economic & business review [270709]

8/8/2019 Economic & Business Review [270709]

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Economic & Business Review

Managing exchange rate stability

By A.B. Shahid

BEGINNING 2008, the rupees exchange value

fell rapidly, by the third quarter it had dropped

by 33 per cent over its January level. It recovered

slightly but drifted again to its lowest level seen in

September 2008. Not good for anyone.

The decline in the exchange rate goes on in spite of

the fact that foreign exchange reserves have

almost doubled, (though partly by funds borrowed

from the IMF, ADB and China) over their mid-

2008 level. There has to be a plausible explanationfor this oddity. Interestingly enough it was neither

sought by the government, the business

community, nor given by those whose job is to

provide one.

Even analysts did not question this distortion

although, with Pakistans imports nearly twice itsexports, rupees depreciation at its current pace

will have damaging consequences for the

economy; in rupee terms, imports will become

unfairly expensive and preclude any possibility of


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further containing the inflation, which is

gradually contributing to public unrest at an

increasingly widespread level.

One major opportunity lost was that the benefit

accruing from a huge drop in the price of oil was

more than wiped out by the depreciation of the

rupee. To a lesser degree, the same applies to

many other imported items whose international

prices witnessed a fall as a result of the drop in

demand after the fallout from the global financial

crisis began to take its toll on major industrial

economies.

The argument that a weaker rupee will help

exports (i.e. give exporters more rupees per

dollar) doesnt hold water because, to begin with,imported inputs are a key item in manufacture of

textiles that make up over 53-54 per cent of

exports. Depreciation of the rupee is inflating the

cost component representing imported inputs, and

thus eroding the financial advantage (only in

rupee terms) provided by a weaker rupee.

In addition, exporters have been hit hard by the

unsatisfactory state of electricity supply. Because

factories cant operate at full capacity, higher

element of fixed costs must be allocated to each


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finished unit making it uncompetitive in the

traditional export markets that have become

overly competitive as a result of fall in demand

caused large scale lay-offs in the aftermath of theglobal financial crisis.

In this scenario, depreciation of the rupee at its

present pace wont push up exports but will

certainly inflate import bill and inflation that,

over the years, became closely linked to the

exchange rate because of Pakistans ever higher

reliance on imports, particularly of energy inputs.

Faster the depreciation of the rupee, higher will be

inflation and lower the competitiveness of

Pakistans business and industry.

Some bankers predict that the rupee could crossthe Rs85/$ level before the end of 2009, which

portrays a hands-off attitude. No one seems

bothered about arresting the rupees slide. The

explanation for this attitude is that since SBP

provides exchange cover only for import of crude

oil, banks buy from the open market and provide

foreign exchange for all other petroleum productimports, in particular, furnace oil.

With exports slowing, and proceeds of earlier

exports being realised with long delays, banks are


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routinely ending up with low stocks of foreign

exchange and the expanding demand-supply gap

is hastening the rupees fall. There can be no

logical correlation between the rupees real andmarket exchange rates, say the bankers. This

attitude to mend market trends continues to

corrupt the market psyche beyond repair.

Depreciation of the rupee at an illogical pace

primarily manifests loss of confidence in the

future and a rising tendency for maximising

benefits before it is too late to grab them. This is

the natural reaction of those who develop strong

reservations about the style of governance of

both-- the state and the markets. A perception

that reflects the remorseless conduct of the state

institutions and the market players.

Policy makers face a tough scenario but it doesnt

mean that markets be allowed to do what they

deem fit. Even if market players are adamant

about living in today, they must be made to see

reason; that life (and market players profit) have

to continue beyond today, and for that theeconomy must be stabilised to revive peoples

confidence and make them willingly sacrifice some

of todays gains for a better future.


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While the responsibility that must be shared

unconditionally by everyone, whatever his or her

capacity, banks and their regulator have a special

role therein. If Illustration by Abro

a central bank is prepared to buy banks foreign

exchange surplus at the price banks demand, it

sets the trend for trading on illogical rates, which

is hardly the way to go about regulating the

markets and stabilising price structures.

Banks pay high prices for buying foreign

exchange and then sell it to importers at illogical

prices which slowly but surely damage the

economy. It is this conduct that gradually erodes

public confidence in markets and convey the

message that almost anything is possible, nomatter how self-serving or damaging it might be.

It is high time this impression was removed.

As and when the government decides to shift the

burden of providing foreign exchange for the

import of crude oil as well on to commercial

banks, the rupee may slide more rapidly. It couldmake things tougher unless the foreign exchange

market is rationalised to deal on realistic exchange

rates. The root cause of the latest global financial

crisis was greed spurred by hasty deregulation


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and the sheer absence regulation.

Can we fix this crisis by staying on the sidelines

when better and stronger regulation is whatmarkets need to mend their ways? Regulators

need to think seriously about their role in this

regard.


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Energy shortage crippling industry

By Nasir Jamal

Monday, 27 Jul, 2009 | 02:06 AM PST |

The persistent energy shortages are crippling the

industry in Punjab, fast eroding its competitive

advantage, businessmen say.

In summers we dont have electricity and in

winters we do not get gas for weeks, says

chairman, All Pakistan Textile Mills Association,

Punjab Akber Sheikh. This energy crisis is adding

substantially to the cost of doing business and

making us uncompetitive in the international

market.

He claims that the industry in Sindh does not have

to face as acute an energy shortage as in Punjab

or the NWFP.

The energy situation there is much better: there

is no gas shortage management in Sindh duringthe winters. Barring disruptions in the Karachi

Electric Supply Companys system on account of

technical failures or rains, the industries in Sindh

do not even have to face regular loadshedding.


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That puts the industrial units in Karachi and

elsewhere in that province in an advantageous

position as compared to the manufacturers in

Punjab or in the NWFP, says Sheikh.

Add to it the comparative disadvantage of being

away from the port and the exporting industry,

particularly the textile sector, which is the largest

export revenue earner and job provider in

Punjab, is facing a cost disadvantage of seven to

eight per cent viz-a-viz the exporters from

Karachi, he claims.

The continuing energy crunch is crippling the

industry across the country, forcing

manufacturers to cut their output and jobs.

If the current frequent power cuts continue for

some more time, industry analysts say, the

country may miss the target of 1.8 per cent growth

in the manufacturing for this fiscal.

For the efforts to boost industrial output and

exports to succeed, they insist, the industry needsuninterrupted supply of gas and electricity.

The recent disruption in power supply caused by

monsoon rains in Karachi alone caused losses to


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the tune of billions of rupees to the industry. The

massive power failure that struck Karachi in the

aftermath of the rains, says a report, had a

disastrous effect on the industrial activity.

The report quoted Korangi Association of Trade

and Industry (KATI) chairman Mian Zahid

Hussain as claiming that 90 per cent small and

medium enterprise (SMEs) out of the total 4,000

units had suffered massive production losses

because of unavailability of power.

The larger units didnt fare any better in spite of

their alternate, in-house power generation

facilities.

The in-house generation capacity saves you fromcutting your production but it raises your cost of

doing business, particularly when the generators

are run on diesel instead of gas. That makes many

uncompetitive vis-a-vis their rivals, says an

industry analyst. He says the manufacturing has a

very bleak future in this country in the absence of

sufficient energy for the industry.

Last week saw eruption of nationwide violent

protests against loadshedding as power deficit

peaked to 4800 megawatts. People blocked


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highways, disrupted rail traffic, torched public

and private property and attacked the offices of

the distribution companies. The violence was more

intense in Punjab where the mobs burnt threecoaches of a train in Jhang and injured the driver

of another near Faisalabad. Traders have twice

observed shutter-down strike in Punjab in one

month against the governments failure to

improve power supply.

