Monetary policy: Analysts revise policy rate expectation for remainder of FY14

8.8% is the seven-month inflation figure for the current fiscal year. CREATIVE COMMONS

KARACHI: With lower than expected inflation numbers for two consecutive months, analysts have now revised their expectation of a policy rate hike in the remainder of the current fiscal year – something they believed was inevitable just a few months ago.

In the first review of the $6.7 billion International Monetary Fund (IMF) programme, the IMF had asked the government to raise the monetary policy rate to check inflation.

But after clocking up at 10.9% in November, the Consumer Price Index (CPI) first slipped to 9.2% in December and then reached 7.9% in January. This put a question mark over the market consensus that the State Bank of Pakistan (SBP) would pursue further monetary tightening by hiking the policy rate, which currently stands at 10%.

Although the IMF has recently increased its CPI forecast for fiscal year 2013-14 from 7.9% to 10% expecting that inflation will soon rise again, analysts still believe CPI will remain in the single digit for the rest of the year.

According to KASB Securities, the discount rate is expected to remain flat at 10% in the next monetary policy announcement, which is due in March. As a result, the brokerage house has now reduced its discount rate estimate for June 2014 from 11% to 10%.

The seven-month inflation since the beginning of the current fiscal year has been 8.8%.

Speaking to The Express Tribune, Topline Securities CEO Mohammed Sohail said the SBP’s inflation target of 11%-12% is on the higher side, adding the actual inflation for the current fiscal year will likely be in the range of 9%-10%. “With easing inflationary pressure, we don’t expect any change in the policy rate in the remaining months of the year,” Sohail noted.

Moreover, the trend in the money market shows an overwhelming majority of investors expects the rate will be kept flat at 10% in the next monetary policy announcement.

For instance, in the latest auction of market treasury bills held on February 4, about 44% of total participation was witnessed in the six-month papers only. It is unusual given that typically three-month bills attract investors’ attention whenever a rate hike is on the cards.

Effects of US tapering

Another reason most analysts initially expected the SBP to increase the discount rate was the vulnerability that a number of emerging economies face due to the United States Federal Reserve’s tapering.

The US has announced that it will reduce its monthly bond buying programme by $10 billion to $65 billion February onwards. This will diminish liquidity in the international financial market, thus reducing investments in equity and debt markets of emerging economies around the world.

According to Global Securities research analyst Umair Naseer, Pakistan is likely to remain unaffected by the slowdown in liquidity injections by the US Federal Reserve.

“We believe that Pakistani markets never really benefitted from the liquidity injections by the Fed. Hence, any outflow from Pakistan owing to US tapering is highly unlikely,” said Naseer.

Citing data from 2008 to 2010 during which the total holding of US bonds and mortgage-backed securities by the Fed increased from $800 billion to $2.3 trillion, Naseer said total portfolio investment in Pakistan did not witness any significant rise and still remains lower than the pre-2008 level.

Seeds unavailable: Farmers fail to find quality Bt cotton varieties

Karkey claimed that Pakistan had continued to detain its vessels since April 2012 even after issuance of a no-objection certificate by NAB. PHOTO: FILE

KARACHI: 

A cotton crisis is brewing right under the nose of authorities as genuine Bt cotton varieties fail to reach farmers who in turn are tricked into using substandard seeds, industry officials say.

Traders are cautiously observing a gradual decline in the area under cotton plantation as farmers switch to rice, sugarcane and other crops, which are offering better returns.

“We are experimenting with ourselves,” said a leading cotton broker. “No one knows for sure where the seeds are coming from. Farmers might have a good crop in a year. But if there is a pest attack, then forget that they will sow cotton again.”

Farmers in traditional cotton growing areas of Sukkur, Mirpurkhas, Multan and Mianwali now prefer paddy, mainly because of the price of rice, which continues to rise year after year.

Total area under cotton cultivation came down to 2.86 million hectares in 2011-12 from 3.05 million hectares in 2007-08.

The most pronounced decrease in the cotton cultivated area took place in Sukkur division where cotton is grown on less than 199,000 hectares against 300,000 hectares six years ago.

Seed dilemma

Pakistan uses between 40,000 and 45,000 tons of seed annually. Most of that comes from around 1,200 loosely-regulated private companies.

Each year, scientists at government-run laboratories at the Central Cotton Research Institute Sakrand and five other sister facilities invent new seeds with qualities of higher yield and protection from bad weather.

But Dr Muhammad Ali Talpur, Pakistan Central Cotton Committee’s (PCCC) Director Marketing and Economic Research, laments that the seeds are not produced in sufficient quantity.

“Only 6,000 tons of certified seed reaches the farmers,” he says. “These are unadulterated seeds produced in government labs and properly tested for two consecutive years.”

The rest of the demand is met by private companies, many of whom cheat by mixing banola with the seeds, he said.

A disconnect between the federal and provincial agriculture authorities has added to the problem as new varieties are not effectively distributed.

“It is the job of provincial governments to multiply the seeds and then market them,” said Talpur.

This year, the PCCC’s research institutes have come up with 15 cotton seed varieties.

Yield

The country’s cotton yield has steadily increased over the years from 713 kilogrammes (kgs) per hectare in 2008-09 to 769 kgs in 2012-13, according to the latest economic survey.

Officials say this is still far better than India where average yield remains around 500 kgs per hectare despite growing use of Bt cotton.

“The overall production in India is more than us mainly due to the large area under cultivation,” said Talpur.

India cultivates cotton over 12.2 million hectares and plans to produce 35 million bales. Pakistan’s production is estimated at around 13 million bales from three million hectares.

Fiscal prudence?: Govt shifts numbers to show ‘impressive’ performance

In order to boost its non-tax revenues in the backdrop of a significant shortfall in tax revenues, the government showed receiving about three-fourth of the annual SBP profit in just six months. PHOTO: FILE

ISLAMABAD: 

Pakistan was able to show an exceptional fiscal performance in the first half of this fiscal year as a result of smart accounting, as the federal government reflected an unprecedented increase in income from the State Bank of Pakistan (SBP) and the Water and Power Development Authority (Wapda) instead of showing any belt tightening.

While showing an ‘impressive’ fiscal performance, the government posted the national budget deficit – the gap between income and expenditures − at 2.2% of gross domestic product (GDP) or Rs570 billion in the July-December period of this fiscal year.

The fiscal performance has helped the government successfully complete the second review of the $6.7 billion International Monetary Fund (IMF) programme, even though it breached the target for reducing borrowings from the SBP.

However, a close review of income and expenditures revealed interesting patterns. The trend in current expenditures was the same as in the previous years but what made the difference was the increase in non-tax revenues, showed the Ministry of Finance documents.

In the first half, the federal government’s current expenditures stood at Rs1.376 trillion or 48.6% of annual expenditures, according to the documents. According to the ways and means limit, prescribed to ensure prudent fiscal management, the expenditures in the first half should not be more than 40% of the total. By that account, the government’s belt tightening claim appears to be a farce.

“Stringent spending controls and implementation of austerity measures as announced in the budget have helped in containing the fiscal deficit,” said Finance Minister Ishaq Dar on Sunday.

The gimmick

For the current fiscal year, non-tax revenues are estimated at Rs822 billion. But in the first half, the government has already collected Rs493.8 billion or 60% of the annual estimate.

An estimated income of Rs120 billion from the auction of telecom spectrum is also part of non-tax receipts, which is yet to materialise.

The 60% collection comes despite the fact that the country has not received the second tranche of $441 million (Rs46.5 billion) from the United States as part of the Coalition Support Fund.

In order to boost non-tax revenues in the backdrop of a significant shortfall in tax revenues, the government showed about three-fourth of the annual SBP profit in just six months. The central bank gave Rs145 billion in profit in six months against the annual target of Rs200 billion.

It has never happened in the past that the SBP gave 73% of its estimated annual profit in just six months. In 2012, it gave half of the annual profit in six months, in 2011 44%, in 2010 58% and in 2009 again 44%.

The SBP was requested to explain the sudden jump in profit and its response was awaited.

Similarly, the government had estimated that it would receive Rs11.9 billion in annual profit from Wapda on account of interest income on loans. But in six months, Wapda gave Rs47.6 billion, according to documents.

The federal government deducted past receivables from Wapda from the current year’s payments, explained an official of the Ministry of Finance.

The cash-based accounting system can easily be manipulated and this is what has been done, according to a former central banker. He said if the government recovered its income share while clearing the previous year’s circular debt, the income should also have been reflected in previous fiscal’s non-tax revenues.

Wapda spokesman was not available for comments.

For the full year, the government had estimated Rs23.8 billion in interest income from all public sector enterprises, but in six months it got Rs58 billion, the documents showed. Pakistan Atomic Energy Commission also gave Rs8.5 billion in interest income.

The government has already taken away Rs67.7 billion in funds from telecom companies to bridge the shortfall.

Notwithstanding the higher non-tax revenues, tax revenues stood at Rs1.025 trillion or 41.4% of the annual target.

CCI approves sovereign guarantees for Thar coal, transfer assets to PTCL

Prime Minister Nawaz Sharif (C) along with chief ministers of the four provinces (L-R) Balochistan's Abdul Malik, Sindh's Syed Qaim Ali Shah, Federal Finance Minister Ishaq Dar, PM, Khyber Pakhtunkhwa's Pervez Khattak and Punjab's Shahbaz Sharif. PHOTO: PID

ISLAMABAD: The Council of Common Interest (CCI) on Monday decided to accord sovereign guarantees for the Thar coal project and to expedite transfer of properties to Pakistan Telecommunication Company Limited so that revenue of US $ 800 million is realised.

Chaired by prime minister Nawaz Sharif himself in the PM House, the 25^th CCI was attended by chief ministers of Punjab, Sindh, Balochistan and Khyber Pakhtunkhwa.

Nawaz highlighted government’s limited resources to bear losses of state enterprises and how unnecessary recruitments and corruption has resulted in miss-management at these organisations and privatisation was the only solution. In this respect he sought support from all the provinces in the government’s decision to continue with the policy of 2011 on privatising power sector entities including DISCOs and GENCOs.

Prime Minister directed that provincial consultation should be mandatory before appointment of Board Members in public sector companies so that equal representation is ensured. CCI was presented with Annual Report for the year 2012-13, which was approved.

The CCI also approved the National Energy (Power) Policy 2013-18.

In this regard, Ministry of Water and Power was directed to hold meetings with all provinces to discuss the principles and decide upon mechanism for at-source deduction of outstanding power sector payables of provinces.

CCI expressed its dissatisfaction over the performance of National Electric Power Regulatory Authority (NEPRA) and it was decided that a diagnostic analysis be conducted in order to improve its performance.

On the issue of purchase of 20 per cent shares of Pakistan Petroleum Limited, Oil Gas and Development Company Limited, Sui Southern Gas Company Limited at their face value under the Aghaz-e-Haqooq-e-Balochistan, Prime Minister directed the Finance Division to hold detailed consultations with Provinces.

The CCI also approved issuance of sovereign guarantee for Thar coal mining project. Moreover, it was decided that Sovereign Guarantees would be provided for all future coal based projects. Nawaz said that Thar Coal is an important national Project which has to be fully supported as it would provide the much needed electricity at cheap rates.

The Pakistan Engineering Council (Amendment) Bill 2013 was approved by the CCI.

Federal Finance Minister Ishaq Dar and Secretary Inter Provincial Coordination Division Ejaz Chaudhry were present in the meeting.

Claims filed: Turkish RPP seeks $2.1b in damages

Karkey claimed that Pakistan had continued to detain its vessels since April 2012 even after issuance of a no-objection certificate by NAB. PHOTO: FILE

ISLAMABAD: Karkey Karadeniz Electricity Production Corporation (Karkey) has filed a ‘memorial on the merits’ with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), claiming $2.1 billion in damages from the Government of Pakistan. The damages have been calculated by independent international experts, it claims.

This is one of the largest claims filed with ICSID, the Washington DC-based arbitration body, says a press release.

The memorial on the merits puts in writing Karkey’s official position and the amount of damages to be claimed.

Karkey is seeking compensation from Pakistan for what it says breach of obligations under the bilateral investment treaty, breaches of international law and defiance of ICSID’s provisional measures, in connection with Karkey’s investment in a rental power project (RPP) in Karachi.

The initial contract value of Karkey’s Powership operations in Pakistan was $560 million for the duration of five years. The amount claimed includes damages as a result of the loss of earnings and costs associated with the detention of its vessels.

In the memorial filed on January 31, Karkey claimed that Pakistan had continued to detain its vessels since April 2012 even after issuance of a no-objection certificate by the National Accountability Bureau (NAB), clearing the company of any wrongdoing.

The power producer also said Pakistan failed to comply with the provisional measures taken by the ICSID in October 2013 for the release of Turkish-flagged Powership Kaya Bey to Dubai for undergoing maintenance

Gas supply: IP pipeline still not shelved, says government

Pakistan recently attempted to secure exemption from US sanctions by converting the project into a bilateral treaty. PHOTO: FILE

ISLAMABAD: 

Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi has declared that the Iran-Pakistan (IP) gas pipeline project is not a ‘gone story’ despite the threat of US sanctions and has sought an extension in the timeframe for its implementation.

He stated this here on Monday while addressing a ceremony for the grant of 12 petroleum concession agreements and exploration licences to Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL).

Replying to a question, he said Pakistan was committed to the IP pipeline and suggested that the timeframe set for commissioning the project should be extended because of the risk of US sanctions.

He pointed out that the government was also working on liquefied natural gas (LNG) terminals and the project would be completed in November to handle LNG imports. He ruled out LNG imports from the US, saying the government had initiated talks with Qatar on LNG supply.

On January 23, the government provisionally awarded 50 petroleum exploration blocks to eight local and international companies. Of these, 12 were formally given to OGDC and PPL.

According to the minister, the remaining 38 petroleum concession blocks will soon be awarded to other companies and the government is expecting a minimum investment of $176 million from them.

OGDC is a public limited company engaged in exploration and production of oil and gas in the country for the last four decades. It holds the largest share in oil (58%) and gas (42%) reserves. Its percentage share in total oil and gas production is 52% and 27% respectively.

PPL is Pakistan’s oldest and largest exploration and production company, which was incorporated during the 1950s. At present, PPL is the operator of 16 exploration blocks and has working interest in 16 other blocks operated by other companies.

TVs, cars, computers linked to obesity in poor nations

The obesity prevalence in developing countries rose from 3.4 percent among those that owned no devices to 14.5 percent for those that owned all three. PHOTO: FILE

WASHINGTON.: In low-income countries, people with cars, televisions and computers at home are far more likely to be obese than people with no such conveniences, researchers said Monday.

Eating more, sitting still and missing out on exercise by driving are all likely reasons why people with these modern-day luxuries could be gaining weight and putting themselves at risk for diabetes, researchers said.

The findings in the Canadian Medical Journal suggest extra caution is needed to prevent health dangers in nations that are adopting a Western lifestyle.

“With increasing uptake of modern-day conveniences — TVs, cars, computers — low and middle income countries could see the same obesity and diabetes rates as in high income countries that are the result of too much sitting, less physical activity and increased consumption of calories,” said lead author Scott Lear of Simon Fraser University.

“This can lead to potentially devastating societal health care consequences in these countries.”

The same relationship did not exist in developed nations, suggesting the harmful effects of these devices on health are already reflected in the high obesity and diabetes rates.

The study included nearly 154,000 adults from 17 countries across the income spectrum, from the United States, Canada and Sweden to China, Iran, India, Bangladesh and Pakistan.

Televisions were the most common electronic device in developing countries — 78 percent of households had one — followed by 34 percent that owned a computer and 32 percent with a car.

Just four percent of people in low-income countries had all three, compared to 83 percent of people in high-income countries.

Those that did have electronics were fatter and less active than those that did not.

People with all three were almost a third less active, sat 20 percent more of the time and had a nine-centimeter (3.5 inches) increase in waist circumference, compared to those that owned none of the devices.

The obesity prevalence in developing countries rose from 3.4 percent among those that owned no devices to 14.5 percent for those that owned all three.

In Canada, about 25 percent of the population is obese and in the United States, about 35 percent of people are obese.

“Our findings emphasize the importance of limiting the amount of time spent using household devices, reducing sedentary behavior and encouraging physical activity in the prevention of obesity and diabetes,” said the study.