Economic & Business Review [Monday, June 22,

2009 ]

Addressing fiscal anomalies

By A.B. Shahid
Monday, 22 Jun, 2009 | 03:19 AM PST |

Taxpayer response to several taxes and

procedural change clauses in the Finance Bill 2009
has been harsh. Already, the government has
promised to withdraw or soften their impact.

But the big worry is the government’s over-

reliance on debt. According to the Advisor on
Finance, external debt (including $3.6bn lent by
IMF thus far) is now $50.1 billion. Another $4
billion would be borrowed from the IMF as per
the current agreement raising the debt to $54.1
billion. After repaying nearly $3.6 billion during
FY10, the debt could come down to $50.5 billion
but would still be higher than its June 2009 level.

Suspecting the fiscal deficit to exceed the planned

Rs722 billion, and fearing delay in or non-receipt
of aid promised by FoDP, Mr Shaukat Tarin is
advocating a new $4.5 billion IMF facility. This
loan could inflate the external debt to $55.5 billion
or Rs4.60 trillion (at Rs81/$). Whether this option
will be exercised despite receiving a total of $1.8
billion in aid from the US after the passage of the
Kerry-Lugar, is unclear.

The domestic debt is now Rs3.72 trillion. After the

budgeted borrowing of Rs458 billion and planned
repayment of Rs300 billion in FY10, this debt will
exceed Rs3.88 trillion. Thus, the total debt (Rs8.48
trillion) would form 58 per cent of the Rs14.58
trillion GDP inclusive of the 3.3 per cent growth
expected in FY10. The total debt, and external
debt therein (even at Rs81/$) exceeding the
domestic debt by 18 per cent, are worrisome
prospects.

Yet, nothing significant was proposed to mobilise

domestic resources. Ten per

cent tax on profit from all types of savings – a

disincentive – will continue. Atop thereof, the
budget didn’t offer incentives to expatiate
Pakistanis to shift their foreign currency deposits
to Pakistan although, at present, profit rates on
foreign currency deposits inclusive of a premium
could be the cheapest source.
The lopsided Finance Bill makes the 3.3 per cent
GDP growth and a slowdown in the rupee’s slide
very uncertain. The major deficiencies of the bill
are not taxing the sectors that have the capacity for
paying, but taxing commodities/sectors whose tax-
inflated prices will have a snowballing effect that
could thwart all attempts at lowering inflation and
stabilizing the rupee.

The most worrisome is the carbon tax on

petroleum products (even if CNG is exempted
from it) and a 10 per cent hike in power rates.

These tax increases will push up the price of

almost everything since, in one way or another,
energy forms a part of their cost as does the cost
of transporting them to consumer markets. Such
tax hikes have served as a cover for unchecked
profiteering by distribution channels that have
been fuelling inflation.

A key option exercised for increasing exports is to

allow faster depreciation (90 per cent in the first
year) on power generation equipment that
exporters must buy to run their factories full-time.
But given the steady depreciation of the rupee and
high mark-up rates, exporters can’t benefit from
it. What they need is uninterrupted power supply,
which the state can’t promise.

Export indenters (who market for export orders)

must now pay five per cent tax on their earnings
compared to one per cent at present. How will this
nudge them to get more export orders is
anybody’s guess. Exporters utilise a lot of the non-
fund-based banking services on which Federal
Excise Duty has been raised to 16 from 10 per
cent. Both export indenters and banks will pass
their new tax load on to exporters.

Doing away with ‘minimum’ tax and requiring

trading houses to submit tax returns for assessing
the final tax liability has caused a storm because it
accompanies organisational re-structuring of the
FBR that empowers Income Tax Commissioners
(ITCs) with extended authority for fixing tax
liabilities. Changes in the timeframes for settling
tax disputes made this move more questionable.

Earlier, appeals had to be settled within 120 days

from the end of the month in which they were
filed. If a decision wasn’t taken within 150 days
thereafter, the taxpayer’s position was deemed as
accepted. Taxpayers only had to send a reminder
during the last 30 days. Now the 120-day period
will start from the date the petition is filed but if a
decision isn’t taken within 120 days thereof, the
taxpayer must keep waiting for it.

Time frame for disposal of refund applications has

been increased from 45 days to 50 days.
Appointment of Alternative Dispute Resolution
committees will now take 60 instead of 30 days.
But the new profile of the appellate tribunals is
the oddest; these courts will now be presided over
by ITCs. No longer will an accountant, a judicial
officer and the ITC sit on the bench.

Banking sector’s demand for tax relief on loan

losses has virtually been ignored. The relief is one
per cent of the classified loans, which was earlier
construed as one per cent of total loan portfolios.
Both bases are unfair because one per cent of even
the total loan portfolio would be grossly short of
the banking sector’s NPLs that now form 11.3 per
cent of the total outstanding credit.

The claim that the relief is in line with SBP

Prudential Regulations is misleading. The virtual
absence of tax relief on NPLs classified in the loss
category (i.e. overdue by two years) will adversely
impact the banking sector. According to Ford
Rhodes Sidat Hyder & Co., denial of the sectors’
valid tax relief demand “potentially challenges the
continuity of some banks.”

While the upper limit for tax exemption of salary

income has been raised to Rs0.2 million, those
earning over Rs8,650,000 a year will still be taxed
at a paltry 20 per cent. In sharp contrast thereto,
non-salary earning individuals getting anything
over Rs1.3 million in a year will be taxed at 25 per
cent. But, salaried taxpayers will have to pay a tax
retrospectively (i.e. on their 2008-09 earnings) to
assist in IDP rehabilitation.

Teachers/researchers employed by non-profit

institutions or institutions approved by a Board of
Education, University or HEC, or serving in
government’s research institutions were earlier
entitled to 75 per cent relief in their tax liability.
That relief has now been cut to 50 per cent. How
much revenue this cut will generate was not
disclosed in the budget.

Despite all this, income tax on retail, wholesale

and corporate sectors, share-trading, and real
estate remains unchanged. Income from
agriculture stays tax exempt. In a post-budget
seminar in Lahore on June 17, the Advisor on
Finance admitted that some of the anomalies in
the budget and the Finance Bill escaped his
attention, and promised to redress them; let’s
hope he does so.
Budget ‘a non-event for industry’
By Nasir Jamal
Monday, 22 Jun, 2009 | 03:19 AM PST |

The industry is unhappy with the government for

failing to reduce the cost of doing business, seen as
the key to industrial revival and for reinstating
minimum income tax in the federal budget 2009-
10.

“The budget contains nothing substantial for the

industry. Things must get worse before they
improve,” notes Almas Haider, a leading
manufacturer based in Lahore.

He forecasts more industrial closures and job

losses over the next one year. “The heavily
indebted units incurring losses must close down.
The government would spring into action only
when things get out of its control,” he says.

The federal government is looking for moderate

economic recovery during the next financial year.

It projects gross domestic (GDP) to grow to 3.3

from the current year’s two per cent. Agricultural
growth will slow down to 3.8 from 4.7 per cent.
Industry is projected to grow by 1.8 from -3.3 per
cent besides some improvement in the services
sector.

Analysts feel that the GDP growth projection is

quite ‘realistic in view of structural rigidities’ in
the economy like energy crunch.

“The economic growth revival largely hinges on

the performance of the manufacturing sector and
security environment,” Mohammad Imran Khan,
a Karachi-based analyst says.

The government has announced setting up of a

Rs40 billion Export Investment Support Fund
(EISF) to rev up industrial production. But it has
yet to formulate its modalities.

“The EISF money is likely to go into long-term

projects like the establishment of warehousing
facilities, colleges, etc. Allocation of Rs32 billion
for the textile sector in the EISF is not enough.
The industry needs immediate, direct support to
reduce its cost of doing business,” All Pakistan
Textile Mills Association (Aptma) chairman Tariq
Mahmood argues.
Though the budget carries a few steps to slash the
cost of car makers and cement producers, it has
little to offer to the textile industry, which earns
nearly 60 per cent of export revenue and
contributes nine per cent to GDP and is the largest
single employer of non-farm labour.

The value-added, downstream textile producers

were expecting cash subsidy in the form of
research & development (R&D) allowance. But no
allocation is made for that in the budget. Besides,
the amount allocated for three per cent subsidy on
interest rates for spinning has been cut to Rs500
million from Rs810 million. The budget abolishes
federal excise duty (FED) on imported viscose
staple fibre but it is going to leave negligible impact
on the industry. The key issue of 4.5 per cent duty
on the import of polyester staple fibre to protect
local manufacturers continues to plague the
spinning industry.

The soaring power and gas tariffs are likely to put

additional burden on the industry and squeeze the
gross margins of the industry, says Imran. He is of
the view that structural imbalances including
power crunch will continue to hamper efforts for
industrial revival.
Analysts expect the textile industry to remain under
pressure on account of higher

cost of business as well as contraction in domestic

and global demand.

“Not only that the government hasn’t given the

industry, it has re-imposed minimum (turnover)
tax (0.5 per cent on local sales and one per cent on
exports) on all producers no matter whether they
are incurring losses or making profit. I will have
to pay around Rs5 to Rs6 million tax although I
am accumulating losses and also face harassment
at the hands of the tax collectors,” says a spinner.

The government had removed the condition to pay

minimum tax in the outgoing year’s budget. It has
ostensibly been brought back with a view to shore
up tax revenue to 9.6 per cent from nine per cent
this year.

“The return of minimum tax amounts to

penalising exports,” Tariq says. “We don’t yet
know if the government intends to actually help
the industry and exporters in the present
transition from loss to stabilisation and
profitability.”
He, however, is glad that the government has taken
important step to stall smuggling of textiles from
China.

Ijaz Khokhar, a readymade garments exporter

from Sialkot, is critical of the government for
failing to stop the rot in the manufacturing.
“Instead of picking Fata’s unpaid electricity bills
of Rs80 billion, the government should have
pumped this money into the industry and exports
for quicker economic revival,” he argues.

He does not see industrial revival in the short-

term and predicts the conditions to worsen in the
months to come. “There is little likelihood of any
increase in exports even next year,” says Ijaz.

Almas is of the view that interest rates must be

reduced to spur industrial growth and overcome
the economic woes. “You can also control inflation
by improving supply side chain,” he says. But the
industrial revival is not a priority with the
government, he complains. Imran says the
government would not be able to bring down
credit cost substantially because of International
Monetary Fund conditions.

Leading Lahore-based builder Akber Sheikh does

not see the reduction of federal excise on cement
by Rs200 per tonne to Rs700 to spur construction.
“Cement producers had already raised their price
by Rs15 per bag in anticipation of this reduction.
So what impact will it create even if now they
reduce the price by Rs10 per bag?,” he asks.

But the analysts say the public sector spending on

infrastructure development -- construction of
dam, power projects, buildings, etc, and
rehabilitation of internally displaced persons
(IDPs) would help spur construction activity and
boost industrial growth.

Car industry is glad on the fiscal incentives for it.

“I hope the reduction in car prices will go a long
way in stimulating sales. But the government
should also have forced assemblers to increase
localisation of parts to support the auto vendor,”
notes Nabeel Hashmi, an auto vendor.

Imran says overall the budget has been a non-

event for the industry, which requires government
help, removal of bottlenecks related to
infrastructure, and a long-term policy to make it
competitive if it must revive.
Poverty reduction: rhetoric and the reality

She neatly braided hair of her daughter, Marium,

10. Shahina’s two toddlers sat in her lap and the
rest of three children were twisting and turning on
the Ralli (padded bed sheet) spread on the
footpath, on a bright June Karachi morning.

What drove her family out of the privacy of home

on a street? Answer is: abject poverty.

Her husband claims to be a motorcycle mechanic.

The family migrated to Karachi from Multan last
year and has been living on the side path next to
Zamzama Park at Neelum Colony in Karachi.
Jewa, the mechanic told Dawn that his unsteady
low income has forced him to migrate and live off
road. He had to also to give away one of his
daughters who was fussy. It was not clear if the
child was sold or given in care of a prosperous
family.

Jeva’s family has been surviving for the last about

a year on generosity of the residents of the
locality. He was not willing to leave the place and
move to some shanty settlement where his equals
live as it would deprive him of alms and material
help that he manages here to sustain his big family
of small children. Where even bare sustenance is
uncertain, education cannot be on agenda. The
health and hygiene of the family is up to the
readers to imagine.

This is a perfect example how economic hardships

render even a semi-skilled worker, who could
have been supporting his family, into a parasite
living off on others’ fruits of labour.

The poverty survey is not out as yet but the IFI’s

estimated poverty has risen by over 10 per cent in
just last two years falling anywhere between 33 to
36 per cent. It makes up over fifty million people.

The allocation to poverty related programme at

consolidated Rs245 billion (BISP Rs70 billion,
IDPs Rs50 billion, health 30 billion, education
Rs61 billion, population welfare Rs4 billion) in a
federal budget of Rs2.48 trillion is a pittance of
what is required to address the issues of social
exclusion.

The misguided stabilisation strategy in a

shrinking economy, pursued in 2008-09 under
IMF tutelage drove thousands like Jeva out of
their homes and in the streets to suffer.
The government does not contest that poverty is
increasing. Over the last two years, people were
retrenched in thousands from shrinking industrial
and other business concerns.. .

The self-employed petty workers such as small

time mechanics, tuition teachers, beauticians, etc
are unable to cope with rising costs and declining
demand for their services joined the swelling
numbers of unemployed. People had to pull their
children out from many small private schools
which were closed.