What do you expect people to do when their

livelihoods are at stake -- sit home when electricity

is not available for eight to 10 hours a day? What

business can operate in such conditions?, asked a

leading garment maker in Lahore, who refused to

give his name. He said he had fired half of his

workers over the last one year due to cancellationof export orders.

Millions have lost jobs during the last one year or

more. Most jobs are lost because of power

shortages than due to economic downturn, he

contends.

Sheikh says at least 30 per cent spinning units and

70 per cent looms in Faisalabad and elsewhere in

Punjab had gone out of business due to power

crisis.


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The industrial closures are adding massively to

unemployment. If the government carries out an

honest labour force survey our unemploymentrate would be close to 14 per cent or more, he

says, adding that the jobless are ready to work for

less than the minimum wages if some one is

prepared to employ them.

Analysts agree that the continuation of energy

crisis could offset the recent macroIllustration by

Abro

economic gains. Macroeconomic stabilisation will

not to work unless we have gas and power to run

our plants, says an economist who teaches at the

prestigious Lahore University of ManagementSciences. The industry is suffering losses to the

tune of billions of rupees due to gas and power

shortages, hounding throughout the year, he

says.

But that is not the only problem. The rising cost

of electricity and gas will also cripple the industry.We need energy, and that too at low prices to

compete internationally, he adds.

Insufficient generation capacity because of the


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delays in expansion of power generation,

unsustainable system losses, reliance on thermal

generation, the non-implementation of such low

cost, large-scale power sources as coal andabolition of energy subsidies, has pushed

electricity tariffs exponentially in the recent years.

Former chairman of Pakistan Hosiery

Manufacturers Association, Shahzad Azam Khan

says Pakistan has huge untapped resources of coal

to produce cheap electricity, and lots of it. But, he

laments, no one has ever cared to exploit them.

Sheikh insists that the provincial governments in

Punjab and the NWFP must step forward to help

their export-oriented industries and mitigate theeffects of additional cost borne by exporters due to

energy shortages and high freight charges.

The provision of equalisation assistance to the

export-oriented industrial units in Punjab and the

NWFP would be quite in place. Governments

around the globe compensate their industriesthrough equalisation assistance to make up for

their losses on account of their comparative

disadvantages, he argues. After all, he says, it is


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one of the important jobs of governments to

protect employment.


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Unexplained suspension of SRO 198

By Afshan Subohi

The government can generate an estimated Rs400-

500 million extra if it promptly re-activates the

suspended SRO 198 of the Customs Act. That

would also lend some support to distressed

manufacturers in the domestic market.

The Federal Board of Revenue amended the

Customs Act through SRO 198 in February 2005.

The SRO mandated all import cargo entering

customs area for clearance to be accompanied

with a copy of packing list, a valuation invoice and

a consignment note. The liability of placing thesedocuments was assigned to the supplier of

consignment as well as the carrier of the cargo.

The aim of the amendment was to curb the

rampant practice of under-invoicing and mis-

declaration by some elements in the trading

community. Under invoicing and mis-declarationof goods in containers incurs loss of revenue to the

government, increase possibility of smuggling of

banned items and leads to dumping of goods in the

domestic market. The slipping of imported items


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duty free hurt the interests of local manufacturers

driven to wall for a variety of factors.

Currently, the SRO 198 is suspended as confirmedby senior custom officers in Islamabad. The

hierarchy in the Federal Board of Revenue and

Customs were not able to give the date and

reasons of its suspension. According to sources in

the relevant quarters, the piece of legislation was

suspended in 2007 but someone forgot to

reactivate it even after expiry of the designated

period.

After initial hiccups when there were a few

problems being faced by certain sectors, the new

system (in which document of valuation was

placed by suppliers) was working fine. It didimprove duty collection. As documents start

arriving with the consignment, the discrepancy in

the valuation was easily detectable. It did act as

deterrent and people became cautious in

submitting invoices, a retired customs official

told Dawn.

Any one who has anything to do with clearing

and forwarding business knows that fake invoices

are made in lanes and bylanes near Custom

House. For a price, you can get whatever you


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need. With connivance of some customs and port

officials, the rogue elements have played havoc

with the country, another insider said.

Munir Qureshi, member Customs FBR who

assumed office a few months back told Dawn from

Islamabad that the department is striving hard to

plug holes and improve duty collections. I am

looking into all avenues to improve our

contribution to the national kitty and hopeful that

during the current year the performance of the

department will improve.

Many other officers contacted were not ready to

go on record. They, however, pointed a finger at

the business class but by manipulation. They

(businessmen) are the real culprits who do not leta fair system work. We have yet to develop a class

of entrepreneurs. The current band of so-called

businessmen do not earn by competing in the

market. As soon as SRO 198 came into effect, they

started campaigning against it and finally got it

suspended.

It was the Federation of Pakistan Chamber of

Commerce and Industry (FPCCI) and Karachi

Chamber of Commerce and Industry that

campaigned against the amended Customs Act.


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These organisations are dominated by traders as

opposed to manufacturers, a senior custom

officer said.

This cannot be true. Why would KCCI oppose

measures that discourage dumping in the local

market?. Our members are manufacturers with

huge investments. Free flow of cheap imported

items hurt their interest in the local market. It is

but logical that KCCI would support better

management of trade and support rules that make

it possible. Moreover, we believe that regulations

must not be selective to rule out discrimination,

said Shmim A Shamsi past president of the KCCI.

Anjum Nisar the current president of KCCI was

not available for his views.

It is unfair to blame the trade bodies for the

wrongdoings of the policy makers and their

administrative machinery. Just visit residences of

customs officers and try to match their lifestyle

with the pay package of their grade and you

would get some indication as to who would like the

current corruption riddled system to continue, abusiness leader retorted.

Farhat Ali,president Swiss Business Council

supported consistent and transparent taxation


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policies. We (multinationals) pay our taxes. We

contribute 13 per cent to GNP but our share in

total revenue is as high as 34 per cent. It is in our

business interest that others do the same otherwisethe market tilts and becomes unfair.

Khawaja Shahab, federal secretary, ministry of

industries was not aware of the details but

favoured duty framework that discourages

dumping by competitors in the local market.

In Pakistan, the government seems to posses a

peculiar talent of matching wrong decisions with

worst times. How else would you explain dropping

a revenue generating clause of the Customs Act at

a time when the government was going bonkers to

improve tax to GDP ratio, an analystcommented.

The suspension of SRO 198 not only deprives the

government of revenue, it reflects the clout of the

corrupt among the elite. They wait for a weaker

moment and make governments agree to their

demand, said another observer.

Instead of preaching endurance to masses the

representative government should focus on

putting its house in order. Two years is a long


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period time for a government to settle down. It

needs to resist moves of vested interests of

backtracking reforms that promote transparency

and efficiency.


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Small dams for Sindhs remote areas

By Saleem Shaikh

Monday, 27 Jul, 2009 | 02:

THE Sindh government is building small dams to

meet water needs in far-flung areas of the

province.

According to water and irrigation department

officials, various potential sites have been

identified for small water reservoirs, particularly

along the Kirthar Mountain on the western side of

the province.

There are strong opportunities for storing rain

water in natural catchments of the Kirthar hillswhich can be used for cultivation, livestock and

human consumption on sustainable basis, says a

water expert of the provincial planning and

development department.

The Kirthar mountain range, shared by

Balochistan and Sindh, extends southward forabout 300 km from the Mula River in east-central

Balochistan to the Cape Muari west of Karachi on

the Arabian Sea.


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Additional Secretary (Technical) Sindh Irrigation

and Power, Syed Mazhar Ali Shah, said the areas

identified for small dams include upper Kohistan,

lower Kohistan, central Kohistan, Nagarparkarand Khairpur.

