Outlook for economic revival

By Dilawar Hussain | THE gain of one stock broker is sometimes the loss of another, which is why market participants have a penchant to disagree. Yet, when it comes to Pakistan Muslim LeagueNawaz`s thumping victory in the elections, they seem to speak with one voice. Almost everyone admits that the twice-tested industrialist Prime Minister Nawaz Sharif`s coming into power bodes well for the revival of `business confidence` The jubilation of investors was reflected by 11 consecutive rallying sessions at the country`s stock market, with a sharp spurt of 78 per cent in volumes and the KSE-100 index gain of five per cent after first reliable foreign forecasts put the PML-N ahead of the rest in the race to the seat of power in Islamabad. Although political parties usually go `long` on promises in their manifestos and fall `short` on delivery, the document nonetheless gives an insight into the party`s position on important issues. In its manifesto, the PML-N talks of `growth, interest rates conducive for borrowers, reduction in upfront cost of investment in sectors demanding priorityand revival of business confidence`. The party also promises to identify and pursue privatisation of pubic sector enterprises (PSEs). Stock market participants lament that privatisation was never a priority in the PPP`s just-ended tenure, when not a single entity was put up for sale. Conversely, in the PML-N`s previous days in power, dozens of `big ticket` PSEs were put up on the auction block, which went on to enrich both the market and the investors. Under `other financial sector reforms,` the PMLN manifesto admits: `A vibrant financial sector, supported by reforms in the capital market, is vital for the revival of business confidence and private investment. With said reforms resulting into substantial new investment in the corporate sector, it would generate employment in the country. Regardless of the manifesto, however, the corporate sector is likely to jostle for attractive tax benefits for listed companies. With the elimination of the five per cent lower tax benefit

for listed companies some time back and the imposition of a flat rate of tax at 35 per cent for all corporate entities, the 60,000unlisted entities scarcely have a reason to enter the equity market, where only 569 companies are currently on the trading list.

improvement in law and order in Khyber Pakhtunkhwa, drilling activities and increased investments from foreign oil and gas exploration and production (E&P) partners could benefit the KSE`s heaviest weighted oil and gas sector. Drilling activities have currently come to a halt,

Unlike the previous PML-N era, when, onaverage, a dozen companies would seek listings in a year, the shoe is now on the other foot. There are more de-listings than listings, and local investors` concerns mount as foreign investors in big corporates continue to withdraw their stakes: the recent examples being Hub Power Company and Unilever Pakistan. But voices are already being heard for a statusquo on tax rates, as a reduction would mean a hit on the already low tax revenues, which the government can ill-afford at a time when the country is in the middle of an economic imbalance, both on internal and external fronts.

and its impact is reflected on the below-market performance by E&P companies in the last three quarters of financial year 2012-13.Majyd Aziz, former president of the Karachi Chamber of Commerce and Industry, says overall policies during the previous two PML-N stints have been probusiness and pro-economy. `The prime advantage for the business community is that there is an exceptionally large number of business leaders who are more comfortable with the Sharif brothers,` he says, before adding that it provides them a vantage position to promote business interests and enables them to get their point of view across smoothly. Most people are encouraged by the industrialist

Arif Habib Limited analyst Khurram Schehzad says the Sharif brothers` competitive advantage can also bring in-kind funding, such as crude oil import facility on deferred payments from Saudi rulers, with whom they enjoy a friendly relationship. Other initiatives could dilute the IMF need, while creating a bargaining position for Pakistan. The international credit rating agency, Standards & Poor`s, has already expressed a positive stance on the country post-election, which could give greater confidence to foreign investors who have led the stock market rally through a massive portfolio investment of over $132 million in the currentyear to-date. To dispel investors` sector-wise concerns, PMLN`s second-in-command, former Punjab chief minister Shahbaz Sharif, stated in a recent TV show that fertiliser factories would be allowed to operate according to a schedule. For loadshedding management, the market expects a new setup to arrange short-term liquidity injections for the power sector in general, and small Independent Power Producers in Punjab and the country`s biggest oil marketing company, PSO, in particular, to ensure smooth fuel supply, before the PML-N`s economic team implements long-term structural reforms in the energy chain. This would also give fillip to the local cement and textile sectors. Banks are also expected to benefit in the long run from overall economic revival. With an expected

background of the party`s leadership, which they say is a key factor in understanding the country`s economic problems. The Sharif family has interests in sugar, textile, paper and board, steel and engineering sector. Some people also believe that the country`s biggest conglomerate, the Mansha group, due to its close ties with the Sharifs, might be the biggest beneficiary. It would enable the group with several big companies in cement, textile and insurance, which are listed on the KSE, to unroll expansion plans. But the same is true for all other industrial groups and companies as well, which had put such plans on the hold.

Investors` sentiments in a changing environment

By Afshan Subohi | AS pundits in the capital market are betting on further gains following the PML-N`s election victory, the business community is poised to take a fresh look at the emerging investment environment. Those who had put their investment plans on hold hope to put them on the fast track. The KSE share index roared ahead in the first postelection week beating 20,021mark and finishing

at an alltime high 20,637 points with a gain of about 621poims over tue previous weex. Since 2000 the stock market has recorded a positive trend. The current political development, however, has given it a further boost. The capital market went up 21 per cent this fiscal year, next only to Japan and Philippines as Asia`s top gainers. The trend watchers expect a display of stronger business sentiments in the domestic investment graph. They project a jump in the investment rate by good 20 per cent from the current dismal level of 12 per cent of the GDP during the very first year of Nawaz Sharif-led government. They estimate that by the end of five-year term of the government, the total investment as percentage of the GDP may double from the current level. According to the last Economic Survey of Pakistan, the total investment declined from 13.1 per cent to 12.5 per cent of GDP in 2011-12. The situation in the transitional year of 2012-13 is not expected to be any better. The fixed investment has declined to 10.9 per cent of GDP in 2011-12 from 11.5 per cent a year ago, whereas private in-vestment witnessed a contraction of 7.9 per cent of GDP in 2011-12 as compared to 8.6 per cent of GDP in the preceding year. Not much improvement is expected as the growth strategy of the government failed to excite investors who remained focused on negatives in the economy. Despite strenuous efforts the PPP government failed to mobilise reluctant investors still not ready to forgive the party for its historic sin: nationalisation of businesses in 1970s. The low investment under Gilani/Raja led PPP rule (20082013) dragged down the GDP growth rate to lowest five-year average of less than three per centper annum. `Yes, the private investment is motivated by The installation of the Nawaz government will amplify the impact of positive factors to energise entrepreneurs into action, said a business leader. Currently inflation rate is in single digit, the policy rate is at 9.5 per cent and banks are liquid and inclined to extend credit to the private sector. The interim government is applying restraint to its borrowings to create space for the private sector credit. Commenting on low investment rate, the gentleman blamed mismatch of economic policies and the misplaced economic priorities of the PPP government. profit and investor does try to minimise the risk in what was touted to be the most dangerous country. Does that make business community of Pakistan any less worthy? It is absurd to blame the whole community for the crony culture nurtured by rulers`, he said. `Pakistan is transforming most certainly though the pace is erratic and the direction not clear cut. Stable democracy will draw foreign investor to Pakistan where consumers spend most in the region`, countered a defender of the privatesector.
THE Pakistan Muslim League-Nawaz, which is poised to form the federal government, is not keen on borrowing more dollars from the IMF at least not in its early months in power, despite warning of a looming balance-of-payments crisis. . `We will not be able to move in the direction of growth if we go to the IMF at this moment. There`s little room for growth under an IMF programme owing to its excessive emphasis on stabilisation policies. We want to approach the Fund in a dynamic situation, not in a static situation so that we have to make fewer adjustments,` he told Dawn last week. Analysts say the next government faces staggering economic challenges, which demand both shortterm fixes and long-term reforms. Most important among these challenges is securing external support to avert the balance-of-payments crisis,

The businessmen will watch closely how the next federal economic team handles energy crisis and resolves issues related to depleting foreign exchange reserves threatening macro economic stability. Many contacted for comments expressed confidence in Nawaz Sharif`s leadership to steer the economy through this difficult phase. They ho-ped that the next deal with the IMF will be grounded in reality. `If the Nawaz Sharif government moves to carry out market-friendly economic reforms it will build confidence of the private sector waiting to commit new resources in a variety of business options both in service and manufacturing sector. At 20 per cent incremental rate of investment over the next five years, the investment to GDP ratio can double`, chief economist of a foreign bank commented over the phone. Some experts, however, found it to be too early to jump to conclusions based on hailers from the business leaders on Nawaz Sharif as the next prime minister.

