Saturday, April 7, 2012

Underground Economy Underpins Pak Consumption Boom

Car sales increased 14 percent in February from a year earlier. Cement sales are rising with growing housing demand for increasing population. Lucky Cement, Pakistan’s biggest publicly traded construction materials company, is expected to post record earnings this year. Rising farm prices of bumper crops are pumping hundreds of billions of rupees each year into Pakistan's rural economy.

Contrary to government statistics of a stagnant economy, packed shopping malls and waiting lines at restaurants tell a different story-- the story of growing discretionary incomes of Pakistani consumers today.



So where is the disconnect between these two opposite views of Pakistan's economy? Naween Mangi of Businessweek answers it in her piece "The Secret Strength of Pakistan's Economy". She attributes it to the fast growing informal sector of the nation's economy that evades government's radar, illustrating it with the story of a tire repair shop owner Muhammad Nasir. Nasir steals water and electricity from utility companies, receives cash from his customers in return for his services and issues no receipts, pays cash for his cable TV connection, and pays off corrupt police and utility officials and local politicians instead of paying utility bills and taxes.

Here's an excerpt from Mangi's Businessweek story:

"The rhythms of life in the underground economy remain largely undisturbed. After work, Nasir and his friends sometimes hire a rickshaw to head to the beach or to a religious festival. The driver, part of the flourishing local transport business, doesn’t turn on the meter because he doesn’t have one. On his way home, Nasir stops to buy cooking oil, wheat flour, and sugar at a small grocery store that isn’t officially there. Out of about 1 million shops, up to 400,000 are grocery stores, and most of them are not registered and don’t pay taxes, according to Rafiq Jadoon, president of the City Alliance of Markets Association. In the evening, Nasir unwinds in front of the television. He watches an Indian movie transmitted by a local cable operator to whom he pays a monthly fee—in cash."

The estimates of the size of Pakistan's underground economy vary from 30% to 50% of the official GDP of just over Rs. 18 trillion (US$200 billion). Businessweek's Mangi claims that the government is losing as much as Rs. 800 billion (US$9 billion) in taxes from the informal sector...nearly enough to wipe out Pakistan's current fiscal deficit.

In my view, there are two major problems that arise from the underground economy described by Mangi. First, the massive tax evasion fosters Pakistan's dependence on foreign aid which comes with strings attached and infringes of national sovereignty. Second, the widespread theft of electricity is largely responsible for the huge circular debt and the ongoing power shortages that affect all aspects of life and scare away investors. The sooner the government and the people realize the severe downsides of the underground economy, the better it will be for Pakistan.

Related Links:

Haq's Musings

Rural Consumption Boom in Pakistan

Pakistan's Tax Evasion Fosters Aid Dependence

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

Land For Landless Women in Pakistan

Pakistan's Circular Debt and Load-shedding

41 comments:

Riaz Haq said...

Here's an excerpt of a report in The Nation on shares market rise on the news of increasing cement sales:

The local bourse broke the 14,000 level on an intraday basis for the first time since 16th May 2008. The positive sentiment was on the back of expectations of the issuance of the much awaited SRO on capital gain tax rules. Additional impetus also came after the release of the robust cement dispatches data and easing of Consumer Price Index (CPI) to 10.8 per cent in March-12. As a result, the KSE 100 Index gained 113 points (up 0.8 per cent WoW) to close at 13,875 level. Volumes improved by 5 per cent WoW to 387mn shares indicating the upbeat investor sentiments. Foreigners, on the other hand, offloaded shares worth $1.6 million. Pakistan Bureau of Statistics (PBS) released CPI figure for the month of March-12 during the week. CPI clocked in at 10.8 per cent YoY in March-12, down from 11.0 per cent in February-12. The marginal improvement in the headline inflation came on the back of ease in food prices.
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Release of robust cement dispatches numbers kept the cement stocks in the limelight once again. Consequently, LUCK and DGKC both outperformed the market by 11.6 per cent and 6.9 per cent respectively. Conversely, HUBC underperformed the market by 2.4 per cent on news that the company’s dividend payments may get delayed after FBR froze the company accounts.

Though the market increased by 0.8 per cent during the week but it managed to cross 14,000 points level on intraday basis during the week. Cement stocks remained in the limelight on the back of increase in export price to Afghanistan and expectations of healthy earnings. Restoration of gas supply to Engro Corp new plant also kept the stock in investors’ radar. While lower than expected inflation numbers for March did not have any impact on the market sentiments.
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As per monthly data released by All Pakistan Cement Manufacturers Association (APCMA) total dispatches witnessed a modest rise of 4 per cent YoY to 23.63m tons in 9MFY12 as against the total dispatches of 22.81m tons in the corresponding period last year. During the 9MFY12 growth in overall industry dispatches was primarily on account of 8 per cent YoY rise in local dispatches to 17.39m tons in comparison of the local dispatches of 16.04m tons in the same period last year. Local dispatches were higher in north zone by 7 per cent YoY to 14.09m tons and in south zone by a sharp 13 per cent YoY to 3.30m tons. On MoM basis, local dispatches were seen substantially higher by 32 per cent MoM mainly because of the reconstruction activities in flood affected areas, normal construction and on going work on mega projects.


http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/09-Apr-2012/cement-sector-outperforms-others-at-kse

Riaz Haq said...

Here's a Reuters' report on rice exports from India & Pakistan stabilizing prices:

A rebound in rice supply from India and Pakistan this year will calm fears over food inflation faced by poor nations as cheaper grain from the South Asian neighbours corners a third of the global market.

South Asia’s ample grain stocks will help it undercut key traditional suppliers, as a populist scheme in Thailand prices its grain out of competition and high export floor prices in Vietnam deter some buyers.

India is likely to emerge as the world’s second largest rice exporter in 2012, selling around 7 million tonnes, while Pakistan’s shipments are expected to bounce back to about 4 million tonnes amid the high prices of rival Thailand.

“Indian rice supplies will act as a price stabilisation factor against high global food inflation,” said Tajinder Narang, advisor at a New Delhi-based trading company Emmsons International.

Global food prices rose in March for a third straight month with more hikes to come, the UN’s Food and Agriculture Organisation (FAO) said last week, with higher prices of oilseeds and grains contributing to the rise.

The FAO index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.9 points in March, up from 215.4 points in February.

Although the index level is below its Feb. 2011 peak of 237.9, it still exceeds the level during the 2007-08 food price crises that triggered global alarm.

After benchmark Thai white rice prices climbed to a record above $1,050 a tonne in May 2008, several nations, including India, put a ban on exports.

That left buyers scrambling for supplies, unleashing concerns over food inflation and the threat of unrest in poor nations in Africa and Asia. But high stock levels in India and Pakistan could help avert a replay this year.
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India’s exports this year are expected to jump 50 per cent from last year’s shipments of 4.6 million tonnes, according to data from the US Department of Agriculture. India had exported 2.2 million tonnes in 2010.

Neighbouring Pakistan, which is expected to ship 3.8 million to 4.0 million tonnes in 2012, or an increase of at least 19 percent from 3.2 million last year, is cracking new markets with the sale of 200,000 tonnes to China and unconfirmed exports to the Philippines through unofficial channels.

“When we got a setback from Iran, our exporters looked elsewhere and that has led to diversification,” said Javed Agha, chairman of the Rice Exporters Association of Pakistan, referring to the impact of tightening Western sanctions over Iran’s nuclear programme.

In Thailand, prices have spiked due to a government intervention scheme due to run until the end of June, that is paying farmers 15,000 baht for a tonne of paddy, lifting Thai rice export prices to $500-$560 per tonne....


http://dawn.com/2012/04/11/india-pakistan-rice-supplies-to-ease-agflation-fears-wa/

Riaz Haq said...

Here's ADB's latest assessment of Pak economy as reported by Dawn:

The Asian Development Bank (ADB), in a report released Wednesday, has said that Pakistan’s economy faces a major hurdle in the shape of its domestic energy crisis.

The ADB has identified rising inflation, investment decline, low tax revenue and losses at public-sector enterprises as other factors hindering economic growth.

“The economy continues to be affected by structural problems, including a domestic energy crisis, a precipitous decline in investment, persistently high inflation, and security issues. Budget deficits remain high, driven by substantial subsidies and losses at state-owned enterprises, and tax revenue below target,” says the report.

The ADB sees power as the main constraint for economic growth, stressing for better load-management to minimize commercial losses.

The report adds: “Losses arising from power and gas shortages held down GDP growth by 3–4 per centage points in FY2011 and FY2012. Improved management of power resources could ameliorate predictability of load-shedding to allow the private sector to better schedule work and minimize costs.”

“For every unit of power sold, there is a loss to the sector reflected in the form of subsidies. An outstanding accumulation of PRs220 billion was carried into FY2012, and an additional financing of 1–1.5% of GDP is likely to be required in FY2012.”

Furthermore, the ADB advises reforms in not only the energy sector but also state-owned enterprises, naming Pakistan Railways, Pakistan International Airlines (PIA), and Pakistan Steel Mills as entities suffering the steepest of losses.

“The challenge of improving efficiency and putting these enterprises on a viable commercial footing is formidable. Reforms are needed, including a separation of these enterprises from operational interference by government ministries,” advises the ADB.

The report adds: “The slow growth in recent years was exacerbated by widespread floods in FY2011. Unless progress can be made in resolving these fundamental problems, the growth outlook will stay modest.”


http://dawn.com/2012/04/11/pakistans-energy-crisis-major-hurdle-in-economic-growth-adb/

http://www.adb.org/sites/default/files/ado2012-pak.pdf

Riaz Haq said...

Here's a PakistanToday report on SBP's efforts to increase funding of agriculture and financial literacy among farmers:

Presiding over a one-day ‘Farmers’ Financial Literacy & Awareness Program on Agricultural Financing,’ which was jointly organized by State Bank and Habib Bank Ltd. today at NRSP Training Center, Bahawalpur, he said the agriculture sector has a key role in country’s economy and stressed the need for making necessary finances available to farmers for multiple cropping activities. He outlined SBP’s efforts for creating awareness amongst the farming community and developing capacity of commercial banks through its various training and awareness programmes.
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Dr. Saeed Ahmed, Head, Agricultural Credit and Microfinance Department, SBP said the programme is aimed at creating awareness among the farming community about agriculture financing products & services offered by banks, money management techniques and lending procedures, documentations, etc. Besides, it would also develop capacity of agriculture field officers of banks in agri. financing and synergize the efforts of all stakeholders including policy makers, executing agencies, service providers & farming community to improve access to agricultural credit, he said, adding that SBP’s promotional initiatives and policy interventions have translated into around 200 percent increase in the flow of credit to the agriculture sector from Rs. 137.4 billion in 2005-06 to Rs. 263 billion in 2010-11.
However, he pointed out, despite this encouraging growth, the disbursement to the agriculture sector was around 40% of the total estimated credit requirements. ‘SBP has planned to increase the disbursement to 70-80 percent during the next five years covering 3.3 million borrowers by adopting a multipronged strategy,’ he added.
The inaugural session was followed by a technical session for the agricultural credit staff of banks in which senior officials of SBP and HBL made detailed presentations on dynamics of agriculture finance and related policies. The purpose of this session was to train the agriculture finance officials of banks enabling them to conduct farmers’ financial literacy programs at their end and to share the best practices in agriculture lending with the participants.


http://www.pakistantoday.com.pk/2012/04/12/news/profit/agriculture-can-farm-out-economy/

Riaz Haq said...

Here's a News report on 15% YoY growth in Pakistan auto sales:

Sales of automobiles in the first nine months (July-March) of the current fiscal year increased 15 percent to 128,576 units, compared to 111,852 units same period last year, according to the data released by the Pakistan Automotive Manufacturers Association (PAMA).



According to the data, in the third quarter (Jan.-March) of this year, automobile sales increased 7 percent to 46,632 units from 43,753 units in the correspondent quarter last year. When compared with the second quarter of this year, sales in the third quarter showed an impressive growth of 22 percent.



Pak Suzuki Motor Company (PSMC) continued to depict strong sales showing a growth of 32 percent in the July-March period to 81,360 units compared with 61,693 units in the same period last year. Analysts attribute strong growth to the yellow cab scheme announced by the Punjab government. In March 2012 alone, PSMC sales stood at 11,198 units, up 16 percent from same month last year and 12 percent from February 2012.



On the other hand, Indus Motor Company sales growth remained subdued during the period under review. The company sold a total of 38,858 units compared to 37,259 units in the same period last year, up by 4 percent. In the third quarter, the company sold 14,792 units against 14,851 units in the same period last year.



Samina Kanji, an analyst at BMA Research, a 15 percent year-on-year growth in auto sales is primarily due to the yellow cab scheme of the Punjab government. On the other hand, motorcycles and three wheelers sales increased on month-on-month basis and sales in March stood at 70,671 units as compared to 65,011 an increase of 5,660 units, the data showed. Total sales of farm tractors decline to 6,229 units as compared to previous month sales of 8,906 units. Sales of trucks and buses sales in March stood at 379 units as compared to 304 units in February 2012.


http://www.thenews.com.pk/Todays-News-3-102452-Auto-sales-show-15pc-growth-in-nine-months

Riaz Haq said...

