Latest News Update:
NADEEM MALIK
Wednesday, January 19, 2005
PakistanNews
PakistanNews
Pakistan accepts $600m Sukuk bids
By Nadeem Malik
Islamabad: The government has accepted $600 million bids for its first Islamic bond in the international market at 220 basis point above the 6-month London Interbank Offered Rate (LIBOR).
Pakistan has received a very good response from the investors offering $1.2 billion bids for the five-year tenor dollar-denominated Sukuk instrument, offering a fixed rate of return in the shape of rental values, instead of interest to comply with the Islamic principles, which prohibit Riba.
“We have decided to pick 50 percent of the total offers at a price of 220 basis point above the 6-month LIBOR, which is much better compared with the Eurobond,” said Dr. Waqar Masood, special secretary Prime Minister Secretariat here Tuesday after a meeting of the Economic Coordination Committee of the Cabinet (ECC). The ECC also took other important decisions, like import of raw sugar, No-Duty-No-Drawback (NDND) regime for the textile sector, an announcement that there would not be any electricity load shedding due to disruptions at Sui and completion of the repair work of the plant likely on Wednesday.
Pakistan with a rating of B2/B+ is the first Asian country to float bond in the international market, and only the 6th in the world to offer a sovereign Islamic instrument compatible with the Shariah principles. The government has established Pakistan International Sukuk Company Limited (PIS), which would actually issue the trust certificates through the lease agreement. To meet the Shariah requirements, the PIS had purchased the highway land (including Lahore-Islamabad Motorway-M2) from the National Highway Authority (NHA), which be leased for a period corresponding to the duration of the trust certificates.
Pakistan launched five-year $500 Eurobond in February 2004 at a fixed coupon rate of 6.75 percent, which was later floated at a rate of 3.2275 percent over six months LIBOR. So, the Sukuk instrument has been much better in terms of pricing due to the lease arrangement and niche market for such Riba-free instruments in the Middle East. Dr. Waqar said 60 percent of the total investors are from the Middle East, 20 percent from Asia and 20 percent from the Europe. The original price guidance for the issue was set at 220-235 basis points above the 6-month LIBOR, which was tightened further after good initial market response. The 6-month LIBOR rates have constantly been rising throughout 2004, from 1.2107 percent in January to 2.7751 percent in December 2004. There is a possibility that there would be some downward adjustment in these rates during 2005.
The Citibank and HSBC lead managed the transaction, which would be maturing in 2010. The government has also decided to float longer tenor bonds in the international market to meet its capital requirements after leaving the financing arrangements with the International Monetary Fund (IMF).
Dr. Waqar said the government has also decided to import 50 thousand tons additional raw sugar (recently a decision was taken to import 200 thousand tones of raw sugar). The raw sugar would be imported directly by the millers to meet the shortfall in domestic sugarcane production. The government would review the situation again after Eid and may even consider import of refined sugar to beef up supplies in the market.
The ECC, however, deferred a decision of additional wheat imports considering the existing market demand and supply in control ahead of the coming harvesting season. Earlier the wheat crisis during 2004 pushed the prices high creating inflationary pressures in the market.
The rate of inflation, measured by the Consumer Price Index (CPI) has marginally declined to 8.8 percent after staying above 9 percent during the first few months of the current fiscal year. Mainly the stability in food item prices helped reduce the food CPI, but increase in POL prices jacked up the inflation for fuel and lighting and transport sectors.
Dr. Waqar Masood said the Central Board of Revenue (CBR) has collected Rs 262.5 billion taxes during the first half of the current fiscal year, showing 14 percent increase. He said the ECC has decided to introduce No-Duty-No-Drawback regime for the textile sector. It would mean that there would be no sales tax on cotton procurement by the factories, provide a minimum of 70 percent of their products are exported. This regime is being offered to about 200 Gold Category Exporters, which represent about 75 percent of the total exportable textile products in the country.
The ECC also reviewed the ship breaking industry and noted that reduction in deem prices from $400 to $300 per ton for taxation purposes and lowering of the value addition factor from 14 percent to 5 percent helped offer Rs 1333 per ton to the ship owners as additional income.
The ECC also approved the Free Trade Agreement (FTA) with Sri Lanka, which is the first bilateral free trade treaty to be signed by Pakistan with any country. Though there is agreement on the South Asia Free Trade Area (SAFTA), the government hoped two sides would benefit from the free trade to jack the bilateral trading volume, which is not much. The FTA would be formally signed during the visit of Sri Lankan President to Islamabad, which is expected soon.
Overall, ECC also reviewed the half yearly trade performance, with a huge trade deficit of $2.4 billion due to higher imports of fuel oil, machinery and raw materials. Exports from Pakistan registered a growth rate of 10.45 percent to total $6.5 billion, against 34.8 percent increase in imports, which totaled $8.9 billion during July-December 2004. This resulted in a huge deficit of $2.4 billion in six months, against the full year estimates of $3 billion, which is likely to be crossed now.
The ECC was also informed that the official foreign exchange reserves of the country totaled $11.848 billion, with exchange rate at Rs 59.4/59.6 to a dollar for interbank and kerb market.
On the Sui incident, the ECC reviewed the situation, particularly with reference of power generation and repair works. Dr. Waqar said there would be no load shedding due to the gas shortages resulted from the suspension of supplies from Sui. “The better availability of water helped the government to enhance hydel generation capacity to make up for the shortfall of thermal generation,” Waqar said. There are reports that the government had released 20 thousand cusecs of water per day from Tarbela to allow more hydel generation during this crisis.
However, Waqar said repair of the Sui plant would be completed by Wednesday (today), and within 3, 4 days the gas pressure would be normalized throughout the country.
ENDS.
WB offers $300m for banking sector
By Nadeem Malik
Islamabad: The World Bank has approved $300 million for Pakistan to strengthen the regulatory capacity of the central bank to enhance transparency and prevent money laundering.
The Banking Sector Development Policy Project will support the development of an effective regulatory and supervisory capacity at the State Bank of Pakistan (SBP) through changes in banking regulations; enhancing transparency through greater public disclosure; and preventing possible use of the banking system for money laundering, the Bank said.
Pakistan initiated comprehensive banking sector reforms in 1997 with the help of multilateral institutions, as the financial sector entities were on the verge of bankruptcy. Political interference, overstaffing, weak regulatory framework and poor legal environment resulted in the shape of a huge stock of Non Performing Loans (NPLs), which threatened the stability of the system. However, the reform process, like introduction of risk-weighted capital system, and the directive to maintain capital at least 8 percent of risk-weighted assets, coupled with strengthening of the regulatory role of the central bank, improved the situation. "Pakistan has the most safe and sound banking system in South Asia due to far-reaching reforms in the financial sector during the last decade," says John Wall, World Bank's Country Director for Pakistan.
The project supports the completion of the third phase of the reform process initiated by Pakistan in the last decade. It will support the government towards improving sector governance and transparency through the privatization. The government privatized 51 percent stakes in United Bank Limited (UBL) to Abu Dhabi Group and Bestway Holdings for $208 million, Habib Bank Limited (HBL) to Aga Khan Foundation for $389 million, and 75 percent shares of Allied Bank Limited (ABL) to Ibrahim Group for Rs 14.2 billion. With the privatization of two of the three Nationalized Commercial Banks (NCBs), which accounted for nearly 25 percent of the system, and ABL transaction, nearly 80 percent of the country's banking sector assets are now in private hands.
Wall said the banking sector has undergone fundamental changes through a three phased reform programme. The reforms managed to address the root cause of the sector's problems and achieved a complete turnaround in the environment for banking in the country.
According to the State Bank of Pakistan (SBP) deposits of the banking sector grew by 20 percent (Rs 361 billion) from Rs 1.78 trillion at the end of 2003 to Rs 2.14 trillion at end-2004. In 2003 this growth was 17 percent. The growth in advances during this period was a hefty 36 percent or about Rs 420 billion, from Rs 1.17 trillion to Rs 1.59 trillion. The net stock of NPLs has also fallen to Rs 60 billion, due to heavy provisioning made by the banks over the last several years.
"Pakistan's banking system has really gone through a sea change" says Mudassir Khan, a Senior Financial Sector Specialist with the World Bank. Thanks to these reforms, the banking sector is more efficient and competitive and the access, quality and standards of services for the consumers have improved. “We would continue our support to see the transformation to a more equitable, transparent and a market based system and the one that plays its due role in development,” Mudassir said.
The loan, a $200 million from the International Bank for Reconstruction and Development (IBRD) is a fixed spread loan with an 8-year grace period and 20-year maturity. The credit, a $100 million from the International Development Association, the World Bank's concessionary arm, carries a 0.75 service fee payable in 35 years including a 10-year grace period.
ENDS.
Pakistan accepts $600m Sukuk bids
By Nadeem Malik
Islamabad: The government has accepted $600 million bids for its first Islamic bond in the international market at 220 basis point above the 6-month London Interbank Offered Rate (LIBOR).
Pakistan has received a very good response from the investors offering $1.2 billion bids for the five-year tenor dollar-denominated Sukuk instrument, offering a fixed rate of return in the shape of rental values, instead of interest to comply with the Islamic principles, which prohibit Riba.
“We have decided to pick 50 percent of the total offers at a price of 220 basis point above the 6-month LIBOR, which is much better compared with the Eurobond,” said Dr. Waqar Masood, special secretary Prime Minister Secretariat here Tuesday after a meeting of the Economic Coordination Committee of the Cabinet (ECC). The ECC also took other important decisions, like import of raw sugar, No-Duty-No-Drawback (NDND) regime for the textile sector, an announcement that there would not be any electricity load shedding due to disruptions at Sui and completion of the repair work of the plant likely on Wednesday.
Pakistan with a rating of B2/B+ is the first Asian country to float bond in the international market, and only the 6th in the world to offer a sovereign Islamic instrument compatible with the Shariah principles. The government has established Pakistan International Sukuk Company Limited (PIS), which would actually issue the trust certificates through the lease agreement. To meet the Shariah requirements, the PIS had purchased the highway land (including Lahore-Islamabad Motorway-M2) from the National Highway Authority (NHA), which be leased for a period corresponding to the duration of the trust certificates.