`I hope and pray that public and private, local and foreign investment will increase in near future to generate new wealth. An inclusive growth model is imperative for the expensive democratic exercise to deliver improved living standards for the people who came out on the election day to save the system despite threats of anti-democratic elements`, another economist said. `The resource situation does not allow the government to make big public investments, you have no other option but to depend on the private sector for investment and growth, he concluded. The fact is that the business fraternity is anxiously waiting for the next government to assume power, to settle the political dust and complete the election cycle. They seem to be all set to seal deals and roll out their investment plans. The feel-good factor may outweigh multiple odds and pull up the low lying investment graph. A rare combination of key factors, the not-

`We must realise the intensity of country`s economic problems. I do not think Pakistan can afford to pamper the risk-averse businessmen any longer, no matter who occupies the office of the prime minister. Knowing many of them personally I do not expect them to transform overnight because PPP is out and PMLN is in`, a senior economist turned bureaucrat who found high investment expectations unrealistic, commented.

sohigh interest rates, single digit inflation and liguid banks present a good opportunity to entrepreneurs to demonstrate their entrepreneurial ability.

PML-N not in a hurry to avail IMF loan

By Nasir Jamal |

they argue. They point out that foreign exchange reserves have slumped to import cover of less than two months. Sartaj is confident that removal of bottlenecks like, energy shortages hampering investment and growth can boost exports and tax revenues, which will bridge fiscal and current account deficits and stabilise the faltering economy, thus precluding the need for the IMF bailout. . Pakistan`s liquid foreign exchange reserves dwindled to $11.6bn the day before the polls with the central bank holding $6.5bn and commercial banks $5.1bn.The rupee has been under pressure for several months over balance-of-payments worries, and the central bank is estimated to be spending an average of $250mn a month since October to prop up the currency. The central bank too has noted that net capital and financial inflows weren`t sufficient to finance current account deficit. The IMF has already indicated its willingness to provide an extended fund facility of $5.5bn,. The amount will however be barely enough to repay the outstanding debt of about $6bn on the previous Fund loan that was suspended in 2011 after power sector and tax reforms were postponed by the government under po-litical pressure. The PML-N led opposition to implementation of valued added tax (VAT) that soured Pakistan`s relations with the Fund and other multilateral and bilateral lenders. While some contend that the country may face default by the end of the first half of the next fiscal to December unless a bailout package was signed with the Fund, others agree that the new government will not need to immediately sign up for the multilateral funds. `The PML-N is pinning its hopes on the promised release of coalition support fund of $1.8bn by the US be-fore the close of the current financial year, which will improve the stock of reserves and provide a breathing space to the new government and preclude the urgency of applying for a fresh IMF loan,` says analyst Shahid Zia. Unlike the previous Pakistan People`s Party-led government was plagued by political instability, says Zia, its emphatic victory in the polls affords the PML-N enough space to work out its economic revival strategy, take bold policy decisions and implement structural reforms to fix the faltering economy rather than going to the IMF. The PML-N manifesto outlines a populist growth strategy focused on supply-side policies, large infrastructure investments (on motorways, ports, dams, housing, power and urban transport projects), privatisation, and trade liberalisation. `Pakistan will need balance-ofpayments support from the IMF to cushion its foreign exchange reserves position, especially with $6bn of external debt payments due next financial year,` argues Sayem Ali, senior economist at Standard Chartered Bank. Like many others, Ali considers the PML-N economic revival programme as doable. `The banks are flushed with liquidity and the private sector has a large appetite for investment. But an investment friendly macroeconomic environment needs to be `Delivering (on its promises) will be a challenge given the government`s weak fiscal position and large debt payments due in the next 12 months. Turning the economy around will require significant tax and expenditure reforms (to create space for public and private investment). The PMIzN manifesto also pledges to cut fiscal deficit to four per cent of GDP from over eight per cent but says a balance will be struck between fiscal consolidation and growth. It vows to raise tax revenue to 15 per cent of GDP from below 10 per cent by broadening the tax base, cut current spending, energy subsidies, andbudgetary borrowings, and plug the loses of the state-owned enterprises (SOEs) by revamping and privatising them. At the same time it promises to spike development spending because cutting it is an unsustainable way of reducing fiscal deficit. Yet it is unclear as to how will the PML-N deliver on its election promises. Corporate tax rates will be brought down over a period of time to encourage foreign direct investment (FDI), sales tax will be rationalised and its scope broadened, and custom tariffs reformed to eliminate anti-export bias. A technology up gradation fund will be set up in the public sector to support new investments in prioritised sectors. Growth in the manufacturing will be improved to eight per cent a year from the current level of about three per cent through removal of energy shortages and reduction in interest rate and upfront project costs for new investments. Half of remittances sent by overseas Pakistanis will be converted into investments and multinationals will be given incentives linked to flow of foreign investment to expand production for local and export markets. It targets to more than double economic growth rate to six per cent by 2018 from an average 2.9 per cent in the last five years and spur investment-toGDP ratio to 20 per cent from existing 12.5 per cent.

ensured by addressing energy shortages and balance-of-payments position to revive investment and growth,` says Ali. `The PML-N`s strong mandate has given the markets hope of significant progress on reforms in spite of major challenges facing it. In the absence of significant reforms in the first 100 days, the market`s focus will likely return to unsustainable fiscal deficit and dwindling reserves.

Export sector credit up

CREDIT to the export sector rose to Rs188.396 billion during the week ended May 3, from Rs187.833 billion recorded in the prior week. Meanwhile, loans and advances of scheduled banks to the agricultural and industrial sectors fell. The agricultural sector received Rs52.268 billion (bn), against the preceding week`s Rs52.269bn, a decrease of Rs0.001bn. The current week`s figure is higher by Rs0.4bn over lastyear`s corresponding figure of Rs51.868bn. The industrial sector received Rs42.435bn in the week under review, against the preceding week`s Rs42.451bn, a decrease of Rs0.016bn. The current week`s figure is lower by Rs0.451bn over last year`s comparable figure of Rs42.886bn. Meanwhile, the State Bank of Pakistan (SBP) invited tenders for sale of three-month, six-month and 12month T-bills through primary dealers on May 15. Bids worth Rs321.646bn were received, while the central bank accepted bids worth Rs260.056bn. Of the total, three-month Tbills fetched Rs893.0bn at a cut-off yield of 9.4114 per cent, six-month Tbills Rs71.863bn at 9.4280 per cent, and 12-month T-bills Rs187.3bn at 9.4470 per cent. In the week ended May 3, deposits and other accounts of all scheduled banks increased by Rs71.347bn to Rs6780.163bn over the preceding week`s figure of Rs6708.816bn. When compared with last year`s corresponding figure of Rs5942.476bn, the current week`s figure is higher by Rs837.687bn. Commercial banks` deposits increased by Rs71.376bn during the week to Rs6765.541bn, against the preceding week`s Rs6694.165bn. Specialised banks` deposits stood at Rs14.622bn

against the previous week`s Rs14.651bn. According to the weekly statement of position of all scheduled banks for the week ended May 3, borrowings by all scheduled banks decreased to Rs726.469bn over the preceding week`s figure of Rs889.821bn, or by Rs163.352bn. When compared to last year`s corresponding figure of Rs527.767bn, the cur-rent week`s figure is higher by Rs198.702bn. Commercial banks` borrowings decreased to Rs646.401bn against the previous week`s Rs810.010bn, or by Rs163.609bn. Borrowings by specialised banks stood at Rs80.068bn against the preceding week`s Rs79.811bn. Other liabilities of all scheduled banks stood at Rs389.093bn against the preceding week`s Rs379.081bn, showing an increase of Rs10.012bn. When compared with last year`s corresponding figure of Rs317.422bn, this week`s figure is higher by Rs71.671bn. Gross advances stood at Rs3868.222bn in the week under review, posting an increase of Rs10.953bn over the preceding week`s level of Rs3857.269bn. When compared with last year`s corresponding figure of Rs3602.104bn, the current week`s figure is higher by Rs266.118bn. In the week under review, advances by commercial banks rose to Rs3747.478bn against the earlier week`s Rs3736.662bn, or by Rs10.816bn. Advances of specialised banks stood at Rs120.744bn. Investments of all scheduled banks stood at Rs3765.035bn against the preceding week`s figure of Rs3892.688bn, posting a fall of Rs127.653bn. When compared to last year`s corresponding figure of Rs3055.151bn, the current week`s figure is higher by Rs709.884bn. In the week under review, commercial banks` investment stood at Rs3734.040bn, against the preceding week`s level of Rs3863.979bn, a decrease of Rs129.939bn. Specialised banks` investment stood at Rs30.995bn in the week.