The rainwater will be received by these five key

areas in recharge dams and detention weirs, he

elaborated and added, At present, however, work

continues on seven small water reservoirs worth

Rs259.3 million included in the provincial Annual

Development Programme 2009-10.

Sources in the P&D department told this scribe

that go-ahead signal had been given by the federal

government for preparing feasibility reports for

40 small dams in Kohistan and Nagarparkar.Earlier, the Central Development Working Party

(CDWP) on April 25, 2009, had approved a

proposal for building small water reservoirs in

Sindh.

The PC-II for hiring consultancy services was

being prepared under federal funding dulycleared by the CDWP for the seven dams, namely

Dao dam, Dillan dam, Khenji dam, Nali dam, Site

dam, Salari dam and Khadeji dam, the sources

said.


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China has agreed to provide some funding for the

construction of these small dams, while the Asian

Development Bank (ADB) has been convinced toextend financial help for building recharge dams

and detention weirs in Nagarparkar area.

If such initiatives become successful it will bring

thousands of acres arable land under cultivation

and increase underground water level.

Advisor to Sindh Chief Minister Sharmila

Farooqui told this scribe that to improve economic

life of the people, the Sindh government has

planned some 12 small and medium-sized water

reservoirs in different parts of the province.

She said: These water reservoirs will be build in

different phases and will help meet the increasing

water needs for integrated agriculture. It is

expected that once these reservoirs are built,

about 0.8 million acres could be brought under

cultivation.

Some environment and water experts, who oppose

construction of large dams, commend the Sindh

government for building small and medium water

reservoirs primarily aiming at harnessing


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rainwater for small scale farming and drinking

purposes.

Naseer Memon, a water expert, believes thatSindh has enormous potential for constructing

small dams, particularly in the arid areas such as

Thar desert and hilly tracks in the Kaachho area

along Balochistan border.

He said: This development initiative will boost

small scale agriculture in areas where small dams

are being built and alleviate poverty and increase

food security. Large scale agriculture in the

province will, however, still depend on due share

from the Indus under the 1991 Water Accord.

If small dams are being considered on the IndusRiver, then water sharing is critically important.

Unless Sindh receives it due share from the Indus,

even small dams may create local conflicts unless

clear regulation mechanism is developed and

implemented, he warned.

In Kaachho area, numerous hill torrents bringconsiderable amount of water throughout the year

which can be stored with proper planning. This

would, however, require involvement of local

communities to ensure proper maintenance and


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distribution of water, he pointed out.

Muhammad Idris Rajput, former secretary Sindh

Irrigation and Power Department, said if thesesmall dams were filled with water to their full

capacities, these would suffice for only an area of

about 10,000 to 20,000 acres, which in no way was

a bad idea.

These small reservoirs will be able to meet the

demand of the local people in a small way, he

remarked.


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An approach to inclusive growth

By Humair Ishtiaq

Monday, 27 Jul, 2009 | 02:03 AM PST |

INCOME disparity has often been described as a

major malaise afflicting the national economy.

One of the key factors on this count is the missing

institutional structure for inclusive growth. Once

it is there, the benefits can be spread across the

board.

The current recession having global dimensions

and implications aside, Pakistan has registered

decent growth rates in several patches. It also

underwent a structural transformation, havingmoved from a predominantly agrarian economy

to a more diversified industrial production base.

The pace of integration with global economy also

has not been particularly bad.

Unlike some countries where rapid growth has

been accompanied by a reduction in the incidenceof poverty and improved distribution of income,

rapid growth in Pakistan seems to have led to

some reduction in poverty, but it also promoted

greater income inequalities.


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Suggesting an alternative policy paradigm, the

recently-released Second Annual Report of the

Lahore-based Institute of Public Policy advocatesa new approach in line with global trends that

prefer to view and understand poverty within the

elitist structure in which it exists.

There is no debate on the basic goal of economic

governance, which is to fully harness the

productive potential of human, physical and

natural resources for broad-based, sustainable

and pro-poor growth. But the menace of

underdevelopment and poverty has increased

while governments have tried out various

prescriptions.

In the 1950s and 60s, the model developed by the

West focused primarily on enhancing growth, and

industrialisation was thought to be the mechanism

through which this enhanced growth was to take

place. By the end of the 1960s, the world realised

that while growth had taken place, development

had not followed. Over the next three decadescame various wealth re-distribution and growth

packages, including IMFs Poverty Reduction and

Growth Facility.


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Under all such programmes, huge amounts of

dollars made their way to the Third World where

the recipient countries struggled to repay and that

led to a crisis of debt that caused even moreproblems in the long run. The free market

capitalism that was promoted in the wake of the

Soviet disintegration has not been of much help

either.

The Inclusive Growth paradigm seems to have

based on a much better understanding of the

dynamics of poverty and underdevelopment than

was the case with strategies that preceded it. It

takes into consideration the fact that the poor

have insufficient access to productive assets and

skill development mechanisms through which they

could develop their human potential. It is only byconverting the poor from being mere recipients of

a debatable trickle-down effect of high economic

growth into active participants of economic

enterprise that the elusive dream of sustainable

growth could be materialised.

The literature on Inclusive Growth entails a four-pronged strategy: localised capital accumulation;

accelerated growth of small- and medium-scale

establishments aimed at exporting value-added

stuff; provision of productive assets to the poor


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through equity stakes; and institutional

arrangements for yield increase and ownership

diversification for small and medium farmers.

As noted by the IPP report, a substantial

proportion of the potential as well as actual

income of the poor farmers is lost to the

increasingly adverse tenancy arrangements and

the obligation to sell labour at less than market

wage rates to the landlords. Data shows that 50.8

per cent of the extremely poor peasants have

taken a loan from the landlord and of these 57.4

per cent worked for the landlord without wages

and 14 per cent worked at a daily wage rate of

only Rs28, compared to the typical market rate of

about Rs150.

Likewise, there is unequal access over both the

input and output markets. Poor peasants have to

pay a higher price on their inputs and get a lower

price on their outputs compared to the big

farmers. As a consequence, the poor lose 20.5 per

cent of their income in the major crops alone.

Between 1991 and 2001, 76.5 per cent of theextremely poor and 38.9 per cent of the poor

farmers were forced to sell their land to meet

urgent needs. The buyer usually happened to be

the area landlord.


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This, as one can see, is a typical characteristic of

an elitist economy. Traditionally, markets are

associated with efficiency and are believed to beimpervious to the considerations of equity and

distribution. The state is usually thought of in

terms of ensuring equity and access to

opportunities. However, under the elitist model,

the market is rigged, and the state is influenced in

order to deliver most of the benefits of economic

growth to a small group. The markets, therefore,

produce inefficient outcomes that are detrimental

to the long-term sustainability of growth, and the

state, through its actions, exacerbates the

inequities in the system.

The Inclusive Growth strategy is targeted towardsending this depletion of the productive assets of

the poor peasants and their counterparts in other

areas of economic activity through empowerment

and collective participation at the grassroots level.

Collective action assisted by the state is the most

likely way to provide a counterforce to the power

structure of local elite.

The transfer of state-owned land, for instance,

could provide land to 58 per cent of the existing

897,000 tenant farmers. To enable the rest to own


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at least five-acre farms and to enable all of them

to have an efficient cultivation of their land, a

consortium of government, donors and

commercial banks may be put in place to offsetthe disadvantage small farmers suffer in terms of

access to both input and output markets.

Similar strategies based on micro-credit and

institutional functioning can do the trick in urban

settings as well. The Inclusive Growth paradigm is

basically a bottom-up approach as against the

trickle-down expectations of the past decades that

have proved to be futile more than once.


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Trade policy: focus on product competitiveness

By Mahmud Ahmed

THE trade policy has been delayed for a few

weeks, possibly for valid reasons. The commerce

ministry is expected to spell out a strategic policy

framework for three years, for which more time is

needed than for an annual exercise.

