Money inflow: FDI increases during July-November

The oil and gas sector attracted the highest amount of FDI in the July-November period, it attracted a net foreign investment of $179.5 million. DESIGN: CREATIVE COMMON

KARACHI: Pakistan received foreign direct investment (FDI) of $330.7 million in the period July-November, which is 4.7% higher than $315.8 million it attracted in the corresponding five-month period in the last fiscal year.

However, FDI dropped 26% year-on-year to $47.1 million in November, according to data released by the State Bank of Pakistan. In the fiscal year 2012-13, Pakistan had received FDI worth over $1.4 billion.

The oil and gas sector attracted the highest amount of FDI in the July-November period. It attracted a net foreign investment of $179.5 million, which is 15.8% higher than the investment of $155 million it received in the corresponding five-month period in the previous fiscal year.

Improved net FDI in financial business ($64.2 million), chemicals ($61.7 million), tobacco and cigarettes ($45.2 million), food ($35.4 million) and automobile ($12.3 million) sectors led to the overall growth in FDI in the country during the five-month period, SBP data showed.

In contrast, a major dip in FDI was registered in the telecommunications sector, where a net outflow of $110.6 million was recorded in the period under review. Another sector that witnessed a considerable net outflow of FDI in July-November was electrical machinery ($11.1 million).

As for the foreign portfolio investment (FPI), which includes foreign public investment, Pakistan attracted only $68.2 million during the July-November period as opposed to $140.3 million in the corresponding period last year. This reflects a year-on-year decline of 51.3% in FPI.

Last week, SBP-held foreign exchange reserves declined to their 12-year low of $2.9 billion. According to analysts, one of the reasons behind the gradual downfall of foreign exchange reserves is unimpressive inflows of foreign investment.

Although FDI has witnessed an increase in recent months, its growth is less than satisfactory given the much-publicised efforts by the government to revive the economy.

‘Research and innovation best way forward’

Federal minister for National Food and Research Sikander hayat Bosan addressing the 2nd FAO-AAN Share-Mela at NARC. PHOTO: APP

ISLAMABAD: Federal Minister for Ministry of National Food Security and Research Sikandar Hayat Khan Bosan has said that continuous sharing of experiences and innovative ideas among farmers, agricultural researchers and the private sector will boost the agriculture sector.

The minister was speaking at the 2nd Food and Agriculture Organisation Alumni Associations Network (FAO-AAN) Share-Mela organised by the United Nations and Pakistan Agricultural Research Council (PARC) here at the National Agricultural Research Centre (NARC).

Representatives from 75 small-scale farmers’ organisations, 25 research institutions and private sector enterprises participated in the Share-Mela.

While speaking on the occasion, Patrick Evans, FAO representative in Pakistan spelled out a new future policy framework. Evans said that the FAO will focus on four important areas – food security and nutrition, economic development, capacity building and disaster management.

He stated that Pakistan had great potential in the agriculture sector, adding that the biggest challenge to food security was the burgeoning population of the country which was expected to reach 350 million by 2050.

In order to meet the challenges of food insecurity and malnutrition, it was imperative that latest technological advancements and innovative techniques be employed to improve the productivity of land, emphasised the representative.

The federal minister said that the Share-Mela will open up an opportunity for farming communities from across the country.

Senate question hour: Hoarding to blame for dollar rate hike, says minister

Govt debt has increased by Rs1.9 trillion from 2008 to 2013 due to rupee fall.

ISLAMABAD: 

Between 2008 and 2013, the government debt soared by Rs1.9 trillion due to depreciation of the Pakistani rupee, the Senate was informed on Tuesday.

Minister of State for Education Balighur Rehman, on behalf of the finance minister, was responding to a question forwarded by Senator Sughra Imam of Pakistan Peoples Party (PPP).

Rehman blamed artificial hoarding and speculation for the recent hike in the dollar rate as compared to the Pakistani rupee.

According to the minister, several steps have been taken to arrest the fast appreciation of the dollar value.

“Artificial buying of the dollar is being discouraged and efforts are being made to increase the inflow of dollars into the country,” Rehman said adding that banks and financial institutions had also taken several steps in this regard.

However, former finance minister Saleem H Mandviwalla negated the argument and said that the government had recently printed currency notes worth Rs2 billion – which had led to further depreciation of the rupee.

The ministry also informed the Senate that the US had provided $2.7 billion as financial assistance between 2003 and 2013, and that Pakistan had obtained loans from the World Bank, Asian Development Bank and the International Monetary Fund worth $7.7 billion, $8.2 billion and $9.1 billion, respectively.

To another question, the finance ministry said that all payments related to the government’s expenditure were being made from the Federal Consolidated Fund (FCF), which consisted of revenue receipts, loans and recovery of loans.

For the settlement of the power sector circular debt, Rehman pointed out, three kinds of transactions were carried out including issuance of five-year Pakistan Investment Bonds, deduction at source against government receipts or recovery of loans, and cash payment out of FCF.

The ministry stated that in the budget for 2013-14, the government had planned substantial foreign exchange inflows including funds through the 3G licence fee, proceeds from the privatisation of Pakistan Telecommunication Company Ltd, and loans from multilateral and bilateral sources.