Balances with other banks decreased to Rs139.458bn against Rs145.843bn recorded in the previous week, or by Rs6.385bn. The figure was higher by Rs6.479bn when compared with Rs132.979bn recorded in the corresponding week last year. Balances of all commercial banks stood at Rs134.191bn in the week under review, posting a decrease of Rs6.151bn over the preceding week`s level of Rs140.342bn. Balances of specialised banks stood at Rs5.267bn. Total assets of scheduled banks stood at Rs8957.990bn, lesser by Rs82.838bn over the preceding week`s figure of Rs9040.828bn. The current week`s figure is higher by Rs1209.421bn when compared to last year`s corresponding figure of Rs7748.569bn. In the week under review, commercial banks` assets stood at Rs8797.172bn, higher by Rs83.817bn over previous week`s figure of Rs8880.989hn. The figure for specialised banks stood at Rs160.817bn. Net assets of all scheduled banks stood at Rs896.627bn in the week, against the preceding week`s Rs901.776bn, posting a decrease of Rs5.149bn. The current week`s figure ishigher by Rs91.499bn when compared to last year`s corresponding figure of Rs805.128bn. The figure for commercial banks stood at Rs881.588bn in the week, lesser by Rs5.954bn over the preceding week`s Rs887.542bn. Specialised banks` net assets stood at Rs15.039bn against the previous week`s Rs14.234bn. Approved foreign exchange decreased in the week under review to Rs183.456bn, lesser by Rs5.205bn over the preceding week`s figure of Rs188.661bn. When compared with the corresponding week a year ago, when the figure was Rs368.267bn, the current week`s figure is lesser by Rs184.811bn. Balances held outside Pakistan in approved foreign

When compared with the corresponding week a year ago, when it was Rs1758.621bn, the current week`s figure is higher by Rs277.108bn. Total notes issued increase d by Rs4.282bn in the week to Rs2033.859bn, against Rs2029.577bn recorded a week earlier. When compared with Rs1758.774bn recorded in the corresponding week last year, the current week`s figure is higher by Rs275.115bn.

PML-N`s development approach

By Mahmud Ahmed | THE PML-N`s convincing electoral mandate has revived business confidence a good sign for revival of the economy. Representatives of trade and industry seem confident that the party would deliver on its pro-business agenda. With polls completed, the Karachi Stock Exchange index has hit an all time-high and Standard and Poor`s says the election results have `set the stage for longer-term stability of `B` sovereign credit rating on Pakistan. And now what definitely appears to be a stable constitutional democracy offers the country immense opportunities for progress and prosperity. However, the question arises how much of the robust business confidence will translate into real much-needed investment , production, exports and employment given the multiple crises facing the economy particularly the critical energy shortage that fuels economic growth. The energy problem has no easy, immediate solution. With Mr Ishaq Dar as finance minister, the PML-N will face its first litmus test when he presents the budget for the next fiscal year. At this point of time, he may not have a clear road map but he would have underlying concepts and principles enunciated in the party`s electoral manifesto to guide him. It is therefore necessary to see how much of the party`s election pledges are grounded on reality. In these hard times, his most challenging job would be to a develop programmes, policies, strategy and action plan implicit in the manifesto. The party manifesto raises hope of the business community by recognising economic revival as the `key challenge` Business prospers in high economic growth. The manifesto states that economic revival holds the key for achieving other vital economic and social targets listed in its manifesto. Contrary to monetarist approach, the party asserts that `cutting development spending is in fact crippling the economy in the long-term. It is not the sustainable

Cash and balances with treasury banks of all scheduled banks increased byRs6.637bn during the week to Rs566.989bn, against the earlier week`s Rs560.352bn. The current week`s figure is higher by Rs56.425bn when compared to last year`s corresponding figure of Rs510.564bn. In the current week, the figure for commercial banks stood at Rs564.188bn against the preceding week`s Rs557.485bn, posting an increase of Rs6.703bn. Cash and balances with treasury banks of specialised banks stood at Rs2.801bn in the week, against the preceding week`s level of Rs2.867bn.

exchange increased in the week under review to Rs506.802bn, over the preceding week`s Rs493.877bn, posting an increase of Rs12.925bn. When compared to last year`s corresponding figure of Rs726.187bn, the current week`s figure is lesser by Rs219.385bn. According to SBP`s Statement of Affairs, for the week ended May 3, both notes in circulation and those issued increased. Notes in circulation stood at Rs2035.729bn against the earlier week`s figure of Rs2029.445bn, an increase of Rs6.284bn.

way to reduce deficit financing. For more than three decades, in the aftermath of Ango-Saxon Model, many developed and developing countries have abandoned the then governing concept of maximisation of production and, reverted to mercantilism, resulting in elusive pursuit of what has been described as `sustainable development`. If the development spending is huge, prudent and the money well spent, it will generate a lot of business for the private sector. To stim-ulate investment, the PML-N is also committed to make interest rates `conducive for borrowings` while `the upfront cost of investment in prioritised sectors will be reduced. The manifesto forcefully points out that `at present profitability is affected by huge cost of borrowings combined with expensive energy. This inevitably leads to a declining savings rate (mere 10.8 per cent), stifled growth, a crumbling manufacturing sector, rising unemployment and poverty. Here, apart from energy crisis, Mr Ishaq Dar will also have to look into a much deeper problem as to why so much excess money in the market is not finding productive investment. Why are businesses collecting cash and not converting money into productive capital? There is also a problem of dispersal of capital through outsourcing and corporate subsidiaries. Why do people prefer private limited companies to listing on the stock exchanges? He will have to find answers to these problems to reverse the trend of deindustrialisation. No doubt, the party has committed to create a `vibrant financial sector `supported by re-forms in the capital market which, it maintains, will result in `substantial new investment in the corporate sector` It has to be spelt out how without reversing the enormous government borrowings, the banks would be encouraged to lend to the private sector. Here the IMF may be required to provide the `breathing space` under the extended facility. The party manifesto will have to be compromised to evolve a programme that is agreed with the IMF. The nature of the compromise will depend on how skillfully the new finance minister negotiates with the Fund. After all, industrial capitalism needs sovereign space to grow faster. Nawaz Sharif`s pro-business approach is also reflected in the proposed taxation policies. The

party manifesto declares that there will be no increase in tax rates for businesses. Tax rates will be decreased to `reduce inflation`. Apparently this will encourage consumer buying and markets for domestic goods and services. There would be some element of protectionism to manage trade deficit. Regulatory duties will be imposed on non-essential items.Tariffs will be raised to eliminate anti-tax bias. The tax-GDP-ratio is proposed to be increased from nine per cent to 15 per cent in 2016. Given the poor tax culture, the government would face an enormous challenge to raise tax revenue, particularly because of the perception that taxpayers` money is squandered away by the state. One area that needs to be focused is tax on farm incomes in Punjab. It is question of vigorous implementation rather than framing a new policy. PML-N government in Punjab can set an example for other provinces to follow. However its record of allowing the tax on farm incomes to dwindle during its last tenure does not offer hope for the future. Despite the sharp rise in support prices for wheat and sugar, the incomes of big farmers virtually remain exempt. If the PML-N promises to `turn farming into a viable economic activity` by improving terms of trade in agriculture, taxable incomes should not escape the tax net. The manifesto rightly points out that agricultural growth rate has been slow due to `adverse terms of trade`. The focus will be on small farmers described as `the backbone of the economy`. Agricultural credit will be substantially raised. For the past few decades, there has been so much rhetoric about `inclusive economic growth` which is included in PML-N agenda, promising socioeconomic development, generation of opportunities and jobs based on equity, fairness and justice, on the foundation of democratic principles and above all, rule of law. And it aims to spearhead a moderate and modern welfare state with Islamic values. PML-N is not alone in promising a welfare state in a situation persisting for the past few decades where government is cash-strapped and social spending is much below the required level to make economic development socially sustainable. The governments of the most developed and sophisticate market economies of Europe and the US are shedding social spending after the financial crisis and Great Recession in the developed world. The old welfare model is no longer financially or even socially valid. The core issue is how to put all the nation`s ablebodied people to work, earn their living and fend

for themselves while the flexible labour policies pursued by corporate bodies and other business no longer offer life-time careers. It would involve building a new great society. The changes that PML-N has promised will be within the framework of status quo. Perhaps for the common citizen, it will be more of the same, till such time, an active citizenry has an effective voice in the corridors of power in a developing inclusive democracy.