Pakistan launched five-year $500 Eurobond in February 2004 at a fixed coupon rate of 6.75 percent, which was later floated at a rate of 3.2275 percent over six months LIBOR. So, the Sukuk instrument has been much better in terms of pricing due to the lease arrangement and niche market for such Riba-free instruments in the Middle East. Dr. Waqar said 60 percent of the total investors are from the Middle East, 20 percent from Asia and 20 percent from the Europe. The original price guidance for the issue was set at 220-235 basis points above the 6-month LIBOR, which was tightened further after good initial market response. The 6-month LIBOR rates have constantly been rising throughout 2004, from 1.2107 percent in January to 2.7751 percent in December 2004. There is a possibility that there would be some downward adjustment in these rates during 2005.
The Citibank and HSBC lead managed the transaction, which would be maturing in 2010. The government has also decided to float longer tenor bonds in the international market to meet its capital requirements after leaving the financing arrangements with the International Monetary Fund (IMF).
Dr. Waqar said the government has also decided to import 50 thousand tons additional raw sugar (recently a decision was taken to import 200 thousand tones of raw sugar). The raw sugar would be imported directly by the millers to meet the shortfall in domestic sugarcane production. The government would review the situation again after Eid and may even consider import of refined sugar to beef up supplies in the market.
The ECC, however, deferred a decision of additional wheat imports considering the existing market demand and supply in control ahead of the coming harvesting season. Earlier the wheat crisis during 2004 pushed the prices high creating inflationary pressures in the market.
The rate of inflation, measured by the Consumer Price Index (CPI) has marginally declined to 8.8 percent after staying above 9 percent during the first few months of the current fiscal year. Mainly the stability in food item prices helped reduce the food CPI, but increase in POL prices jacked up the inflation for fuel and lighting and transport sectors.
Dr. Waqar Masood said the Central Board of Revenue (CBR) has collected Rs 262.5 billion taxes during the first half of the current fiscal year, showing 14 percent increase. He said the ECC has decided to introduce No-Duty-No-Drawback regime for the textile sector. It would mean that there would be no sales tax on cotton procurement by the factories, provide a minimum of 70 percent of their products are exported. This regime is being offered to about 200 Gold Category Exporters, which represent about 75 percent of the total exportable textile products in the country.
The ECC also reviewed the ship breaking industry and noted that reduction in deem prices from $400 to $300 per ton for taxation purposes and lowering of the value addition factor from 14 percent to 5 percent helped offer Rs 1333 per ton to the ship owners as additional income.
The ECC also approved the Free Trade Agreement (FTA) with Sri Lanka, which is the first bilateral free trade treaty to be signed by Pakistan with any country. Though there is agreement on the South Asia Free Trade Area (SAFTA), the government hoped two sides would benefit from the free trade to jack the bilateral trading volume, which is not much. The FTA would be formally signed during the visit of Sri Lankan President to Islamabad, which is expected soon.
Overall, ECC also reviewed the half yearly trade performance, with a huge trade deficit of $2.4 billion due to higher imports of fuel oil, machinery and raw materials. Exports from Pakistan registered a growth rate of 10.45 percent to total $6.5 billion, against 34.8 percent increase in imports, which totaled $8.9 billion during July-December 2004. This resulted in a huge deficit of $2.4 billion in six months, against the full year estimates of $3 billion, which is likely to be crossed now.
The ECC was also informed that the official foreign exchange reserves of the country totaled $11.848 billion, with exchange rate at Rs 59.4/59.6 to a dollar for interbank and kerb market.
On the Sui incident, the ECC reviewed the situation, particularly with reference of power generation and repair works. Dr. Waqar said there would be no load shedding due to the gas shortages resulted from the suspension of supplies from Sui. “The better availability of water helped the government to enhance hydel generation capacity to make up for the shortfall of thermal generation,” Waqar said. There are reports that the government had released 20 thousand cusecs of water per day from Tarbela to allow more hydel generation during this crisis.
However, Waqar said repair of the Sui plant would be completed by Wednesday (today), and within 3, 4 days the gas pressure would be normalized throughout the country.
ENDS.
WB offers $300m for banking sector
By Nadeem Malik
Islamabad: The World Bank has approved $300 million for Pakistan to strengthen the regulatory capacity of the central bank to enhance transparency and prevent money laundering.
The Banking Sector Development Policy Project will support the development of an effective regulatory and supervisory capacity at the State Bank of Pakistan (SBP) through changes in banking regulations; enhancing transparency through greater public disclosure; and preventing possible use of the banking system for money laundering, the Bank said.
Pakistan initiated comprehensive banking sector reforms in 1997 with the help of multilateral institutions, as the financial sector entities were on the verge of bankruptcy. Political interference, overstaffing, weak regulatory framework and poor legal environment resulted in the shape of a huge stock of Non Performing Loans (NPLs), which threatened the stability of the system. However, the reform process, like introduction of risk-weighted capital system, and the directive to maintain capital at least 8 percent of risk-weighted assets, coupled with strengthening of the regulatory role of the central bank, improved the situation. "Pakistan has the most safe and sound banking system in South Asia due to far-reaching reforms in the financial sector during the last decade," says John Wall, World Bank's Country Director for Pakistan.
The project supports the completion of the third phase of the reform process initiated by Pakistan in the last decade. It will support the government towards improving sector governance and transparency through the privatization. The government privatized 51 percent stakes in United Bank Limited (UBL) to Abu Dhabi Group and Bestway Holdings for $208 million, Habib Bank Limited (HBL) to Aga Khan Foundation for $389 million, and 75 percent shares of Allied Bank Limited (ABL) to Ibrahim Group for Rs 14.2 billion. With the privatization of two of the three Nationalized Commercial Banks (NCBs), which accounted for nearly 25 percent of the system, and ABL transaction, nearly 80 percent of the country's banking sector assets are now in private hands.
Wall said the banking sector has undergone fundamental changes through a three phased reform programme. The reforms managed to address the root cause of the sector's problems and achieved a complete turnaround in the environment for banking in the country.
According to the State Bank of Pakistan (SBP) deposits of the banking sector grew by 20 percent (Rs 361 billion) from Rs 1.78 trillion at the end of 2003 to Rs 2.14 trillion at end-2004. In 2003 this growth was 17 percent. The growth in advances during this period was a hefty 36 percent or about Rs 420 billion, from Rs 1.17 trillion to Rs 1.59 trillion. The net stock of NPLs has also fallen to Rs 60 billion, due to heavy provisioning made by the banks over the last several years.
"Pakistan's banking system has really gone through a sea change" says Mudassir Khan, a Senior Financial Sector Specialist with the World Bank. Thanks to these reforms, the banking sector is more efficient and competitive and the access, quality and standards of services for the consumers have improved. “We would continue our support to see the transformation to a more equitable, transparent and a market based system and the one that plays its due role in development,” Mudassir said.
The loan, a $200 million from the International Bank for Reconstruction and Development (IBRD) is a fixed spread loan with an 8-year grace period and 20-year maturity. The credit, a $100 million from the International Development Association, the World Bank's concessionary arm, carries a 0.75 service fee payable in 35 years including a 10-year grace period.
ENDS.
Monday, January 10, 2005
Pakistan wants Iran gas with or without India
PakistanNews
Pakistan wants Iran gas with or without India
By Nadeem Malik
Islamabad: Pakistan and Iran are holding pre-project consultations to determine price, quantity and quality of the gas for the proposed pipeline, after India’s insistence on supply at the doorstep.
“There has been some discussion on the technical aspects between the two sides recently, and we are willing to pursue this project on self-financed basis,” said a senior government official here Saturday. A high level Pakistani delegation headed by Secretary Petroleum and Natural Resources visited Tehran recently to finalize the modalities for a possible signing of the Memorandum of Understanding (MoU) next month during the expected visit of Prime Minister Shaukat Aziz. Pakistan is also in the process of hiring consultants to do the fresh feasibility studies to carryout the project with or without India.
The 2775-KM long gas pipeline, costing $4.16 billion (according to initial feasibility study of BHP), originates in Asaluyeh, Iran on the coast of the Persian Gulf near the South Pars fields, enters Pakistan through Khuzdar (One section goes to Karachi on the Arabian Sea coast), and the main section traveling on to Multan or Rahim Yar Khan, and extends further to Delhi, where it ends. There is international interest in the project from the investment point of view, given the huge demand in the region and growing energy shortfalls. Major names like BHP Billiton, NIGC, Petronas of Malaysia, and French TotalFinElf, are said to be keen in such a plan. As a matter of fact, the BHP has completed the phase-I of the overland route feasibility study. Russian GAZPROM, for the shallow water route, and an Italian firm for the under sea route, were also keen to do the job.
However, the problem remains political decisions by the participating countries on a trilateral arrangement. India has shown interest to join the proposed gas pipeline project, if its security concerns are allayed and gas is delivered at the Pakistan-India border point.
India has demanded guarantees from Iran, and assurances from Pakistan, for continuous supply of gas, without disruptions, and compensation in case of such an eventuality. Secondly, India has maintained its position of linking the gas pipeline deal with a ‘larger context of expanding trade and economic relations’ (a term used by Indian Prime Minister Manmohan Singh in the joint statement after his meeting with President General Pervez Musharraf in New York on September 24, 2004). The trade context explicitly refers to the Indian demand of transit trade facilities from Pakistan for trading with Afghanistan, Central Asia and Iran. Pakistan has refused to accept this demand and proposed India to accept it as a ‘stand-alone’ project. Prime Minister Shaukat Aziz discussed this with his Indian counterpart, and with Indian Oil Minister Mani Shankar Aiyar, when he visited Delhi in his capacity, as Chairman of the South Asian Association of Regional Cooperation (SAARC).
India also reiterated its demand of granting the Most Favoured Nation (MFN) status to India, which Pakistan says was not an issue to be associated with the gas pipeline. “The South Asia Free Trade Area (SAFTA) would enter into force from January 1, 2006, requiring Pakistan and India to reduce their tariffs to 0-5 percent in a period of seven years, from the date of coming into force, of the agreement. So, there is no point to push the MFN issue now, which relates to the WTO,” a senior official said. Under SAFTA, India is bound to allow transit facilities to Pakistan to the land-locked SAARC member states, like Nepal and Maldives, and she demands the same permission from Pakistan.
Pakistan has assured India of uninterrupted gas supplies, and showed willingness to offer all sorts of guarantees to remove Indian reservations. Pakistan is sure to get $500-800 million per annum (depending upon the tariff and security arrangements) in gas transit fees from India, in whatever form the pipeline crosses Pakistani territory. There are also proposals that Pakistan should build emergency gas storages to ensure supplies without disruptions, and some multilateral agencies, like the World Bank or the Asian Development Bank (ADB) should join the project to act as underwriters. Pakistani has sough the ADB help to work on the technical aspects of possible gas storages in the country, linked with the main gas network in the domestic market.
