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INDUSTRY RESEARCH & ANALYSIS - IRA
Credit Management Group
NBP Industry Newsletter
Tracking Opportunity & Risk Related Developments
SBP projects 2-3% growth (Page No. 23) IMF: Inflation 13.5%, GDP < 2.75% (Page No. 24) Fiscal deficit reaches 6.3pc in FY10 (Page No. 24) CA deficit widens by 48% (Page No. 24) Trade gap widens (Page No. 24) Bumper wheat crop likely (Page No. 15) Profitability remains up in 2010 (Page No. 09) Two nuclear reactors for Pakistan (Page No. 06) Agreement inked - TAPI gas pipeline (Page No. 06) Pakistan can produce of 7,000 MWs (Page No. 06) Pakistan forced to import over 3 M bales of cotton (Page No. 01) Kick - starting agricultural activity (Page No. 15) Agriculture may need 2 years for recovery (Page No. 14) 310,000 small businesses affected by Floods (Page No. 14) Circular debt update (Page No. 06)
OCT / NOV 2010 ISSUE
Major Developments Textiles (Ginning, Spinning, 1 1 4 6 8 9 11 12 12 14 19 20 22 23 32 33
33 35 39 40 44 48 52
Pakistan forced to import over 3 M bales of cotton
Weaving, Knits, Woven Apparel)
Oil (Marketing, Refining, Sourcing) Power / Energy (Generation, Distribution) Sugar Cement / Construction / Steel Automotive Telecommunication Other Industries Agriculture Micro Business & SME Financial Services Regulatory Macro Environment Table: Risk-Opportunity Trends Accelerating Global Risks - Special Excerpts
Global Deflation Sovereign & US Debt Crises US Dollar Crises - An Alternative Reserve Currency Strategic Divergence US vs China / Russia & Others Iran A new Mid-East war in the making The AF-Pak Theater The End Game Economic Implications of US Congressional Elections (Nov 2010) Downgraded: ratings of largest banks (Page No. 20) NPLs estimate - SBP (Page No. 20)
Pakistan will be forced to import over 3 M bales of raw cotton to meet the demands of local textile industry as cotton production will remain around 11.5 M bales against set target of 14 M bales in crop season 2010-11. Officials at the Ministry of Food and Agriculture told that during the current crop season Pakistan expected to achieve the set target due to favourable conditions, but devastating floods have swept away cotton crop on 600,000 hectares. Before the recent floods Pakistan was expecting a bumper crop of 14 M bales compared to 12.8 M bales produced last year. Officials said that Pakistan's textile industry annually requires around 14 M bales of cotton, officials added. Officials said cotton crop had been sown on 3.4 M hectares, out of which 0.6 M hectares had been destroyed and the country lost about 2.5 M bales. Officials warned that the country would face serious shortage of cotton in coming days as more than 20% of the cotton crop had been destroyed by the floods.
(Business Recorder October 13, 2010) Over 2 M cotton bales destroyed
While expressing his views in connection with the damage to the
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cotton crop as a result of floods, Chairman APTMA Sindh-Balochistan Region said that before the floods Pakistan was expecting a bumper crop of 14 M bales compared to 12.8 M bales produced last year. According to reasonable estimates, the floods have destroyed approximately 2.00 to 2.50 M bales leaving a short fall of about 1.00 M bales in comparison to last year; therefore, the import requirement this year will be additional 1 M bales and total import requirement would be 4 M bales, which will now be procured from international market at world prices. Under the scenario, it can not be expected that the spinning mills will import cotton at international prices in the absence of continuity and assurety of non interfering policy by the Ministry of Textile Industry, as nobody can afford to import raw material at world prices and be denied the rights to sell their product at the international price of cotton yarn in the wake of export duties and quotas. The clear proof of this can be drawn from a comparison of cotton import figures between 2008-09 and 2009-10 when the import figures were 490,000 Metric Tons (2.8 M bales) versus 337,000 Metric Tons (1.98 M bales), respectively. Had curbs on yarn export not been placed during the last year Pakistan would have imported 150,000 MT more of raw cotton at prices, which would have been much cheaper than they are today and consequently availability in the local market would have been much better.
Cotton crisis looming
destroyed by floods in the four provinces and Azad Kashmir, which might compel the country to import many agricultural products including cotton. The total agriculture sector losses are estimated to be about Rs 249 B. Due to flood damage to Pakistan's cotton crop for the 2010-11 season, the officials estimate that the country may import 3.5 to 4 M bales. Major distortion took place in major cottongrowing areas of the central Punjab and southern Sindh. According to a Food and Agriculture Organization (FAO) report, the highest losses were recorded in Punjab where about 661,637 hectares of land with standing crops destroyed. In Sindh, crops on about 357,372 hectares and Khyber Pakhtunkhwa (KP) about 191,020 hectares were damaged.
(Daily Times September 14, 2010) Cotton output to drop by 18.5%
ginneries as on September 1 stood at 9,95,191 bales, showing a decrease of 22.95% over the corresponding period of the last year when ginneries received 12,91,550 bales. According to the Pakistan Cotton Ginners Association's fortnightly report released said that Punjab - the major cotton producing province contributed 4,88,548 bales to take the total to 9,95,191 bales. Sindh's shared in the arrival was 5,06,643 bales.
(Business Recorder September 4, 2010) Imports of 4 M cotton bales
The cotton output in the country is likely to be lower by 18.5% because of floods, PCGA Chairman told here. "I am expecting loss of 18.5% of cotton due to recent flood in Punjab and Sindh," he said that government had targeted 14.11 M bales but now only 11.5 M bales production is expected. According to him, devastating floods and heavy rains severely damaged the cotton crop in the country. Floodaffected areas in Punjab are estimated at 1.415 M acres (1415.6 thousand acres) while in Sindh it is about 303.2 thousand acres. The total area damaged is calculated at about 1.719M acres (1719.8 thousand acres).
Cotton production declines by 22.95%
Flood damage to Pakistan's key cotton crop has cut deep into the forecast for the 2010/11 season, industry officials said, adding the country is likely to import at least 4 M bales. The monsoon flooding, which started over a month ago, damaged about 524,000 hectares (1.3 M acres), out of the total 3.20 M hectares, under cultivation in the major cotton-growing areas of central Punjab and southern Sindh province. Government and industry officials now estimate output of about 11.6 M bales of 170 kg (374.8 lb) each against the government target of 14 M bales. "We will have to probably import a minimum of 4 M bales to meet our demand this season after floods damaged up to 2.25 M bales," a senior official at the private All Pakistan Textile Mills Association, told Reuters.
(Business Recorder September 8, 2010) Growth in Textile export
(Business Recorder September 15, 2010)
(Business Recorder September 14, 2010)
According to the assessment of the United Nations, over 1.31 M hectares of the cultivated area has been
Cotton production has declined by 22.95% as the arrival recorded at
The country's textile export has posted a healthy growth of 23% during the 1st 2 months of the FY 2010-11 mainly due to high unit price in the world market. 02
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According to statistics released by Federal Statistics Bureau, the country's overall textile export have reached $1.975 B mark during the first two months (July-August) of the CFY as compared to $1.601 B exports during the same period of the last FY, depicting an increase of 23.34% or $370 M.
(Business Recorder September 23, 2010) Worlds cotton output, consumption
coming Christmas and New Year events in the West. "Exporters always book orders at least three months ahead of the next season, and if the raw commodity price is higher or short on the local market then striking deals with global buyers becomes difficult," Value-added Textile Forum Co-ordinator said.
(Business Recorder October 20, 2010) Duty on PTA cut to 3%
Representatives of different valueadded organizations, while talking said on that the value added textile industry is crippled owing to frequent load shedding, high electricity and gas tariff, multiple duties and taxes, resulting in high cost of doing business in Pakistan, as compared to the neighbouring states. Chairman said that end product cost has increased manifolds, which is no more acceptable to USA and Europe. The prices of the corresponding period last year, the Federal Bureau of Statistics said. The surge in export numbers can be attributed to higher global demand and increased per unit price of Pakistani textile products. Despite surge in the amount realised, the quantity exported of almost all the products under the category witnessed decline. According to the data, raw cotton exports declined to $7.202 M during July-September against $40.458 M in the corresponding period last year, thereby, witnessing a decline of 82.2%. Contrary to this, cotton yarn exports witnessed growth. The cotton yarn exports reached up to $353.617 M, recording 2.08% growth against the previous years exports of $346.402 M. During the period under review, goods such as cotton cloth, knitwear and bedwear witnessed a surge of 22.88%, 15.79% and 14.73%, respectively. The exports of cotton cloth, which stood at $432.974 M, increased to $532.0.35 M, while that of cotton carded or combed dropped to $141,000 from $5.37 M. 03
World cotton production and consumption are forecast to balance around 25.1 M tons in 2010/11 due to 15% rebound in production and 2% increase in mill use, a statement of the International Cotton Advisory Committee said. The higher production in the USA and a surplus of five Mbales in India would compensate for the damage cause to cotton crop in Pakistan. It would also facilitate Pakistani spinners to cover the shortage through imports, it said. Beginning stocks will account for only 27% of the worlds supply in 2010/11, down from 35% in the previous season. The decline in stocks as a percent of supply suggests that cotton prices in 2010/11 will remain unusually susceptible to changes in crop prospects, the statement added.
(The News September 3, 2010) $1 B foreign orders may be lost
The government has cut customs duty on the import of pure terephthalic acid, a raw material used in the production of polyester fibre, to 3% from 7%. On the contrary, customs duty on polyethylene terephthalate for bottle resin has been increased from 7.5 to 9%. This was announced in a notification issued by the Federal Board of Revenue. In another major decision, the FBR withdrew all duty concessions on the import of 12 types of raw material and different types of yarn for the textile industry. Elaborating, an FBR official said the raw material from which concessions have been removed include textured yarn (nylon), polyester and other types of yarn, mixed staple fibre, yarn made from mixed wool and other products.
(The Express Tribune October 13, 2010) Garments export likely to come down in 2010-11
The country is likely to lose at least a billion dollars of foreign orders next summer because of the acute shortage of cotton yarn on the local market, manufacturers-cum-exporters of value-added textile sector said. Expressing fear, they said the raw commodity's scarcity could curb the value-added textile sector from meeting the export deadline for the
Due to high prices of end product, Pakistan value-added textile export did not seem competitive in Europe as well United States, resultantly export of garments is likely to come down from $3.2 B to $3 B during 2010-11.
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Knitwear and bedwear exports surged from $471.747 M and $420.532 M to $546.247 M and $482.461 M, respectively. Shipments of towel swelled up by 12.12% and that of tents, canvas and tarpaulin dropped by 38.67%. Readymade apparels showed escalation of 38.83%, overseas sales of made-up articles rose by 26.72% and other textile materials exports witnessed a surge of 84.27% during the period under review.
(The News October 20, 2010)
increased following a decline in its local production by a huge amount of 700 to 800 tons per day. The prices of liquefied petroleum gas (LPG) are stable in the market despite a surge of Rs.9,360 per ton in its rate by a local producer OGDCL. This was stated by the chairman of FPCCI Standing Committee on LPG and All Pakistan LPG Distributors Association Chief in a press release.
(The Nation September 5, 2010) Oil import bill increases
(The Nation September 29, 2010) Oil sales down in August
products in the month of August this year as against $7.35 M of the corresponding month of 2009.
20% decline in Refinery output
The country's refinery production has declined by 28% in August 2010 as compared to previous month mainly due to production stoppage at Parco after floods devastated the transportation network in the surrounding region. According to provisional figures, the refinery production in the 1st 2 months of FY11 witnessed a decline of 18% as compared to the same period of previous FY. Reviewing refineries individually, Parco witnessed its market share falling drastically to 29% in the two months of FY11 from 42% after production closure in August 2010. PRL and BYCO too witnessed their shares deteriorating to 20% (from 21%) and 3% (from 8%) respectively during this period. On the other hand, NRL remained the key gainer witnessing its market share surging to 24% (from 13%) in the two months of FY11.
(Business Recorder September 16, 2010) Dependency on imported LPG increases
The countrys oil import bill for the 1st 2 months (July-August) of the FY 20010-11 has increased by 25.28%, Federal Bureau of Statistics reported. Total oil imports, including crude and petroleum products, amounted to $1.9 B during July-September period of the prevalent FY from $1.52 B in the same period last year. On the contrary, the petroleum products imports stood at $933.1 M as against $994.7 M, showing a decline of 6.20% YoY in growth over the same period of FY10. Showing the similar trend, the quantum of the petroleum crude products imported into the country during the period under review reached the level of $950 M when compared to $509 M in Jul-Aug FY10. In addition, this group showed 86.90% YoY raise in growth. According to official figures released by the Federal Bureau of Statistics, in August 2010 alone, the petroleum groups imports swelled by 16.67 per cent on month-on-month basis. Likewise the entire imports in this broad category up by 7.19%. The FBS data revealed that Pakistan spent $858 M on the import of oil
The oil sales in local market have declined by 24% to 1.418 M tons during the month of August 2010. The decrease in sales of Furnace Oil (FO) and High Speed Diesel (HSD) were amongst the major causes for the overall decline, analysts said. The sales of HSD have declined by 34% followed by FO sales, which were down 21%, an analyst at JS Global Capital said. The oil sales during the 1st 2 months of FY11 stood at 3.285 M tons, down 8% on yearly basis. PSO sales during this period dipped by 12% to 2.2 M tons mainly due to its larger presence in the flood affected areas compared to growths of 17% and 14% witnessed in the sales of APL and SHELL, respectively. As a result, PSO lost its market share by 322bps to 67.2%. Meanwhile APL and SHELL improved their shares to 6.1% (up 130bps) and 14.8% (up 277bps), respectively.
(Business Recorder September 9, 2010) OGDCL to start drilling in Zin Block
Pakistans security forces have finally given clearance to the OGDCL to start drilling in one of the most prospective, but insurgency-hit parts of Balochistan, top company officials said. OGDCL will initiate drilling of the first well in Zin Block of Dera Bugti district, to check the size and quality of gas reservoir more than six years after a survey suggested presence of hydrocarbon reserves there, they said. 04
The dependency on the imported Liquefied Petroleum Gas (LPG) has
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Work heads off later this month or in the first week of November, one of the officials said requesting anonymity. Some evaluation of the reserve needs to be carried out, but seismic and geological studies are already with us. The largest petroleum producer has engaged six platoons, 216 soldiers of the Frontier Constabulary for security. OGDCL will pay for their service and the company has even bought them equipment.
(The News October 12, 2010) OGDCL seen borrowing next year 21 gas fields - Ogra raises wellhead prices
Oil and Gas Regulatory Authority has raised the wellhead prices of around 21 gas producing fields due to variation in exchange rate and global oil prices effective from JulyDecember 2010. Ogra official said that impact of increase in recent well head gas prices will also be reflected in consumer prices effective from January 1, 2011. Ogra has revised wellhead gas prices of 32 gas fields and there has been made no change in prices of some gas fields. The government sets, through Ogra, the wellhead price and then gas is provided to the gas distribution companies, like SNGPL and Sui SSGC for sales to industrial, commercial and domestic consumers.
(Business Recorder October 10, 2010) Oil consumption falls
B during the first quarter of the CFY from $2.188 B in the corresponding quarter FY10, showing an increase of 9.33%, the Federal Bureau of Statistics said. The import of petroleum products came down by 10.79% to $1.295 B during the period under review from $1.452 B in July-September 2009. The imports of crude petroleum, however, registered a significant increase of 49.08% to $1.096 B from $735 M. The y-o-y imports in September fell sharply by 25.65% to $509.43 M against $685.2 M during the same month last year.
Once Pakistans most cash rich company, OGDCL now has only Rs.6 B in liquid reserves, which will force it to borrow from banks in the first half of 2011, a top company official said. The companys assets that can be readily converted into cash have come down sharply from around Rs.19 B in June 2010 after payments of deferred taxes and dividends, said the official, requesting anonymity. We can avoid banks in remaining months of this fiscal (Jul/Jun 2010/11) only if inter-corporate circular debt falls, he said. But I dont see that happening anytime soon. OGDCL awaits payment of over Rs.80 B by 5 refineries and the 2 gas utilities. The company has annual cash flow of Rs.93 B from sale of oil and gas and its strong balance sheet has helped it stay away from banks during last five years. The state-run petroleum giant will have to raise between $400 and $500 M from banks in fiscal 2011/12, he said. Loan proposals and negotiations for credit lines will start as early as December 2010.
(The News October 8, 2010)
(The News October 20, 2010) Deregulation of Oil prices
The oil consumption in the country has declined to 4.7 M tons during the first quarter of FY11, 7% lower than the same quarter last year. The oil consumption continued to post weak data following the flash floods as demand dipped 6% in September 2010 as compared to the same month last year. Likewise, oil sales were 2% lower from the previous month as the seasonal Ramadan effect kicked in as well. Analysts said that the shutdown of some power plants due to flood inundation and improved hydel generation ability proved demand dampener for furnace oil (FO), while retarded agricultural activity dragged down diesel sales. Hence, consumption in the 1st Q of FY11 was down 7% on y-o-y basis.
(Business Recorder October 8, 2010) Oil import bill up
The ECC of the Cabinet has approved, in principle, de-regulation of oil prices and Inland Freight Equalisation Margin (IFEM). The ECC has also approved to fix margins of oil marketing companies (OMCs) and dealers which will result in reduction of oil prices by 35 paisa per litre if calculated based on price of October, an official of Petroleum Ministry said. The ECC has also directed Petroleum Ministry to seek ratification of decision from the Cabinet before its implementation. "IFEM will fall in controlled-deregulation because the Oil and Gas Regulatory Authority (Ogra) will notify it from one destination to other destination but so far as prices of petroleum products are concerned, refineries and OMCs will determine the prices on monthly basis whereas Ogra will monitor it," the official said, adding that imported price will be benchmark for prices and refineries as well, as OMCs will not be allowed to charge over set 'bench mark price' to protect consumers interests. He said that in new oil 05
The oil import bill increased to $2.392
but a Foreign Ministry spokeswoman said she did not know about talks over a bigger reactor deal. and invited the IAEA to exercise safeguards and oversight of this project. as compared to 63. citing plans to build the No 3 and No 4 reactors of about 300 megawatts each at Chashma. if the infrastructure is completed on priority basis and international donors like World Bank and ADB are actively persuaded by the government. 2010) Circular debt update China on gave its firmest government confirmation yet of plans to build two new nuclear reactors for Pakistan. the role of Ogra was more effective. China and other Asian countries. The planned pipeline would have initial capacity for 33 billion cubic metres a year and would run for nearly 2. This was said by official of the Bradford Power (Pvt) Ltd while talking to the Minister for Water and Power. slightly up by only 0. some of whose members have voiced qualms about the deal. China and Monteva Holding Inc. (Business Recorder September 22. The spokeswoman said China plans to help Pakistan expand its Chashma nuclear energy complex in Punjab by building two reactors in addition to one already operating and another nearing completion.000 MW from coal based power generation projects by 2015 if the government aggressively pursues investors.R. "This project is based on an agreement signed between the two countries in 2003 about co-operation in the nuclear power field. and is courting investors from the West. Canada for setting up wind power projects in Pakistan as 06 Turkmenistan. Afghanistan. 2010) 64. The official informed the Minister that the Bradford Power (Pvt) Ltd is a special purpose company established by A-Power. Russia.Tracking Opportunity & Risk Related Developments pricing formula. P. holder of the worlds fourth-largest natural gas reserves.250 miles). A delegation of the Bradford called on him. Pakistan and India signed the framework of an agreement to construct a gigantic pipeline pumping natural gas to South Asia. .037bcfd in this quarter against 3. He pointed out that one British company Oracle." he told a regular news conference. including 735 km across Afghanistan and another 800 km through Pakistan.TAPI gas pipeline Turkmenistan. one joint venture with Engro. is keen to revive plans to build the Tapi pipeline through Afghanistan to the markets of Pakistan and India. 2010) Bradford Power wants to set up wind power project A foreign consortium company of Canada and China M/s Bradford Power has shown interest to set up a wind power project of 200 MW in Pakistan and estimated investment of $500 M. in an exclusive interview published in monthly Energy Update. 2010) Agreement inked . However." said he added. (Business Recorder October 19. (Business Recorder October 09. an international council of governments. (Daily Times October 8. increased by 2. however. "China The circular debt of the petroleum ministry has soared to Rs 235 billion. a Pakistani official said. the government will have to take some concrete steps to resolve the issue once and for all. undermining efforts of the entities working in the oil sector. The former Soviet state is looking to diversify energy sales from its traditional market.3% on y-o-y basis to 4.188 bpd per day Oil production has already notified the International Atomic Energy Agency about the relevant details.700 MW of electricity will be generated from Thar coal with the existing number of projects and current pace of development by 2015.188 barrel per day (bpd) in the 1st Q of FY11. 2010) Pakistan can produce as much as 7.907bpd in the corresponding quarter in FY10. 2010) Pakistan can produce of 7. says an official. He said that there are projections that at least 2.000 MWs The country's oil production stood at 64. POWER / ENERGY Two nuclear reactors for Pakistan (The Express Tribune September 21.4% on y-o-y basis. then the power generation can be increased to 7000 MW. Her comments also suggested Beijing may see no need to seek approval for the two new Chashma reactors from the Nuclear Suppliers Group (NSG). (Daily Times September 23. said Secretary Coal and Energy Sindh. one UAE Company and a joint venture between Sindh and federal government for coal gasification are at various stages of initial work and the response from is very positive and they are willing to undertake coalbased projects in Thar and other coalfields of Sindh. one Australian firm.946mmcfd in the same quarter last year.000 km (1. especially the refineries which are now running at 60 percent of their capacity. The gas production.
