Nov 30 - Dec 06, 2009

It is heartening to note that the central bank in its second volume of economic review has vowed to focus on price stability, which has become a dream for the majority of this country.

In fact, the unabated food inflation and fast eroding purchasing power due to rupee depreciation has made a serious dent to the kitchen budget of the common person. Due to abnormal price hike in essential food items like sugar, rice, flour, vegetable oil as well as milk and fresh vegetables many find it hard to purchase them.

It is a matter of great concern that the food security is absent because of profit making game being played by the hoarders who create artificial shortage of food commodities.

The private sector dealing with food commodities cannot be blamed alone. It looks funny that on one hand, the state regulates sectors like gas, petroleum products, and electricity prices and tariffs of which are increasing and on the other, the policy makers expect the private sector to reduce prices.

Unless the government sets an example and brings price stability in the commodities dealt by the state owned organizations the demand for judicious price level from the private sector is nothing but an unrewarding cry.

Syed Salim Raza, Governor State Bank of Pakistan has said that the central bank is striving for ensuring a balance between price stability and growth in a challenging economic environment, ensures a stable financial system by proactively responding to emerging risks and challenges to the banking system, and takes appropriate corrective measures timely.

In the second volume of Annual Report on State Bank's Performance Review for the financial year (2008-09), the central bank chief said that the implementation of the macroeconomic stabilization program was primarily driven by tightening monetary and fiscal conditions to facilitate the resolution of structural problems.

"These measures yielded results in subsequent months: fiscal deficit was substantially contained, from Rs777.2 billion in FY08 to Rs680.4 billion in FY09, at 5.2 percent of GDP (down from 7.4 percent in FY08), on the back of elimination of subsidies as well as a cut in development expenditure," he added.

The monetary tightening had a visible impact on CPI inflation, which fell from its peak of 25.3 percent in August FY09 to 13.1 percent by June FY09 giving SBP the much needed breathing space to switch the direction of its policy stance.

Furthermore, after unabated expansion in the last four years, the current account deficit contracted considerably to 5.3 percent of GDP during FY09, from 8.4 percent in FY08. "These positive developments need to be viewed with caution, however, given that the economy continues to be fragile, and an assessment of the balance of risks continues to present a mixed picture," he added.

Since inflationary pressures began to ease, SBP reduced its policy rate by 100 bps each in April FY09 and August FY10, to 13 percent. Notably, it was the consistent approach to curbing excessive demand pressures, which helped subdue inflation. In FY09, SBP issued three monetary policy statements (MPS), i.e. for the first half and then one each for the last two quarters of the year. In November FY09, SBP also announced interim monetary policy measures.

Cognizant of the uncertain and rapidly changing macroeconomic environment, and to enhance the effectiveness of monetary policy, SBP decided in January FY09 to increase the frequency of its monetary policy statements; first to quarterly basis, and from August FY10, the frequency was further increased to six times in a fiscal year, he added.

Similarly, to further enhance the transparency and credibility of the monetary policy formulation process, SBP constituted an independent Monetary Policy Committee (MPC) consisting of both internal and external members.

The segregation of debt and monetary management with an objective of strengthening the monetary policy framework was the highlight of FY09.

In January FY09, the responsibility of deciding the cut-off yields in the primary auctions of Treasury Bills (T-bills) and Pakistan Investment Bonds (PIBs) was shifted to the Ministry of Finance, while SBP's role was to manage the operational aspect of the auctions. "This measure was taken to communicate that changes in the cut-off rate are not reflective of the monetary policy stance, while allowing SBP to focus on liquidity management consistent with the requirements of monetary policy implementation," he added.

In response to the changing economic and business cycle, the central bank also stepped in to facilitate the banking sector by rationalizing the minimum capital requirements to Rs10 billion, to be implemented in a phased manner by December 2010, and allowing the use of 30 percent of the Forced-Sale Value (FSV) of collateral in calculating provisioning requirements for the rising base of Non Performing Loans (NPLs).

In view of the complex regulatory requirements of large financial conglomerates, SBP also signed a Memorandum of Understanding with the SECP to undertake consolidated supervision.

Similarly, progress on modernization of the legislative framework including the revamping of SBP Act, 1956, and the Banking Companies' Ordinance 1962 is underway, while efforts are also underway to introduce a Deposit Protection Scheme and a Consumer Protection Act.