Australia shuns Europe-style austerity

By Michael Heath AUSTRALIAN Treasurer Wayne Swan will eschew European-style austerity as a stronger currency slows growth, wagering the government can win a September 14 election fought on jobs and absorb the political pain of a broken fiscal surplus promise. The underlying cash deficit will be A$18 billion in the 12 months to June 30, 2014, Swan said in Canberra last week. The A$19.4 billion shortfall this fiscal year is 1.3 per cent of GDP, compared with a projected A$1.1 billion surplus released in the government`s midyear review seven months ago. `To those who would take us down the European road of savage austerity I say the social destruction that comes from cutting too much, too hard, too fast is not the Australian way,` Swan said in a speech to parliament. `The alternative, cutting to the bone, puts Australian jobs and our economy at risk. Swan outlined a longer path back to the black that funds pledged spending on infrastructure, education and disability care, while saying restraint gives theReserve Bank of Australia scope to cut record-low interest rates even further. Prime Minister Julia Gillard`s Labour government trails Tony Abbott`s opposition by double digits and has seen its economic credibility weakened as a stronger currency dents tax revenue and weighs on exporters and manufacturers. `Challenging global conditions and the high Australian dollar have put huge pressure on the budget and led to a significant reduction in expected tax receipts,` Swan said, announcing a revenue shortfall of A$16.6 billion in fiscal 2014. `This government is providing a buffer to continued global uncertainty and giving the Reserve Bank of

Australia more scope to cut interest rates, should it want. Treasury projects Australia`s unemployment rate will rise to 5.75 per cent by June 2014, up from 5.5 per cent last month, as the economy undergoes a `substantial transition` from resource investment to growth-led by industries like housing construction. Australia`s 2013-14 deficit will amount to 1.1 per cent of GDP, the budget showed. That compares with a US deficit equivalent to 5.4 per cent of the economy, Japan`s shortfall of seven per cent and the euro area`s gap of 2.6 per cent of GDP in the period, according to the International Monetary Fund`s fis-cal monitor. Two speed: Gillard and Swan, also her deputy, have struggled to protect the ruling Labour party`s electorate from the two-speed economy a phrase officials use to distinguish resource-rich regions in the North and West that powered growth and hired workers during the mining investment bonanza, from struggling tourism, manufacturing and retailers of the South and East.

accelerate to three per cent the following year. Consumer-price growth will slow to 2.25 per cent in the 12 months to June 30, 2014, from 2.5 per cent this fiscal year, the budget papers show.

Treasury projects the economies of China and Japan, two of Australia`s key export destinations, will ease next year. `We`re coming into a difficult time for the

Mining projects: Treasury predicts resource investment will reach a record of more than eightper cent of GDP in 2013-14 and said projects worth A$260 billion are currently committed or under construction. It said the central bank`s two percentage points of rate reductions over the past 19 months are having an impact, with dwelling investment `already showing signs of a recovery` Governor Glenn Stevens last week cut the overnight cash-rate target by a quarter percentage point to a record-low 2.75 per cent. Traders are pricing in about a 30 per cent chance he will lower borrowing costs another quarter point to a fresh record 2.5 per cent at the June 4 meeting, according to swaps data compiled by Bloomberg prior to the release of the budget. They show about a 70 per cent chance Stevens will do so by September, on the eve of the election. Rate cuts: `There`s no doubt that a key issue for

economy,` AMP`s Oliver said. `It is quite a difficult budget for the government, a sort of balancing act, we no longer have the luxury of an easy revenue flow coming through. -Washington Post/Bloomberg

Surge in mortgage finance

By Anand Kumar | WHILE most other segments of the banking industry in India have witnessed a slowdown in recent months, the mortgage business continues to grow at a healthy pace despite high interest rates. Housing Development and Finance Corporation Ltd (HDFC), the leader in housing finance, reported a 16 per cent growth in home loan disbursals in fiscal 2013. `There has been a robust demand from customers to buy a house for end use,` remarks Renu Sud Karnad, managing director, HDFC. `The demand is largely coming from Tier II and Tier III towns and the periphery of major metros as properties are still quite affordable in these areas. The remarkable thing about the mortgage business

To help woo voters in the outer suburbs ahead of the election in four months, the government plans to spend A$24 billion on roads and railways in Sydney, Melbourne, Brisbane and Adelaide. `Traffic congestion costs commuters time with their families and is estimated to cost our economy up to A$20 billion a year by 2020 if not addressed,` Swan told parliament.

voters in marginal electorates is the level of mortgages rates, so an ideal situation for the government would be to see another interestrate cut around August, or better still September, which is quite possible,` said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has about $130 billion under management. `A lot of marginal voters wouldn`t really care if

in India is that it continues to grow despite two factors that should have a dampening effect rising interest rates and soaring property prices. Real estate prices in cities such as Mumbai, Delhi (and the National Capital Region) and Bangalore the three most impor-tant and valuat)1e property markets in the country have become prohibitive and beyond the reach of middle-class buyers. In Mumbai, for instance, it is virtually impossible to get a modest flat for even Rs10 million in the suburbs; for young working executives, earning salaries of between Rs250,000 and Rs600,000 annually, this means paying several times multiples of their annual income to get a small apartment.It is the same story in other major cities including Bangalore, Delhi, Gurgaon, Noida, Hyderabad, Pune and Chennai. But despite the huge difference in earning capacities and cost of apartments, demand for midand high-end segment in the housing industry has not slackened. But as Karnad points out, demand for housing loans has soared in smaller cities and towns, boosting the fortunes of the industry.

Funding a return to surplus and savings to offset preelection announcements of a disability care programme, overhaul of education and the upgrade of transport infrastructure, are measures including tightening company tax breaks for a saving of A$4.2 billion through June 2017. It will also scrap a cash payment to the parents of newborns and cap family payments for a saving of A$2.4 billion. `This year we face the second largest revenue writedown since the Great Depression,` Swan said in the speech. `This budget sets asensible pathway to surplus, while making room for the big investments in our nation`s future. The government won`t proceed with proposed family tax benefit that would`ve cost A$2.5 billion, and will link cigarette-price increases to fasterrising wages instead of inflation. It didn`t disclose the extra cash raised from the measure. Treasury forecasts the economywill expand 2.75 per cent in the 12 months beginning July 1 and

there`s a surplus. Australia still has one of the highest benchmark rates amongmajor developed nations. Central banks from Europe to New Zealand to Canada have policy rates ranging from 0.5 per cent to 2.5 per cent. Rates in Japan and the US are near zero. The Australian dollar has soared 66 per cent from its 2008 crisis low on October 27 as quantitative easing in the US and Japan to stimulate their economies unleashes cash seeking yield. Dollar squeeze: Manufacturers are beginning to buckle under the sustained strength of the local dollar, with General Motors Co.`s Australian Holden unit announcing the loss of about 500 jobs last month. The impact on the ruling Labour party`s blue-collar supporters has taken a political toll on Gillard. Her Labour Party trails Abbott`s LiberalNational coalition by 12 percentage points, according to a newspoll published in The Australian newspaper on May 7.