Here are some excerpts of an ET piece on Pak Economy:

Pakistan is in the grips of a malignant paradox. Confusion abounds. In the one hand there have been year on year improvements in physical infrastructure. The bazaars are healthy with sounds of hustle and bustle of shoppers, restaurants are packed with gastronomic customers, and routine daily life is seemingly normal. However, on the other hand statistics are exposing doom and gloom and the national and international media are painting Pakistan as a basket case.
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Against this so-called doom and gloom, Karachi Stock Exchange (KSE) is flirting with the 14,000-point mark and not far away from the all-time highest level attained by KSE-100 index of 15,210.17 on April 1, 2008.

Pakistan’s textile sector continues to grow, with an expected bumper cotton crop of 15 million bales by the end of 2011-12 fiscal year. Textile exports are likely to further grow despite the on-going power shortages and electricity crisis. The health of the construction industry is reflected by the cement production in the country and the stellar performance of cement producers DG Khan Cement and Lucky Cement.

Despite all these good signs, GDP figures for the country are depressing, with an estimated growth rate of slightly over 3.5% for the current fiscal year. Why is this so?

While it is true that the country faces some genuine economic and political problems, the real reason for this paradoxical situation may very well be due to the rise in the black economy, which is unaccounted for and hence not reflected in the national statistics. When money can be seen in the market but not reflected in the national statistics, then one can only think of problems with the structure of the national accounts system. It can be argued that there is either fiddling with it or it is simply not used for some transactions. If this is true, then the people in political power are sharing the benefits of unaccounted growth with the businesses that are effectively paying less taxes by paying kickbacks, bribery and other corruption related money.
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In this doom and gloom, one thing is certain, the country is progressing and prospering in a private way, resulting in weakened government institutions, which would ultimately give birth to a completely privatised economy. If this model succeeds, this will certainly be the first privatisation programme of its kind in the world, which unfortunately would not be emulated elsewhere for its obvious inherent moral hazard problem.


http://tribune.com.pk/story/365206/the-economy-is-progressing-but-not-on-paper/

Riaz Haq said...

Here's an ET Op Ed on taxation in Pakistan:

Due to increasing trust deficit between the Federal Board of Revenue (FBR) and taxpayers, incidence of avoidance and evasion is on the rise. As collections remain weak, the government struggles to generate money to run the country. The irony is that the taxpayers do not want to pay taxes because of the trust deficit. Thus, the government argues well – no money no honey. It is a kind of egg-chicken like situation.

Sadly speaking, the current tax-to-GDP ratio has been languishing below 10% since long. India has improved and its ratio has reached 16.4%, China 14.9%, Sri Lanka 14.8% and Bangladesh having the lowest of all at 8.1%.

Taxes should be equitable in the sense that the heaviest burden should fall more on the rich and incidence of evasion and avoidance is at the minimum. This is only possible when the economy has a more built-in capacity which means contribution of direct taxes (progressive or proportional) should be greater than indirect taxes (regressive).

In contrast, the current contribution of direct tax is around 39%. Indirect taxes contribute over 60% to the revenue collection. The major stumbling blocks in the way of improving direct tax collection are the increasing size of black or cash economy, leakages in tax collection, narrow tax base and politically motivated tax exemptions.

Topping the list is governance problem which has become putrid. The dogmatic position of some political parties and that of business community over the reformed general sales tax (RGST) has augmented the situation further. Its fate hitherto remains obscure.

Indeed, indirect taxes not only punish the poor the most but also stoke inflation. According to a joint study of the World Bank, IFC and PricewaterhouseCoopers, Pakistan’s ranking has slipped from 145 in 2011 to 158 in 2012 in terms of ease of paying taxes, 149 to 155 in terms of tax payments, 168 to 170 in terms of time required to comply with three major taxes.

Pakistan scores better on total tax rate (TTR) which measures the amount of taxes and mandatory contributions borne by the business in the second year of operation, expressed as a share of commercial profit. Only China scores high on the tax payment indicator.

With a narrow base and high enforcement cost, the need for additional revenues is substantial in Pakistan, but improving revenue mobilisation has importance beyond that. The role of the FBR thus is the centre of attention. Instead of undertaking piecemeal tax policy approach, the FBR should try to overhaul and modernise the existing tax administration which is free from all political influence.

Plugging leakages in the bucket can help but the FBR would need better quality buckets too.


http://tribune.com.pk/story/365203/taxing-the-comatose-economy/

Riaz Haq said...

Here's a GeoTV report on IMF assessment of Pakistan's fiscal situation:

SLAMABAD: Country’s budget deficit is likely to hover around 6.7 percent of the Gross Domestic Product (GDP) during the fiscal year 2012, revealed International Monetary Fund (IMF) Fiscal Monitor of April 2012.

According to an IMF report Pakistan’s revenues could be 12.8 per cent of the GDP during 2012 and may increase to 13.9 per cent of the GDP by 2017. Government’s expenditures, which are expected to be 19.2 per cent of the GDP 2012, are likely to come down to 18.8 per cent of the GDP by 2017.

Gross debt of the country to reach at 61.1 per cent in 2012 and would come down to 53.2 per cent of the GDP by 2017.

Net debt of the country is seen around 58.5 per cent of the GDP and would come down to 50.4 per cent of the GDP by end of 2017.

During 2012 country’s debt maturity may reach 23.3 per cent of the GDP and its financing needs 30 per cent of the GDP.

During 2013, the debt maturity could inch up to 24.3 per cent of the GDP, its budget deficit 6 percent of the GDP and its financial needs to go up to 30.3 percent of the GDP.


http://www.geo.tv/GeoDetail.aspx?ID=44996

Riaz Haq said...

Here are excerpts of a Marketwatch commentary on India's "fading star":

...China’s economic growth has slowed to its lowest rate in three years. Brazil’s economic growth has fallen to under 3% from around 7.5%. Russia’s economy is heavily dependent on oil and energy prices.

And India? It seems destined to never fulfill its economic potential.
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Over the last two decades, India’s economy has almost quadrupled in size, growing at an average rate of about 7% per annum. India’s GDP rose by 43% between 2007 and 2012, slightly less than China’s, which increased by 56%, but much faster than developed economies that grew only 2%.

In late 2011, the Indian government’s 12th five-year plan forecast growth of 9% between 2012 and 2017. Yet by early 2012, India’s growth had slowed to around 6%, high by the standards of developed countries but well below the levels required to maintain economic momentum and improve the living standards of its citizens.
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ncreasingly, India’s problems — poor public finances, weak international position, structurally flawed businesses, poor infrastructure, corruption and political atrophy — threaten to overwhelm its potential.

In recent years, India has consistently run a public sector deficit of 9%-10% of GDP, including the state governments and off-balance-sheet items. The problem of large budget deficits is compounded by one major cause — poorly targeted subsidies for fertilizer, food and petroleum which may amount to as much as 9% of GDP.

In March 2012, India brought down a budget that forecasted a fiscal deficit of 5.9%, well above its previous fiscal deficit target of 4.6%. India’s strong rate of recent growth (an average rate of 14% between 2004-05 and 2009-10) made large deficits, on the order of 10 % of GDP, relatively sustainable. Slowing growth will increasingly constrain India’s ability to run continuing large deficits.

India’s government debt is around 70% of GDP. As its debt is denominated in rupees and sold domestically, India faces no immediate financing difficulty. Instead, the government’s heavy borrowing requirements crowds out private business.

But India is running a current account deficit of over 3% of GDP, and trending higher — among the highest in the G-20. The cause is slowing exports as a result of weakness in India’s trading partners, while imports, mainly non-discretionary purchases of commodities and oil, have increased. India imports around 75% of its crude oil.
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Slowing growth, tighter credit and other economic problems have increased corporate defaults to the highest level in 10 years. Non-performing loans are now around 2.5%-3% of bank assets. Analysts estimate that the major banks have around $25 billion in bad loans, an amount which is increasing.

The Indian government has already moved to recapitalize state-owned banks to ensure their capital position. In the process, the budget deficit and the government borrowing requirements have come under increasing pressure.

India is plagued by inadequate infrastructure. In critical sectors like power, transport and utilities, there are significant shortages. Yet political pressure to keep utility costs low has impeded investment.

In the electricity sector, for example, state-owned utilities that purchase power from producers and sell to residential users have incurred large losses. State governments are unwilling to raise retail consumer rates despite increases in the price that power producers charge the utilities. Attempts to increase rail ticket prices have failed. The Railways Minister’s own party opposed the proposal and demanded he be removed from his job. ...


http://www.marketwatch.com/story/indias-economic-star-is-fading-2012-04-19?link=MW_story_popular

Riaz Haq said...

Here are excerpts of a Bloomberg piece by Indian journalist Pankaj Mishra on Pakistan's "unplanned revolution":

However, I also saw much in this recent visit that did not conform to the main Western narrative for South Asia -- one in which India is steadily rising and Pakistan rapidly collapsing.

Born of certain geopolitical needs and exigencies, this vision was always most useful to those who have built up India as an investment destination and a strategic counterweight to China, and who have sought to bribe and cajole Pakistan’s military-intelligence establishment into the war on terrorism.

Seen through the narrow lens of the West’s security and economic interests, the great internal contradictions and tumult within these two large nation-states disappear. In the Western view, the credit-fueled consumerism among the Indian middle class appears a much bigger phenomenon than the extraordinary Maoist uprising in Central India.
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Traveling through Pakistan, I realized how much my own knowledge of the country -- its problems as well as prospects -- was partial, defective or simply useless. Certainly, truisms about the general state of crisis were not hard to corroborate. Criminal gangs shot rocket-propelled grenades at each other and the police in Karachi’s Lyari neighborhood. Shiite Hazaras were being assassinated in Balochistan every day. Street riots broke out in several places over severe power shortages -- indeed, the one sound that seemed to unite the country was the groan of diesel generators, helping the more affluent Pakistanis cope with early summer heat.
Gangsters with Kalashnikovs

In this eternally air-conditioned Pakistan, meanwhile, there exist fashion shows, rock bands, literary festivals, internationally prominent writers, Oscar-winning filmmakers and the bold anchors of a lively new electronic media. This is the glamorously liberal country upheld by English-speaking Pakistanis fretting about their national image in the West (some of them might have been gratified by the runaway success of Hello magazine’s first Pakistani edition last week).

But much less conspicuous and more significant, other signs of a society in rapid socioeconomic and political transition abounded. The elected parliament is about to complete its five- year term -- a rare event in Pakistan -- and its amendments to the constitution have taken away some if not all of the near- despotic prerogatives of the president’s office.

Political parties are scrambling to take advantage of the strengthening ethno-linguistic movements for provincial autonomy in Punjab and Sindh provinces. Young men and women, poor as well as upper middle class, have suddenly buoyed the anti-corruption campaign led by Imran Khan, an ex-cricketer turned politician.

After radically increasing the size of the consumerist middle class to 30 million, Pakistan’s formal economy, which grew only 2.4 percent in 2011, currently presents a dismal picture. But the informal sector of the economy, which spreads across rural and urban areas, is creating what the architect and social scientist Arif Hasan calls Pakistan’s “unplanned revolution.” Karachi, where a mall of Dubai-grossness recently erupted near the city’s main beach, now boasts “a first world economy and sociology, but with a third world wage and political structure.”

Even in Lyari, Karachi’s diseased old heart, where young gangsters with Kalashnikovs lurked in the alleys, billboards vended quick proficiency in information technology and the English language. Everywhere, in the Salt Range in northwestern Punjab as well as the long corridor between Lahore and Islamabad, were gated housing colonies, private colleges, fast- food restaurants and other markers of Pakistan’s breakneck suburbanization....


http://www.bloomberg.com/news/2012-04-22/pakistan-s-unplanned-revolution-rewrites-its-future.html

Riaz Haq said...

Here's an ET report on expected foreign inflows in Pakistan which should help stimulate the economy:

Federal Finance Minister Hafeez Shaikh, wrapping up a week long tour in Washington, said that Pakistan will be receiving as much as $5.27 billion from the US, UK and international monetary organisations over the next four years.

Having met managing director of the World Bank Sri Mulyani, the Asian Development Bank President Haruhijo Kuroda, US AID administrator Dr Rajiv Shah, Sheikh, and IMF Pakistan mission chief Adnan Mazarei among senior US officials, confirmed that both the Asian Development Bank and the US have reaffirmed investment in to the Diamer Bhasha dam project in Pakistan. “We have told the ADB to send their assessment team to Pakistan soon,” the Finance Minister said.

Addressing a press conference at the Pakistani Embassy in Washington, DC, Shaikh said that the US has also agreed to invest in the renovation of the Mangla Dam, and for the Kurram-Tangi dam project. He said the US government had notified Congress that it would be spending $223 million on the projects.

