Printer Friendly

Economic forecast.

POPULATION

Pakistan's population in 1994 will grow to 124.67 million. Nearly two thirds of Pakistan's population is under forty. The Washington-based Population Crisis Committee (PCC) has placed Pakistan in the category of states which are facing a high magnitude of demographic pressures and a very high measure of potential destabilisation. Although Pakistan is the tenth largest country in the world but it is considered by the PCC among the 19 countries being on the worst political destabilisation table.
Population of Pakistan
Year Million
1989-90 110.36
1990-91 113.78
1991-92 117.30
1992-93 120.93
1993-94 124.67


According to a recent report of the Population Communications International of the USA, Pakistan will become the 7th most populous state in next 30 years with the birth rate of over seven children per woman. This is a gloomy forecast for the country with inadequate resources and absence of a concrete plan to absorb the rapid expansion of manpower. This would certainly result in further worsening of the already poor living standards of the masses.

Pakistan would launch its Eighth Five Year Plan in July 1993. In the next 18 months intensive preparations would be made by the national planners to indentify sectoral priorities and make national allocation of funds. The Seventh Plan has failed to achieve the targets in many sectors. Despite the rapid economic growth several intersectoral destortions were allowed to develop and have remained uncorrected so far.

GDP

For 1991-92 the Annual Plan proposes a GDP growth rate of 6.7 per cent comprising 4.3 per cent growth in agriculture value added, 10.3 percent in manufacturing and 6.7 per cent value added by other sectors. The growth target is not likely to be achieved. Finance Minister Sartaj Aziz admitted that the budgetary situation will continue to be under pressure as there are shortfalls in revenues and foreign exchange resources and upward pressure in the expenditure. The growth target is likely to be around 5.0 per cent.
GDP Growth at Constant
Factor Cost
 Rs. (%)
Year Billion Increase
1987-88 385 6.2
1988-89 404 4.8
1989-90 422 4.6
1990-91 466 5.6
1991-92 476 5.0
1992-93 500 5.0
1993-94 525 5.0


AGRICULTURE

Agriculture commodity sector in 1991-92 should increase to about 5.0 per cent against 4.5 per cent in the preceding year. Cotton production showed a robust growth. However, wheat crop is falling short of domestic consumption.

Seventh Plan target in case of cotton has been achieved. However, crop production in regard to wheat, rice and sugar was far below the targets. The targets for 1992-93 are not available. Production in 1991-92 is expected to be around 11.50 million bales for cotton as against 9.61 million bales in the preceding year. The government has taken various measures to increase per hectare yield of wheat which is currently around 1,842 kgs. Support prices of different varieties of cleaned rice for the year 1991-92 crop have been increased. Wheat imports of 1.5 million tonnes have been authorised. It would cost $ 300 million in foreign exchange. Wheat prices have increased from $ 130 per metric ton to $ 145 per metric ton in the international market.

The Sindh Chamber of Agriculture expressed concern over the inordinate delay in the announcement of support price for sugarcane and wheat. The chamber regretted that although the prices of fertilisers, pesticides, electricity and labour had increased tremendously, yet the government had not announced the support prices of these two items of offset the impact of increase in the prices to inputs
Crop Production
 Production Targets of
Name 1991-92 7th Plan
 1992-93
Wheat (Mln. tons) 14.56 16.38
Rice (Mln. tons) 3.21 4.22
Cotton (Mln. bales) 11.50 10.00
Sugarcane (mln. tons) 35.98 40.32
Source: 7th Five Year Plan NBP Newsletter..