Purchase of power from small producers (Business Recorder September 28.78. (Dawn September 24. 2010) adding that the project is expected to come online. 07 (Business Recorder September 8. ADB and a syndicate of local lenders. The EPS of the company stood at Rs 5.000 BOE a day in Pakistan and 318. the petroleum ministry did not send the complete record of the project to the law ministry while seeking its advice on a deal finalised with the consortium comprising 4Gas and GDF Suez. 2010) The Islamic Development Bank (IDB) has reportedly agreed to extend $220 M for 969 MW Neelum Jhelum Hydroelectric Project (NJHEP) in addition to $138 M which has already been leased.08bn profit after tax (Business Recorder September 4. 2010) With short-term power deficit estimated at 5.75 per share. The purchase will increase OMVs gas production in Pakistan to around 25. The Bank has now offered lease financing of $220 M for turbines. 2010) Kot Addu Power Company (KAPCO) has posted a record profit after tax (PAT) of Rs 5. (Daily Times September 3. The ministry was asked to advise if the project should be signed in view of the Supreme Court judgment on the matter. An IDB appraisal mission is in Islamabad to discuss modalities of further financing for the project. from July 2011 to March 2012 period.000 MW." KESC said in the letter (written to Ministry of Water and Power on August 27. it has learnt. the government has decided to allow distribution companies (Discos) of Wapda to enter into direct power purchase contracts with small independent power producers (SIPPs) of up to 50MW capacity under a crash programme. The Vienna-based oil and gas giant currently produces around 14.730 B during the period under review. official sources told. in phases.7. a multi-billion-dollar project for import of liquefied natural gas (LNG) for 20 years through a consortium of European companies is facing procedural problems. KAPCO posts Rs 5. "We have been successful in raising $280 M in debt for this critical project through IFC. OMV said in a press release. the profit before tax surged to Rs.000 BOE worldwide. The law ministry interpreted the project on the basis of partial information as a part of the summary did not reach it. 2010 and announced a final cash dividend of Rs. According to financial results. Seismic data acquisition work has been planed to delineate a drillable structure at the field. (Dawn September 27. sources added. It said that to-date 3 L/Cs have been posted to the Engineering.089 B for the year ending . According to sources.2. 2010) Further delay in LNG project The Karachi Electric Supply Company (KESC) has raised $280 M from International Finance Corporation.Tracking Opportunity & Risk Related Developments independent power producer and the said project will be completed in two years in Sindh province. an official said. generators and associated OMV has taken over Petronas International Corporations rights to explore and produce gas in Pakistan. Procurement and Construction (EPC) contractor for a combined total of $215 M. Sources said that IDB is leasing $138 M for some of the civil work components of the Neelum Jhelum Hydroelectric Project (NJHEP). 2010) KESC raises $280 M for 560 MW power plant transformers of the project. (Business Recorder September 8. 2010) Take over by OMV The Oil and Gas Development Company Limited has planned to drill 11 development wells in Uch Gas field area of Balochistan. 2010) OGDCL to drill 11 wells in Balochistan on June 30. Under the new policy likely to be formally approved by the ECC of the cabinet at its next meeting. Neelum Jhelum Hydro-electric Project With gas and electricity shortfalls on the rise. Asian Development Bank and local lenders to set up 560 MW Combined Cycle Power Plant . Two wells are already being drilled while drilling of planned wells will start during CFY. The company has completed geological mapping and seismic data acquisition work in Kalchas Block of Balochistan Province. smaller local investors will sign sale and purchase agreements with Discos for 25 years. A formal request had already been submitted to IDB and Economic Affairs Division.000 barrels of oil equivalent (BOE) a day by 2014. OGDCL has also made preparation to start drilling of an exploratory well in Zin area of District Dera Bugti as well.
210-225 B for the CFY. Under the federal governments incentive package.000 tons of white 08 . He said currently 0. A 1% tariff increase amounts to approximately Rs. hinting at recovering the remaining Rs. 2010) Deputy Chairman Planning Commission. said the chief minister. Argentina willing to assist energy sector. for the first 30 years in a bid to attract investors. (The Express Tribune October 20. Mehar and Daphro exploration licences and the Mehar and Mubarak development and production leases.2 b and the government has to increase the prices by at least 28 to 30% within a year if it again fails to turn around the lossmaking power distribution companies. As part of the package. 2010) Generate 5000 MWs for 50 years The ECC of the Cabinet decided to withdraw 25% regulatory duty on import of raw sugar and allowed private sector to import the commodity. The (power sector) business plan needs to be consistent with the allocated Rs.30 B subsidy. (The Express Tribune September 22. (Business Recorder September 22. 2010) Surge in Electricity Prices from next month Giving details about the incentives. and we expect that the new company INFLEX-WAH would soon commence production of CNG cylinders in Pakistan to supply the internal and regional markets. he explained that the government would guarantee an internal rate of return of 20% to firms which will achieve financial close by 2015 and investors will be exempt from paying customs duties on the import of coal mining and construction machinery for a period of 30 years. however. 2010) SUGAR Withdrawal of 25% regulatory duty (The Express Tribune October 6. confirming that two billion tons of coal reserves are available in Block II alone a quantity enough to generate 5. the government would not charge levies. said a key official of the finance ministry who deals with public sector enterprises. Briefing media after the meeting.000 megawatts of electricity over the next 50 years. According to the press release issued by the Argentine Embassy.6. Change the culture. learn to provide uninterrupted services and learn to pay for services. has entered a joint venture with Wah Industries Ltd. holding a zero accidents record. The total price difference has been worked out in the range of Rs. Thar coalfields would be declared a project of national security. The Economic Coordination Committee has granted an incentive package to attract foreign investors to Thar. The declaration of the region as a special economic zone and area of strategic importance has also been approved. Ambassador of Argentina in Pakistan has been making efforts to persuade the Argentinean Company IMPSA Corporation to participate in the several hydro projects that the government of Pakistan has planned to initiate. This time. unveiled the broader contours for overhauling the bleeding The Trading Corporation of Pakistan has established two LCs worth $243 M for import of 320. he said. Argentine Ambassador participated as guest speaker in the inauguration session of the Exhibition/Fuelling Pakistan 2010 at Karachi Expo Centre. He.180 B primarily from consumers. This was disclosed by Chief Minister Sindh during a press briefing at the CM House. The decision to this effect was taken by the ECC meeting presided over by Finance Minister. (Daily Times October 12.26 M tons more sugar will arrive from India by next month.Tracking Opportunity & Risk Related Developments The agreement includes the Mubarak. Secretary Finance said that 1. was reluctant to share by how much the tariff would actually be increased. He said that sugar price in the international market rose by 18%.2 M tons of sugar shortfall is expected next year. He also said that INFLEX. the man leading the reforms.1 M tons for the same period of last year and 1. including federal excise duty and withholding tax. 2010) Argentina expressed its interest to play the role to improve petroleum and power sector of Pakistan particularly Hydroelectricity and Gas Transportation sector. He also expressed his wishes to facilitate the contacts between the regulatory institutions of the two main markets in Condense Natural Gas (CNG).6 M tons stock of sugar is available with the TCP against 1. TCP A feasibility study of Thar coal reserves has been completed. the priority would be on improving efficiency rather than on increasing tariffs. he said.
000 tons of white refined sugar. rupee depreciation of 7% YoY alongside rise in power tariff and gas prices kept overall cost under check. remain low for next few months until reconstruction activities picked up.8 M tons in the same period last year. Ethanol is the key greenback earner for the sugar mills and the country has been exporting an average of 250. he said.Tracking Opportunity & Risk Related Developments refined sugar.7 B Delay in Sugar import will not only give a boost to the textile and leather sectors but the sugar mills would be the major gainers too as the proposed programme will allow duty free exports of ethanol to the EU countries. the AGP concludes in the investigation. tasked with ensuring the availability of sugar in the market. said an analyst at Topline Securities. which account for more than 32% of total dispatches. 2010) Loss of Rs. Commerce Secretary said that the EU has unilaterally given the trade assistance programme to Pakistan and the 30% duties on export of ethanol from Pakistan has been withdrawn. Prices may fall further by Rs. The market leader Lucky Cement was also better off in terms profitability (13% net margin) while better performers in the north included FCCL and DGKC. of 250. was finalised with Shanig Associates Karachi.72 per kg from Rs. amid volumetric growth of 9% YoY in total dispatches during the year.36. TCP had finalised two deals of sugar import at $724. 2010) Major gainers of Pak-EU trade CEMENT / CONSTRUCTION / STEEL Profitability remains up in 2010 Amid adverse economic conditions the overall cement sector performance was sluggish during FY (FY) 2010 cement companies continued to perform well in terms of better profitability and higher interest coverage. causing a crisis leading to a countrywide increase in prices and shortfall in supply. Exports. Analyst said that despite worse economic conditions around the globe. Cement prices had remained around Rs. a 100% increase.300 per bag.5 per ton with two different suppliers on August 2.325 per bag have started to cool down and are currently hovering around Rs. in this regard Attock Cement realised highest net margin. local agents of Agrocorp International of Singapore.4.000 tons sugar. Non-compliance with (government) directives indicated that undue favour was extended to the sugar cartel.000 tons of sugar before Ramazan in 2009. 2010 for import of 320.000 tons was signed with Meshe International.290Rs.000 tons annually.325 per 50-kg for last few months. they added.September 1. On the cost front. (Daily Times October 19. Cement prices after peaking at Rs. (The Express Tribune October 14. the local cement companies witnessed well net margins. declined by 09 The new plan of trade assistance by the European Union (EU) to Pakistan .2 M tons from 3. said the analyst.265-275 during the next few months. The other contract for 70. One deal. 2010) However lower prices shrank revenues. The ECC of the cabinet had directed the TCP on February 3. Local sales in the first two months of the fiscal year fell by 15% to 3. a brokerage house said. delayed a decision on the import of 200. superior interest coverage while the sector also continued to benefit from superior quality and brand image (reflected by higher retention prices realised by the company compared to the sector). A high official of Attock Cement confirmed that the price of the commodity has fallen by about 15%. Analyst added that manufacturers might have to reduce the prices further because demand for cement has fallen since floods hit the nation. The delay in import pushed sugar prices to Rs.25-35 in the north region because floods have brought the demand down. as average cement prices tumbled during FY10 by 18% yearon-year topline of the sector accordingly recorded a decline of 14% YoY.000 tons of refined sugar to cope with an anticipated shortfall following a decline in domestic production.000 tons ethanol annually and after the zero-rated regime is implemented the exports could even reach 300. Cement demand would The office of the Auditor General of Pakistan has established that the Trading Corporation of Pakistan (TCP).15-25 per bag to Rs. This will give a boost to the sugar industry and the production at the distilleries will be enhanced. 2010) Fall in Cement prices Cement manufacturers have reduced prices by Rs. 2009 to import 200. Sources told that with the opening of two LCs it is expected that first shipment of sugar would reach Pakistan in mid-September. (Daily Times October 09. (Business Recorder . local agent of Scuden Middle East Dubai.
2010) Lowest Cement Exports since Dec 08 Cement sales in September 2010 hit a 21-month low.18. The board of directors of the company in its meeting declared that the company's EPS declined to Re. said that quota fixation for every district and underutilization of capacity are the main reasons for the fresh bullish trend in cement prices.275 B in FY10 against Rs. down 16% on yearly basis in the 1Q owing to factors ranging from the recent flash floods to poor law and order situation. 2010) Housing Finance to GDP ratio International Development Association.Tracking Opportunity & Risk Related Developments 20% to 1. sales were down seven percent. (Business Recorder October 20.8 M vehicles on the road. Local cement exporters are likely to substitute African markets with Far Eastern markets. and reconstructing 128-km of damaged roads that provide vital access to remote and disaster-prone communities. 2010) Pakistans Cement exports to suffer Analyst said that Lucky export concentration to the Far Eastern nations is 15% of exports while 5% DG Khan Cement exports are dispatched to Sri Lanka.581 M earned in FY09. Despite the restoration of pricing consensus among the cement manufacturers. 2010 (FY10) declined to Rs 233. 2010) Common External Tariff on import of cement in East Africa is likely to be increased from 25% to 35% that may hurt countrys export. the local sales have witnessed a bruising start to FY11. Pakistan has about 8.358 M. 13. largely in line with its 10-year average decline of 12%. The project consists of three components: rehabilitating 514-km of highways. owing to passive domestic demand following the recent flash floods.6 M tones in July and August compared with 2 M tons in these two months of last year.16. 358. sales were down 16% as reduced business activity in the month of Ramazan also took its toll. (Business Recorder September 18. again. another cement trader said that cement manufacturers are operating at 20% capacity and any increase in cement prices reflects collusive behaviour.1. On a monthly basis. The company's profit before taxation declined to Rs. Similarly. arriving at 2 M tons. unexplored potential in countries like Sri Lanka and Myanmar is expected to be the future growth avenue for local cement companies. However.0. Hence.12." he said. due to Ramazan. on a monthly basis. Pakistan has one of the lowest ratios 10 .72 in the period under review against Rs. 525. (The News September 7. (Daily Times October 3. down 22% on yearly basis and the largest yearly decline since April 2001. resurfacing 342-km of highways. In this regard. albeit slowly. The cost of sales increased to Rs. (Daily Times October 6. According to the financial results the company's net sales declined to Rs. Cement manufacturers hope that their sales will increase by 20% when reconstruction gets underway. analysts eyeing a potential decline of 4% in the industrys volumes in FY11. "Current trend of cement prices may have a negative impact on the government's efforts to build houses for flood affectees. A cement trader.9 M tons. industry sources told. However. growing at about 10% annually projected to increase to over 70 M by 2030. with reversal in the current trend gathering pace from FY12 and beyond as reconstruction activities take shape.403 M in FY10 against Rs. (Business Recorder September 30.569 B against Rs.63 a year back. may compel the Competition Commission of Pakistan (CCP) to intervene.038 B recorded in FY09.022 M as compared to Rs. They said that Saudi cement exports are coming to the forefront (following a partial cement export ban removal). 2010) IDA approves $130 M credit Cement manufacturers have raised cement prices by Rs. has approved a credit worth $130 M in additional financing for the Pakistan Highway Rehabilitation Project to continue revitalising and modernising Pakistan's highway system. 2010) DGK Cement profit declines Cement prices increased The after-tax profit of D G Khan Cement in the year ended June 30.55 per bag in two months which. 18% lower from the corresponding period last year. analysts reckon. dispatches for 1QFY11 stood at 6. Pakistan cement exports could face pressure in short-term.776. Analysts expect demand to pick up post 1HFY11.900 M earned in FY09.
000 to Rs 15.955 units from 2. Housing loans are normally provided to high-income groups and the share of private financial institutions is quite low.588 units from 10. The housing finance to GDP ratio is between 50 & 70% in developed countries. according to a World Bank report on housing finance for low-income groups in South Asia. This is in stark contrast to India where the same ratio is seven per cent.021 units in July. Indus Motor Company.496 units against 30. The report said that housing finance is out of the reach of low-income groups and housing finance loans are extremely expensive.acquisition of Bhasha Dam WAPDA chairman.659 units in July. he added. Similarly.700 M for the acquisition of land for the mega Diamer Bhasha Dam project as the first installment.1 M-acre feet (MAF) of water and generate 4. sources added. i. according to the data released by Pakistan Automotive Manufacturers Association.e. who had recently visited the Diamer Bhasha Dam site.000 on different Suzuki models.176 units from 70. The ground breaking of WAPDA offices and colonies is expected next month. Both the companies. The report said that in contrast to the impressive growth in the banking sector.000. Pak Suzuki Motors Co Ltd and Honda Atlas Car Pakistan Ltd have also decided to increase prices from Rs 8. data showed. It would store 8. (Business Recorder . (Daily Times October 15. 2010) Sale of Japanese bikes falls AUTOMOTIVE Car prices increased Due to the unprecedented strengthening of the Yen which is at a 15 year high against major currencies.224 units in July.000 of Honda City effective from September 18.155 units in August 2010 from 45. Hero bike sales improved to 3. Pakistans housing finance to GDP ratio is as dismal as some of the most underdeveloped countries in the world. sale of Honda bike.000 while Altis price will be increased by Rs 35.519 units in the same period last year. Yamaha sales slightly plunged to 9. said an authorized dealer.609 units in the same period last fiscal. prices of all Corolla variants will be increased by Rs 25. In sharp contrast Habib motorcycle sales in August 2010 rose to 1.184 units in July. the overall sale in JulyAugust 2010-11 had swelled to 85. 2010) Cars sale surges by 10pc The sales of cars and light commercial vehicles in the country have increased by 10% during the 1st Q of CFY.130 units in the same period of last fiscal.394 units from 1. 2010) Fund released . However. (The Express Tribune October 12. which enjoys big share in rural areas. gave appreciation of yen against rupee as a reason for this increase in prices.500 MWs of lowcost electricity. Suzuki motorcycle sale to 1. (Dawn September 22.663 units in September.561 units in July but its overall sale in July-August rose to 2. has plunged to 40. This is despite the fact that the outgoing quarter remained turbulent for manufacturing concerns as both security issues and flood devastation 11 The government has released an amount of Rs.408 units from 1.501 units in August 2010 from 3. said that dam would be the largest project in the countrys history. According to the sources of the Ministry of Water and Power. Loans for residential housing and construction amount to less than 1% of the GDP in Pakistan. The sales during July-September period increased to 33. 2010) According to figures released by Pakistan Automotive Manufacturers Association. has marginally increase its car prices with immediate effect.September 16/Daily Times September 19. the project will also contribute 18 B units of electricity per annum to the national grid. Car sales grew by 6% to 11. . In addition to providing water for agriculture. however.Tracking Opportunity & Risk Related Developments of housing finance to gross domestic product (GDP) in the world. thus making the imported CKD and even local parts more costly as most of the raw materials are also imported.000 per unit on all models of Honda Civic and Rs 35. the amount has been handed over to deputy commissioner Diamer so as to start the land acquisition process. while Honda has increased prices by Rs 30.
CEO. according to official statistics. (The Nation October 8. (The News October 13. Company sources revealed the number of carried transactions has been increasing over a period of time that has reached 1 M in a single month with transacted amount crossed Rs. (Business Recorder September 14. is the newest entrant in the WiMAX market of Pakistan with an initial investment of more than $70 M and a commitment to bring high speed fast. (Business Recorder September 29. Chagai. depicting an increase of $19. Telenor Pakistan.1 B in the Wateen Telecom Limited during past few weeks which is likely to be welcomed warmly by the general public and stock exchanges of Pakistan. The country's import of mobile phones stood at $39. The volume and value of E-Payments transactions in the country during the 4th Q of FY10 reached to 53. Qubee said that Qubee has been actively involved in technology up-gradation since its launch in Pakistan. launched in Karachi early this year. according to dealers at Karachi's mobile phone market in Saddar. According to SBPs 4th Quarterly Report on Retail E-Payments and Paper Based Instruments released. 2010) Injection of over Rs 2. Import of mobile phones has already outnumbered the country's total import of cellular phones because they are low-priced with high communication features. gold mine with 2.8 trillion.2 B FDI' In its initial stages.4% increase in number and 8. For Pakistan. as the demand for low-cost multi-purposed Chinese handsets continued to grow.425 M in July this year. (Business Recorder October 13. the subsidiary of Norwegian telecom giant. said an analyst at the Topline Securities. 2010) E-payments . as compared to 8. 2010) Telenor Easypaisa transaction crosses Rs. "We have submitted a feasibility study to Balochistan government and having talks with Provincial government to conclude an agreement which will result in take-off for the project in next four years. B OTHER INDUSTRIES 'Rico Diq project to fetch $3. 2010) Rs 4.7% increase in value. Balochistan as a joint venture with Government of Balochistan with initial $3. (Business Recorder September 18.2 B foreign direct investment over four years. with its various m-banking services recorded over 6 M transactions carried under its brand EasyPaisa by the end of first year.2% increase in value in the previous quarter.016 M in July 2010 as compared to $19. 2 B benchmark.show rising trend Abu Dhabi Group has injected over Rs 2. Qubee. 2010) TELECOMMUNICATION Mobile phone import up Import of mobile phones mounted by 100% during July this year.Tracking Opportunity & Risk Related Developments restricted their business operations. Balochistan will get 25% profit plus royalty and taxes to federal and provincial governments. 2010) Electronic payments continued to show a rising trend as both the number and value of such transactions increased in the fourth quarter (AprilJune) of the last 2009-10 FY (FY10). Qubee committed to provide the customers amazingly reliable services.2% in number and 7.1 B Qubee invests $70m in broadband sector Qubee is receiving excellent response from its customers in Lahore and twin cities of Islamabad and Rawalpindi where the service has been launched recently.4 M and Tethyan Copper Company Pakistan plans to operate a world class copper.591 M in the same period of last fiscal year 2009. it implies an influx of US dollars into the country while for Wateen Telecom it shows shareholders' confidence in the company and its management while supporting the business plan. respectively showing an increase of 6. reliable and competitively priced broadband internet to residential and small business customers across Pakistan.2 B tons economically mineable reserves by deploying a cutting edge technology at Rico Diq. dealers said. 2010) 12 . the mobile banking in Pakistan has gained tremendous popularity among customers with rapid pace as colossal amount of Rs 10 B was transacted through a single cellular operator in a year. The 1300cc market leader Indus Motor posted highest sales growth of 13% in the outgoing quarter. (Daily Times October 15.