Shaikh, who is wrapping up a one-week trip to Washington DC where he and his finance team attended the IMF/World Bank Spring Meetings 2012, said the International Finance Corporation, part of the WB group, would also invest $1 billion in various sectors in Pakistan’s private sector, including energy and finance. Shaikh said that the IFC investment was the highest for the group in Pakistan. He also added that the World Bank had increased its spending on Pakistan from $1.6 to $1.8 billion. Dr Shaikh also said that Britain had announced that Pakistan would be its biggest recipient of aid. “Britain will spend over $2.25 billion over the next four years, primarily in the field of education.”

While highlighting the increasing number of remittances, a higher growth rate and growing exports as signs of progress in Pakistan’s economy, Dr Shaikh said that the rising oil prices may impact Pakistani exports in the future. He added that if the economic conditions of Europe worsened, that too could impact Pakistan.

Record breaking foreign remittances expected

Shaikh said that Pakistan is due to receive a record $13.5 billion in foreign remittances this year in a sign of confidence of overseas Pakistanis’ in the economic policies of the government. “Overseas Pakistanis posing confidence in Pakistan, will send $ 13.5 billion this year, reflecting a 21 per cent increase from last year’s $ 11.2 billion,” the finance minister proudly announced at the press briefing.

Claiming that the national economy was now on the path to stability and growth, Dr Shaikh said that Islamabad’s policies are yielding results despite soaring international oil prices and uncertain global economic situation and that this year Pakistan’s economy will grow at four per cent of the GDP, the highest growth seen over the past five years.

He recounted a host of positive indicators including six per cent expansion in exports, which follow a 30 per cent increase in exports last year, and a jump of 25 per cent in revenue collection in the past nine..


http://tribune.com.pk/story/369070/hafeez-shaikh-caps-off-successful-us-tour-securing-promises-of-aid-loans/

Riaz Haq said...

Here's a Daily Times report on Pakistani presentation at a World Bank forum in Washington:

Pakistanis continue to defy economic and security odds with unprecedented democratic reforms, economic recovery and vitality of civil society and march forward in key areas of development.

This was stated by top Pakistani officials at a World Bank forum, where international experts acknowledged that this wide-ranging resilience - which is ignored in the global media - is a major cause of hope and optimism for future of key South Asian nations, according to a message received here on Tuesday.

Finance Minister Dr Abdul Hafeez Shaikh and Ambassador to the United States Sherry Rehman, speaking at the panel discussion on ‘Pakistan: The Untold Story’ highlighted the fact that the Pakistanis are determinedly grappling with challenges as the people and their elected representatives strengthen democratic institutions, vital to development of the country. Ambassador Robin Rahpeh, US Coordinator for Non-Military Assistance to Pakistan, Nancy Birdsall, President of Washington think tank Center for Global Development, Mohsin Khan, a leading Pakistani economist at the International Monetary Fund and Professor Anatol Leieven, writer of Pakistan: A Hard Country, also spoke about Pakistan’s inspiring performance in various fields of endeavour and reforms that the country needs to step up its development. World Bank Vice President Isabell Guerrero moderated the discussion. The finance minister, who led a team of economic managers to the International Monetary Fund (IMF)-World Bank meetings, said he draws inspiration from the strong character of the founder Quaid-i-Azam Muhammad Ali Jinnah and ordinary Pakistanis who face off daily pressures of life and continue to contribute to the development of their country. He said it would take Pakistan a combination of measures - including focus on human development, steps towards sustained high levels of exports and an appropriate mix between the roles of government and the private sector - would help Pakistan tide over difficulties and move forward as a stable economy.

“Underlying all this will be the role of institutions and most remarkable feature in Pakistan right now is the strengthening of the democratic and civil society institutions including the parliament, court, media, the State Bank of Pakistan, Securities Exchange Commission are free and working autonomously.”

He pointed out that overseas Pakistanis have great confidence in their country and are remitting unprecedented amounts back home.

Ms Rehman, spotlighting some of the Pakistani achievements that are not reported in the global media, told the gathering of experts that Pakistan offers a great deal of resilience and hope.

“A historic shift is taking place, institutions are being built in Pakistan, there is movement towards a democratic accountable structure of the government, among the untold stories in the last four-and-a-half-year is that for the first time Pakistan’s democracy is witnessing a peaceful transfer of power, we finished Senate elections recently and the parliament has been empowered.” Pakistan, she said, wishes to live not just as a responsible country but wants to see its people live as global citizens. Pakistan is renegotiating its social contract with its own people. She also cited enactment of a series of laws and constitutional amendments that empower the provinces, ensure protection of women’s rights. She said martyred prime minister Benazir Bhutto remains an inspiration for women’s rights.


http://www.dailytimes.com.pk/default.asp?page=2012\04\25\story_25-4-2012_pg5_9

Riaz Haq said...

Here are excerpts of a WSJ Op Ed by Pak finance minister Dr. Shaikh:

For more than a decade, Pakistan has partnered with the United States to combat the extremism and militancy that threatens the stability of our region and the world. This fight has taken an enormous human toll on our people, with over 37,000 civilians killed and more than 5,000 police and soldiers lost. In addition to the enormous human tragedy, this struggle has directly and negatively impacted our economy and the development of our nation.

We have witnessed the loss of more than $100 billion of foreign investment, a tightening of our financial markets, and a freeze on the progress of many social programs. But that trend has now dramatically reversed, and there is an emerging story of a new Pakistan strategically located at the crossroads of the world's most dynamic economies, ready to take its place as a critical emerging market.

We have a consumer base of more than 170 million, a young and educated work force, and a culture of entrepreneurship. The opportunity for our economy to grow is immense. People in the West may not be aware, but the positive change that is sweeping Pakistan as we speak has profound economic and political consequences for the future.
----------
...over the last four years, the Pakistani government has taken difficult but important steps to get our economy back on track. This year real growth in gross domestic product is likely to reach 4%, nearly double last year's rate. During the first nine months of fiscal year 2012, tax collections have surged by 24%, remittances from Pakistanis abroad by 21% (to $9.7 billion), and our exports by 5.5% over last year's base of $25 billion.

Inflation and consumer prices were down in March, easing pressure on small and medium-size companies. The Karachi Stock Exchange KSE100 Index now stands at 14,000, having been at 6,000 in 2008. Pakistan's foreign exchange reserves increased to $18 billion in 2011, the largest in history, and our financial obligations are declining. In 2015, Pakistan's annual repayment to the International Monetary Fund will be a quarter of its 2012 obligation.

Six months ago, Pakistan granted Most Favored Nation trading status to India, a paradigm-shifting policy change driven by the business sectors on both sides of the border. With its complete implementation and the concomitant reduction of India's nontariff barriers, this decision has the power to reconfigure the region's economic landscape and dramatically increase its stability. Today, bilateral trade between India and Pakistan stands at $2.7 billion per year. Business chambers in both countries predict that figure could quadruple to $10 billion by 2015.
----------
Investing in any emerging market has its challenges, but Pakistan is poised for growth. For the first time in our history, a democratically elected government will complete a full five-year term next year. Our judiciary is independent and upholding the rule of law. Our military is working with our civilian government to protect our borders and keep militancy and extremism in check. Our civil society is expanding, and our media are robust and uncensored.

Business contracts have been consistently honored and the return on investment for many investors has been enormous. And though the last decade has taken a toll on our economy and our infrastructure, our resilience is evident and turning the tide. We are building infrastructure and expanding our energy capacity, we are modernizing our agriculture sector, we are a leader in telephone access, our textile sector is one of the largest in the region, and our information-technology companies are some of the best in the world.


http://online.wsj.com/article/SB10001424052702303592404577363903670333254.html

Riaz Haq said...

Here's an Express Tribune report on Pakistan economic growth in current fiscal year:

Pakistan’s economy grew by 3.2%, which is much below the official target and the required growth rate, leaving at least 1.3 million people jobless this year.

“According to a provisional assessment, gross domestic product (GDP) grew by 3.2% in the financial year 2011-12 ending June 30,” said Sohail Ahmad, Secretary of Statistics Division, after chairing the 91st meeting of the National Accounts Committee, convened to finalise the growth figure.

Estimates are based on provisional information for eight to nine months, which is used for projection for the entire year.

This growth figure remains below the target of 4.2% and even less than the conservative estimates of the International Monetary Fund and the Asian Development Bank that put the growth at 3.6%.

The committee’s data shows that the major push came from commodity producing sectors – agriculture and industry – as the government missed its services growth target with a wide margin.

Net national income increased by Rs282.5 billion and, with the year’s population growth rate at 2.05%, per capita income rose by 1.3%.

“The growth rate is not enough to absorb two million people entering the job market every year,” said Dr Ashfaque Hasan Khan, Dean Business School of NUST. For creating jobs for the new entrants, a 7% to 8% growth was required, but due to the low rate 1.2 to 1.3 million young people remained unemployed this year.

Average growth for the last five years – covering all the period of Pakistan Peoples Party-led coalition government which came to power in March 2008 – stood at just 2.58%. In 2008, the economy grew by 2.2%, in 2009 2.8%, in 2010 1.8% and in 2011 3%, said Arif Cheema, Director General of Pakistan Bureau of Statistics.

Agriculture sector (24.7% of GDP)

The agricultural sector that pushed the overall growth rate up saw a robust growth due to improvement in soil fertility after floods for two years. Against the target of 3.4%, the sector grew by 3.6%.

Targets for major crops and forestry growth were surpassed. Compared to the target of 3%, major crops grew by 6.1% while forestry growth was 4.1% against the target of 2%.

However, production of minor crops dropped 2% against the target of 2% growth. Targets for wheat, sugarcane and rice production were also missed. Against the target of 25 million tons, wheat output was 23.5 million tons.

Rice production stood at 6.2 million tons compared to the target of 6.6 million tons while sugarcane harvest remained at 56.3 million tons against the target of 57.6 million tons.

Industrial sector (22.2% of GDP)

The industrial sector, which rose by 1.9% last year, expanded 3.6% this year because of growth in electricity, gas and water supply sub-sectors. The industrial growth target was 3.2%. Electricity and gas sectors grew by 15.5% against the target of just 1%. “We have added subsidies to the output of electricity generation, which is according to international norms,” said Arif Cheema.

Growth rate for mining and quarrying stood at 1.7% against the target of 1% while the manufacturing sector grew by 2.4% against the target of 3.7%. In the manufacturing sector, large-scale manufacturing rose by just 1.64% while the construction sub-sector, which last year contracted by around 1%, saw a growth of 2.8% this year.

Services sector (53.1% of GDP)

The government missed the services sector growth
target of 5% by a wide margin, as the biggest component of the economy rose by just 2.2% due to contraction in banking and financial sectors.

The finance and insurance sectors contracted by 11%, said Arif Cheema. The growth targets of all sub-sectors, except for ownership and dwellings, were missed....


http://tribune.com.pk/story/370522/short-of-expectations-unemployment-surges-as-growth-falls-short-of-target/

Riaz Haq said...

Here's a Bloomberg report on preliminary estimates of Pak GDP growth in current FY 2011-12:

Pakistan’s economy will probably expand 3.2 percent in the fiscal year through June 2012, lower than a previous forecast of 4 percent, the nation’s statistics office said in a preliminary estimate.

Gross domestic product increased 3 percent in the 2010-2011 financial year, more than an earlier report of 2.4 percent, following a change in the base year for calculating the pace of expansion, the Pakistan Bureau of Statistics also said in a statement released yesterday.

Pakistan’s $200 billion economy has been hampered by blackouts from its worst energy crisis, an insurgency on the Afghan border, elevated inflation and diminished aid flows. The nation’s Supreme Court yesterday convicted Prime Minister Yousuf Raza Gilani of contempt of court, adding to political tensions ahead of general elections due by February.

“Growth will remain subdued this fiscal year,” said Khalid Iqbal Siddiqui, the head of research at Karachi-based United Bank Ltd. “Manufacturing industries are suffering from power and gas shortages, while there are signs that the urban economy dominated by the service sector is performing poorly as well.”


http://www.bloomberg.com/news/2012-04-27/pakistan-s-gdp-growth-forecast-cut-to-3-2-by-statistics-office.html

Riaz Haq said...

Here's a Nation report on WB loan for education & energy sectors in Pak:

The World Bank’s Board of Directors approved two projects totaling $550 million aimed at supporting Pakistan’s effort to strengthen the education and natural gas sectors, which are critical to Pakistan’s growth and development.

The $350 million Second Punjab Education Sector Project would support the Government of Punjab’s education sector reform program designed to increase child school participation and student achievement.

The $200 million Natural Gas Efficiency Project aims to enhance the supply of natural gas in Pakistan by reducing the physical and commercial losses in the gas pipeline system.