“The timely and full realisation of planned official financial inflows will help build up of foreign exchange reserves and in turn stabilise the exchange rates,” he said.

The finance ministry also informed the Senate that the IMF programme had already been started and the first tranche of $544 million had already been received.

Meanwhile, States and Frontier Regions Minister Abdul Qadir Baloch, on behalf of the minister for industries and production, told the upper house that the government had introduced Telegraphic Transfer Charges Schemes to enhance foreign remittances through the banking system.

“The Pakistan Remittance Initiative was launched with the objective of facilitating and supporting faster, cheaper, convenient and efficient flow of remittances,” he said.

In absence of reforms, ADB to stop $500m energy loan

The government is hoping to receive $500 million from the ADB and another $500 million from the World Bank by March 2014 aimed at boosting its foreign currency reserves. ILLUSTRATION: JAMAL KHURSHID

ISLAMABAD: Despite sounding positive about the government’s economic initiatives, the Asian Development Bank’s (ADB) top man in Islamabad on Tuesday linked a $500 million loan for power sector with meeting a set of conditions to ensure administrative autonomy and financial viability of the energy sector.

“Budgetary support for power sector will be disbursed not on the basis of promises but on the basis of actual actions that Pakistan will have to take in the next six weeks,” said Werner Liepach, the ADB’s country director for Pakistan, at a press conference.

A presumably “less interventionist Supreme Court of Pakistan” would also help further reforms in the power sector, hoped Liepach, arguing that a couple of interventions by the SC in the past had stalled reforms.

The Ministry of Finance is also said to have assured the IMF that it will change heads of power distribution companies after retirement of Chief Justice of Pakistan Iftikhar Muhammad Chaudhry.

The government is hoping to receive $500 million from the ADB and another $500 million from the World Bank by March 2014 aimed at boosting its foreign currency reserves. These are programme loans that are disbursed in a single tranche.

Liepach revealed that an ADB mission was already in town to discuss the modalities and reforms that Pakistan would have to introduce in six weeks. “Unless governance reforms are undertaken in the energy sector, no loan will be disbursed,” he said.

The exact size of the budgetary support for the power sector has not yet been finalised, but the ADB has earmarked $400 million in its business plan. Nothing could be said about the timing for approval, he said.

Spelling out some of the conditions, Liepach said Pakistan would have to undertake reforms to change the fuel mix, appoint board of directors of power companies, give autonomy to the boards in running the companies, implement privatisation programme and improve recovery of electricity bills.

He stressed that reforms were also needed to ensure financial stability of the energy sector as circular debt was piling up again. “We can make the sector financially viable by reducing the generation cost and improving recoveries.”

He said due to Supreme Court’s intervention a couple of measures had come to a halt. “I cannot comment how the SC will behave but if one assumes the SC will be less interventionist, reforms will move forward.”

He described the new economic team as reliable and committed but said “we will see in three to four months what actually it can deliver.”

To a question, Liepach pointed out that the $6 billion additional funding that Pakistan was seeking over and above the $6.7 billion IMF loan would come from multilateral and bilateral donors. The ADB’s share will be $1 to $1.5 billion, which depends on implementation of reforms.

“The ADB has scaled up assistance in quite a big way and approved $1.5 billion new loans since the new government came to power,” he added. The figure will cross $2 billion by the end of the current financial year.

The bank has approved $900 million for Jamshoro power project, $167.2 million for Power Distribution Enhancement Investment Programme and $430 million for BISP. But all these are project loans.

This year, $460 million has been disbursed. The ADB is also in the process of finalising a new three-year country partnership strategy for 2014-16 under which $3.2 billion will be offered to Pakistan. One-third of this will come in shape of budgetary support.

The ADB supported the construction of Diamer Bhasha Dam but the main issue was arranging billions of dollars of funds, Liepach said, adding the bank was conducting project studies which would be completed in one-and-a-half years. Original studies were outdated and needed to be updated, he remarked

Back-door deals?: Rupee gains despite SBP’s dollar purchases

In August this year, the SBP had also purchased $125 million from the market, which led to the depreciation of rupee against the dollar. PHOTO: FILE

ISLAMABAD: 

The State Bank of Pakistan has purchased $250 million to meet the target of Net International Reserves (NIR) set by the International Monetary Fund (IMF). However, the rupee has still gained against the US dollar, giving rise to speculation of a tacit understanding between foreign exchange companies and the authorities to stem the tide of a falling rupee. 

The purchases were made from undisclosed vendors, said sources in the Ministry of Finance. Analysts and money market experts claimed that the SBP purchased the dollars from foreign exchange companies which were bringing dollars from abroad to sell to the authorities.

Two major market players, who control two-third of the foreign exchange market, are providing dollars to the central bank, sources said. They are earning Rs2 per dollar over and above the market rate, they added.

In August this year, the SBP had also purchased $125 million from the market, which led to the depreciation of rupee against the dollar. At that time, the official foreign currency reserves had been at $5.3 billion. Now when the official foreign currency reserves stood at $2.9 billion and the SBP purchased $250 million, the rupee appreciated against the dollar, both in the interbank and open market, which was against the market dynamics, according to a former official of the SBP.

