Nationwide Updates

► Pakistan’s exports face greater barriers

Pakistan’s exports face much greater barriers than other South Asian economies because of a less favourable governance environment and a weak control on corruption, says the World Bank. In its latest report “World Trade Indicators 2008,” the bank also said that although Pakistan began liberalising its trade regime as part of the Comprehensive Economic Revival Programme launched in 1999 and its tariff rates have fallen dramatically since then, the latest Trade and Tariff Restrictiveness Index (TTRI) suggests that the trade regime remains relatively protectionist as is common for most South Asian countries.  (Dawn)

► Oil import bill hits new peak of $10 billion  

Soaring crude oil prices on the international front pushed the country's oil import bill up to historic level of 10 billion dollars during July-May of the current fiscal year. Crude oil prices remained continuously on rise in the world market and during last week hit record highs of some 140 dollars per barrel in the face of increasing oil demand across the world amid low supply, analysts said. The country's local oil production only fulfils 15-20 percent demand, therefore, the country is relying on the imported oil, they added. Recently the government approached Saudi Arabia for resumption of oil supply on subsidised rates.  (Business Recorder)

► Budget 2008-09: far away from economic realism

There is no denial of the fact that the current budget was presented in the most difficult conditions in Pakistan’s history and thus no big miracle was anticipated in this challenging environment. However, some realisation of the problem and some serious thinking about way out was expected out of the budget. It was expected that the budget would account for the difficult situation and suggest policy measures to face the major challenges being faced by the economy. Surprisingly, the budget remained more or less oblivious about major challenges being faced by the economy such as widening current.  (The News)

► A shift in Punjab’s economic policy

Punjab’s budget for the next financial year beginning from July 1 — the first by the PML(N)-PPP coalition in the province — indicates a shift in some key economic and fiscal policies pursued by the previous PML(Q) government since 2003. The most critical aspect of the budget – for the low-income and poor segments of the population – is the announcement of a relief package of Rs17 billion as part of the Rs390 billion revenue budget. Unlike outgoing year’s so-called pro-poor relief package of Rs25 billion.  (Dawn)

► Subsidies: good or bad economics

Today when subsidies worldwide shield consumers from record oil prices, the representative government in Islamabad has decided to gradually withdraw it. The government will also continue to levy the sales tax that tends to increase the oil price by about 15 to 20 per cent. In the budget 2008-09, the allocation for food, fuel, power subsidies has been slashed by 25 per cent from current Rs404.48 billion to Rs295.20 billion during the year ahead. There is no mention of exempting essential items from government levies to provide some relief to consumers.  (Dawn)

► To extend or curtail subsidies?

The budget month is still with us. The federal budget presented on 11 June, followed by the three provincial budgets on 17th June, are now being debated by the people's representatives. That the debate in our assemblies this year has been more lively relative to the past eight years, was to be expected, even though it is tempered by the fact that the coalition members are largely supportive of the budgets' shortcomings, which reflect the severe resource constraints that the country is facing.  (Business Recorder)

► 5pc levy on LPG likely from July 1

Consumers would have to pay Rs3 per kg more on LPG following a proposed imposition of 5 per cent gas development surcharge. In Karachi, the LPG currently sells at Rs52-53 a kg, and in Lahore at Rs58-62 a kg. Fasih Ahmed, a spokesman for the LPG Association of Pakistan (LPGAP), a grouping of all LPG marketing companies, told Dawn from Lahore that the association had learnt that the new levy, namely gas development levy, would come into force on July 1. The increase in the GST by one per cent would also make a little impact on local prices.  (Dawn)

► Inflation makes global comeback

Inflation, the curse of the 1970s, is staging a comeback, led by sky-high oil prices. This time, the menace is more genuinely global than three decades ago, and this time much of it is “Made in China”. Wary of past errors, Western central banks may well opt for shock therapy interest rate rises in an effort to prevent prolonged stagflation, the toxic mix of inflation and economic stagnation that followed the oil crises of the 1970s. Their prospects of success depend at least in part, though, on how willing the rising powers of the developing world are to play the game.  (Dawn)

► Privatisation of SME Bank and its fallout

TWO related but apparently contradictory developments took place in early June 2008. There were reports of an Italian government offer of soft loan to SME Bank Ltd. Simultaneously, there were reports on 19 Pakistani and international investors’ expressions of interest (EOIs) for acquisition of the SME Bank Ltd. Privatisation has to be seen in light of some basic facts. SME Bank is a badly needed development finance institution (DFI) which also happens to possess a commercial banking licence.  (Dawn)

► Strong chemical sector must for industrial advancement

Pity the nation that fails to exploit its vast national resources and continues to live in abject poverty. This is how Khalil Jibran, eminent philosopher of the Middle East, if he was alive today, would have commented on the poor use of national resources by the successive governments in Pakistan. The country has one of the biggest reserves of lignite coal. At about 200 billion metric tonnes (mt), it has proven coal fields worth about $6 trillion at the current market value. This huge reservoir of coal can be converted into liquid or gas and used as a substitute for crude oil.  (The News)

► Budget 2008-09 : doing more to boost agriculture 

THE budget speech by Finance Minister Syed Naveed Qamar recognises the importance of agriculture as the backbone of the economy. The budget 200809 envisages a growth of 5.5 per cent of GDP and four per cent in the agriculture sector against 1.5 per cent recorded in the previous year. While financial allocations for agriculture have been indicated for some of the proposed programmes, the overall allocation to the sector is missing in the speech. It would, therefore, be difficult to compare it with the allocations made in the previous year(s).   (Dawn)

► The sluggish agricultural growth

What was disappointing about the performance of the economy in 2007-08 was not so much of its modest or low performance, as much as the vast gap between the very high target set and the reality.As a result, instead of the growth target of 7.2 per cent, the GDP grew by only 5.8 per cent. This achievement is not too low compared to the last year’s high growth. What is more striking is that all the major targets have been missed. All that has led to inflation to build up to 11 per cent and the food inflation if calculated modestly, to rise up to 15 per cent.   (Dawn)

► Options in agriculture 

Given the paradigm shift in agricultural prices in recent months, what are the options available to Pakistan’s policy makers? They need to proceed simultaneously on two tracks. They need to use the significant changes in agricultures terms of trade to provide appropriate incentives to the farming community to produce more and they need to provide additional incomes to the poor, particularly those in the urban areas. For the poor, expenditure on food is by far the largest component of their budget.  (Dawn)