There is another geo-political aspect of the pipeline project. Relations between the United States and Iran are getting worst every day over the nuclear issue, and the former also accuses Tehran for its role in Iraq. “We have good relations, both with the United States and Iran, and we do not want to see any hostility in the region,” a senior government official said.
There are reports that the US administration is not in favour of such a mega-infrastructure energy sector project, between Iran and India and Pakistan, as it would give some leverage to Tehran, and may also compromise the ambitious US plans of an East-West Energy Corridor. The proposed Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project is a good example of it. Pakistani foreign office has denied any US opposition to Iran-Pakistan project, but there are definite concerns about the future Iran-US relations. Michael Krepon of the Henry L. Stimson Center, recently maintained that Washington will oppose, but cannot successfully obstruct a pipeline originating in Iran, if New Delhi, Islamabad, and Tehran can reach an agreement that provides credible assurance of supply.
Interestingly, Mani Shankar Aiyar, renewed hopes of gas pipeline deal after signing the LNG deal with Iran Friday. “We really are very close to an agreement,” he said, after signing an agreement with his Iranian counterpart, Bijan Zanganeh, who also made a brief stopover in Islamabad to review the pipeline project before going to Delhi. A technical and commercial delegation from Iran will visit India on February 14 to continue the discussions on the possible pipeline options, which according to the proposals extended by various stakeholders were three- a pipeline from Iran to Pakistan; Separate pipelines for India and Pakistan; and A bigger pipeline supplying gas to Pakistan, and then to India. Iran and Pakistan support this last option, which is being considered economically more viable and cost effective. Delhi has informed the Iranian Minister that they would buy the gas only if it is delivered to their doorstep, with extended security arrangement and various back-to-back guarantees.
The problems for India and Pakistan in the energy sector are growing every day. Both the countries are energy deficient and heavily rely on imports to meet their domestic needs. India projected its demand for gas in 2025 at about 400 million standard cubic meters per day, against less than 100 mscm per day output at present, which is unlikely to grow faster to meet the rising demand.
Pakistan has 26.8 trillion cubic feet (Tcf) of proven gas reserves, and currently produces around 0.8 Tcf of natural gas per year, all of which is consumed domestically. Pakistan's demand for natural gas is expected to rise substantially in the next few years, with an increase of roughly 50 percent by 2006, and all indications suggest a possible shortfall by 2010, if the pipelines remain a dream. In this case, the government would be forced to have some sort of LNG arrangement with the international buyers.
These are ground realities for the two countries, and both are in desperate need to get piped gas, which is far more efficient and economical, as compared to the imported fuel oil, or LNG, which takes away a major portion of their hard earned export earnings, in the shape of import bills. Some report suggest the gas supply at a very reasonable price of about $2 per million metric British thermal units (mmBtu) if a large diameter pipe supplies gas to both the countries, but the cost would increase if two separate pipes are planned. However, in any case, it would not be as expensive as liquefied natural gas.
India signed a $40 billion deal with Iran to import liquefied natural gas, about 7.5 million tonnes per year (TPY) of LNG starting 2009 and running for 25 years, and joined in developing three Iranian oilfields, Yadavaran and Jufeyr, through service contracts. China would be the operator in these oilfields, and 20 percent stakes for India, or the equivalent of 90,000 barrels per day (bpd).
However, the Indian estimates of energy demand and supply project huge shortfalls, so they are still interested to buy natural gas. India is holding a major Asian Gas Buyers Summit next month, when it hopes to formally initiate discussions on a term-sheet to cover the issues like price, quality and quantity of the gas to be transported through the pipeline.
Iran has offered India that an international consortium of bankers and oil firms could build and operate the project to address it security concerns relating to the 760 Km tract of the pipeline route, which falls in the Pakistani territory. Tehran says it would also offer guaranteed supplies of LNG in case of sabotage of the pipeline.
However, Indians are maintaining their position on the gas line so far, despite various proposals extended by both Iran and Pakistan, and most of the recent discussions have not been able to make any breakthrough.
Manmohan Singh and Mani Shankar Aiyar have both made statements in the parliament that a trans-national onland pipeline from Iran to India transiting through Pakistan was one of the viable options. “The matter was recently discussed at the highest level between the two countries and it was decided to pursue the Iran-India natural gas pipeline via Pakistan in the context of overall bilateral trade and economic cooperation between the two countries. This project would basically be a commercial project supported by appropriate guarantees for security of supplies,” Aiyer made this statement in Lok Sabha recently.
ENDS.
Pakistan wants Iran gas with or without India
By Nadeem Malik
Islamabad: Pakistan and Iran are holding pre-project consultations to determine price, quantity and quality of the gas for the proposed pipeline, after India’s insistence on supply at the doorstep.
“There has been some discussion on the technical aspects between the two sides recently, and we are willing to pursue this project on self-financed basis,” said a senior government official here Saturday. A high level Pakistani delegation headed by Secretary Petroleum and Natural Resources visited Tehran recently to finalize the modalities for a possible signing of the Memorandum of Understanding (MoU) next month during the expected visit of Prime Minister Shaukat Aziz. Pakistan is also in the process of hiring consultants to do the fresh feasibility studies to carryout the project with or without India.
The 2775-KM long gas pipeline, costing $4.16 billion (according to initial feasibility study of BHP), originates in Asaluyeh, Iran on the coast of the Persian Gulf near the South Pars fields, enters Pakistan through Khuzdar (One section goes to Karachi on the Arabian Sea coast), and the main section traveling on to Multan or Rahim Yar Khan, and extends further to Delhi, where it ends. There is international interest in the project from the investment point of view, given the huge demand in the region and growing energy shortfalls. Major names like BHP Billiton, NIGC, Petronas of Malaysia, and French TotalFinElf, are said to be keen in such a plan. As a matter of fact, the BHP has completed the phase-I of the overland route feasibility study. Russian GAZPROM, for the shallow water route, and an Italian firm for the under sea route, were also keen to do the job.
However, the problem remains political decisions by the participating countries on a trilateral arrangement. India has shown interest to join the proposed gas pipeline project, if its security concerns are allayed and gas is delivered at the Pakistan-India border point.
India has demanded guarantees from Iran, and assurances from Pakistan, for continuous supply of gas, without disruptions, and compensation in case of such an eventuality. Secondly, India has maintained its position of linking the gas pipeline deal with a ‘larger context of expanding trade and economic relations’ (a term used by Indian Prime Minister Manmohan Singh in the joint statement after his meeting with President General Pervez Musharraf in New York on September 24, 2004). The trade context explicitly refers to the Indian demand of transit trade facilities from Pakistan for trading with Afghanistan, Central Asia and Iran. Pakistan has refused to accept this demand and proposed India to accept it as a ‘stand-alone’ project. Prime Minister Shaukat Aziz discussed this with his Indian counterpart, and with Indian Oil Minister Mani Shankar Aiyar, when he visited Delhi in his capacity, as Chairman of the South Asian Association of Regional Cooperation (SAARC).
India also reiterated its demand of granting the Most Favoured Nation (MFN) status to India, which Pakistan says was not an issue to be associated with the gas pipeline. “The South Asia Free Trade Area (SAFTA) would enter into force from January 1, 2006, requiring Pakistan and India to reduce their tariffs to 0-5 percent in a period of seven years, from the date of coming into force, of the agreement. So, there is no point to push the MFN issue now, which relates to the WTO,” a senior official said. Under SAFTA, India is bound to allow transit facilities to Pakistan to the land-locked SAARC member states, like Nepal and Maldives, and she demands the same permission from Pakistan.
Pakistan has assured India of uninterrupted gas supplies, and showed willingness to offer all sorts of guarantees to remove Indian reservations. Pakistan is sure to get $500-800 million per annum (depending upon the tariff and security arrangements) in gas transit fees from India, in whatever form the pipeline crosses Pakistani territory. There are also proposals that Pakistan should build emergency gas storages to ensure supplies without disruptions, and some multilateral agencies, like the World Bank or the Asian Development Bank (ADB) should join the project to act as underwriters. Pakistani has sough the ADB help to work on the technical aspects of possible gas storages in the country, linked with the main gas network in the domestic market.
There is another geo-political aspect of the pipeline project. Relations between the United States and Iran are getting worst every day over the nuclear issue, and the former also accuses Tehran for its role in Iraq. “We have good relations, both with the United States and Iran, and we do not want to see any hostility in the region,” a senior government official said.
There are reports that the US administration is not in favour of such a mega-infrastructure energy sector project, between Iran and India and Pakistan, as it would give some leverage to Tehran, and may also compromise the ambitious US plans of an East-West Energy Corridor. The proposed Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project is a good example of it. Pakistani foreign office has denied any US opposition to Iran-Pakistan project, but there are definite concerns about the future Iran-US relations. Michael Krepon of the Henry L. Stimson Center, recently maintained that Washington will oppose, but cannot successfully obstruct a pipeline originating in Iran, if New Delhi, Islamabad, and Tehran can reach an agreement that provides credible assurance of supply.
Interestingly, Mani Shankar Aiyar, renewed hopes of gas pipeline deal after signing the LNG deal with Iran Friday. “We really are very close to an agreement,” he said, after signing an agreement with his Iranian counterpart, Bijan Zanganeh, who also made a brief stopover in Islamabad to review the pipeline project before going to Delhi. A technical and commercial delegation from Iran will visit India on February 14 to continue the discussions on the possible pipeline options, which according to the proposals extended by various stakeholders were three- a pipeline from Iran to Pakistan; Separate pipelines for India and Pakistan; and A bigger pipeline supplying gas to Pakistan, and then to India. Iran and Pakistan support this last option, which is being considered economically more viable and cost effective. Delhi has informed the Iranian Minister that they would buy the gas only if it is delivered to their doorstep, with extended security arrangement and various back-to-back guarantees.
The problems for India and Pakistan in the energy sector are growing every day. Both the countries are energy deficient and heavily rely on imports to meet their domestic needs. India projected its demand for gas in 2025 at about 400 million standard cubic meters per day, against less than 100 mscm per day output at present, which is unlikely to grow faster to meet the rising demand.