Workers lost jobs in construction activities; media

workers settled for half their wages as media
houses readjusted with fall in advertising
revenues; hundreds of lower staff was driven out
of brokerage houses and mutual fund industry.

Young and educated mounted a search for

patrons in political parties as their friends and
relatives failed to find them placement. If crime
rate has increased, you need not look far for an
explanation.

Shaukat Tarin, de facto finance minister, in the

post- budget press conference, said: “There is
special focus on social sector development and
poverty alleviation and the government is
planning to enhance expenditure on education,
health and infrastructure development. We are
devising a strategy to increase budget to health
and education sector to about 7-8 per cent of the
GDP during the next five years. The support
offered by the friends of democratic Pakistan
would be spent on these sectors”.

Tarin blamed the last regime for irresponsible

behaviour that aggravated macro economic
challenges for the current government. He
mentioned global economic crisis particularly
commodity and oil price escalation for added woes
of economic managers who were forced to slash
development spending to achieve stability. The
advisor boasted of his policies that reigned in the
trend of rising inflation and controlling deficits
beside apt agriculture pricing mechanism that led
the sector to perform better than expected.

He and his advisors had no explanation why less

than appropriate allocations were made for social
sector. They avoided giving out the comparable
measure of allocations to the social sector in the
budget.
The budget speech of Hina Rabbani Khar or the
budget brief provided to the media did not show
the allocations as percentage of GDP.

The advisor was not able to give a satisfactory

reply to a question on the Millennium
Development Goals that failed to find even passing
reference in the budget.

In the absence of progress report, no one can tell

where the country stands against bench marks set
for the last three years. It is not so difficult to
guess though. Pakistan was at the bottom among
its peers in the region when the economy was
growing at six per cent and above.

The last millennium report assessed progress vis a

vis goals and targets made in the year 2006. The
queries made by Dawn revealed that the
democratic government rendered the Centre for
Research on Poverty Reduction and Income
Distribution, a project under the Planning
Commission redundant by replacing the staff with
a set of political appointees who have not been
able to bring out a single report.

“It is not wise to undermine the power of an

informed mass of people. It is naïve to try to test
their patience by ignoring their concerns
indefinitely. No power intrigues worked. In the
end it was the street power that clinched the
reigns of government from the military rule and
passed it on to an elected dispensation”, said a
political economist.

“People displayed great restraint and endured

pain all through 2008-09 to give the democratic
government a chance to right the wrongs. The
democratic goodwill, however, must not be taken
for granted. There is need for Gilani government
to display greater sensitivity to the problems faced
by the multitude. If people can install a
government they can also bulldoze it” concluded
the commentator.

The senior government functionaries find the

analysis too harsh on a government struggling
with worsening security situation and a still
harsher international economic environment. “It
is easy to trash all efforts of the government but
difficult to deliver under constraints that the
democratic government works. Yes allocation to
the social sector might not be enough but low
inflation will improve the purchasing capacity of
poor families and transparent system of
distribution of Rs1000 to deserving marginalised
families will provide some relief”, a PPP
parliamentarian asserted.

“Let the growth pick up and you will see that the
quality of our governance will be better than that
of the government of Musharraf-Shauket Aziz
that excluded the majority from benefits of
growth”, said another Jiala.
Upgrading farmer service centres
By Tahir Ali
Monday, 22 Jun, 2009 | 03:18 AM PST |

To increase productivity and income of farmers,

the NWFP government launched farmer service
centres (FSCs) a few years ago.

FSC is an organisation of the farmers for the

farmers by the farmers. It creates linkages
between farmers and public/private line
departments and associations and aims at the
capacity-building of farmers. The provincial
government has spent Rs255 millions so far on the
FSCs.

There are around 45,000 members of the FSCs.

“Farmers can become FSC members after paying
an enrolment fee of Rs100 and a share-money of
Rs500 each. The government provides a matching
grant equal to the farmers’ share.

Against the minimum number of 200, the current

FSC membership ranges from 500 to 2,000. But
the overall FSC membership is very small
compared to 1.356 million farms in the province.
Growers complain that the executive body (EB) of
the FSC is supposed to serve as a bridge between
the general body (GB) and the management
committee (MC), but interaction between them is
not a regular feature. In some areas, the GB and
EB members pursue their individual interests
which may weaken the system.

The MC is supposed to take all important

decisions but in effect, 75 per cent of all FSCs are
predominantly managed by agriculture officers
because of their final say in financial matters. This
goes against the FSC by-laws that provide
autonomy to these establishments.

In 2007, model farm services centres (MFSCs)

were opened in each district of the NWFP. The
government provided Rs1 million endowment
funds to each entity. It also constructed a building
complex containing offices of all relevant
departments along with warehouse, equipment,
machinery, training and conference hall. A
president, invariably a farmer, heads the MFSC.

MFSCs have been built in 22 of 24 NWFP

districts. Kohistan is yet to have one while that of
Batagram is under construction. Unfortunately,
those in Malakand division are non-functional
these days

The MFSC is registered under Cooperative

Societies Act. An official says the government
intends to enact a law to give sanctity and
credence to the entity and its resolutions.

The NWFP Project Director of MFSCs Rasool

Mohammad said the project was for a three-year
period and after that the MFSCs would be able to
run on their own. “This objective will be obtained
through consultation and training of farmers,” he
added.

He revealed that MFSCs provided 22,500 bags of

fertiliser at half of the market price to its
members last year when there was an acute
shortage of the commodity. “Quality wheat seeds
and other inputs were also supplied on official
prices. These services are sources of income not
only for MFSCs but also save time, energy and
money of farmers besides expediting the pace of
work and services,” he said.

He said seven departments agriculture extension,

agricultural research, water management, soil
conservation, cooperative inspector, water and soil
testing, livestock/poultry and plant protection will
have offices in MFSCs and provide services
through MFSC under the same roof. Some
departments, he said, were yet to shift to the
MFSCs.

“Millions of rupees are available with the FSCs. If

these funds are spent judiciously with the
technical advice and expertise provided by the
government, it will go a long way in development
of agriculture in the province,” he believed.Asif
Ali Jah, a farmer and president of MFSC
Haripur, told this scribe that the MFSC was a
revolutionary idea which, if expanded, would
solve agriculture-related problems.

“We provided cheap inputs, modern machinery

on rent and even interest free loans in form of
inputs that had 100 per cent recovery ratio. We
also provided fertiliser worth Rs1.8 millions last
year. We have also booked a large quantity of
DAP for the Kharif season,” said Jah.

Out of the seventy per cent of Haripur’s one

million population were farmers, he said just
1,529 farmers had joined MFSC. Jah, however,
claimed that his was the only MFSC in NWFP
that had 70 female farmers as its registered
members.

Jah demanded fertiliser dealership and setting up

of a provincial organisation for MFSCs. “Small
projects for value addition should be planned and
specialists in various fields, like poultry in
Mansehra, should be nominated for all MFSCs.”

Hafiz Minhajuddin, the president of MFSC Laki

Marwat said that farmers need quality inputs,
exposure to modern farming techniques and
machinery, and availability of credit support.
“MFSC coordinates between growers and
government. It provides cheap agriculture inputs
and services. It provides farmers guidance and
marketing services for their outputs, which in-
turn, increases their incomes,” said Minhaj.

Malik Jamshed, president of MFSC Mardan, said

MFSC provided wheat seeds last year at Rs1,600
per bag as against Rs2,200 market price. Member-
farmers were sold a bag of urea at Rs670, much
below its market price of around Rs1100.”

He pleaded for processing and cold storage, seed

certification, soil and water testing facilities for
MFSCs. “The government should give endowment
fund of Rs5 million to each MFSC for purchase of
inputs and machinery. Maximum limit for
farmers from MFSC fund should be enlarged and
period of loan recovery extended. All departments
should be asked to cooperate.”Jamshed demanded
early construction of cattle-farm and cattle-colony
in Mardan. “The government has built a large
building for our MFSC. But it is agonising that all
departments except agricultural extension are yet
to join their offices in MFSC here,” he lamented.
Paltry allocation for agriculture
By Ahmad Fraz Khan
Monday, 22 Jun, 2009 | 03:18 AM PST |

THE allocation for agriculture in the Punjab

budget has been meagre. Of Rs175 billion annual
development plan (ADP), the agriculture got only
Rs3.2 billion. A mere 1.8 per cent of the overall
development outlay has been made for a sector,
which forms 22 per cent of the provincial GDP,
provides around 45 per cent of employment and is
professed priority area of national and provincial
policy makers.

There is another way to look at importance of

agriculture. The sector yielded some 2.7 million
tons additional wheat this year, which, at current
price is worth Rs62 billion. It produced 0.5 million
tons extra rice – some 3.7 million tons against
normal production of 3.2 million tons. These fours
crops—wheat, rice, grain and maize--have
benefited the economy by Rs113 billion during last
six months.

Punjab has fiscal space for development during

the coming year, which could have easily been
diverted to development of farming had the
agriculture department better capacity to deliver.
Last year’s budgetary allocations and subsequent
spending show where the departmental capacity
stands: out of the total budget of Rs3 billion, it
spent Rs1.6 billion. If the last year’s left over is
carried forward, the new allocation would stand
only at Rs1.8 billion.

Barring the importance of taking cotton to non-

traditional areas and growing it on pressurised
irrigation, which the department has advocated
and got money for it, one can argue that all other
major issues have been ignored.

Take the example of storage crisis which is

essential for safe stocks (read food security). The
province has 2.2 million tons of indoor, not
modern or temperature controlled, storage
capacity, whereas it needs at least seven million
tons of such storage capacity to ensure regulated
grain supply and buffer stocks. This year, it
purchased six million tons of wheat, four million
tons of which are lying in the open.

Given the changing weather pattern, with sudden

and heavy showers becoming a routine, even if one
million tons of wheat gets affected, it would cost
the province a staggering Rs25 billion. The
government has not spared any money for
increasing storage capacity in the province. It is
lamentable that a province, which owns 80 per
cent national agriculture assets, has neither been
able to build required storage capacity nor seems
interested despite having fiscal space.

The government has taken all steps that bring

immediate political mileage and ignored all long-
term possibilities. It has spared Rs13 billion for
food subsidy, Rs16 billion for food support plan
and Rs7 billion for sasti roti (low price bread).

Though it may sound insensitive to differ on food

subsidies given the level of poverty. But one can
argue that had this amount (Rs36 billion) been
spent on industrialisation (value addition) or
manufacturing of agriculture inputs, the province
could have benefited immensely..

The country is in perennial deficit of fertiliser.

Had even half this amount been spent of setting up
fertiliser factories, the rural poverty could have
started dropping on sustained scale in next few
years. But, the government seems interested in
handing out fish to people rather than teaching
them how to catch one. The budget seems focused
on quick political gains rather than calm, cool,
calculated planning, especially when it comes to
agriculture.

Agriculture credit has always been a problem for

farmers in Punjab. The provincial government
has simply chosen to keep quiet on the issue
despite owning two banks – the Bank of Punjab
and Punjab Cooperative Bank. There has been no
mention of the issue in the entire document.

Banking for agriculture is a commercial activity

because it entails no subsidy on mark-up. But it
contributes immensely to agricultural economy.
Nor has the government been able to re-direct
focus of the BoP towards agriculture.

Punjab has pathetic marketing infrastructure,

which is out of the budget focus. No money has
been spared for developing marketing network.
Its premier agency – Punjab Agriculture
Marketing Company (Pamco) – for developing
such infrastructure has not been able to perform
with three new heads in the last one year. It does
not have even one project to its credit for the last
five years, nor has it developed any alternative
mechanism.
An allocation of Rs1.2 billion for research augurs
well and one hopes that Punjab Agriculture
Research Board, which has not been able to
perform during the last two year, pulls its socks
up this year. The government needs to ensure that
its money is well spent.

The repeat of subsidised tractor scheme is also

heart-warming for Punjab farmers. The
government distributed 10,000 tractors last year
and plans to distribute 10,000 this year at a cost of
Rs2 billion. Its transparent distribution helped
farm mechanisation..

Water management allocation (Rs10 billion),

though less than Rs11.5 billion last year, is still a
substantial amount and should he able to help
better water distribution in Punjab. The
government plans to spend 90 per cent of the
amount on on-going projects but it would
undertake eight new projects to improve
efficiency. Some 200 small dams in upper parts of
the province must be of great help at the local
level.

In final analysis, the provincial budget seems to be

“run of the mill document,” which tries to keep
the momentum of on-going schemes rather than
breaking new ground. Tragedy with the provincial
agriculture, however, is that traditional methods
would not solve problems. It needs innovative
thinking, out of box solutions and sustained, long-
term commitments. The proposed budget,
however, fails on all these accounts.
Unfriendly environmental practices
By Mohammad Niaz
Monday, 22 Jun, 2009 | 03:18 AM PST |

Environmental profile is affected adversely by

unfriendly environmental practices. And the
increasing deforestation and pollution, depleting
biodiversity, desertification, over-exploitation of
natural resources, receding glacial phenomena,
water scarcity, degrading ecosystems etc are
posing a huge challenge to sustainable farming
and economic development.

These factors are likely to increase the country’s

vulnerability to climate change. Severe pressure
on meagre resources will adversely impact food
production and livelihood of millions.