INDUSTRY

The industrial sector accounts for 17.61 per cent of GDP and is a major source of employment. The value added in manufacturing is estimated to grow by 5.74 per cent during 1990-91. The target for 1991 is estimated at 10.3 per cent. The textile sector comprises the largest segment of Pakistan's GDP. Cotton yarn and cloth production accounts for 66 per cent of all large scale manufacturing in the country. The share of the textile sector in exports increased from 36 per cent in 1978-79 to 59 per cent in 1990-91. A new incentive package has been announced by the government. A third export processing zone would be set up at Khuzdar in Balochistan. One such zone is operating at Karachi while another has been proposed near Port Qasim. The government has decided to allow industrial estates located in rural areas the same concessions and exemptions in duty and taxes allowed only in rural areas other than industrial estates. The decision would greatly benefit Nooriabad and other industrial estates located in the rural areas.
New Sugar Projects
Name Capacity Total Cost
 (Million)
JDW Sugar Mills Ltd.
Rahim Yar Khan 4,000 517
Paharianwali Sugar Mills
Lalian Tehsil Chiniot Jhang 4,000 --
Kiran Sugar Mills 4,000
Deh Jhango to 6,000 600
Larr Sugar Mills Thatta 4,000 589
Seri Sugar Mills Hyderabad 4,000 589
Tandlianwala Sugar Mills 4,000
Lahore to 6,000 589
Thar Sugar Mills 4,000
Digri - Mirpurkhas to 6,000 589
Source, PICIC, IDBP
Industrial Production Targets
Name of Actual Production Target
Company 1990-91 1991-92
 (000) (000)
Vegertable Ghee 629 675
Sugar 1,929 2,091
Cement 7.735 8,215
Paper & Board 96 139
Fertilizers (N) 1,176 1,230
Soda Ash 150 160
Caustic Soda 80 89
Billets 359 359
Cotton Yarn 1,049 1,138
Cotton Cloth 291 350
(million Sqm)


It was also announced that 30 kilometers from Karachi would be treated as rural area for the purpose of industrial concession and exemptions. For the first time Karachi has been given three years tax holiday.

The sugar and textile industry is being modernised. New units are being equipped with modern spinning frames and autocone winders. As many as 65 new units are presently under installation. In garment making gerber technology of pattern making, grading and marker making, laser cutting etc. has been adopted by several large scale units. WAPDA is planning to set up a complex for manufacturing thermal power plants having a capacity of 210 to 300 MW.

Sugar

Sugar production in 1990-91 by 54 sugar mills was around 1.908 million tons. There was sharp decline in the recovery rate in the Punjab from 8.36 per cent in 1989-90 to 7.71 per cent. Sindh rate at 9.40 per cent remained at par with that of the last year. Four new sugar mills are likely to come under production in the next crushing season. Of these one sugar mill is being established in Islamabad which would have a crushing capacity of 1500 tons per day. The Asian Development Bank has agreed to provide funds for the project to cover the cost of imported machinery and plant. Three sugar mills will be set up in Sindh. New mills to be located at Ranipur and Khairpur will have daily crushing capacity of 400 tons each. The plant and machinery for these two mills have been manufactured locally at Karachi Shipyard and Engineering Works at an estimated cost of Rs. 289.5 million each.

One sugar mill is proposed to be set up in Mirpurkhas. It would also have a daily crushing capacity of 4000 tons. The Karachi Shipyard and Engineering Works will supply plant and machinery for the project at an estimated cost of Rs. 289.5 million.

Regulatory Duty on Sugar: The regulatory duty on import of sugar has been increased from existing 25 per cent to 35 per cent to provide protection to domestic sugar industry. According to another decision, tax concessions/incentives already allowed to import machinery (not manufactured locally) for rural industries would also be applicable for expansion or BMR of units in the rural areas with effect from December 22, 1991.

PRIVATISATION

Letter of intent in case of privatisation of the Kohat Cement and the Zeal Pak Cement have been issued in favour of the employees who were the highest bidders while the claim of workers regarding another three units is under active consideration and is expected to be finalised in due course of time.

Privatisation Commission has also accepted the bid of the employees of Pakistan Switchgear Ltd. and received 40 per cent of the price from them as down payment. Guarantees for balance payment are being finalized and the factory is being taken over by the Employees Association of Pakistan Switchgear Ltd. The Employees Association was the only bidder, having matched the commission's reserve price upto 90 per cent in accordance with the decision of the Cabinet Committee on Privatisation. Letter of intent has been issued to Jamal Pipe Industries for the sale of Karachi Pipe Mills. Jamal Pipe were the original owners of this unit. It has now been decided that Pak-Saudi Fertilizer would be placed on stock market for public floatation. Pakistan PVC is also expected to be returned to its original owner.