Pakistan has 26.8 trillion cubic feet (Tcf) of proven gas reserves, and currently produces around 0.8 Tcf of natural gas per year, all of which is consumed domestically. Pakistan's demand for natural gas is expected to rise substantially in the next few years, with an increase of roughly 50 percent by 2006, and all indications suggest a possible shortfall by 2010, if the pipelines remain a dream. In this case, the government would be forced to have some sort of LNG arrangement with the international buyers.
These are ground realities for the two countries, and both are in desperate need to get piped gas, which is far more efficient and economical, as compared to the imported fuel oil, or LNG, which takes away a major portion of their hard earned export earnings, in the shape of import bills. Some report suggest the gas supply at a very reasonable price of about $2 per million metric British thermal units (mmBtu) if a large diameter pipe supplies gas to both the countries, but the cost would increase if two separate pipes are planned. However, in any case, it would not be as expensive as liquefied natural gas.
India signed a $40 billion deal with Iran to import liquefied natural gas, about 7.5 million tonnes per year (TPY) of LNG starting 2009 and running for 25 years, and joined in developing three Iranian oilfields, Yadavaran and Jufeyr, through service contracts. China would be the operator in these oilfields, and 20 percent stakes for India, or the equivalent of 90,000 barrels per day (bpd).
However, the Indian estimates of energy demand and supply project huge shortfalls, so they are still interested to buy natural gas. India is holding a major Asian Gas Buyers Summit next month, when it hopes to formally initiate discussions on a term-sheet to cover the issues like price, quality and quantity of the gas to be transported through the pipeline.
Iran has offered India that an international consortium of bankers and oil firms could build and operate the project to address it security concerns relating to the 760 Km tract of the pipeline route, which falls in the Pakistani territory. Tehran says it would also offer guaranteed supplies of LNG in case of sabotage of the pipeline.
However, Indians are maintaining their position on the gas line so far, despite various proposals extended by both Iran and Pakistan, and most of the recent discussions have not been able to make any breakthrough.
Manmohan Singh and Mani Shankar Aiyar have both made statements in the parliament that a trans-national onland pipeline from Iran to India transiting through Pakistan was one of the viable options. “The matter was recently discussed at the highest level between the two countries and it was decided to pursue the Iran-India natural gas pipeline via Pakistan in the context of overall bilateral trade and economic cooperation between the two countries. This project would basically be a commercial project supported by appropriate guarantees for security of supplies,” Aiyer made this statement in Lok Sabha recently.
ENDS.
Wednesday, January 05, 2005
Pakistan May Diversify Forex Reserves
Pakistan May Diversify Forex Reserves
By Nadeem Malik
Islamabad: Pakistan seeks help of the World Bank to manage its debt more professionally, after suffering huge revaluation losses during last three years.
The debt management strategy, desired composition of foreign debt and percentage of various currencies, various aspects related to the options of hedging, setting up of a debt office in Pakistan, training of personnel to mange the debt office were discussed between Salman Shah, Advisor to Prime Minister on Finance and the World Bank mission on Debt Management.
Pakistan’s total external debt and liabilities should have been $32 billion at the end of last fiscal year, as against about $35 billion, due to exchange rate losses. Some of these losses may have been partially reversed in recent months due to over 4 percent depreciation of rupee against the US dollar. Salman Shah requested the Bank to assist Pakistan in setting up a debt office and identify some international experts in debt management who can supervise Pakistan's debt office in the initial stages.
The government is expected to diversify official foreign exchange reserves away from the US dollar to stem the growing losses, by hedging against major currencies, like Euro and Yen, after seeking detailed reports from the multilateral financial institutions. One estimate of losses indicate that Pakistan lost $1.8 billion between 2001-2003, as rupee appreciated against the dollar during this period, and dollar faltered against leading international currencies.
Most of these losses are translational losses due to adverse fluctuations of the exchange rate. Like one analysis indicate that massive borrowing in the Special Drawing Rights (SDRs), which included Deutsche Mark and French Franc, before the advent of the Euro, also proved to be a major mistake. These currencies, within the SDR basket, were replaced by the Euro after its inception. When the Euro appreciated against dollar, resultant impact on the rupee value, which was already appreciating against the US currency proved to be a double-edged sword in terms of accounting numbers. It does not mean that appreciation of the rupee was a bad thing for the economy. As a matter of fact, maintaining most of the reserves in one currency was the mistake, which could have been avoided if the debt managers had made an effort to look at the future foreign exchange obligations and current exchange rate trends.
One most glaring example of how translation losses affect the system could be judged from the fact that the central bank suffered almost Rs 25 billion reduction in profits during 2002-03, which was mainly due to the revaluation of SBP’s foreign exchange assets and liabilities required under the international accounting standards. “The SBP accumulated large net foreign assets, totaling $7.986 billion in financial year 2002-03, which were reported in rupees in its profit and loss statement. Thus, as the Pakistani Rupee, appreciated vis-à-vis the US dollar by Rs 2.21 during the financial year (from Rs.60.02/US$ in June 2002 to Rs.57.81/US$ by end June, 2003), the SBP suffered a revaluation loss of Rs 17.65 billion (the actual loss was compensated by gains of Rs.6.6 billion on forward cover),” the central bank admitted in one of its reports. The other major component of the reduction in SBP’s profits was due to a decline in T-Bill rates. However, the reduction in interest rates was very beneficial for the government and the economy, as it helped the government to reduce the debt servicing payments to Rs 207.8 billion from the original estimates of Rs 264.0 billion in 2002-03, in addition to providing a real impetus to the economic activity.
The central bank’s policy of outright dollar purchases helped it build a huge reserve level through non-debt creating instruments. The State Bank bought $5.654 billion from offshore money changes (after nuclear tests of May 1998 to FY02) and a net $6.856 billion through the interbank market (SBP purchased $10.838 billion from the inter-bank market in the period between FY99 and March 2004, at the prevailing inter-bank without paying any premium, and sold $3.982 billion during the same period). These reserves have great significance in ensuring economic and foreign exchange stability in the country.
However, there is an associated cost too. “The foreign exchange reserves held with SBP are carried at the cost at which they were purchased from the market. Subsequent changes in the exchange rate affected SBP's profitability when the balances were revalued on a mark-to-market basis as per the International Accounting Standards. When the rupee took a reverse turn and started appreciating sharply, the State Bank as per the requirements of international accounting standards had to book revaluation losses on its Gross Foreign Assets since the prevailing exchange rate in the market at the year end was less than the rates at which purchases were made. Moreover, the Net Foreign Assets position of the Bank also remained positive due to the unprecedented increase in the foreign exchange reserves held, adding further to the net exchange loss. On the other hand, interest rates in the international foreign exchange market continued a declining trend and SBP's income on its investments of foreign exchange assets was therefore significantly lower,” the central bank explained in the annual report of 2002-03.
The rupee gained 6.2 percent against the US dollar in 2001-02, after falling 22.4 percent in 2000-01. The massive inflow of dollars following September 11 turned around the rupee fortunes, as the exchange rate appreciated from Rs 63.98/dollar in 2000-01 to Rs 60.02/dollar in 2001-02. The rupee appreciated further by 3.7 percent (Rs 57.81 per dollar) in 2002-03. “Contrary to popular perception, a strong and appreciating rupee will lead to exchange loss when the value of foreign reserves (net of liabilities) are positive and translated into rupees.”
It was only since April 2004 that this trend had changed again largely due to higher demand of dollars. The steep rise in the imports bill and the end of the Saudi Oil Facility has widened the rupee-dollar parity in the official interbank market. The central bank has already sold almost one billion dollar in recent months to keep the exchange rate stable and avoid sharp adverse changes. The central bank should have realized exchange gains on its Gross Foreign Assets during last couple of months, as rupee depreciated against the dollar.
Since the East Asian financial crisis, the central banks across the region have been stockpiling dollars. Almost all the central banks intervened to prevent appreciation of currencies, like the State Bank, which further added to the reserve build up. Most of this money was consumed to pay down foreign debts, and a major portion went back to the US market after accumulating it at higher rates. However, the trend had just started reversing in recent years, when Venezuela, China and few other countries made a conscious effort to move away from the dollars, by accumulating some Euros. The second problem that surfaced was an attempt of leading holders, like Japan and China, of the US Treasuries to offload a part of it due to falling returns and depreciating dollar. According to estimates, foreigners own more than one-third of the US debt market.
The SBP is also facing a similar dilemma now. It had squirreled away every possible dollar since the nuclear tests of May 1998, which exposed external sector vulnerabilities of the country. The reserve build up was the right way, as it was being done by most of the countries, like China and India.
However, the authorities need to develop flow charts of long-term debt with cross-currency evaluation reports to avoid translational losses in future.
ENDS.
By Nadeem Malik
Islamabad: Pakistan seeks help of the World Bank to manage its debt more professionally, after suffering huge revaluation losses during last three years.
The debt management strategy, desired composition of foreign debt and percentage of various currencies, various aspects related to the options of hedging, setting up of a debt office in Pakistan, training of personnel to mange the debt office were discussed between Salman Shah, Advisor to Prime Minister on Finance and the World Bank mission on Debt Management.
Pakistan’s total external debt and liabilities should have been $32 billion at the end of last fiscal year, as against about $35 billion, due to exchange rate losses. Some of these losses may have been partially reversed in recent months due to over 4 percent depreciation of rupee against the US dollar. Salman Shah requested the Bank to assist Pakistan in setting up a debt office and identify some international experts in debt management who can supervise Pakistan's debt office in the initial stages.
The government is expected to diversify official foreign exchange reserves away from the US dollar to stem the growing losses, by hedging against major currencies, like Euro and Yen, after seeking detailed reports from the multilateral financial institutions. One estimate of losses indicate that Pakistan lost $1.8 billion between 2001-2003, as rupee appreciated against the dollar during this period, and dollar faltered against leading international currencies.
Most of these losses are translational losses due to adverse fluctuations of the exchange rate. Like one analysis indicate that massive borrowing in the Special Drawing Rights (SDRs), which included Deutsche Mark and French Franc, before the advent of the Euro, also proved to be a major mistake. These currencies, within the SDR basket, were replaced by the Euro after its inception. When the Euro appreciated against dollar, resultant impact on the rupee value, which was already appreciating against the US currency proved to be a double-edged sword in terms of accounting numbers. It does not mean that appreciation of the rupee was a bad thing for the economy. As a matter of fact, maintaining most of the reserves in one currency was the mistake, which could have been avoided if the debt managers had made an effort to look at the future foreign exchange obligations and current exchange rate trends.
One most glaring example of how translation losses affect the system could be judged from the fact that the central bank suffered almost Rs 25 billion reduction in profits during 2002-03, which was mainly due to the revaluation of SBP’s foreign exchange assets and liabilities required under the international accounting standards. “The SBP accumulated large net foreign assets, totaling $7.986 billion in financial year 2002-03, which were reported in rupees in its profit and loss statement. Thus, as the Pakistani Rupee, appreciated vis-à-vis the US dollar by Rs 2.21 during the financial year (from Rs.60.02/US$ in June 2002 to Rs.57.81/US$ by end June, 2003), the SBP suffered a revaluation loss of Rs 17.65 billion (the actual loss was compensated by gains of Rs.6.6 billion on forward cover),” the central bank admitted in one of its reports. The other major component of the reduction in SBP’s profits was due to a decline in T-Bill rates. However, the reduction in interest rates was very beneficial for the government and the economy, as it helped the government to reduce the debt servicing payments to Rs 207.8 billion from the original estimates of Rs 264.0 billion in 2002-03, in addition to providing a real impetus to the economic activity.
The central bank’s policy of outright dollar purchases helped it build a huge reserve level through non-debt creating instruments. The State Bank bought $5.654 billion from offshore money changes (after nuclear tests of May 1998 to FY02) and a net $6.856 billion through the interbank market (SBP purchased $10.838 billion from the inter-bank market in the period between FY99 and March 2004, at the prevailing inter-bank without paying any premium, and sold $3.982 billion during the same period). These reserves have great significance in ensuring economic and foreign exchange stability in the country.
However, there is an associated cost too. “The foreign exchange reserves held with SBP are carried at the cost at which they were purchased from the market. Subsequent changes in the exchange rate affected SBP's profitability when the balances were revalued on a mark-to-market basis as per the International Accounting Standards. When the rupee took a reverse turn and started appreciating sharply, the State Bank as per the requirements of international accounting standards had to book revaluation losses on its Gross Foreign Assets since the prevailing exchange rate in the market at the year end was less than the rates at which purchases were made. Moreover, the Net Foreign Assets position of the Bank also remained positive due to the unprecedented increase in the foreign exchange reserves held, adding further to the net exchange loss. On the other hand, interest rates in the international foreign exchange market continued a declining trend and SBP's income on its investments of foreign exchange assets was therefore significantly lower,” the central bank explained in the annual report of 2002-03.
The rupee gained 6.2 percent against the US dollar in 2001-02, after falling 22.4 percent in 2000-01. The massive inflow of dollars following September 11 turned around the rupee fortunes, as the exchange rate appreciated from Rs 63.98/dollar in 2000-01 to Rs 60.02/dollar in 2001-02. The rupee appreciated further by 3.7 percent (Rs 57.81 per dollar) in 2002-03. “Contrary to popular perception, a strong and appreciating rupee will lead to exchange loss when the value of foreign reserves (net of liabilities) are positive and translated into rupees.”
It was only since April 2004 that this trend had changed again largely due to higher demand of dollars. The steep rise in the imports bill and the end of the Saudi Oil Facility has widened the rupee-dollar parity in the official interbank market. The central bank has already sold almost one billion dollar in recent months to keep the exchange rate stable and avoid sharp adverse changes. The central bank should have realized exchange gains on its Gross Foreign Assets during last couple of months, as rupee depreciated against the dollar.
Since the East Asian financial crisis, the central banks across the region have been stockpiling dollars. Almost all the central banks intervened to prevent appreciation of currencies, like the State Bank, which further added to the reserve build up. Most of this money was consumed to pay down foreign debts, and a major portion went back to the US market after accumulating it at higher rates. However, the trend had just started reversing in recent years, when Venezuela, China and few other countries made a conscious effort to move away from the dollars, by accumulating some Euros. The second problem that surfaced was an attempt of leading holders, like Japan and China, of the US Treasuries to offload a part of it due to falling returns and depreciating dollar. According to estimates, foreigners own more than one-third of the US debt market.
The SBP is also facing a similar dilemma now. It had squirreled away every possible dollar since the nuclear tests of May 1998, which exposed external sector vulnerabilities of the country. The reserve build up was the right way, as it was being done by most of the countries, like China and India.
However, the authorities need to develop flow charts of long-term debt with cross-currency evaluation reports to avoid translational losses in future.
ENDS.
Is Pakistan ready for 2005?
Is Pakistan ready for 2005?
By Nadeem Malik
Islamabad: Pakistan enters textile quota-free 2005 cautiously, with pick up in economic activity quite obvious, but concerns about political stability and law and order situation may haunt it during the year.
Textiles and clothing trade among World Trade Organisation (WTO) members was being governed by the Agreement on Textiles and Clothing (ATC). This agreement meant that alongside progressive application of General Agreement on Tariffs and Trade (GATT) rules, there would be progressive phasing out of quotas in the European Union, United States and Canada. These quotas were inherited from the Multifibre Arrangements (MFA). After a 10-year period ending on January 1, 2005, the ATC would expire and all quotas will be abolished. So, in 2005, all WTO members would have unrestricted access to the European, American and Canadian markets. Trade in the textile sector has been characterised so far by an almost one-way flow: from developing countries to industrialized countries, the EU, the US and Japan accounting for 80 per cent of the world’s garment imports.
Almost $8.3 billion, or 68 percent, of Pakistan’s total exports of $12.3 billion last year were just in the textile and clothing sector. Pakistani businessmen hope that the Balancing, Modernization and Replacement (BMR) operation in the domestic textile industry that attracted billions of dollars investment to gear the industry for post-quota period would afford an opportunity to textile exporters to double their exports within a short span of time, once quotas are fully removed. The government has projected $13.7 billion export target for the next fiscal year, and $16.7 billion for imports. Exports from Pakistan totaled $5.4 billion and imports $7.9 billion during first five months of the current fiscal year. According to the WTO estimates textile exports in the world totaled $152 billion in 2002 and clothing exports registered a 3.2 percent further growth to total $201 billion in the same year.
In the light of the eventful year 2004 for Pakistan, beginning with the 12th Saarc summit in Islamabad, peace process between India and Pakistan, change of three prime ministers, political play over the uniform issue and so called reconciliation, buoyant stock market, up-tick in economic activity and rising prices, it is largely expected that the pace of these developments would continue in 2005, with a new vigour.
All studies indicate that China, India and Pakistan could benefit from the quota-free regime under the WTO rules, the quality and competitiveness would matter. The end of Agreement on Textile and Clothing (ATC) would mean elimination of all textile quotas with effect from January 1, 2005. However, the anti-dumping duty regime under the World Trade Organization (WTO) would continue to remain a threat, as imposed by the European Union on bed-linen exports from Pakistan, and by the US on China under safeguard measures till the full accession. The import tariffs by the US, EU and East Asian countries on exports from Pakistan would largely determine the status of Pakistani competitiveness.
The peace overtures between the two South Asian nuclear-armed rivals paved the way for an agreement on South Asia Free Trade Area (SAFTA) when former Indian Prime Minister Atal Behari Vajpayee visited Islamabad in January 2004. The SAFTA framework will enter into force by January 1, 2006 after the completion of the required formalities including ratification by all the member states. Pakistan and India would reduce their tariffs to 0-5 percent in a period of seven years, from the date of coming into force, of the agreement. The Least Developed Countries (LDC) would reduce their tariffs to 0-5 percent in a period of ten years. Each member state would maintain a sensitive list of products on which tariffs would not be reduced. However, other bilateral issues, between the two nations, including the core issue of Jammu and Kashmir, and granting the Most Favoured Nation (MFN) status to India under WTO, remained unresolved.
Pakistan's existing trade in the SAARC region just hovers around $500 million, which could easily increase 4-6 times in a very short span of time, once tariffs and non-tariff barriers are reduced by the member states. The SAFTA deal would also facilitated the way for transit facilities for efficient intra-SAARC trade, especially for the landlocked contracting states, opening up the land routes of India for export of Pakistani goods to Bangladesh, Nepal and Bhutan (under clause g of Article 8 of the SSAFTA framework agreement.).
The World Bank also acknowledged the benefits of SAFTA saying: “The initiatives to facilitate regional trade by improving transport links, communications, market intelligence, regional trade financing, customs and internal tax cooperation, regional travel for traders and other businessmen, and many others would clearly be welfare enhancing for the region, whether achieved under the South Asian Association of Regional Cooperation (SAARC)/ South Asian Free Trade Area (SAFTA) or other auspices.”
Again on textile quota elimination, under the WTO rules, the developing countries, as a whole should be able to increase their exports to industrialized countries. Greater competition should lead to greater economic efficiency, and lower import prices should result in cheaper prices for consumers. Realignments in world production patterns are likely, with important adjustment costs that may be relatively more intense in developing countries, and especially those which are most dependent on textiles: some of the poorer ones, small countries which do not have an integrated textile and clothing industry, and those lacking adequate infrastructure to attract investment and capacity to conform to fast changing market requirements.
However, the dismantling of quotas mat not be enough, if the world fails to address the issue of very high tariffs that still exist in many countries, as well as non-tariff barriers. Here, in case of Pakistan, the most important development in 2005 would be some sort of agreement with the EU over new Generalized System of Preferences (GSP). The European Union has proposed an overhaul of trade discounts to developing countries by introducing a new Generalized System of Preferences (GSP), and promoting regional cumulation in SAARC and ASEAN blocs. Under accumulation of origin, a country can benefit from low tariffs even if the goods it exports are partly sourced from neighboring countries.
After the events of September 11, the EU granted Pakistan a comprehensive package of trade preferences, allowing GSP special incentive regime for combating drug trafficking, which resulted in zero tariffs for Pakistan exports to the EU, and a bilateral MoU under which Pakistan received a quota increase of 15 percent for textiles and clothing in return for lowering its import duties. As a result, the trade volume increased to euro 5.16 billion in 2003. However, these benefits reversed in recent months, when EU imposed 13.1 percent anti-dumping duty, and announced to withdraw the benefit of GSP concession from January 01, 2005. This decision was triggered by Indian protests.
However, under the revised format if approved by the EU in July 2005, and Pakistan is also treated under the GSP concessions, the textile exports would definitely benefit. The GSP plan, which still needs approval from EU governments and the European Parliament, would bring the EU's trade rules in line with the World Trade Organization., which has called for reforms in the EU trade system. The plan would replace five separate trade tariff systems with three, including one that would offer more market access, for up to 72,000 products, if those developing countries that qualify and abide by international human rights, environment and labor standards. They will also have to combat the drug trade. The new system, if approved, would be in force from 2006-2008. Countries that hold more than 15 percent of EU market share of any goods will lose their discounted tariffs. Tighter restrictions will apply in textiles, where a ceiling of 12.5 percent market share will be set. However, new rules do not cut the preferential status of India in clothing and textiles, which has a 10-11 percent market share, which is likely to rise above the 12.5 percent marker soon.
Pakistan Macroeconomic Performance:
The macroeconomic picture of the country appears to be pretty stable at the moment. The growth rate has picked up, industrial sector and stock markets are buoyant and fiscal deficit had narrowed down. However, on poverty, unemployment, good governance and public sector losses, there has been hardly any good story to tell.
The fiscal deficit has narrowed down to just Rs 22.169 billion or 0.36 percent of full year GDP, against the target of Rs 89.4 billion in the first quarter of 2004-05. The corresponding period of the last fiscal year witnessed a deficit of Rs 40.9 billion or 0.7 percent of GDP. The budget deficit target for the fiscal 2004-05 is Rs 199 billion or 3.2 percent of GDP. The Central Board of Revenue (CBR) is optimistic about a revenue collection of Rs 590-600 billion during the year, against the original budget target of Rs 580 billion for the fiscal year 2004-05. Real GDP is targeted to grow by 6.6 percent in 2004-05, but recent trends show it may surpass the target, due to strong manufacturing sector growth, despite water shortages.
In monetary areas, the overall money supply grew by Rs 407.9 billion or 19.6 percent in 2003-04 over previous year. The monetary expansion during the first four months (July-October) of the current fiscal year amounted to Rs 77.3 billion or up by 3.1 percent as against Rs 89.3 billion or 4.3 percent in the same period last year. The credit to private sector grew by Rs 123.5 billion during the first four months (July-October) of the current fiscal year as against Rs 70.8 billion in the same period last year, thus registering a growth of 37.1 percent over the corresponding period of last year. Given the strong appetite of the private sector for bank credit it is safe to suggest that full year target of Rs 200 billion is likely to surpass by a wide margin.
The inflation during the first four months (July-October) of the current fiscal year is estimated at 9.1 percent as against 2.2 percent in the same period last year. Food inflation is estimated at 13.6 percent as against 1.5 percent of last year. The persistence of relatively high core inflation compelled the SBP to change its monetary policy stance from easy to ‘measured’ tightening.
On external front, the trade deficit is likely to widen more than what was envisaged at the beginning of the current fiscal year. Despite widening of trade deficit the current account balance (excluding official transfers) remained in surplus to the extent of $ 115 million during the first quarter (July–September) of the current fiscal year as against $919 million in the same quarter last year owing to better inflow of private transfers rising from $1489 million to $2045 million – an increase of 37.3 percent. Given the trends in exports and imports there are indications that the current account balance may end up with a deficit of less than 1 percent of GDP in 2004-05. Pakistan has also witnessed pressures on exchange rate during the current fiscal year, with rupee showing almost over 4 percent depreciation against the US dollar.
Credit Rating Improved:
The Standard & Poor's Ratings Services, a New York based firm, raised its long-term sovereign credit ratings on Pakistan by one notch, to 'B+' for foreign currency and 'BB' for local currency, to factor in declining debt and debt-servicing burdens, as well as sustained economic progress. However, the firm maintained that Pakistan's net general government debt, projected at about 85 percent of 2004 GDP, and net public external debt at about 93 percent of current account receipts, are still among the highest of all sovereigns rated by Standard & Poor's, despite having declined from 120 percent and 270 percent, respectively, in 2001. Pakistan hopes that better ratings would help it going to international capital markets in early 2005 with a dollar-denominated Islamic Sukuk bond. Pakistan also prematurely opted out of the three-year Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF) during 2004.
Poverty Remains Widespread:
The last official household survey in 1998-99 showed 32.1 percent poor in the country. Last year, the government claimed 4 percentage point reduction in poverty, but claims are yet to be proved, as the latest survey results would not be available till mid-2005. The unemployment rate also remained at 8.3 percent, with little chances of any positive change due to high growth rate in the labour force. The intermediate outcome indicators for the health and education sectors have yet to show significant improvements. Both as a ratio to GDP and per capita, education and health spending in Pakistan was among the lowest in the world. A cross-country analysis exploring differences in growth rates among low and middle income countries finds that weak human capital indicators are an important constraint to growth in Pakistan. Real wages in the manufacturing sector have declined by 7.5 percent in real terms since 2000-01. Pakistan was also ranked low in the 2004 UNDP human development index.
Almost all the experts are convinced that creating more jobs or sustaining high growth rate to dent poverty in the medium-term depends on new Foreign Direct Investment (FDI) in the country. Total FDI flows last fiscal year were about $950 million. The first five months of 2004-05 attracted $327.7 million FDI, which is not enough for a country like Pakistan. It could be the biggest challenge for the country going into post-quota global trade regime, where the survival of the fittest is the name of the game.
ENDS.
By Nadeem Malik
Islamabad: Pakistan enters textile quota-free 2005 cautiously, with pick up in economic activity quite obvious, but concerns about political stability and law and order situation may haunt it during the year.
Textiles and clothing trade among World Trade Organisation (WTO) members was being governed by the Agreement on Textiles and Clothing (ATC). This agreement meant that alongside progressive application of General Agreement on Tariffs and Trade (GATT) rules, there would be progressive phasing out of quotas in the European Union, United States and Canada. These quotas were inherited from the Multifibre Arrangements (MFA). After a 10-year period ending on January 1, 2005, the ATC would expire and all quotas will be abolished. So, in 2005, all WTO members would have unrestricted access to the European, American and Canadian markets. Trade in the textile sector has been characterised so far by an almost one-way flow: from developing countries to industrialized countries, the EU, the US and Japan accounting for 80 per cent of the world’s garment imports.
Almost $8.3 billion, or 68 percent, of Pakistan’s total exports of $12.3 billion last year were just in the textile and clothing sector. Pakistani businessmen hope that the Balancing, Modernization and Replacement (BMR) operation in the domestic textile industry that attracted billions of dollars investment to gear the industry for post-quota period would afford an opportunity to textile exporters to double their exports within a short span of time, once quotas are fully removed. The government has projected $13.7 billion export target for the next fiscal year, and $16.7 billion for imports. Exports from Pakistan totaled $5.4 billion and imports $7.9 billion during first five months of the current fiscal year. According to the WTO estimates textile exports in the world totaled $152 billion in 2002 and clothing exports registered a 3.2 percent further growth to total $201 billion in the same year.
In the light of the eventful year 2004 for Pakistan, beginning with the 12th Saarc summit in Islamabad, peace process between India and Pakistan, change of three prime ministers, political play over the uniform issue and so called reconciliation, buoyant stock market, up-tick in economic activity and rising prices, it is largely expected that the pace of these developments would continue in 2005, with a new vigour.
All studies indicate that China, India and Pakistan could benefit from the quota-free regime under the WTO rules, the quality and competitiveness would matter. The end of Agreement on Textile and Clothing (ATC) would mean elimination of all textile quotas with effect from January 1, 2005. However, the anti-dumping duty regime under the World Trade Organization (WTO) would continue to remain a threat, as imposed by the European Union on bed-linen exports from Pakistan, and by the US on China under safeguard measures till the full accession. The import tariffs by the US, EU and East Asian countries on exports from Pakistan would largely determine the status of Pakistani competitiveness.
The peace overtures between the two South Asian nuclear-armed rivals paved the way for an agreement on South Asia Free Trade Area (SAFTA) when former Indian Prime Minister Atal Behari Vajpayee visited Islamabad in January 2004. The SAFTA framework will enter into force by January 1, 2006 after the completion of the required formalities including ratification by all the member states. Pakistan and India would reduce their tariffs to 0-5 percent in a period of seven years, from the date of coming into force, of the agreement. The Least Developed Countries (LDC) would reduce their tariffs to 0-5 percent in a period of ten years. Each member state would maintain a sensitive list of products on which tariffs would not be reduced. However, other bilateral issues, between the two nations, including the core issue of Jammu and Kashmir, and granting the Most Favoured Nation (MFN) status to India under WTO, remained unresolved.
Pakistan's existing trade in the SAARC region just hovers around $500 million, which could easily increase 4-6 times in a very short span of time, once tariffs and non-tariff barriers are reduced by the member states. The SAFTA deal would also facilitated the way for transit facilities for efficient intra-SAARC trade, especially for the landlocked contracting states, opening up the land routes of India for export of Pakistani goods to Bangladesh, Nepal and Bhutan (under clause g of Article 8 of the SSAFTA framework agreement.).
The World Bank also acknowledged the benefits of SAFTA saying: “The initiatives to facilitate regional trade by improving transport links, communications, market intelligence, regional trade financing, customs and internal tax cooperation, regional travel for traders and other businessmen, and many others would clearly be welfare enhancing for the region, whether achieved under the South Asian Association of Regional Cooperation (SAARC)/ South Asian Free Trade Area (SAFTA) or other auspices.”
Again on textile quota elimination, under the WTO rules, the developing countries, as a whole should be able to increase their exports to industrialized countries. Greater competition should lead to greater economic efficiency, and lower import prices should result in cheaper prices for consumers. Realignments in world production patterns are likely, with important adjustment costs that may be relatively more intense in developing countries, and especially those which are most dependent on textiles: some of the poorer ones, small countries which do not have an integrated textile and clothing industry, and those lacking adequate infrastructure to attract investment and capacity to conform to fast changing market requirements.
However, the dismantling of quotas mat not be enough, if the world fails to address the issue of very high tariffs that still exist in many countries, as well as non-tariff barriers. Here, in case of Pakistan, the most important development in 2005 would be some sort of agreement with the EU over new Generalized System of Preferences (GSP). The European Union has proposed an overhaul of trade discounts to developing countries by introducing a new Generalized System of Preferences (GSP), and promoting regional cumulation in SAARC and ASEAN blocs. Under accumulation of origin, a country can benefit from low tariffs even if the goods it exports are partly sourced from neighboring countries.
After the events of September 11, the EU granted Pakistan a comprehensive package of trade preferences, allowing GSP special incentive regime for combating drug trafficking, which resulted in zero tariffs for Pakistan exports to the EU, and a bilateral MoU under which Pakistan received a quota increase of 15 percent for textiles and clothing in return for lowering its import duties. As a result, the trade volume increased to euro 5.16 billion in 2003. However, these benefits reversed in recent months, when EU imposed 13.1 percent anti-dumping duty, and announced to withdraw the benefit of GSP concession from January 01, 2005. This decision was triggered by Indian protests.
However, under the revised format if approved by the EU in July 2005, and Pakistan is also treated under the GSP concessions, the textile exports would definitely benefit. The GSP plan, which still needs approval from EU governments and the European Parliament, would bring the EU's trade rules in line with the World Trade Organization., which has called for reforms in the EU trade system. The plan would replace five separate trade tariff systems with three, including one that would offer more market access, for up to 72,000 products, if those developing countries that qualify and abide by international human rights, environment and labor standards. They will also have to combat the drug trade. The new system, if approved, would be in force from 2006-2008. Countries that hold more than 15 percent of EU market share of any goods will lose their discounted tariffs. Tighter restrictions will apply in textiles, where a ceiling of 12.5 percent market share will be set. However, new rules do not cut the preferential status of India in clothing and textiles, which has a 10-11 percent market share, which is likely to rise above the 12.5 percent marker soon.
Pakistan Macroeconomic Performance:
The macroeconomic picture of the country appears to be pretty stable at the moment. The growth rate has picked up, industrial sector and stock markets are buoyant and fiscal deficit had narrowed down. However, on poverty, unemployment, good governance and public sector losses, there has been hardly any good story to tell.
The fiscal deficit has narrowed down to just Rs 22.169 billion or 0.36 percent of full year GDP, against the target of Rs 89.4 billion in the first quarter of 2004-05. The corresponding period of the last fiscal year witnessed a deficit of Rs 40.9 billion or 0.7 percent of GDP. The budget deficit target for the fiscal 2004-05 is Rs 199 billion or 3.2 percent of GDP. The Central Board of Revenue (CBR) is optimistic about a revenue collection of Rs 590-600 billion during the year, against the original budget target of Rs 580 billion for the fiscal year 2004-05. Real GDP is targeted to grow by 6.6 percent in 2004-05, but recent trends show it may surpass the target, due to strong manufacturing sector growth, despite water shortages.
In monetary areas, the overall money supply grew by Rs 407.9 billion or 19.6 percent in 2003-04 over previous year. The monetary expansion during the first four months (July-October) of the current fiscal year amounted to Rs 77.3 billion or up by 3.1 percent as against Rs 89.3 billion or 4.3 percent in the same period last year. The credit to private sector grew by Rs 123.5 billion during the first four months (July-October) of the current fiscal year as against Rs 70.8 billion in the same period last year, thus registering a growth of 37.1 percent over the corresponding period of last year. Given the strong appetite of the private sector for bank credit it is safe to suggest that full year target of Rs 200 billion is likely to surpass by a wide margin.
The inflation during the first four months (July-October) of the current fiscal year is estimated at 9.1 percent as against 2.2 percent in the same period last year. Food inflation is estimated at 13.6 percent as against 1.5 percent of last year. The persistence of relatively high core inflation compelled the SBP to change its monetary policy stance from easy to ‘measured’ tightening.
On external front, the trade deficit is likely to widen more than what was envisaged at the beginning of the current fiscal year. Despite widening of trade deficit the current account balance (excluding official transfers) remained in surplus to the extent of $ 115 million during the first quarter (July–September) of the current fiscal year as against $919 million in the same quarter last year owing to better inflow of private transfers rising from $1489 million to $2045 million – an increase of 37.3 percent. Given the trends in exports and imports there are indications that the current account balance may end up with a deficit of less than 1 percent of GDP in 2004-05. Pakistan has also witnessed pressures on exchange rate during the current fiscal year, with rupee showing almost over 4 percent depreciation against the US dollar.
Credit Rating Improved:
The Standard & Poor's Ratings Services, a New York based firm, raised its long-term sovereign credit ratings on Pakistan by one notch, to 'B+' for foreign currency and 'BB' for local currency, to factor in declining debt and debt-servicing burdens, as well as sustained economic progress. However, the firm maintained that Pakistan's net general government debt, projected at about 85 percent of 2004 GDP, and net public external debt at about 93 percent of current account receipts, are still among the highest of all sovereigns rated by Standard & Poor's, despite having declined from 120 percent and 270 percent, respectively, in 2001. Pakistan hopes that better ratings would help it going to international capital markets in early 2005 with a dollar-denominated Islamic Sukuk bond. Pakistan also prematurely opted out of the three-year Poverty Reduction and Growth Facility (PRGF) of the International Monetary Fund (IMF) during 2004.
Poverty Remains Widespread:
The last official household survey in 1998-99 showed 32.1 percent poor in the country. Last year, the government claimed 4 percentage point reduction in poverty, but claims are yet to be proved, as the latest survey results would not be available till mid-2005. The unemployment rate also remained at 8.3 percent, with little chances of any positive change due to high growth rate in the labour force. The intermediate outcome indicators for the health and education sectors have yet to show significant improvements. Both as a ratio to GDP and per capita, education and health spending in Pakistan was among the lowest in the world. A cross-country analysis exploring differences in growth rates among low and middle income countries finds that weak human capital indicators are an important constraint to growth in Pakistan. Real wages in the manufacturing sector have declined by 7.5 percent in real terms since 2000-01. Pakistan was also ranked low in the 2004 UNDP human development index.
Almost all the experts are convinced that creating more jobs or sustaining high growth rate to dent poverty in the medium-term depends on new Foreign Direct Investment (FDI) in the country. Total FDI flows last fiscal year were about $950 million. The first five months of 2004-05 attracted $327.7 million FDI, which is not enough for a country like Pakistan. It could be the biggest challenge for the country going into post-quota global trade regime, where the survival of the fittest is the name of the game.
ENDS.
Tuesday, January 04, 2005
Pakistan Perceived More Corrupt in 2004
Pakistan Perceived More Corrupt in 2004
By Nadeem Malik
Islamabad: Pakistan’s score on the Corruption Perception Index (CPI) of the Transparency International has slipped down further in 2004 to 2.1 from 2.5 in 2003.
Out of the 146 countries indexed by TI in 2004, Pakistan is one of few countries, which have shown major change in scores, partly attributable to the technical factors, like inclusion or dropping of some of the surveys. However, it is a second year in a row, when Pakistan got poor results. In 2002, Pakistan scored 2.6 on CPI index, out of a clean score of 10.
The CPI reflects perceived levels of corruption among politicians and public officials in the surveyed countries. It is not the actual measurement of corruption, but the perception of it. The survey calculated that at least $400 billion is lost to corruption every year around the globe with oil-producing nations among the worst offenders.
Pakistan scored 2.25 in 1995, 1 in 1996, 2.53 in 1997, 2.7 in 1998 (highest so far), 2.2 in 1999, no result for 2000, 2.3 in 2001, 2.6 in 2002 and 2.5 in 2003, but now the latest survey assigned it 2.1 in the Corruption Perception Index (CPI) 2004, which is not good for the government, which had a declared objective of good governance.
The Corruption Perception Index 2004 also noted that corruption is hobbling the fight against poverty and robbing oil-rich countries of their development potential.
"Corruption in large-scale public projects is a daunting obstacle to sustainable development, and results in a major loss of public funds needed for education, health care and poverty alleviation, both in developed and developing countries," TI noted. It added that if the Millennium Development Goal of halving the number of people living in extreme poverty by 2015 is to be achieved, the governments need to seriously tackle
corruption in public contracting.
The CPI ranked Haiti and Bangladesh at the bottom of the list among the worst perceived levels of corruption among public officials and politicians. At the top of the ranking for the least corrupt countries were Finland, New Zealand, Denmark and Iceland. A rise in perceived corruption had been observed in the last year in Bahrain, Belize, Cyprus, Dominican Republic, Jamaica, Kuwait, Luxembourg, Mauritius, Oman, Poland, Saudi Arabia, Senegal, and Trinidad and Tobago, while a drop in graft was seen in Austria, Botswana, the Czech Republic, El Salvador, France, Gambia, Germany, Jordan, Switzerland, Tanzania, Thailand, Uganda, the United Arab Emirates and Uruguay.
The report finds that oil wealth and corruption go hand in hand, and oil companies should provide more information about their dealings to help clean up the market. "Oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen all have extremely low scores," a TI official said.
Various reports on the TI index revealed that the post-war reconstruction of Iraq could be ruined by rampant corruption, adding that the future of Iraq depended on transparency in the oil sector. "Without strict anti-bribery measures, the reconstruction of Iraq will be wrecked by a wasteful diversion of resources to corrupt elites," TI official said.
In other reports, political parties, the courts and the police were identified as the three areas most in need of reform in TI's Global Corruption Barometer, a survey of the general public in 48 countries, launched in July 2003. "Their bribes and incentives to corrupt public officials and politicians are undermining the prospects of sustainable development in poorer countries." Political parties, the courts and the police were identified as the three areas most in need of reform in TI's Global Corruption Barometer, a survey of the general public in 48 countries, launched in July 2003.
A similar report for South Asia found police, land administration, tax officials and judiciary perceived as the most corrupt public institutions in Pakistan. The judiciary was identified as the second most corrupt area, after police, in all South Asian countries except Pakistan, where land administration and the tax authorities were identified as the second and third most corrupt areas respectively.
In India, Pakistan and Sri Lanka, 100 percent of respondents that interacted with the police during the past year reported encountering corruption. In their experiences with the judiciary, nearly all Indian, Sri Lankan and 96 percent Pakistani households reported paying bribes. In Pakistan, 100 percent of respondents with experience with the land administration authorities reported corruption.
The survey, conducted in Bangladesh, India, Nepal, Pakistan and Sri Lanka between November 2001 and May 2002, was carried out on households, both urban and rural, in each country, ranging from 2,278 households in Sri Lanka to 5,157 in India, and 3,000 in Pakistan. Same methodology was applied to assess service delivery and corruption in seven public services: health care, education, power, land administration, taxation, police, and the judiciary.
The survey showed that bribes were a heavy financial burden on South Asian households, both due to the high frequency of bribes and to the large sums paid. In Pakistan, 92 percent of households that had experience with public education reported having to pay bribes; the average amount paid was Rs 4,811 ($86).
In Pakistan, 65 percent of all patients visiting a hospital reported irregular admissions and 96 percent of those who were admitted said they were victims of corruption. Hospital staffers were identified as the key facilitators of corruption by 65 percent of the users and direct extortion was reported in 60 percent of the total cases of corruption. Lack of accountability and monopoly power were quoted as key contributing factors.
A very high percentage of 65 percent of users with access to electricity reported irregular processes in acquiring it; a much higher percentage reported of corruption in regular interaction with the department. Meter readers and billing employees were identified as the key facilitators; extortion was reported by 72 percent of the victims. A lack of accountability and low salaries of employees were identified as major contributory factors.
These figures were startling in a region where 45 percent of the total population of 1.4 billion lives in poverty. When asked about the source of corruption, most respondents answered that public servants extorted bribes. Middle and lower level civil servants were identified as the key facilitators of corruption in all sectors probed.
The report strongly supports the case for empowering regulatory bodies, such as the office of the Ombudsman to oversee the activities of public agencies, which across the region were the sole providers of many basic necessities. The findings also indicated that where the law was silent on standards of service, agencies simply provide poorer services.
The report observed that a major factor contributing to the poor impact of huge public investments in critical sectors like health, education, and power across South Asia was the lack of effective monitoring systems. It was now a fairly established fact that corruption was severely undermining development objectives in South Asian countries by hindering economic growth, reducing efficiency, acting as a disincentive to potential investors and, above all, by diverting critical resources meant for poverty alleviation.
Though of late there had been a growing awareness of the need to address the systemic spread of corruption, most of the reform agenda was top-down and in many cases donor driven, with little or no space for civil society to play a meaningful role, TI observed in the Survey.
The Survey also maintained that if Pakistan were to reduce its level of corruption to be on at par with Singapore, GDP growth rates could increase by two percentage points.
Talking about the key governance indicators in Pakistan, the report assigned a score of -6 on Polity Index (which reflects institutional factors for democracy, 57 for press freedom (which means partial freedom), -0.48 for government effectiveness and -0.78 for graft and corruption (these two indicators were based on the World Bank's approach on a scale of -2.5 to 2.5, higher is better).
In a press statement, Shaukat Omari, Executive Director of Transparency International Pakistan, said: "In spite of more vigorous enforcement of anti-corruption laws under the regime of President Pervez Musharraf, Pakistan is still perceived to have an unacceptably high level of corruption.”
In the TI Corruption Perceptions Index 2004, Pakistan scores 2.1 against a clear score of 10, indicating persistent rampant corruption. In the Corruption Perceptions Index, Pakistan has consistently featured among the most corrupt 10 per cent of countries ranked, with scores ranging between 2.1 and 2.7. “This is not a very enviable position," states the National Integrity Systems TI Country Study Report Pakistan 2003.
A total of 106 out of 146 countries score less than 5 against a clean score of 10, according to the new index. Sixty countries score less than 3 out of 10, indicating rampant corruption. Corruption is perceived to be most acute in Bangladesh, Haiti, Nigeria, Chad, Myanmar, Azerbaijan and Paraguay, all of which have a score of less than 2.
ENDS.
By Nadeem Malik
Islamabad: Pakistan’s score on the Corruption Perception Index (CPI) of the Transparency International has slipped down further in 2004 to 2.1 from 2.5 in 2003.
Out of the 146 countries indexed by TI in 2004, Pakistan is one of few countries, which have shown major change in scores, partly attributable to the technical factors, like inclusion or dropping of some of the surveys. However, it is a second year in a row, when Pakistan got poor results. In 2002, Pakistan scored 2.6 on CPI index, out of a clean score of 10.
The CPI reflects perceived levels of corruption among politicians and public officials in the surveyed countries. It is not the actual measurement of corruption, but the perception of it. The survey calculated that at least $400 billion is lost to corruption every year around the globe with oil-producing nations among the worst offenders.
Pakistan scored 2.25 in 1995, 1 in 1996, 2.53 in 1997, 2.7 in 1998 (highest so far), 2.2 in 1999, no result for 2000, 2.3 in 2001, 2.6 in 2002 and 2.5 in 2003, but now the latest survey assigned it 2.1 in the Corruption Perception Index (CPI) 2004, which is not good for the government, which had a declared objective of good governance.
The Corruption Perception Index 2004 also noted that corruption is hobbling the fight against poverty and robbing oil-rich countries of their development potential.
"Corruption in large-scale public projects is a daunting obstacle to sustainable development, and results in a major loss of public funds needed for education, health care and poverty alleviation, both in developed and developing countries," TI noted. It added that if the Millennium Development Goal of halving the number of people living in extreme poverty by 2015 is to be achieved, the governments need to seriously tackle
corruption in public contracting.
The CPI ranked Haiti and Bangladesh at the bottom of the list among the worst perceived levels of corruption among public officials and politicians. At the top of the ranking for the least corrupt countries were Finland, New Zealand, Denmark and Iceland. A rise in perceived corruption had been observed in the last year in Bahrain, Belize, Cyprus, Dominican Republic, Jamaica, Kuwait, Luxembourg, Mauritius, Oman, Poland, Saudi Arabia, Senegal, and Trinidad and Tobago, while a drop in graft was seen in Austria, Botswana, the Czech Republic, El Salvador, France, Gambia, Germany, Jordan, Switzerland, Tanzania, Thailand, Uganda, the United Arab Emirates and Uruguay.
The report finds that oil wealth and corruption go hand in hand, and oil companies should provide more information about their dealings to help clean up the market. "Oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen all have extremely low scores," a TI official said.
Various reports on the TI index revealed that the post-war reconstruction of Iraq could be ruined by rampant corruption, adding that the future of Iraq depended on transparency in the oil sector. "Without strict anti-bribery measures, the reconstruction of Iraq will be wrecked by a wasteful diversion of resources to corrupt elites," TI official said.
In other reports, political parties, the courts and the police were identified as the three areas most in need of reform in TI's Global Corruption Barometer, a survey of the general public in 48 countries, launched in July 2003. "Their bribes and incentives to corrupt public officials and politicians are undermining the prospects of sustainable development in poorer countries." Political parties, the courts and the police were identified as the three areas most in need of reform in TI's Global Corruption Barometer, a survey of the general public in 48 countries, launched in July 2003.
A similar report for South Asia found police, land administration, tax officials and judiciary perceived as the most corrupt public institutions in Pakistan. The judiciary was identified as the second most corrupt area, after police, in all South Asian countries except Pakistan, where land administration and the tax authorities were identified as the second and third most corrupt areas respectively.
In India, Pakistan and Sri Lanka, 100 percent of respondents that interacted with the police during the past year reported encountering corruption. In their experiences with the judiciary, nearly all Indian, Sri Lankan and 96 percent Pakistani households reported paying bribes. In Pakistan, 100 percent of respondents with experience with the land administration authorities reported corruption.
The survey, conducted in Bangladesh, India, Nepal, Pakistan and Sri Lanka between November 2001 and May 2002, was carried out on households, both urban and rural, in each country, ranging from 2,278 households in Sri Lanka to 5,157 in India, and 3,000 in Pakistan. Same methodology was applied to assess service delivery and corruption in seven public services: health care, education, power, land administration, taxation, police, and the judiciary.
The survey showed that bribes were a heavy financial burden on South Asian households, both due to the high frequency of bribes and to the large sums paid. In Pakistan, 92 percent of households that had experience with public education reported having to pay bribes; the average amount paid was Rs 4,811 ($86).
In Pakistan, 65 percent of all patients visiting a hospital reported irregular admissions and 96 percent of those who were admitted said they were victims of corruption. Hospital staffers were identified as the key facilitators of corruption by 65 percent of the users and direct extortion was reported in 60 percent of the total cases of corruption. Lack of accountability and monopoly power were quoted as key contributing factors.
A very high percentage of 65 percent of users with access to electricity reported irregular processes in acquiring it; a much higher percentage reported of corruption in regular interaction with the department. Meter readers and billing employees were identified as the key facilitators; extortion was reported by 72 percent of the victims. A lack of accountability and low salaries of employees were identified as major contributory factors.
These figures were startling in a region where 45 percent of the total population of 1.4 billion lives in poverty. When asked about the source of corruption, most respondents answered that public servants extorted bribes. Middle and lower level civil servants were identified as the key facilitators of corruption in all sectors probed.
The report strongly supports the case for empowering regulatory bodies, such as the office of the Ombudsman to oversee the activities of public agencies, which across the region were the sole providers of many basic necessities. The findings also indicated that where the law was silent on standards of service, agencies simply provide poorer services.
The report observed that a major factor contributing to the poor impact of huge public investments in critical sectors like health, education, and power across South Asia was the lack of effective monitoring systems. It was now a fairly established fact that corruption was severely undermining development objectives in South Asian countries by hindering economic growth, reducing efficiency, acting as a disincentive to potential investors and, above all, by diverting critical resources meant for poverty alleviation.
Though of late there had been a growing awareness of the need to address the systemic spread of corruption, most of the reform agenda was top-down and in many cases donor driven, with little or no space for civil society to play a meaningful role, TI observed in the Survey.
The Survey also maintained that if Pakistan were to reduce its level of corruption to be on at par with Singapore, GDP growth rates could increase by two percentage points.
Talking about the key governance indicators in Pakistan, the report assigned a score of -6 on Polity Index (which reflects institutional factors for democracy, 57 for press freedom (which means partial freedom), -0.48 for government effectiveness and -0.78 for graft and corruption (these two indicators were based on the World Bank's approach on a scale of -2.5 to 2.5, higher is better).
In a press statement, Shaukat Omari, Executive Director of Transparency International Pakistan, said: "In spite of more vigorous enforcement of anti-corruption laws under the regime of President Pervez Musharraf, Pakistan is still perceived to have an unacceptably high level of corruption.”
In the TI Corruption Perceptions Index 2004, Pakistan scores 2.1 against a clear score of 10, indicating persistent rampant corruption. In the Corruption Perceptions Index, Pakistan has consistently featured among the most corrupt 10 per cent of countries ranked, with scores ranging between 2.1 and 2.7. “This is not a very enviable position," states the National Integrity Systems TI Country Study Report Pakistan 2003.
A total of 106 out of 146 countries score less than 5 against a clean score of 10, according to the new index. Sixty countries score less than 3 out of 10, indicating rampant corruption. Corruption is perceived to be most acute in Bangladesh, Haiti, Nigeria, Chad, Myanmar, Azerbaijan and Paraguay, all of which have a score of less than 2.
ENDS.
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