The policy will shift focus from comparative

advantage to improving competitiveness of

products, and for the first time, will include

domestic trade.

Competitiveness of products comes from higherlevels of productivity improvement in quality

and value-addition at economical cost--- and with

branded products. Required management and

trade skills are lacking for increasing industrial

productivity. Human resource development is a

low priority. Not much has been done to improve

labour skills.

Attempts have been made to boost exports more

often than not by depreciating the rupee to make

goods temporarily cheaper in the international


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market or through a web of subsidies. This has

not worked. In fiscal 2009, the exports were

$1billion less over the previous year despite a huge

depreciation of the exchange rate, particularlybecause of shrinking global trade.

The benefits of incentives (or crutches)

including the subsidy on research and

development have been passed on to foreign

buyers. This has not helped improve industrial

efficiency or competitiveness of the exportable

products. Competitiveness must come from

increased productivity and not through rupee

depreciation or subsidies.

The new policy, according to federal commerce

secretary Salman Bashir, would focus onincreasing competitiveness instead of comparative

advantage. The problem with policy makers over

the decades has been one-dimensional focus on

one or other aspect of trade, say on import

substitution or exports, or on a single industry like

textiles. There has been complete absence of an

integrated approach required to resolve issuesrelated to trade.

Trade deficit persists because the two-pronged

approach that combines export growth with


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import substitution has not been pursued

effectively. In recent years, an exaggerated

importance was given to export earnings but the

export strategy failed; and the import bill jumpedup to twice the. export earnings a year ago.

No doubt competitiveness is essential to have a

strong presence in the global market. But one has

also to look at comparative advantage of a range

of products that a country can offer in exchange of

goods and services to its trading partners. It

means a more diversified products and market..

Exports cannot be boosted significantly by

focusing on few products like textiles , leather

goods, rice etc .

Over the past few years, there has been a sharpfall in the share of textiles in the overall export

from the peak of over 70 per cent to 53-54 per cent

last year. The trend would be allowed to continue

and in fact be encouraged. The export markets are

not stable and foreign buyers shift from one

market to another for a variety of reasons

including political.. Competitiveness of existingindustries and products is not enough. New

products are equally important to boost exports.

A more diversified industrial base is necessary to

cater to the domestic market in the first stance


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before new products are sold in the export

market. This should be a major objective of the

domestic trade policy.

The policy makers need to monitor closely foreign

trade trends emerging from the deep and

prolonged global recession that originated from

the United States and, more importantly, its

consequences. Sooner or later the recession will go

away but not without some radical changes in the

world economic order. It is likely that global

trading pattern will change from producing for

exports to exchange of trade surpluses available

after domestic consumption.

The ongoing industrialisation in the developing

world will bring self-reliance and restrict exportand import to products of country- specific

comparative advantage.

The saturated markets of the West will not have

much to offer in respect of boosting imports from

developing states, particularly after the collapse of

the Anglo-Saxon global financial model -- the cashcow that kept the wheels of the US and British

economies moving for over the last three to four

decades .The over- leveraged financial system

must inevitably shrink. With western


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governments providing oxygen tent to crisis-

ridden corporates and banks from tax payers

money, they would have little to spare for

developing states to boost trade or providebalance of payments support. Fiscal deficits of

western governments will remain an

enormous problem even after the global economic

recovery. This is evident from the difficulties

Pakistan is facing in procuring pledged funds

from foot-dragging donors including the IMF.

Direct foreign investment is fast drying up.

Exports have run into problems. The immediate

option is to fall back on domestic market of 170

million, big enough to sustain rapid labour-

intensive industrialisation without foreign props.The fast rising remittances , now in the range of

$7-7.5 billion per annum are a good indicator that

overseas compatriots want their country to

progress. They need to be encouraged to invest.

To manage fiscal deficits, state enterprises were

recently sold to foreigners at distress priceswithout discriminating between strategic and non-

strategic assets.. Instead of creating new industrial

capacities or directing direct foreign investment

into export-oriented industrialisation, foreign


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money went into import substitution industries

like telecom or automobiles , inflating the import

bill. It is time to reverse these policies and

encourage investment in diversified export-oriented manufacturing.


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External sector vulnerable

By Adil Adenwala

THE external sector of the economy remains

vulnerable because of the falling demand in

recession-hit developed economies while further

decline in world trade is feared over the next two

years.

Analysts at J.S research house say access to credit

has diminished and export markets are shrinking.

Foreign trade deficit reduced by over 18 per cent

to $17 billion in fiscal year 2008-09 but exports

fetched $17.78 billion against the target of $22billion and were still short of $1 billion over the

figure for the previous year.

The government is still grappling with issues in

trade policy 2010 for whose announcement no

date has been set so far. The policy, normally

announced in the middle of July, is expected toinclude this time measures for boosting domestic

trade. But the focus will be on competitiveness..

The export target for merchandise this year is


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expected to be set at $19.9 billion against

estimated imports at $28.7 billion.

Members of the Karachi Chamber of Commerceand Industry argue that the deteriorating law

and order and lack of uninterrupted supply of

electricity have made it impossible for local

traders and industrialists to survive the global

trade tsunami as large-scale manufacturing

(LSM) sector dropped sharply in the outgoing

year.

Export strategy unveiled last year did not succeed

in the absence of many positive factors including

coordinated efforts of all relevant government

departments, enhanced competitiveness,

development of market intelligence and tradepromotion. But curbs on imports and lower

domestic demand did reduce the import bill.

Trade Development Authority of Pakistans

Chairman, Syed Mohibullah Shah says that,

major hurdle for decline in exports is due to

vertical integration of different ministries insteadof horizontal coordination a dispensation that

tends to shift shifts synergy and focus of the

government away from the planned development

for maximum optimisation. A Rs40 billion export


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investment fund is proposed to be set up by the

government this year.

Around Rs27 billion will go to main export earner- cotton and textiles - and Rs13 billion to other

sectors.

Statistics of the Trade Development Authority of

Pakistan (TDAP) reveal that textiles share

dropped from over 70 to 53.7 per cent of the

exports over the last three years.

Traditional sectors such as textiles were the worst

performers because of energy shortage and

slowdown in international demand while exports

of rice and fruits performed better.

TDAP economist, Amir says that exploring new

markets and experimenting new products with

proper branding is the key to increasing

exportable products as value addition in finished

food products, livestock, precious stones, sports

goods and surgical instruments is the need of the

hour. .

Efforts are underway to improve market access as

well as diversify products. Packed and branded

milk and meat have good export potential.


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According to the survey conducted by the Small

and Medium Enterprise Development Authority,

milk accounts for 51 per cent of the total value inthe livestock sector. Its farm gate value is

estimated to be more than Rs390 billion.

The growing world meat market is valued at

$81billion per annum, where Pakistan remains

miles away from this market primarily because of

weaknesses in the supply chain management.

However it is the second largest commodity after

milk and is the cheapest in terms of production of

beef in the world.

The volume of exports of gems and jewelry is not

significant. The members of Gems and JewelryExport Association say that in the total global

trade of $84.4 billion, countrys share is less than

five per cent while it produces over 20 per cent of

the world output.Exports can improve by

inducting latest technology and adding value to

the export products.

Even though production of sugarcane this year

was low compared to bumper crop last year,

molasses, a byproduct of sugar, has a global

market of over $50 billion that continues to be on


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the rise as dependence on fossil fuels is shifting to

bio-fuel, says a former president of Pakistan

Sugar Mills Association, Zaka Ashraf.

The government is reported to be mulling over

banning exports of ethanol which is now being

used domestically for mixing with petrol.

According to the World Economic Situation and

Prospects, world trade in services nearly tripled

between 1990 and 2005, reaching $2.4 trillion. The

share of services in gross domestic product grew

from 65 to 72 per cent in developed countries and

from 45 to 52 per cent in developing countries.