take guarantee covers and be rest assured that Housing loans have in fact become the safest bet for housing finance companies, banks and other lenders. Delinquencies are minimal and with property prices rising all the time, their loans are fully secured. The setting up of the IMGC will help expand the The off-take of auto loans, consumer loans and other personal loans has been affected by the economic slowdown of the past two years, but the housing finance industry continues to expand at a brisk pace. Home lenders are also expanding their customer base; while in the past, they were content at servicing the salaried class, increasingly they are now funding the self-employed, owners of small and medium enterprises and even customers from the informal sector, such as small shop owners. For instance, Sundaram BNP Paris Home Finance, a relatively new player, claims that a third of its borrowers are self-employed professionals (as against just a tenth for most leading lenders). Other banks both public and private and non-banking finance companies (NBFCs) are also extending home loans to the non-salarled class. Karnad of HDFC points out that better tax compliance and credit bureau information (which monitors the credit worthiness of individual borrowers) helps lenders to pick up disciplined borrowers and genuine customers from the nonsalaried class and extend loans to them. THE exposure of leading mortgage players to the self-employed and professional segment will also go up, as comfort levels are increasing. Citing the threat from high inflation, the RBI Last month, the Reserve Bank of India (RBI), the country`s central bank, cleared the setting up of the India Mortgage Guarantee Corporation (IMGC), the first mortgage guarantee company to be registered with the central bank. The National Housing Bank (NHB), the regulator for the housing finance sector, is the majority stakeholder with a 38 per cent stake inIMGC. USbased Genworth Financial, with a 36 per cent stake, is the technical partner in the venture, while the Asian Development Bank and the International Finance Corporation have a stake of 13 per cent each. The setting up of IMGC will benefit the mortgage industry as lenders who take cover from the corporation as they are confident that their loans will not turn delinquent. Housing finance companies, banks and NBFCs can The RBI has treated all lending to the CRE as `sensitive` and cautioned banks about their exposure to the sector. It also hinted at lowering rates for loans to the residential component of the commercial real estate (CRE) sector, as they are less risky. persisted stubbornly with the policy of maintaining high interest rates, leading to a sharp economic slowdown, as industry was starved of funds. The central maintains a hawkish tone, maintaining there is little room for monetary easing. ***** HOME loan rates are expected to become cheaper over the coming months, with the RBI likely to cut lending rates. In its recent credit policy, the RBI cut the repo rate (at which it lends shortterm funds to banks) by 25 basis points to 7.25 per cent. Food inflation was also down at 6.08 per cent from 8.73 per cent in March. And core inflation also decelerated to 2.7 per cent in April, well below the three per cent comfort level of the RBL The allimportant consumer price index ended below 10 per cent (9.39 per cent) in April. Interest rates are expected to come down, with the RBI finally realising the time has come to lower rates. Last week, the Indian government released figures indicating that wholesale price inflation had fallen below the five per cent mark, the first time in three-and-a-half years. The wholesale price index was down to4.89 per cent in April from 5.96 per cent a month ago. But with mortgage lending becoming a lowrisk business, interest rates are also expected to soften over the coming weeks. According to R.V. Verma, chairman and managing director, NHB, the setting up of the IMGC will ensurethat home loans are available to a wider segment of the population, boosting the housing industry. mortgage business, bringing greater depth to the sector. Lenders will be encouraged to extend loans to the non-salaried class as well. The borrowers will have to share part of the burden of the guarantee fees, but considering the huge amount of loans, this would be negligible. The guarantees are invoked in case of default by the borrower. even in case of a default they will be compensated.

Lending to the CRE attracts higher risk weights and higher provisioning requirements. `It has been generally observed that the residential housing complex sector under CRE poses lower risk than the other components of CRE sector,` said the RBI recently. It now plans to carve out a sub-sector of `CRE-Residential Housing` within the CRE sector with appropriate regulatory norms. The tight monetary policy of the RBI, with regard to lending to the commercial real estate sector, has led to many developers coming out with innovative schemes. Some builders, for instance, urge apartment buyers to seek loans for funding their acquisition. The loans are available to individuals at an average cost of about 10 per cent, whereas builders have to pay upwards of 15 per cent to banks for commercial loans. The developers offer to repay the mortgages on behalf of their clients till the time of giving possession (which could extend up to two years), if they agree to deposit about a third of the cost of the apartment. If the buyers agree, this turns out to be a win: win exercise for both sides.

Disputes in US-EU free trade talks

By Howard Schneider | SUPPORTERS of a US-European free-trade deal have begun damping expectations about its immediate benefits amid a series of emerging disputes that could complicate the creation of the world`s largest trade zone. US President Obama and British Prime Minister David Cameron met recently and affirmed that the Transatlantic Trade and Investment Partnership remains a top economic priority on both sides of the ocean critical in Europe`s quest for economic recovery. But in recent weeks, fresh disagreements have surfaced over issues such as the regulation of financial services and the openness of US state governments to foreign businesses and contractors. Those add to a healthy list of legacy disputes involving agriculture,European prohibitions on genetically modified food and French insistence it be allowed to maintain quotas on nonFrench media. None are necessarily deal breakers. But they could make it harder for officials to reach their goal of finishing an agreement by next year and

diminish the potential for a treaty to quickly boost jobs and growth. Although the push for such a partnership grew out of concern about high unemployment in the developed world, business groups, public officials and others involved in the negotiations say the short-term effects may be muted. `There was an initial flurry of excitement that this was finally launched,` said Tim Bennett, director general of the Transatlantic Business Council, a group of chief executives who confer with the US government and European Commission on trade and economic issues. But `let`s not oversell the benefits. The benefits will take several years to manifest ... . This is not the sil-ver bullet that is going to solve all the employment problems in the EU or the US. `If the negotiation gets started, we know it will be a long one filled with obstacles, French Trade Minister Nicole Bricq said during a trip to Washington last month in which she detailed possible problems the French foresee in the talks. Cameron on Monday said the talks could launch formally at a meeting of top world leaders in Northern Ireland next month and that he hoped they would start without preconditions imposed by either side. `To realise the huge benefits this deal could bring would take ambition and political will. That means everything on the table,` Cameron said. `The next five weeks are crucial. It is over that time that the office of the US Trade Representative will finish conferring with Congress about the scope of the negotiations. A similar process is underway in the European Union as the 27member nations discuss a negotiating `mandate` for European commission officials. In the course of those discussions, the demands are multiplying.

that are still under debate in the United States and unsettled in US laws and regulations. Some European countries also are insisting that US states be included in a proposed expansion of the market for government contracts and services. The hope is to liberalise the rules so that, for example, engineers, architects, accountants and other professionals can more easily move between countries and compete for government work, andbusinesses can vie for government contracts. The United States cannot force states to open their markets to foreign firms or change their regulation of professional services. Thirty-seven states signed an existing international government procurement treaty, allowing foreign firms to bid for business; it`s unclear whether those states or the other 13 would agree to the potentially broader terms of a USEU deal. But Bricq said Europe will insist that the states be included. Any agreement `must gather the states,` Bricq said. `This opening up of public markets is essential. Bricq also said France was insisting that its rules on French-language media be excluded from the talks in advance a difficult position for US officials to accept. The movie industry, in its public comments on the TTIP, did not object to the rules. But US officials say countries should not be allowed to wall off whole industries in advance. Bennett and other supporters of the proposed agreement say they see immense potential in it to eventually boost world trade and influence other nations. If a trading bloc that already accounts for 40 per cent of world economic output becomes even more integrated, so the argument goes, other nations may feel compelled to conform to its rules and standards. But with such close trade ties and low tariffs

governing much of the developed world, has been debated conceptually for many years, with only spotty progress. If it does not take root this time, Bennett said, the worry is that it may never happen. `We don`t think there will be another opportunity like this,` he said. -Washington Post/Bloomberg

New rules for funding small enterprises

By Mohiuddin Aazim THE financing of small and the medium enterprises will be governed by a separate set of rules issued by the central banlc for compliance by lenders. While a general policy umbrella still covers small and medium enterprises (SMEs) in the country as a whole, the bifurcation of financing rules will promote a freer flow of funds to small enterprises (SEs). Banks and development finance institutions (DFIs) are supposed to start separate reporting for SEs and medium enterprises (MEs) after September 30. Small enterprises are defined as businesses that employ up to 20 people (including contractual employees), with an annual sales turnover not exceeding Rs75 million. SEs are allowed to borrow up to Rs15 million from a single bank or DFI, or cumulatively from all lenders. Before the bifurcation of SMEs into SEs and MEs, banks normally focused on lending to mediumsized business entities that were covered under the definition of SMEs, and ignored smaller ones.`Now, the reporting requirement is such that banks will have to tell the central bank how much they`ve lent to SEs, and this will make a difference,` says a senior official of the state-run National Bank of Pakistan. What is particularly encouraging for SEs is that banks have been required to take a decision on their credit proposals within 30 working days

Some European officials want to use the negotiations to push back on new US financial regulations that could force European banks to restructure their operations if they want to do business in the United States. The effect of the Volcker Rule on European companies has been a sore point for more than a year. Some US officials are hesitant to include matters

already in place, the true value of the agreement may only accrue years down the road, as regulators in Europe and the United States work together to smooth out conflicting rules for doing business, safety standards converge and businesses take advantage of a more efficient operating environment. That idea, of a seamless business environment

after the receipt of complete documentation. Besides, the State Bank of Pakistan (SBP) has also asked all banks and DFIs to make Urdu translation of important clauses of loan agreements available to small enterprises. Meanwhile, banks and DFIs can evaluate the collateral offered by SEs for obtaining loans of up to Rs5 million on their own. However, if the lender makes a larger loan (above Rs5 million and up to Rs15 million), it will have to get the collateral evaluated by a professional evaluator approved by the Pakistan Banks Association. Bankers say another important feature of financing rules for SEs is that banks can now collect cash or recover their loans at places other than their respective branches, and record these recoveries through the use of mobile phonetechnology. This effectively means that SE owners, particularly those operating in agriculture, far from bank branches, need not travel several kilometres to repay their loans. A banker may come to them, collect their dues, and transfer them to the relevant bank account from a nearby easy-paisa transfer outlet or from a similar fund transfer facility. Countries like China, Japan, India and This should accelerate the overall repayment of loans, as well as keep the lenders` bad loans portfolio in check, and create room for banks to continue to lend freely to SEs. However, central bankers point out that SME financing fell 9.4 per cent in 2012, as banks ignored the sector despite the fact that domestic demand had increased, which could have been used to revitalise the sector. They say that bifurcation of SMEs into SEs and MEs cannot facilitate the flow of credit to the SME sector as a whole or enable SEs to serve as micro unit links into the country`s overall business and trade supply chain, unless banks start lending to SEs and MEs in a big way. More worryingly, the share of SMEs in banks` overall lending shrank to 6.8 per cent inDecember 2012 from 8.3 per cent in December 2011, and the number of SME borrowers declined by more than 21 per cent from about 168,000 to just 132,000. The new SE rules are expected to build upon improvements seen in SME financing in the second half of 2012, which recorded a 7.5 per cent expansion, despite an overall decline for the entire year. But Raza and many others like him also acknowledge that the softening of interest rates in the second half of 2012 had a favourable `Whether you treat SEs separately or as part of SMEs, it may have some significance for banks. But for the people who run them, the key issue is the interest rate,` remarks a Karachi-based business-man, Syed Hasan Raza, who runs a medicine trading company. However, Thaver and many people operating SMEs of one kind or the other keep lamenting about the high cost of bank borrowing. Meanwhile, Zulfikar Thaver, chairman of Union of Small and Medium Enterprises, says SMEs in Pakistan have already played an important role in job creation and inclusive growth, and have also led to the development of business linkages between rural and urban areas. Bangladesh are already known as big promoters of their SME sectors, and earlier this month, oilrich Oman also required banks to ensure that SMEs get at least five per cent of their total loans. Oman`s central bank says the move is aimed at fostering more inclusive economic growth and creating additional jobs. `The relationship between SME promotion and finance is like thewheels of a car: if all components are not spinning in synchronisation, a balanced, sustainable and resilient Asia will not be realised, concludes the ADB report. The SBP move to streamline SME financing, particularly to SEs, is a reflection of the trend recently catching up in Asia, where, according to a latest Asian Development Bank (ADB) report, there is a need for a holistic approach to financial inclusion strategies. Bankers point out that a high infection ratio of loans made to SMEs (34.6 per cent as of December 2012) also makes many banks shy of lending generously. They say that bifurcation of SMEs into MEs and SEs is good for them, as they will now apply different criteria for judging the soundness of loans offered to these two subcategories of SMEs, and one subsector would not be deprived of funds for no fault of its own.

impact on SMEs` operations. Bankers say that a big four per cent plus growth in large-scalemanufacturing (LSM) in three quarters of this fiscal year wouldn`t have been possible without the lowering of the interest rates. They add that growth in the LSM sector will eventually facilitate increased activity in SMEs as well, particularly for those that are in the manufacturing sector.

Opportunity, challenges
By Khaleeg Kiani WHEN the Pakistan Muslim League-Nawaz assumes power after nearly 14 years later this month, it would trigger a fire-fighting exercise to halt the fiscal downslide before moving on to a reform process for economic revival. Senator Ishaq Dar, tipped as the party`s finance minister, will present the next year`s budget which, analysts believe, would set the stage for fiscal consolidation. If his past track record is any indication, Senator Dar would bring all the off-book hidden expenditures on the table to come clean on what he is inheriting from the caretakers and the PPP government like he did in 2008 by presenting a consolidated fiscal deficit figure at about 7.5 per cent. Dar has an edge over his predecessors as he enjoys the confidence of the party leadership that would be required to fix the major economic challenges. Unlike Shaukat Tarin and Abdul Hafeez Shaikh who were seen by many party parliamentarians as `outsiders`, (limiting their ability to convince PPP leadership on the needed policy direction), Dar would generally get a smooth sailing and support of the party. This gives Dar little chance to make mistakes because any failure would fall entirely on his own shoulders. He would, of course, also have the policy input and advice of the veteran Sartaj Aziz who is being tipped as Prime Minister Nawaz Sharif`s senior adviser on economy and foreign affairs. And unlike PPP that had to change five finance ministers in five years of its rule creating a general sense of instability, the PML-N has enough room for continuity and stability of economic policies. It would be expected to take difficult economic decisions like expansion in revenue base, increasing tax-to-GDP ratio, containing public sector losses

and creating job opportunities to a growing number of young population through better investment policies. Given its past record and the election manifesto, the PML-N is expected to push through the economic reform process including deregulation, liberalisation and privatisation it introduce d in 1991 and continued after 1997.

He plans a major part of investments to come from the private sector in the shape of public privatepartnership given limited fiscal space available in the budget. But his most challenging job would be to reduce subsidies to bleeding power sector that consumed over Rs1.5 trillion in the last four years. Over the last five months, the gap between power He plans a major part of investments to come from the private sector in the shape of public privatepartnership given limited fiscal space available in the budget. But his most challenging job would be to reduce subsidies to bleeding power sector that consumed over Rs1.5 trillion in the last four years. Over the last five months, the gap between power tariffs approved by the National Electric Power Regulatory Authority (Nepra) and applicable rates to consumers has widened from about Rs3.50 per unit to about Rs6 per unit, entailing total additional impact of aboutRs200 billion. A major part of this would have to be passed on the consumers in the According to stipulations, Dar is expected to take form of higher tariffs while focusing on losses, theft and recoveries from the public sector consumers as articulated by the party in its election manifesto. Indications are there that the office of federal Going by the PML-N manifesto, Dar would initiate measures to finally reduce current expenditures, excluding salaries, pensions and allowances by onethird and cut losses of PSEs for their ultimate privatisation. This may soon be followed by handing over of He plans a major part of investments to come from distribution companies of Wapda to provincial governments with all responsibilities to ensure timely recovery of electricity bills and reduction in system losses, to put the companies to stand on their own feet and bear the burden of subsidies. But his most challenging job would be to reduce subsidies to bleeding power sector that consumed over Rs1.5 trillion in the last four years. Over the last five months, the gap between power tariffs approved by the National Electric Power Regulatory Authority (Nepra) and applicable rates to consumers has widened from about Rs3.50 per unit to about Rs6 per unit, entailing total additional impact of aboutThe PML-N would be facing a challenging fiscal deficit situation. Although, caretakers put current year`s fiscal deficit at about 7.3 per cent, indications are that anything below eight per cent would be a blessing given the fact a major part of power sector losses still remain unquantified and would need to be brought on books. According to stipulations, Dar is expected to take measures that could reduce budget deficit to about 4.5 per cent next year and stabilise it around four per cent over the next five years. The estimates for foreign inflows and their sources would be one of the significant determinants of the strength of the next year budget. Given the fact that most of the estimates relating to foreign inflows have remained unmet this fiscal year, Dar, having past experience, would have to start the effort from where he had left in 2008. That would involve floating of bonds and divesting of government shareholding in key public sector companies and banks that were shelved on the instructions of President Asif Ali Zardari. the private sector in the shape of public privatepartnership given limited fiscal space available in the budget. adjustor would be strengthened for at source deduction of provincial electricity dues against their shares out of federal divisible pool with a one-time loan to the provincial governments. measures that could reduce budget deficit to about 4.5 per cent next year and stabilise it around four per cent over the next five years. tariffs approved by the National Electric Power Regulatory Authority (Nepra) and applicable rates to consumers has widened from about Rs3.50 per unit to about Rs6 per unit, entailing total additional impact of aboutThe PML-N would be facing a challenging fiscal deficit situation. Although, caretakers put current year`s fiscal deficit at about 7.3 per cent, indications are that anything below eight per cent would be a blessing given the fact a major part of power sector losses still remain unquantified and would need to be brought on books. Going by the PML-N manifesto, Dar would initiate measures to finally reduce current expenditures, excluding salaries, pensions and allowances by onethird and cut losses of PSEs for their ultimate privatisation.