That climate change will affect water regimes,

water reserves, and pattern of rainfall. Their
effects on vegetation and crops will be profound
both in rain-fed conditions and the tropical zone
in the country because of scarce water. In 1999
and 2000, the drought caused sharp decline in
water tables and dried up wetlands, severely
degrading ecosystems.
The main source of water is the Indus River
system, one of the world’s largest contiguous
irrigation systems having associated ecosystems.
This serves as a source of livelihood for millions of
people whether forest dependent communities in
the north, poor farmers and fishermen in the
Indus plains or fishing communities in the Indus
delta ecosystem. Changes in water flow will
degrade spawning streams.

The gradual glacier recession in the Himalayas is

projected to increase flooding within next two to
three decades followed by decreased river flows
up to 30 per cent to 40 per cent over a period of
five decades. This will dramatically cause
fluctuations in irrigation water with increased
sedimentation from the upstream.

Increased temperature and decreased

precipitation would register severe impacts on
water availability for crops with decreased crop
productivity and increased handling and
combating cost.

Mangroves constitute a significant part of coastal

biodiversity but besides continuous loss of
mangroves forest, the sea level rise due to global
warming and climate change will cause salt water
inflows which will tender profound damage to the
mangroves and their rich fish breeding habitats.
This will have deep repercussions on the
associated flora and fauna besides adverse
impacts on livelihood of people.

Marine ecosystems would also come under threat

of coral bleaching, increased invasive species, and
ocean acidification.

Not only livestock sector but agriculture sector

would largely suffer from the impacts of climate
change.

According to an FAO estimate, agriculture

accounts for 24 per cent of world output, and uses
40 per cent of land area (FAO 2003). The cereal
crops – rice, wheat and maize make up 85 per cent
of world cereal exports, and are thought to be
particularly sensitive to climate change (FAO
2003).

Because of water scarcity and heat stress,

agriculture is highly exposed to the effects of
climate change that will affect farm productivity.
There is likelihood that the cotton belt will shrink
and shift further north to cooler regions. The
changed climatic scenario would affect planting
time, crop rotations with focus on new cropping
patterns and heat resistant crop varieties. With
decrease in rainfall by six per cent, net irrigation
requirements would increase by 29 per cent.

Reports indicate that decline in irrigated wheat

yield in semi-arid areas is expected to be in the
range of nine to 30 per cent for temperature
increases of one to four degree Celsius. Global
warming would have an impact on growing season
of plants and agriculture crops. There will be
shortened growing season length for wheat
(wheat-rice, and wheat-cotton, wheat-sugarcane
systems).

Dry land areas in arid and semi-arid regions are

most vulnerable to climate changes that would put
food security at a troubled threshold.

Because of the diversity in topography, soil type,

and climatic conditions, Pakistan supports a wide
variety of flora. However, due to biotic pressure
the natural forests are subjected to agricultural
expansion, and other consumptive uses such as
fuel wood extraction, fodder collection, grazing of
livestock, and timber. Given these parameters of
social and economic nature, the climate change
would further impact the forest products and
services and important tree species such as deodar
and fir would suffer great loss.

With increase in temperature and changes in

weather, graziers would move towards higher
altitude grazing grounds and pastures for grazing
of their livestock in summer. This would not only
cause depredation of livestock by predators but
competition for food would be more among
livestock and wildlife species.

In addition reports indicate that global warming

has caused shifting of vegetation zones to higher
elevations with significant threats to biodiversity
and ecosystems. With future global warming,
large forest areas in northern mountain areas
would shift from one biome to another. Conifers
of cold and temperate zone would show
northward shift, pushing against the cold
conifer/mixed woodland. Weedy species having
ecological tolerance will have an advantage over
others. High-elevation tree species such as Fir,
Acer, and Betula prevail in cold climates because
of their adaptations to chilling winters. Increase in
temperature would not only result in competition
between such species and new arrivals but will
also reduce resilience of natural ecosystems and
force migration of species through fragmented
habitat.

Flora and fauna having restricted ranges will also

face increased threat of survival due to further
shrinking of forests and pastures, while changes in
precipitation will alter their structure. Climate
change would favour some invasive alien species
in different geographical zones..

Increased temperature would have large scale

effects on productivity, regeneration success, plant
growth, plant distribution, photosynthetic rates,
decomposition rates, incidence of fires, pest
outbreaks, diseases, and rate of mortality.

There is a great need to expand vegetation zone or

green belts within the metropolitan cities and
towns that would not only help maintain
moderation in local or microclimate but it would
also help provide green spaces for recreation and
relaxation within the closed city environment.

That the climate change is an economic,

developmental, and environmental problem, there
is a strong need for concerted efforts to adapt
strategies to mitigate climate change and
overcome environmental problems with a long-
term approach.
Punjab pledges lower borrowing
By Nasir Jamal
Monday, 22 Jun, 2009 | 03:17 AM PST |

In his budget speech Punjab’s Finance Minister

Tanvir Ashraf Kaira pledged to reduce the
province’s reliance on foreign loans for its
development next fiscal year.

That represented a shift from the past and

reversal of the previous government’s
development policies and strategy.

“We’ll borrow Rs23 billion fewer this year as

compared to the last year,” he had claimed. He
said the new coalition government of the Pakistan
Muslim League-Nawaz and the Pakistan People’s
party led by Mian Shahbaz Sharif did not want to
add to the debt burden on the future generations.
But that was a year ago. Much water has already
flown from under the bridge.

Already into its second year in power, the

Shahbaz government has now decided to add at
least Rs34.6 billion to the province’s foreign debt
stock of Rs339.600 billion for financing its large
annual development programme at Rs175 billion
next fiscal. Another Rs10.47 billion will come from
the federal government under the head of foreign
project assistance. But this amount, say officials, is
reflected in the capital account as debt in the
following year.

The budgeted foreign assistance, a senior

provincial finance department official told Dawn,
would come from multilateral lenders, the World
Bank and the Asian Development Bank as
budgetary support for governance reforms ($145
million), education sector reforms programme
($110-120 million) and the millennium
development goals ($100 million). In addition, the
government is negotiating a $70-80 million loan
with the ADB for its urban sector development
programme. The officials are hopeful of
concluding the deal in the next few months.

Besides obtaining foreign loans, the province

intends to raise another Rs12 billion from
domestic commercial banks. “This loan will also
be used for specific economic projects,” the
official said.

The initiative, argue the keepers of the provincial

kitty in the White Paper for the financial year
2009/10, to finance development projects through
borrowing reflects the resolve of the present
government to ensure intergenerational equity in
development expenditure, which requires that the
users of public goods should also pay for the
services and free current resources for social
sectors.

Few, if any, will disagree with the argument,

particularly when a government does not have
enough money to finance the huge development
needs of the people. The government must borrow
from all sources available to it to improve
economic infrastructure and provide quality
public services. The users do not mind paying for
the quality services.

“But the problem is that governments try to show

these loans as their own resources and to conceal
the fact that these loans are used to finance budget
deficit. That’s why you did not find any mention
of these borrowings in the budget speech this
year,” an analyst, who did not wish to give his
name, told this scribe..

He said the provincial government could actually

reduce its reliance on foreign loans for
development provided it developed a transparent,
viable framework for public-private partnership.
“That should help the province to leverage its
limited resources for the larger good of its people.

He said the federal government should allow the

provinces to borrow directly from the domestic
commercial banks. “That would also help them
build partnerships with local banks and create
and improve economic infrastructure,” the
analyst said. “That should also reduce the risks to
the provincial development programmes
emanating from a possible drop in their budgeted
share in the federal divisible tax pool, the main
source of their revenue receipts,” he argued.

Can NWFP budget cure economic ills?

By Mohammad Ali Khan
Monday, 22 Jun, 2009 | 03:17 AM PST |

The NWFP budget for fiscal year 2010 is unlikely

to revive the provincial economy or make any
significant impact on the overall social uplift of
the population, hit by armed conflict and
insecurity.

A deficit budget with an outlay of Rs214.181

billion for 2009-10, presented by Senior Minister
for Planning and Development Rahimdad Khan in
the provincial assembly, envisages Rs51.156
billion for Annual Development Plan (ADP).

The revenue receipts are projected at Rs211

billion, almost 40 per cent higher than the revised
revenue receipts of the outgoing financial year.

Similarly, against the anticipated resource

availability, the estimated expenditures in the next
financial year will be Rs214.181 billion, reflecting
a deficit of Rs3 billion.

However, officials say the shortfall in revenue

would be much bigger than projected because the
15 per cent raise in pay and pension, announced
for public sector employees, has not been taken
into the account.

NWFP Secretary Finance Abdul Samad Khan

concedes that the impact of increase in salaries
and post-retirement remunerations, which comes
to Rs3.9 billion, has not been included in the
budget; that means the real deficit would be over
Rs7 billion.

The budget deficit is likely to be still higher

because tax recoveries by the Federal Board of
Revenue (FBR), which forms federal divisible
pool, is not expected to grow as projected in the
federal budget that lead to lower transfers to the
provinces.

The provincial government, which drives almost

92 per cent resources from federal government
and foreign donors, has experienced a similar
situation this year as a shortfall of Rs4.36 billion
on account of federal proceeds has swelled the
deficit to Rs9.149 billion..

Besides, the ongoing conflict in the restive

Malakand region, which triggered a massive
displacement of over four million people has
added to the fiscal worries of the cash-strapped
province.

Expected mass exodus in the wake of military

operation in the adjoining South Waziristan
Agency will multiply the financial woes and lead
to further contraction in revenue collection.

Of the total Rs211 billion revenue receipts, the

contribution of the province’s own receipts (POR)
is merely three per cent.

The provincial tax collecting agencies despite

consuming millions of rupees in the name of
reforms are still unable to increase the recovery of
PORs which are on the decline instead.

In the outgoing fiscal year, the recovery target for

PORs was Rs7.4 billion, but the data showed it
stood at Rs6.42 billion.

Law and order has been propagated as one of the

top priority areas by the incumbent coalition
government in the wake of fallout of ongoing
military operation in the Malakand region, but
the budgetary proposals are not commensurate
with the challenges the provincial government is
facing..

A sum of Rs11.48 billion has been set aside for the

public order and safety affairs, of which Rs9.67
billion would be spent on improving operational
capabilities of the police.

This amount will be spent on creation of special

elite force, incentives to be offered to the
constables and compensation to the heirs of police
personnel killed in the line of duty.

The next year provincial budget carries a

developmental outlay of Rs51 billion, which is
almost 31 per cent higher than the outgoing fiscal
year’s figure.

Of which Rs32.54 billion would be spent on uplift

schemes being executed through provincial own
resources, Rs10 billion on federal projects, Rs5.74
billion on population welfare programme, Rs6.64
billion on foreign funded projects and Rs1.34
billion would be spent on uplift schemes to be
executed by the district and Tehsil governments.

However, execution of such an ambitious ADP is

still a big question mark keeping in view the
implementation capabilities of the line
departments. For example, the original ADP size
was Rs41.54 billion, whereas the revised estimate
put it at Rs39 billion.

Officials told Dawn that the Rs39 billion figure

was also exaggerated because the government’s
actual expenditures, as per the Civil Accounts,
showed utilisation of Rs17 billion as of May 31,
2009. This raises a question how the
implementation agencies would utilise Rs22 billion
in the current month?

The relief measures include the setting up of a

Provincial Employment Fund with Rs500 million
for extending soft loans to unemployed youth,
particularly from the rural areas. The main areas
of lending would be small cottage industry, food
processing industry, small scale trading, setting up
of shops and hotels and procuring tractors and
auto rickshaws.

All the government servants from grade 1 to 16

have been exempted from paying professional tax
with effect from July 1, while ratio of Unattractive
Area Allowance for government employees,
serving in Chitral and Kohistan districts has been
increased substantially.

Every displaced woman would be given Rs10,000

on giving birth in government camps. One year
fee and boarding expenses of the displaced college
and university students would also be borne by
the government.

The Finance Bill 2009 contains proposals for

increasing the revenues from different provincial
taxes and duties including property tax besides
bringing a number of new sectors into the tax net.
The new sectors to be brought under professional
tax are restaurants, professional caterers, wedding
halls and chartered accountant firms. The move is
likely to spark resentment from different
businesses and service providers, who are already
bearing the brunt of worsening law and order
situation.

President Sarhad Chamber of Commerce and

Industry (SCCI) Sharafat Ali Mubarik says the
upward revision of different taxes by the
provincial government would increase the
financial hardships of the business community.

“The provincial government should curtail its

non-developmental expenditures instead of
increasing the tax revenue to bridge its fiscal
deficit,” he opines.
Sindh’s rising development spending
By Saleem Shaikh
Monday, 22 Jun, 2009 | 03:17 AM PST |

The Sindh government has announced its own-

financed Rs75 billion Annual Development Plan
(ADP) for 2009-10, Rs20 billion higher than the
revised estimated spending of Rs55 billion for the
outgoing year.

However, the overall provincial development

spending rises to Rs113 billion after including
Rs15 billion for district governments, Rs16.6
billion PSDP grants and Rs6.3 billion foreign
project assistance.

According to officials in the provincial Planning

and Development (P&D) Department, the number
of total ongoing and new schemes is around 1,757.

Some Rs44.91 billion will be spent on different

ongoing schemes, while Rs30 billion for new
schemes.

The ADP funds have been allocated in a ratio of

60:40 for ongoing and new schemes respectively.
“The ratio is contrary to the Sindh government’s
directive issued in March asking all departments
to work out the ADP on the basis of 80:20 ratio as
it was then agreed with the Asian Development
Bank that no unapproved scheme should be
included,” P&D officials recalled.