Services account for over 70 per cent of

employment in developed countries and about 35

per cent in developing countries.

In case of Pakistan, the services sector has grown

rapidly in recent years to account for well over 50

per cent of the GDP but the country suffered a

deficit of $3.23 billion in services trade in fiscal

2008-09.

The exports of services amounted to$4.04 billion

against imports of $7.27 billion. There is room to

boost services exports.


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Travel and transportation continue to account for

the bulk of services exports by developing

countries, the UN report says. Business services,

including information and communicationtechnologies as well as financial and insurance

services, are also on the rise.

Pakistan has not been able to take any advantage

from this growing trend in services sector while

trade bodies claim to have taken many initiatives

to develop business relations across borders..

Traders hold government responsible for

continuation of EU ban on imports of fish from

Pakistan, for its failure to secure preferential

trade agreements with the European Union and

the US and lack of storage facilities inside thetrading hubs like Dubai.

Industrialists want government to focus on

increasing the rebate structure, research and

development subsidy and protecting local

industries from imports.

Diplomats from European and Far East countries

advise local businessmen to identify price

differences, quality standards and demand

forecasts to penetrate into new markets, establish


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a brand backed with fulfilling trade commitments

and positioning it to right target of consumers.

High cost of doing business including powershortage and restricted access to credit have

hampered the non-traditional sector hurting small

and medium exporting units of handicraft, sub-

sector of textiles, and petroleum products, etc.

Officials from ministry of commerce say that

proper investment and sound planning are

required to change the dynamics of energy,

transportation, utilities and marketing aspects of

all exportable sectors.


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Thar coal project and energy crisis

By Ashfak Bokhari

WHAT is conspicuously absent in the current

efforts to overcome the aggravating power crisis is

the coal factor. On July 5, Prime Minister Gilani

attended a presentation by the petroleum ministry

on an integrated energy plan to ensure energy

security.

The plan asked for developing and exploiting all

the resources such as oil, gas, LPG and LNG.

What was missing was coal. It seems the political

leadership has yet to realise how much difference

the exploitation of coal, already delayed for morethan a decade, can make to end power crisis.

On July 18, the chief minister of Sindh stated at a

meeting in Karachi that Thar coal reserves were

being utilised with a view to ridding the country of

loadshedding within the shortest possible time.

This was a mere rhetoric on his part for there isnothing to be seen on ground. In fact, he has been

more pre-occupied with seeking absolute control

of the Thar coal reserves from the Centre ever

since he assumed the office.


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It is evident from his remark at the same meeting

that his government would not compromise on

the rights of Sindh and he has taken a firmstand on the issue of ownership of Thar coal.

However, it was interesting to hear from the

KESC chief last week that our future generation

will never forgive us if we fail in utilising Thar

coal. His company, which is at the heart of the

current power crisis in Karachi for its worst

performance, plans to go for Thar coal in twoto

three years. He told an industrialists gathering

that KESC is already working on three coal power

plants to reduce dependence on furnace oil and

gas.

On June 17, the Sindh CM had said that the issue

of who owned the Thar coal has been resolved and

now the Thar Coal Energy Board, headed by him,

would work as one-window and all other

departments would function under it to grant

licenses to private companies for mining the

reserves and producing electricity. What he meantwas that Islamabad would have little role in

matters of the Thar coal project.

Earlier, in May, the dispute between federal


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government and the province of Sindh has led to

non-allocation of funds for development of mines

in the Thar Coal project in the Public Sector

Development Programme 2009-10. The AnnualPlan Coordination Committee (APCC) decided to

put on hold the allocation until the 16-year old

dispute was resolved.

On June 12, the federal government decided to

disband Thar Coal Company which was a thorn

in the side of Sindh government and hence

hampering the progress of the project. The

decision was taken at a specially convened meeting

of the Thar Coal Energy Board (TCEB), a

successor body formed by Sindh, to resolve the

issue of the ownership of the Thar Coal project

held at the Prime Ministers House with PrimeMinister Yousuf Raza Gilani in the chair.

As a corollary, the Thar Coal and Energy Board

(TCEB) emerged as the only legal and authorised

body to decide matters pertaining to mining and

power generation from Thar coal. It has the

blessings of President Asif Ali Zardari as well. Inother words, it was a hard-earned victory for

Sindh.

The power tussle between Islamabad and Sindh


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has an interesting history. Thar Coal Mining

Company was set up in October 2006 by the

federal government during Musharraf era. But

the then government of Sindh did not accept itand the mineral development minister raised

certain objections. The Planning Commission had

on February 15, 2005, recommended the

establishment of a National Integrated Coal

Mining and Power Generation Authority and a

Pakistan Coal Development Company, with an

investment of Rs2 billion from the federal

government, to create an initial framework to

attract foreign investment for coal.

The Sindh government saw these measures as

attempts by Islamabad bureaucrats to take over

the coal resources of Sindh. The Thar CoalMining Company had 80 per cent shares of the

federal government and only a 20 per cent share

of Sindh. In 2008, the federal government created

Thar Coal Authority and abolished the Thar Coal

Mining Company

Later, by a notification issued on October 11, 2008the federal government abolished the Thar Coal

Authority as well as Thar Coal Energy Board.

The Central Development Working Party had


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later approved two similar schemes of coal

gasification and revived TCMC without any

consultation with the provincial government.

However, the Sindh government opposed itsrevival and in May this year conveyed its

objections to the Planning Commission.

Now, it is the TCEB and its chairman (CM) who

preside over the fate of vast coal reserves in

Tharparkar region but when will the project come

to fruition is anybodys guess. The history of Thar

coal has been more of who controls the treasure-

trove of vast reserves than of how the country can

become self-sufficient in energy by utilising them.

The coal deposits were discovered by the

Geological Survey of Pakistan (GSP) in 1992. Thefind later turned out to be the second largest in

the world with confirmed reserves of 175.5 billion

tons of coal. The Thar coal is of lignite A-B quality

which contains very low quantities of ash and

sulphur and is suitable for power generation, with

relatively less adverse environmental and

ecological effects.

But the Planning Commission has its own

reservations and had recently recommended

against the mining of the coal deposits for it thinks


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that would have negative ecological impact on the

province. It proposed gasification of the reserves

which would not only be environment-friendly but

also cost-effective. But Pakistan contributes littleat this stage to global carbon footprint and

greenhouse emissions as measured under Kyoto

Protocal for it has yet to attain a reasonable

degree of industrialisation.

Various studies show that coal is a leading

component of the worlds electricity mix

contributing 40 per cent to the total power

generation. Other major components are nuclear

power (16 per cent), natural gas (15 per cent) and

hydro (19 per cent). By 2030, an EU estimate

shows, nearly 1400GW of new coal-fired capacity

will be built worldwide, with two-thirds of the newcapacity in the developing countries.

So, coal will continue to be a key player in energy

markets. Currently China produces 75 per cent of

its electricity from coal; India 55 per cent; US 50

per cent; Germany 48 per cent and UK 33 per

cent. Compared to that, Pakistan with its 175bntonnes of coal reserves is content with a share of

0.7 per cent in its electricity mix.


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Specialised bank assets drop

On July 22, the State Bank of Pakistan accepted

bids worth Rs18.4 billion during its Reverse Repo

Open Market Operation in governments T-bills.

According to the weekly statement of position of

all scheduled banks for the week ended July 18,

2009, deposits and other accounts of the scheduled

banks increased in the current week and stood at

Rs4,129.580 billion, higher by Rs2.62 billion over

preceding weeks figure of Rs4,126.960 billion.

