economicletter

Pakistan
The Federal budget for 2011-12 envisages an outlay of Rs 2.767 trillion with a fiscal deficit of 4% of GDP. The GDP growth for the fiscal has been targeted at 4%. Some of the relatively more important aspects and forecasts of the budget are as under: the size of the budget is 14.2% higher over the size of 2010-11 budget; gross revenue collection has been projected at Rs 1,952 bn against Rs 1,588 bn in 2010-11; a fiscal surplus of Rs 125 bn is anticipated in combined provincial revenues-expenditures leading to a consolidated federal-provincial income-expenditure gap of Rs 850 bn or 4% of GDP; tax to GDP ratio is anticipated at 9.3%; transfer of resources from the federal to provincial governments in 2011-12 would be higher at Rs 1,203 bn against Rs 998 bn in 2010-11; the rate of general sales tax (GST) has been reduced by 1% from current 17% to 16%; value-added tax (VAT) on commercial importers has been increased from current 2% to proposed 3%; special excise duty (SED) of 2.5% has been abolished on all items where it was applicable; the level of grants in 2011-12 has been placed Rs 294.986 bn in 2011-12 against Rs 299.975 bn in 2010-11; salaries of government employees has been raised by 15%;

a weekly publication of The Institute of Bankers Pakistan

income of pensioners has been raised by between 15-20%; it has been targeted to retire all SBP debt over the next eight years; circular debt resolution has been earmarked at Rs 55.7 bn against Rs 40.0 bn in 2010-11; allocation for defence services has been increased by 12% to Rs 495.215 bn; allocation for education has been set at Rs 39.513 bn against revised Rs 40.324 bn in 2010-11; public sector development plan (PSDP) has been set at Rs 730 bn with federal PSDP at Rs 300 bn and provincial PSDP at Rs 430 bn; the minimum tax slab has been raised from Rs 300,000 to Rs 350,000; the level of subsidies has been lowered to Rs 166.448 bn against Rs 395.801 bn in 2010-11; an allocation of Rs 1,034 bn has been made for retirement of foreign loans against Rs 872 bn in 2010-11. According to SBPs Financial Soundness Indicators, the return on assets (ROA) as also the return on equity (ROE) of banks has come down between 2005 and 2010. The ROA of commercial banks was lower at 1.0% at end-2010 against 1.9% at end-2005. The ROE was lower at 16.2% at end-December 2010 against 32.2% at end-December 2005. The level of non-performing loans (NPLs) as a proportion of total loans rose to 14.3% at end-December 2010 against 6.7% at end-December 2005.
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Volume 6, Issue No. 23 |

Gold Rate (10gm) Rs 42,557 Rs 42,428 - 129

June 10, 2011

a weekly publication of The Institute of Bankers Pakistan

The SBP has allowed an extension of 80 days for commencement of operations to Industrial & Commercial Bank of China (ICBC), due otherwise to start operations by end-June 2011. The SBP and the International Finance Corporation, the private sector investment arm of the World Bank, have launched a series of publications to help Pakistans banking sector to expand access for the small and medium enterprises (SMEs) to lead to job creation and help overall growth of the economy. According to SBP, liquid foreign exchange reserves as on June 4, 2011 stood at $ 17.16 bn of which $ 13.72 bn was held by the SBP and the rest with banks. According to the Federal Minister of Finance, the countrys debt to GDP ratio is close to 60% considered very high and needs to be brought down as the level is unsustainable over long-term. A four-member Commission appointed by the government has placed last years flood damage at Rs 855 bn. Pakistan has signed five memorandums of understanding (MoUs) at the trilateral meeting of Tajikistan-Afghanistan-Pakistan aimed at enhancing bilateral trade between Pakistan and Tajikistan from the current level of $ 20 mn to $ 300 mn in the near future.

Saudi Arabia is being forecast by industry sources to raise its output by about 500,000 barrels per day (bpd) to near 9.5 mn bpd even if other OPEC members do not follow suit. Iran, Venezuela and Iraq are already opposed to any increase in OPEC output. The Saudi initiative is intended to dampen rising oil prices currently trading at an average of $ 115 a barrel. Such a high level is considered detrimental to global economic growth particularly for high oil importing developing countries. Kuwaits total assets in the fiscal ending March 2011 rose to 81 bn dinars ($ 296 bn) against $ 277 bn in the previous fiscal. China has consented to a U.S. proposal to stop subsidizing wind power farms which use domestically produced parts at the expense of imported parts. Chinas consent is based upon the basic principles of the World Trade Organization (WTO). The government of Australia has estimated that loss to the economy consequent to flooding in the country would be in the range of Aus $ 6.8 bn (US $ 7.3 bn). The International Monetary Fund (IMF) is to provide $ 3.0 bn to Egypt over the next twelve months with an interest rate of 1.5 to help the country put its economy on track derailed by recent political events. The World Bank, in its Global Economic Forecast-2011, has forecast that South Asias relatively strong projected growth path reaching 7.9% in 2013 would be led by India, Sri Lanka and Bangladesh. Pakistan may not by then recover to pre-crisis decadal average of 5.0% growth in the medium term. The Bank of England and the European Central Bank have left their prime lending rates unchanged at 0.5% and 1.25% respectively.

International
GDP growth in the African continent as a whole is projected to rise to 3.7% this year aided by increased trade with fast growing and emerging economies. In the last ten years, the continents trade with such economies has grown from 23% of Africas total trade to 39% as of now. The Food and Agriculture Organization (FAO) has forecast that food prices would remain high and volatile even in 2012. In April 2011 they were higher by 37% over May 2010, notwithstanding recent slight decreases in the cost of cereals and sugar.

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. 23

June 10, 2011