9 M tons. The investment will be on the basis of $1 per share. said that Pakistan exported almost 1000 km optic fibre cable to these countries. 2010) New duties on Pakistan plastics The government will reportedly import 230. He said that Pakistan managed to secure this tender after beating China and India in quality and price competition.953 per bag during the same period of last year.1.2. has committed to invest in Pakistan Cables by taking up a 25% equity stake in the company business. (Daily Times September 26.used for bottles and food packaging . According to data released by National Fertiliser Development Centre. HQs USA. total fertiliser offtake in January-August 2010 stood at 4. Offtake of other phosphate (TSP/MAP) products may also decrease. compared to 5. 2010) Import 230. 2010) Pakistan starts optic fibre cable export duties on plastics from Iran.3% over last Rabi 2009-10. and African countries. it is considered necessary" to launch the new tariffs. 2010) $115m for Karachi port project The European Union imposed new In the coming Rabi season (October- The Board of Directors of the World 13 .116 M tons. DAP offtake registered a decline of 53% YoY in January-August to 425.000 tons. sources told.will face EU import duties of 139.000 tons of Dye Ammonium Phosphate (DAP). 44. down 54% YoY. The duties are valid for up to 5 years and reflect Europe's concern that EU industry is falling behind oil-rich states with competitive and booming plastics markets.02 euros and 42.520 per bag compared to Rs. the EU's executive Commission said in the EU's official journal. Pakistan has huge potential for export of optic fibre cable. down by 14%. 2010) Urea consumption to shrink 27% in Rabi season Pakistan Cables has announced that General Cable Corporation.7% to 4.180 M tons against 3.34 euros per ton respectively until 2015. The decision means Polyethylene terephthalate from Iran. (Business Recorder September 14.000 tons. Official sources claimed the main reasons behind lower demand for urea fertilizer was said to be inundation of a large agricultural area with floodwater and high price of phosphate fertilizers prevailing in both domestic and international market for the last six months. he added. Fertiliser offtake during August stood at 417. March).1). and a Fortune 500 company. The urea consumption is projected at 3.7 M tons of last year. CEO Pakistan Cables Corporation said during the signing ceremony. (Daily Times September 26. (Daily Times September 8. The import of this urea consists of 100000 tons of DAP in December 2010 and further 100000 tons in January 2011 and total import of DAP for Rabi season is 200 000 tons. The decrease was primarily down to a massive decline in August as a result of the floods.Tracking Opportunity & Risk Related Developments 14% decline in fertiliser sales The floods also hurt the sale of fertiliser. Pakistan and the United Arab Emirates saying the three were illegally subsidizing exports to Europe's growing softdrinks market. 2010) US Company to invest in Pakistan Cables (Business Recorder September 30. (Business Recorder September 29. and 38% MoM. The decline has been on account of high DAP price which averaged at Rs. and cumulative fertiliser offtake has been down by 14% in 8 months of current calendar year. "In view of the magnitude of the countervailable subsidies found and in the light of the level of the injury caused to the (European) Union's industry.256 M tons of previous season showing a decrease of about 2.000 tons import of different fertilizers For the first time Pakistan has started export of optic fibre cable to Afghanistan. and more orders were in pipeline for export.70 euros ($188. TSP/MAP to meet the domestic demand for the coming Rabi season 2010-11. Pakistan and the UAE . Chairman of Federal 'B' Area Association of Trade and Industry (FBAATI) and Director of Premier Cables. The offtake of DAP fertilizer is expected to decrease by 4. the overall off take of all types of urea fertilizer is likely to fall by 2.003 Mtons as compared to last year consumption of 4. Moreover the government will import 20 thousands tons of TSP/MAP and 10000 tons of SOP/MOP in October 2010.3%. The General Cable will invest in Pakistan Cables on long-term basis after which the paid up capital of Pakistan Cables will increase to 28 M shares as compared to 21 M shares currently.
a pillar of the economy. 2010) Marble Industry more than $150m exports loss (Daily Times October 3. He said during the last 18 months till September 2010." said a press release. which destroyed 1. (Dawn September 11. chairman BMG APMMPIEA. 2010) Debut of Automated bulk cargo terminal more than $150 M in 18 months (April 2009-Sept 2010) due to power outages and closure of mines. the ADB said. majority of which were subsistence enterprises with less than 10 employees and an annual turnover below Rs 500. 2010) Pakistans agriculture industry. said WB Country Director for Pakistan.000 small businesses affected by Floods Small and Medium Enterprises Development Authority has estimated that around 310.Tracking Opportunity & Risk Related Developments Bank has endorsed $115.500. maize and sugarcane. Many of these ventures were established with less than Rs 1.9 B has already been spent on the terminal facilities. He said export target given by the Ministry of Industries and Production and TDAP for the said period of April 2010 was also missed by $10 M. Improving the efficiency of Pakistans trade corridors is a key element of the banks support to trade facilitation in the country. in an interview. The meeting also assured that gas curtailment to the sector would end as soon as gas situation improves. This was decided at a meeting presided over by Minister for Industries and Production. and 28 years maturity including a grace period of 7. The meeting was convened to discuss national fertiliser strategy. relying on loans from relatives and the accumulated life savings of these entrepreneurs. The financial close of the project was in July 2008 whereas physical work started in September-October 2008. This translated into a heavy loss to the developing export oriented industry to the tune of $21 M in JulySeptember 2010. said. "Fertiliser sector will continue (to function) in the post flood scenario since countrywide agriculture productivity depends upon access and affordability of agriculture inputs. could take up to two years to start recovering from devastating summer floods. commitmentlinked repayment schedule.400 M a month.000 small businesses were affected by the devastating floods across the country. He said the economic impact of the floods has yet to be fully quantified though it is evident that agriculture sector has been hit hardest. 2010) (Business Recorder September 18. he explained.5 years. and with an average discharge rate of over 1. 2010) Fertiliser subsidy to continue The government will continue giving subsidy to the fertiliser sector in the post flood scenario. Agriculture may need 2 years for recovery The first of its kind.8 M Karachi Port Improvement Project. SMEDA CEO revealed this in a meeting held to discuss rehabilitative steps required to counter post-flood recovery challenges facing the nation amid the worst natural disaster and rehabilitation of small and medium enterprises. of which Rs. the industry faced around 18-hour production loss on average daily. (The Express Tribune October 17. informed CEO of Fauji Akbar Portia Marine Terminals Limited (FAP).000 investment. (Business Recorder October 8. he added. The scale of the project meant that a consortium would be required to execute it successfully. The ADB and the World Bank are assessing the damage caused by one of Pakistans worst natural disasters. 14 The marble exports incurred a loss of .000 tons per hour. he lamented. 000. The financing is an IBRD flexible loan with fixed-spread. the cargo handling time at this terminal will be a third of what it takes today at other bulk cargo terminals in the country.3 M hectares of crops just before the harvest of key products such as rice. The export target set by APMMPIEA is missing by $10 M every month while production loss is being estimated to be Rs. fully-automated grain and fertiliser terminal of the country at Port Qasim is all set to welcome its first vessel later this month. The terminal is capable of handling 4 M tons of dry bulk cargo per annum. All Pakistan Marble Mining Processing Industry and Exporters Association (APMMPIEA) said. AGRICULTURE 310.10 B. level repayments. The total investment of the project is Rs.
2010) 500.starting agricultural activity to reactivate agricultural activity.5 M tons.8 M tons of wheat. horses. it will be able to meet part of those agricultural import needs that will happen over the next two years.300 B.55 acres of forest land 15 . officials at Ministry of Food and Agriculture said. Banks should focus now on additional demand for agricultural loans created after the floods. They said that this year due to soil's better moisture level wheat production in barani areas is expected to reach 2. whereas About 1 Macres of forest land has been destroyed by floods in the four provinces and Azad Kashmir. said a central banker. Now. particularly in the Rabi sowing season. ratio of the died animals became just one percent. the newly-appointed SBP Governor is expected to announce a set of guidelines for concessional agricultural financing in flood-hit areas. 2010) 1 M acres of forest land destroyed The SBP has received input from banks on what needs to be done to facilitate flood-hit growers across the country. Banks will have to extend larger amounts of crop loans at cheaper rates Pakistan is likely to produce another bumper wheat crop during the upcoming Rabi crop season. The damages to total livestock became 1% if the 0. 2010) Bumper wheat crop likely these areas have the capacity to produce over 2 M tons. UBL. Officials said that due to favorable weather conditions Pakistan is in a position to produce about 25 M tons of wheat as compared to 23. said the head of an agricultural credit of a large local bank.50 M was compared the total livestock population 160 Mfigures as per 2006 census was to be relied. the sources maintained. Final estimate would emerge once the SBP and the federal and provincial governments come up with precise calculations.Tracking Opportunity & Risk Related Developments Once the country gets back on its feet. told. Askari Bank and ZTBL has submitted its report. he told. Bankers say the SBP is devising a concessional agricultural refinance scheme for banks to ensure availability of adequate financing to flood-affected farmers at singledigit interest rates. farmers in barani areas managed to produce only 0. mules. Most of small and medium-sized growers have no access to agricultural loans and they borrow from informal sources. Officials maintained last year. donkeys. Nearly 62% of the population depends on agriculture for their livelihoods. (Daily Times September 3. sources told.000 animals including buffaloes. We are thinking within that time horizon we should be able to see the agriculture sector coming back. This would provide a basis for an immediate agricultural revival package that the central bank may announce shortly. (Business Recorder October 16. Faysal Bank. (Dawn September 20. The Agriculture Finance Committee comprising representatives from NBP. camels. while the wheat production in canal irrigated areas would be around 23 M tons. according to a report "Preliminary Assessment of 2010 flood impacts in Pakistan" conducted by Pakistan Agricultural Research Council (PARC). Initial estimate of this additional demand is Rs. accounting for over 21% of gross domestic product. DG of ADBs private sector operations. Filling in this gap is a long-term policy issue. (Dawn September 20. Banks provide farm loans to about 1. Even these figures were yet to be confirmed as decided in a recent meeting in ministry of livestock. Agriculture is Pakistans second largest sector.86 M tons last year.000 animals perished Initial estimates of the provinces revealed that the ongoing colossal deluge about 500. Farmers estimate cumulative annual demand for crop and agricultural development loans at Rs. The provincial governments were in the process of re-assessment and it would take a little more time before their final figures are tabulated. etc are died during the recent colossal deluge. HBL.2000 B whereas banks lending remains below Rs. a total of 973684. sheep.4 M growers or one fifth of an estimated seven M potential borrowers. 2010) Kick . goat.250 B. According to the report available with Business Recorder. But bankers say they will also have to build a mechanism for heavier disbursement of development loans to enable flood-hit farmers to buy agricultural implements and inputs and to repair damaged water courses.
says Food & Agriculture Organisation (FAO). including standing crops (e.05 M hectares in 2009.2 M livestock and 6 M poultry were lost in the flooding and over one M buffalo.6 M hectares of outstanding crop The FAO said it had completed procurement for the provision of seeds to 200. Asia. accounts for two-thirds of national cereal production (planted on 9. rice. The estimated loss to the cotton crop in recent flash floods in Punjab and Sindh stands at more than Rs. rice. Unless people get seeds over the next few weeks they will not be able to plant wheat for a year.Tracking Opportunity & Risk Related Developments was damaged by the current devastating floods triggered by monsoon rains across the country. citing early estimates. cotton. according to Pakistan Cotton Ginners Association. livestock. 2010) Rs.38% of the total provincial land area.g. Food aid alone will not be enough. irrigation. Response to needs in the agriculture sector cannot be underestimated nor delayed. and may not be able to harvest wheat again until spring 2012.25 acres. orchards and vegetables) appears Pakistans next wheat harvest is at risk after floods destroyed more than 0. (Business Recorder September 8. This planting season is vital as wheat is Pakistans main staple crop. Across the country. (Daily Times September 4. the FAO said.2 M large and small animals.85 were damaged by the floods. the United Nations food agency said.75 B loss to cotton crop The scale of losses to the agriculture sector in the country caused by the floods is unprecedented and further unfolding. completed in half of all the flood-affected districts. the food security of millions will be at risk. (The Express Tribune September 1. Extensive water-logging. The highest loss was recorded in Sindh where about 494559. farmland).3 M hectares of standing crops have been damaged countrywide damage to millions of hectares of cultivatable land. (i) Wheat planting season. found that 1.78 acres of forest land was destroyed.7 acres. An estimated 1. beginning in September/October.6 M hectares of standing maize. followed by Punjab where the recorded loss was 430887. silt deposits and damage to irrigation structures mean that work must start now to clear and prepare the soil for planting and to repair water systems for upcoming planting seasons. maize. Pakistans worst floods in decades have damaged 3. If wheat seeds.000 farming families and needed additional funding to be able to provide seeds for twice that number.g. sugar cane. fertilizers and farming tools are not provided rapidly. FAO is currently focusing on two time-sensitive challenges: (i) meeting the upcoming wheat planting season and (ii) saving livestock. Forest land in about 41 districts across the country has been adversely affected by floods. 2010) Damage to 3.8% of total land area was destroyed while forests in 2 districts of Kashmir suffered damages.05 M tons) and provides 60% of the carbohydrate and protein requirement for an average Pakistani. the Food and Agriculture Organisation said in a statement. seed stocks. The cotton crop in terms of value faced more than 30% of the total losses 16 .5 Mtons of seed stocks in Asias third-largest wheat producer. Near East. In Khyber Pakhtunkhwa (KP) forests in 9 districts accounting for 3. cattle. followed by Sindh where 14 districts with a %age of 14.75 B.5-0. The latest cumulative estimates are as follows: The Agriculture Cluster rapid damage assessments. Chief of FAOs said. with the heaviest loss in Punjab with 18 affected districts and an 11.6 M tons of wheat stock needed for the wheat planting season death of 1. millions of people have lost their entire means to sustain themselves in the immediate and longer term owing to the destruction/damage of standing crops and means of agricultural production (e. many farmers will miss this years wheat planting season. Khyber Pakhtunkhwa 46034.827 acres and Azad Kashmir 2202. If the next wheat crop is not salvaged. yielding 24. Chief of FAOs Emergency Operations. sheep and goats owned by households in the flooded areas would starve if animal feed is not provided urgently. said. 2010) Immense Losses to agriculture sector likely loss of 0. cotton and sugar cane. Europe and Special Emergencies. and 6 M poultry (Department of Livestock).
the worlds third-biggest importer of palm oil. buffaloes.000 hectares cotton sowing areas across the country. as the figures released are based on initial reports. 2010) 17 .237 animals have been affected.11. with higher volumetric sales and better margins. With all these initiatives. goats and sheep worth at least Rs. according to the Federal Bureau of Statistics.8% to 2. a traders group said.1% to 2. highest volumetric growth was witnessed in Millat Tractors.644 ringgit ($850) trading break in Kuala Lumpur.4. 2010) Rs. (The Nation September 8. Industry experts said that tractor sales would likely to decline by 25% in the month of September.9. Palm oil has advanced 18% from near an 8 months low on July 7. up by 13% followed by Al-Ghazi. He said the country lost about 2. PCGA Patronin-Chief said.666 tons.6 M hectares had been destroyed. Additionally Rs. Cotton crop had been sown on 3. Approximately 6. And this trend would keep on at least in the short run. Poultry losses have exceeded Rs. which enjoyed 56% market share. out of which 0.4 M hectares. may buy 10% less of the commodity in October and November than in July after the countrys worst.5 M bales to 12. witnessed volumetric growth of 13% during 1H2010. Along with this.86 B have either died or been otherwise affected by the deluge.75 m used for cultivating fodder and animal feed has also been destroyed.4k units in same period last year.50. the official spokesperson of the association told. the cumulative earnings of both the companies stood higher by 27% during 1H2010.05 M in feed concentrate and Rs.ever floods destroyed villages. according to data compiled by the Pakistan Dairy Association. Rs. 5 B Livestock losses in KP and 220. These include deaths of more than 369.2 M in poultry feed. Both these measures provided impetus for additional tractor demand due to lower prices and accessibility to lower income persons. (The Express Tribune September 1.5 M bales in crop season 2010-11.000 hectares of land valued at Rs. Among two listed tractor assemblers.1.48.5 M bales against the production target of 14. Cows. The company was able to sell 21k units compared to 18.946 livestock have been killed by the floods while another 437.5 B in Khyber-Pakhtunkhwa (K-P) due to the havoc wreaked by the recent floods. driven by festival demand in Asia. Hence net revenues for the company improved by 20% to Rs. tractor sales have witnessed an increase of 11 percent to 38k units in Pakistan. The PDA has estimated that indirect losses to the sector stand at Rs. Officials stressed that the numbers are likely to rise even further.Tracking Opportunity & Risk Related Developments to major crops in the recent devastating floods. Hence.7bn compared to Rs. according to the initial surveys conducted. Our imports may decline after floods washed away our selling points and imports in July were 147.5. PDA data informed. Prices jumped 1. Millat Tractor.890 commercial poultry.8bn last year. 2010) Palm-oil imports may drop Livestock losses have reached almost Rs.674 ringgit.261 domestic poultry The worst-ever flood in the history of the country has almost devastated the basic infrastructure of the country and is still engulfing agricultural lands mostly in Punjab and Sindh. Futures for November delivery declined 1.07 M in fodders have been lost. the water still floating in cultivated areas will also hurt the tractor sales in second half of the fiscal year 2010. It is to be noted that to enhance agri activities government announced many incentives directly related to agriculture sector like removal of sales tax on tractors and Benazir Tractor Scheme. 2010) Tractors sale to hurt 1H2010.345 M.40.762 B. He said the flood affected around 600. (Daily Times September 14. (Daily Times September 7. which showed an increase of 9%. A severe jolt by this flood has also given a deathblow to the national economy. the highest level since Aug 16. Findings have highlighted that at least 140.