Compared with last years corresponding figure

of Rs3,783.937 billion, the current weeks figure is

larger by Rs345.643 billion. During the currentweek, commercial banks deposits showed a rise of

Rs4.766 billion over the week to Rs4,116.713

billion, against preceding weeks Rs4,111.947

billion. Specialized banks deposits stood at

Rs12.867 billion, against preceding weeks

Rs15.014 billion, a fall of Rs2.147 billion.

Borrowings by all scheduled banks increased in

the week. It rose to Rs509.764 billion over

preceding weeks figure of Rs492.717 billion, a

rise of Rs17.047 billion. Compared to last years


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corresponding figure of Rs363.284 billion, current

weeks figure is higher by Rs146.48 billion.

Commercial banks borrowings rose to Rs428.607

billion against previous weeks Rs411.742 billion,or by Rs16.865 billion. Borrowings by specialised

banks stood at Rs81.157 billion, against preceding

weeks figure of Rs80.975 billion, higher by

Rs0.182 billion.

Gross advances stood at Rs3,156.686 billion in the

week under review, a rise of Rs1.974 billion over

preceding weeks figure of Rs3,154.712 billion.

Compared to last years corresponding figure of

Rs2,853.211 billion, current weeks figure is larger

by Rs303.475 billion. In the week under review,

advances by commercial banks rose to

Rs3,050.696 billion against earlier weeks figure ofRs3,049.185 billion, or by Rs1.511 billion.

Advances of specialised banks stood at Rs105.990

billion, higher by Rs0.463 billion over earlier

weeks figure of Rs105.527 billion.

Investments of all scheduled banks increased in

the week by Rs41.701 billion to Rs1,374.666 billionagainst preceding weeks figure of Rs1,332.965

billion. Compared to last years corresponding

figure of Rs1,054.403 billion, current weeks

figure is larger by Rs320.263 billion. In the


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over previous weeks figure of Rs5,486.497 billion.

Specialized banks assets declined to Rs131.417

billion, or by Rs2.215 billion over previous weeks

Rs133.632 billion.


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Drip irrigation for overcoming water shortage

By Khuram Mubeen and Dr M. Ather Nadeem

IN case of irrigation water shortage, every drop

counts. Various methods can be used to economise

on water use, one among them is the drip

irrigation, which is the most efficient system.

Modern drip irrigation has become the most

valued innovation which minimises the use of

water and fertiliser by allowing water to drip

slowly to the plant roots, either onto the soil

surface or directly onto the root zone, through

network of valves, pipes, tubings, and emitters etc.

If properly designed, installed, and managed, drip

irrigation, also called trickle irrigation, conserves

water by reducing evaporation and deep drainage

compared to other types of irrigation since water

can be precisely applied to the roots zone.

Drip irrigation is mainly adopted in areas facing

acute water shortage and especially for crops such

as cotton, maize, sugarcane, coconuts, grapes,


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bananas, citrus, straw berries, and tomatoes.

Proven yield and crop quality responses to drip

irrigation have been observed in onion,

cauliflower, lettuce, melon and tomato etc. It iseasy to install and design drip irrigation system

which can reduce disease problems associated

with high levels of moisture on some plants.

The efficiency of drip irrigation results from two

primary factors. The first is that water soaks into

the soil before it can evaporate or run off. The

second is that water is only applied where it is

needed (at roots).

If water conservation methods such as drip

irrigation are not adopted, Balochistan will face

serious water shortage by the next 15 years. Dripirrigation not only saves 40-60 per cent of water

but also increases yield of crops up to 20 per cent

per hectare.

Sub-surface drip irrigation (SDI) is preferred by

growers. In this system drip tapes are

permanently or temporarily buried at or belowplant roots. It is becoming popular for row crop

irrigation, especially in areas where water is

scarce or recycled water is used for irrigation.


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Water use can be managed efficiently with SDI

without water losses due to evaporation, runoff,

and only wetting the soil under the root zone.

Agricultural chemicals can be used efficiently withdrip irrigation. Timely application of herbicides,

insecticides and fungicides are possible. Where

insecticides are labeled for application through

drip irrigation, less insecticide may be required to

control pests. Fertiliser savings is about 95 per

cent in drip irrigation system.

Other advantages of this system are that it does

not need leveling of the field and has the ability to

irrigate irregular-shaped fields, allowing safe use

of recycled water. Moisture within the root zone

can be maintained at field capacity. Soil type plays

less important role in frequency of irrigation andminimises soil erosion and labour cost.

Drip is adaptable to fields with odd shapes or

uneven topography. This system works well where

other systems are inefficient because parts of the

field have excessive infiltration, water puddling,

or runoff. The system can be designed andmanaged so that the wheel rows are sufficiently

dry so that tractor operation is possible at any

time at the convenience of the growers.


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Initial cost may be a bit more than overhead

systems. Sunlight can affect the tubes used for

drip irrigation, shortening their usable life. If

water is not properly filtered and the equipmentnot properly maintained, it can result in clogging.

Drip irrigation might be unsatisfactory if

herbicides or top dressed fertilisers need sprinkler

irrigation for activation.

In lighter soils subsurface drip may be unable to

wet the soil surface for germination. The system

requires careful consideration of the installation

depth. It can also enhance weed control in arid

climates by keeping much of the soil surface dry.

Ultimately, there must be an economic advantage

to drip irrigation to make it worthwhile. The tubes

need to be saved from insects, and animals andfarming tools to avoid leakages.

Various management practices are needed to get

maximum benefit from drip irrigation for a longer

time. Chlorine or other chemicals can be used in

the drip line periodically to kill bacteria and algae.

Acid might also be needed to dissolve calciumcarbonates. Filters must be managed and changed

as needed. The frequency of flushing depends on

the amount and kinds of sedimentation in the

tape. Root intrusion needs to be controlled for


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some crops. Rodents must be controlled, especially

where drip tape is buried.

The drip tape needs to be sufficiently near thesurface to germinate the seed if necessary. For

example, SDI with tape tube 4-5 inches deep has

been used successfully to germinate onion seeds in

silt loam soil.

Drip irrigation with more water than a plants

requirement will result in the loss of most of drip

irrigation benefits. The soil will be excessively wet

promoting disease, weed growth and nitrate

leaching. Irrigate to replace soil moisture deficit in

the top 12 inches of soil.

Since only the crop root zone is irrigated, nitrogenalready in the soil is less subject to leaching losses.

Total nitrogen requirements are reduced using

drip irrigation and less nitrogen should be applied

in each application. Chemical analyses of the

irrigation water and competent technical advice

are needed before injecting chemical fertilisers

into drip tape. Again, there is a need to improvewater rotation programme to ensure timely

irrigation. It happens that there is excessive

availability of irrigation water when crop doesnt

need it and the result is loss of water.


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Growers are suggested to irrigate crops optimally

because over and under-irrigation is detrimental

for crop growth. To cope with water shortage,reorganisation of water sector institutions for

economic utilisation of water resources, building

storage structures to overcome droughts and to

develop comprehensive water and hydro resource,

a new policy is necessary.

The government should give priority to drip

irrigation as the system conserves water

significantly. The drip irrigation has great

potential in our desert regions of Thal, Cholistan

and Thar. Since water is a limiting factor in sandy

deserts, it should not be applied by flood irrigation

as most of it will percolate down the root systemthrough sandy soils. It should be applied by drip

irrigation using local PVC pipes.

A well-designed drip irrigation system or

subsurface drip irrigation system will lose

practically no water to runoff, deep percolation or

evaporation. Irrigation scheduling can beprecisely managed to meet crop demands, holding

the promise of increased crop yields and quality.

Growers new to drip irrigation might want to

start with a relatively simple system on a small


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acreage.

Drip irrigation might be unsatisfactory if

herbicides need sprinkler irrigation for activation.Once the zones are assigned and the drip system is

designed, it is possible to schedule irrigations to

meet the unique needs of the crop in each zone.

