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Wednesday, September 30, 2009

State Bank of Pakistan permits micro-finance banks to provide mortgage loans

ARACHI — Starting this month, the State Bank of Pakistan (SBP) will permit Micro-Finance Banks (MFBs) to provide mortgage loans to individuals, SBP chief spokesman Syed Wasimuddin said on August 30.

Micro-finance refers to the provision of financial services to low-income consumers and the self-employed including credit, savings, insurance, and fund transfers.

“MFBs now can offer mortgages of up to US$6000 to individual borrowers, particularly in remote areas in Pakistan where commercial banks do not [normally] provide credit,” Wasimuddin said. The SBP also raised the micro-credit limit to $1800 per borrower from the earlier limit of $400 per person.

Established in Pakistan in 2002, MFBs were intended to achieve UN Millennium Development Goals aimed at alleviating poverty through socio-economic development.

“The MFBs requested that SBP raise the lending limit and allow them to offer mortgage loans… to extend the outreach of banks,” Kashf Bank CEO Roshaneh Zafar said. Kashf is one of nine banks offering micro-loans. They want to reach the 10 million households identified by the government and donor agencies as those who can most benefit from micro-finance support.

“We need $12 billion to reach these people,” said First Micro-Finance Bank CEO Hussain Tejani. According to him, about one million people have benefited from existing micro-finance services over the past seven years.

The Pakistani government, World Bank, Asian Development Bank and non-government organizations (NGOs) are all supporting MFBs to reduce poverty and promote socio-economic development, he added.

DATA SNAP: US 2Q GDP Falls Less Than Earlier Estimated

DATA SNAP: US 2Q GDP Falls Less Than Earlier Estimated
===================================================================
Gross Domestic Product 2Q 2Q 1Q ! Consensus: !
Overall GDP Growth -0.7% -1.0% -6.4% ! -1.2% !
PCE Price Index +1.4% +1.3% -1.5% ! Actual: !
! -0.7% !
===================================================================

WASHINGTON -(Dow Jones)- U.S. economic output last spring fell less than than previously estimated while inflation gauges remained benign.

Gross domestic product decreased at a 0.7% annual rate from April through June, the Commerce Department said Wednesday, revising its earlier estimated 1.0% drop because business spending in the quarter wasn't as weak as initially thought.

The new estimate was released on the last day of the third quarter, a period analysts think GDP grew, ending a year of contraction in the worst recession since World War II. The first estimate of third-quarter GDP is due out Oct. 29. Economists think the economy expanded modestly July through September; RBS Greenwich Capital Markets this week released an estimate of 2.5% to 3% growth.

The 0.7% decline in GDP during the second quarter was softer than in the darkest days of the slump, when GDP plunged 5.4% in fourth-quarter 2008 and 6.4% in first-quarter 2009. Wall Street had expected the Commerce Department would revise its initial projections for second-quarter GDP downward slightly. Economists surveyed by Dow Jones Newswires forecast a 1.2% decline.

GDP is a measure of all goods and services produced in the economy. The biggest component of GDP - consumer spending - decreased 0.9%, compared to the previously estimated 1.0% drop and the first quarter's 0.6% decrease.

The GDP component that includes spending on housing decreased 23.3%, compared to the previously estimated 22.8% tumble and the first quarter's 38.2% drop.

Internationally, U.S. exports fell by 4.1% instead of 5.0% as earlier reported. Imports decreased 14.7%; earlier, the government said imports fell 15.1%.

Federal government spending rose 11.4%, revised from an earlier estimated 11.0% jump. State and local government outlays increased 3.9%.

Real final sales of domestic product increased 0.7%, beating the earlier estimated 0.4% increase. First-quarter sales fell 4.1%. Real final sales is GDP minus the change in private inventories.

Corporate profits after taxes were revised downward. After-tax earnings rose 5.6% to $1.031 trillion in April through June from the first quarter, the report showed. Earlier, Commerce had estimated a 7.5% increase. Profits in the first quarter surged 16.6%. Year over year, profits were down 19.2% since the second quarter of 2008.

U.S. business spending fell by 9.6%, revised up from a previously reported 10.9% decline. Investment in structures decreased 17.3%. Equipment and software spending decreased 4.9%. Commerce earlier estimated equipment and software spending had fallen 8.4%.

Wednesday's report showed gauges measuring second-quarter price inflation were subdued.

The government's price index for personal consumption increased 1.4% in the second quarter, compared to the previously estimated 1.3% climb and the first quarter's 1.5% fall.

The PCE price gauge excluding food and energy increased an unrevised 2.0% in the second quarter, compared to the first quarter's 1.1% increase.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased an unrevised 0.5% in the second quarter, compared to the first quarter's 1.4% dip.

The chain-weighted GDP price index as expected posted no increase the second quarter. The chain-weighted GDP price index rose 1.9% in the first quarter.

Tuesday, September 29, 2009

Kerry-Lugar Bill: still seeking control over Pakistan

Kerry Lugar Bill has now been presented and it certainly moves away from the ridiculous Howard Berman Bill that was presented to the House of Representatives. However, once again, we are seeing the doublespeak so aptly describes by fellow columnist Anjum Niaz. At the end of the day, what may emerge in the Congressional consensus is a mix of the two bills, and the final shape will depend on how effective the Indian lobby has been and how critical the US regards our national submission to Indian interests. Be that as it may, the Kerry Lugar Bill (KLB) itself is problematic, even though it appears angelic compared to the Berman Bill – although the amounts and time lines are similar - $1.5 billion per year authorised for five years and a similar amount advocated for the following five years! The KLB delinks security or military assistance from non-military assistance but has conditionalities attached to both. In terms of security, the assistance is on a year-by-year basis, and the US president has to certify that Pakistan's security forces – that is the military which effectively means the army – are making concerted efforts to prevent Al Qaeda and "other terrorist groups" from operating in Pakistani territory! Given how even the loss of over a thousand security personnel has failed to convince the US that our military is doing its best under trying circumstances, the US continues to put forward the mantra of "do more", such certification would put our security forces under US pressure and "control" for a decade at least. And for what? For weapons systems that we have done without adequately for many decades.
As for getting US training in counter terrorism, that is a laugh given how inadequate the US itself has proven to be – whether it was Vietnam, Latin America, Iraq or Afghanistan. There is also the required certification that the military is preventing Taliban sanctuaries in Pakistan from where attacks against Afghanistan can be launched – as if the whole burden on preventing cross-border movement and attacks is the responsibility of the Pakistan army, not of the NATO forces or Afghan military! Once again, the US continues to focus on a military-centric approach and has a punitive policy towards the Pakistan military.The latter is reflected also in another requirement relating to security assistance: the US president has to certify that our security forces are not interfering in the political and judicial processes of Pakistan. While all Pakistanis wish to see this, is it the place of the US to dictate this as a conditionality? What has this got to do with military aid and fighting "terrorism"? To add further insult to the state of Pakistan, the US secretary of state, after consulting the secretary of defence and the director of national intelligence will also be submitting to Congress an annual report on the "progress" of Pakistan's security forces. The "progress" is not defined categorically so it could include demands for revelations of our nuclear assets locations, security systems and so on also.
Is our military so desperate for US weapons that we will compromise our nuclear assets? Already there is concern over the "sensitive" briefing allegedly given to US and some European diplomats relating to our nuclear assets. How far will we go just for dollars and some weapons systems that we do not really need? And what if "progress" also refers to cuts in our nuclear weapons' spending – something that the Zardari government has already begun to time "coincidentally" with his US visit, although some of us had written about this danger many months earlier!Then there is a very ominous phrase relating to the presidential evaluation and that is a reference to the roles of "Pakistan local, regional and national institutions". Does regional here offer an indirect intrusion of India somewhere or does it merely mean provincial institutions – and which institutions?Even with non-security or civilian assistance, there are conditionalities which are highly intrusive and relate to democracy, independent judiciary, rule of law and so on. All laudable, but why should we need US supervision or intervention financially on these counts? After all, on these issues, it is not money that is needed but political commitment and internal reforms which the senior judiciary has already initiated. Incidentally, on one count the US has understood the Pakistani penchant for bowing before dollars: the KLB also provides a regular $5 million for the US ambassador to Pakistan to provide "critical need development or humanitarian assistance" – an open-ended provision for buying loyalties and providing the US ambassador in Islamabad with more interventionist powers within Pakistan's domestic polity. As for the democracy agenda, what happens if the Pakistani people elect a group or party that is anathema to the US and its interests? Will they do with our democracy what they did to Allende and Chile and what they are doing to Hamas? As for rule of law, if the US was seriously interested in this, it would come clean on the "Disappeared People" issue and close Guantanamo Bay.
Ironically, Kerry while introducing the Bill, kept referring to the US positive experience during the earthquake when the US provided humanitarian assistance. But he has forgotten that it took many critiques in the Pakistani press for the NATO transport planes and helicopters present in Afghanistan to be galvanised into playing a humanitarian role – while resource-limited Cuba and our friend Turkey gave immediately and without any publicity-seeking dramas. The point that needs to be considered is: what are the long term costs of the US assistance to Pakistan and can we do without it? Certainly, if our leadership tightened its belt, cut out its foreign trips and perks and privileges, and actually governed effectively, our resources could be generated from within. Let the parliamentarians, most of who are economically prosperous, refuse to take their bloated pay and perks packages and redirect them towards education and health in their areas. Let the wheat and sugar mafias and smugglers be apprehended and so on. And let the military continue to rely on its indigenous weapons systems and nuclear deterrence. As for fighting terrorism and extremism, the military is only a last option with tremendous negative long term fallout – especially as long as we are seen to be doing US bidding or acting under US pressure.
We now face a threat not only from the militant extremists from within us, but also from the US. Yes, the writ of the state has to be asserted, but there has to be a political road map and a holistic approach not the military being sent in to fight in a political vacuum – simply because the US and its many apologists in Pakistan and in foreign-funded NGOs abroad, have decreed so. The US leadership with its multiple histrionics, beginning with Obama, has made its negative Pakistan agenda clear: it is eventually seeking control of our nuclear assets and we are playing into their hands. On the one hand, the militants are threatening the fabric of Pakistani society and on the other hand the US is creating violent dissensions within Pakistan not only amongst civil society but also between the military and civilian structures. It knows that unless it destroys the military institution, it cannot achieve its goal of targeting out nuclear assets. So, it is demanding a role for the military which will undermine its morale, bring it into conflict with its own people and create further unrest.
Bangladesh, the various military actions in Balochistan and the murder of Akbar Bugti should be important reminders of the costs of military operations against one's own people. We have terrorist courts and paramilitary forces – isolate the militants by providing security and justice for the locals and bringing the terrorists to face the law – not simply creating more IDPs. After all, how many will we kill through military power? Militaries are never a solution to political problems and where the civilian government has lost its writ it should declare an emergency and move to re-establish it. Of course, if our leaders actually took time off from their foreign forays to visit their own troubled areas, it could offer solace and support to those caught in the military-militant crossfire. As for the US agenda, what part is still not clear to our rulers?

