economicletter

Pakistan
The SBP Governor has launched a 10 mn Financial Innovation Challenge Fund which aims at automating government to person payments, (G2P) resulting in saving of money and would accelerate disbursement and expand the reach of financial services. With the rise of branchless banking models, there are new technology-based payment options which are convenient, safe and durable. The SBP has raised the maximum cap on aggregate foreign exchange exposure limit (FEEL) of authorized dealers by Rs 500 mn to Rs 2.5 bn. The FEEL is calculated at 20% of the paid-up capital, free of losses. According to SBP, home remittance in the first ten months of the current fiscal (July-April 2010-11) rose by 23.8% over the same period last fiscal to $ 9.046 bn aided by record inflows of $ 1.052 bn in March and $ 1.030 bn in April. With two months inflows still remaining, the remittance has already surpassed the full fiscal target of realizing $ 9.0 bn. According to SBP, Pakistans external debt servicing liability in the first nine months of the current fiscal stood at $ 6.946 bn of which $ 6.19 bn was repayment of principal amount and $ 756 mn was on account of interest payment. In the full fiscal of 2009-10 external debt servicing liability totaled $ 5.787 bn of which $ 4.772 bn was capital repayment and $ 1.015 bn was interest payment. According to SBP, outstanding debt of public sector enterprises (PSEs) at the end of the third quarter stood at Rs 565.5 bn or at 3.4% of GDP. According to Federal Bureau of Statistics, the large-scale manufacturing (LSM) sector registered a growth of 1.71% in the first nine months of the current fiscal against 4.4% in the same period last fiscal. The LSM had contracted by 7.7% during July-March 2008-09.

a weekly publication of The Institute of Bankers Pakistan

According to the Ministry of Finance, GDP growth in the current fiscal ending June 30, 2011 would be 2.4% against the revised target of 2.5% and original target of 4.5% set at the beginning of the fiscal. The anticipated lower growth would be mainly due to floods which hit the country last September. The Ministry expects the economy to pickup momentum to register a growth of 4% in 2011-12. The fiscal deficit as a proportion of GDP is expected to be 5.3% as agreed to with the IMF. Food group export earnings in the first nine months of the current fiscal rose by 28% to $ 3.083 bn against $ 2.455 bn in the same period last fiscal. Pakistan and Kuwait have agreed in principle to setup a high-powered committee to identify areas of investment and joint ventures in Pakistan by Kuwaiti entrepreneurs. According to Federal Bureau of Statistics, export earnings in the first ten months of the current fiscal totaled $ 20.154 bn against $ 15.773 bn in the same period last fiscal, a rise of 27.78%. Import payments during July-April 2010-11 were higher by 14.73% to $ 32.263 bn against $ 28.122 bn in the same period last fiscal. Trade deficit during July-April 2010-11 was lower by 1.49% at $ 12.109 bn against $ 12.349 bn during July-April 2009-10. The government has imposed a surcharge of 2% (Rs 0.18 0.30) for six months on every unit of electricity except for life-line consumers consuming 50 units or less a month. The Private Power & Infrastructure Board (PPIB) has achieved financial closing of its largest gas-based independent power producer (IPP), capable of generating 404 MWs of power. The Uch-II power project near Dera Murad Jamali, in Balochistan would be based on indigenous low BTU gas from Uch gas field. The project is expected to be completed by 2013 and would cost $ 500 mn.

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Volume 6, Issue No. 18 |

Gold Rate (10gm) Rs 40,917 Rs 41,100 +183

May 13, 2011

a weekly publication of The Institute of Bankers Pakistan

The National Electric Power Regulatory Authority (NEPRA) has allowed an increase of 53 paisa per unit to the KESC for February 2011. The raise is by way of fuel cost adjustment in the wake of rising international oil prices leading to higher furnace oil cost, the key input in KESCs electric generation. The Sensitive Price Indicator (SPI) registered an increase of 16.13% in the week ending May 5, 2011 over the same week of 2010. The weekly SPI monitors changes in prices of 53 essential commodities, mostly kitchen items, data for which is collected form 17 urban centres.

China posted a trade surplus of $ 11.4 bn in April this year. Exports rose by 29.9% year-on-year to $ 155.7 bn while imports were higher by 21.8% year-on-year to $ 144.3 bn. As a consequence of the rise in exports in April, the trade balance swing to a surplus of $ 10.3 bn in the first four months of 2011 against the deficit of $ 1.02 bn during the January-March 2011 period. The January-March trade deficit was the first in the last seven years. China is targeting to increase its solar-powered energy generation to 50 gigawatts by 2020 rising from 10 gigawatts by 2015. If the target for 2020 is achieved, entailing investment of hundreds of billion dollars, it would result in meeting the countrys energy needs to the extent of 15% of its total energy requirements by then and that too through a renewable source. China has allowed easier access to U.S. companies to invest in key sectors of its economy by removing barriers for bidding in government contracts as also for investing in mutual funds in the public sector of the country. Inflation in China measured by the consumer price index (CPI) moderated to 5.3% in April against the 32-month high of 5.4% in March. Food prices in April fell by 0.4% over March but food inflation in April was still higher by 11.5% over April 2010. Iran has launched a $ 484 bn federal budget for the fiscal ending March 2012 on the back of rising oil prices aimed at augmenting growth and cutting subsidies by between $ 50-60 bn during the year. Bangladesh has raised the prices of various petroleum products with a view to lower state-subsidy being provided to the sector. The price of a litre of petrol has been revised upwards to 76 taka (104 U.S. cents), of octane at 79 taka, of diesel at 46 taka and of kerosene at 42 taka. The increases are of 2 taka of the above products. Of the total population of 140 mn people of the country, nearly 40% live on $ 1.25 or less a day.

International
The Bank of England, the central bank of Britain, has forecast that CPI inflation would average about 5% in 2011 well above the Banks target of keeping it at 2% or less. The level of inflation is expected to be above 2% in 2012 and is then projected to come down progressively to the target envisaged. The U.S. trade deficit rose to $ 48.2 bn in March, highest since June 2010, against $ 45.4 bn in February. Exports grew by 4.6% in March over February to $ 172.7 bn while imports were higher by 4.9% to $ 220.8 bn during the above periods. Canada posted a trade surplus of $ 657 mn in March, about twice higher than in February. Exports grew by 3.5% to $ 37.4 bn while imports rose by 2.8% to $ 36.7 bn during the above periods. The Indian cabinet has approved foreign direct investment (FDI) in limited liability partnership (LLP) firms with a view to attract greater FDI which would not only result in employment creation but would also help the countrys economy through state of art technology and international best practices. Latest estimates suggest that the Indian economy would grow by 8.5% in the fiscal ending June 30, 2011 against the government target of 9%. The government hopes to recoup lost ground and is to target a growth of 9.0% in the 2011-12 fiscal.

Editor: Syed Mahdi Mustafa

Published by: The Institute of Bankers Pakistan, M.T. Khan Road, Karachi 74200, Pakistan Phone: (021) 35689718, 35680783 | Fax: (021) 35683805 | Email: ibp@ibp.org.pk | Website: www.ibp.org.pk

General Disclaimer: IBP Weekly Economic Letter is based on information obtained from local and international print and electronic media. IBP has not verified this information and no warranty, expressed or implied, is made that such information is accurate, complete or should be relied upon as such. In no circumstance IBP and its team members would be liable for any incidental or consequential damage that may incur from the use of information contained in IBP publication(s).

Volume 6, Issue No. 18

May 13, 2011