Filters must be able to handle worst-case

scenarios. Finally, be sure to include both

injectors for chemigation and flow meters to

confirm system performance. Systematically

monitor the lines for physical damage.

Once a month, the drip lines may be flushed by

opening the far ends of a portion of the tubes at a

time and allowing high velocity water to rush out

the sediment. If drip lines become plugged in spiteof maintenance, many cleaning products are

available through irrigation systems suppliers.

The government should prepare an efficient water

conservation plan and monitor its effective

implementation at the field level. Under the

prevailing water scarce situation of the country,using drip irrigation is of great importance and is

a do or die situation for the nation and our future

generations.


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Lower targets for cash crops

By Ahmad Fraz Khan

TARGETS for two cash crops - cotton and rice -

have been fixed at less than what the country

achieved last year, leave alone bumper and record

yields of the past.

This year, cotton target has come down to 13.3

million bales against last seasons production of

14.1 million bales. Similarly, rice target has beenfixed at six million tons against 6.9 million tons

produced last year.

The agriculture planners defend these low targets

saying it was an extraordinary season last year

and its production cannot be taken as benchmark.

Thus, we have set targets, which are achievableand provide credible basis for next years

planning, they say.

The farmers, however, insist these targets are low


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enough to be achieved automatically, without

creating any hassle for agriculture bureaucracy.

They claim: Agricultural bureaucracy has even

stopped dreaming about higher goals.

The lower targets would translate into a

staggering cost to the economy. The country

would have to import huge quantity of cotton and

lose money on rice exports, creating a huge hole in

its finances. Where would it get the foreign

exchange from to bridge the gap, especially given

the financial crunch it is facing right now?

Last years trade deficit amounted to $17 billion.

If the gap has to narrow down, agriculture is

perhaps the only hope; the manufacturing sector

is in negative swing. Growth of services has sloweddown. This Kharif season assumes added

significance as it grows two major cash crops.

Around 53-54 per cent of export earnings come

only from cotton and cotton textiles. In order to

maintain that level of exports, the textile industry

needs around 15 million bales, but the target hasbeen set at 13.3 million bales. It means the country

is planning for an import of 1.7 million bales. The

planners have disregarded the fact that the

country had once produced 14.7 million bales.


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If Pakistans effort is put in the Indian context,

the target looks simply disappointing. During the

last 10 years, the Indian cotton production hasjumped from 17 million bales to 31 million bales.

Most of its yield is coming from non-traditional

(rain-fed) areas, where it is watered with

pressurised irrigation. Pakistans agriculture is in

the hands advocates of status quo, as the farmers

claim.

Rice, the second largest cash crop, presents the

same story. Last year, out of total production of

6.9 million tons, three million tons were exported

0.97 million tons basmati and the rest non-

basmati for about $2.2 billion. Had it not been

for gross under-invoicing keeping domesticmarket suppressed, less foreign exchange for

national exchequer and fewer taxes the figure

could have touched $3 billion.

This year, the agriculture planners seem to be

simply planning to reduce exportable surplus.

Instead of increasing surplus and finding newmarkets for it, rice import is being put on a

reverse path.

The country is spending nearly $4 billion on


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import of what the State Bank of Pakistan calls

food group wheat, edible fats, pulses and diary

products. All of it belongs to the agriculture sector

and its sub-sectors. Even these $4 billion could besaved though better planning to boost production

in the agriculture sector.

Planners need to think big and devise strategies

accordingly. It is, by all means, a gigantic task, but

has to be undertaken to prevent an economic

mess.

There are many states, endowed with much less

than Pakistans potential, which developed a

vision, set goals and targets and then achieved

these within a short span of time. Chile is one such

example; it raised its horticulture exports fromvirtual zero to $6 billion within a decade.

The Indian agricultural production is also

multiplying at a faster pace doubling of cotton

production in 10 years.

All major and minor crops and food group havetheir own set of problems and need careful

planning. But it is, by no means, an impossible

task; they rather need right steps to become basis

for higher targets.


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Pakistans cotton and rice crops are now

witnessing invasion by illegal varieties, and the

issue is snowballing every year. The country needsto ensure genetic purity of both crops as a first

step. Secondly, it must bring in new and better

yielding varieties, which are available all over the

world. Its 80 per cent cotton is under so-called BT

variety, and no one knows what is being sown in

the name of BT. Its rice has just started suffering

invasion of hybrid varieties, which are of

unknown origin and health. Its main (basmati)

variety, Super-96, is 13 years old and becoming

increasing susceptible to diseases.

All its coarse varieties are vulnerable to blight and

regularly fall victim to it. Both need replacement.These simple steps, along with better extension

service, would make huge difference in these

crops. But it needs some meticulous planning and

a set of objectives put in timeframe.


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Continuing economic trends

By Mohiuddin Aazim

Monday, 27 Jul, 2009 | 02:01 AM

THE trends that emerged in the economy in the

last fiscal year look set to continue through this

year. This is because most key trends were the

offshoots of structural weaknesses or strengths,

though they did reflect to some extent the effects

of global recession.

Fiscal year 2009 closed as one of the most troubled

years, dragging down the economic growth rate to

just two per cent from the revised 4.1 per cent in

FY08. Our external sector came under pressureright in the first quarter as an increase in world

fuel oil prices and a financial crisis in the US

exposed our structural weaknessese.g.

concentration of exports in little-diversified, low

value-added items and limited outreach to global

markets.

In the second quarter, we began experiencing an

overall economic slow down as by then the

American economy had plunged into a full-scale

recession, impacting on exports and foreign


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investments..

Fiscal deficit ballooned to 4.9 of GDP against the

revised target of 4.3 per cent. Pakistan has ahistory of its current expenses exceeding current

incomes due to a slow growth in tax revenue, not

well-targeted subsidies, ineffective controls,

oversized government, reckless spending,

corruption and lack of good governance. But in

FY09 the war against extremism in NWFP and

resultant displacement of 2.5 million people plus a

slow down in domestic economy made things

worse.

The government could have introduced

agricultural income tax in this years budget but it

failed to do so for political consideration for the63rd consecutive year. This is an example of how

structural issues remain unresolved.

Inflation remained high in the first half of the last

fiscal year making it difficult for the government

to offer fiscal stimuli to revive the economy as the

rest of the world was doing. The central bankfighting a double-digit inflation waited till the

second half of the fiscal year to soften its monetary

policy stance after noticing a gradual decline in

inflation. The government expects that CPI


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inflation, after peaking around 20.8 per cent in

FY09 would decline to 9.5 per cent this year.

But that seems a difficult task in view of the IMFpressure for eliminating power subsidies,

continuing business malpractices like hoarding,

cartel making broken supply chain of

commodities and the over-pricing.

A semi-regulated financial sector remained largely

unaffected by global financial crisis. But our

banking sector did see a fall in demand for

consumer credit and a buildup in non-performing

loans. The government continued to borrow

heavily from the central bank for most part of the

last fiscal year fuelling inflation but the trend

reversed towards the end of the year. Meanwhile,the private sectors bank borrowing slumped, due

to higher interest rates, a decline in foreign and

domestic demand and an acute shortage of

electricity that hit production activity.

In the ten months of FY09, large-scale industries

reported a decline of 8.24 per cent . In the currentfiscal year a moderate growth in LSM can be

expected due to low base effect, anticipated partial

revival of the global economy and the steps

announced in this years budget for boosting


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industrial activities. The trade policy for the

current fiscal year, likely to be announced shortly

is expected to provide some impetus.

Besides, a further easing of the SBP monetary

policy this month would address the issue of

costlier finance. However, the government must

ensure least-interrupted supply of electricity to

industrial units without which their production

levels would remain low.