While the Ministry of Finance admitted that the SBP purchased dollars, the central bank showed its ignorance, underscoring that one of them was trying to hide facts.

“The SBP was unaware of such purchases”, said Umar Siddique, the chief spokesman for the central bank in his written response. To a question regarding an understanding with foreign exchange companies, Siddique said the SBP did not have any arrangement with foreign exchange companies.

Siddique said that since the start of December, the market has seen decent inflows that mitigated the prevailing speculative sentiments in the market, and translated into appreciation of the rupee.

While there is an abnormality in the exchange market as open market rates are unusually lower than the interbank rate, it has helped stem the rupee’s slide, which will also contribute in arresting imported inflation, according to analysts. The strengthening rupee will slow down the increase in prices of petroleum products and electricity.

In the interbank market, the rupee appreciated by about Rs2 in a matter of days, and parity was restored to Rs107.03 to a dollar on Tuesday. In the open market, the rate was Rs106.75 to a dollar.

Despite availing $6.7 billion from the IMF assistance programme, Pakistan has been struggling to shore up official foreign currency reserves that plunged to a 12-year low level of $2.9 billion on December 6. The country was also trying to achieve the NIR target for the second quarter of the fiscal year (October-December) after it missed the same target set for the first quarter.

The IMF has asked Pakistan to ensure that its net international reserves remained at a negative $2.1 billion by end December. The IMF calculates net reserves by excluding its outstanding liabilities towards Pakistan and the liabilities on account of forward contracts from the state’s currency reserves. After paying back $6.1 billion, Pakistan still owes $2.3 billion. In addition, about $2.2 billion are on account of forward contracts.

The IMF’s Executive Board will meet in Washington on Thursday to consider the approval of a second tranche of $545 million for Pakistan.

Finance Minister Ishaq Dar said last week that the country’s official reserves have increased to $3.4 billion after a $500 million injection. However, he did not disclose the source of the funds. Dar also said that the rupee-dollar exchange rate will return to Rs98 to a dollar.

When approached, the Ministry of Finance said that the $500 million inflow was made up of a $137 million short-term loan from the Islamic Development Bank, SBP’s purchases of dollars from the market and realisation of exports receipts.

The ministry strongly refuted allegations that there was tacit understanding between the authorities and main players of the foreign exchange market, but it could not justify the appreciation of the rupee despite SBP’s purchase of dollars and shortages of the foreign currency except by saying that hoarders have bought dollars in the market.

Spain bad loan ratio hits 50-year high

Spanish lenders' non-performing credits hit the highest level since records started back in 1962, the country's central bank reported Wednesday.

The ratio of bad loans judged highly unlikely to ever be repaid rose to 13 percent of all outstanding credits in October, up from 12.68 percent in the previous month.

This meant the value of risky assets climbed by three million euros ($4.12 billion) month-on-month to a total of 190.97 billion euros.

Bailout exit

Spain is the eurozone's fourth-biggest economy and has drawn over 40 billion euros from a banking-sector recue fund provided by its European allies. The southern European nation is due to exit that bailout program in January.

The European Commission and the International Monetary Fund said Spain was on its way to recovery, but warned that lending to businesses had yet to pick up while economic risks remained in the wake of the 2008 collapse of Spain's domestic real estate sector.

Spain managed to leave recession behind in the third quarter, but it is still grappling with a record-high unemployment rate of around 26 percent. That also dampens consumption and growth prospects.

A loan is regarded as having gone bad if payment has been delayed for three consecutive months.

China November factories and retail sales boost 4Q growth expectations

Industrial output in China rose 10 percent in November, compared with the same month a year ago, according to data released by the National Bureau of Statistics (NBS) on Tuesday.

The figure marked a slight slowdown from October when the output of factories, workshops and mines grew 10.3 percent year-on-year.

However, month-on-month retail sales rose 13.7 percent in November from 13.3 percent in October, suggesting that a government policy#link:17220550:emphasizing higher domestic consumption# appears to be bearing fruit.

Analysts said the latest figures might raise expectations for stronger growth in the fourth quarter, while the structure of the economy was improving toward consumption.

In the third quarter of 2013, China's gross domestic product (GDP) expanded 7.8 percent, growing out of slowdowns#link:17142870:in the previous two quarters# of the year. The data for November came after strong export and benign inflation data, released on Monday.

According to the General Administration of Customs, China's exports picked up 12.7 percent year-on-year in November. Moreover, the inflation rate slowed to 3 percent in the month, which is well below the government's annual target of 3.5 percent.

'With a muted inflation and a pace of growth in line with China's potential, we expect the government to maintain neutral monetary and fiscal policies while increasing their efforts on carrying out structural reforms,' Bank of America Merrill Lynch analysts wrote in a statement.

Last month, China's Communist rulers embarked on a course of economic reforms,#link:17124228:including a bigger role for the private sector, further interest rate liberalization and looser currency controls#. Beijing aims to move the economy away from its dependency on investment and exports by strengthening consumer demand as the key driver of growth.