The fish and fish preparations during July-August (2010/11) were recorded at $29.74 M during the 1st 2 months of FY 2010/11. (The News September 22. financing will be provided at affordable/concessional markup rates through banks. Pakistan made large palm oil purchases in September. fertilizers. experts said.000 tons of palm oil a month in the OctoberDecember quarter. The export in the same months last year remained $253 M.500 M has been allocated to encourage farmers to sow canola in the flood affected areas of the country for the current Rabi season.5 MAF water would be available. (The Nation October 15. This was revealed during the IRSA technical committees meeting at the authoritys office under the chairmanship of IRSA Chairman to review the water availability for Rabi season 2010-11.700 M against the exports of $16. Exports in August were recorded at $15. (Daily Times September 25.55% during July/August this year amid robust demand in the international markets. as traders earn profits on current stocks in a bull-run global market. According to the data.010 M against the exports of $9.690 and in August it increased by 1. 2010) Surge in Seafood exports The SBP has launched a concessional financing and guarantee scheme.Tracking Opportunity & Risk Related Developments Rabi season 2010-11 . which will start from next month (October).18%. Today. while River Chenab and Jehlum will probably deal with 5% water shortage. Imports from Malaysia alone stood at 203. (The News September 30. Indus zone might face up to 20% water shortage. said.000-170. Minister of International Cooperation Canada. under which an amount of Rs. 2010) Rice exports up by 43% surged by 82. 2010) SBP launched concessional financing official said. vice chairman of the Pakistan Edible Oil Refiners Association. Canada is providing urgently needed agricultural support to make sure that farmers can recover and 18 The seafood exports from the country Pakistan may buy up to 170. and tools and by supporting the rehabilitation of land and livestock sector in Pakistan.Country may face 15% water shortage With 50 M acre feet (MAF) floodwater gone into the sea due to flaw in the water storage mechanism. everybody is making margins on the current stocks.000 tons a month in the October-December quarter. so they are buying. Provisional statistics of export receipts released by the SBP show that the rice exports soared to $360. the Indus River System Authority said that the country might confront a 15% water shortage during the upcoming Rabi season 2010-11 for agriculture purposes as only 34. The sources said that during the next crop season. He expected overall buying for 2010 to be 10% higher as compared to 2009. Exports of seafood during August witnessed 55. According to a circular (SMEFD Circular No 15) issued under the scheme. when Pakistan imported about 3 M tons of palm oil. seafood exports during July stood at $14. When the market is on a bull-run.044 tons.95% increase over the same month last year. a leading industry . 2010) Canada to support Pakistan in Agriculture sector Pakistans rice exports have registered an increase of 42.25% during the 1st 2 months of the CY against the same period last year. in a news release issued here said the contribution responds to agricultural recovery needs by providing seeds. Buying will not be as good as in September but I think it will remain between 150.625 during August 2009. (Daily Times October 6. 2010) Palm oil imports seen steady Canadian Government announced further support in agriculture sector for those affected by the recent floods in Pakistan. attributing the rise to a possible change in the consumption pattern.296 M during July-August (2009/10). according to the data released by the Federal Bureau of Statistics. it said.
Previous financial contributions were for the provision of emergency food. allowing these organizations to help meet the humanitarian and early recovery needs associated with the agricultural sector for the current Rabi wheat season. The sector employs 11. The network has sought a bailout package from the government and international donors to restore the livelihood of 733. He said that out of Rs. In line with the Bank's SME Banking platform. The Bank's SME Banking comprises team of qualified professionals who design and structure financial solutions that fulfil customers' requirements. the sources maintained. MFIs clients have reached 1.000 people and 4. Preliminary estimates show that recent floods have affected 733. water. the government has announced intervention prices for super basmati. which are synchronized with their Enterprise Resource Planning (ERP) systems. health services. Cash Management is one of the focus areas. Straight2Bank. A total of $11. With todays announcement.000 borrowers and save another 4.000 clients and will result in a write-off of Rs. The payments solution will be made available through the banks electronic banking platform. Standard Chartered SME banking was established as a dedicated business in Pakistan with an aim to meet unique needs of its customers. signed an agreement for Small and Medium Enterprises (SME) Cash Management services. if the actual market price is unfavorable for growers the Recent floods have adversely affected . 2010) 40% of small borrowers are affected Production cost of Paddy (IRRI) in Sindh has increased by 21% to Rs. 2010) four out of ten borrowers of a small loan which will lead to the writing off of almost 11% of the microfinance institutions balance sheets.5 M). Rs.25 B.000 jobs in the microfinance sector. which has been extended to SME customers to help them manage their cash flows through electronic channels. said CEO of the Pakistan Microfinance Network. He also said that the floods damaged 87 offices of microfinance institutions that will cost Rs. the government of Canadas response to the flood relief efforts in Pakistan now totals $52 M.5. (Business Recorder September 15.595 per 40 kg in 2010-11 compared with Rs.25 B. He said at least Rs.5 M will be provided by CIDA from the Pakistan Flood Relief Fund to the UN Food and Agriculture Organisation ($6 M). Normally. said the Chairman of Pakistan Microfinance Network.000 of these will have to be laid off if the government does not rescue the sector. To safeguard the interest of rice producers. an umbrella organization for all the microfinance institutions.250 M to revamp. and coordination and logistics and for the restoration of links to communities cut off by the flooding. MFIs extend loans on comparatively higher interest rates to clients without collateral. (Daily Times October 17. 19 MICRO BUSINESS & SME SME Cash Management Services Standard Chartered and Oasis Travel. to set The recent intervention prices were established by Agriculture Policy Institute (API) a sub-ordinate department of ministry of food and agriculture. shelter. sanitation. protection. basmati and IRRI across the country.97 M and the lending portfolio has reached Rs. Our help will also prevent further loss of livestock that is critical to the well-being of farmers in the flooded regions. Save the Children Canada ($3. relief supplies.8 B of microfinance loans were disbursed in those areas which have been adversely affected by the floods.490/40 kg last year. (Daily Times October 19. 2010) Production cost of paddy rises government decides intervention prices.1 B is required to offset the impact of the written-off loans and to give new loans to affected individuals. Through this arrangement Standard Chartered will provide a comprehensive payments and collections solution. sources told. and Development and Peace ($2 M).Tracking Opportunity & Risk Related Developments plant on their land in time for the critical wheat season currently underway. These estimates have been provided by the Pakistan Microfinance Network.2.7 B worth of loans.
machinery). The offer was renewed by Head of Economic Affairs of Embassy of Netherlands. CEO of Smeda told. 2010) deposits and the financial strength of savings of five Pakistani banks has been changed from stable to negative by Moodys Investors Service.HBL. three projects in chemical industry and dairy sector are underway. commented Research Head at InvestCap. Simultaneously. Training of people and Project management.5 M Euros allows spending on hardware (equipment. A senior banker of large a bank said banks could not afford to face further losses as the increasing load of NPLs has already reached to optimum point. So far the reported default in the agriculture sector has reached about Rs. he said. while three are under consideration. We have proposed to the government to create a special fund Credit Markup Sharing Fund for totally or partially subsidizing bank loans to the flood-hit businesses as well as to seek foreign donations for providing grants to the affected enterprises.50 B due to flood. he summed up. The long-term outlook of ABL. Non-performing loans are expected to increase.Tracking Opportunity & Risk Related Developments As much as 55% of small loans have been extended to borrowers from rural areas. available under 40-60 arrangement. (The Express Tribune September 3. recently proposed to the government fiscal measures for helping smaller enterprises hit by the recent floods. MCB.42 B. 2010) The flood has changed the trend of NPLs as most of the NPLs are being reported from agriculture sector which may hurt the governments as well as State Banks move to persuade banks for greater participation for the recovery of agriculture sector. About forty-one per cent has been disbursed in the agriculture sector and around a third given out in the trade sector. (Business Recorder October 11.SBP The Small and Medium Enterprises Development Authority. 2010) NPLs estimate . they apprised.61 M). the federal government and the World Bank. one project in sports wear in Pakistan has already been completed. while talking to the members and Senior Vice President of MCCI. The total funding of 1. (Dawn October 11. Under this programme.176. (The Express Tribune September 21. The profitability of banks will be affected going forward. 20 FINANCIAL SERVICES Downgraded: ratings of largest banks Outlook on long-term local currency .2. especially those extended to small and medium enterprises and to the agriculture sector. is subject to certain evaluation to be conducted by Holland government officials. open in Pakistan since 2005 with an annual budget of 70 M Euros. The suggested package envisages grants and/or interest-free loans to the flood-hit small businesses for rehabilitation. the ratings agency has affirmed that the foreign currency deposit ratings of B3/Not-Prime assigned to these banks. Our support package basically comprises two recommendations.28 B while the total NPLs caused by the flood was around Rs. The damage assessment in the microfinance sector is based on the estimates of the State Bank of Pakistan (SBP). The average loan size is $147 or Rs. Real estate and operational costs excluded.680 and the average interest rate is 25%. is aimed at alleviating poverty and strengthening private sector investment. They said that the funding. The suggested package has been given to the federal industries ministry for getting the governments approval. NBP and UBL has been downgraded to negative. The funds are released during the project. The officials informed MCCI officebearers that the Private Sector Investment (PSI) programme of Netherland government. 2010) Reviving SME businesses Holland offers 60% of funding Netherlands has offered up to 60% of funding to Pakistani projects (SMEs) having a maximum cost of 1.5 M Euros (Rs. after achieving predefined results. The SBP in an early estimate had said that NPLs could surge by another Rs.
434 M in the corresponding period of last year.4 B.5% p.25. he said. 2010) 9% rise in non-life insurance sector profits He said that more than 2. which may serve as an agent of positive change and a much-awaited good omen for the industry. Our Shariah Board has given green signal to the deal. 2010) Bank services for all MCB Asset Management and Arif Habib Investments would be merged subject to all regulatory approvals and compliance. "This increase is primarily attributable to higher dividend income and lower provision for impairment during the first half of 2010 and low general and administration expenses". The merger is likely to provide the new entity the requisite critical mass to broaden the reach. The deal was delayed because the board took time to ensure that the acquisition meets Islamic banking laws. analyst at JS Global Capital. a senior Bankislami official.. The joint entity is expected to become the largest private sector asset management company. (The News September 29.1.Tracking Opportunity & Risk Related Developments The NPLs of banking sector witnessed rapid increase especially in the last two years as it jumped by 137% with an addition of Rs. Analysts said that despite a 27% decline in the underwriting results.1 B. said. (The News October 12. The size of the Citibanks housing portfolio is close to Rs.a.000. who did not want to be named.2 21 Around 70% of the population of Pakistan with currently no access to banking facilities will have financial services by 2015 through Easypaisa. The acquisition will have to wait for regulatory approval by the SBP. (Dawn October 3. 2010) Merger to buy Citibank Pakistans house financing portfolio had been accepted. Of the total. MCB Bank's 1100 branches network in the country would provide wider reach to the various products being offered by the two asset management companies. As independent entities MCB AMC and Arif Habib Investments manage approximately Rs.31 B (approximately $370 M) between them. Bankislami announced that its offer . said. The amount at which the acquisition will take place has not been disclosed. It will bring together rich experience and skill of the two groups in the financial sector. as compared to Rs. is Rs. Both companies are rated amongst the best managed companies in the country. (Business Recorder October 5. who will now switch to Islamic mode of banking. the listed noninsurance sector posted a decent growth in the bottom line. This acquisition will be in line with the principles of shariah.7 B people in the world have no access to any formal financial services and if the financial inclusion goals are to be achieved. The asset-backed issue of TFCs will be for a period of 3 years offering a return of 14.460 B. said a statement issued. There are 415 customers.475 M. in the half-year period ended on June 30. A MoU was signed in this regard by MCB Bank and Arif Habib Securities recently. (Business Recorder September 9. to Rs. The investment income increased by 23% and the general and administration expenses reduced by 2% in the 1st half of 2010 over the same period last year. the solution has to be transformational not transitional. 2010.266 B to a total of Rs. 2010) Citibank accepts Bankislamis offer Engro Corporation announced the launch of Rupiya Certificates with an aim to target retail investors and gather funds to meet expansion requirements of its fertiliser and food businesses. Bankislami said in a notice to the Karachi Stock Exchange. and demonstrated visible strength during the severe liquidity crunch and credit crunch of 2008. which Engro believes is a good attraction for people who usually invest in long-term National Savings Certificates. which will be available at 11 banks and TCS outlets from Friday with a minimum investment of Rs. President and CEO of Tameer Bank said this while chairing the discussion on Financial Inclusion at the United Nations Private Sector Forum on Millennium Development Goals held recently at the UN Headquarters. The total size of the TFCs. claimed the bank. the initial offer is worth Rs. 2010) Engro launches Rupiya certificates The net profit of the listed non-life insurance companies increased by 9%.
Guidelines broadly cover areas such as Credit Appraisal SBP directed all banks and DFIs to ensure fiscal relief to rehabilitate the economic life in Khyber Pakhtunkhwa. This was revealed in a circular issued by the SBP.774 B in January-March quarter of FY10. 2010) Banking industrys asset base grown Revised guidelines for infrastructure project financing for banks and development financial institutions (DFIs) have been issued by the SBP.2 B.2% in March-10). 2010 regarding the subject SBP said in this connection it is advised that the federal government has included the entire textile sector of Khyber 22 . According to SBPs Quarterly Performance Review of the Banking System for the quarter ended on June 30. The guidelines cover areas such as credit appraisal. start-up and operation stages of the project.September 7. The SBP in its recent report noted that Islamic banking continued to flourish and increased its share in banking system to 6. said the report. 2010. 2010) Markup rate subsidy REGULATORY Infrastructure project finance Pakistans banking industry witnessed a 5. The Report pointed out that the banking system witnessed a letup in the inflow of fresh non-performing loans (NPLs) during the quarter under review that has been a leading challenge for the last two years or so. (Business Recorder September 7. interbank lending. Collateral Arrangements.7%.782 B during April-June quarter of the 2009-2010 FY (FY10) compared with a contraction of 1. etc.1% market share Rs 5.1% in June 2009. According to a Circular issued by SBP. (Dawn October 11.457 B in March-10) as compared to last two years average quarterly growth of 9. collateral arrangements. The salient features of the revised guidelines include the requirement for establishing a mechanism for generating feasibility reports and assessing risk mitigation means in the development. The Islamic banking witnessed a double digit growth in assets during the 2nd Q (May-June) 2010 despite the fact that a couple of Islamic banks went through consolidation phase affecting the Islamic banking activities. which was adequately covered by loan loss provisioning. Banking industrys deposits rose to The SBP issued revised guidelines for Infrastructure Project Finance to facilitate banks and development finance institutions (DFIs) in providing financing solutions to infrastructure projects in the country.2% (70.9% in March10) and net NPLs to Loans ratio declined to 3. the increase in asset base of the banking system.4% growth in its asset base to Rs.6 % to Rs. The NPLs of banks registered a marginal growth of 0.460 B in April-June 2010 quarter (Rs. which was well supported by growth in deposits.8 % (4. banks/DFIs have been advised to use the guidelines for developing products for financing to infrastructure sectors according to their policy and operational and market requirements. construction. (Daily Times October 7. government papers and public sector commodity finance.4. Referring to SMEFD circular 11 July 1. payment of markup rate subsidy on business loans to textile sector for the period from January 1.128 B in April-June quarter compared with overall deposits of Rs. FATA and PATA. 2010) New guidelines issued by State Bank Islamic banking institutions have improved their market share in the countrys banking industry despite prevailing of a depressive economic situation. (The Express Tribune . security packages.4% in the January-March quarter of FY10. subject to compliance with relevant SBP regulations. the provision coverage ratio of NPLs improved to 73. project insurance and regulatory compliance. 2010. 2010 to June 30. 2010) (G-1). Due to contained increase in NPLs.6. Security Package and Project Insurance (G-2) besides Regulatory Compliance (G-3).Tracking Opportunity & Risk Related Developments B with a green shoe option of another Rs. 2010) Islamic banks grasp 6. mainly occurred in banks balances.1% at the end of June 2010 from 5. (The Express Tribune October 15.
Securities Lending The SBP revised the refinance rate under the Export Finance Scheme. The new rate will take effect from October 1. compared to 1. The SECP has approved the concept of the MTS in a meeting held at the commission. 2010. The SECP would also incorporate the viewpoint of the stakeholders to incorporate viable proposals to ensure protection to the investors and minimise risk to the market. 2010) More risk mitigating measures added The Securities and Exchange Commission of Pakistan has approved the concept of Margin Trading System (MTS) with additional risk mitigating measures. 2010) Guidelines to comply Anti-Harassment Law The SBP has issued instructions to all the banks to comply with the Protection Against Harassment of Women at Work Place Act 2010 displaying the Code of Conduct within their premises. (Business Recorder September 16. The report said the impact of floods had strengthened inflationary expectations and the August CPI showed a 15. The banks are also directed to form specific committees to address these complaints and ensure conducive environment for working women. The amendments are being notified in the official gazette to solicit public opinion as required under sub-section (1) of Section 506 of the Companies Ordinance. were almost equal to the combined total for health and education. the SECP has also decided to amend the draft Securities (Margin Financing.1%. 2010) Issue of capital rules and Borrowing and Pledging) Rules. In FY10. The draft Securities (Margin Financing. 2010. Securities Lending and Borrowing and Pledging) Rules. 1996. (The Express Tribune October 1. The target set in the budget was 4. (Daily Times September 1. (Dawn September 9. and all ratings used should be publicly disclosed by the ECAIs along with its history. banks/DFIs should have mechanism to monitor changes in ratings (upgrade. In this regard. The rating agency should have reviewed/assigned the rating within previous 15 months. 2010) Rate of Refinance up The Securities and Exchange Commission of Pakistan has reviewed and amended the Companies (Issue of Capital) Rules. increasing it by 50 bps to 9% per annum. The report said the total public debt and liabilities had substantially 23 The SBP has said that banks/DFIs would be allowed to use only solicited ratings assigned by recognized external credit assessment institutions (ECAIs) for the purpose of capital adequacy with immediate effect.2% in the preceding year.5%. these expenditures. according to BSD Circular No 5 of October 5. It projected an average annual inflation in FY11 at 13. A 10. 2010) Banks-DFIs to use only recognized ECAIs solicited ratings In a circular issued the SBP said that banks can charge a maximum margin of 1% on financing facilities provided to exporters. These ratings must fulfil all requirements.5% and fiscal and current account deficits at 5-6% and 3-4% of the GDP. . it said. The previous refinance rate was 8. it said. In addition.6% y-o-y rise in its food component. The banks annual report for 2009-10 issued said there was a noticeable improvement in macroeconomic indicators during FY10 with the economy growing at 4. 1984 (the Ordinance).Tracking Opportunity & Risk Related Developments Pakhtunkhwa in Prime Ministers fiscal relief package for FATA/PATA/ Khyber Pakhtunkhwa. as a percentage of GDP. 2010 would be amended to allow the concept of Margin Trading System. (Business Recorder October 6.5%. downgrade and withdrawals) for accurate Capital Adequacy Ratio reporting.5-14. adding that this was by no means an acceptable situation.7% growth in subsidies and losses of public sector enterprises was particularly disappointing. (Daily Times September 8. 2010) MACRO ENVIRONMENT SBP projects 2-3% growth The SBP has predicted 2-3% GDP growth in the CFY despite severe flood losses.