Significant shortfalls persist in both school participation and student achievement in Punjab. To address these challenges, the Government of Punjab is implementing the Punjab Education Sector Reform Program (PESRP), which aims to improve schooling outcomes through institutional development and strengthening, improved monitoring, and enhanced governance and accountability. The Bank has supported this program since 2008. During this time, the reform over 850,000 additional students - more than half of them girls – are now enrolled in low cost private schools supported under government subsidies tied to minimum school quality standards; some 400,000 female students receive quarterly stipends tied to school attendance; and free textbooks are provided to all students in public schools. The new results-based project will build on these achievements and support the second phase of the reform program over the period 2012-2015.

Rachid Benmessaoud, World Bank Country Director for Pakistan said that with a target school-aged population of over 12 million children, 30 percent of who remain out of school and with relatively low levels of learning, continuation of our support to the government’s reform program is critical. He said that the second phase of the program aims to take the next evolutionary step and zero in on improving service delivery performance at the school level. A key focus will be improving teacher quality and performance, which is critical for better school quality, and, thereby helping retain students in school and attract new children to school.

The challenges in the gas sector are also significant. Pakistan faces severe scarcity of gas, with production failing to keep pace with demand. Other critical challenges include inadequate allocation of gas, inefficient end-use of gas, and high levels of unaccounted-for gas (UFG). More than 10 percent of gas supplied in Pakistan is unaccounted for, which is unaffordable and a major contributor to the current gas supply crisis. UFG is typically at 1-2 percent in OECD countries.

The main focus of the Natural Gas Efficiency Project is to reduce UFG to about 5 percent by 2017 in distribution areas served by the Sui Southern Gas Company Limited (SSGC). This includes Karachi, interior Sindh, and Balochistan.

Bjorn Hamso, World Bank Senior Energy Economist and project team leader said that Results will be achieved through pipeline rehabilitation, use of cathodic protection to halt corrosion, and installation of automatic pressure management systems and advanced consumer metering systems. He further said that Key to the project’s success is to install hundreds of wholesale meters in the distribution network in such way that network activity can be monitored on a localized level and investments can be put to use where the leakage problem is the largest and the theft problem the most severe.


http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/27-Apr-2012/wb-approves-550-million-loan-for-pakistan

Riaz Haq said...

Here's a News story on WB panel & Pak's resilient economy:

LAHORE: Pakistan’s economy is resilient and growing with some phenomenal growth in remittances and informal economy, but the people are reluctant to invest due to many reasons including energy crisis.



This was the crux of a panel discussion held under Finance Minister Abdul Hafeez Sheilkh at World Bank headquarter a few days ago. International experts on Pakistan’s financial and social issues were present at the event.



According to the panellists Pakistan being the second largest country of the South Asian region a great potential to explore.



The World Bank Vice President for South Asia Isabel Guerrero posed two questions to the panel: What inspires you about Pakistan and what is the one shift needed to change the country for the better?



“The grace of the people of Pakistan amidst adversity inspires me,” Shaikh responded to the first question, and many of the other answers also cited Pakistan’s resilience in the face of multiple crises. Shaikh noted, “Countries that invested in their people, exported their products, and found the right balance between the public and private sector get ahead.”



Nancy Birdsall, president of the Center for Global Development, said a “culture of philanthropy” has helped Pakistanis embrace displaced people and respond to these challenges. She said the country is similar in this regard to the United States, as well as in its tradition of religious moderation.



Mohsin Khan, a senior fellow at the Peterson Institute cited the growth of the middle class - now 70 million out of Pakistan’s population of about 175 million - the informal economy, remittances from Pakistanis overseas, and the rural economy as encouraging factors.



“The most interesting factors are $75 billion consumer spending - almost 40 percent of the country’s GDP; a booming informal economy; and a 70 million strong middle class population out of 175 million total population are amazing numbers when we think about Pakistan as a poor country,” he remarked.



Mohisn said around 1.5 million motorcycles and half a million cars are registered each year in Pakistan. Toyota Camry has a price tag of around 35,000 dollars in the US, while in Pakistan it costs 100,000 dollars, “and you will see too many these sort of cars running on the roads, exposing the resilience of the (Pakistani) economy.”



He said that opinion about Pakistan going down the drain was wrong in a scenario when country was getting $12 billion annual remittances, $4 billion private transfers and $25 billion exports despite the fact that the industrial sector was producing at 50 percent of its capacity due to energy crisis. He said people were reluctant to pump in this money into the economy due to various reasons. Mohsin appreciated that Pakistan’s migrants had improved their skill level so they were getting higher wages than past so that remittances were growing.



Robin Raphel, senior advisor for Pakistan at the US Department of State said: “The war next door in Afghanistan, the 2005 quake, floods in 2010, recession - Pakistan has coped with all these things.”



Other speakers focused on the growing strength of Pakistan’s democracy, while noting the need for stronger political and governmental institutions.



“There is a historic and strategic shift happening in Pakistan,” Rehman said. “A choice has been made ... that we wish to live not just as a democratic country but as responsible global citizens.”



Anatol Lieven, a professor at King’s College in London, said the most pressing change Pakistan needed to make was to collect more taxes, and Shaikh said revenue collection has increased 25% this fiscal year.


http://www.thenews.com.pk/Todays-News-3-105322-World-Bank-panel-sees-Pakistans-economy-resilient-growing

Riaz Haq said...

Here are some excepts of a BBC Op Ed on Indian economy titled "Five things wrong with India's economy":

After several official predictions that India would grow by 7-8% in 2011-12, the finance minister finally admitted in his Budget 2012 speech that the growth would be 6.9%.

The actual figure may be lower at 6.5%, thanks to the statistical error in sugar production, which dragged down January's industrial production growth figure from 6.8% to 1.1%.

Although ratings agency Standard and Poor's estimate for 2012-13 is 5% or above, Indian economists feel they won't be surprised if the economy grows by just 4%.

"If things remain the way they are, in terms of policy decisions, investments and sentiments, I would go to the extent that the figure may be 3%," says a senior economist with a leading business association.
--------
Wholesale price inflation, which is under 7%, could increase to 9-10% over the next few months.

Food inflation is still high at double-digit levels, and any hike in fuel (petrol and diesel) prices in the near future will spur inflation.

A combination of low growth and high inflation, or near-stagflation, would be India's worst economic nightmare come true.
-------------
In 2011-12, the fiscal deficit zoomed from a projected 4.6% of GDP to 5.9%. Although Budget 2012 predicted it would come down to 5.1% in 2012-13, most economists remain sceptical.

Low growth rates, lower-than-estimated government revenues, and higher-than-expected expenditures, especially on welfare schemes for rural employment and the right to food, may force the deficit to go up in 2012-13, as happened in the previous financial year.

Although exports grew by 20% in 2011-12, imports rose at a faster pace, and the trade deficit went up to $185 billion, the highest ever in the country's history.

Since August 2011, foreign exchange reserves have dipped from $322bn to $293bn due to the higher trade deficit and other foreign exchange outflows.
-----------
Coalition compulsions, a united opposition and corruption allegations have forced the government to backtrack on key economic reforms, including foreign direct investment (FDI) in multi-brand organised retail.
--------------
In 2011-12, the domestic private sector was wary of huge investment commitments; many firms delayed or postponed plans to invest in expansion or building new factories.

An April 2012 overview of the Reserve Bank of India (RBI) stated that "consultations with industry and banks suggest that new project investment continue to be sluggish"
-----------



http://www.bbc.co.uk/news/world-asia-india-17891946

Riaz Haq said...

Here are excepts of an interview of Elliot Theorist Mark Galasiewski who's bullish on Pakistan:

To answer your question, there are various ways to make long-term investment decisions. For example, Warren Buffett has shown that picking individual stocks can provide good returns over time. But it's a very labor-intensive and time-consuming process, to research companies thoroughly enough to have the kind of conviction that he does. And his “buy and hold” strategy means that he suffers significant drawdowns in his portfolio at times -- like during the 2007-2009 crash.

Elliott wave analysis gives you the opportunity to make long-term bets with a similar conviction -- but with a fraction of the elbow grease. Instead of pouring over hundreds of quarterly reports and legal documents, you look for Elliott wave patterns in the charts of market indexes. Those patterns reflect investors' collective bias, bullish or bearish. (I won't go into details of why this is so; our Club EWI has tons of free reports explaining the mechanics of the Elliott Wave Principle.)

So, knowing what part of the Elliott wave pattern your market is in, you know how the pattern should progress from there, ideally. And that gives you a probabilistic forecast for the trend. It doesn't work 100% of the time (what does), but our subscribers remember more than one successful forecast we've made using Elliott waves.

For example, on March 23, 2009 -- at the time when almost no one felt bullish -- we issued a special report to our subscribers forecasting a multi-year bull market in Indian stocks. Two weeks later, we identified three more markets in the region -- Pakistan, Sri Lanka, and Indonesia -- that we believed were also likely to enjoy an "Indian Ocean Renaissance."

India, Pakistan, Sri Lanka, Indonesia have all since generated some of the best returns among global stock markets. Without knowledge of the Elliott Wave Principle, it would have been difficult to forecast the boom -- especially given the dismal news events at the time. Do you remember the headlines in early 2009?

The world was engulfed by the global financial crisis, and most people believed the worst was still ahead. The currencies of India, Pakistan, Sri Lanka, and Indonesia had collapsed. Pakistan and India were on the brink of conflict over the Mumbai terrorist attacks of late 2008. A civil war was still raging in Sri Lanka. Who would turn bullish on stock under those "fundamental" conditions? We did, and only because Elliott wave patterns in the price charts of those four markets told us to "buy."

And by the way, the terrible conditions in India, Pakistan and Sri Lanka mostly reversed along with the market rally over the next year.
---------
The Wave Principle is how the market works. Financial markets are non-rational and counter-intuitive. Investing according to conventional assumptions eventually leads to financial ruin, since the market too often does the opposite of what most people expect.

Even thinking contrarily is insufficient, because sometimes it’s necessary to run with the herd. But Elliott wave analysis helps you to determine which psychological stance is most appropriate at any given time. Often, the news at the time would be suggesting you do the opposite.


http://www.elliottwave.com/freeupdates/archives/printer/2012/04/26/India,-Pakistan,-Sri-Lanka,-Indonesia-How-Elliott-Wave-Analysis-Turned-BULLISH-When-Few-Dared.-Part-.aspx

Riaz Haq said...

Here's a PPI report on Pak auto sales data for first 9 months:

Pakistan car (including LCVs, Vans and Jeeps) sales during 9MFY12 rose by 15 percent to 128,576 units compared to 111,852 units in same period last year.

The volumetric growth primarily stems from i) June to July deferred sales on account of reduced tax structure announced in Federal Budget FY12 ii) Yellow cab scheme announced by the Punjab Government iii) 21 percent increase in workers’ remittance in 9MFY12 and iv) monetization due to rising government fiscal deficit.

According to Topline Securities analysis report, in 3QFY12 (Jan-Mar) the industry sales rose by 7 percent from 43,753 units to 46,632 units in same period last year, while are up by a significant 22 percent as compared to last quarter (Oct-Dec).

In March 2012 car sales stood at 16,678 units up 6 percent as against 15,710 units sold in March of last year and are up 11 percent versus 14,962 units sold last month.

With respect to individual companies, PSMC continued to depict strong growth of 32 percent in 9MFY12 to 81,360 units versus 61,693 units seen in same period last year as it stands out to be the prime beneficiary of announced yellow cab scheme.

In 3QFY12, the company sales stood at 30,642 units from 3QFY11, up 31 percent and 26 percent from 3QFY11 and 2QFY12, respectively. In March, PSMC sales stood at 11,198 units, up 16 percent from same month last year and 12 percent from last month.

Indus Motors 9MFY12 sales growth remained subdued. Company sold 38,858 units compared to 37,259 units in same period last year, up by 4 percent.

In 3QFY12 the company sold 14,792 units against 14,851 units in the same period last year, but depicted a significant jump of 26 percent as compared to last quarter.

The recent recovery in sector’s volumetric sales along with the improved margin is expected to bode well for the sector’s profitability going forward.


http://www.brecorder.com/pakistan/business-a-economy/52787-car-sales-up-by-15pc-during-9-months-of-current-financial-year-.html

Riaz Haq said...

Here's a Reuters' report on KSE's record close on May 4, 2012:

May 4 (Reuters) - Continued buying by foreign investors and expectations of strong corporate performance by heavily-weighted companies boosted local confidence in the Karachi Stock Exchange, analysts said, leading it to close at its highest level since May 2008.

Foreign investors bought shares worth a net $19,569,904 on Friday according to the National Clearing Company of Pakistan.

The Karachi Stock Exchange (KSE) benchmark 100-share index closed 1.33 percent, or 192.36 points, higher at 14612.28 points, with a volume of 240.9 million shares. The market hit an intra-day high of 14,628.96, and posted its highest close since May 5, 2008 when the index closed at 14,673.13.

"The expectation of good corporate earnings and consistent buying by foreign investors combined to keep the market bullish," said Atif Zafar, a research analyst at the JS Global financial services company.

Among the heavyweights, Pakistan Telecommunication Company closed 6.93 percent higher at 15.42 rupees.