Employees Group of Kohat Cement has been asked to match bid price to reference price. The reference price was 250 per cent higher than the bid price and it is unlikely the Employees Group would be able to match this price. It may be mentioned workers price was Rs. 21, while the matching price was Rs. 54. Similarly NDFC Employees Management Group (EMG) which is lone bidder of 26 per cent stake of the corporation is being denied the letter of intent. The Government has still not come up with a clear-cut policy whether the corporation would be off-loaded to the stock exchange, or fresh bids would be invited for this purpose, or it would simply not be denationalised.

A seminar was organised by Management Services Division on privatisation. Working group number one on "review and rationale of privatisation in Pakistan" observed that main aim of the privatisation and deregulation policies was to allow the government to concentrate on strengthening the industrial infrastructure for accelerated economic development.

The group underlined the need for enlarging the commission by adding at least one representative of the Federation of Chambers of Commerce and Industry. The group recommended that the commission should continuously fellow up implementation of relevant decisions subsequent to handing over the units. The group also recommended that an impact evaluation of the privatisation process as a whole and of individual privatised enterprises should be carried out by independent professionals bodies such as Management Services Division or PIDE etc. It was also recommended that liquidation of economically, financially and managerially unviable state enterprises needed to be added to the functions of Privatisation Commission.
Name of Units Sold to Private Sector
Name of Bid Amount Name of Party
Company (million)
National Cement 360.00 Tawakkal Group
Thatta Cement 306.00 Bexishan Corp.
Dandot Cement -- Qamaruzzam
Maple Leaf 272.30 Nishat Mills (Mansha Group)
Pak Cement 143.00 Jehangir Elahi Associates
White Cement 125.00 Jehangir Elahi Associates
Zeal Pak Cement 111.00 Employees (Sole bidders)
Kohat Cement 213.00 Employees
National Motors -- General (Rtd.) Habibullah
 (Original Owner)
Pakistan Switchgear -- Employees
Balochistan Wheel -- Tawakkal Group
Millat Tractors -- Employees
Al-Ghazi Tractors -- Al-Futtaim
Karachi Pipe Mills 35.10 Jamal Pipe (Original Owner)
National Fibre -- Schon Group
Pakistan PVC -- Reyaz-o-Khalid
 (Original Owner)
Burma Oil -- Employees
Sheikh Fazlur Rahman -- Employees


It was recommended that the reference price should be disclosed to the potential bidder to serve the objective of transparency. The bidders and evaluators should also be facilitated to visit the perspective units, the group added. For further accelerating the pace and progress, the group recommended that in case of units where the bidders have not responded well, other modes of privatisation as already listed in the privatisation brochure may be restored. In order to reduce the element of uncertainty experienced by the employees and the public about the scope of privatisation, an overall programme of privatisation should be prepared indicating the enterprises to be privatised.

NEW INCENTIVES

Tax Exemption on Machinery Plants: The government has issued a new notification about the exemption of Customs duty. Sales Tax and import surcharge on plant and machinery imported under the rural industrialisation incentive scheme. This notification has been issued to replace the previous notification SRO 1248 (1)/90 dated December 13, 1990.

There is no substantive change in the policy of the government or its implementation and no problem will be created for the investors availing the previous notification. The issue of a new notification is aimed at clarifying certain ambiguities and clearly identifying the industrial estates of Nooriabad, Chunian, Gadoon and Hattar, where the investment on plant and machinery will be entitled to the same tax exemption as the rural areas.

On the other hand, the extent of tax duty concession already available to any industrial estate in urban centres has also been made transparent by giving a list of the industrial estates as a table under the new notification. It may be added that the definition of rural areas outside the municipal limits of Karachi has been brought at par with that of Lahore. In this regard the distance of 30 km. beyond the periphery of municipal limits of Lahore and Karachi will be the same. Formerly, the distance in respect of Karachi was 40 km. which has been reduced to 30 km.

The supersession of the previous notification with the new one maintains the continuity of the duty and tax exemption and concessions to make the policy of the government unambiguous and transparent for the facility of the investors.