“All the provincial administrative departments

were told to get last year’s proposed schemes
approved for the ADP 2009-10 from the
Departmental Development Working Party
(DDWP) and Provincial Development Working
Party (PDWP) by March 31, 2009.”

Officials in the revenue department said that as

the government had planned to finance the
provincial ADP from its own resources, it was (Rs
in million)

decided to focus on increasing its own tax and

revenue receipts.

Sindh Finance Department’s Additional Finance

Secretary (Resources) Dr Noor Alam told this
scribe that the revenue receipts for FY 2009-10
have been estimated at Rs118 billion from last
year’s Rs109 billion. The province’s own receipts
target has been set at Rs39 billion, straight
transfers Rs50 billion, district support grant
(including other grants) Rs27 billion and
production bonus deposited by exploration Rs1.6
billion.

“On the other hand, the current revenue

expenditure has been estimated at Rs213.39 billion
from outgoing year’s Rs184.95 billion and the
current capital receipts at Rs21.3 billion from the
outgoing year’s Rs20.93 billion,” he added.

“The province’s Cash Development Loan (CDL)

on scrap and GST on services dues against the
federal government stands at Rs19 billion and
Rs11 billion respectively. The negotiations with
the federal government for the reimbursement of
around Rs39 billion are in final stages, which will
help meet the development expenditures in new
fiscal year,” sources in the provincial finance
department revealed.

Experts however stress that the focus should be to

avoid misuse of funds and improve quality of
work and unnecessary delays in launching of the
ADP.

“Timely release of the development funds are not

only helpful for implementation of
schemes/projects on time, but also help generate a
significant number of jobs as well as create
momentum for development of industrial sector,”
remarked Zulfiqar Halepoto, a social development
expert.

PPP leader Taj Haider says the revenue-starved

provincial government can easily generate huge
resources by launching low-cost housing schemes
for the poor. This will revive activity in the
industrial sector and generate employment.

Agriculture expert Taj Maree believes there is a

pressing need for increasing investment and
research in agriculture sector.

He stressed for strengthening of the irrigation

system, introducing cost-effective latest
technologies and increase awareness in the
farming communities to help them enhance
production of different crops.

While Sindh Abadgar Board (SAB) Secretary

General Nawaz Memon regretted that Rs1.62
billion were allocated for agriculture sector in the
outgoing fiscal year but merely Rs666 million had
been utilised by April 2009. “The agriculture
sector’s performance cannot improve if such a
treatment continued to be meted out to the
sector.”
Regressive taxation
By Huzaima Bukhari & Dr Ikramul Haq
Monday, 22 Jun, 2009 | 03:17 AM PST |

The Finance Bill seems to have been designed to

tax the poor and protect the wealthy. The poor
will bear an increased burden of taxes, whereas
progressive taxes have not been levied on the rich.

It is almost tragic that the elected government also

placed its reliance on bureaucrats who are
responsible for our existing pathetic politico-
economic situation. Tax policy shows no concern
whatsoever for redistributive social justice. For
achieving the revenue target of Rs1.5 trillion for
fiscal year 2009-10, a resort has been made to
regressive taxation: increasing the indirect taxes
and making presumptive taxes under the income
tax laws more stringent.

The lack of political will to tax the rich absentee

landlords exposes the tall claims of the so-called
pro-people budget, which is the most lamentable
aspect of the Finance Bill. PPP should have
prepared a sound tax policy through its own party
committees after taking a direct input from all the
stake-holders. Rather it has just relied on
bureaucrats and elitist experts (sic) who stand
completely isolated from the masses and who take
guidance from foreign donors. They are least
concerned about the welfare of common people.

There has also been no fundamental tax

restructuring. The government has failed to use
tax policy as a tool for rapid industrial growth. No
effort has been made for achieving judicious
balance between direct and indirect taxes and
diverting the money from unproductive to
productive sectors by imposing heavy taxation on
idle money and passive investment.

Revenues, in addition to finance public funding,

are meant for distributive justice, which is an
important function of tax policy. Economic justice
relates largely to distribution of tax burden and
benefits of public expenditure. It is a component
of the broader concept of social justice and the tax
policy is a democratic way to influence the
distribution of income and wealth on desired lines.

The main ingredients of this policy can be (a)

progressive direct taxation of income, wealth, and
property transactions, (b) taxation of commodities
(customs duty, excise levy, and sales tax)
purchased largely by high-income groups, and (c)
subsidies (negative taxation) on goods purchased
by low-income groups.

We are moving from progressive to regressive

taxation which is bound to create a wide gap
between the have and have-nots. A successful tax
system reduces inequalities through a policy of
redistribution of income and wealth. Higher rates
of income taxes, capital transfer taxes and wealth
taxes are some means adopted for achieving these
ends.

There has been a gradual shift from equitable to

highly inequitable taxes and the shift to
presumptive and easily collectable taxes has
destroyed the entire philosophy of taxes.
Regressive taxation has pushed more and more
people towards poverty line. In the absence of
industrial growth, neither the tax-to-GDP ratio
can be improved nor economic stability ensured.

Now widows, pensioners and senior citizens are

asked to pay tax 10 per cent on income earned
from National Saving Schemes, whereas the rich
property developers are allowed to pass on the
burden of presumptive tax to the purchaser.
The tax proposals of the present regime are no
different from its predecessors in protecting those
having monopoly over economic resources. There
seems no concern for expanding the tax base on an
individual’s ability-to-pay, in the form of higher
income tax rates for higher income earners, estate
duty, and property tax. Rich industrialists and
businessmen pay meagre personal taxes but the
poor people are compelled to pay 16 per cent sales
tax. It is as low as 3-5 per cent in Japan and
Singapore which are affluent societies..

The priority of all governments—civilian or

military alike—has been fixing of ambitious tax
targets in utter disregard to their impact on lives
of common people, productivity and economic
growth. The government itself can hardly provide
any meaningful tax relief package to the common
people or to trade and industry [due to huge fiscal
deficit]. Nor can it achieve a satisfactory level of
economic growth [due to retrogressive tax
measures]. This is a vicious circle in which our
policymakers find themselves trapped. They will
have to find ways and means to come out of this
tangle.
World commodities

Oil

In the New York market, oil prices gained on June

18, as there were indications of an economic
turnaround and disruptions from Opec member
Nigeria, stirred supply concerns. Oil prices have
nearly doubled since February on signs of a
potential economic recovery, which have sparked
expectations for a rebound in fuel demand.

The World Bank on June 18, raised its forecast

for 2009 gross domestic product growth in No.2 oil
consumer China to 7.2 per cent, up from the 6.5
per cent it projected in March. The economic data
also helped lift US stocks.

Oil prices also found support after Royal Dutch

Shell confirmed some oil production had been
halted following an attack on one of its pipelines in
Bayelsa state in Nigeria.

Oil prices have more than doubled since March

partly on expectations that massive U.S. fiscal and
monetary stimulus will hasten a decline of the
dollar. Investors often buy crude and other
commodities as a hedge against the risk of
inflation posed by a weaker dollar.

Earlier, the Organisation of Petroleum Exporting

Countries dropped its daily demand forecast for
2009 by 230,000 barrels, estimating that global
consumption would shrink to 83.8 million barrels
a day.

At the same time, some analysts were heartened

by the International Energy Agency’s June 18
report, which forecast a slightly less severe cut in
global demand, making an upward revision of
120,000 barrels a day to total daily demand of 83.3
million barrels.

The rise in oil prices in recent months has raised

concerns that an increase in fuel costs could hurt
any recovery in the global economy.

World energy demand has shrunk since the onset

of the financial crisis for the first time in a quarter
century, bloating stockpiles in consumer nations.
Energy companies are also storing fuel on tankers,
with some 62 million barrels estimated at sea,
according to shipbrokers and traders.
Gold

Gold has risen in recent days. While rising risk

aversion was turning investors away from equities
towards safer assets such as gold it was also
boosting the dollars.

Volatility in the currency markets amid

speculation of market intervention by the Bank
for International Settlements is also supporting
appetite for gold as a haven from risk.

Investor interest in gold remains firm, though

inflows into bullion-backed exchange-trade funds
have tailed off since reaching highs at the
beginning of 2009. Holding s of the SPDR Gold
Trust, the largest gold ETF, are still near record
levels.

Earlier in the week, oil rose above $72 a barrel as

the dollar slid and US housing data showed a
jump in new construction starts and permits. Gold
prices often track those of crude, as the metal can
be bought as a hedge against inflationary
pressures sparked by higher oil prices.

Gold has slipped sharply from the three-month

high of $989.80 it hit earlier this months, as a
dollar rally dampened investors’ interest in gold
and made dollar-priced commodities more
expensive for holders of other currencies.

Among other precious metals, silver rose to

$14.22. Platinum was at $1224.0 an ounce, while
palladium was at $243.0. Both are, like gold,
tracking the dollar and overall interest in
commodities.

Copper

Last week, copper hit a near two-week lows as

doubts about the global economic recovery
renewed worries over metals demand Benchmark
copper on the London Metal Exchange was $4960
a tonne on the close of June 16.

The metal used in power and construction earlier

dipped to $4,880, its weakest since June 4. A week
earlier, it hit an eight-month high of $5,388.
Industrial metals were little affected by data
showing that US consumer prices edged up in
May.

LME data showed copper stocks held in its

warehouses fell 1,875 tonnes to 283,175. That
compares with levels around 500,000 in February
and March. Cancelled warrants — stocks already
tagged for delivery — have also fallen to around
17,000 tonnes from levels near 55,000 tonnes in
early March.

Goldman Sachs (G.N) expects the current

downward movement in the price of copper to be
short-lived amid growing expectations of a
recovery in global economic growth, and it
targeted copper as $5,800 per tones by the end of
2010.

The investment bank kept its 12-month copper

price target at $4,800 per tonne, unchanged from
its May forecast. Copper for three-months
delivery MCU3 on the London Metal Exchange
closed at $4,980 per tonne on June 16.

Africa’s top copper producer Zambia is facing big

power supply problems and this has affected the
copper production in the country which may
result in a dip in global output. If that happens,
price of copper may witness a surge with China
not stopping its copper stockpiling exercise.

The mines have been affected by the power cut,

but the quantum of the effects is yet to be given.
Copper mining is Zambia’s economic mainstay
and the mines are a major employer in this
southern African country of 12 million people.

Zambian economy has historically been based on

the copper mining industry. Output of copper had
fallen, however, to a low of 228,000 tonnes in 1998,
continuing a 3-year decline in output due to lack
of investment, and more recently, low copper
prices and uncertainty over privatisation.

In 2001, the first full year of a privatized industry,

Zambia recorded its first year of increased
productivity since 1973. The future of the copper
industry in Zambia was thrown into doubt in
January 2002, when investors in Zambia’s largest
copper mine announced their intention to
withdraw their investment.

However, surging copper prices from 2004 to the

present day rapidly rekindled international
interest in Zambia’s copper sector with a new
buyer found for KCCM and massive investments
in expanding capacity launched.

China has become a major investor in the

Zambian copper industry, and in February 2007,
the two countries announced the creation of a
Chinese-Zambian economic partnership zone
around the Chambishi copper mine.

Today copper mining is central to the economic

prospects for Zambia, but concerns remain that
the economy is not diversified enough to cope with
a collapse in international copper prices.
No breakthrough in resource mobilisation
By M. Iqbal Patel
Monday, 22 Jun, 2009 | 03:16 AM PST |

Finance Adviser Shaukat Tarin has said from

time to time that the burden of taxes should be
equitably shared by all. But this has not happened
in the Budget 2009-10.

Farm incomes continue to enjoy exemption from

tax that has a huge potential for revenue
generation .

Agriculture is also the sector that posted better

than expected growth of 4.7 per cent in the fiscal
year 2008-09.However, the salaried class is
burdened with additional tax at the rate of five
per cent payable by individuals and association of
persons (AOPs) whose income exceeds Rs1 million
for tax year 2009 for the benefit of internally
displaced persons (IDPs). Besides, a new tax at the
rate of 30 per cent has been imposed on bonus
income of corporate executives for the
rehabilitation of IDPs.

This burden should have been shared equitably

for such a noble cause by the privileged class of
law makers and rulers also. The legislature,
judiciary, the armed forces, the president,
governors have been given relief from this levy
because their salaries, perquisites and benefits are
exempted from tax under the Second Schedule of
the Income Tax Ordinance 2001 (Ordinance).
Thus the budget continues to tax those who are in
tax-net. It did not broaden its scope to bring the
privilege class into the tax-net.

The capital gains on real estate transaction

continue to enjoy exemption from tax while the
rate of capital value tax on transfer of immovable
property has been enhanced from two to four per
cent. The genuine property owners would bear
this burden while the speculative and non-
productive investors may find a way to escape
from this levy by transacting the property through
the power of attorney. Thus the government will
fail to curb speculative tendency and encourage
productive investment.

This would have an adverse affect on purchase of

immovable property for real estate business under
the Real Estate Investment Trust Scheme. The
Securities Exchange Commission of Pakistan had
sought exemption from CVT on such properties.
The budget proposes removal of the five per cent
federal excise duty (FED) on sales of locally
produced vehicles to give relief to the rich class
while it withdrew the exemption from FED on the
import of ware potatoes and onion, which are a
necessity for the poor who will have to bear the
burden of this levy. This measure has been taken,
as claimed by the minister of state, to provide
protection to growers. In fact, its main
beneficiaries would be special interests.