The party has committed to making national economy the centre- piece of its priorities and would reorganise its trade and business relations with many of the hitherto neglected regional players like India, Saudi Arabia and the Middle East on top of strengthening economic relations with major western powers. This would be part of the overall policy to reverse the existing trends of low growth and high inflation. Hence it would be expected to make interest rates congenial for borrowers to kick-start investments in key areas for generating job opportunities. But how the new finance minister puts together a team of bureaucrats to implement its policies would be seen with keen interest. To start with, the new finance minister is unlikely to enjoy good working relationship with Governor State Bank of Pakistan Yasin Anwar considered a personal choice of President Asif Ali Zardari. However, there is little he can do given Anwar`s tenure will continue until October 2014. Likewise, he did not have best of relations with incumbent secretary finance Dr Waqar Masood Khan in 2008 and is likely to put together a new team of federal secretaries to run finance, economic affairs and planning divisions and appoint a chairman of the Federal Board of Revenue.The PML-N would be facing a challenging fiscal deficit situation. Although, caretakers put current year`s fiscal deficit at about 7.3 per cent, indications are that anything below eight per cent would be a blessing given the fact a major part of power sector losses still remain un-quantified and would need to be brought on books. According to stipulations, Dar is expected to take measures that could reduce budget deficit to about 4.5 per cent next year and stabilise it around four per cent over the next five years. Going by the PML-N manifesto, Dar would initiate measures to finally reduce current expenditures, excluding salaries, pensions and allowances by onethird and cut losses of PSEs for their ultimate privatisation.

Hybrid: the new key word in rice

By Sarfraz Naseer RICE is called the `golden grain of Pakistan` because it is the country`s second-most important staple food and the third leading crop

in terms of cultivated area. It is also the thirdlargest cash crop after wheat and cotton. Pakistan is also known as fifth, 10th and 14th largest rice exporter, biggest area cultivator and leading producer of the rice in world, respectively. Hybrid cultivators have, over several years, enhanced the yields of other more freely crossed varieties like maize, for instance. However, it is hybrid that rice plays a foremost role in introducing superior yield frontier and thus reduces sustainable food insecurity. Moreover, hybrid rice endows farmers to attain substantial yield improvements through open pollinated or inbred lines. The idea is that if we cross male and female plants which are genetically distant from each other, the progeny will be superior with high performance, primarily in terms of yield; this is what is known in agriculture as hybrid vigour or heterosis.

Guard rice is the first private sector rice research seed company which was given authorisation by the government and of the initial six hybrid rice varietles approved for commercial cultivation, four had originated from Guard rice. Some other private agricultural companies such as Pioneer (PHB-71, rice hybrid variety), Auriga Group of Companies (Almas, rice hybrid variety) and Bayer Crop Science (Arize 403 & Arize H-64, rice hybrid varieties) have also developed their own rice hybrids.

constitutes a very small percentage of total gram production. The bulk of it, black gram, comes from Punjab. Output of gram has surged on the availability of additional land, and an increase in per acre yield. Gram needs moderate water supply and normal climatic conditions, and growers who have reported higher yields had been blessed with both during Kharif cropping this year. Many farmers have reported multiple

Private seed companies import hybrids from China and there are wide variances in soil and climatic conditions of the both countries. Therefore, it is not certain whether a hybrid that is performing best in terms of yield in China will provide the same potential locally. Such hybrid varieties should be tested on the research farms of provincial agricultural departments to check whether the imported seed is suitable for our soil and climatic circumstances, and ensure that farmers only use certified seed varieties. Private sector has taken the initiative to develop

harvestings, as gram matures in 90 to 120 days. Meanwhile, moong production is estimated to have crossed 100,000 tonnes from 93,000 tonnes last year a modest rise in 2013 after a huge 22 per cent growth seen in 2012. Cotton growers, whose standing crops were flattened by heavy rains during and after maturity in Punjab, found additional land for cultivation of lentils, including moong. And in some districts, `growers had sown moong and other minor crops alongside lands where major crops were grown, and even on peripheries of fruit farms and orchards,` a progressive grow-er, Malik Sakhawat, told Dawn. Sunflower (seed) production is reported to have also risen from last year`s low level of 473,000 tonnes, to more than half a million tonnes, according to information obtained from agricultural departments of Sindh and Punjab. Growers in Sindh say that in some areas like Thatta, Badin and Mirpurkhas, per-acre yield has gone up to 20-25 maunds this year, and overall output in the province is going to range between 200,000-250,000 tonnes, up from 187,000 tonnes last year, but far below 2011`s record level of 342,000 tonnes. A Mirpurkhas-based progressive grower, Fazal I

Hybrid rice seed was introduced in Pakistan in 2003 and at that time the farmers were reluctant to accept this change because due to lack of awareness regarding advanced agricultural technologies. At present, hybrid rice is planted on an area of approximately 5,20,000 acres that is just about onefifth of the total area under rice cultivation.

new technologies and advance brands of seed, while government institutes are lagging behind. Notably, in Pakistan the average national yield of rice is still 24 maunds per acre, which is one of the lowest in the world; therefore government should extend its support to private companies which are interested in conducting research in hybrid rice development. Production of hybrid rice has also helped

Furthermore, hybrid rice exhibited significant escalation in its cultivation since last few years and the motive behind its reputation among the farmers is its extraordinary yield potential in comparison with the traditional low yielding varieties. In fact, a farmer achieves around 80-100 maunds per acre yield after sowing hybrid rice. It was also reported that farmers have attained yield as high as 110 to 120 maunds per acre in some areas of the country.The business of the private sector companies reveals a remarkable contribution in agriculture of our country in terms of hybrid rice or other GM (genetically modified) seeds. These companies also promise to increase the production manifold. Currently, almost 800 registered seed companies are operational, together with four public sectors and five multinational companies.

enhance Pakistan`s rice exports in recent years, but still we lack the real objective and rice research needs a boost through key participation by the government, so that rice exports and farmers` income is improved.

Promising outlook for minor crops

PRODUCTION of minor crops is estimated to have increased by about 6.7 per cent this year, against the target of 4.5 per cent, according to a recent report of the National Accounts Committee. Traders in Karachi`s Jodia Bazaar estimate the cumulative output of both black and white varieties of gram to have tripled to 900,000 tonnes from just around 300,000 tonnes last season. White gram, or chick peas, grown in highlands of Khyber Pakhtunkhwa (KP)

Memon, told Dawn that in 2011, sunflower cultivation was at its peak for a variety of reasons, including the availability of additional land after cotton crop losses. Since this year`s cotton crop in the province has been much larger than before, sunflower got a little less of farmers` attention. Sindh produces about 30 per cent of Pakistan`s total sunflower. Meanwhile, traders of oil seeds in Jodia Bazaar say they have field reports suggesting that the country`s overall production this year may be closer to the 201011`s record output of 643,000 tonnes.