In the currency market, the Pakistani rupee closed almost flat at 90.76/78 to the dollar, compared with Thursday's close of 90.72/77. The rupee has been supported by remittances, which rose 21.45 percent to $9.73 billion in the first nine months of the 2011/12 fiscal year, compared with $8.02 billion in the same period last year.

In March, remittances totaled $1.14 billion.


http://www.reuters.com/article/2012/05/04/financial-pakistan-idUSL4E8G45CI20120504

Riaz Haq said...

Here's an ET story on poverty decline in Pakistan:

Their biggest challenge at the moment is to explain how nearly seven million Pakistanis have come out of the vicious cycle of poverty.

According to the survey, the incidence of poverty has declined from 17.2 per cent in 2008 to slightly over 12 per cent in 2011. It was conducted by a committee constituted to calculate the incidence of poverty on the basis of Pakistan Social and Living Standards Measurement Survey 2010-11.

“The biggest challenge in front of us is how to explain this figure to the masses and economists when the economy grew at an average rate of 2.6 per cent and average inflation remained above 15 per cent during the last four years,” a member of the committee told The Express Tribune requesting anonymity due to political sensitivity attached to the figure.

He said poverty declined to slightly over 12 per cent with sharp declines in both rural and urban poverty. He said rural poverty declined more than urban poverty but, “the behaviour was the same and consistent with previous years’ results.”

In 2007-08 when the Pakistan Peoples Party-led coalition government took over, poverty had been assessed at 17.2 per cent. But the government decided not to release the figure saying poverty was at 35-40 per cent. It shared 40 per cent figure with Friends of Democratic Pakistan in its maiden meeting held in Tokyo.

It is facing the same dilemma exactly after four years, as its own people are now telling that poverty has declined to 12 per cent.

According to the United Nations Multi Dimensional Poverty Index, half of the country’s population lives below the poverty line.
----------
In 2007-08 the country’s estimated population was 164.7 million. By that account in 2008 as many as 28.3 million people lived below the poverty line. In 2010-11, the estimated population was 175.3 million and around 21.5 million people were in abject poverty.

The committee member said that poverty has been worked out on the basis of consumption method. According to this method, if a person takes 2,350 calories per day that costs him slightly over Rs1,700 per month that person is taken as above the poverty line.

The official said that the committee has not formally submitted the poverty report to the Planning Commission, but it is expected to submit the report over the next couple of weeks. However, the committee has already shared its findings with the commission.

A senior government official, who also wished to remain anonymous, said that the concerned authorities were considering the poverty figure and framing their mind whether to release it or not. It is not yet clear whether the government would publish the poverty estimates in the Economic Survey of Pakistan 2011-12.

The committee member, while giving justifications for the decline in poverty despite harsh ground realities, said that poverty declined because of higher support price of major crops, especially wheat, healthy trend in inflows of remittances and impact of assistance provided by both the government and private sectors in the flood affected areas of the country.

http://tribune.com.pk/story/374384/solace-among-confusion-5-decline-in-poverty-surprises-govt/

Riaz Haq said...

Here's Daily Times on rising domestic sales of cement in Pakistan:

The cement sales in domestic market posted fifth straight month of increase as compared to last year but the industry is still passing through difficult times as its exports registered third consecutive month of decline.

A spokesman of All Pakistan Cement Manufacturers Association stated this while discussing performance of the cement industry during first 10 months of the current fiscal.

He said that the total cement despatches up till April 2012 were 26.643 million tonnes, which is 3.31 percent higher than despatches during the corresponding period of last fiscal. The domestic sales during this period increased by 8.51 percent but exports registered a decline of 8.91 percent. He said performance of north and south-based mills depicted different trends both in domestic sales and exports. He said local sales of the north-based mills increased by 7.77 percent to 15.928 million tonnes while the south-based mills registered higher domestic consumption by 11.81 percent to 3.701 million tonnes. In exports, however, the mills in the north suffered comparatively less decline than in the south. The cement producers based in north exported 5.087 million tonnes of cement posting a decline of 6.23 percent over exports made during the same period last year. The exports of south region mills declined by 15.29 percent to 1.928 million tonnes.

Among the export markets, the Afghanistan market remained relatively stable as exports declined nominally by 0.15 percent to 3.778 million tonnes. Exports to India increased by 15.19 percent to slightly over half million tonnes. This includes exports by sea, as well as, through Wagah border. Exports to other destinations through sea however decreased by 16.96 percent to 2.699 million tonnes. Cement industry people said that cement is one the major commodities that is abundantly available in Pakistan and can be exported to India through the land route. Despite tall claims to increase bilateral trade, the respective governments failed to remove non-tariff barriers imposed on Pakistani products. There is currently a labour strike on Indian side resulting in piling up of consignments, which is affecting the movement of trucks from Pakistan.

Besides, merely 10 wheeler trucks from Pakistan are allowed to cross the border and maximum weight may not be more than 40 tonnes per truck. Unfortunately, most of the available transportation for cement has a loading capacity of more than 40 tonnes.

Availability of 10 wheeler trucks with a loading capacity up to 40 tonnes for cement is limited; resulting in the cement industry being unable to export its surplus capacity

There is only one scanner installed at the new gate at Wagah border resulting in long queues creating hurdles and delay for Pakistani exports to India. The Pakistani exporters have demanded of the government to look into the matter and allow trucks with a loading capacity up to 80 tonnes instead of 40 tonnes. They further urged the government that exporters should also be provided all necessary facilities at the border points so that they could easily clear their consignments.


http://www.dailytimes.com.pk/default.asp?page=2012\05\08\story_8-5-2012_pg5_2

Riaz Haq said...

Here's a Bloomberg report on Pakistan's 2012-13 federal budget:

Pakistan cut taxes and raised government salaries in an election-year budget that risks missing a target to narrow the deficit from a three-year high.

The government pledged to narrow the budget gap to 4.7 percent of gross domestic product in the year ending June 30, 2013 from 7.4 percent of GDP in the previous 12 months, Finance Minister Abdul Hafeez Shaikh said in his budget speech in Islamabad today. Opposition lawmakers shouted anti-government slogans, held up placards and scuffled during the presentation.

Prime Minister Yousuf Raza Gilani’s government, facing a general election by February at the latest, is under pressure to counter growing public anger over power blackouts, the fastest inflation in Asia and an insurgency on the Afghan border. The government is relying on domestic borrowings after aid flows from the U.S. and the International Monetary Fund dwindled.

“Raising salaries, reducing duties and increasing expenditure means they are likely to miss the fiscal deficit target once again,” said Saad Khan, fund manager and economist at Askari Investment Management Ltd., in Karachi which oversees 25 billion rupees ($267 million) in stocks and bonds.

The budget was unveiled after the nation’s financial markets closed. The Karachi Stock Exchange 100 Index (KSE100) rose 0.7 percent today and has climbed 14.5 percent in the past year. The Pakistan rupee was at 93.67 against the dollar, having declined 7.7 percent over the past 12 months.


http://www.businessweek.com/news/2012-06-01/pakistan-cuts-taxes-raises-wages-risking-deficit-as-vote-looms

Riaz Haq said...

Here's an excerpt of State Bank of Pakistan's latest quarterly report:

If one looks objectively at
Pakistan’s economy, it is clear
that the system is facing serious
challenges. The list is familiar:
fiscal pressures that require an
increasing volume of domestic
financing; an energy shortage
that entails economic and social
costs; low investment that is
undermining future growth;
issues with law and order; and
the neighboring war in
Afghanistan.
At the risk of making too fine a
point on the matter, Pakistan’s
economic data appears to
suggest two things: first, that
Pakistan has fallen behind its neighbors in South Asia; and two, even this belowpotential
growth is quite impressive when seen in the context of the challenges
mentioned above. In our view, the latter point is not widely appreciated.
There is a growing sense that Pakistan’s undocumented economy (the informal
sector) is vibrant, and that official data understates the level of economic activity
that can be seen. In effect, there seems to be a disconnect.
------------
It is a stylized fact that the informal sector in Pakistan is buoyant, and is
generating jobs; incomes; and demand for goods and services. This, in turn, is
spilling over into the real sector that is documented. Hence, as discussed in
Chapter 2, there are clear signs that construction is up, which is helping ancillary
sub-sectors like steel; cement; chemicals; wood; glass; paints; etc.
Many would argue that a vibrant informal sector is a blessing, as it is driving
formal economic activities, and keeping Pakistan from a full blown recession as
seen in Europe. Furthermore, the increasingly precarious social safety net that is
stoking public anger in Europe, may not be relevant in Pakistan where the
extended family and community steps in to take care of the elderly, the
unemployed, and the destitute. Although we would concede these points, it is
important to keep things in perspective.
While social institutions like the extended family; mosques; neighborhood
charities; ethnic/community organizations; etc., are robust and sustainable sources
of social and economic uplift, the role of the state (beyond official safety nets)
cannot be eliminated. More specifically, physical infrastructure and other public
goods (e.g. security; law enforcement; judicial services and contract enforcement;
recreational spaces; etc.) would be undersupplied by private organizations, which
are required to promote sustainable economic activities. If the mind-set of
absolute self-sufficiency becomes more entrenched, it may segment the economy.


http://www.sbp.org.pk/reports/quarterly/fy12/Third/Ch-1.pdf

Riaz Haq said...

Here's a report on rising auto & tractor sales in Pakistan:

As per the latest available data of auto sales, recently released by the Pakistan Automotive Manufacturers Association (PAMA), car and LCV sales witnessed a 15.1% YoY growth in 11MFY12. Segment-wise break-up reveals that the economy segment (less than 1,000cc) led the growth with sales increasing by 24.9% YoY during the period under review. This was followed by the 1,000-1,300cc segment, which witnessed sales growth of 19.2% YoY to 26,734 units. The high-end segment (1300cc+) meanwhile remained the sector’s laggard and sales grew by a meager 2.1% YoY to 58,458 units. This lackluster performance can mainly be attributed to the suspension of production at Honda Atlas Car’s (HCAR) plant from Dec-11 to Mar-12, and single-digit sales growth of Corolla. Sales of LCV’s and 4×4’s registered a healthy 27.4% YoY growth in 11MFY12, mainly due to a jump in Bolan (PSMC), Ravi (PSMC) and Hilux (INDU) sales.

Pakistan Suzuki Motor Company Limited (PSMC) witnessed a 31% YoY improvement in sales in 11MFY12 to 100,805 units. PSMC has benefitted from the Punjab Government’s Yellow Cab Scheme, which has resulted in sales of Mehran and Bolan to increase by 39% YoY and 54% YoY respectively. Sales of Swift, Cultus and Alto meanwhile, increased by 67% YoY, 23% YoY and 15% YoY respectively in 11MFY12. Total units sold by the company in May-12, increased by 20% MoM to 10,608 units. On a YoY basis, this figure is 34% higher than May-11’s sales of 7,920 units.

Sales of Indus Motor Company Limited (INDU) decreased by 7% MoM in May-12 to 4,846 units. The primary reason behind this decline is the discontinuation of Coure, with only 63 units being sold during the month. During 11MFY12, the company sold a total of 48,907 units, which is 6% higher on a YoY basis. Hilux has remained at the forefront (with respect to sales growth), and its sales are higher by 56% YoY to 3,625 units in 11MFY12. Sales of Corolla during 11MFY12 increased by 9% YoY to 41,720 units.

Honda Atlas Cars Pakistan Limited (HCAR) reported a 53% MoM increase in total units sold to 1,150 units. The company’s endeavors to clear the backlog of orders of its City model resulted in sales of the model to jump by 533% MoM to 1,050 units. In 11MFY12 however, the company was only able to sell 9,901 units (33% lower YoY) owing suspension of production due to floods affecting its primary parts supplier in Thailand last year.

Al-Ghazi Tractors Limited (AGTL) registered a healthy 20% MoM sales growth to 2,743 units in May-12, helping the segment attain an overall performance improvement of 10% MoM to 6,913 units. On a YoY basis however, the sector recorded 33% lower sales owing to the imposition of GST last year, which resulted in demand for the product drying and production being suspended as a consequence. Millat Tractors Limited meanwhile, reported a 4% MoM improvement in sales to 4,170 units. On a YoY basis, sales of AGTL and MTL declined by 42% and 28% respectively during 11MFY12. This was mainly on account of the suspension of production mentioned above..


http://investorguide360.com/11mfy12-auto-sales-register-15-yoy-growth-lies-ahead-budget-ahl-research/

Riaz Haq said...

Here's a Dawn story on Pakistani retail boom:

Isn’t it great that we in Pakistan finally have a mall which houses international brands such as Next, Nine West, Splash, Monsoon, Accessorize among other names? The retail boom is in full swing no matter what the economists say. Proof: Mango’s launch which brought out top models, stylists as well as your everyday shoppers.