Incentives for Fertilizer Industry: To cope with the shortage of fertilizers, the government decided to further encourage the local manufacturing of fertilizers in the country. Towards this end, the following concessions facilities were allowed to new projects and existing units envisaging expansion. a) Assured supply of gas at existing

prices for the purpose of

feedstock for a period of 10 years

from the date of operation of

plants. b) Duty-free import of machinery

not manufactured in the country.

This exemption would also

include |Iqra and import

surcharges'. c) Duty-free import of phosphate rock.

This exemption would include |Iqra and

import surcharge'. d) In the unlikely event of imposition of

price control, the ex-factory price would

be so fixed that a minimum return of 20

per cent on equity after tax at 90 per

cent capacity utilization is assured. e) The entrepreneurs would be allowed to

import secondhand machinery, if they

so desire. f) The gas used in the reforming furnace for

heating would be treated as feedstock. g) Assured supply of gas used as fuel at

least for 9 months in a year. h) All the fertilizer producers, domestic and

foreign, public and private would be

treated equally. i) It would be the responsibility of the

development finance institution (DFIs) to

check the economic and financial

viability of the projects before providing

finance. j) Expansion would be entitled to the same

concession as allowed to new plants.

It may be recalled that several fertilizer

projects remained in the planning stage

due to lack of incentives. These

incentives may encourage the development of

fertilizer industry.

Stock Market

Stock market showed an unprecedented optimism. As many as 60 new companies were listed during 1991. Among these about 30 were textile mills. Public subscription for textile companies was overwhelming. At present there are 540 companies on Karachi Stock Exchange having an aggregate market capitalisation of Rs. 194 billion. Many companies listed on KSE have been privatised. The boom in the stock market has been attributed to new exchange reform and presence of foreign funds. Foreign investors are mainly concentrating on companies who have good track record. Their interest is in energy projects and leasing companies.

The much awaited Islamabad Stock Exchange will be operational in March 1992. Amanullah Group are the sponsors of the exchange. The exchange would be good men for the area. The sponsors have assured that they would take measures that allegation of inside trading and monopoly trading by brokers do not arise. So that the stock exchange becomes an instrument of investors' confidence.

NEW PROJECTS

Telecommunications: Alcatel a major French Telecommunications company will invest in two large projects in Pakistan in two large projects in Pakistan in order to expand telecommunications facilities. Alcatel will also associate private sector of Pakistan in this project. It will also undertake a major programme for training of Pakistani personnel in order to operate and expand the manufacture of telecommunication equipment in Islamabad. The project will also serve as a regional base to supply equipment to Central Asia and the Gulf Region. Alcatel, will also install, 182,000 telephone lines in Sindh and Balochistan provinces on build, lease, and transfer basis.

Caustic Soda: Sitara Chemical Industries has undertaken an expansionary project to add facilities for the production of caustic soda at its existing plant in Faisalabad. The expansionary project will increase its existing capacity for the production of caustic soda by 33,000 tonnes per year. It will be based on membrane technology. The project is expected to start operation by the end of 1992 raising Sitara Chemical Industries total production capacity for caustic soda to 65,000 tonnes per annum. Caustic soda is one of the most widely used basic chemicals. Domestic production of caustic soda has increased in the past five years from 55,000 tonnes in 1986-87 to 78,000 tonnes in 1990-91. However, a substantial quantity is still being imported to meet the growing demand. On completion of the expansionary project, the country will become one of the few countries of the world exporting caustic soda.

OIL EXPLORATION

OMV Austria: The Government has entered into an agreement with OMV of Austria, Hardy Oil of UK and Pakistan Petroleum Limited (PPL) for petroleum exploration in Rawat area of Rawalpindi district by investing US dollar 24 million for the seismic survey and exploratory wells over 520 sq. kms.

Union Texas: Another agreement was signed with Union Texas Petroleum (UTP), Occidental of USA (Oxy) and Oil and Gas Development Corporation for petroleum exploration in Badin, Hyderabad, Mirpurkhas, Tharparkar and Thatta districts. Under this agreement, the companies will carry out seismic survey over 500 kms. area and drill three exploratory wells by spending about 10 million US dollars. The licensing area is adjacent to the field which is already producing about 18,000 barrels of oil and 100 million cubic feet of gas per day. Currently 22 local and foreign oil companies are engaged in petroleum exploration in Pakistan over an area of 215,000 sq.kms. This is the 25th agreement signed by the government since August 1990.