Kerry-Lugar bill to be passed soon: Patterson

US Ambassador Anne Patterson speaking with Prime Minister Yousaf Raza Gilani at Prime Minister House.
ISLAMABAD: US Ambassador Anne W. Patterson informed Prime Minister Yousuf Raza Gilani on Friday that a team of American experts would visit Islamabad early next month to discuss energy projects for Pakistan.
The projects will be announced by Secretary of State Hillary Clinton during a visit to Pakistan.
During a meeting with the prime minister at the PM House, the ambassador assured him that the Kerry-Lugar bill would be passed by the US Congress in coming weeks and most of the financial assistance included in the bill would be channelled through government institutions and mechanisms, such as Benazir Income Support Programme, Higher Education Commission and basic health units.
The assurance came after Pakistan objected to US administration’s announcement that a major portion of the pledged annual grant of $1.5 billion would be channelled through NGOs and USAID and only $300 million would be provided directly to the government.
The prime minister urged the United States to provided ammunition and equipment needed by the armed forces to successfully take the campaign against militants to its logical conclusion.
According to an official handout, Mr Gilani expressed the hope that the Friends of Pakistan’s meeting in New York would provide the needed impetus for realisation of pledges of assistance made in Tokyo.
He also expressed the hope that the World Bank Trust Fund for Pakistan would be announced at the meeting to muster support of smaller donors for development projects in the country.
The prime minister reaffirmed that his government’s priority was to focus on the energy sector and asked the US and other donor countries to come forward with immediate assistance to help the government overcome the energy deficit.