The government has undertaken Tax

Administration Reform Programme (TARP)
sponsored by the World Bank and the DFID. The
main focus of TARP has been on promoting
voluntary tax compliance through an enhanced
level of tax-payers facilitation. The FBR has hired
costly foreign consultants for smooth
implementation of reforms. But the budget
reflects a policy shift. It has opted a reverse gear
tax policy to raise high tax revenue and has
reintroduced tax measures which were provided
in the (repealed) Income Tax Ordinance 1979.

Section 147 is to be amended to change the mode

of payment of advance tax by the companies and
association of persons on the basis of actual
turnover of the quarter instead of income. The
repealed ordinance had provided for appointment
of a firm of chartered accountants by the FBR to
conduct audit of any person. The Finance Bill
2009, under reverse gear tax policy, proposes to
insert sub-section (1B) to section 210 whereby a
commissioner is empowered to delegate the
powers to a firm of chartered accountants for tax
audit u/s 177 and to obtain information, records
or computer etc u/s 176. It proposes to reintroduce
section 113 of minimum tax on the companies,
where no tax is payable or the tax payable is less
than 0.5 per cent of the turnover from all sources.

Presumptive tax regime has been abolished in case

of import u/s 148 and on export u/s 154 and u/s
153(6). The tax deducted at import stage, tax
collected by the authorised dealer on the proceeds
of export of goods by an exporter and tax
deducted from payment on account of services
rendered by the non-corporate taxpayers were
treated full and final discharge of tax liability of
importer and exporter respectively.

The tax so deducted has now been made minimum

tax meaning thereby that such tax would either be
adjusted against final tax liability to be
determined on finalisation of assessment or
refunded in case of final tax liability which is less
than the amount of tax so deducted at source.
Besides it, such taxpayers will now require to file
return of income instead of filing a statement.

A new tax has been imposed on the exporters

whereby the Collector of Customs has also been
authorised u/s 154(3C) to collect tax at the rate of
one per cent at the time of clearing of goods
exported. Thus an exporter will be required to pay
two per cent tax on value of goods, one per cent on
clearing of goods and one per cent on realisation
of export proceeds for the same goods. This will
discourage exports. Similarly rate of withholding
tax on import of commercial nature has been
enhanced from two to four per cent.

To broaden the tax net, it has been made

mandatory to obtain national tax number (NTN)
for purchase of property, obtaining commercial
and industrial electricity and gas connections and
opening of a bank account

Section 114 is proposed to be amended whereby

NTN holders or any person having immovable
property with an area of 50 sq. yd., a flat with a
covered area of 2000 sq feet or a motor vehicle
having engine capacity of 1000cc or more,
importers, exporters and service providers, shall
file normal income tax return. These measures
will promote documentation and broaden the tax
net. Salaried taxpayers whose income exceeds
Rs0.5 million or more shall file returns of incomes
along with proof of deduction of tax and wealth
statement. Though the scope of filing of return of
income has been extended to hunt for new
taxpayers, it would enhance the discretionary
powers of tax collectors. Similarly, powers have
been given u/s 121 to the commissioner to make
the best judgment assessment of a person who
does not file the prescribed statement of his
receipt u/s 115(5), and u/s 138 for recovery of tax
out of property through arrest of tax payer; the
scope of prosecution u/s 191 has been extended in
the case of those persons who have failed to file a
return of income etc. All these measures have a
negative aspect too as these would enhance the
discretionary powers of tax collectors.

These measures will virtually defeat the voluntary

self-assessment scheme envisaged u/s 120 of the
ordinance. It is suggested that the ordinance
should provide a safeguard against counter
productive actions of the tax collectors and ensure
that the assessments are not be made under
duress.
With a view to give incentive to the manufacturer
who is registered under the Sales Tax Act 1990,
the bill proposes a tax credit at the rate of 2.5 per
cent of the tax payable u/s 65B to him ,provided 90
per cent of the sales are made to registered
persons.

The budgetary measures have failed to make a

breakthrough in revenue mobilisation and the
desired tax-to-GDP ratio may not be achieved.
Focus shifts to low cost housing
By Anand Kumar
Monday, 22 Jun, 2009 | 03:16 AM PST |

AFFORDABLE and low-cost housing have

suddenly emerged as buzz-words in the Indian
real estate sector. The industry was among the
worst-hit following the economic slowdown, and
both buyers and financiers disappeared from the
scene.

During the boom years, most developers paid

virtually no attention to the lower-end of the
market. Builders were busy promoting sprawling,
three- and four-bedroom penthouses and
apartments, with fancy fittings and accessories –
ranging from Jacuzzis in bathrooms to terrace
gardens. Developers were also bidding record
sums for land that was auctioned by government
agencies in and around the major Indian metros.

But the global financial crisis, which has also

decelerated the growth rate in India, came as a
major shock to real estate developers. Many were
left holding vast tracts of land for which they had
paid huge sums, hoping to build their ‘land
banks.’

Dozens of overseas developers and financiers –

including from the US, Europe, the Gulf and
South-East Asia – had also entered into tie-ups
with Indian partners, promoting multi-billion-
dollar projects across the country. Consequently,
real estate prices zoomed, touching stratospheric
levels.

In Mumbai’s posh localities, apartments in

exclusive buildings were being sold at rates
upwards of Rs100,000 (about $2,000) a sq ft. Let
alone the middle-classes, most affluent people
could also not afford buying modest apartments in
south, central and western Mumbai.

Cities like Delhi and Bangalore also saw prices

soar to record levels in recent years, despite the
brisk construction activity. Techies working for
the information technology sector – and other
fast-growing segments such as financial services
and telecommunications – were among the buyers
who were fuelling rapid growth in the real estate
industry.

Hundreds of thousands of young Indians

employed in these sectors were earning handsome
salaries and had access to cheap housing loans.
The housing industry had never had it so good
and developers were on a roll.

But the global crisis had a severe impact on

India’s IT sector. Many have lost jobs in recent
months, and fresh graduates find it difficult to get
employment, especially in the high-wage sectors.

The liquidity crunch has also seen developers

starved for funds. Banks and other lenders are
hesitant to extend loans and international
partners – including private equity funds and
venture capital funds – are eager to off-load their
stakes.

Many of the top international developers are

facing problems back home and want to liquidate
their holdings in India. The result: some of the
most ambitious projects outside cities like
Bangalore, Mumbai, Delhi and Chandigarh have
been put on the back-burner. Real estate
companies are selling off projects or land parcels,
desperately trying to raise funds.

* * * * *

THE crisis has led many of the leading developers

to refocus their strategies. They have suddenly
started grasping the true meaning of the phrase,
‘Fortune at the Bottom of the Pyramid,’ which is
also the title of the 2004 book by C.K. Prahalad,
an eminent Indian-origin management consultant
and author, and professor of corporate strategy at
the University of Michigan.

Of course, some entrepreneurs in India have been

catering to this very segment – the bottom of the
pyramid – for years, in the process earning mega-
bucks. One of the first was Karsanbhai Patel, a
low-profile businessman of Gujarat, who sold
affordable detergents to the lower-middle-classes
in the early 1980s, taking on multinational rivals
like Unilever, which was targetting only the
affluent. Patel’s Nirma emerged as a top-ranking
brand.

Ratan Tata took a similar approach when he

decided to produce the Nano, dubbed the cheapest
car in the world (the initial batch of vehicles are
being sold for around Rs100,000), hoping to woo
millions of two-wheeler riders.

While his Tata Motors is introducing the Nano,

group company Tata Housing has recently
decided to go in for ‘Nano’ housing, offering
homes at affordable rates. The company is
promoting a 70-acre township on the outskirts of
Mumbai, offering flats – ranging from 300 to 465
sq ft – priced between Rs400,000 and Rs700,000.

“We have got a good response for this project,”

explains Brotin Banerjee, managing director and
CEO, Tata Housing. The company has sold
thousands of forms for the first lot of 1,300
apartments. Over the next two years, Tata
Housing plans to build 15,000 low-cost homes in
Mumbai, Bangalore, Delhi, Chennai and Kolkata.
It has branded these units as ‘Shubh Griha.

Banerjee expects the company would earn

revenues of over Rs7 billion in the next four years
selling low-cost homes. These would account for
about 20 per cent of its revenues; the premium
segment would get it 50 per cent of the revenues
and affordable (or mid-income) about 30 per cent.
The cost of construction for low-cost housing has
been pegged at Rs700 a sq ft.

Other builders are also rushing in with their

projects. Unitech, the second-largest property
developer, has launched ‘Uni Homes,’ which will
comprise modest apartments of 650 sq ft and
priced between Rs1 million and Rs1.5 million,
depending on the city where it is located.

The company, which has a land bank of around

8,000 acres, plans to invest Rs17 billion in building
these homes all over India.

Other developers that are quickly getting on to the

low-cost bandwagon include DLF – the largest
realty firm in India – Akruti City, Parsvnath,
Ansal API, Omaxe (all from Delhi), Puravankara
(Bangalore) and HDIL and Lodha (Mumbai).

* * * * *

INDIA has been facing an acute shortage of

housing for years. The current housing backlog
adds up to a whopping 25 million housing units
and every year the number keeps growing. Most
developers have focused only on the upper-end of
the market, with the result that the middle- and
lower-classes have no options other than to live in
slum colonies or in tiny flats far from their work
place.

Lack of affordable housing has resulted in the

creation of shanty towns in all major Indian cities.
Organised gangs forcibly acquire vacant land –
mostly owned by governments and other public
bodies – develop slum colonies on them and rent
out units to the poor and migrants.

The land mafia in urban India has strong political

links – to virtually all the parties – and it becomes
impossible for authorities to clear up the slums.
Unlike in the developed world, Indian cities like
Mumbai also do not have a vibrant rental market.
Developers prefer selling off homes as the returns
are high, instead of renting out units.

Laws relating to land in India are also opaque and

most transactions attract controversy. The United
Progressive Alliance (UPA) government faced
massive criticism over its special economic zones
(SEZs) policy, with critics accusing developers of
these zones of acquiring hundreds of acres of land
for real estate purposes.

Acquisition of farm lands has also become a

controversial subject; Ratan Tata was forced to
move his Nano project out of West Bengal
following stiff opposition from a local politician –
Mamata Bannerjee, who is now the railway
minister – who objected to the transfer of land.

Mukesh Ambani of Reliance Industries, the

largest private sector company in India, has also
been facing problems relating to land acquisition
for his mega SEZ project outside Mumbai.

In the absence of land titles, clear holdings and

transparent deals, most land acquisitions are
shrouded in mystery and attract controversies.
Most state governments have failed to reform
land-related laws, thanks to the close links that the
land mafia has to many politicians.

When a government or a private sector player

decide to develop a new township, expressway,
SEZ or other major project, politicians get an
inkling and begin buying up land in its periphery.
Once work begins on the project, they hope to sell
the land at a premium, raking in huge profits.

In Bangalore, for instance, relatives of powerful

political families succeeded in stalling several
projects – including the international airport and
a much-delayed expressway – for years, as they
wanted to buy up vacant land in the surrounding
areas, before the work could be taken up.

The success of low-cost housing in India clearly

depends on how fast state governments are able to
reform land-related laws. Housing costs are high
in India mainly because of the exorbitant price
that developers have to pay while acquiring land.
Budget 2010: treading the same path
By S. M. Naseem
Monday, 22 Jun, 2009 | 03:16 AM PST |

The most specious defence of budget 2009-10 so

far – ironically by a leading economist – has been
that it was a war-time budget and it was not
possible to make any significant change in the
economic management within the confines of an
annual budget.

On the contrary, it is in such times that

governments can undertake policy paths not
treaded before.

The Great Recession that the world economy is

facing today requires all countries to re-examine
the patterns of Pavlovian behaviour at all levels –
personal, community, corporate and state - that
they have become conditioned to change them in
keeping with the new and emerging realities.
Unfortunately, such a change is hardly evident in
the new budget.

There was no dearth of rhetoric and pious

intentions in the long speech delivered by Ms
Khar, perhaps the youngest minister to present
the budget in parliament. The most stirring of
which was the quotation at the end of her speech
from Zulfiquar Ali Bhutto, “our founder leader”,
delivered before she was born, exhorting
politicians to adopt “A new look amid a new style”
as “the old ways will no longer appeal to the
people”, even though she had not long ago served
in a cabinet post under President Musharraf.

However, her speech contained very little that was

new and different from the policies of his earlier
patrons. Indeed, it was full of excuses why the
government was unable to fulfil the promises it
made.

The reasons– “No, we can’t” -- implicit in the

speech are several, including policies of the past
governments, the need for stabilisation policies,
IMF loan conditionalities and, above all, the
present rise in military spending and our financial
needs for dealing with the problems of the IDPs,
most of whom did not need assistance for “roti,
kapra, makan” before. For one component of the
PPP slogan, housing, Ms Khar’s speech did
provide a sop.

“Affordable housing under a phased programme

for the low-income population through
community participation and squatter- settlement
regulation; and for facilitation of working
journalists, the ministry of information and
broadcasting managed to reserve a good number
of residential plots in Islamabad for them”. With
due respect to the journalist community, the latter
provision does not redound much to its credit.

This year’s budget is focused on two major

problems, not entirely unconnected. The first is
the cost of fighting a war against militancy as a
part of the tripartite alliance with the US and
Afghanistan. The second is the need for foreign
aid to finance fiscal and balance of payments
deficits, development programme and relief and
rehabilitation of the refugees dislocated from the
NWFP and FATA. Surprisingly, there is no
mention of the equally damaging effects of the
insurgency in Balochistan.

