ECONOMY-PERHAPS WORST PHASE IS OVER
Apr 13 - 19, 2009
There is growing optimism amongst the economic managers of the country that the worst on the economic front has ended with the close of year 2008. The year 2009 may be comparatively more productive for the business and the people. Having met some how all the conditions of IMF for the second installment of 23 months standby arrangement programme, Finance Minister requested IMF to increase its quota three times under the ongoing programme thereby jacking the loan amount for Islamabad from $7.6 billion to $12.1billion.
"We will request the IMF to increase our quota from five times to eight times in the upcoming talks, enabling us to get the additional funds," Adviser to Prime Minister on Finance Shaukat Tarin said while talking to reporters after the conclusion of the prime minister's visit to the Planning Commission, Islamabad two weeks ago.
Three times increase in the Special Drawing Rights (SDR) quota means that Islamabad will seek additional $4.5 billion from the IMF. Pakistan's SDR in the IMF stands at US dollars 1.5 billion. Under the SBA programme, the IMF is already providing its maximum funding in the shape of five times of SDR quota, which is equivalent to $7.6 billion. "Keeping in view our good performance where we have achieved all the targets set by the IMF, Pakistan deserves an increase in its quota by three times," the adviser on finance said.
Referring to the criticism for not passing on the benefits of reduced POL product prices to consumers, he said that there was a need to see the whole picture of the national economy. About inflation, he said it would come down to below 20 per cent in the months ahead compared to over 25 per cent last financial year. Pakistan's economic indicators are positive and the government will extend all possible relief to the masses.
The World Bank in its latest analysis says "macro-economic imbalances have started showing signs of improvement in Pakistan while inflation is easing". The analysis on the "impact of global financial crisis on South Asia" says strong corrective actions have been taken in Pakistan over the past few months, including an IMF programme that was helping stabilize country's economy. "But economic growth has taken a hit, with growth slowing down from 7.3 per cent during 2004-2007 to 5.8 per cent in 2008 and is projected to slide down further around three per cent in 2009,î the analysis notes. The scope for counter cyclical fiscal policy is limited at this time, but Pakistan is taking measures to protect social spending to help reduce adverse effects of the crisis on the poor, says the bank in a satisfying note.
The analysis says Pakistan, Sri Lanka and Maldives were particularly vulnerable because difficult political and social environments prevented adequate policy measures to adjust to the terms of trade shock. Additionally, their reliance on foreign funding has been relatively large. The global financial crisis worsened their macroeconomic difficulties as sources of funding contracted. The global financial crisis hit South Asia at a time when it had barely recovered from severe terms of trade shock resulting from the global food and fuel price crisis. Current account and fiscal balances worsened sharply and inflation surged to unprecedented levels, it says. The recent slide in food and fuel prices has provided South Asia with a welcome relief. But overall, the evidence suggests that growth, investment, exports, and employment have been hurt.
The outlook for 2009 is bleak as the global downturn deepens further. Growth in South Asia decelerated in 2008, falling from eight per cent in 2007 to six per cent. It is projected to decline to five per cent in 2009, before recovering to six per cent in 2010, according to the analysis.
According to a senior official in the Ministry of Finance, the next budget outlay would be finalized by Pakistan's authorities keeping in view the terms and conditions of the Fund, for which a consultation process would kick off during the current dialogue process.
"The Federal Board of Revenue submitted an action plan for the Tax System and Tax Administration Reforms to the IMF before December 31, 2008 after the three-day conference on tax reforms held in Lahore," the source said. "The same action plan will be discussed in detail and finalized during ongoing talks and the next budget for 2009-10 will be prepared keeping in view the agreed action plan, which will include broadening of the tax base, elimination of tax exemptions, and administration reforms that include merger of General Sales Tax (GST), Income Tax (IT) and Central Excise Duty (CED) under Internal Revenue Services.
Although the proposal of merger of taxes was opposed severely in some official quarters, the government and IMF accorded approval to those proposals in the Action Plan, he added. In case the Action Plan gets approved, the real test of the Advisor to Prime Minister on Finance Shuakat Tarin would begin, as he will have to choose either to enhance the tax base by incorporating the agriculture sector, real estate and stock markets under the tax net or further pile up new taxes on existing taxpayers. If the chemistry of the incumbent regime (treasury and opposition benches) which banks on the powerful agriculture lobby is kept in view, it seems an impossible mission for Tarin to bring the agriculture sector under the tax net. However, Tarin will try his best to introduce some levy on income of players in the stock exchange business. The inclusion of real estate in tax net would also prove to be a hard nut to crack as the provincial government will have to be taken on board. If the powerful and influential real estate mafia is kept in mind, the inclusion of this sector seems only remotely possible.