Pak-Iran Refinery. Preliminary work on the establishment of an oil refinery by Iran in Pakistan is progressing satisfactorily. Experts of the two countries are working closely in finalising the feasibility report relating to the financial aspects and technicalities. This was stated by the Iranian Ambassador Jawad Mansouri, while informally talking to newsmen. He said the refinery will take four years to come up as soon as the basic formalities are finalised.

FOREIGN TRADE

According to official estimate exports in 1992-93 to increase 10 billion and to $ 15.0 billion in 1993-94. However, these estimates appear to be unrealistic. A conservative estimate may be around $ 9.00 billion in 1992-93 and $10.8 billion in 1993-94. Payment deficit may be declined to $ 329 million in 1993-94 if the present rate of growth is maintained Pakistan may phase out its yarn export by 1994-95 to ensure growth of value added textile industries. The imposition of export duty on cotton yarn was among the measures taken to restrict yarn exports. Leather and leather product exports have reached $ 500 million. Growing at an average increase of 20 per cent per annum a target of one billion may be achieved in the next 4 years for leather and leather products.

Import may decline due to dismal aid outlook and cut in home remittances. In 1990-91 imports stood $ 7.628 billion showing a rise of 9.9 percent. The increase was attributed to increase in petroleum and petroleum products. The imports of five major items viz. wheat, tea, petroleum and petroleum products, edible oils and chemical fertilizers showed a rise of 14.4 per cent and constituted 34.8 per cent of total imports, compared to 33.5 per cent in 1989-90 and an average of 30.9 per cent in the five years ended June, 1990.

Pakistan's exports strength is better than India and Bangladesh. The per capita exports of Pakistan is $ 42 whereas India has $ 19 and Bangladesh $ 12. Among the Asian developing countries Singapore has the highest per capita exports which is $ 16519. Pakistan ranked 10th among 12 developing countries of Asia.
FOREIGN TRADE OF PAKISTAN
 ($ Million)
 % %
Year Imports Increase Exports Increase Balance
1985-86 5,635 -- 3,073 + 22.7 - 2,562
1986-87 5,380 - 4.5 3,688 + 20.0 - 1,692
1987-88 6,395 + 18.8 4,457 + 20.8 - 1,938
1988-89 7,069 + 10.6 4,693 + 5.2 - 2,376
1989-90 6,941 - 1.8 4,965 + 5.7 - 1,976
1990-91 7,628 + 9.9 6,169 + 24.3 - 1,461
1991-92 8,133 + 6.6 7,500 + 20.0 - 633
1993-93 8,671 + 6.6 9,000 + 20.0 - 329
1993-94 9,243 + 6.6 10,800 + 20.0 - 243
Import Annual Average Growth 6.6%
Export Annual Average Growth 20.0%
Source: State Bank Annual Report - 1990-91.


EXCHANGE RATE

As on November 30, 1991 the dollar was valued at Rs. 24.69 as compared to Rs. 21.39 on January 4, 1990 showing a depreciation of 13.35 per cent of rupee against the dollar. The target to stabilise the currency at Rs. 23 could not be achieved. With dismal aid outlook, the payment deficit may decline to $633 million in 1991-92. Leather garments have shown a marked increase of 49.4 per cent up from $348 million in 1986-87 to 520 million in 1990-91. The government is hoping to increase the exports to $10 billion in the next two years.

INFLATION

Inflation rate is likely to be around 15 per cent during the year ending June 30, 1992. The 12-month average of the consumer price index rose sharply from 6 per cent in 1989-90 to 12.7 per cent in 1990-91. A 2.5 per cent surcharge on electricity bills is being levied from January 1, 1992 on the supply charges as defined in WAPDA Consumer Price Index (CPI) jumped from 193.29 in September 1990 to 216.08 in September 1991 indicating a rise of 11.9 per cent. The government claimed that it would contain the prices to 8.6 per cent. However, the government is on the spending spree. There is a very strong tendency specially with the Prime Minister to promise money which is unfortunately not there. While fiscal deficit remained on the track, net repayment of foreign debts due to shortfall in foreign assistance and reduction in domestic non-bank debt stock have led to higher bank borrowing for budgetary support which went up to Rs. 43.64 billion compared to Rs. 22.43 billion in the corresponding period of the last year The rate of expansion in currency in circulation has accelerated from 11.1 per cent in 1988-89 to 19.0 per cent in 1990-91.
Years % increase
1989-90 6
1990-91 8
1991-92 12
1992-93 15
1993-94 12