(Dawn October 26.930 B or Rs. The heavy floods in the Indus River resulting from monsoon rains have caused widespread damage to the economy. The trade gap ballooned as imports . The higher growth in the governments fiscal deficit is attributed to low tax revenues.02% to $9.8 trillion with 20.5 B and $10. slightly below the 11. In Pakistan.029 B in July-Sept.5 B. adding that GDP growth was unlikely to exceed 2. The Ministry of Finance reported that the government has collected total revenues of Rs. GDP < 2. high current expenditures and shortfalls in projected external financing. (Dawn October 11. Asian export recovery has been largely driven by intra-regional trade with the US and Europe.25%.495 B against the deficit of $9. floods have hit economy hard. compared to 5. making limited contributions. 2010) CA deficit widens by 48% borrowing by the banking sources to meet inflation-hit public expenditures also swelled the size of fiscal deficit to a great extent in FY10. The SBP reported that external deficit during July-August of the CFY reached $944 M against $635 M during the corresponding period of last year.75% this FY year. 2010) Trade gap widens Pakistans fiscal deficit for the FY 200910 (July-June) is reported to have soared by 6.5%. the IMF said.7% to $5. (The Nation September 1.Tracking Opportunity & Risk Related Developments increased from 68.3.5% surge during the entire course of FY10.5% this year. He said nearly 20 Mpeople have been displaced.1%. The last FY was much better for Pakistan as external deficit fell by 63% to $3.75% rose at a faster clip than exports during the months (July-Sept) under review after a slight narrowing in deficit in previous months. 2010) IMF: Inflation 13. economist of Standard Chartered Bank Pakistan said. 2010) Fiscal deficit reaches 6.850 B against $3. US and Europe were directly responsible for less than 15% of Asian economies export growth in H1-2010 (with the exception of China and the Philippines). 2010 against $7.2% in FY 2008-09 and higher than the revised FY10 fiscal deficit target of 5. 24 Pakistans trade deficit widened by a robust 22.3 % of GDP.5% this year as massive summer floods push up prices for food and other staples. (Dawn September 21. The fiscal deficit has reached a record Rs.2% increase while expenditure recorded at Rs.7% seen last year. respectively. analyst said.8 trillion. the IMF had projected average inflation for the current 2010/11 FY at 11. the IMF said in its country report. 2010) Economy hit by flood Current account deficit of the country rose sharply by 48% during the 1st 2 months of the new fiscal. showing 14. the governments heavy budgetary In 2010.27% in 1st 3 months of the CFY to a larger than expected $3.2. Similarly.586 B last year. while exports and imports were likely to be $20 B to $21 B and $34 B to $35 B. Exports grew by 16.5%. Official figures released here on Friday by the federal bureau of statistics (FBS) showed that import bill increased by 19. making this one of the worst natural disasters in history. The economic outlook has deteriorated sharply as a result of the floods. Prior to the disaster.668 B of GDP during July-June FY10.14.261 B in the FY 2008-09.5%. The government earlier had targeted GDP growth of 4.7% of GDP in FY09 to 69.3pc in FY10 Inflation in Pakistan is expected to accelerate to 13. reflecting poor performance of economy on external front while signaling a red alert for the ailing economy.437 billion last year. with losses estimated at $4 B (2% of GDP).179 B in the 1st Q of 2010 against $4. The rise in deficit appears to go up during next months as the country will start to import more oil and food items for bridging the domestic shortfall in power and farm produce. (Dawn September 22. It projected that workers remittances were likely to stay between $9.148 B last year mainly due to rising furnace oil imports used in power generation. whereas the IMF expected it at 4.
while over 300 rice and other mills have so far been damaged. He said that over 7274 villages and 43 towns have been inundated. the backbone of the economy. Damages: The floods have damaged public infrastructure. according to the National Disaster Management Agency.88 B with Rs. He said that the government has to take decision for import of essential commodities to avert their shortage due to losses to crops by the floods.5% from 4. severely hampering supply of essential food commodities to villages and towns. Sources in the planning commission said the report had only highlighted . borrowing from the central bank and implementation of the value added tax (VAT).000 watersupply facilities have been damaged.000 bridges and more than 400 km of road infrastructure have been destroyed.2 M acres of cropland is under water.103 B. depending on the extent of the damage and the measures taken by the government to reconstruct and rebuild the affected areas. More than 2.5%.000 tons. 2010) Flood losses at $9.l4 B on account 25 A preliminary Damage Need Assessment (DNA) report prepared by the World Bank and Asian Development Bank says that Pakistan suffered a loss of about $9. Agriculture analyst said the floods have caused widespread damage to the standing crop.5 B the damage caused by floods.1 B in agriculture sector on account of damage to crops over 3. but the reconstruction of infrastructure again and compensation to be paid to people who had lost their sources of livelihood would cast between $25 B to $30 B.5 B (over Rs800 B) in recent floods. Khyber Pakhtunkhwa Rs. Losses to the economy are estimated at close to $4 B (2% of GDP).4 46. he added. "The situation is that water is not receding in the affected areas of the province.Tracking Opportunity & Risk Related Developments Nearly 1. (Daily Times September 9. he maintained. The country expects a significant slowdown in GDP growth in FY11 (ends June 2011) and lower growth forecast to 2. exacerbating the existing energy crisis and further stalling growth. It is expected FY11 inflation to jump sharply to 15%. Agriculture and Livestock estimates losses to the agriculture sector at $ 2. due in October. infrastructure and public and private property in the four provinces and Fata. and another $ 450 M in losses in the livestock sector. IMF role: Relations with the IMF hit a roadblock in June 2010. the details will be known only after the completion of a damage assessment report jointly initiated by the World Bank and the Asian Development Bank (ADB). The National Highway Authority estimates nearly 1.11.55 B and Fata Rs. According to the report. this would follow growth of 4. he informed.446. 175 health centres and 1. after the government missed key performance targets in areas including the fiscal deficit. Sindh suffered the maximum damage amounting to around Rs350 billion. Livestock sector suffered a loss of Rs. The power infrastructure has also been badly damaged. over 2.8 B losses to Sindh Sindh has suffered Rs.122.1% in FY10. 2010) Rs. followed by Punjab Rs. with supply of 1. with road links cut off.446. Initial estimates suggest that total loss in the province by flood was Rs.500MW disrupted due to damage to power plants.000. leaving most of the affected households without shelter. it said.5 B. Individuals. and might remain in the cropping areas for quite some time" said by advisor to Sindh chief minister for planning and development. and the bad news is that it might not be able to even plant the 'Rabbi' crops in standing water. versus earlier forecast of 12%.8 B. Balochistan Rs. in terms of damaged crops. suffered losses of crops and livestock to the tune of Rs. with nearly 30% of cultivable land destroyed by the flooding. However.8 B loss on account of damage to various sectors of the economy. "We will not be able to plant rabbi crops because the water which reached the province after causing devastation in Khyber Pakhtoonkhwa and Punjab is not receding at the normal pace as the slope of fields is not towards the sea". power stations shut down.428 B. The Ministry of Food.500 schools. and gas and petroleum supplies suspended.25 M houses have been completely destroyed. (Dawn October 13.253 B.
Tracking Opportunity & Risk Related Developments of 200.15 M in the corresponding period of last FY 2010.6 M in 1st 2 months of CFY against $60.000 km roads. and limited economic activity in a large part of the country will dampen growth prospects in virtually every sector.6 B. imports under services sector registered an increase of 11% due to high payments on account of transportation. 2010) Rise in food items export Asian Development Outlook 2010 Update The impact on Pakistans economic prospects of the massive flooding that began in early August 2010 is difficult to quantify. Similarly. and policy makers should take some steps to check the reason of poor performance of this sector. portfolio investment.9 M in same period of last fiscal year. travel services. while in health sector the loss was estimated at Rs. 2010) 18% rise in services sector deficit posted August of FY 2010-11 as compared to $1. to $267 M during July-August of CFY against $405.4 M in same period of last FY.5% is expected in FY 2011. Nevertheless. (Business Recorder September 8.87% or $86 M.2%.1% decline in foreign investment Services trade deficit posted an increase of 18% during the 1st 2 months of the CFY mainly due to high imports followed by rising payments on account of transportation. insurance.021. such that tepid gross domestic product (GDP) growth of 2. Moreover. However. Total loss to the housing sector was Rs.9. Export of Services trade mounted by 5% or $27 M to $589 M in 1st 2 months of CFY relative to $562 M in same period of last FY. Losses in crops and livestock. the ADB says in its annual flagship economic publication Asian Development Outlook (ADO) 2010 Update released. Rs.156 B in July- The SBP said that foreign investment posted a decrease of $138. Developing Asias robust recovery from the global crisis is gaining further momentum. 2010) 40. reconstruction and rehabilitation activities will subsequently have a positive impact on the GDP. Portfolio investment mounted to $95. Services sector posted a deficit of $567 M in July-August of CFY as compared to $481 M in corresponding period of last FY. mainly in stocks. and Rs. or 40. As the major transportation arteries of the country have been severely damaged. however. registered a surge of 57. (Business Recorder September 26.134. shortages of goods and serviceseven with rapidly rampedup importsare expected to put substantial upward pressure on prices.26. potentially. in the following season will create shortages of food and other commodities while 26 The flood-hit and food starved Pakistan exported 29% more food items during the last few months. 2010) . According to SBP major decline took place in FDI.52 B. The ADO Update on Pakistan said that the picture should also be a little clearer when an international donors conference is held in late November. technical fee. due to extensive damage and reallocation of resources to cater to urgent needs. irrigation Rs.5. (Business Recorder September 18.1%.7 M. travel and government services.043 B in corresponding period of FY 2009-10.5 B following destruction 8. with a drop of 50. depicting an increase of 17. the economic impact will be heavily negative in the short-run. Economists said that increasing deficit and imports of services sector is a matter concern.4 M. as 100 health centres have been damaged. The information showed that Pakistan exported food items worth $547 M during the two months against $425 M during the corresponding period of last year. The SBP said that the country's services sector trade deficit was gradually rising and overall imports and deficit are on surge. to $171.600 units was estimated at Rs.000 animals. (Dawn September 23. royalties and government sector. or $173. compared to the same period of last year. the likelihood of delayed sowing of crops in the upcoming season and. damage to infrastructure.2. Services sector imports stood at $1.4 M as compared to $344. depicting an increase of $113 M.1% or $34.40 B to municipal infrastructure as 43 towns have been affected with a loss of Rs.1 M.10 B to government buildings.3 B because of damage to 1. Total loss to the education on account of damage to 4.37.000 houses.
the SBP increased the discount rate to 13. Specific tax measures included in the FY 2011 budget. it will be even more important to address trends that were troublesome for the FY 2010 outturn. therefore the Government and textile stakeholders should import cotton bales in time. as it was recorded at $986 M in July 2010 against $802 M in the same month of 2009.5%. hydropower. Pakistan's exports to Malaysia recorded a healthy increase of 81% with exports of RM 352 M in the 1st 6 months of this year as compared to 27 .5% from an earlier target of 4. include a 1% increase in the goods and services tax to 17%. Flood-related damage and social safety net requirements will necessarily impact the expected deficit for FY 2011. for the most part induced by supply-side constraints.Tracking Opportunity & Risk Related Developments undermining farmers incomes. Moreover. The Government has fixed the annual textile export target at $ 14b for the CFY 2010-11 under the 5 years textile policy. (The Nation September 4. The textile export showed a healthy growth of 23pc in the first month (July) of the current fiscal year. while the central bank will find it difficult to fully implement its earlier monetary stance in the present circumstances.5% of the GDP to 4. workers remittances. widening the fiscal deficit from the targeted 4%. which could lift tax revenue by 20%. as are improvements in revenue administration and collection. These lower subsidies would require efficiency measures that produce saving equivalent to the 3040% increase in tariffs that would otherwise be required to meet cost recovery. it will need to make substantial efforts to keep demand for credit from exacerbating inflation pressures. The statement said the recent catastrophic floods had serious implications for macroeconomic stability and growth prospects. relative to the budget posted for FY 2011. reforms to that tax from October 1. Revenue measures are more urgent in view of the massive reconstruction requirements. Also. 2010 to improve revenue. The FY 2011 budget targets a rise in federal government public sector development spending of about one third relative to the FY 2010 outturn. the SBP said. (Dawn September 30. which increased by 13. If substantial grant aid is provided for relief. Flood-related expenditure will also alter the fiscal outcome. are expected to remain strong. External support in response to floodrelated damage will contribute to higher increases in development spending with the magnitude of the increase for FY2011.5%. 2010) Export to Malaysia increased The SBP once again increased the policy interest rate by 50 bps. Inflation. among other factors. otherwise it would not be possible to achieve the annual textile export target set for the year 2010-11. 2010) Export target linked with cotton bales import Sources in All Pakistan Textile Mills Association said that the country would face a shortfall of 4 to 4. investment spending was reprioritized to secure more timely completion of key ongoing projects in the areas of transportation.5 M bales of cotton in the current fiscal year. (Daily Times September 29. because of fears of higher government borrowing and inflation and lower economic growth and revenue during the CFY.5%).3% of the GDP.4% in FY 2011. taking outlays up from 3. the deterioration in the current account deficit may be limited to 4. including a 67% reduction in allocations to cover electricity tariff differentials. The budget for FY 2011 also called for an aggressive 45% reduction in total subsidies. In this context.2% in July to August 2010. 2010) Discount rate raised According to a Monetary Policy Statement issued. and water. Still. This update projects average inflation in FY 2011 at 13%. Additional revenue measures are being formulated to generate revenue for relief and reconstruction. is expected to be higher than the eight percent forecast in Aprils ADO 2010 Update. Highly provisional estimates suggest that economic growth for FY11 could come down to 2. over the same period the previous year. Pressures on the current account will also intensify in FY 2011. The SBP in its monetary policy for FY 2011 projected inflation at 11 to 12% (higher than the federal government target of 9. to be determined also by the absorptive capacity of the economy.
50 this year. exports of services on month-on-month basis. While this is a relatively modest decrease in numeric terms.1 M in the reported months of prevailing FY. says the report. In the same way. Pakistans export earnings in services trade have slightly augmented by 4. 2010) Release of $200m by ADB The World Economic Forum has revised downward the Pakistans global competitiveness ranking from 101 in the world to 123rd place among 139 nations. According to Global Competitiveness Report. 2010) Pakistan falls 22 places to 123 According to the Economic Freedom of the World: 2010 Annual Report. by 15-17%. services exports saw an increase of $28 M in the overall volume of trade services exports largely on account of improvement in receipts under government services and higher proceeds from transportation business during the period under review. overtaken by Sweden (2nd) and Singapore (3rd). 2010) Services exports up 4. A senior official told Dawn that preliminary estimates suggest that about 22 categories in the food group and agriculture. building on key achievements made under the capital market development programme (CMDP) and financial (non-bank) markets and governance programme (FMGP). the rice made up more than half of the total exports with an export of RM 188 M compared to RM 46 M of last year registered a robust growth of 307%.5%) saw their rankings decrease. Pakistans score declined this year to 5. Switzerland retains the top overall ranking in the Global Competitiveness Report of 2010-2011. including food items.58 in 2009 to 3. According to details issued by the ADB. The Asian Development Bank has decided to stop or abandon problematic projects and divert up to 28 . 2010) GST to cause price hike of 15-17% According to provisional statistics on services trade released by SBP. (The Nation September 22. Pakistans score dropped from 3.5%) recorded increase. while only 35 (28.91pc The Asian Development Bank has released the 2nd tranche worth $200 M of its second generation of capital market reforms programme early this month to the Ministry of Economic Affairs and Statistics of Pakistan after the bank found status of covenants of the first tranche satisfactory. 2010) Pakistans economic freedom ranking falls The withdrawal of exemptions under the proposed reformed general sales tax (RGST) early next month is estimated to increase prices of over 122 major categories. and yield about Rs.Tracking Opportunity & Risk Related Developments RM 194 M in the corresponding period of 2009 with rice and onion being the biggest contributors. which were currently exempted from general sales tax. (Business Recorder September 22. 88 (71. (Daily Times September 10.05 out of 10. Hong Kong maintains the highest level of economic freedom worldwide with a score of 9. stood at $305. says a new study released. (Dawn September 21.80 from 5. Of the 123 countries with economic freedom rankings dating back to 1980. depending on the tax rate to be decided by the federal government. the bank said in a document. 2010) Trade finance programme The level of economic freedom in Pakistan dropped as its index ranking deteriorated to the 118th place from the 110th last year among 141 countries. released by the Alternate Solutions Institute.95 in 2009. The USA fell two places to the 4th position.2 M from $313. the reform programme envisaged a $400 M funding to support a second generation of capital market reforms.150 B in additional revenue to the exchequer. According to the latest data obtained from Malaysian Trade Development Authority (MARTRADE) by Pakistan High Commission in Kuala Lumpur.91% to $589 M during the 1st 2 months (July-August) of CFY compared to $561 M in the same period of last year. it was sufficient to move Pakistan from 101st to 123rd place among 139 nations ranked by the WEF. would be brought under the RGST net. (Dawn September 30. (The News September 14.
The financing includes $167. The Manila-based donor agency informed government officials of its decision. 2010) Corporate sector profitability The government will not impose any tax on any exportable good. Despite robust furnace oil sales. net foreign investment decreased to $455. Textile analysis indicates notable earnings growth in the 2nd Q of 2010 for the textile sector at large. said Federal Board of Revenue Chairman. the bank has handed over a list of around 30 projects to the government. registered a y-o-y growth of 14%. PTCL's profitability fell to 26% during the 2nd Q of 2010 deteriorated mainly owing to exceptionally high marketing expenses incurred. he said. recording a negative earnings growth of 24% during the 2nd Q of 2010. (Business Recorder October 16. while major decline was in portfolio investment.132 B in the 2nd Q (April-June) of 2010.1 M during the 1st Q of the CFY as compared to $636. The financing was endorsed at the banks Board of Executive Directors meeting chaired by IDB President.3 M The corporate sector profitability continued to register an upward trend. which stood at 67. FDI posted a decrease of 9. Lower cement prices due to disagreement in on pricing amongst manufacturers led to the downfall of the cement companies during the 2nd Q of 2010.60. The E&P sector led the sector's earnings growth with a higher than expected growth of 49% on yearly basis in its profitability. (Business Recorder October 2. 2010) Zero rated Export Net foreign investment posted a decline of 28% during the 1st Q of the CFY. Despite the fact that KAPCO's profitability fell 8% in the 2nd Q of 2010. shown a 24% y-o-y growth in the 2nd Q of CY. Fertiliser sector performed admirably during the 2nd Q of 2010 on the back of higher urea and DAP prices.2 M for Reconstruction & Upgrading of M39 29 .5 B from these sources to launching rehabilitation projects in flood-affected areas. as its profits jumped 76% on yearly basis. the power sector considering our sample. With current decline. Auto sector's positive momentum continued in the 2nd Q of 2010. which includes KAPCO and HUBCO. inventory losses and higher tax expense negatively affected oil marketing companies' performance. compared to the corresponding period last year. Islamic Development Bank has approved financing of new development projects worth $772. Refinery sector profits experienced a slight breather as GRMs during the second quarter of 2010 recovered slightly. (The Nation October 6.5% during the period. 2010) IDB approves $772. (The Express Tribune September 20. Exporters should keep this in mind that all export will remain always zero-rated and there should be no confusion in this regard. mainly due to low portfolio investment. as compared to Rs.5%.1 M in the same period of last FY 2009. He said that with a view to promote exports and encourage exporters in this regard no tax would be imposed on any export good. Analyzing the banking sector's profitability based on sample of 9 banks.741 B recorded in the corresponding period last year. The central bank said that net foreign investment comprising foreign direct investment (FDI) and portfolio investment had continuously weakened and net foreign investment registered a decline of $181 M during the 1st 3 months (July-Sep) of FY 2010-11.Tracking Opportunity & Risk Related Developments $1. rising by an impressive 34% in the 2nd Q of 2010. which are either slow-moving or problematic and could be shelved for a better cause. According to sources. According to statistics.3 M for its member states including Pakistan and $90-M leasing for Uch II power expansion project. 2010) Decline in foreign investment According to a research report of a team of analysts at JS Global Capital Limited the total profitability of the sample companies of the corporate sector has increased to Rs.44.
In automobile sector. Production of paper & board was higher by 22.A. In electronics goods. production of TV sets was up 26.3 B) in Pakistani goods allowed into the European Union duty-free from next year under EU plans for trade assistance to the flood-hit country.91 M installment sale plus $3. 2010) Major trade boost Remittances sent home by overseas Pakistanis continued to show a rising trend as an amount of $2. registering an increase of 13. $15. Ministry of Industries & Provincial Bureau of Statistics indexes of LSM.18%.36% wheat & grain milling 6.40 M loan for Development.09% lubricating oil 9. $140 M for Padma Multipurpose Bridge Project Bangladesh..05% starch & its products 17. showing an increase of $314. 2010) Remittances up 13.06 M was sent home by overseas Pakistanis.05% respectively.646 B was received in the first quarter (JulySeptember) of the CFY. production of tractors was higher by 15.94% and 3. The plan 30 Large Scale Manufacturing was up .5%.05% whereas production of deep freezers and air conditioners was down 18.56% and solvent naphtha 41. Ministry of Industries index registered a 1.39%.12% and motorcycles 12.12 M received in the same month last year.5% over the same period last FY. Islamabad has agreed to take back illegal migrants returned by EU states. while at the same time taking into account sensitivities of EU industries. $80 M for Algadarif Water Supply Project Sudan. as compared with $806.38% or $115. grant for Integrated Community Driven Development Phase-II Project Indonesia.29% jeeps & cars 45.86%.66% trucks 14.13 M plus $13. $136 M plus $10 M (under terms and conditions of Jeddah Declaration) plus $6 M Loan plus $45 M T.5% 3.83% and pig iron 1.05% in the 1st month of CFY.27% furnace oil 1. In Food group. "This proposal will offer a real boost to Pakistan's economic recovery. motor spirits production rose 11.29% and 32. $25.46% growth and provincial BoS index was up 5.17 M during the same corresponding period of the last FY.31% refrigerators 38.67%.87%.94 M. The scheme.Tracking Opportunity & Risk Related Developments road in Surkhandarya region Uzbekistan. up 14.04%. The move is meant to help Pakistan recover from devastating floods and maintain political stability. The breakup of different sectors shows that in petroleum sector. Production of cement was down 4. (Daily Times October 1.64% etc. The production of jet fuel oil decreased 7. The production of blended tea was down 8.61%.10 M as compared to $777.09% LCVs 29. In September 2010.63% and glass plates & sheets 13.77% LPG 6.because of EU industry opposition.06% kerosene oil 20. Federal Bureau of Statistics reported.26 percent. During the month of July 2010-11.82% soda ash 12.8 M or 13." EU trade chief told reporters. Most of the trade concessions will be on textile exports.40% cooking oil 20. In parallel. which indicated an across-the-board recovery in this sector. which otherwise remained under stress throughout the past fiscal when it recorded big falls in its production.bed linen . 2010) LSM up 3. The monthly average remittances for the July-September 2010 period comes to $882. an amount of $922. unveiled will suspend tariffs on 75 types of Pakistani-made goods which account for about 27% of exports to the EU.69% coke 18. boosting sales by about 100 M euros. though there will be no tariff cuts on Pakistan's main product . slippers and truffles will be among 900 M euros ($1.Indonesia. Production of cotton yarn and cotton cloth dropped 12.23% diesel oil 24.09% respectively. (Daily Times October 7.05 % in CFY Jeans.01%.73 M plus $6.64 M installment sale for Construction and Equipping of new Dental Care Project . signaling the improving conditions in this key sector of the economy.49% high-speed diesel 8. (Business Recorder October 12.Turkmenistan. The growth was seen in all the three OCAC. OCAC index posted 5. Quality Improvement of Semarang State University Project . vegetable oil production moved up 2. The production of buses was down 41.