The only option left with the chief economic manager is to impose more taxes on the poor tax payers, and if that happens, the country may be exposed to unending agitation. This would put the government in a difficult situation as it tries to increase the tax to GDP ratio under the IMF's terms and conditions.
Medium Term Microeconomic Framework, the official said was earlier finalized in October 2008 by both Pakistan and India keeping in view the information gathered up to September, 2008 and now the global economic outlook has entirely changed. Crude oil price in September was at $100 per barrel, which has now tumbled to less than $50 per barrel. Palm oil's price in September 2008 stood at $1300 per tone and has nosed dived to $450 per tone. Likewise food commodities' prices have also sharply gone down. In the wake of the economic meltdown in the US, the whole world entered into the worst ever recession which has also adversely affected Pakistan's economic indicators.
As a result of the collapse in commodities' prices across the world, imports of Pakistan also tumbled. Since November 2008 onwards, imports have entered into negative zone. Since the FBR collects 42 per cent of the whole tax on imports, therefore the collapse in imports will adversely affect the tax collection target of Rs1300 billion.
We are expecting 1 to 1.5 per cent real GDP growth as against the earlier finalized 3.4 per cent by IMF and Pakistan for this financial year. The country has so far experienced negative growth this year in all sectors of the economy and if the country experiences a growth of 4.5 per cent in the agriculture sector depending on wheat production, then the GDP growth would be in the range of 1 to 1.5 per cent. And if the agriculture sector does not perform up to the expectations, then once again the country would be exposed to negative growth of 0.3 per cent. In the last fiscal year, agriculture growth was at 1.5 per cent and now the country is expecting 4 to 4.5 per cent growth in this sector, which is to be the only factor that would bring the country's GDP growth into positive zone.
Despite pursuit of ad hoc measures by the government to achieve macroeconomic stability and satisfy IMF to ensure that the bailout package remains in tact, there is a ray of hope to achieve a few positive results for two specific reasons. One, during the past few months there has been substantial fall in the prices of oil and food items in the international market. This is likely to have a positive effect on trade and current account deficit. Current account remained surplus during the month of February after a long spell of current account deficit. Secondly, the market forces have played an important role in bringing down the interest rate. There are strong indications that discount rate would be reduced between 200bps and 300bsp in the forthcoming monetary policy. IMF also seems to appreciate the point that continued high discount rate is producing counter-productive results.
US would strengthen Pakistan's economy by increasing economic assistance to Pakistan by three times of what is being provided at present primarily with the objective of combating extremism and militancy in the country.
SIEMENS CREATES HISTORY
ROLLS OUT FIRST MADE-IN PAKISTAN TRANSFORMER
History was created when the first locally manufactured 220kV Transformer rolled out of Siemens Industrial complex in SITE. This was a landmark moment for the power industry not only in Pakistan but the entire region. The first transformer was dispatched to WAPDA network after a simple ceremony attended by WAPDA and Siemens officials.
Mr. Saleem Arif, advisor to PEPCO speaking on the occasion congratulated Siemens on this milestone. He said that we expect power demand to rise substantially in the coming years and now we can depend on locally produced equipment which was before imported from abroad.
Speaking on the occasion the Managing Director of Siemens Pakistan termed the roll out of this the first power Transformer of 22 kV in the history of Pakistan as a historic moment and a landmark in the industrial history of the country. He said this roll out proved that the hard working people of Pakistan can achieve any target if they are provided with the resources, know-how and positive working environment. Mr.Sohail Wajahat said that Siemens has always set landmarks like being the first to export substantial quantities of engineering goods from the country providing a stable backbone for exports from the country. He said the local manufacture of this huge transformer will not only save foreign exchange but also earn huge amounts of foreign exchange for the country and help develop the power sector of the country. He praised WAPDA for its efforts to encourage local manufacturing and said that without such encouragement it would not have been possible for the local power engineering industry to grow. He said he was very happy that at a time when we were engulfed with depressing news this remarkable feat of locally producing such a power transformer through local resources has provided a positive image of Pakistan and enhanced our image in the world.
Those who attended the ceremony from WAPDA included Mr. Tahir Basharat Cheema, Director General PEPCO and Mr. Saleem Arif, advisor to PEPCO.