minister for commerce Humayun Akhtar Khan. The
leader of delegation also sought help of Pakistan authorities for entry
into WTO. We want to benefit from the experience of Pakistan as it has
been member of the WTO.