Macroeconomic Reform and Prospects

According to many sources, the Pakistani government has made substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are the best in nearly a decade.
Government revenues have greatly improved in recent years, as a result of economic growth, tax reforms - with a broadening of the tax base, and more efficient tax collection as a result of self-assessment schemes and corruption controls in the Central Board of Revenue - and the privatization of public utilities and telecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improving ports, roads, electricity supplies and irrigation projects. Islamabad has doubled development spending from about 2% of GDP in the 1990s to 4% in 2003, a necessary step towards reversing the broad underdevelopment of its social sector.
Liberalization in the international textile trade has already yielded benefits for Pakistan's exports, and the country also expects to profit from freer trade in agriculture. As a large country, Pakistan hopes to take advantage of significant economies of scale, and to replace China as the largest textile manufacturer as the latter China moves up the value-added chain. These industries play to Pakistan's relative strengths in low labor costs.
Growing stability in the nation's monetary policies has contributed to a reduction in money-market interest rates, and a great expansion in the quantity of credit, changing consumption and investment patterns in the nation. Pakistan's domestic natural gas production, and its significant use of CNG in automobiles, has cushioned the effect of the oil-price shock of 2004-2005. Pakistan is also moving away from the doctrine of import substitution which some developing countries (such as Iran) dogmatically pursued in the twentieth century. The Pakistani government is now pursuing an export-driven model of economic growth successfully implemented by South East Asia and now highly successful in China.
In 2005, the World Bank reported that
"Pakistan was the top reformer in the region and the number 10 reformer globally — making it easier to start a business, reducing the cost to register property, increasing penalties for violating corporate governance rules, and replacing a requirement to license every shipment with two-year duration licenses for traders."

Economic Resiliance

Historically, Pakistan's overall economic output (GDP) has grown every year since a 1951 recession. Despite this record of sustained growth, Pakistan's economy had, until a few years ago, been characterized as unstable and highly vulnerable to external and internal shocks. However, the economy proved to be unexpectedly resilient in the face of multiple adverse events concentrated into an eight-year period —the Asian financial crisis; economic sanctions — according to Colin Powell, Pakistan was "sanctioned to the eyeballs" lop recession; severe rioting in the port city of Karachi; a severe drought — the worst in Pakistan's history, lasting about four years; heightened perceptions of risk as a result of military tensions with India — with as many as 1 million troops on the border, and predictions of impending (potentially nuclear) war;
the military actions against militants in parts of the country;
Despite these adverse events, Pakistan's economy kept growing, and economic growth accelerated towards the end of this period. This resilience has led to a change in perceptions of the economy, with leading international institutions such as the IMF, World Bank, and the ADB praising Pakistan's performance in the face of adversity.
Additional confirmation that the country's economy is not as weather-sensitive as had been previously perceived comes from a 2008 analysis that "examined 68 countries, quantifying their sensitivity to fluctuations in weather, using figures on GDP by industry sector and the sensitivity of particular sectors to given weather variables." The analysis found that of the 68 countries, the "least weather-sensitive country was Pakistan."
Pakistan emerged as one of the best performers in the wake of the global financial crisis, even as a country waged a costly war against militants. Its domestically-driven economy was minimally affected and its banking sector boasted surplus liquidity while remaining unharmed.

Economic History

Economic history

This is a chart of trend of gross domestic product of Pakistan at market prices estimated by the International Monetary Fund with figures in millions of Pakistani Rupees.
Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947 from Britain. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade.
Industrial-sector growth, including manufacturing, was also above average. In the late 1960s Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth. In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers.

Economy of Pakistan



The economy of Pakistan is the 26th largest economy in the world in terms of purchasing power, and the 47th largest in absolute dollar terms. Pakistan's economy mainly encompasses textiles, chemicals, food processing, agriculture and other industries. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy.
GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. Due to Economic Reforms of the Year 2000 by the Musharraf government. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Pakistan's then Prime Minister Shaukat Aziz stated Pakistan grew at a rate of 8.4% making it the 2nd Fastest Growing Economy in the World, after China, in the same year.
Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable.
Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan has reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.
Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.
The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less than the previous 5 year average of 7%, it would represent a overcoming of the present crisis wherein growth is a mere 3.5-4%.


Economics is the social sciences that studies the production, distrubution, and consumption of goods and services. The term economics comes from the Ancient Greek, "management of a household, administration") , hence "rules of the house(hold)". Current economic models developed out of the broader field of political economy in the late 19th century, owing to a desire to use an empirical approach more akin to the physical sciences.A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem.. The subject thus defined involves the study of choices as they are affected by incentives and resources.Economics aims to explain how economics work and how economic agents interact. Economic analysis is applied throughout society, in business, finance and government, but also in crime, education, the family, helath, law, politics, religion, social insittutions, war, and science . The expanding domain of economics in the social sciences has been described as economic imperialism. Common distinctions are drawn between various dimensions of economics: between positive economics (describing "what is") and normative economics (advocating "what ought to be") or between economic theory and applied economics or between mainstream economics (more "orthodox" dealing with the "rationality-individualism-equilibrium nexus") and heterodox economics (more "radical" dealing with the "institutions-history-social structure nexus"). However the primary textbook distinction is between microeconomics ("small" economics), which examines the economic behavior of agents (including individuals and firms) and macroeconomics ("big" economics), addressing issues of unemployment, inflation, monetary and fiscal policy for an entire economy.