The first half of FY09 was characterized by a continuation of pressures in the foreign exchange market. During Jul-Oct FY09, the trend of deterioration in current account deficit seen in FY08 accelerated further, mainly owing to higher import prices and a sharp fall in financial inflows. This led to a rapid depletion of foreign exchange reserves along with substantial pressure on the exchange rate. However, subsequent implementation of a macroeconomic stabilization program led to a marked improvement in the external account position in the ensuing months. This also helped SBP build up foreign exchange reserves which had dropped to US$ 6.7 billion in October FY09, back to the almost end June FY08 level of US$ 11.4 billion, he added.

In continuation of SBP's efforts to strengthen its reserve management capabilities, substantial value was added to its profitability through active management of the investment portfolio in FY09. On gross return basis, SBP managed to earn a return of 2.31 percent, which while less than the 4.9 percent return in FY08, is still significant given the situation in the global financial markets, he added.

Referring to several initiatives taken by the SBP to broaden access to financial services to the marginalized sectors of the economy, Mr. Raza said that SBP in partnership with the UK Department for International Development launched the Financial Inclusion Program in July FY09.

The Financial Inclusion Program worth UK 50 million is being implemented by the State Bank of Pakistan and the program was designed and developed through broader consultations with the stakeholders. This will help SBP implement Pakistan's Microfinance Strategy, which was approved by the Prime Minister.



Seven years since launching operations to Osaka, Emirates has unveiled plans to launch direct services to Tokyo - Japan's capital city and one of the world's foremost economic centres.

Tokyo will be Emirates' 102nd international destination, and closely follows the recent launch of operations to Durban and Luanda. With the introduction of flights to Tokyo, Emirates will offer two non-stop services between Japan and Dubai.

At present, Emirates operates daily services to Osaka. Starting 28th March 2010, Emirates will fly non-stop to Tokyo five times a week on every Monday, Thursday, Friday, Saturday, and Sunday.

The service will be operated by a state-of-the-art Boeing 777-300ER aircraft offering a three-class configuration of eight First Class Private Suites, 42 Business, and 304 Economy Class seats.

Emirates' longstanding partnership with Japan Airlines will be expanded to include a code share on the new Dubai-Tokyo-Dubai services. The flights will be identified with the Emirates 'EK' code as well as with Japan Airlines 'JL' code.

His Highness Sheikh Ahmed bin Saeed Al-Maktoum, Chairman and Chief Executive, Emirates Airline & Group said: "Emirates is delighted to announce the introduction of direct, non-stop services between Dubai and Tokyo. We have always stated our desire to expand our links with Japan - a market we are extensively committed to. During the seven years of our operations to and from Osaka, Emirates embarked on a multi-million dollar programme to promote the route through our global network of offices in over 60 countries as well as through advertising, public relations, events, and company brochures and literature."

"The comprehensive campaign successfully opened up Japan to new markets across the world. As an example Japanese working in South America who traditionally travelled trans-Pacific started travelling to/from Japan on Emirates, taking advantage of our smooth connections via Dubai."

EK 318 will depart Dubai at 02:50 hours and touch down at Tokyo's Narita International Airport at 17:55 hours the same day. At 21:40 hours, return flight EK 319 presents travelers a convenient departure time at the end of a working day, and ensures an ideal start to business in Dubai as it touches down at 04:35 hours the following day. The service connects seamlessly to key centres in Europe, Middle East, and Africa.

Sheikh Ahmed continued: "As one of the command centres of the world's economy, Tokyo requires robust connectivity to thrive. Emirates' direct services will link the city to over 100 international markets spanning six continents, facilitating the smooth transfer of business and leisure travellers as well as cargo."

"The Emirates brand is well-known in the Japanese market and our service is appreciated by Japanese travellers. Over 200 Japanese crew work at Emirates, operating flights to and from Osaka; Japanese delicacies like sushi are served on our flights; and Japanese movies are shown on 'ice' - Emirates bespoke in-flight entertainment system offering the largest programming in the skies."

Presently the UAE and Japan share robust trade relations with Japanese technology firms and UAE energy companies collaborating on several projects. Already Dubai is home to 300 Japanese companies and the largest Japanese community in the Middle East. Emirates services to Tokyo will enhance the access and connectivity for VFR (visiting friends and relatives) traffic on the Dubai-Japan route.

The 23 tonnes of belly-hold cargo capacity on Emirates aircraft will support Japanese exports of mechanical components, electronic goods, and automobile parts to the UAE, and its import of gas and oil products. Dubai is an important hub for the re-export of Japanese manufactured products to the Middle East, Africa, and Central Asia.