There has been a considerable debate on the

causes and costs of insurgency, as well as the
ownership and cost sharing of the war on terror
which we got dragged into after the 9/11 attacks.
Official estimates put the cost at $35 billion or
about $5 billion per year, whereas the US has paid
us less than a quarter of that cost in military aid
during the seven year period. Thus we have not
been paid on the full-cost basis and the
implication is that part of the cost has to be shared
if we own the war, at least partly. There is a well-
known principle in chinaware shops: if you break
it, you own it. Thus the issue of cost-sharing is
essentially a political one.

There is a broader question about the role foreign

aid has played in promoting or inhibiting
development in the last six decades and what it
should play in the future. Perhaps, at no time in
the past, it has formed such a large proportion of
total resources, especially the budget, as it is doing
now. If a label has to be given to this year’s
budget, it would have to be a foreign aid budget,
rather than a poor man’s or a businessman’s or a
farmer’s budget. Foreign aid has become the tail
that wags the dog of the economy. While Pakistan
has had a chequered history of foreign aid inflows,
it has been among the largest recipients of aid to
developing countries.

However, the proper treatment of the aid received

from the US for the war on terror also needs
much more information than is currently
available, even to US analysts.
A testimony to a US Senate subcommittee in
December 2007 gives the following estimated
break-down of the amounts received by Pakistan
as support for its participation in the war on
terror. “60 per cent of the US aid has gone toward
Coalition Support Funds (CSF) as a repayment
rather than assistance; 15 per cent, or close to $1.6
billion, has been spent on security assistance,
mainly to purchase major weapons systems, such
as F-16s.

Another 15 per cent has gone toward budget

support or direct cash transfers to the government
of Pakistan. This money is supposed to provide
macroeconomic stability and to free up funds for
social spending. The remaining 10 per cent has
been used specifically for development and
humanitarian assistance.

In order to give the parliament the opportunity to

debate the proper use of these funds and to
exercise its oversight, it seems desirable to
integrate them into a unified defence budget,
which should provide greater detail than in the
summary manner it was presented last year. The
funds received in connection with the IDPs relief
and rehabilitation, which are the result of the
collateral damage of the war, should also be
included. Indeed, the parliament may wish to call
a separate session to consider the economic and
humanitarian consequences of the war, along with
the discussion on the defence budget.

In this context, it seems odd that the expenditure

on IDPs, along with that on Benazir Income
Support Programme is being included as part of
the development budget. It is indeed stretching the
meaning of development a bit far to include what
are essentially doles to the poor but the inclusion
of IDPS’ expenditure has no justification at all
and should be included in the defence budget. The
main reason for this strange categorization, as
pointed out by Dr Ashfaque Khan, the former
Economic Adviser, is to circumvent the provisions
of the Fiscal Responsibility Act which prohibits
the government from running a fiscal deficit on
current government expenditures.

The budget’s other proposals, especially on social

protection, additional avenues for taxation and
governance issues, although well-meaning, have
not been fleshed out in detail and have been
eclipsed by the severe resource constraints being
faced as a result of the continuing war on terror
and its humanitarian fall-out.
It is unlikely that the government will have the
time and resources to tackle them with the vigour
and urgency that they deserve until a paradigm
shift away from the elitist and foreign aid-
dependent policies is seriously attempted.
Demographic change and windows of opportunity
By Shahid Javed Burki
Monday, 22 Jun, 2009 | 03:16 AM PST |

ECONOMISTS have yet to fully recognise the

impact demographic changes play in economic
development – both retarding or promoting it.

If population has figured in their work, it has

done so mostly as an inhibitor rather than a
promoter of growth. This was the focus of much
attention in the earlier phase of development
thinking when high rates of population growth
were seen as hurting the prospects of many
developing countries.

In the early post-World War II period, as health

and hygiene improved in developing countries,
there was an immediate impact on the rate of
population increase. Mortality rates declined
rapidly. In India (which has better statistics than
most other developing countries), the death rate
fell from 42 per thousand per 1000 at the start of
the century to 15 by the early 1970s. There were
similar changes in other parts of South Asia.
For decades, this decline was not compensated by
reductions in the rate of fertility. There was a
belief among many economists that the strong
male preference and high rates of infant mortality
was the reason why parents chose to have large
families. In most developing countries, parents
wish to have at least two sons to survive to
adulthood and that meant having six to eight
children. But the families didn’t seem to notice
that decline in the rates of mortality had increased
the probability of survival of boys. Inertia and
hard-to-break habits made them opt for large
families. With the families not reacting on their
own, there was a broad consensus that the state
had to intervene to reduce family size.

Population explosion became a great worry for

development economists in the “60’s and ‘70’s.
Governments – in particular those in the crowded
South Asia – were encouraged to adopt family
planning programmes. The World Bank created a
new department to aid this effort in the
developing world. Many countries took the advice
offered by the bank and other development
institutions.

In the mid-sixties, President Ayub Khan ignored

the objections of the religious parties and
launched an ambitious Family Planning
Programme and appointed Enver Adil, a civil
servant known for his energy and dynamism, to
head the effort. Foreign assistance came pouring
into the programme.

It is hard to say whether these programmes

worked or whether the declines in the rates of
fertility happened because of other factors. Be
that it may, there have been significant declines in
the rates of fertility in the developing world
including the countries of South Asia. Fertility will
continue to decline but at different rates in
different parts of the region. In South Asia, the
process began in Sri Lanka several decades ago. It
started in India in the 1980s, in particular in the
states in the south of the country where the level
of human development was relatively high, the
rates of economic growth were better than in
other parts of the country, and that had high rates
of emigration. It started in Bangladesh at about
the same time as India but for different reasons.

The rapid development of the garments industry

resulted in the improvement of the social and
economic status of women. Women entered the
workforce, had sources of income not dependent
on their husbands or fathers and also began to
look for opportunities to acquire education.
Husbands no longer had the decisive say in
determining the size of the family. The move
towards fertility decline has also begun in
Pakistan. The trend became perceptible in the
early 2000s but still has a way to go before
Pakistan catches up with other countries in the
South Asian region. Fertility rates are still high in
Afghanistan, a trend seen in other countries
experiencing conflict. For obvious reasons a
feeling of insecurity leads families to seek larger
sizes.

One important consequence of this declining trend

in the rates of fertility is that it will create a
window of opportunity that will last a few decades
during which the number of active workers would
far outnumber those who are dependent on them.
During this time, the states don’t need to carry the
burden of caring for those who can’t be looked
after by the working members of the families. The
accompanying Table provides estimates of the
duration during which the window will remain
open. Since the decline in the rates of fertility are
slower than other countries that have gone
through the same kind of transition, periods of
opportunity available to the South Asians are
much longer. For India, it will remain open for 60
years--1975 to about 2035-- when the number of
people reaching the working age will begin to
decline.

Using the same methodology as applied by the

World Bank for determining the time over which
the windows will remain open for Pakistan, it
appears that the duration for the country will be
50 years. The window opened in 1995 and will not
close until 2045.

Could Pakistan, using this window of opportunity,

build a future for itself and create some space in
the evolving global economy by concentrating on
the development of, say, modern services?
Countries with large and young populations have
a comparative advantage in this area of economic
activity. Another set of numbers helps us to
answer this question. This is on the median age of
the population. Pakistan has by far the youngest
population of all large countries. As population
growth rates increase, the median age of the
population – meaning the age at which the
number of young is the same

as the number of older people – begins to decline.

This is what has happened in Pakistan. The
median age in 1950 was 24.2 years. By 1990 it had
dropped to only 18.2 years, a decline of five years.

The population had become much younger. The

median age in 1990 was almost three years less
than that of India which was 21.1 years and
almost the same as that of Bangladesh which was
18.2 years. The rapid demographic transition that
has occurred in some parts of South Asia, saw
significant increases in the median age. Between
1990 and 2005, it increased by 1.8 years in
Pakistan, by two years in India and by an
impressive 4.4 years in Bangladesh.

If the changing character of the economies of

today’s rich countries is any guide, much of the
future growth in the global economy will come
from services. These are labour intensive to
produce and provide, and some of the more
modern ones need highly developed skills.

Both the state and the private sector will need to

invest in the youth to draw the most benefit from
the widows of demographic opportunity that have
opened up in recent years in many countries.
Those that have serious resource constraints – as
is the case in Pakistan – the private sector will
need to play a more active role.
But the state needs to take the lead in factoring
this development into the making of public policy.
As the Planning Commission turns its attention
towards the preparation of another development
plan, it would do well to use this window as an
opportunity to bring growth back to the economy
and to alleviate poverty and improve the
distribution of incomes.

How to minimise chances of bank failures?

By M. Ziauddin
Monday, 22 Jun, 2009 | 03:15 AM PST |

At the highest policy making level, there is still no

consensus in rich countries on how to minimise
the chances of bank failures in future.

The governor of Bank of England, Mervyn King

believes banks that are too big to fail, should not
be allowed to function and should be broken up
into manageable entities. But in the opinion of the
Chancellor of Exchequer, Alistair Darling, the size
of a bank need not be made the centre piece of
future banking policy.
King is opposed to high street banks having
taxpayer-funded guarantees for their speculative
investment banking activities and expressed
scepticism about changes to regulation in the
aftermath of the run on Northern Rock that
would limit the BoE to delivering “sermons”.

Differing with Darling in banking policy

essentials, King said: “If some banks are thought
to be too big to fail, then, in the words of a
distinguished American economist, they are too
big. It is not sensible to allow large banks to
combine high street retail banking with risky
investment banking or funding strategies, and
then provide an implicit state guarantee against
failure.”

The governor argued that this practice must stop.

“Either those guarantees to retail depositors
should be limited to banks that make a narrower
range of investments, or banks which pose greater
risks to taxpayers and the economy in the event of
failure should face higher capital requirements.
Or we must develop resolution powers such that
large and complex financial institutions can be
wound down in an orderly manner. Or, perhaps,
an element of all three,” King said.
Darling, in his remarks stressed that the answer
was not about impeding the size of the banks.
Labour has overseen the creation of Lloyds
Banking Group by using a new public interest test
to permit Lloyds TSB to rescue HBOS, rather
than face an investigation by the competition
authorities.

“Many people talk about how to deal with the big

banks – banks so important to the financial
system that they cannot be allowed to fail. But the
solution is not as simple, as some have suggested,
as restricting the size the banks,” Darling
explained, adding it was also important to have a
system to tackle failures.

But King also criticised the new regulatory

changes made after the collapse of Northern Rock
in which the bank is responsible for financial
stability, but the Financial Services Authority is in
the front seat in deciding whether a bank is
failing.

King has also criticised the limitations imposed on

the powers of the BoE to monitor and regulate the
banks.
King and Darling seemed also to differ over who
should be held responsible when a bank failed.
Darling said the board rooms should have “the
right people, skills and experience to manage
themselves effectively”.

King on the other hand said blaming individuals

was no substitute for acknowledging the failure of
a system, of a certain type of banking.

“We have a real opportunity now to put that right

and regain the trust that has been lost.”

King called on the banking industry to win back

the trust of the public as the crisis has “wreaked
havoc” on the wider economy.

Mr King, delivering the annual Mansion House

speech, said the bank could not continue acting
“like a church” whose congregation “ignores its
sermons”, but said it was not entirely clear how
the bank would be able to discharge its new
statutory responsibility.

“Like the church, we cannot promise that bad

things won’t happen to our flock - the prevention
of all financial crises is in neither our nor anyone
else’s power, as a study of history or human
nature would reveal.”

But warnings were unlikely to be effective when

people were being asked to change behaviour
which appears to be highly profitable, he added.

King contrasted the billions of pounds poured in

to shore up the banking system with that offered
directly to the public affected by the crisis. “It is
the banking system that has received financial
support on an almost unimaginable scale. We who
work in the financial sector have much to do to
regain the trust of those who work outside it. ‘My
word is my bond’ are old words, but they were
important. ‘My word is my CDO-squared’ will
never catch on,” King said.

Meanwhile, unemployment has soared to its

highest level in more than 12 years as UK
companies continue to fold or slash staff in the
face of Britain’s deepest recession in almost 30
years.

The total number of people out of work rose by

232,000 in the three months to April, to 2.261
million, data from the Office for National
Statistics showed. This pushed the unemployment
rate to 7.2 per cent – the highest since July 1997.
The ONS said another 39,300 people joined the
claimant count in May, taking the number
claiming job seeker’s allowance to 1.554 million.

The latest labour force survey also showed that

the number of people in employment fell by
271,000 between February and April – the biggest
three-month fall on record.

The figures add to growing concern that many of

the 600,000 young people who leave school, college
or university this summer will not find a job –
nearly half of UK companies say they are not
planning to hire new starters. A group called
Youth Fight for Jobs held a protest last week
outside the Department for Business, Innovation
and Skills to demand more government support.

Some analysts are predicting that the economy

will continue to shed jobs “well into 2010” and
that unemployment was likely to peak around
three million. The prospect of such high level of
unemployment has dampened hopes of a swift
economic recovery.
Home-grown margin financing
By Mohammad Yasin Lakhani
Monday, 22 Jun, 2009 | 03:15 AM PST |

I have deliberately chosen the word ‘Badla’ in

place of now touted home-grown ‘margin
financing’. Badla has been given many aliases like
COT, CFS, CFS MK-II and now margin financing
(MF).

‘Badla’ financing has been the root cause of all

settlement crises in the capital market.

At the forefront of all crises are the structural

defects in leverage financing. Some of the main
reasons are listed below:

* People tend to go for leverage trading due to

greed. They tend to forget about the downside risk
in the market.

* Usually, leverage trading leads to building up

price bubbles and artificial prices. When the
downside comes, there is no exit. The downside is
manipulated by major players and the small guys
get trapped. This has happened a number of
times.

* There is a blatant conflict of interest in leverage

trading. The funding is provided mainly by
members of the exchange called, Financiers. They
also act as brokers and are market players. Some
of them have mutual funds under their
management and own banks also.

* Mutual Funds are supposed to invest for

ordinary people based on their in-depth
understanding of the market. Some of them
indulge in badla financing and charge hefty
management fees plus huge perks. Most of them
have failed their investors miserably as is reflected
in the values of the funds.

* If marginal financing (MF) is routed through

brokerage houses, it will be the worst kind of
conflict of interest. This time people going for
leverage trading will be required to deposit 30 per
cent cash plus the badia financed shares will
remain in a blocked account and payment of mark
to market losses on a daily basis..

If the broker (who may be a financier, market

player, mutual fund manager/owner and banker)
decides to call off the funds, there will be no check
on him. Margin financing as a product should be
available to all citizens as is the practice the world
over by banks. The interesting part is that five
brokerage houses also own banks and how come it
did not dawn upon them to launch this product so
far. Had they been a little enterprising the banks
could easily offer investment opportunities to their
account holders and double the number of
investors.

Interestingly, Cash Settled Future requires only

20 per cent cash deposit and mark to market
losses in cash on a daily basis. No shares are
involved in this market as is the practice
internationally. This product designed on
internationally practiced one has not taken off
despite waiver of service charges for three
months. The reason, among others, is that badla
financiers (read major players) do not wish a
transparent and universally accepted product to
take off.

The Cash Settled Futures and other derivatives

replaced badla in Mumbai and National Stock of

India - the second largest derivative market in the
world. Of course, there was strong opposition to
abolishing of Badla in India also but their
regulators, SEBI, stood firm.

Our regulator, the SECP took a landmark

decision on a petition signed by 103 members of
Karachi Stock Exchange and recommended by
the Experts Committee headed by Mr Shehzad
Naqvi of RBS to ban ‘Badla’ financing in April
2009. Some of the movers, to undo this decision
are trying to introduce “home grown” products.
They argue that due to absence of leverage
products, volumes are low and. price discovery is
difficult.

The reasons for low volumes in Ready Market

are:

* Lack of liquidity with the investors, some of

whom may end up losing their homes pledged
against their losses in capital market last year.
The disastrous decision to place floor in the
market in August 2008 for 111 days, inspired and
instigated by major players; and no ban on off
market transactions brought down the KSE 100
Index from 9000 to 4500.

The ineptitude of SECP was exposed. The

December 15 directive could have been given
within a week in August 2008. The net losers were
investors and the government which owns 30 per
cent stake in the capital market. More than $2
billion in market capitalisation melted in no time.
Some of the scrips, especially those in CFS,
crashed from Rs340 to just Rs40 in off market
deals, a fall of 850 per cent.

The financiers not only got their full mark up on

their funds - in some cases 100 per cent - but also
some scrips for a song. Settlements among
members, between members and clients and their
exposures with banks are still unresolved.
Therefore entrusting brokerage houses to monitor
and regulate overall credit, credit to and by them,
is too big a risk.

* The country is facing the worst kind of

insurgency.

* High interest rates: The tightening of monetary

policy to check government borrowing and
inflation boomeranged. Old bookish theories have
failed the world over.

Despite all the negatives and in the absence of

leverage trading, the resilience of the capital
market is reflected in the bounce back of KSE-100
from 4500 to 7000. It is time to reflect on these
points. There is a need to look forward in the
interest of the capital market. Stock exchanges are
on the threshold of demutualisation and look
forward to participation in their entities by
international strategic investors who would want
internationally practiced derivative products like,
Cash Settled Futures, Index Trading, Options and
Debt Market etc. Efforts be made to promote such
leverage products to cater for the appetite of
leverage trading. It is time to bury Badla forever.

The writer is a former chairman of the Karachi

Stock Exchange
The myth of western capitalism
By Saad Rasool Sehole
Monday, 22 Jun, 2009 | 03:15 AM PST |

The usual hubris of the western media, over the

past year, has been drowned by a certain raucous
clatter. This is the sound of the crashing of global
financial markets that has demolished the myth of
western capitalism.

Capitalism, briefly, is an economic philosophy

that thrives on the touchstone of the free will of
individual market players, in a distinct contrast
from governmental intervention. Capitalism
argues that all goods and services should be
owned, operated and managed by private
enterprises, for the sole purpose of profit
maximisation.

The investment, production, distribution and

pricing of all products are determined through
market forces alone, without central planning. As
a result, the regulations and laws – in a purely
capitalistic system – are designed to serve one
purpose alone: to protect the private control of
resources and business enterprise within the
system. In other words, the government’s job is
limited to ensuring that war-gangs do not roam in
the streets and that the traffic signals continue to
operate.

For the longest time, the West has used this idea of
capitalism (along with the softer pretext of
democracy) to oppose political systems and
countries across the globe. It has been used as a
tool of economic discrimination to ostracise and
isolate nations from global commerce.

Only in the last one hundred years, first it was the

Japanese empire that had a central governing
philosophy averse to the western mode of
thinking. Then it was Russia, and its lack of
private economic enterprise followed closely by
Cuba, Vietnam, India and China.

In fact, it was not till (some of) these nations

opened their borders to American corporations
and the western style of ‘capitalism’ that they
become acceptable in the modern polity of
nations. Thereafter, some of these nations (India
and China in particular) have become
instrumental cogs in the global economic
infrastructure.
The American policy makers, in particular the
neo-conservatives, heralded the fall of Soviet
Union and the subsequent financial success of the
1990s as proof that capitalism works. And from
the shadows of this presumption, Wall Street and
the American corporate empires rose to
unprecedented heights. So much so, that this
illusion of infallibility led American policy
makers, such as Thomas Friedman, to come up
with the ‘Golden Arches Theory’ – that no two
nations that have McDonalds (read: American
corporate enterprise) in them, have ever gone to
war with each other.

But just as the economic progress, trade

expansion, and GDP growth of the last few
decades was scripting the success of capitalism,
the entire paradigm has collapsed over the past 18
months, putting to question the virtue of a purely
capitalistic philosophy.

And it is pertinent now, as the ship of financial

markets is being ‘bailed-out’ out of the storm of a
global credit crunch, to unearth the spirit of Ayn
Rand and critically assess the merits of
unadulterated capitalism. If capitalism really
encapsulates the idea of self-correction of the
market (for better or worse), why tinker with it
now, via ‘bail-out packages’ when market
correction is most needed?

First of all, it must be noted that even in the most

capitalistic of societies – the United States of
America – parts of the political economy have
always been manifestly non-capitalistic. These
include the federally funded Social Security
system (which accounts for approximately one-
third of the federal budget of the United States),
the public healthcare system and the subsidised
state education sector. Clearly, heavy
governmental involvement and influence in these
sectors, in the interest of “equity”, is an
acceptance of the fact that capitalism has its
limits.

But barring these ‘politically sensitive’ spheres,

the American economy has been considered
largely capitalistic. In particular, the financial and
corporate industry – the Wall Street – has been
touted as the flagship of capitalism and a
testament to the genius of free market economy.

Accepted. But then such claims should be backed

with the spine to follow capitalism to its natural
end – that of allowing the market to correct itself,
instead of correction via government involvement.
Contrary to this philosophy, the bailout packages
(primarily designed to rescue the housing and
banking sector) being announced in all major
economies across the globe have shown that
capitalism is only acceptable to the vainglorious
West as long as the going is good. When waves get
rough, these citadels of capitalism quickly paddle
to the shallow end of economic socialism.

An analysis of the actual numbers across the globe

sheds light at the astounding reality. In the United
Kingdom, for example, the government has
allocated £500 billion ($850 billion) to ‘provide
crutches’ to the economy. Similarly, the Chinese
government introduced a RMB¥ 4 trillion ($586
billion) stimulus package in 2008 alone, along with
an interest rate cut for the first time since 2002, to
‘bailout’ the financial markets from a collapse.
Following suit, the Australian government
injected over $7 billion into the banking system–
all in the name of ‘injecting’ confidence in the
international financial structure.

In the United States, surprisingly, the shunning of

capitalism and the cry for governmental help has
been the strongest. As a starting point, the
government announced a $700 billion bailout
package for “troubled mortgage-related assets”.
The Treasury has also announced a new $50
billion programme to insure money market fund
investments (which are integral to the ongoing
financing of the corporate sector). Technicalities
aside, collectively this forms the largest
governmental interference with market forces in
all of recorded history.

Three cheers for the mascots of capitalism, please.

Hip hip Hurray!

The aim of this discourse is in no way to advocate

in favour of socialism or, worse yet, a communistic
economic system. These too have been tried, and
at great economic, social and human cost, failed
miserably. Some diluted form of capitalism,
resembling the Scandinavian model perhaps, is
probably a better approach. But all that is not my
point here.

I am sure that generations of world-class

economists will study the reasons behind, and
lessons emanating from the prevalent financial
crisis. What needs to be impressed immediately is
a humble acceptance of the fact that Milton
Friendman brand of capitalism – as sexy as it may
appear on paper – lacks a certain human element.
And that this ‘human element’ is integral for the
working of even the most modern and developed
economies. Such compassionate form of economic
influence can only be introduced by a measure of
governmental intervention to protect the
economically weak and to pacify the singular lust
of self-interest.

While there may be no clear and present

alternatives to capitalism at the moment, we all
(including the West) must have the humility to
accept this reality that capitalism, in its
puritanical form, simply does not work. And in
the same breath, we must muster our collective
wisdom and ingenuity to think of alternatives that
might.

The writer is a Lahore-based lawyer and a former

investment banker. He has worked for Merrill
Lynch in New York City.

Email: saad.rasool.sehole@gmail.com
Sentiments choppy on lack of trading interest

The post-budget trading week on the share

market was a bit choppy as investors were not
even inclined to take new positions on those
sectors which were considered main beneficiary of
the fiscal measures.

After having shown highly erratic movement, the

KSE 100-share index ended the week with a
modest fall of 16.58 points at 7,039.73, while its
junior partner the KSE 30-share index fell by
70.82 points at 7,448.03 on selling in the pivotals.

However, the last week of the current fiscal could

be very crucial for the future direction of the
market as much would depend whether or not the
financial institutions and leading brokerage
houses resume their year-end buying to adjust
their portfolios, some analysts said.The new
budget seeks to give a big boost to the export
sector for obvious reasons but some ambiguities in
the tax regime on this counter did not allow the
consolidation forces to come into full play. Late
official clarification to remove them failed to lure
investors back in the trading arena.
However, the mid-week push caused by above
market expectations fall in the T-bill cut-off yields
and massive participation of the investors in it had
raised hopes that the liquidity may not be that
short as widely speculated.

But the market perception that the fall in T-bill

yields could lead to an identical cut in the interest
rates in the new monetary policy as hinted at by
the State Bank governor created a wave of
optimism among the investors, some analysts said.

However, the hopes of a major breakthrough

associated with the new budget did not come true
as investors have other worries too, notably
terribly fragile law and order situation, absence of
foreign buyers and fears of reaction of Waziristan
operation in other parts of the country did take
their toll in the form of low volumes.

The growth-oriented budget, therefore, failed to

stir ripples on the share market as investors were
still in the process of analyzing the impact of fiscal
measures on trade and industry, analysts said.“

It may be too much to expect relief or incentives in

the wake of ongoing war on terror, slowing
economy coupled with global recession, but still
the budget has more than one plus points for those
who have interest in the growth of the economy,”
most analysts were unanimous on its underlying
positive theme.

The initial market reaction to the budget was,

however, a bit optimistic as the chief beneficiaries
of the fiscal measures, notably cement and auto
sectors came in for active short covering and
pushed the index well above the barrier of 7,100
points, but selling on the other counters pushed it
down.

But as far as the capital markets are concerned

they have nothing to celebrate or mourn and
appear to be the chief beneficiary of the
proverbial status quo,” analyst at the Invest
Capital thinks.

“A 16 per cent federal excise duty on broker share

income after the withdrawal of 0.02 per cent
Capital Value Tax (CVT) could in the final
analysis will prove a non-event as there are more
than one loop lines before the final act,” analysts
observed.

However, its immediate impact on the share

business was terribly bearish as a section of
brokers tried to look it an anti-market step and
indulged in hasty selling even on those counters,
which are considered the main beneficiary of
fiscal measures, some others said.

The brokerage houses in the final analysis are to

benefit from an active speculative activity and
large daily volumes followed by either-way swings,
allowing them to keep their tax books in order,
they added.

“The main focus of the budget appears to be on

the farm and manufacturing sectors,” analyst
Hasnain Asghar Ali observed. ”But it requires
fresh efforts to broad-base and rationalise the
existing tax structure,” he added.

He said investors were expected to be back in their

respective positions as the budget as a whole was
not that bad for the capital markets after some
realistic rethinking on the issues involved.

“No one could deny the negative impact of the

ongoing military operation and investor worries
over the future direction of the market in the
unfolding scenario would continue to have their
toll in various forms,” analyst Ashraf Zakaria
fears.
FORWARD COUNTER: Share values of leading
shares fell and rose during the week on positive
and negative news but there was no transaction in
any of the leading shares.