LABOUR

The Federal Government is to lay off more than 200,000 workers from various departments following pressure from the World Bank and IMF. According to a Federal Government survey conducted in WAPDA, more than 200,000 will be made redundant from Pakistan Railways, PIA, Pakistan Steel, Karachi Shipyard and the Central Board of Revenue. It is also believed that hundreds of workers might also be laid off from Federal Ministries, saving more than Rs. 1 billion to the exchequer. Labour unrest is spreading. There was a 16-day strike in Sui Southern Gas Co. In December Port Equipment Operators at the Karachi Harbour resorted to an unauthorised go-slow resulting in the unprecedented delays and shipping congestion at the harbour.

Following the sacking of about 4,000 employees of Pakistan Steel who were on retainership, situation has become tense and law enforcing agencies have been on an alert. The problems Pakistan Steel is facing today are too well known: marketing of the product, over-staffing, misuse of transport, theft of property, inflated medical bills (with the connivance of the doctors and medical stores), and colossal overtime payments.

Atmosphere at Pakistan Steel has been marred for the past several months by a bitter controversy involving around 4000 MQM workers enrolled in the organisation as |retainership employees'. Besides being thought to be a burden on the already beleaguered Pakistan Steel the retainers also faced bitter opposition from non MQM workers, particularly Sindhi organisations. The latter were consistently demanding their expulsion, sometimes along with a threat to peace. One major reason why the CBA was so adamant on regularising the retainers was the forthcoming referendum. With 4,000 new votes, the MQM would be in a position to win back the office of CBA without having to form alliances with any other group. It had won the last referendum with the support of Pukhtoon and Punjabi groups. Strangely the new labour policy is not yet out. Employees of National Motors are protesting against the deviation from the incentives package policy. It may be recalled that the Government in November 1991 announced a policy of golden hand shake for the old employees. However, it proved to be a burden as huge amount of money for workers was not available. Bank workers are also under pressure due to high work load as a result of heavy public subscription of new issues. Unemployment is on the rise. About 200,000 workers have returned home due to Gulf War. These workers have to be absorbed in the economy. According to a labour leader the Government is following a Bulldoze Workers Policy.

It was probably Mr. Nayyer Manzoor an Economist by profession who for the first time gave the idea of workers participation in this country.In 1964 he injected the idea that in a factory workers should be the share holders rather than the wage earners His formula was say 49% shares be given to the workers and out of these 49% say 10% be given to top management say 15% mid management and remaining to lower management. Out of the remaining 51% - say 20% be distributed amongst the people of the area where the factory was located and the remaining floated in the stock market - This way interest & initiative would be introduced and on the other hand strikes and lockout eliminated because all would protect and look after the plant just like their own.

The minimum wages are being kept at low level. Workers have been suffering heavily due to high inflation which is around 15 per cent. Their purchasing power has been reduced drastically and they were no longer able to make both ends meet and provide adequate education to their children whereas the rich in the country were squandering their wealth on extravagant living. [Tabular Data Omitted]
COPYRIGHT 1992 Economic and Industrial Publications
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Haidari, Iqbal
Publication:Economic Review
Article Type:Cover Story
Date:Jan 1, 1992
Words:4557
Previous Article:Convertible bond.
Next Article:Overview of Pakistan's economy and programme of reforms.
Topics:


Related Articles
Economic forecast, 1990-91.
The 1999 national economic outlook.
What's Next.
Economic forecast 2002. (Cover Story).
OEM product forecasting: through a glass darkly.
Research and Markets: 5-Year Projection for the Global Economic and Information Technology Market.
Ohio economic forecast: in like a lion, but then what?
New Report Covers Emerging Bioethanol & Cellulosic Ethanol Markets.
Central bank of Belgium cuts economic forecast.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters