PAKISTAN'S ECONOMIC SUMMARY — 2004
As a matter of fact, consistency in government policies, articulate assessment of financial needs of the country and ideal inspection of financial matters is a key to the economic progress for a country.
By SYED NABEEL IQBAL
Jan 17 - 30, 2005
The tragic end of the year 2004 which brought untold sufferings to the human being in the form of tsunami a word not so common to human memory. The walls of Nomi waves erupted by the earthquake claimed the precious lives more than 150,000 people in Indonesia, Malaysia, Thailand, and Sri Lanka some coastal areas of Africa and India.
People around the globe greeted the dawn of 2005 with painful feelings of sorrow and remembrance for the dead. The life on earth, however, goes on. On the economic front, if on one end Mr. Shaukat Aziz being the Prime Minister of the country delighted its nation with the news of getting rid of IMF, however, unabated increase in general prices and eroded buying power due to mounting inflation added to the worries of people.
Though the year sadly ended by not adequately addressing the economic problems of the nation as a whole.
However, the government remained busy in solving various major issues and doing short & long-term planning on a concrete basis. The government initiated steps to perk up the performance of government offices, reducing inflation, external debts and poverty while concentrated seriously on the mounting unemployment problem in the country as well. The nation's foreign exchange reserves saw a spiky rise in the year under review and crossed US$ 12.5 billion mark facilitating the SBP even to support national currency under relentless depression. The overseas Pakistanis expressed a sense of satisfaction over government policies and favored to send money back to their homeland through official channels amounting to around US$ 4.0 billion while foreign investment reached $1 billion mark at the year-end.
As a matter of fact, consistency in government policies, articulate assessment of financial needs of the country and ideal inspection of financial matters is a key to the economic progress for a country. In the year 2004, the government chose to continue their existing policies thus paving the way for accomplishing targets set at the beginning of the financial year.
CREDIT RATING GETTING IMPROVED
Pakistan's credit rating which unfortunately had gone negative in 1999 improved in 2004 on the basis of which the country collected US$500 million from the international market. In the month of November, international credit rating agency Standard and Poor improved Pakistan's credit rating to B+ for foreign currency while BB for local currency respectively. The improvement in the credit rating was achieved mainly because of reduction in country's external debts and improvement in the balance of payments, the agency report said.
THE ANNUAL BUDGET 2004-2005
Mr. Shaukat Aziz presented the annual budget of Rs. 903 billion for the year 2004-2005 showing a deficit of Rs. 199 billion. Rs. 277 billion was allocated for reducing poverty in the country while a revenue target of Rs. 580 billion was set including the share of provinces amounting to Rs. 239 billion. Rs. 80 billion was allocated for advancing loans for the improvement of the agricultural sector while 14% mark up on ADBP loans was reduced to 8% which was yet another firm stair to heighten the velocity of progress in the agricultural sector of the country. A duty drawback was announced on the imported pesticides and local manufacture of the same was stressed upon. Rs. 21 billion was allocated for water and development projects while fresh steps were taken for bringing perfection in the country's industrial sector as well. The manufacturing sector was given a relief in terms of reducing duty on imported raw material by 5% while duty on the import of machinery was also cut down.
Working towards reducing unemployment in the country, the government announced to create as many as one million new jobs country-wide while arrangements for sending 127,000 people for overseas jobs was also announced. An amount of Rs. 177 billion was set for communication sector whereas Rs. 8.3 billion was allocated for the development of railways as well. Government continued to stress upon the development of Gwadar for which an amount of Rs. 5 billion was set in the annual budget. Likewise duty was lowered on the plant, equipment and machinery which are not manufactured in Pakistan and thus the budget was termed business-friendly by the leading experts of the country.
THE ECONOMIC REVIEW
The economic review published in June 2004 showed a 6.4% increase in gross domestic production equaling to US$ 95 billion. The rate of increase in the industrial production stood at 13.4% while the budget deficit statistics stood at 3.3%. However, an overall downward trend in the agricultural sector was seen as the major and minor crops fell below their targets due to which the set target of 4.2% was not successfully achieved. On the contrary, this percentage stood at 2.4%. However the reforms announced by President Musharraf's in his address in the Farmers Convention in June 2004 were expected to bear their fruits in the short-term. The economic review further showed that unemployment rushed up showing a net increase of 8.27%. Speaking on the economic review, Prime Minster Mr. Shaukat Aziz had showed his content that overall a reduction in poverty was recorded.
TRADE POLICY 2004-2005
Trade policy announced for the year 2004-2005 brought in many new enticements for the traders and was termed as a catalyst for bringing on the whole progress in the production capacity of the country. The investors, industrialists and entrepreneurs were greatly facilitated through this policy. An export target of US$ 13. 7 billion was set as against the imports of US$ 16.7 billions thus showing a trade deficit of US$ 3 billion. In order to boost up country's overall exports, the government initiated steps to improve infrastructure at cities, provinces and districts levels. Special emphasis was laid upon the development of IT sector of the country and therefore, it was decided to set up an IT Communication City in the Federal Capital, Islamabad. The pharmaceutical companies were given a subsidy of 50% at the time of registering the pharma products in other countries while an export mark up of 5% was offered to the exporters to support the overall exports of the country. Besides giving exemption from sales tax to the cotton products, it was decided to set up textile cities in Karachi, Lahore and Faisalabad. The limit of sending gift parcels was extended to US$ 5,000/- picking it up from US $ 1,000/earlier. An import limit of 150 tons was allowed in terms of importing machinery for construction, oil and gas exploration and petroleum products. The exporters were allowed to send samples worth US$ 25,000/- instead of US$ 10,000/-. Under the new policy, the import of industrial dry cleaning machinery, food and beverages and money changing machines was also allowed. Special initiatives were taken for increasing the investment trend and attract more foreign investment in leather, footwear, sports goods and electronic items which included the identification of a searching group as well. A US$ 10 million Supplier Credit Fund was specially created for improving export figures to African and South Asian states.
The Trade Minister said in his policy address that country's import policy will be based on three points which included regulation and facilitation steps. The policy further addressed the promotion of country's export figures for which an estimated amount of Rs. 5 billion was set for spending in this account while it was decided that the services of international marketing companies will be hired for this reason. It was further decided that out of Rs. 5 billion set for the promotion of exports, US$ 1.5 billion from Export Development Fund, US$ 50 million from Infrastructure Development Fund and US$ 3 billion from Public Sector Development Programme will be spent for which planning will be done accordingly.
This year, the exports stood at just 13% out of the total GDP totaling to US$ 95 billion. On the other hand, the total imports increased by 20.9% due to a more than expected increase in the oil import bill of the country. The trade deficit now stands at US$ 3.199 billion which is much higher than the same figure last financial year.
Turning towards the investments figures, the year under review sensed a sharp rise. Dr. Abdul Hafiz Pasha, Federal Minister for Privatization and Investments told the news sources that the net foreign direct investments this year stood at US$ 1 billion showing an increase of 19% as compared to last years figures whereas, the net domestic investment stood at around US$ 14.4 billion in the year under review. He further said that now the government is earning Rs. 30 billion on an annual basis in terms of privatization of various projects.
INVESTMENTS BY INTERNATIONAL COMPANIES
Many companies pronounced investing in diverse projects during the period under review. A Chinese company contracted for exploring zinc and lead in the Lasbela region which according to a report is a rich region for the metals. The company has contracted to explore 132,000 tons of zinc and lead while a Chinese delegation headed by their Governor Hanan, Li Chung Ao consented on investing in agriculture, IT, leather, pharmaceutical and Auto sectors of Pakistan. The Chinese authorities have also expressed interest in development and expansion of Pakistan Steel Mills while many are interested in investing and working in the oil and gas sectors of the country as well. One of the Korean companies has also showed interest to participate in the expansion programme of Pakistan Steel Mills by investing US$ 5 million. An American company has announced to make an investment of US$ 1.2 billion in the energy sector of Pakistan in the next five years. An Australian firm has consented to set up two coal power plants in Thar Desert. A Kuwaiti company will be working for the exploration of oil in the sea which will include an expenditure of US$ 20 million. One of the prominent companies of Holland has expressed its interest in setting up a 30 stores network in Pakistan which is expected to give rise to business activities worth Rs. 12 billion through the opening of these stores. Switzerland is interested in investing in the pharmaceutical sector of the country while telecommunication companies from UAE and Norway have announced an investment of US$ 760 million through an auction held a few months back. PTA has so far allotted the service codes to these telecommunication companies and it is expected that they are going to start their operations very soon in Pakistan.
BALANCE OF TRADE
It is well known that the balance of trade plays a pivotal role in the economy of any country. In the year under review, Pakistan's net exports touched the anticipated US$ 13.7 billion mark. According to an Export Promotion Bureau (EPB) report, Pakistan's export to Russian federation has shown a rise of 500% as compared to 1999 and has amounted to US$ 20.49 million mark in the year. On the other hand, country's exports to Britain have also crept up by US$ 1.14 billion which is 13% more than the previous year. According to the above mentioned report, the balance of trade remained in Pakistan's favor overall.
•Government activities to reduce foreign debts and attract investments:
The last year recorded a reduction in overall volume of foreign debts. At present, Pakistan's net external debt stands at US$ 35.3 billion due to the constant efforts made by the government to reduce its volume and attract foreign investment on the other end to turn economy on a positive zone. President Musharraf conducted visits to many countries in the same connection including Latin America and Europe and offered many incentives to the investors there. Similarly, the Prime Minister Shaukat Aziz also visited SAARC nations with an objective of promoting bilateral trade among the member countries. Federal Minister for Trade Humayon Akhtar visited Belgium, Rome, France, Italy, Lithuania, Austria, Copenhagen, London and Madrid in the same perspective.
THE KARACHI STOCK EXCHANGE — SMART PERFORMER OF THE YEAR
The Karachi Stock Exchange stood as one of the best performing stock exchanges in the world in the year under review. The market index crossed the psychological barrier of 5738 points at one time. However, unrest in the political arena of the country due to President Musharraf's uniform issue, bomb blasts in Karachi and other major cities of the country caused fluctuations in the overall performance of the stock exchange.
PERFORMANCES OF STATE-RUN ORGANIZATIONS
Some of the government organizations gave outstanding performances during 2004. PIA recorded annual profits of Rs. 1.40 billion in its financial year ending as on 30th June 2004 while 3 Boeing 777 and 15 other new models of aircrafts were also added by the organization which is indeed a true reflection of its robust performance during the year.
The total sales figures of Pakistan Steel Mills reached Rs. 25.80 billion which included Rs. 6.20 million as its net income which was an achievement keeping in mind that the project had been suffering from constant losses in the recent past.
Pakistan Railways also performed well and its annual profit was recorded at Rs. 14.80 billion during the year while the expected revenue target set for the running year stands at Rs. 16 billion.
WAPDA also gave some relief to the general public and lowered the per unit charges for domestic users. The tariffs were reduced by 0.10 paisa for domestic users, trade consumers by 0.25 paisa while industrial consumers were given a relief by 0.58 paisa. The net receivables of WAPDA showed an increase by 9% while 7,193 villages were supplied new electricity connections this year. With this, now out of 125,083 villages in total across Pakistan, WAPDA is supplying electricity to 81,588 villages.
PTCL earned Rs. 29 billion during one year and announced a 50% dividend which was higher than the expectations of the market. For the financial year ending on 30th June 2004, the net revenue of PTCL showed an impressive figure of Rs. 74.13 billion which was 10.7% higher than its previous record. The net income after paying off taxes amounted to Rs. 29.17 billion for the company.
The government also earned Rs. 30 billion in terms of privatization as compared to Rs. 60 billion earned in the past 15 years. Trade deficit has shown a rise in the year under review but according to the latest readings of the Statistical Bureau, the large scale industrial sector has shown a total increase of 14% so far this fiscal year which is indeed good in terms of economic progress.
WTO ISSUE — A POINT OF CONCERN FOR BUSINESSMEN
The WTO issue remained prominent in the country's business sector throughout the year. Some businessmen think that Pakistan will not be affected by WTO while some others remained of the view that it will bear adverse results for the country. However the Federal Minister for Trade Humayon Akhtar tried to satisfy the business circle that Pakistan will not be affected negatively by WTO. According to him, Pakistan's exports to Afghanistan will boost up to US$ 500 million while the textile industry will be benefited by lift of quota restrictions. WTO have asked Pakistani companies to fulfill formalities including seeking the ISO certification and in this respect, the Government of Pakistan have also taken the necessary steps.
THE BANKING SECTOR
The banking sector of the country also witnessed changes during the year under review.
Governor State Bank Dr. Ishrat Hussain said that privatization has created a healthy competition in the sector and a reduction in the external debts has also been recorded. The Agricultural Development Bank of Pakistan advanced loans amounting to Rs. 30 billion to farmers and agriculturists while Punjab Provincial Cooperative Bank advanced loans amounting to Rs. 10 billion. The Bank of Punjab recorded its highest ever net profit excelling by around cent percent with respect to the previous years. The total volume of the bank deposits increased to Rs. 44 billion as compared to Rs. 33 billion earlier. National Bank of Pakistan earned Rs. 9 billion as its net profit due to which the bank announced a cash of 12.5% and 20% bonus to its shareholders. The private banks also performed well and recorded a 100% increase in their annual profits. Askari Bank showed an annual income of Rs. 1.17 billion, Union Bank Rs. 0.35 billion and the annual income of PICIC equaled Rs. 0.43 billion. The State Bank urged the private banks to open at least 20% of their branches in the rural areas so that the population over there can also avail the banking facilities in their respective locations. The SBP also launched Islamic banking in 2004. The banking sector advanced loans amounting to Rs. 29 billion in 2004 to the government.
THE IT SECTOR
Pakistan continued to grow in the IT sector in 2004 as well. Internet facility was extended up to 1800 cities while bandwidth speed has also been increased up to 930MB per second. The bandwidth rates have also been lowered to US$ 3,500/- while 405 cities and towns have now been provided the fiber link. The volume of Internet users in the country has gone up to 6.5 million this year. The number of mobile phone users has jumped up to 4 million while the number of fixed telephone line subscribers showed a figure of 5 million. The net IT exports equaled US$ 23 million which has been planned to be increased to US$ 100 million in the coming two years. Chairman PTA, Major General (Retd.) Shahzada Alam in one of his statements has told that country's telecom sector is expected to absorb US$ 8 billion investment in the next five years which is expected to create 375,000 job opportunities. Fiber optic will be laid between Karachi and Peshawar which will open doors of employment for more people. Government has been trying to launch online services in terms of e-hiring and e-procurement by January 2005.
THE AGRICULTURAL SECTOR
The agricultural development showed an upward acceleration of 2.6% but the total production fell short of the set target of 4.2%. The rate of interest on agri loans was lowered to 8% from 12% previously and the set target of Rs. 80 billion was almost achieved.
The general public remained under severe stress due to rising general price level and reduced rate of profits on different saving schemes. According to the State Bank's statement, the total value of currency notes in circulation increased by Rs. 82 billion till November as against Rs. 74.4 billion in the same period the previous year. The bank deposits showed a downfall by Rs. 1.7 billion in the reviewing year. The general public withdrew Rs. 27.14 billion in a period between July to September from different government saving schemes only while on the other hand, the short-term credit in the private sector have rose to Rs. 127.7 billion as compared to Rs. 83.4 billion in the previous year.
In December 2004, the latest telemeter system switched at 23 dams, barrages and head works has started to function which is expected to resolve the issue of in-equal distribution of water among the provinces to a great extent. An amount of Rs. 32 crore has been spent to make this system fool proof and error free and therefore occupies a significant place of advancement.
FINANCIAL ASSISTANCE BY WORLD BANK
Principal financial body, the World Bank advanced new loans to Pakistan in the year 2004, however, the government decided to follow a self-reliance program and get rid of IMF this year. In December, the World Bank advanced loans for the implementation of tax reforms in the country which will be spent on Tax Administration Reforms Project this year. At the same time, the World Bank has approved another loan of US$ 300 million for improving the banking sector within the country. This loan is to be released in January 2005.
ASIAN DEVELOPMENT BANK REPORT — PAKISTAN UPDATE
The August issue of Asian Development Bank report, Pakistan update wrote that the different reforms undertaken in the last four years in Pakistan have started to bear their fruits which is well reflected by a GDP of over 6% and improved macro economic indicators as well. Construction of new dams, roads, development of large scale industries, advancement in telecom and IT sectors are all signs that Pakistan's economic progress in on its way according to the report. The improved relationship with India is also expected to bear good fruits for GDP of the country this year. The Asian Development Bank has approved a loan of US$ 30.2 million for improving the roads network in NWFP and new roads will be constructed for improving land communication network within the country and links them with Afghanistan border and Gwadar and Karachi ports as well.
NATIONAL ECONOMIC ADVISORY COUNCIL
The National Economic Advisory Council under the leadership of Prime Minister Shaukat Aziz held a meeting in December 2004 and approved around 41 new projects for the economic progress of the country overall. 32 out of 41 will be new projects on which a total amount of Rs. 150 billion has been allocated while the remaining 9 projects which are ongoing projects will be financed by an amount of Rs. 53 billion as well. The projects approved to be developed further include energy, environment, agriculture, power, good governance, health, physical planning, industries and water.