All of this has been a real blessing at a time when the country is in need of exploiting full potential of agriculture to accelerate economic growth, create jobs and cut import bills. But building upon the gains in minor crops recorded in the recent past requires a clearer understanding of the issues that impede growth of this vital sub-sector of our agriculture.

field officers to collect data on all crops grown in the province, but these officials normally restrict their field activities to major crops, and `statistics on minor crops, at best, present intelligent guesstimates,` laments an official of the Multi Food International, a leading com-pany that is involved in imports and exports of food items. Despite costlier and least-dependable supply of Similarly, the provincial government should focus on utilising oil and gas reserves found in the southern districts of the province, says Ishaq, adding: this would help expand its income base and create jobs in the private sector as utilisation of oil and gas reserves would help revive industrial activity. electricity for tube wells, and gas and growers` limited access to formal sources of borrowing, a better-than-targeted performance of minor crops has become possible due to increased awareness about the return on these crops. Another thing that has been helpful is the recent expansion in solvent extraction and edible oil manufacturing base (incase of oilseeds), and higher local consumption at household and industrial levels (in case of lentils and pulses). Maize, although no more a minor crop, has also shown signs of improvement for the same reason. National Accounts Committee estimates show that maize output during this year has gone up to 4.7 million tonnes against last year`s 4.27 million tonnes. Mohiuddin Aazim However, PML-N`s success has not gone down well with everyone in the province. There are businessmen who are worried. Some of them have not forgotten memories of the second PML (N) government`s decision to freeze the foreign currency accounts after the country went nuclear in 1998. `The disturbing memories of dollar account freezing decision are still fresh in the minds of many people,` says an industrialist from Peshawar Muhammad Ishaq. He, however, believes the many issues would take time to resolve as it was not easy to end the country`s power woes in a few months. `They (PML-N leaders) realise that power supply would take a couple of years to improve; that is why they say that say they will fix the problem in two years,` says Ishaq. However, he adds that Mian Sahib will need to restore businessmen`s confidence by undertaking prudent economic policy decisions. `In his second stint in power, for instance, the supply of wheat flour from Punjab to KP was officially banned, which adversely impacted PML-N`s success in the elections has renewed hope to Peshawar`s businessmen as they consider MianNawaz Sharif business-friendly.The last time PML-N was in power, they add, his policies benefited small, medium, and large businesses alike. `Nawaz Sharif`s governments have always proven useful for small entrepreneurs and strengthened businesses,` says Zia-ul-Haq Sarhadi, a director at PakistanAfghanistan Chambers of Commerce and Industry. The emergence of a relatively new political force to the echelons of power in KP has also generatedmixed reaction from the local business community. Pakistan Tehreeki-Insaf is all set to lead a fourparty coalition government in the province. Its rise to power is being per-ceived as a positive political happening.

`Unless we significantly increase the yields of oilseeds, we can`t attain themain objective of import substitution, says the chairman of Agri Forum Pakistan, Ibrahim Mughal. He laments that average yields of rapeseed, mustard, and canola are far below the global average, while soybean is cultivated on a very small scale, and no major initiatives are in sight to promote sunflower, which is a very successful crop. After full devolution of agriculture from July 2011, provinces should have come up with comprehensive agricultural development plans. But their efforts to boost farming activities still remain fragmented. Sunflower, mustard/rapeseed, soybean and canola oilseeds had got policy attention during the 1990s and 2000s, and the oilseeds development board had made some efforts to increase their outputs. Olive cultivation in KP and Potohar region was recently stepped up. But as things stand today, soybean production is restricted to a few thousand tonnes, and olive cultivation has yet to be produced on a large commercial scale. Meanwhile, the production of millet, sorghum, sesame and barley, some of the least-focused minor crops, also has not been enough to make a significant impact on local food industry, or to earn sizable foreign exchange. Barley has a lot of export potential if we can add value to it, and produce a variety of confectionary items and drinking delights. But our barley production has remained stagnant around 265,000 tonnes per year for the last seven years, according to the database of the United States Agriculture Department. No estimate of barley output for this year is available, but officials of provin-cial agriculture departments say they have no reports of any major change in the area under cultivation of this important minor crop. Provincial agriculture departments rely on their

KP business sees opportunities

By Intikhab Amir | 5/20/2013 12:00:00 AM LOCAL businessmen are pinning hopes on both the next provincial and federal governments to initiate effective measures to end prolonged power outages and to maximise the use of indigenous natural resources, which they see vital to revive Khyber Pakhtunkhwa`s economy. While they are looking towards the PML-N for specific pro-business policies for the province, they expect the PTI-led KP government to work hard to improve general law and order situation and focus on development of natural resources. . The provincial government, says a Peshawar industrialist Muhammad Ishaq, should focus on developing small water storage dams and utilising huge hydro power generation potential. The effort would improve electricity supply situation in the province in addition to creating more sources of income for the provincial government on account of profit on sale of electricity.

whole-sellers, merchants, and consumers here,` says Ishaq.President of Anjuman-e-Tajran, KP, Sharafat Ali Mubarak says small traders andshopkeepers were hoping that Mian Nawaz Sharif would introduce business-friendly policies, resolve energy crisis, improve security situation in the province, and create investment-friendly environment across the country. `Lengthy power outages have ruined small businessowners and businesses relying heavily on electricity are the worst hit,` he says, stressing on improvement in electricity supply to help businesses grow. A group of 40 tailors belonging to different parts of Peshawar, he says, came to him a couple of days ago to complain that prolonged power outages had forced them out of business. `Price hike does not bother you much when your business is doing well,` says Mubarak, adding that, `improvement in electricity supply would resolve half of the problems being faced today. The new government, he says, should take small, but important, steps to revive small businesses, provide liquidity to small entrepreneurs. `Businessmen would give their best if they find opportunities and Mian Sahib is good at creating opportunities for businessmen,` says Mubarak.

restricted to Rs2,000 billion instead, the budget deficit will go up to eight per cent. Pakistan`s tax-to-GDP ratio willcome down from 9.1 per cent to around eight per cent this year the lowest in the last 35 years. Three factors have led to this dismal revenue realisation. It was agreed in the 7th NFC Award that provincial governments will take effective steps to collect taxes on farm income and real estate to help the country`s falling tax-to-GDP ratio increase to 15 per cent by the terminal year 2014-15. However, nothing has happened on this account. But provinces are getting their enhanced share from the Federal Divisible Pool as entitled under the 7th NFC Award. Meanwhile, the tax compliance level fell to 23 per cent in 2012 from 39.5 per cent in 2011. It was 65 per cent in 2010. This poor tax compliance level can be attributed to the suspension of the tax audit. The compliance level in performing countries ranges between 70-80 per cent. Data shows that more than 2.03 million wealthy people in Punjab are not paying taxes. Meanwhile, less than one million people in Sindh, and 386,233 in Khyber Pakhtunkhwa, 69,174 in Balochistan, 5,311 in GilgitBaltistan, and 46,657 in AJK are evading taxes. At the same time, the tax return filing rate in

lobby has been one of the major supporters of the PML-N in the May 11 elections, especially from Faisalabad. And it will be a hard decision to withdraw exemptions from this holy cow. The government can, however, continue GST exemptions only on food items, as is the norm in many countries. In short, the PML-N will have to broaden the tax base, revive tax audit, step up automation and reform the tax administration.

Ishaq agrees. He says his packages manufacturing unit`s survival depends on the revival of industrial sector in Punjab. `Improvement in electricity supply would generate business, create jobs, and result in profits for all,` says the industrialist. `Businesses and investors would also respond positively, doing their bit to come out of the dock,` he adds.

Punjab is behind that of the rest of the country. Around 54 per cent of taxpayers did not file returns here in 2012. The tax gap difference between potential and actual collection hovers around 60 per cent. It is believed that almost 84 per cent of tariff and duty rates have either been exempted or reduced for the benefit of special interests through statutory regulatory orders (SROs). These SROs are a `financial NRO` for the elite.

Problematic tax culture

By Mubarak Zeb Khan | The revenue target for the current fiscal year has been lowered to Rs2,050 billion from the budgetary projection of Rs2,381 billion reflecting a shortfall of Rs331 billion. The budget deficit is projected at 7.5 per cent, in case the Federal Board of Revenue (FBR) collects Rs2,050 billion by end June 2013. If revenue is

The new government will have to withdraw much of these exemptions, and enforce tax audits, to raise tax revenues. The sales tax law was introduced by then-prime minister NawazSharif in the 1990s. But this law has now become outdated, and needs to be reformed. The previous government had, in 2010, already made an attempt to introduce a reformed general sales tax (RGST) law, which was blocked by opposition parties. On the other hand, the textile and clothing