Though its doors have been open to the public since June, its media launch (managed by Catalyst P.R. aka Frieha Altaf) was just held recently. Okay, so coming back to the basics, I love LOVE loveeeee shopping BUT I am an even bigger lover of a good bargain. IMAGINE my disappointment when a pair of heels (hideous ones by the way) at Nine West were for Rs.13,000! I had convinced myself that Mango will fair no better. I was pleasantly surprised…to an extent.

The thing is that these brands are RETAIL brands, NOT designer brands, as some may think. The price points cannot be “unaffordable” as they have to appeal to the general public. Right? Where Mango had their summer clothes (which I loved!!!) there was winter wear as well! Hmm, isn’t it still summer and isn’t winter like MONTHS away? Winter in Karachi won’t be until end of November (if we are lucky), so what is the point of having SWEATERS smack in the start of one of the hottest summers we have had? What is that? Yes, that’s a puzzle even I couldn’t figure out! There were cute tops and accessories, bags and shoes, scarves, fun summer maxis and jeans – all the good stuff. What Nine West or Monsoon lack in affordability, Mango makes up for it. Comparatively, Mango is much more affordable than the rest of the retail counterparts which have come to town. Next, though was one of the first retail brands to open its doors in Karachi and Lahore, has the inventory which can easily be classified as, say it with me “ANCIENTT!!!” They should just pack up or change their management. Note to Management of Next, WAKE UP!!

Coming back to Mango, jeans were ranged between Rs.4,000 and under Rs.6,000 – Gold Star for Mango! The summer maxis however, were above 13,000! Five thumbs down! Over all, the accessories were relatively affordable as well as current. Noted fashion designer Sadaf Maletarre said and I quote “It’s great to have Mango in Pakistan.”

Top model Fayezah Asad Ansari said, “It is brilliant that Mango has opened up in Karachi, though for a retail brand I wish the clothes were more affordable.” This concern was also shared by stylist Beenish Pervez. “The clothes are fantastic, that being said they are not as affordable for everyone.”

I have to agree and disagree with my fellow fashionistas. It’s excellent for these brands to open their door here which is perfect for people who cannot travel abroad and shop. They finally have an avenue to have what people who travel abroad have had for years… however, people who travel do know what is in the stores in London, New York, Toronto, Dubai etc. and can quickly asses what is new and what was in stock last season. For them, it is pointless to shop here anyways.


http://dawn.com/2012/07/09/retail-boom-in-full-swing/

Riaz Haq said...

Here's a PakistanToday story on Pakistan's current GDP being closer to $300 Billion:

The actual Gross Domestic Product (GDP) of Pakistan is nearer to $300 billion and not $210 billion, as is shown officially. And, if the ailing economy of the troubled Pakistan is assumed to grow by 3 per cent per year by 2015 the size of the actual GDP would likely to set between $ 350 and $ 375 billion. This was stated by Managing Director KSE Nadeem Naqvi while briefing the visiting V. Shankar, Member of the Board, Standard Chartered Bank PLC and CEO Europe, Middle East, Africa and Americas here at Karachi Stock Exchange (KSE) on Wednesday.
“Using conservative estimates, 50 per cent of the economy is in the undocumented sector,” Naqvi said adding that further estimation showed that the per capita income of top 10 per cent of households in Pakistan was near $5,000 versus national per capita income of $1,190.
“This represents a significant potential market for investment and financial services,” the MD added. Also, Naqvi highlighted the areas where KSE and SCBPL could cooperate that, he said, include investor awareness generation, attracting Non-Resident Pakistanis (NRPs) to the capital market and helping private companies list on the Exchange. Earlier, Shankar, accompanied by Mohsin Nathani, Chief Executive of Standard Chartered Bank (Pakistan) Limited (SCBPL) and senior members of his management team, rang the “Opening Bell” of the KSE in the presence of Chairman KSE Muneer Kamal, MD Nadeem Naqvi, DMD KSE Haroon Askari and directors of the KSE Board.
On the occasion Shankar said there was tremendous opportunity for growth in intra-regional trade for the South Asian economies, particularly India and Pakistan. Illustrating India-China bilateral trade, he said when Sino-Indian trade opened up they had to overcome some apprehensions, however, today they were one of the largest trading partners with benefit to both countries. Welcoming the guests, chairman KSE Muneer Kamal said Pakistan’s economy was at an inflection point. Despite challenges posed by low tax-to-GDP ratio, power sector difficulties and current account pressure due to demand slowdown in key export markets, Pakistan at present was in a position to repay IMF loans.
The foreign exchange reserves, supported by strong remittances by overseas Pakistanis, were in a much healthier position than at the height of global financial crisis in late 2008. While debt servicing burden had risen, it should be viewed in the global context and Pakistan’s total debt-to-GDP ratio of 64 per cent was far lower than many Euro zone and G-8 economies.
A concerted effort to mobilise tax revenue and focus on emerging domestic energy resources such as coal would go a long way in fixing structural deficiencies causing large budget deficits. Kamal highlighted that economic growth can be further accelerated with growing intra-regional trade in the sub-continent. He pointed out that while intra-regional trade in East Asia was 23 per cent of GDP, it was only 1 per cent of the GDP in South Asia.


http://www.pakistantoday.com.pk/2012/03/01/news/profit/kse-contradicts-official-figures-for-pakistan%E2%80%99s-gdp-says-actual-amounts-to-300bn/

Riaz Haq said...

Pizza Hut withdraws all-you-can-eat Ramadan deals in Pakistan, reports Telegraph:

Pizza Hut has withdrawn its all-you-can eat Ramadan offer in Pakistan prompting howls of fury from thousands of hungry Muslim families used to breaking their fast with plate after plate of deep pan or thin crust.

Instead the chain said it wants to reduce "gluttony" by limiting customers to a single regular pizza in its Ramadan Fiesta offer.

In previous years Pizza Hut restaurants would be packed for the evening meal of Iftar, as diners starving from a day of fasting would fill their bellies with pizza after pizza for as little as £7 – a figure industry analysts said was unsustainable.

Furious fast food fans have taken to social media to complain at the new, cheaper deal, which is still advertised as an "all-you-can" offer.

"Pathetic and a misleading deal. It's only one regular pizza with bottomless Pepsi, not all you can eat," said one post on Pizza Hut Pakistan's Facebook page.

Imran Khan, a student and regular customer at a branch in Karachi, said: "The place was always packed in the evening. For a lot of people it had become a Ramadan tradition so this change is very sad."



Marya Khan, of Pizza Hut Pakistan, said the offer was more in keeping with the spirit of the holy month of Ramadan.

"The former all-you-can-eat format served as an unrestrained invitation to gluttony and waste, colliding with the very spirit of Ramadan," she said.

"For those who do not consider Iftar deal as a means of just gorging after sunset, then the new Ramadan Fiesta offered by Pizza Hut is a well-balanced and valuable deal to enjoy finest pizza at a value price."

Pizza Hut in Pakistan was one of many fast food restaurants to have benefited from a move away from the traditional Iftar meal of spiced fruit salad, chickpeas and dates.

As an alternative, many people are turning to Chinese buffets or burger joints although pakoras – vegetable or chicken fritters - remain the most popular way to break the Ramadan fast, according to a recent survey by Gallup Pakistan.


http://www.telegraph.co.uk/news/worldnews/asia/pakistan/9458500/Pizza-Hut-in-Pakistan-ditches-all-you-can-eat-Ramadan-offer-to-curb-unrestrained-gluttony.html

Riaz Haq said...

Here's a Washington Post story on working women driving retail boom in Pakistan:

LAHORE, Pakistan — A perfectly coiffed model, draped in diamonds, shoots a sultry gaze from the cover of a glossy in-room magazine at a luxury hotel chain in downtown Lahore. The cover line on the ad-packed issue screams: “Wow! World of Women.”

And with good reason. Economists say that, in recent years, Pakistani women have fueled a retail boom in name-brand shopping as they move from a traditional homebound life into the working world.

“You can go into any shopping mall or any cafe, and you will see young girls sitting, having lunch, chatting away,” said Rashid Amjad, vice chancellor at the Pakistan Institute of Development Economics in Islamabad. “Despite all this conservatism that has been growing at the same time, you have a change.”

In many urban centers, the days when girls were forced to abandon education and eschew employment in favor of remaining within the walls of their homes seem to be mostly a memory.

Traditionally, men here bear the burden of sustaining the household, so for many middle-class women, their paychecks are entirely their own to spend — a boon for the newly booming retail industry.

“I can afford to spend whatever I like,” said Rabiya Bajwa, 37, a lawyer. “My income is roughly 20 percent more than what it was five years ago.” Bajwa does contribute to the household budget, but her two-income family enjoys a comfortable “cushion,” and she splurges on expensive designer clothes.

But this good fortune is not evenly distributed, said Hafiz Pasha, a noted economist at Beaconhouse National University in Lahore. Pakistan, he said, is still far behind other countries in terms of women’s economic contribution.

“This growth is witnessed in urban centers where middle-class working women are found,” Pasha said. “In rural areas, although the participation of women in the economy is more than the urban centers, they are not well-paid, and their share in the economy is much less.”

Although women have long been underpaid and subject to discrimination in the Pakistani workforce, they are coming into their own at a surprising rate. Since about 2002, Amjad said, participation by women, traditionally low, has been rising.

Many men left agriculture jobs, so work was being generated and women readily moved in, Amjad noted. Now, somewhere between 28 percent and 36 percent of women work in Pakistan, he said, but many work in home-based businesses, so their numbers are not easily ascertained.

In schools and colleges, young women study side by side with their male counterparts. “They seem to be very easy together, they talk very easily, and they discuss issues quite comfortably,”Amjad said, “so in a way higher education has increased female confidence to work with men, and that has helped.”

Three retail store owners surveyed in Lahore said most of their customers are working women, and they credited them with increasing their business.

“We started from a small store, but now we have five outlets in various parts of the city,” said Hasan Ali, manager of Bareeze, a leading brand of women’s clothing. “We have been in the market for the last 10 years, and roughly the business has expanded 40 percent in that period. . . . There are those out there who don’t even ask the price, and pay.”

Rukhsana Anjum, 47, a senior instructor at the Government College of Technology in Lahore, said she earns about 100,000 rupees, or $1,054, a month. “Gradually in the last five years I have become brand-conscious,” she said. “Today, definitely I spend more on my clothes and jewelry.”


http://www.washingtonpost.com/world/asia_pacific/pakistani-women-drive-retail-boom/2012/09/30/b6e38eea-0a3f-11e2-afff-d6c7f20a83bf_story.html

Riaz Haq said...

Here's an excerpt of a story in The News about the size of Pakistan's informal economy:

ISLAMABAD: Pakistan’s informal economy has expanded, reaching 91.4 percent of Gross Domestic Product (GDP). At a PIDE conference on Thursday, economist, M Ali Kemal said, “according to data for 2007-08, our formal GDP is half our actual GDP. However, it is still an under-estimated figure since investment data is not adjusted. The informal economy is 91.4 percent of the formal economy.”



He further said that the formal economy contributed Rs10,242 billion of the estimated Rs19,608 billion that the economy generates. Moreover, the informal economy stands at approximately Rs9,365 billion.



“Estimating the size of the underground economy is crucial for policy makers,” said Kemal. According to Economic Survey findings, total consumption for the entire population of the country is Rs17,261.6 billion and private consumption is Rs7,835.31 billion.



The sum of Rs9,426.29 billion is not reported in the formal economy.



During the session on poverty and household consumption, Dr Ashfaque H Khan, Dean NUST Business School (NBS) and Umer Khalid cited findings from a research paper on the consumption pattern of male and female-headed households in Pakistan.



According to their findings, marginal expenditure shares were highest for housing, durables, food and drink for households headed by men while they were highest for durables, followed by housing and food, and drinks for households headed by women. Higher marginal expenditures by households headed by females on education and durables were found in comparison with their male counterparts as these results were consistent in urban and rural areas of Pakistan.



Further, households headed by women were found to have higher budget shares for education, housing, fuels and lighting, clothing and footwear and lower average expenditure on food, drink, transport and communication compared to those headed by men.



The study also examined the consumption behavior of both types of households to determine consumption patterns and how they vary with change in economic status.



This analysis revealed that in the first three expenditure quintiles, the consumption expenditures of households headed by men were higher than those by women.



Moreover, in the last two quintiles, the consumption expenditures for households headed by women were slightly higher than those headed by women.


http://www.thenews.com.pk/Todays-News-3-143058-Size-of-informal-economy-at-914-percent-of-GDP-study

http://www.pide.org.pk/psde/25/pdf/AGM28/M%20Ali%20Kemal%20and%20Ahmed%20Waqar%20Qasim.pdf

Riaz Haq said...

Here's an ET Op Ed by LUMS' Professor Rasul Bukhsh Rais:

I have a serious problem with the cynic brigade that writes and comments on social, developmental and political issues along familiar lines. What is their familiar line? The Taliban are coming, extremism is on the rise, corruption is pervasive and life is miserable. This is a partial truth, not the whole truth. That nothing can change is a viewpoint that conflicts with history and the evolution of societies.

Cynicism in hard times like ours and in a climate of fear, insecurity and violence, sells and viewers and readers readily embrace the dark side of things rather than looking at what is bright and shining. The other issue is the habit of most of my colleagues and columnists to write from the comfort of their offices or homes. They tend to look at the big picture that gives a disturbing spectre rather than examining achievements at local levels, and by dedicated individuals and communities. If there is any meaningful and real change in Pakistan, it is taking place at these levels in every aspect of the social and economic life of this country. By missing details of development and positive change at the smaller scale, we may draw a big picture of a society and country that may not be in agreement with reality. This is what is unfortunately happening.

One of my social beliefs is that only by changing at the local level will Pakistan change for the better at the national level. The national in spatial terms is nothing but local. By often travelling through the villages, mostly in Punjab, I have seen thousands of positive contributions and developments that are neither documented nor narrated. Never has our regular cynic brigade opened its eyes and minds to what this change is and how it is becoming a catalyst for more and larger changes.

Let me share one man’s gigantic contribution at a government agricultural research farm in Bahawalpur. I had heard about Mushtaq Alvi for his collection of berries and date palm trees for some years. Last weekend, I had the opportunity to visit this fabulous farm, which may not be noticed from outside the walls. Mr Alvi, as a young man with his first job, started the plantation in 1985. He went to every place in Pakistan to collect the best local species of date palms, berries, mangoes, guavas and pomegranates. Today, he has 35 species of date palms, 20 of berries, 20 of mangoes and five of pomegranates, and almost every of guavas. Never has his search for new findings ended.

While the collection continues to expand, the farm has supported thousands of farmers and households that would like to have various species of these trees. Every season, thousands of berry plants and hundreds of date palms are distributed. Then there are private collectors of these trees that have developed their own farms and would like to sell plants to new farmers. Each new tree becomes a source for saplings leading to further proliferation.

Scientists like Mr Alvi and many of his colleagues may move on to other research stations or retire but what they have done is something remarkable. This is just one example of ordinary Pakistanis making a difference to society. Unfortunately, our media, commentators and pseudo intellectuals cannot lift their eyes from what is wrong in society and shift their attention, even for a moment, to what is right and working.

Recognition and celebration of achievements by individuals and communities encourages positive change, positive attitudes and stimulates energies for innovation and more contribution. While grieving about the many things that are troubling us, let us not ignore the pleasing side of changing Pakistan. Go out and see it.


http://tribune.com.pk/story/509088/changing-pakistan/

Riaz Haq said...

Here's a Dawn Op Ed by Economist Sakib Sherani on Pak informal economy:

NEW estimates indicate that Pakistan’s informal economy is larger than previously approximated, and is expanding at a rapid pace. On the other hand, the formal sector appears to be on the retreat.

Indications to this effect have been around for several years. These indicators have included, among others, a rising share of informal jobs in total employment, a static share of output and employment of the formal manufacturing sector, a growing level of cash transactions in the economy, and an increase in estimates of the “tax gap”.

In addition, firm-level behaviour has also provided clues to the underlying trend in the economy. There are fewer listings on the stock exchanges, and some prominent de-listings, while a fairly significant number of previously formal small and medium enterprises have chosen to become Association of Persons over the past few years, according to some tax experts. Finally, according to some reports, the number of firms on the tax register (for income as well as sales tax) has declined in the past five years.

In fact, anecdotal evidence suggests that in the past few years, there have been instances of even large manufacturing units that have either completely or partially “shifted” production to the underground economy. Evidence to this effect has come from the Federal Board of Revenue (FBR) in the case of at least one significant sector of the economy — cigarettes — where a sharp dip in federal excise duty collection in 2009-10 was attributed to this phenomenon.

-------------
Having set up and run my own small business in the formal sector for the past two years has given me some unparalleled insights. While Jamil Nasir in his article in January (in another newspaper) believes the tax structure is not a big contributor, and the regulatory burden is a bigger factor, my own experience suggests that it is both, the tax and regulatory burden, that are either preventing informal businesses from formalising, or are driving already documented firms into the informal economy.

Here’s how. For starters, a formally registered firm filing an income tax return has a 20 per cent disadvantage compared to an enterprise that is operating in the undocumented sector (the tax arbitrage for informal firms). But this is not the end of it. The direct costs of maintaining books, having the firm’s accounts externally audited by a professional auditor, hiring tax consultants and an accountant etc. are not insignificant.

More annoying from my perspective is the opportunity cost of devoting roughly 10-15 per cent of my management time to tax and SECP-related issues, not least of which are chasing up on tax deduction certificates and acting as a withholding tax agent for the government.

In addition, the number of corporate and tax-related filings that the company has to make each month, every quarter, and then on an annual basis is absurd. To incentivise informal sector players to formalise, both the Federal Board of Revenue (FBR) and the Securities and Exchange Commission of Pakistan (SECP) will have to reduce the number of filings, while the transactional relationship with FBR will need to be converted to “arm’s length” via the use of automation.

Finally, the government should consider a system of tax credits and rebates on investment and hiring by small registered businesses, and an initial lower income tax rate for newly corporatised firms as a powerful incentive.
At the other end of the spectrum, the tax and regulatory burden on large, formal firms also needs to be reduced by a comprehensive broad-basing of the tax regime.


http://dawn.com/2013/02/22/the-informal-economy/

Riaz Haq said...

Here's a Dawn Op Ed on hidden economy west of Indus:

GOING by the numbers alone, it would appear that no significant economic activity takes place west of the Indus. Look at the provincial GDP numbers, the revenue figures and you see no movement, no activity on any significant scale.

More detailed metrics of economic activity also show great ‘tranquillity’ in the west. Detailed figures on consumption of electricity by industrial and commercial categories of consumer, for instance, show very little change over the years.
---------
But take a closer look and you’ll find something odd. The State Bank has a data series on its website that shows something enormous, of truly gigantic proportions, stirring beneath the tranquillity suggested by the formal macroeconomic data.

Here is what the data reveals: the amount of money passing through the clearing houses of Quetta and Peshawar is so large that it rivals the amounts in clearing houses of cities like Faisalabad, Multan and Rawalpindi.

----
The State Bank operates 16 clearing houses in cities all over the country. Every month it releases data on how many cheques were presented for clearing in each of these, and what the total amount cleared by cheques was.

If you take this data, which stretches back to 1999, and plot it for each city in Pakistan, you notice something very interesting. Remove the cities of Karachi and Lahore from the sample for the time being, because these are global cities in a sense with long-distance connections. Compare only the regional cities and here is what you’ll find.

Following 9/11, half the cities in the total sample will show a sharply rising trend in the amount of money going through their clearing houses. For the other half, the line is flat.

The cities that show a rising trend are led by Peshawar, with Faisalabad, Multan, Rawalpindi and Quetta in close succession. For Peshawar, the amount of money being cleared via cheque in the year 2011 crosses Rs1.3 trillion! For Quetta, in the same year, the amount is just under Rs900 billion, meaning between them these two regional cities are seeing almost Rs2tr going through their clearing houses in one year alone.

This figure compares with Faisalabad at Rs1.3tr, Rawalpindi at Rs1.4tr, and Multan at Rs826bn. Cities that show a flat trend over the entire reporting period include Sukkur, Hyderabad, Sialkot and D.I. Khan.

What the data shows is a steep intensification of transactions being cleared by cheque in some cities, and no change in others, meaning the pace of economic activity accelerated unevenly over the decade, sweeping some along its path and leaving others behind.

But what are Peshawar and Quetta doing on this list? With Faisalabad and Multan, it’s easy to understand. These are regional hubs, productive centres, large seats of agrarian operations.

---
In fact, after Karachi and Lahore, it is Multan, Faisalabad and Rawalpindi that account for the bulk of transactions in branchless banking, which shows the intensification of activity in the clearing houses of these cities is accompanied by an overall deepening of the financial sector.

But in Peshawar and Quetta, there is no other accompanying trend, not in branchless banking, TT transfers, bulk consumption of electricity. There is only one lone spike, showing an increase in clearing house transactions that keeps pace with the agricultural and industrial heartland of the country.

The obvious question is: what is driving this spike in Quetta and Peshawar? Where is the economic activity that is sending such spectacular sums of money through the clearing houses of these two cities? And why does this money leave no trace on any other economic indicator of the city or the province?

---

Here’s another explanation: these cities are engulfed by a very large hidden economy, from where a massive river of transactions briefly appears on the official record, then disappears from view again....


http://dawn.com/2013/02/28/the-hidden-economy/

Riaz Haq said...

Here's a Dawn Op Ed by Khurram Husain on Pakistan's hidden economy:

...More detailed metrics of economic activity also show great ‘tranquillity’ in the west (Balochistan & KP). Detailed figures on consumption of electricity by industrial and commercial categories of consumer, for instance, show very little change over the years.

------

But take a closer look and you’ll find something odd. The State Bank has a data series on its website that shows something enormous, of truly gigantic proportions, stirring beneath the tranquillity suggested by the formal macroeconomic data.

Here is what the data reveals: the amount of money passing through the clearing houses of Quetta and Peshawar is so large that it rivals the amounts in clearing houses of cities like Faisalabad, Multan and Rawalpindi.

First some background. Every time you write a cheque and the other party deposits that cheque in their account, it goes through a process called “clearing”. Because banks don’t hold your money themselves — much of it is held by the State Bank — the task of actually taking the money out of the books of one bank and transferring it to the books of another every time a cheque is cleared, is performed by the State Bank at its clearing house.

The State Bank operates 16 clearing houses in cities all over the country. Every month it releases data on how many cheques were presented for clearing in each of these, and what the total amount cleared by cheques was.

If you take this data, which stretches back to 1999, and plot it for each city in Pakistan, you notice something very interesting. Remove the cities of Karachi and Lahore from the sample for the time being, because these are global cities in a sense with long-distance connections. Compare only the regional cities and here is what you’ll find.

Following 9/11, half the cities in the total sample will show a sharply rising trend in the amount of money going through their clearing houses. For the other half, the line is flat.

The cities that show a rising trend are led by Peshawar, with Faisalabad, Multan, Rawalpindi and Quetta in close succession. For Peshawar, the amount of money being cleared via cheque in the year 2011 crosses Rs1.3 trillion! For Quetta, in the same year, the amount is just under Rs900 billion, meaning between them these two regional cities are seeing almost Rs2tr going through their clearing houses in one year alone.

This figure compares with Faisalabad at Rs1.3tr, Rawalpindi at Rs1.4tr, and Multan at Rs826bn. Cities that show a flat trend over the entire reporting period include Sukkur, Hyderabad, Sialkot and D.I. Khan.

What the data shows is a steep intensification of transactions being cleared by cheque in some cities, and no change in others, meaning the pace of economic activity accelerated unevenly over the decade, sweeping some along its path and leaving others behind.

But what are Peshawar and Quetta doing on this list? With Faisalabad and Multan, it’s easy to understand. These are regional hubs, productive centres, large seats of agrarian operations.

----
In fact, after Karachi and Lahore, it is Multan, Faisalabad and Rawalpindi that account for the bulk of transactions in branchless banking, which shows the intensification of activity in the clearing houses of these cities is accompanied by an overall deepening of the financial sector.
-----------.


http://dawn.com/2013/02/28/the-hidden-economy/comment-page-1/

Riaz Haq said...

From VOA report:

The World Bank says that in Pakistan, roughly 70 percent work in the so-called informal sector, a part of the economy that is unregulated and untaxed.

On a good day, Jamil Hassan will have some 15 customers, and earn an average of $8 a day.

Hassan is one of the millions working in Pakistan's informal economy, the mainstay for the country's vast poor. He never went to school. Cutting hair is all he knows.

"I've been doing this all my life," he said. "My father and grandfather did it before me, so this is what I do."

About 40 percent of all workers in Pakistan have no education. Hassan says illiterate people like him will never make enough to be able to save money.

Economist Ali Kamal says the informal economy can be seen as helping the country's overall economy.

"It absorbs a labor who is otherwise unemployed, it provides services at a cheaper cost and cheaper price to the general public, and it complements the formal sector," he said.

Mohammad Naeem works in a modest seasonal wheat mill, when Pakistan's constant power cuts don't grind work to a halt. Naeem says he would like to have his own business. But he doesn't believe in bank loans or in savings.

"I feel that people should not take loans, not owe money," he said. "That is very important. You should only use what you earn."

Kamal says millions of workers like Naeem and Hassan don't pay taxes, meaning less money for an already cash-strapped state.

"If we collect sales tax from all those informal sectors, it may account for four to five percent of GDP, and if we collect four to five percent GDP in sales tax from those informal activities, then we don't have any budget deficit anymore," he said.

But as of now, the informal sector is providing cheaper goods, services and labor to the formal sector. Analysts say Pakistan would have to reform its entire economic structure to change the situation


http://m.voanews.com/a/millions-labor-in-pakistans-informal-economy/1894009.html

Riaz Haq said...