In FY09, growing trade and current account

deficits had a draw down on foreign exchange

reserves that fell over 40 per cent within the first

quarter to $6.7 billion.. This compelled Pakistan

to seek a $7.6 billion IMF standby loan. A partial

release of this loan, cut in imports and billions ofdollars provided friendly countries brought back

the reserves to $11 billion plus towards the year-

end.

Now Pakistan has sought an additional $4 billion

from the IMF to use it if the Friends of Pakistan

fail to fulfill their promise of providing five billiondollars .Chances are that Pakistan would not only

secure the third tranche of the IMF standby loan

but the Fund would also make available the

requested additional $4 billion. However, the


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increase in foreign debt and the resultant rise in

foreign debt servicing would keep the external

sector under stress.

In the last fiscal year, trade deficit shrank

considerably but at $17 billion it was still very

high just a little less than the total export bill

for the year. (See chart). Exports declined 6.7 per

cent partly due to a narrow export base and partly

as a result of the recession. And imports fell 12.9

per cent as income levels of households and

corporates declined, slashing the domestic

demand.

Home remittances, however, grew 21 per cent to

$7.8 billion in continuation of the trend seen since

9/11. A close destination-wise study of remittancesremoves the fear that this high growth may be a

one-time phenomIndicators FY09 FY08

enon. It is true that a fraction of the Pakistanis

working in the UAE and Saudi Arabiamost of

them labourers did loose their jobs due to

slowdown of construction industry in thesecountries. But generally speaking, Pakistanis

abroad have braved the recession and the

remittances in this fiscal year are set to grow. The

growth rate, however, would depend on the pace


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of recovery taking place in the recession-hit

countries.

In the last fiscal year, the rupee depreciated 19.5per cent against the dollar making imports costlier

and thus stoking inflation and increasing the cost

of production. During the current fiscal year also,

the rupee may remain under pressure, senior

bankers say.


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Mixed price trends on lower demand

PRICES of some of essential items on the Karachiwholesale market showed modest decline owing

perhaps to falling consumer demand after heavy

downpour, which disrupted the city life, while

some others rose under the lead of sugar, which

was quoted higher by Rs200 per bag.

Dealers said although arrivals from upcountry

markets were far below the normal weekly figures

because of rain and there were expectations of

further increase in prices, but instead prices fell

for lack of demand rather than any other negative

factor.

Wheat prices, which had been rising for the last

couple of weeks after permission to export wheat-

based products, led the market decline, having

negative impact on some other essential items,

they said.

I dont think there was any other reason behindthe fall except falling demand both from

commercial traders and flour mills, said a

leading trader Haji Sulaiman.


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He said because of heavy rain in the city and

interior Sindh, normal business on the commodity

exchange could not be resumed as day traders and

commercial dealers just watched the situationkeeping off the market.

Some other commercial dealers said that being a

staple food, any fall and rise in wheat prices had a

chain negative and positive impact on the entire

commodity trade and that was why prices of some

essential items also fell in sympathy.

The notable feature of the week was that prices of

masoor imported type, which had been ruling

higher for the last about a year, suffered a sharp

fall of Rs600 per bag as some importers tried to

clear the backlog of unsold stocks amid fallingdemand.

Among other essentials, sugar prices did not show

any easing due to pressure on

ready supplies because of hoarding by some of

commercial dealers and stockists, dealers said.

Supplies from mills were also on lower side, which

were fuelling price flare-up for the last couple of

weeks, sustaining prices at the all-time peak levels.


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However, neither corrective step were taken by

the government nor the TCP was asked foremergency imports to ensure supplies at the pre-

price flare-up levels, market sources said.

Before last two weeks, sugar prices were stable

below Rs40 per kilo on wholesale market and

around Rs42-45 per kg on retail but now prices

seem to have stabilised at peak levels owing to

short supply, they added.

Wheat price led to the market decline for the

second week in a row as prices suffered fall

ranging from Rs60-75 per bag owing to

considerable fall in mills demand.

Gram whole and masoor followed them partly on

slack demand and partly to selling by some

dealers and were quoted lower by Rs50 and Rs600

per bag respectively. Beetle type fell by Rs300.

Among other essentials, basmati was marked upby Rs100 per bag, while Irri-6 and Irri broken

remained under pressure and fell by Rs50, with

fine varieties including sela and kernel remaining

pegged at the last closing rate.


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Sugar refined type were quoted higher by Rs200

per bag after early fall, while desi type fell by

Rs100, with gur showing no change.

The cereal sector again showed little changes as

supplies matched the demand. As a result, prices

of maize, bajra and barley were held unchanged

but guar seeds were traded higher by Rs50.

The oilseed sector, on the other hand, came in for

active support and prices of cotton, cottonseed,

and til were marked up by Rs35-50 but castor

seed came in for active selling and was quoted

lower by Rs50.

Rapeseed sector showed firm trend as prices werequoted higher by Rs25 per 40 kg followed by

reports of fresh rise in oil and cake prices.

Oilcakes on the other hand showed mixed trend

and while prices of cottonseed fell by Rs80 per

bag, rapeseed cakes rose by Rs10-15 amid active

trading.M.A.


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Shinghar: a treasure of chilghoza pine

By Nazar Khan Mandokhail

Monday, 27 Jul, 2009 | 02:04 AM PST |

SHINGHAR, one of the most beautiful and

important mountains is situated along Takht-i-

Sulaiman and Spera Ghar, 30 miles from Zhob

city at a height of 9,000 feet above sea level. The

mountain is located in the Shirani district.

Shinghar receives rain during the monsoon season

and snow during the winter.

During the British rule Shinghar was the summercamp for political agent. The government

abandoned it as it had the least interest in the site.

It appears as a ghost town where people

occasionally go for an adventurous over-night stay

or a picnic. But recently the Frontier Corps has

set up a post there and built a rest house.

Shinghar is important economically as it has

forests of edible pine chilghoza (Pinus gerardiana)

in Spera ghar, Qaisa ghar and Toor ghar of Zhob

district.


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Pine trees are 10-25 metres high with usually

deep, wide-open crown with long erect branches

with flaky bark revealing light grayish greenpatches when peeled. The leaves are needle-like 6-

10 cm long, glossy green on the outer surface with

blue green stomatal line on inner face. The cones

are 10-18 cm long and 9-11 cm wide.

The seeds are nuts, 17-23 mm long, 5-7 mm broad.

Chilghoza pine is well known for its edible seeds,

rich in oil (60 per cent), carbohydrate and

proteins. The seeds are eaten raw or baked, they

have pleasant flavour and can be used as a staple

food. Chilghoza is also the main source of income

for the natives of Zhob and Sherani district.

A group of biology students of a local college,

during its excursion trip to Shinghar to study the

ecology and flora and fauna, specially the pine

forest on the mountain, observed that a number of

pine trees had withered and dried because of age.

Some had shed with no indication of any external

pathogenic symptoms. On some slopes and onplains there were rare pine trees. However, there

were wide gaps among the trees. Efforts should be

made to fill these gaps by planting saplings by one

of the following methods:


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Propagation by seeds: Seeds can be sown in cold

frame in separate pots. A short stratification of six

weeks at four degrees centigrade can help in thegermination of seeds. The saplings then should be

planted at its proper place at the earliest and

protected during the first two winters. The size of

the saplings at the time of plantation should not be

more than 30-90cm in size.

Propagation through cutting: This method only

works when cuttings taken from very young trees

less than 10 years old, using single leaf fascicle

with a base of short shoot, disbudding the shoots

some weeks before taking the cuttings can help.

Cutting are normally slow to grow.

Shinghar is a beautiful gift of nature with pine

trees. It is the responsibility of all particularly the

government to ban hunting and grazing to

maintain the natural balance of ecosystem. A road

should be built up to the top crest and water

should

economic & business review [270709]

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