Much of the speculative activity remained

confined to the banking, cement and oil sectors
followed by auto shares, being the chief
beneficiary of the fiscal measures, notably five per
cent cut in the excise duty. ICI Pakistan, Engro
Chemical, Siemens Pakistan, Bata Pakistan and
some other leading shares also remained in the
streamline and so did MCB Bank, National Bank
and Habib Bank.—Muhammad Aslam
Decline in treasury bill yields

In the treasury bills auction June 17, the State

Bank of Pakistan raised Rs63bn. An amount of
Rs58bn was raised through one year T-bills and
Rs5bn for 6 months.

The cut off yield on 12-month T-bills was reduced

by 100 basis points to 12.24pc, while the
benchmark 6 month T-bills rate was lowered by
71 basis points to 12.43pc.

According to the Statement of Affairs of the State

Bank of Pakistan, for the week ended June 13,
2009, both notes in circulation and those issued
increased in the week. Notes in circulation stood at
Rs1,258.276bn against earlier week’s figure of
Rs1,255.457bn, a rise of Rs2.819bn. When
compared to the corresponding week a year ago
when it was Rs1,072.105bn, the current week’s
figure is higher by Rs186.171bn.

Total notes issued also increased in the current

week over preceding week’s level. At
Rs1,258.490bn it was larger by Rs2.881bn over the
figure of Rs1,255.609bn recorded a week earlier.
In the corresponding week last year it amounted
to Rs1,072.256bn, which shows current week’s
figure to be higher by Rs186.234bn over last
year’s corresponding figure.

Approved foreign exchange decreased in the week

to Rs328.772bn lower by Rs8.299bn over
preceding week’s figure of Rs337.071bn. When
compared to the corresponding week a year ago,
when the figure was Rs404.593bn, the current
week’s figure is lower by Rs75.821bn.

Balances held outside Pakistan in approved

foreign exchange increased in the week under
review. It stood at Rs389.792bn over preceding
week’s figure of Rs372.237bn, a rise of
Rs17.555bn. Compared to last year’s
corresponding figure of Rs157.457bn, the current
week’s figure is larger by Rs232.335bn.

Loans and advances of scheduled banks to the

three sectors – agricultural, industrial and export
showed a mixed trend in the week under review.
The agricultural sector received Rs58.230bn,
similar to preceding week’s figure. The current
week’s figure is larger by Rs8.453bn over last
year’s corresponding figure of Rs49.777bn.

There was an inflow of Rs37.632bn to the

industrial sector during the week under review, a
rise of Rs0.018bn against preceding week’s figure
of Rs37.614bn. When compared to last year’s
corresponding figure of Rs39.901bn, the current
week’s figure is smaller by Rs2.269bn.

The export sector received Rs175.546bn against

previous week’s figure of Rs174.735bn, higher by
Rs0.811bn. Current week’s figure was larger by
Rs76.017bn over last year’s corresponding figure
of Rs99.529bn.

According to the weekly statement of position of

all scheduled banks for the week ended June 13,
2009, deposits and other accounts of the scheduled
banks increased in the current week and stood at
Rs4,057.717bn, higher by Rs27.473bn over
preceding week’s figure of Rs4,030.244bn.
Compared with last year’s corresponding figure
of Rs3,698.782bn, the current week’s figure is
larger by Rs358.935bn. During the current week,
commercial banks deposits showed a rise of
Rs27.349bn over the week to Rs4,045.798bn,
against preceding week’s Rs4,018.449bn.
Specialised banks deposits stood at Rs11.920bn,
against preceding week’s Rs11.795bn, a rise of
Rs0.125bn.
Borrowings by all scheduled banks increased in
the week. It rose to Rs479.687bn over preceding
week’s figure of Rs471.318bn, a rise of Rs8.369bn.
Compared to last year’s corresponding figure of
Rs417.888bn, current week’s figure is larger by
Rs61.799bn. Commercial banks borrowings rose
to Rs398.849bn against previous week’s
Rs390.476bn, or by Rs8.373bn. Borrowings by
specialised banks stood at Rs80.838bn, lower by
Rs0.005bn over preceding week’s figure of
Rs80.843bn.

Gross advances stood at Rs3,161.561bn in the

week under review, a rise of Rs0.756bn over
preceding week’s figure of Rs3,160.805bn.
Compared to last year’s corresponding figure of
Rs2,921.621bn, current week’s figure is larger by
Rs239.94bn. In the week under review, advances
by commercial banks rose to Rs3,057.572bn
against earlier week’s figure of Rs3,057.347bn, or
by Rs0.225bn. Advances of specialised banks
stood at Rs103.990bn, higher by Rs0.532bn over
earlier week’s figure of Rs103.458bn.

Investments of all scheduled banks increased in

the week by Rs10.157bn to Rs1,307.499bn against
preceding week’s figure of Rs1,297.342bn.
Compared to last year’s corresponding figure of
Rs1,000.360bn, current week’s figure is larger by
Rs307.139bn. In the current week, commercial
banks investment rose to Rs1,297.220bn, from
earlier week’s Rs1,287.081bn, or by Rs10.139bn.
Specialised banks investment stood at Rs10.279bn,
against preceding week’s Rs10.260bn larger by
Rs0.019bn.

Cash and balances with treasury banks of all

scheduled banks declined by Rs7.416bn during the
week to stand at Rs342.038bn against earlier
week’s Rs349.454bn. Current week’s figure is
smaller by Rs58.874bn compared to last year’s
corresponding figure of Rs400.912bn. In the
current week, the figure for commercial banks
stood at Rs338.419bn against preceding week’s
figure of Rs345.988bn, a fall of Rs7.569bn, while
of specialized banks it stood at Rs3.619bn over
previous week’s Rs3.467bn.

Total assets of scheduled banks stood at

Rs5,509.577bn, larger by Rs47.463bn, over
preceding week’s figure of Rs5,462.114bn.
Current week’s figure was higher by Rs537.505bn
compared to last year’s corresponding figure of
Rs4,972.072bn. In the current week, commercial
banks assets stood at Rs5,381.382bn, higher by
Rs46.711bn over previous week’s figure of
Rs5,334.671bn. Specialised banks assets rose to
Rs128.196bn, or by Rs0.753bn over previous
week’s Rs127.443bn.
Rice, wheat costlier

Trading on the Karachi wholesale commodity

markets early last week failed to pick up as
dealers and brokerage houses remained busy in
assessing the likely impact of the new budget.

Dealers and brokerage houses however resumed

normal trading by mid-week after having full
overview of the fiscal measures.

Price movements were, however, divergent as

commercial houses adjusted positions to the
demand of the new budget, although there was no
major upset in the prevailing price structure.

The post-budget trading week was not that

lacklustre as commercial houses and brokers did
take fresh positions and did not sit on the sidelines
apparently watching the fallout of the fresh
taxation measures on the other essential counters,
dealers said.

The arrivals from the upcountry markets fell as

brokerage houses there held onto their positions
before resuming normal activity owing to the
budget, they added.
However, there was no pressure on the ready
supplies as the ready position was reported to be
fairly comfortable thanks to steady arrivals from
the interior before the budget.Barring five per
cent withholding tax on some pulses, the
commodity trade would continue enjoy tax
exemptions in next fiscal year. However, spillover
of negative impact from other sectors may not
influence the general price trend, they added.The
absence of leading commercial dealers from the
market was psychological rather than real in the
absence of incentives for trade and industry in the
new budget even there was a status quo on most of
the counters, some others said.

They said indications were that normal trading

would be resumed by the next week as by that
time brokerage houses and commercial dealers
would have fully known the impact of the taxation
proposals.

Market sources said stray price changes were

noted after mid-week on some of the essential
counters under the lead of wheat, which was
quoted higher followed by reports of strong mill
buying.
But some others said fears that government may
allow export of wheat products was the main
factor behind the price increase on this essential
counter.

They said there was no immediate negative impact

on the pulses sector after the levy of withholding
tax at the rate of five per cent, but ready off-take
remained slow as retailers also stayed away
apparently allowing the market to settle down
during the post-budget sessions.

On the export front, physical shipments of rice

against the forward deals were resumed after last
couple of weeks but there was no immediate
impact on prices on the ready markets.

Among the essential, wheat remained in active

demand both from the commercial dealers and the
mills and showed gains ranging from Rs30 to
Rs110 per bag amid active trading.

Among the other essentials, IRRI-6 also came in

for active support on reports of steady physical
shipments against forward deals and was quoted
higher by Rs25 to Rs50 per bag of 100 kg, but
IRRI broken type was marked down by Rs20 on
selling prompted by slack export demand.
Fine varieties including sela and kernel types were
traded at the previous levels and so did basmati in
the absence of fresh export orders. Local buying
was absorbed at the previous levels.

Pulses did not show much changes as prices of

major items, notably gram whole and gram dal
were held unchanged at the last levels but moong
and peas were an exception which were quoted
higher by Rs25 and Rs300 respectively on short
supply.

The prices were expected to be stabilised after the

arrival of a ship carrying 15,730 tons of yellow
peas by early next week. Owing to the proximity
of the budget and fears of duty, fresh
consignments of the commodity were held back in
the country of origin by the importers, market
sources said.

Among the cereals, maize was quoted higher by

Rs25 per bag, while jowar fell by the same
amount, while barley and bajra were firmly held
at the last levels amid modest ready activity.
Guarseeds were again held unchanged for want of
local demand.
Cotton came in for renewed selling in the absence
of mill demand and was marked down by another
Rs50 per maund for the second week in a row but
on the other hand castorseed and til were held
unchanged followed reports slack export demand.

Other major oilseeds including rapeseed and

cottonseed came in for alternate bouts of buying
and selling and prices of the former were marked
down by Rs25 to Rs75 per 40 kg, while cottonseed
were quoted modestly higher followed by reports
of slow arrivals from the ginneries.

Rapeseed cakes came in for modest selling in

sympathy of rapeseed and fell by Rs20, while
cottonseed cakes did not show any change.—M.A.
Excerpt: Life on earth

Despite the Big Bang and Big Crunch theories on

the creation and doom of the universe, the factual
position as it stands today is that the earth’s
temperature is fast increasing due to global
warming and its temperature. If not controlled
within a reasonable period of time it will shoot up
to more than 6°C during the next two centuries, at
which temperature the human race on earth will
surely be wiped out.

Earth’s survival depends on the sun’s rays, which

after passing through the thermosphere,
mesosphere stratosphere and troposphere reaches
the earth’s surface in about eight and a half
minutes. The ozone layer in the stratosphere
protects the earth from high temperature by
allowing only a small fraction of the sun’s rays to
reach the earth’s surface which is sufficient to
keep the earth warm and in habitable condition.

Greenhouse gas in the atmosphere absorbs ozone

and due to thinning of the ozone layer more and
more solar rays penetrate the earth’s atmosphere
causing a continuous rise in the earth’s
temperature. Coal, oils, gases, petrol, produce
energy necessary for the industrial development of
a region.

Global warming is not a regional phenomena but

a global catastrophe. During the last 100 years the
earth’s temperature rose by about 1°C. By the end
of the current century this will go up to 3°C and
by the close of the next century, it is expected to
shoot up to well above 6°C when CO2
concentration may exceed the damaging potential,
resulting in:

‘Melting of the entire polar ice causing

disappearance of most islands in oceans specially
in Indian Ocean. There will be fast depletion of
Himalayan snow/glaciers as it is the largest ice-
mass after Arctic and Antarctic. All the existing
rivers descending down the Himalayas and
supplying more than 10 million cubic meters of
drinking water to countries like India, Pakistan,
Nepal, Bangladesh, China, Burma and
Afghanistan will overflow causing devastating
floods in plains and coastal region of the countries.

‘This will be followed by a drought with no

drinking water for residents of the area. All
forests and plantations over mountains and up
country will completely dry up resulting in further
increase of global warming. This situation will
bring more suffering to inhabitants of poor and
developing countries than to developed countries.’

The extensive studies on the subject carried out by

renowned world scientists give a very grim picture
of our future life if the global warming
phenomena is not successfully controlled in the
near future. Global warming is basically a
scientific phenomena and can successfully be
tackled by scientific means by replacing the
existing energy sources with new energy sources
that do not produce greenhouse gas. According to
the Inter-Governmental Panel on Climate Change
(IPCC) Report, the US alone produces about 40
per cent of the world’s total CO2 emission at an
approximate rate of 20 tons per person.

If green house gas production by all G8 countries

are also taken into account it is likely to exceed 50
per cent of the total CO2 emission contributing to
global warming. This emission needs to be
drastically reduced to less than 5 tons per person.
In China, for example, CO2 emission rate is only 3
tons per person.

The Kyoto Treaty of 1997 — now ratified by most

world countries — proposed replacement of
existing
energy sources all over the world with renewable
energy sources like wind power, solar power, tidal
power, hydro power, bio-fuel power which do not
produce greenhouse gas.

With these measures, the Kyota Treaty expected

CO2 contents in the atmosphere to reduce by at
least 5 per cent over the next 10 years. However
according to latest statistics, the CO2 content in
the atmosphere today, instead of decreasing, is
higher than anytime in the history of the earth.

Excerpted wih permission from

Report on Global Warming

Part IV
By Disaster Relief Plan Cell
Sir Syed University of Engineering and
Technology, Karachi
06pp. Price not listed
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