Ratio of informal (shadow) to formal (documented) entrepreneurs:

Indonesia 131

India 127

Philippines 126

Pakistan 109

Egypt 103

In a study of 68 countries, Professor Erkko Autio and Dr Kun Fu from Imperial College Business School estimated that business activities conducted by informal entrepreneurs can make up more than 80 per cent of the total economic activity in developing countries. Types of businesses include unlicensed taxicab services, roadside food stalls and small landscaping operations.

In a study of 68 countries, Erkko Autio and Kun Fu of London's Imperial College Business School found that after Indonesia, India has the second highest rate of shadow entrepreneurs.

This is the first time that the number of entrepreneurs operating in the shadow economy has been estimated.

Shadow entrepreneurs are individuals who manage a business that sell legitimate goods and services but they do not register their businesses. They do not pay tax and operating in a shadow economy where business activities are performed outside the reach of government authorities.

Indonesia has 131 shadow businesses to every business that is legally registered compared to India's 127.

Philippines have 126, Pakistan has 109 and Egypt has 103 shadow businesses to every legally registered business.

Experts say the shadow economy results in loss of tax revenue, unfair competition to registered businesses and also poor productivity - factors which hinder economic development.

As these businesses are not registered it takes them beyond the reach of the law and makes shadow economy entrepreneurs vulnerable to corrupt government officials.

The researchers said, "If India improved the quality of its democratic institutions to match that of Malaysia for example, it could boost its rate of formal economy entrepreneurs by up to 50% while cutting the rate of entrepreneurs working in the shadow economy by up to a third. This means that the government could benefit from additional revenue such as taxes."

The UK exhibits the lowest rate of shadow entrepreneurship among the 68 countries surveyed, with a ratio of only one shadow economy entrepreneur to some 30 legally registered businesses.

Autio said, "Understanding shadow economy entrepreneurship is important for developing countries because it is a key factor affecting economic development. We found that government policies could play a big role in helping shadow economy entrepreneurs transition to the formal economy. This is important because shadow economy entrepreneurs are less likely to innovate, accumulate capital and invest in the economy, which hampers economic growth."

http://timesofindia.indiatimes.com/India/India-has-2nd-highest-no-of-shadow-entrepreneurs-in-the-world/articleshow/35653042.cms

http://www3.imperial.ac.uk/newsandeventspggrp/imperialcollege/newssummary/news_27-5-2014-9-53-29

http://link.springer.com/article/10.1007/s10490-014-9381-0

Riaz Haq said...

Pakistan’s true economic output is not reflected in the official gross domestic product (GDP) and this is the reason why.
It fails to include important industries that have sprung up since the last census of the manufacturing base was conducted nine years ago.
The State Bank of Pakistan (SBP) highlighted this anomaly in its annual report on The State of the Economy 2013-14, mentioning economic contributors not incorporated in the Large Scale Manufacturing (LSM) and agricultural data.
Manufacturing has a 11% share in economic output, but experts have been going on for years, saying that tens of thousands of establishments from Karachi to Faisalabad are the real drivers of the economy but remain unreported.

The last Census of Manufacturing Industries (CMI) was carried out by the Pakistan Bureau of Statistics (PBS) in fiscal 2005-06 on the basis of response received from 6,417 factories — a number much smaller than the actual size of the industrial base.
Some very large businesses are not covered by the PBS at all.
Engro Polymer and Chemicals, which meets over one-third of the domestic demand for caustic soda, is a glaring example.
Caustic soda holds the largest chunk in the 11 categories of chemicals reported by PBS. Excluding Engro distorts actual output of the industry, the SBP said.
While the production of caustic soda posted a 8.4% year-on-year decline in 2013, Engro Chemicals reported a 5.6% increase in production this year. “The inclusion of this company could have offset the reported decline in caustic soda,” SBP said.

When it comes to automobiles, PBS relies on data provided by the members of Pakistan Automotive Manufacturers Association (Pama). This leaves out leading bus and truck manufacturers like Afzal Motors and Al-Haj Faw Motors that entered the market later.
Textile and food
Similarly, the weightage of cotton yarn and cotton cloth is one of the highest in CMI, together holding 17%. Yet PBS leaves out 90% of the manufacturers as it covers only mill-related activity, which is based on units registered with the Ministry of Textiles.
As a matter of fact, data of wearing apparels and dressing, publishing, printing products and recorded media, fabricated metal products, computers, medical precision and optical instruments, and other industries, is not included as part of LSM, stated the SBP.

“In the food sector as well, demand and production of a number of processed food items like packaged milk, yogurt, dairy items, pastas cereals, has grown in past few years. But the production of these items is not included in LSM data,” it noted.

This basically leaves out manufacturers like Unilever, Kolson, Nestle, Engro Foods and National Foods, it noted.
The story is the same with cosmetics and personal care goods produced by FMCGs like Unilever and P&G that are also not part of the LSM.
Plastic sector
Another sector, which has emerged as an important contributor to the economy, and ignored in CMI, is plastics. The Pakistan Plastic Manufacturing Association (PPMA) has around 6,000 upstream and downstream units, employing 0.6 million people.
----------
Plastic sector has a weight of 0.75% in CMI while data is collected from only 142 units. As per PBS’ own numbers, in 2013-14, Pakistan exported 253, 896 tons of plastics products valued at $350.7 million, which was a 7% decrease compared with plastics exports in the previous year.
SBP also pointed out that while exports are down, imports of raw materials witnessed 26.4% growth in this year, which indicates robust growth in manufacturing in this segment.
The last CMI recorded 3,590 factories in Punjab, 1,825 in Sindh, 673 in Khyber-Pakhtunkhwa (K-P) and 212 in Balochistan.
At basic prices, textile sector had the highest contribution to GDP of 27.41%, food products and beverages 15.82%, chemicals and chemical products 14.83%, and non-metallic mineral products 7.52%.


http://tribune.com.pk/story/823774/misrepresented-and-misunderstood/

Riaz Haq said...

http://www.sbp.org.pk/reports/annual/arFY14/Real.pdf


Another important issue pertains to the coverage of sectors and manufacturing units, which are
included in LSM by the Pakistan Bureau of Statistics (PBS). The existing LSM index is based on the
Census of Manufacturing Industries (CMI) that was conducted in FY06. 32
While constructing LSM
index, only those sectors were included which had significant value addition to GDP at the time of
census. Our assessment is that not only has manufacturing activity in a number of sectors been
enhanced, many new manufacturing units have started operating in the country in the recent past.
Hence, an expanded data coverage exercise of manufacturing units and new categories is required, to
present a more realistic picture of large scale manufacturing in the country. We believe the actual
growth in LSM is better than what is reported by PBS (Box 2.2).
Box 2.2: Coverage Issues Undermining LSM Growth
Large scale manufacturing data is compiled across countries, according to the International Standard Industrial Classification
( ) of the United Nations Statistics Division, which has defined 22 broad categories of manufacturing.33
In the case of
Pakistan, however, the coverage of LSM pertains to only 15 sectors identified by the ISIC. Data pertaining to manufactures
of wearing apparels & dressing; publishing, printing products & recorded media; fabricated metal products (except
machinery & equipment); office & accounting machinery and computers; medical precision & optical instruments; and
recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM.34
The current LSM index is based
on the Census of Manufacturing Industries (CMI) conducted in FY06.

32 PBS conducted the CMI in 2006 to collect information about industrial activity in the country. Providing this information
by production units, is obligatory under Section 9 & 10 of General Statistics Act 1975, and Section 5 & 6 of Industrial
Statistics Act,1942. PBS is currently engaged in conducting a fresh CMI.
33 http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=17
34 The manufacturing data as reported by India contains all categories identified in the ISIC. Source:
http://mospi.nic.in/Mospi_New/upload/iip_11_july2014.pdf
35 Similarly in the case of glass, production of one of the leading manufacturers is not captured by LSM index.

http://www.sbp.org.pk/reports/annual/arFY14/Real.pdf

Riaz Haq said...

LSM posted 3.9 percent growth in fiscal year 2014 (FY14) compared to 4 percent in FY13; however the SBP while disagreeing with figures believed actual growth in LSM was better than what was reported by Pakistan Bureau of Statistics (PBS). Reasoning for its contradiction of PBS’s figures, the SBP said the existing LSM index was based on Census of Manufacturing Industries (CMI) that was conducted in FY06 while constructing LSM index, only those sectors were included which had significant value addition to Gross Domestic Product (GDP) at the time of census.

Meanwhile, manufacturing activity in a number of sectors has been enhanced and many new manufacturing units have started operating in country in recent past. Hence, an expanded data coverage exercise of manufacturing units and new categories is required, to present a more realistic picture of LSM in the country, it added.

In annual report for FY14, the SBP said LSM data was not being compiled in Pakistan according to International Standard Industrial Classification (ISIC) of United Nations Statistics Division’s defined 22 broad categories of manufacturing.

As in Pakistan, the coverage of LSM pertains to only 15 sectors identified by the ISIC while data pertaining to manufactures of wearing apparels and dressing, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM.

Pointing out main concerns, the SBP said LSM data for cotton cloth and cotton yarn was collected by Ministry of Textile, which only covered mill sector activity. The non-mill sector, which entails over 90 percent of overall production of cotton cloth in country, is not included in the data set. While the growth in manufacturing textiles posted a slowdown in FY14, the export quantum of almost all textile categories (with the exception of cotton yarn) posted an increase in the year. In fact, the provision of generalised system of preferences plus status from the European Union (EU) suggests strong growth prospects of this sector.

Similarly in automobiles, the PBS reported production of units registered with Pakistan Auto Manufacturers Association only while some leading bus and truck manufacturers namely Afzal Motors and Al-Haj FAW Motors were not included by the PBS. The PBS reports data for 11 categories of chemicals, with caustic soda claiming the largest share. For caustic soda, production of Engro Chemicals, which caters to one-third of the entire domestic demand of caustic soda, is not included in LSM data. The demand and production of a number of processed food items has grown in the past few years (eg packaged milk and products, dairy items, yogurt, pastas, cereals, frozen and ready to cook items etc). The production of these items, however, is not included in LSM data which leaves out large and vibrant manufacturers like Unilever, Kolson, Nestle, Efoods and National Foods.

Similarly, non-food Fast Moving Consumers Goods (FMCGs) products like cosmetics, personal care products and toiletries, which are produced by prominent brands like Unilever, Medicam and Procter and Gamble are also not captured by LSM. The production of plastics is completely absent from LSM data set.

According to Pakistan Plastic Manufacturing Association there are around 6,000 upstream and downstream units operating in the country, employing 0.6 million people. This sector is producing a broad range of products ranging from household items, industrial containers, medical and surgical items, auto parts, stationery items, PVC pipes etc. Yet they are not covered in LSM.

http://www.dailytimes.com.pk/business/14-Dec-2014/sbp-shows-dissatisfaction-with-pbs-s-lsm-coverage

Riaz Haq said...

Shadow Economies All over the World
New Estimates for 162 Countries from 1999 to 2007
Friedrich Schneider
Andreas Buehn
Claudio E. Montenegro


Pakistan's shadow economy estimated at 36%

Activities associated with shadow economies are facts of life around the world. Most societies
attempt to control these activities through various measures such as punishment, prosecution,
economic growth or education. To more effectively and efficiently allocate resources, it is
crucial for a country to gather information about the extent of the shadow economy, its
magnitude, who is engaged in underground activities, and the frequency of these activities.
Unfortunately, it is very difficult to get accurate information about shadow economy
activities, including the goods and labor involved, because individuals engaged in these
activities do not wish to be identified. Hence, doing research in this area can be considered a
scientific passion for “knowing the unknown.”
Although substantial literature5
exists on single aspects of the hidden or shadow economy and
comprehensive surveys have been written by Schneider and Enste (2000), and Feld and
Schneider (2009), the subject is still quite controversial as there are disagreements about the
definition of shadow economy activities, estimation procedures utilized, and the use of their
estimates in economic and policy analysis.6
Nevertheless, there are some indications that the
shadow economy has grown around the world, but little is known about the development and
the size of the shadow economies in developing Eastern European and Central Asian (mostly
former transition) countries, and high income OECD countries over the period 1999 to
2006/2007. The period was chosen as it has the most comprehensive data availability. This
study is an attempt to fill this gap by using the same estimation technique and almost the same
data sample used in Schneider and Buehn (2009) and Schneider and Enste (2000).
Therefore, the goal of this paper is twofold: (i) to undertake the challenging task of estimating
the shadow economy for 162 countries in various stages of development and located in
several regions throughout the world7
and (ii) to provide some insights about the main causes
of the shadow economy. To our knowledge, such an attempt has not been undertaken so far;
hence, we provide a unique database of the size and trends of the shadow economy in 162
countries over the period 1999 to 2006/2007. This is an improvement compared to previous
work – we used the MIMIC (Multiple Indicators Multiple Causes) estimation method for all
countries, thus creating a unique data set that allows us to compare shadow economy data.


http://www.gfintegrity.org/storage/gfip/documents/reports/world_bank_shadow_economies_all_over_the_world.pdf