2010) NCEL grows 654% in Q1 have witnessed above $100 B capital outflow from the country in the 1st half of current calendar year 2010 amid fragile economy and lack of investment opportunities. This group is investing over Rs. The allocation of $831 M is part of the more than $1 B in development assistance funds which US will provide to USAID programmes in Pakistan this year.156. Total volume in the corresponding quarter of last year was Rs. 31 The local capital and money markets US and Pakistan signed a five-year partnership agreement under which $831 M will be utilised on various . While addressing the signing ceremony.493.711.000.712. transparent and accountable manner. it was Rs. During the first quarter (July-Sept) of FY 2010-11 NCELs total traded volume increased to Rs. Stabilization and Humanitarian Assistance FATA $111. a noted multinational group manufacturing industrial and medical gases all over the world including India. Ambassador. Bangladesh. US sign $831 M partnership agreement programmes in key sectors. the investors seem unwilling to invest here and they have been transferring their assets and capital to foreign countries since the beginning of this year. total volume was more than Rs.454.1 B each of them with record highs. and will include monitoring to ensure exporters from other states do not try to smuggle their wares into Europe via Pakistan to avoid duties. US Co-ordinator for Economic and Development Assistance said that the agreement was an important element in the implementation of the Kerry-LugarBerman Bill. Currently. It must be approved by EU governments.825.Tracking Opportunity & Risk Related Developments foresees suspending tariffs for up to three years. he said. which compete with Pakistan for textile sales to Europe.6. and reluctance of domestic and foreign investors to invest into the equity and real estate markets. (Daily Times October 09.425. EU officials said they hope for full approval by January. The total amount of $831 M for this agreement is divided as follows: Social Sector Health $130. Canada and Indonesia through various channels. Sri Lanka and Bangladesh. After Dubai.000. 2010) Pakistan.87 B and in the previous quarter (Apr-June 2010). Sources told that the phenomenon of flight of capital has once again appeared on the economic scene of the country mainly because of exchange rate depreciation. Agriculture $56. "We will implement our assistance in the most open. chairman NCEL said. and KPK $65. 2010) Investment of Rs.957. generating the employment opportunities to nearly 2.74 B.76 B.264. This represents a growth of 654% and 63% respectively. 2010) Over $100B flew out The British Oxygen. Sources said despite record-high remittances and large foreign exchange aid flow. (Business Recorder October 8. Malaysia and Kuwait the said amount of foreign exchange is being transferred to Bangladesh. (The Nation October 13.000 workers.000.51.31. Education $179.2 B.762. slowdown in FDI. Singapore and Hong Kong. he added. these countries are new destinations and safe heavens for the investors due to providing many initiatives and exemptions for the investors with regard to investment and regulatory environment. high external debt and political instability. (Business Recorder October 1.820. so that the people of Pakistan and of the US know where the money is going. including India. Energy $44. During September 2010." said Ambassador. Economic Growth.25 B and average daily volume was more than Rs.2 B Trading volumes at National Commodity Exchange Limited (NCEL) show a growth of 654% in the 1st Q of FY 2010-11. the European Parliament and members of the World Trade Organisation. has started construction in Sunder Industrial Estate (SIE) on a five-acre plot recently allotted to them. Economic Opportunity $144.
manufacturing / fabrication.043 billion in July-August (2009-10) to $1.16 B in September from $911 M in September last year. from its peak of Rs. EFS witnessed a decline of some 4%.089 M in July-August (2010-11) against exports of $561. or Rs. At the end of June 2010. chemicals and defense. SBP is gradually increasing the mark up rates.198 B in December 2009 to Rs. Imports were worth $2. the Federal Bureau of Statistics said. in which outstanding amount was Rs.7. Exports stood at $1. The country's trade deficit for the first three-months of the 2010/11 FY was $3. compared with $2.87% during the 1st 2 months of the CFY against the same period of last year.186 B as on June 30. healthcare and welding products. data provided by Federal Bureau of Statistics reveals. On the other hand.14 B in the year-ago period.83 percent by going up from $1. service imports into the country also grew by 10. 2010) Increase in Services exports 4.745 M during July-August (2009-10).78% when compared to the deficit of the corresponding period of last year. (The Nation October 9. The rising mark-up rate of EFS may be a major reason of decline in financing as the following the directives of IMF to rationalize the mark-up rates under the EFS. Overall services exports were recorded at $589. during the quarter under review.50 B a year ago. 2010) Exports of services sector grew by 32 . the data revealed.156 B during the same the 1st 2 months of CY. (Business Recorder October 13. 2010 as compared to Rs. the EFS outstanding amount declined to Rs.177 B. (Daily Times October 20. health care petro chemicals industries etc. 2010) Export financing declined Table: RISK & OPPORTUNITY TRENDS (Based on Current Developments) SECTOR Textile Oil Power / Energy Sugar Cement / Construction / Steel Automotive Telecommunication Other Industries Agriculture Micro Business & SME Financial Services Regulatory Macro Environment * Up Down No Change RISK OPPORTUNITY Financing under Export Finance Scheme for export promotion witnessed a decline of Rs.61 B in September this year.85 B compared with $3. 2010. (Business Recorder October 10. Through its core business.193 B in March 2010. 2010) September trade deficit at $1. It is worthwhile to mention that this multinational company has over 53000 employees world over.186 B at the end of June. construction. against $1.41 B in September last year. According to SBP.16 B Pakistan's trade deficit widened to $1. as compared to preceding quarter.Tracking Opportunity & Risk Related Developments This was stated by a spokesperson of Punjab Industrial Estates talking to a group of Journalists here. The services trade deficit during the period under review increased by 17. it will meet the significant and emerging needs in the metal processing.12 B in the first half of 2010.8 B. (industrial gases).78 B. but grew by 5% when compared to the same quarter of last year 2009. The spokesperson added that this multinational group would deal in industrial gases.
in support of the case that the worst is yet to come. and China. courtesy of unprecedented bailouts. and analytics. There is growing evidence. TRAPPED IN THE SPIRAL OF BASEL III. in this months Tracker. has waned. and uniqueness. The global economy is highly unlikely to return to a sustainable path of normalcy anytime soon. 2010 All of these scenarios are work-in process and have deep and profound implications for Pakistan. the ex Chief Economist for IMF offers an insightful explanation: most (global) economists arent forecasters any longer. based on new extracts from a wide array of credible and reputable publications. And that too is likely to happen once the next set of crises that are in the works have run their course and resulted in a global deflation (and in some places stagflation) of historical proportions. (followed by Turkey. Russia. (Outlook for a) US-sovereign debt crises US Dollar-Euro crises & the rise of an alternative reserve currency (Consequent or Concurrent to the Debt Crises) Rapid strategic divergence primarily between US on the one hand. ACCELERATING GLOBAL RISKS SPECIAL EXCERPTS We continue to be in the midst of an unprecedented global. Suffice to say that within these scenarios are embedded considerable threats as well as enormous opportunities for growth and strengthening. a case is being made.Tracking Opportunity & Risk Related Developments and geo-politically. This is Economics 101 and the writing is on all the walls. Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe. the economy continues to struggle with a lack of credit. for the key developing scenarios that were highlighted as key risks in our Outlook 2009-10 (of August 2009). So keeping in mind the gravity. As a result there is widespread. Britain and America in slump for a long time. Many are. 2010 If you strip away the political correctness. The pied pipers. the hallmark 33 . Yet most forecasters seem to lose sight of this rather obvious reality. in favor of this perspective. financial and economic. by Dr. uncertainty and nervousness in the global marketplace. The appetite for massive new sovereign debt for the next set of bailouts is fast reaching a breaking point. The much orchestrated recovery. and unprecedented. TIGHTENING THE NOOSE ON CREDIT SPELLS DISASTER Global Research. These developing scenarios have been clubbed under the following heads: (Prospects of) Global Deflation. that would fundamentally start to alter the global power equations. of the current global situation. It didnt. if you will. create economic and political strife and lead to radically new geo-political realities. and set off global domino triggered by the next acute financial crises. and support. Point in case is the specter of the recent Greek default. theyre market makers and confidence builders. Simon Johnson. Japan. prone to contend that the crises ended sometime in 2009. By Ambrose Evans-Pritchard October 3. Brazil) on the other hand A new US driven mid-east war targeting Iran The Af-Pak theater and the US/NATO end game economy and the whole array of industries. crises. economically GLOBAL DEFLATION IMF ADMITS THAT THE WEST IS STUCK IN NEAR DEPRESSION Telegraph. its Two years after the 2008 bailout. however. Ellen Brown September 18. And there is ample proof.
Tracking Opportunity & Risk Related Developments of recessions and depressions. FED MULLS TRILLION-DOLLAR POLICY QUESTION CNBC . Juan Jose Toribio. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. are skeptical.So the Fed is turning to a policy known as "quantitative easing.S. WHY MOST ECONOMISTS ARE NOT HOPEFUL ABOUT "QUANTITATIVE EASING. By Annie Lowrey October 20. apparently. We are still trapped in that spiral today. ranging from the wonks at the libertarian Cato Institute to liberal Nobel-winner Joe Stiglitz. so workers get laid off and businesses shut down. A growth rate of 1. Even Fed Chairman Ben Bernanke sounds uncertain. despite massive quantitative easing (essentially money-printing) by the Federal Reserve. is monetary policy . In an article in The Financial Times titled US Money Supply Plunges at 1930s Pace as Obama Eyes Fresh Stimulus. Maybe were not in a double-dip but we might as well be in one. Credit is issued by banks and is the source of virtually all money today. creating more economic activity. economy's biggest problem. and just like that (or almost)economic growth . and they're in no rush to spend. a move many analysts saw as a precursor to more easing ." Essentially. Growth this slow is the equivalent of heading downward relative to the growth needed to get us out of the hole were in . in a vicious spiral of debt and depression. 3.September 20. 34 . said the (new Basel) rules could hamper the fragile recovery.6 percent means even higher unemployment ahead. "Monetary policymaking in an era of low inflation has not proved to be entirely straightforward. who warned: The plunge in M3 [the largest measure of the money supply] has no precedent since the Great Depression." Slate.2 trillion that it will then spend to help goose economic growth. there is insufficient money to buy goods or pay salaries. businesses and policymakers agree. Housing sales are down. 2010 How much of a boost to the U. the Fed is using its license to print money.Some policymakers worry that more easing could fuel market imbalances or sow the seeds of skyhigh inflation ahead. When credit is not available. Fiscal policy is deadlocked. There is also the risk that the Fed spooks investors. like bondswill probably pick up long-term Treasury debt.The problem is that the strategy is indirect. 2010 dollars or two buy? That's a tricky question for the Federal Reserve At the Fed's August meeting it decided to reinvest maturing mortgage-debt in Treasuries to keep its balance sheet steady." he sighed in a speech earlier this month. 2010 Consumers are 70 percent of the economy. This is why the US is not recovering properly. The strategy has been termed "QE2" because it is the second time the Fed has used this arcane monetary policy tool . is widespread lack of demand. he said. recovery could another trillion The U. who would then spend more money.S.Every indicator suggests third-quarter growth will be as slow if not slower than in the second quarter. Retail sales are down. so it is trying to convince investors to invest and banks to lend more. WHY NO AMOUNT OF STIMULUS MONEY WILL BE ENOUGH Salon. Ambrose Evans-Pritchard quoted Professor Tim Congdon from International Monetary Research. former executive director at the IMF and now dean of IESE Business School in Madrid. On Nov. September 21. the Fedwhich purchases only government-backed assets. though. Commercial real estate is in trouble. The Fed cannot just buy up goods and services. Consumer confidence is down. And many prominent economists. Rather than buying space in office parks or forklifts. an office park. These are regulations and burdens on bank results that only make sense in times of monetary and credit expansion. a forkliftthen the stores and companies that make and sell that stuff would hire more workers. the markets expect the Fed to announce that it has decided to create somewhere between $500 billion and $1. The money supply has continued to shrink in 2010 at an alarming rate. If only people and companies would buy more stuff. So. By Robert Reich. the theory goesa car.
In this instance. the United States actually has a worse ratio than Greece Specifically. Despite this. Having run out of conventional options of lowering short-term interest rates and getting less from their relatively unconventional tool of buying bonds to bring down longterm rates. on what terms? On two of the ratios.6%).Tracking Opportunity & Risk Related Developments Ultimately.1%. typically known as austerity measures . will the United States be able to repay its debt and. But it cant run on its own because consumers have reached the end of their ropes. and therefore pays higher yields to the owners of the bonds to make up for the risk.5% (including GSE debt: 121. the advantage in this race to the bottom. Then. our policymakers may have to implement policies designed to narrow this funding gap. Greece: 312." Now. Moreover.4%.the key ratios from which we use to analyze a nation appear very similar between the United States and Greece. DEFICIT AS % OF GDP: US: 10. Forsyth September 17. DEBT AS % OF GDP: US: 86. Say the White House and Ben Bernanke got everything they wanted to boost the economy. When normalizing for TARP. the middle class no longer has the buying power to keep the economy going . After three decades of flat wages during which almost all the gains of growth have gone to the very top. we are actually most concerned with the risk related to future repayment. By Daryl G. in this case Greece.Having the world's reserve currency gives the U. In general. Greece: 13. DEBT AS % OF REVENUE: US: 358. interest rates were slashed by central banks in reaction to the credit crisis of 2008. government has not taken any aggressive austerity measures to attempt 35 . central bankers are utilizing their next optioncurrency intervention . inflationary risks. SOVEREIGN & US DEBT CRISES SHOULD US GOVERNMENT DEBT BE RATED JUNK? Fortune.2%. currency risk.Anyone who thinks China will get us out of this fix and make up for the shortfall in demand is blind to reality. 2010 First.1%. even if fiscal and monetary policy werent deadlocked. Jones. and the United States. September 3. despite their divergent credit ratings. which require incremental debt funding? If so. At some point these boosts would have to end and the economy would have to be able to run on its own. duration risk. But the destruction of the world's reserve currency threatens to end the Era of Globalization The most newsworthy nation to currently be rated junk status is Greece . spending for the first 10 months of the government's fiscal year is up an astonishing 10. and so forth. the main weapon in their arsenal. if so. Specifically. a bond receives junk status due to its increased risk of default.6%. wed still face the same conundrum. 2010 CENTRAL BANKS EMBRACE RISKY CURRENCY GAMBIT Barrons (WSJ). with short-term interest rates in most Typically. as it relates to the United States. Greece: 115. they ballooned their balance sheets with massive bond purchases in what euphemistically was called "quantitative easing. or GSEs. the owner of a bond is subject to many risks: interest rate risk. central banks have run out of basis points. By Randall W. which we consider a 1-time expenditure. Specifically. their QE has had far less than the expected impact. but if we include the debt of government sponsored entities. economies at or near zero percent. the United States appears to do better than Greece. is it expected that the nation will be running future deficits. which is certainly a positive. the U.4%.S.S. the key ratios are: debt as percentage of GDP. We've outlined a comparative analysis between a typical junk-rated sovereign issues. and debt as a percentage of revenue. with projected deficits for at least the next fifty years.(however) United States has been running a deficit for 22 straight months. deficit as a percentage of GDP.
In contrast." If for no other reason. The company also accused U.S. In contrast. but let's be clear about one thing: Dagong is not a chump outfit. So. (Yes) very different view of the strength of U." Dagong gave our debt a mere AA . which share an oligopoly enforced by government fiat. and I think its fair to still use the term unfortunately.S.S. like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U. 2010 The big three credit-rating agencies that totally missed the meltdown of the subprime mortgage market Moody's.S. As long as China remains the No. future deficits should shrink and debt balances eventually decline. debt is worth heeding because it influences the thinking of the Chinese government and those in charge of investing surplus Chinese capital. He said: The financial system is broken. under our current course. it rated the sovereign debt of 50 nations making up 90 percent of the world's economy. VOLCKER: "THE FINANCIAL SYSTEM IS BROKEN" Global Research. is pushing into international markets. agencies employ more analytical rigor in the rating of their sovereign debt than Dagong.S.S. deficits will expand for decades. Dagong's appraisal of U. We know that parts of it are absolutely broken. government. 1 owner of U. in theory." Dagong has set off something of a hissy fit in the credit-rating world.to get their fiscal houses in order . the answer is quite obvious.lower than that of 11 other countries (including China. the opinions of the Chinese matter whether we like them or not. most European nations have taken aggressive actions on both the revenue -. government debt be downgraded to junk status? If we simply look at the ratios and the future outlook. and they do not adhere to objective standards. finances. of contributing to the 2007-08 financial crisis by applying the coveted AAA rating to loads of junk subprime mortgage debt.S. the firm declared the U. We can debate forever whether the U. Beijing-headquartered Dagong.S.Tracking Opportunity & Risk Related Developments to narrow the current and projected deficits. While Americans still tend to regard U. We could use that term in late 2008. Bacon September 2.S." Chairman Guan Jianzhong told the Financial Times in July. By James A. which it awarded an AA+). the dominant credit agency in China.S. Treasury securities. U.increasing taxes -.S. agencies. Treasuries as the "safest investment in the world.which has a Paul Volcker (ex Federal Reserve Chairman) spoke at the Chicago Federal Reserve Bank on September 23rd. as part of a symposium cosponsored by the IMF. including more than 200 analysts with master's degrees or doctorates and 50 with postdoctorates. "The Western rating agencies are politicized and highly ideological. Standard & Poor's and Fitch . 2010 CHINA'S CREDIT RATING AGENCY DAGONG DOWNGRADES U.The result of the actions in Europe are that. The company boasts of more than 500 employees. To add insult to injury.still give the United States a AAA credit rating. DEBT RATING The Washington Times.Dagong Global Credit Rating . outlook to be "negative. This summer. October 3.and cost sides -.reducing government expenditures -. But there's a newcomer in the credit-rating game . should U. Volcker is right that the mortgage market has become a subsidiary 36 . The Chinese finance ministry has directed the company to "participate in the construction of [the] Asian bond market.
the people in charge of running them have no way to know if that is true. FORECLOSURES Bloomberg. How can the ultimate capital requirement of 8 percent be adequate when leverage under Basel III is still allowed at the astronomical rate of 33:1?. bond insurers and private investors . the implementation of which will be delayed till 2017 and some till 2019. Theres no excuse this time for anyone to be surprised. Its like a massive game of dine and dash. Volcker also said: I don't think anyone doubts that the underlying problem in the markets is the too big to fail syndrome. This is an express admission that all banks would require such a long transition 37 The global Too Big To Fail banks are so precarious that literally anything can trigger a collapse in the coming months. While federal regulators and state attorneys general have focused on flawed foreclosures. but they missed (or .mortgage records and foreclosure proceedings are out there waiting to be unearthed. 2010 Shoddy mortgage lending has led bankers into a two-front war. Reading the commentaries on Basel III posted to various renowned websites and financial publications.The biggest risks for banks may be loans packaged into mortgage-backed securities during the housing bubble. a bigger threat may be the cost to buy back faulty loans that banks bundled into securities . The reality is these companies are so big and unmanageable. In fact the banks are all insolvent. Its anyones guess what they might turn up .Its troubling that the people who caused the problem have walked away and left everybody else to fight over who gets stuck with the tab.S.3 trillion remain. And it is ironic that government-owned GSEs Freddie and Fannie are shareholders of MERS one of the main sources of mortgage fraud in the country. BASEL III: THE GLOBAL BANKS AT THE EDGE OF THE PRECIPICE. collapsed. and that it never was a major problem. The biggest U.and it is a no brainer to conclude that the banking crisis (if we are lucky) may be resolved by 2015 but it is most likely that it can be only resolved by 2017/2018 . 2010 BANKS CLUELESS ON FORECLOSURE MESS SEVERITY Bloomberg. Three years ago..S. The major global banks are all undercapitalized and this was all too apparent when Lehman Bros.. Banks were borrowing so much and so recklessly to play at the global casino that when the bets went sour.. 2010 deliberately misled) the underlying message of the proposals.Tracking Opportunity & Risk Related Developments of Uncle Sam. We may be witnessing the same phenomenon again.The banks have only themselves to blame for the fix theyre in. Eggert said in a telephone interview. pitting them against U. By John Gittelsohn and Jody Shenn Oct 21. and the bailouts. as the subprime mortgage crisis began to spiral. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion. nothing will be resolved.. one of the lessons the public should have learned is that the leaders of these companies often have no idea whats going on inside them. BANKS FACE A TWO-FRONT WAR ON MORTGAGES. Basel III is pure spin and its timing was to assuage the deep-seated fears that there are no solutions in sight to save the fiat money system and fractional reserve banking.The simple truth is that as long as the derivative casino is still running and banks are allowed to continue their off balance sheet activities. The aggrieved bondholders include governmentcontrolled firms Fannie Mae and Freddie Mac. By Jonathan Weil October 20. One thing that remains unknowable is how many flawed home. mortgage lenders and servicers say theyre putting the foreclosure mess behind them. Global Research. Dozens of federal and state agencies are investigating. of which $1. they were staring at a black-hole in the trillions. The problem was compounded when the central bankers turned a blind eye to how bankers defined what constituted capital so as to circumvent the need to maintain the capital ratio. there would not be any need for Basel III regulations .. If the banks were at all adequately capitalized and the central bankers were prevented from manipulations. by Matthias Chang September 20.
The eurozone's sovereign-debt crisis casts a pall over today's alreadyfragile global economic outlook. and a major part of that debt sits on the European banks' balance sheets. some entities may start to get real nervous and unload the treasuries. Portugal. September 2010 Ireland is around US$2 trillion. and . hoodwinking the public and sovereign creditors that all is well.. There is little reason to expect a 38 The outbreak of a sovereign-debt crisis in the euro zones peripheral economies has been among the more important developments in the global economy in 2010. I cannot give a precise time-line as to how long the FED and the global central banks can prolong the confidence game. Spain. Spain. Portugal.Time Line? Between now and anytime in 2011. the tipping point is reached and all hell breaks loose! . and Ireland. EURO WILL UNRAVEL. . which in turn will call into question the health of the European banking system. the combined sovereign debt of Greece. European policymakers fully understand that a default in any peripheral eurozone country would likely trigger contagion to the other peripheral members. Such intensification will affect Europe's already-troubled banking system. To use an analogy. All of a sudden. At this moment. this crisis will likely intensify in the months ahead as markets increasingly focus on the intractable solvency and competitiveness issues confronting countries like Greece. AND SOON American Enterprise Institute. It is my view that Basel III is pure spin and is intended to convey the impression that the central bankers and regulators have things under control.At the latest. The more immediate threat to the continuation of the eurozone in its present form is the possible loss of political willingness in Europe's periphery to continue hewing to IMFstyle austerity measures. the banking patient will be in Intensive Care until 2017. They also understand that a series of defaults in the eurozone's periphery would have devastating consequences for the European banking system. After all. Sadly. When confidence in banks evaporates for whatever reasons. the consequences will be ugly and there will be massive social upheavals across the globe. and the FED steps in to shore up treasuries. since they have lent the equivalent of 37 percent of France's GDP to those countries. Such deepening will undermine their public finances by eroding their tax bases and will raise questions about their ability to service their sovereign debt. which is rather optimistic for the projection implies that the patient may be able to recover. as the recession deepens and unemployment rises with no end in sight. seriously threatening both the European and the global economic recovery. At some point. serious questions may arise in the periphery as to whether these countries would not be better served by restructuring their debt and exiting the euro. The Bank for International Settlements estimates that the French banks are particularly exposed to the troubles in the peripheral countries.. This is essentially what happened in Argentina in 2001 after several years of painful and not very fruitful austerity measures. By Desmond Lachman. The first indication that the game is up is when US treasuries are increasingly purchased by the FED to make up for the shortfalls by foreign creditors and to finance the ballooning US deficits.Tracking Opportunity & Risk Related Developments period to comply with the new requirements! The stark reality is that the Too Big To Fail Banks do not have the ability and or the means to raise capital at this critical juncture. Then. 2012. since the recessions of the European peripheral countries will likely deepen considerably in the year ahead as they attempt to undertake major fiscal adjustment programs without the benefit of currency depreciations.
Why would they take action that would result in the very outcome dollar decline that China has worked to avoid? But other retaliatory options could hurt.Charles Li. By Angela Monaghan September 3. 39 . the chief executive officer of Hong Kongs stock exchange. whose economic imbalances are far greater than Argentina's were. AMERICA CANNOT WIN THE CURRENCY WARS ALONE Financial Times. Chinese threats of dumping US Treasury bonds are perhaps overstated.AN ALTERNATIVE RESERVE CURRENCY (Consequent or Concurrent to the Debt Crises) CHINA FEARS DEPRECIATION OF $2. and has raised its holdings of South Korean bonds." she added. labour groups seek strong action against the undervalued renminbi. At a time of high unemployment. It has sharply increased its net purchases of Japanese debt. a vice governor with the People's Bank of China. . with 65pc held in dollars. YUAN WILL BECOME RESERVE CURRENCY. internal and external. Separately Hu Xiaolian. and 3pc in yen.Tracking Opportunity & Risk Related Developments different outcome in the eurozone's peripheral countries. Chinas takes the form of not letting its currency strengthen (which makes the recent monetary tightening deflationary for others). deficiencies and systemic risks in the current international currency system. "Once a reserve currency's value becomes unstable. "A diversified international currency system will be more conducive to international economic and financial stability. 2010 The external problem is Chinas possible retaliation.US unilateralism runs into two difficulties. It could withhold co-operation on North Korea and Iran. HONG KONG EXCHANGE HEAD SAYS Bloomberg News September 20." she said. 2010 Chinas yuan will gradually become a reserve currency . 26pc in euros. warned that depreciation was a risk for the foreign exchange reserves held by developing countries. China could leverage its economic status as a large buyer of goods and services (commercial and defense) to hurt American businesses and jobs. a central bank magazine.59 trillion). 5pc in pounds. By Arvind Subramanian October 20 2010 US CURRENCY CRISES DOLLAR CRISES . in a bid to diversify. there will be quite large depreciation risks for assets.45 trillion (£1. Multilateralism with a more prominent role for emerging market countries is essential now to prevent competitive currency debauchery by China and the US from blowing up the system. The report was published in official newspaper the China Securities Journal and confirmed analysts' estimates that about two-thirds of the reserves are invested in dollars. The Chinese Government holds the largest stockpile of currency reserves at $2. But US companies are ambivalent because capital is mobile and can escape the effects of the undervaluation. "The outbreak and spread of the global financial crisis has highlighted the inherent How ironic that the worlds reserve currency issuer (the US) and its longterm rival to that status (China) are competing to nearly debauch their own currencies? Americas behaviour more effect than intent takes the form of quantitative easing. Until now the allocation of China's foreign exchange reserves was considered a state secret.45 TRILLION OF RESERVES STILL HEAVY IN DOLLARS Telegraph. China has signalled a shift away from dollar assets in recent months. calling for greater crossborder use of the yuan. Domestically. America is divided. said in a commentary on the exchanges website today." she wrote in an article that appeared in the latest issue of China Finance.
Robert Dreyfuss September 2.US VS CHINA / RUSSIA / OTHERS CHINA AS A SUPERPOWER Korea Times. Only this summer. things here in the US will change drastically Just ask anyone who lived in the UK after WWII. only use their currencies in the trade. CHINESE YUAN: NEXT WORLD RESERVE CURRENCY? The Daily Reckoning. corporate scandals. Ty showed me a story from The Wall Street Journal about how Turkey and China had signed a trade agreement that would. by Barry Eichengreen.Tracking Opportunity & Risk Related Developments SWIMMING AGAINST THE MASTER CURRENCY CURRENT Sydney Morning Herald . "It would be disastrous for progressives to provide fodder for the military-industrial complex by demonizing China." says Michael Klare. settlement currency. author of Rising Powers. Argentina. In foreign- "We have to recognize that China is the first real economic competitor that has ever threatened America's standing as the global economic superpower.the US dollar. And you could sprinkle in protectionism measures and a host of other things that have built up against the dollar in the past decade. Shrinking Planet. 2010 THE competition for reserve-currency status is conventionally portrayed as a winner-take-all game. folks The Chinese are taking steps to become the next reserve currency And when that happens. either The Chinese are only doing this to protect themselves from all their exposure to the dollar. Berkeley.. the Middle East." But America doesn't adjust well. China will attempt to protect its domestic transformation by securing resources and access to foreign markets. Willingness to hold the US dollar may be undercut by concern with America's twin fiscal and external deficits. all three currencies have their critics. Uncertainty about whether the European Union will hold together could limit the use of the euro. CHINA IN THE DRIVER'S SEAT The Nation. Brazil and now Turkey All of these countries only use their currencies in trade. To be sure. from now on. "There are 40 . there can be no doubt that the Peoples Republic of China will become one of the dominant global powers (soon). By Joschka Fischer Germanys foreign minister and vice chancellor from 1998 until 2005. October 19. Belarus. and yuan will share the roles of invoicing currency. although China is aggressively promoting international use of the yuan in trade settlements. euro. 2010 . And. despite the massive problems that the country is confronting. and no longer need dollars Let me make certain that you understand whats happening. where there is room for just one full-fledged international currency. thus excluding the Given its rapid and successful development. America has to adjust. it has a way to go before its currency is attractive as a vehicle for foreign investment and holding reserves. when the sterling was no longer the worlds reserve currency Dont blame the Chinese. it could even emerge as the global power.Along with China's growing economic power comes an inevitable corollary: China's eventual emergence as a political and military power wielding its influence from East Asia to the Pacific." Few would argue that the rise of China has world-altering significance . which one?. 2010 STRATEGIC DIVERGENCE . Africa and beyond. policy terms. like bubbles. and reserve currency in coming years. 2010 dollar. The US has brought this on with all its deficit spending. Lets see now China has signed up almost all of Asia. the Obama administration started laying bricks in a Great Wall of Containment around China by mending ties with a brutal Indonesian special forces unit and taking sides against China in a potentially dangerous dispute over Beijing's claim to a string of islands in the South China Sea. The only question is. by Chuck Butler October 10.China was gaining a wider acceptance of their currency and removing the dollar from trading agreements Well. October 4. It's hard to imagine a US politician making the case that Washington should pull back from its overextended posture in Asia and the Pacific or cede an expanded presence to China. etc. Indeed. the Indian Ocean... professor of economics at the University of California.
a conflagration between the two nuclear powers could erupt over the Chinese island. Not only are the wars against the Palestinians.Tracking Opportunity & Risk Related Developments very powerful interests in Washington who want to set us on a path of confrontation.S. which revealed plans to build a one-gigawatt nuclear power plant in Pakistan on Monday. "We need to find ways to accommodate China. and if relations between Beijing and Washington spiral downward. CNNC is completing a second civilian nuclear reactor in Pakistans Chashma and plans to build two more. political and cultural collapse that is cause for even more consternation. Twelve years later. Chinas civilian nuclear investments in Pakistan have raised strategic concerns in the US and India. 41 In 1998. but they have set in motion unforeseen moves by all the regional players.S. official suggested on Wednesday the 46-nation Nuclear Suppliers Group (NSG) should address Chinese plans to build two new reactors in Pakistan. China's Foreign Ministry said on Tuesday Beijing had invited the IAEA to "exercise safeguards and oversight of this project. There is a great new plan of creating a Middle East Union as a regional equivalent of the European Union with Turkey. came a day after China indicated it may see no need to seek approval from the NSG. Jordan. And it's not a foregone conclusion that it will be easy. then-Prime Minister Atal Bihari Vajpayee asserted that India and the United States were "natural allies in the quest for a better future for the world in the 21st century". Libya and Syria last year. by Richard Fontaine. 2010 China-Pakistan nuclear ties worry U." In particular. In February Turkish Culture and Tourism Minister Ertugrul Gunay offered to do likewise with Egypt. Afghans and Iraqis floundering. Turkey reestablished the Caliphate era visa-free tradition with Albania.6 billion in nuclear projects by 2020. A news report quoted CNNC vice president Qiu Jiangang saying that both sides are in discussions over CNNC exporting a one-gigawatt nuclear plant to Pakistan. China may not seek approval of Nuclear Suppliers Group Barack Obama's upcoming trip to India provides an opportunity to jumpstart progress toward defining a true US-India strategic partnership TURKEY AND RUSSIA DEFY AMERICA'S IMPERIAL DESIGN IN THE MIDDLE EAST AND CENTRAL ASIA Al-Ahram Weekly. A senior U.. September 22. the issue of Taiwan is a flash point." REJUVENATING US-INDIA STRATEGIC PARTNERSHIP Times of India. Oct 22. has set targets to invest $117. which is tectonic. 2010 The new Ottomans and the new Byzantines are poised for an intercept as the US stumbles in the current Great Game. despite an array of promising advances over the past decade." says Orville Schell. U. The empire faces a resurgent Turkey. one of the few countries outside a global antinuclear weapons pact. As part of a dynamic diplomatic outreach under the Justice and Development Party (AKP). Lebanon. The comments by Thomas D'Agostino.S. India. the relationship between Washington and New Delhi is falling short of its full potential. "It isn't just China's rise. The neocon plan to transform the Middle East and Central Asia into a pliant client of the US empire and its onlydemocracy-in-the-Middle-East is now facing a very different playing field. President ." CHINA EXPANDS NUKE PLANS.S. 2010 ATOM BODY SHOULD ADDRESS CHINA-PAKISTAN DEAL--U. but it's our own financial. Reuters. Eric Walberg October 1. writes Israel Shamir. fresh from a resounding constitutional referendum win by the AKP. some of whose members have voiced qualms about the plan to build two new reactors at Pakistan's Chasma nuclear energy complex. or even peaceable. LEAVES INDIA IN SHADE Hindustan Times September 21. 2010 Chinas largest nuclear power company. Under Secretary for Nuclear Security. and to influence it.
including the construction of new pipelines and nuclear energy facilities.. 2010 Russia's capacity to withstand Western pressures. the growing strategic partnership with China enhances The news that Turkey and China had organized a joint military exercise at the huge Konya airbase in Turkey's central Anatolian region last month came as a surprise to many. Looking at it another way. so to speak. For Russia. At that time. creating the basis for a new alignment of forces. especially in Central Asia and Afghanistan. WIDENING REACH World Politics Review.This brings us to the threshold of a tantalizing prospect: is the great game over Caspian oil withering away? How relevant are US-Russia energy rivalries with the appearance of China in the equation as an energy guzzler that can keep buying all that Russia can supply? This is a new ball game. What all this adds up to is that Russia is practicing its own version of a reset with the US. since it concurrently acquires the leverage to compel the West to negotiate with it. but emboldened them to work together. was made 42 . most recently. Turkey. Shrinking Planet. just as the latter has been doing with Russia.Turkey's bold move with Brazil to defuse the West's stand-off with Iran caught the world's imagination in May. Its defiance of Israel after the Israeli attack on the Peace Flotilla trying to break the siege of Gaza in June made it the darling of the Arab world. of Rising Powers. where from the US angle the great game is no longer about driving a wedge between Russia and Western Europe. Medvedev's visit to China underlines emphatically that Moscow will be loath to allow the Russia-China strategic partnership to be eroded by its reset with the US. which has historically been the main obstacle in Turkey-China relations . and the latter cannot but aspire to try to deflect it. by Mehmet Ozkan 22 Oct 2010 in the context of the current shifts taking place in global power politics?.. How Russia and China safeguard their growing strategic partnership from Western pressures will become clearer in the coming period. CHINA: ENERGY SUPERPOWER Asia Times By Michael T Klare What emerges is that the trajectory of Russia-China cooperation is beginning to substantially impact on the Western countries' core interests. including Russia. . the two countries signed several agreements (and) Since then. there is immense geopolitical significance to the fact that Russia has appeared by China's side over the current tensions in the AsiaPacific region involving Japan. Syria and Iran . TURKEY-CHINA MILITARY DRILL REVEALS DEEPENING TIES.This is the natural regional geopolitical logic. The US reset with Russia already has an unobtrusive objective of incrementally eroding the Russia-China strategic understanding so as to isolate China. By M K Bhadrakumar October 2. His previous book. In a delicious irony. With this in mind. IS RUSSIA PLAYING THE "CHINA CARD"? Asia Times. Turkey has never officially supported the Uighur separatist movement.ties between the two countries have been deepening since former Chinese President Jiang Zemin's visit to Turkey in April 2000 opened a new chapter in bilateral relations. with a visa-free regime and ambitious trade and investment plans (denominated in rubles and lira). not the artificial one imposed over the past 150 years by the British and now US empires . What explains such a dramatic improvement in relations between Turkey and China? And how should this military exercise be understood Michael T Klare is a professor of peace and world security studies at Hampshire College and the author. Blood and Oil. But safeguard it they will. Instead. strengthening its partnership with China gains it more strategic space.Tracking Opportunity & Risk Related Developments Turkey also established a strategic partnership with Russia during the past two years. it will be about offering incentives to Russia to hold it back from diversifying away from Western energy markets towards China. invasions by the US and Israel in the Middle East and Eurasia have not cowed the countries affected.
IS DISTRACTED. the greater the risk of friction and conflict with the United States CHINA MAKES ITS NORTH KOREA MOVE Asia Times. RISING CHINA TESTS THE WATERS Asia Times. Libya. '10 Beijing views the South China Sea as a leading indicator of how the international community will respond to China's growing power and assertiveness. The United States should insist on open access. here. Jingdong Yuan Aug 19.com. the chief economist of the International Energy Agency (IEA). Especially striking has been the way Beijing has sought to undercut US influence in Saudi Arabia and with other crucial Persian Gulf oil producers. China called South Korea's bluff . '10 Bristling over territorial disputes in the South China Sea fits American concerns that China is deliberately nudging the US out of East Asia at a time it is trying to reassert its primacy. Eager to ensure the reliability of the oil flow from these countries. To catch Klare discussing China's energy superpowerdom on Timothy MacBain's latest TomCast audio interview. This is exactly the path once taken by Washington . in some cases providing them with significant economic and military assistance. Tensions are also high on most fronts associated with China's attempt to reclaim what it sees as its rightful place. Rarely has a simple press interview said more about the global power shifts taking place in our world. Kaplan September 26. Although not competing with Washington when it comes to military aid. China's state-controlled energy firms have also forged "strategic partnerships" with counterpart enterprises in these countries and in some cases acquired the right to develop major oil deposits as well. On July 20.and with some of the same countries. Beijing has established close ties with their leaders. The idea that Beijing will acquiesce to the collapse of the Pyongyang regime and reunification under the aegis of South Korea is a discounted commodity. DEEP REASONS FOR CHINA AND US TO BRISTLE Asia Times. click here or. by becoming the world's leading energy consumer. WHILE U.and the United States is ill-equipped to respond. China obtains most of its imported oil from Saudi Arabia. China for the first time imported more Saudi oil than the US. Abraham M Denmark and Daniel M Kliman Aug 19. At present. the decisions China makes regarding its energy portfolio will have far-reaching consequences. CHINA DEVELOPS SEA POWER Washington Post. Fatih Birol. Kuwait. only one thing is clear: the greater China's reliance on imported petroleum. 2010 A long handshake between President The greatest geopolitical development 43 . 2010 Hu Jintao and Kim Jong-il in Jilin province explicitly placed China's Korean Peninsula eggs in the North's basket. Because energy is tied to so many aspects of the global economy. not only in the South China Sea. promising to support Saudi aspirations without employing the human rights or pro-democracy rhetoric usually associated with American foreign policy. Washington is already watching with anxiety. At this point. China will also become an ever more dominant international actor and so set the pace in shaping our global future. but elsewhere as well. In 2009. Beijing has been dispatching its top leaders to woo Riyadh. Iran. and Venezuela.S. and because doubts are growing about the future availability of oil and other vital fuels. Russia. a geopolitical shift of great significance given the history of USSaudi relations. Angola. watch China. told the Wall Street Journal that China had overtaken the United States to become the world's number one energy consumer. An anemic international reaction will embolden Beijing. Oman. to download it to your iPod. Sudan.Tracking Opportunity & Risk Related Developments into a documentary film and is available at www.bloodandoilmovie. Peter Lee September 2. If you want to know which way the global wind is blowing (or the sun shining or the coal burning). That's the news for our energy future and for the future of greatpower politics on planet Earth. By Robert D. Kazakhstan.
China is building a far-flung trading network. We underestimate the importance of what is occurring between China and Taiwan. The geographical heart of America's hard-power competition with China will be the South China Sea. The United States and others consider the South China Sea an international waterway. In geopolitics there is one such event that should have us all thinking hard -... the Korean Peninsula and northeastern China. from East Africa to Southeast Asia. China is building a blue water navy.China has the world's second-largest naval service. Hu was quoted on state television on September 8 IRAN . Forget genteel rows over the yuan's value -. events that are unlikely but with the potential to cause major disruption. in Nassim Nicholas Taleb's formulation." WHEN NORTH KOREA FALLS . . even as it is helping to fund and construct ports in Burma. Washington Post. that the United States cannot credibly defend Taiwan.Tracking Opportunity & Risk Related Developments that has occurred largely beneath the radar of our Middle East-focused media over the past decade has been the rise of Chinese sea power. this policy will not alter. CHINA. by Fareed Zakaria October 18. Bangladesh and Pakistan. at the northern end of the South China Sea . 10 saying. Sri Lanka. Myanmar's generals can now proceed unconcerned by Western criticism of the election process or the results . 2010 The most important lesson to have come out of the financial crisis is to worry about "black swans.to the second island chain (Guam) and in the opposite direction. a few years hence. Myanmar leader Senior General Than Shwe's visit to China last week won public support from Beijing for his government's planned national elections on November 7. To wit. through which passes a third of all commercial maritime traffic worldwide and half of the hydrocarbons destined for Japan. to the Indian Ocean. Once it becomes clear. No matter how the international situation changes. By Clifford McCoy 16 Sep.China is quietly incorporating Taiwan into its dominion. ultimately to be protected by its warships America's preoccupation with the Middle East suits China perfectly. And with 90 percent of commercial goods worldwide still transported by ship. Consolidating and developing SinoMyanmar cooperation and friendship is our unswerving policy.When North Korea collapses. these harbors will be visited by Chinese warships and will provide warehousing for Chinese consumer goods destined for the Middle East.A NEW MIDEAST WAR IN THE MAKING 44 ." China seeks domination of the South China Sea to be the dominant power in much of the Eastern Hemisphere. With that backing.the collapse of North Korea .In an apparent snub to international opinion. after only the United States China's 66 submarines constitute roughly twice as many warships as the entire British Royal Navy If our economy remains wobbly while China's continues to rise this will have repercussions for each nation's sea power." These are. "China pays a great deal of attention to relations with Myanmar.. We are paying in blood and treasure to stabilize Afghanistan while China is building transport and pipeline networks throughout Central Asia that will ultimately reach Kabul and the trillion dollars' worth of minerals lying underground. . That sea grants Beijing access to the Indian Ocean via the Strait of Malacca.this is what could produce serious geopolitical instability. and thus to the entire arc of Islam. China will be able to redirect its naval energies. it is easy to imagine chaos on the Korean peninsula that triggers a series of reactions from Beijing and Washington that are competing and hostile. China considers it a "core interest. sea control is critical. MYANMAR REAFFIRM STRATEGIC VOWS Asia Times.
If it doesn't. he runs against Republican partisanship. it will cost him the election . His choices are negotiation. many of which would resonate with at least some voters and allow Obama to be presidential in spite of weak political support. Should the Republicans win an overwhelming victory in both houses next week. The international environment allows him to take a much more assertive stance than he has over the past two years. Israeli-Palestinian talks are also faltering. and party discipline will not be strong enough (it never is) to prevent some defections. The war in Afghanistan is reaching a delicate negotiating state as reports of ongoing talks circulate. Obama does not have much time to lose in reshaping his presidency. When we consider the difficulties President Barack Obama had passing his health care legislation. A negotiated settlement will be portrayed by the Republicans as capitulation rather than triumph . cooperate with the Republicans and re-establish his image as a centrist. they will still not have the votes to override presidential vetoes. Obama now has two options in terms of domestic strategy. If he focuses on foreign policy and the U. With the Iowa caucuses about 15 months away and the Republicans holding momentum. The first is to continue to press his agenda. if Obama's goal is to appear strong on national security while regaining the center. If the domestic situation improves. and the Iranian issue wide open. Obama also has a third option.Interestingly. 2010 We are a week away from the 2010 U. The result will either be gridlock or a very different legislative agenda than we have seen in the first two years. troops still there. This was how the founders sought to avoid the tyranny of narrow majorities. The first is that the country is focused on the economy and on domestic issues. by George Friedman October 26. the president will have to begin his campaign. or continued war. There are two problems with Obama becoming a foreign policy president. and there are a host of other foreign issues. The Iraq war is far from stable. For his part. Whether the Republicans take the House or the Senate is close to immaterial . even with powerful majorities in both houses. they made the president quite powerful in foreign policy regardless of Congress Historically. knowing that it will be voted down. which would reinforce his image as an accommodationist in foreign policy. Given his low approval ratings. 45 . economy does not improve by 2012.S.The second problem is that his presidency and campaign have been based on the general principle of accommodation rather than confrontation in foreign affairs.000 U.The Democrats will lose their ability to impose cloture in the Senate and thereby shut off debate. with the sole exception of Afghanistan where he was assertive is unlikely to yield a major foreign policy success. At the same time.Tracking Opportunity & Risk Related Developments WOULD A BEATEN OBAMA ATTACK IRAN? Stratfor/Real Clear Politics. Whether they lose the House or not. The founders created a system in which the president is inherently weak in domestic policy and able to take action only when his position in Congress is extremely strong. The outcome is already locked in.S. which is to shift his focus from domestic policy to foreign policy. unless that success is a negotiated settlement with the Taliban. midterm elections. when the president has been weak domestically. one option he has had is to appear powerful by focusing on foreign policy. Afghanistan offers the least attractive venue. it is clear that he will not be able to push through any significant legislation without Republican agreement. he takes credit for it. Both have political advantages and disadvantages and present an important strategic decision for Obama to make. which is not particularly new territory.S. the Democrats will lose the ability to pass legislation at the will of the House Democratic leadership. The large majority held by the Democrats will be gone. Obama appears vulnerable and the Republican nomination has become extremely valuable. The second option is to abandon his agenda. with 50. There are a range of issues that need to be addressed at the presidential level. ranging from China's increasing assertiveness to Russia's resurgent power to the ongoing decline in military power of America's European allies.
The Europeans are hostile to Iran but want to avoid escalation. First. destroying Iran's nuclear capability does not involve a one-day raid. of course. Its nuclear facilities are in a number of places and Iran has had years to harden those facilities. the situation in Iraq would improve if Iran were to be neutralized. Defining what it means to almost possess nuclear weapons is nearly a metaphysical discussion. Coming from Obama. particularly Saudi Arabia. The most obvious justification would be to claim that Iran is about to construct a nuclear device. It requires merely a shift in definitions and assumptions. and the psychology in Afghanistan could also shift. If Obama were to use foreign policy to enhance his political standing through decisive action. given the situation in Afghanistan. decisive to the rest. but neither would have much choice should the United States deal with Iran quickly and effectively. while the Democrats would be hard-pressed to challenge him. military action against Iran's naval forces would be needed to protect the oil routes through the Persian Gulf from small boat swarms and mines. The Arabian Peninsula. Nor would the claim be a lie. but that would require Hamas to change its position. This is a cynical scenario. Many of the Democrats see Iran as a repressive violator of human rights. So far. and. the claim would confirm the views of the Republicans. Obama has avoided overt military action against Iran. Russian and Chinese situations are of great importance. but they are not conducive to dramatic acts. Obama would be forced to take action. Obama's credibility in making the assertion would be much greater than George W. The idea is to weaken President Mahmoud Ahmadinejad and strengthen his enemies. are hostile. Destroying the facilities might take an extended air campaign and might even require the use of special operations units to verify battle damage and complete the mission. The Russians like the Iranians are a thorn in the American side. but it can be aligned with reasonable concerns. which adds little to his political position Obama could attempt to force an Israeli-Palestinian settlement. Moreover. nor is Iran without the ability to retaliate. hurt him more than an aggressive stance against Iran that failed to achieve its goals or turned into a military disaster for the United States. He could appear reluctant to his base. The Republicans could not easily attack him. The European. unless it ends quickly and successfully and without a disruption of oil supplies. He could. create a massive crisis with Pakistan. The issue is what he might have to do and what the risks would be. There is little to be done in Iraq at the moment except delay the withdrawal of forces. Obama's policy toward Iran has been to incrementally increase sanctions by building a weak coalition and allow the sanctions to create shifts in Iran's domestic political situation. hurling troops at the enemy without a clear plan. Foreign policy presidents need to be successful. The Iranian Option: This leaves the obvious choice: Iran. but it would be extremely unlikely that such an effort would end well. Nothing could. no one would be in a position to challenge the claim. Bush's. and achieve some positive results in relations with foreign governments. obviously. particularly after the crackdown on the Green Movement. as are the Chinese.S. so a confrontation with Iran would require a deliberate shift in the U. given that Obama does not have the 2003 weapons-ofmass-destruction debacle to deal with and has the advantage of not having made such a claim before. In the face of this assertion. after all. is afraid of Iran and wants the United States to do something more than provide $60 billion-worth of weapons over the next 10 years. but then would risk looking like Lyndon Johnson in 1967. The Israelis. anti-ship missile launchers would have to be attacked and Iranian air force and air defenses taken 46 . who are assumed to be more moderate and less inclined to pursue nuclear weapons. In addition. which is unlikely The problem with Israel and the Palestinians is that peace talks have a nasty tendency to end in chaos. stance. second. which would require a justification. Iran is the one issue on which the president could galvanize public opinion.Tracking Opportunity & Risk Related Developments He could deploy even more forces into Afghanistan. the one place he could do it would be Iran. The Republicans have portrayed Obama as weak on combating militant Islamism. Whether or not this is true would be immaterial.
a shift to a foreign policy emphasis makes sense. according to STRATFOR's thinking. . so these forces would have to be attacked and reduced as well. Obama needs to be seen as an effective commander in chief and Iran is the logical target. Simon Tisdall 21 October 2010 fundamentally change its ways.there is little or no evidence so far that Iran's top leadership is willing. it seems the world has accepted a nuclear-armed Iran as a foregone conclusion. at least to delay it for years to come. .S. Ahmadinejad's provocative posturing in Lebanon last week made that plain enough. U. First. to . nor would it be a short war.S. and so Israel must retain the right to self-defense. A campaign against Iran would have its risks. the Iranian regime would be stronger politically. An attack on Iran would not be an invasion. withdrawal from Iraq. It can go either way. This would not solve the problem of the rest of Iran's conventional forces. Iran could launch a terrorist campaign and attempt to close the Strait of Hormuz. sending the global economy into a deep recession on soaring oil prices. The other option for Obama is to look for triumph in foreign policy where he has a weak hand. the Republicans. which would represent a threat to the region. Like Yugoslavia in 1999. These two developments may be connected. Ryan Jones September 21. Sanctions are having almost no impact. Such an attack would have substantial advantages and very real dangers. intelligence could have missed the fact that the Iranians already have a deliverable nuclear weapon. the risks outweigh the rewards. it would be an extended air war lasting an unknown number of months. former Mossad chief Danny Yatom (said) If the modern air forces led by the United States mobilize their capabilities it is possible. calm the Saudis and demonstrate to the Europeans American capability and will. Obama will be paralyzed on domestic policies by this election. And so the dread juggernaut of direct. AN IRAN CONFLICT IS DRAWING CLOSER The Guardian. or can be forced. charging that he refused to adjust to the electorate's wishes. I am arguing the following. and there is no credible threat of force.given the domestic gridlock that appears to be in the offing. physical confrontation rolls ever closer. The US is quietly ratcheting up economic and financial pressure on Iran amid signs that talks about Tehran's suspect nuclear program could resume next month.Tracking Opportunity & Risk Related Developments out. For most Israelis. He can craft a re-election campaign blaming the Republicans for gridlock. The only obvious way to achieve success that would have a positive effect on the U. This has its advantages and disadvantages. Figure out for yourselves what that means. but eviscerated militarily. It would also cause the Russians and Chinese to become very thoughtful. In an interview with Fox News on Monday. if not to completely remove the threat. and. 2010 Israeli officials are becoming increasingly frustrated by the international communitys footdragging regarding Irans defiant nuclear program. If the campaign were successful. Yatom told his audience. But Europe and the Obama Administration have signaled they have absolutely no intention of using force to stop Iran. can blame him for the gridlock.S. Israeli Defense Minister Ehud Barak warned US President Barack Obama that history will judge his administration largely on 47 Mahmoud Ahmadinejads provocative posturing in Lebanon last week showed Iran is unlikely to change its ways. ISRAEL: NO CHOICE BUT TO ATTACK IRAN Israel Today. But neither sanctions nor diplomacy can wholly obviate the dreaded possibility of military confrontation unless something fundamental changes soon at the heart of Iran's fundamentalist regime. at least for a while. It could change the dynamics of the Middle East and it could be a military failure. It could also create a civil war in Iraq. Speaking at a counter-terrorism conference at the Interdisciplinary Center in Herzliya on Sunday. All of these are possible risks. strategic position is to attack Iran. A successful campaign would ease the U.
2010 48 . Nonetheless. is conducting a more or less orderly retreat. with or without Pakistani consent. this aggressive approach would require the United States to think through a series of likely Pakistani responses. for example. or disastrous (Napoleons from Russia). Pakistans institutions. AFGHANISTAN AND THE REST OF THE WORLD. we must stockpile supplies and start bringing in more material through the northern supply routes and via air. In exchange for demonstrable Pakistani cooperation. To deal with an interruption of our supply lines to Afghanistan.S. Conrad Black October 21. Pakistan has long played a vital positive part and a troublingly negative one. significant incentives. not a serious plan of systematically handing over security matters to carefully prepared indigenous forces.Tracking Opportunity & Risk Related Developments whether or not Iran went nuclear on his watch. by Eric Walberg September 20. Pakistani military leaders believe that our current surge will be the last push before we begin a face-saving troop drawdown next July. Both are undesirable options. high-level talks to end the war cutting through this Gordian knot has become more urgent and more difficult than ever before. are sufficiently strong to preclude such an outcome. help establish a trade corridor from Pakistan into Central Asia. 2010 THE AF-PAK THEATER THE END GAME THE U. To induce quicker and more significant changes. we should present clear. and ensure that Pakistans adversaries do not use Afghanistans territory to support insurgents in Pakistani Baluchistan. Washington must offer Islamabad a stark choice between positive incentives and negative consequences. With Pakistani civilian and military leaders meeting with Obama administration officials this week in Washington and with The Times report on Tuesday that Afghan and Taliban leaders are holding direct. the USSRs from Poland). and depending on what is in all those secret underground facilities Iran is building.S DISORGANIZED RETREAT: OUT OF IRAQ. They are confident that if they continue to frustrate our military and political strategy even actively impede reconciliation between Kabul and Taliban groups willing to make peace pro-Pakistani forces will have the upper hand in Afghanistan after the United States departs. and the American people will not miss their 65-year total immersion in the world any more than the world will be heartbroken to be less dominated by the Americans.S. At the same time. GET TOUGH ON PAKISTAN New York Times. feckless retreat. 2010 The U. Iraq and the United Nations during the Bush administration. National Review.S. October 19. was the ambassador to Afghanistan. In the region and in the wider war against terrorism. The United States should demand that Pakistan shut down all sanctuaries and military support programs for insurgents or else we will carry out operations against those insurgent havens. Arguments that such pressure would cause Pakistan to disintegrate are overstated. unpunctuated with military disasters. Barak said that it would be no more than a year or two before Iran fields a nuclear weapon. But it all has the appearance and feel of a default position. at the cost of many young American lives and many billions of dollars. from the Philippines). of unplanned. Zalmay Khalilzad. the United States will have to choose between fighting a longer and bloodier war in Afghanistan than is necessary. it could be much sooner. Without inducing a change in Pakistans posture. strategic withdrawals can be elegant (de Gaulles from Algeria. US ENDGAME IN AFGHANISTAN: THE EVIL OF THREE LESSERS Al-Jazeerah. Pakistan gives not only sanctuary but also support to the Afghan Taliban Whats more. Sensible. almost inadvertent. or accepting a major setback in Afghanistan and in the surrounding region. By Zalmay Khalilzad. disorganized (Britains from India and Palestine. the U. particularly the countrys security organs. the United States should offer to mediate disputes between Pakistan and Afghanistan.
Vladimir Radyuhin September 9. mediated by Pakistan and the Saudis. if very poor and devastated country.. the proposed line in Afghanistan will meet the requirements of a copper mine which China is developing in the Aynak area in Afghanistan. Cambodia would become a vast enemy staging area and a springboard for attacks on South Vietnam The course he ordered was to "go to the heart of the trouble. NATO EXPANDS AFGHAN WAR INTO PAKISTAN Global Research. 2010 to escalate attacks with Hellfire missiles against whomever it chooses. While the railway line through GilgitBaltistan. By B Raman September 27th. This. The US support for the Chinese policy will be to the detriment of India. but for the purpose of ending the war in Vietnam. Council for Foreign Relations President Richard Haass suggests partitioning Afghanistan. will meet the external trade requirements of Chinese-controlled Xinjiang and other regions of Western China.Indian role in Afghanistanyes. Iran has offered to help do this. CHANGING FACE OF RUSSIAPAKISTAN TIES The Hindu. Afghanistan and Pakistan will not fare any better." In language that has been heard again lately in Washington and Brussels with nothing but the place names changed . Its third option is a lame compromise between the above. It holds the fate of this US endgame in its hands. 2010 NATO will continue to launch lethal attacks inside Pakistan against whichever targets it sees fit and will proffer neither warnings nor apologies. will continue India will have to learn to live with the new Russian-Pakistani 49 . but. and soon thereafter departed Southeast Asia in defeat. That is the policy of the Obama Administration. The Chinese policy in Afghanistan has two objectives -to enhance its strategic presence and influence and to checkmate the Indian strategic presence and influence." Washington indeed expanded the Vietnam War into Cambodia. The U. By Rick Rozoff September 28. offering to cede control of the south to the Taliban while keeping control of the north.Nixon claimed: "We take this action not for the purpose of expanding the war into Cambodia. 2010 China has shown interest in the construction of two railway linesone in Pakistan via the Gilgit-Baltistan region and the other in Afghanistan. And that means cleaning out major North Vietnamese and Vietcong occupied territories The practical application of the policy was that "attacks are being launched this week to clean out major enemy sanctuaries on the Cambodian-Vietnam border. anecdotal and self-interested the reports upon which they are based prove to be. The total value of the Chinese investment in the copper mine alone will be almost three times the total value of the Indian investments in all projects in Afghanistan . including Sirajuddin Haqqani. handing over Pashtun areas to the Taliban and arming the other ethnic groups to defend themselves. Chinese role in Afghanistanyes.S. however. absolutely..Forty years ago Obama's predecessor Richard Nixon began his speech announcing the expansion of the Vietnam War into Cambodia He claimed that "enemy sanctuaries" in Cambodia "endanger the lives of Americans who are in Vietnam.. ultimately extending up to Gwadar on the Mekran coast. however inaccurate. ." and "if this enemy effort succeeds. would require a revolution in US thinking: mend fences between it and Iran. with what disastrous effects the world is fully aware.Tracking Opportunity & Risk Related Developments The US has three choices at this point: the easy one is to just pull out and leave the Taliban to disarm the Western-created warlord militias and to work with the less odious members of the Karzai regime to create a viable regime in a peaceful. This is a recipe for unending civil war too horrible to contemplate. US is finally talking to the Taliban commanders. CHINA: CHECKMATING INDIA IN AFGHANISTAN Indian Defense Review. Its second option is to let the regional governments take over in stabilizing the current regime. leaving vast stretches of Vietnam and Cambodia in ruins.
in Pakistan. but he refused to do much.S. Obama had said toward the start of his fall 2009 Afghanistan-Pakistan strategy review that the more pressing U. Obama would be forced to do things that Pakistan would not like. There might be no way to save the strategic partnership. GENERALS IN PAKISTAN PUSH FOR A SHAKE-UP OF GOVERNMENT New York Times. the Americans met privately with Gen.S.The Sochi summit also dimmed India's hopes of gaining a strategic foothold in Tajikistan. By Jane Perlez September 28. "No one will be able to stop the response and consequences. who could deliver nothing. "This is not a threat. one of the most sensitive and secretive of all military contingencies. HOW PAKISTAN CAN END THE AFGHAN WAR September 28. is pushing for a shake-up of the elected government The military. Jones told Zardari. both to balance growing Chinese influence in and partnership with Pakistan. They were talking with Zardari. The plan called for bombing about 150 identified terrorist camps in a brutal.If. He had other concerns . a dominant military and an intelligence service that sponsored terrorist groups . interests were really in Pakistan. both Jones and Panetta said. chief of the Pakistani army and the most powerful figure in the country .The United States was getting nowhere fast with these guys.Tracking Opportunity & Risk Related Developments bonhomie. The bottom line was depressing: This had been a charade . all bets are off. But this can by no means be taken for granted." the security adviser said. has made clear it is not eager to take over the government.Jones said he was alarmed that success in Afghanistan was tied to what the Pakistanis would or would not do. till now. we wouldn't be having this conversation. "If that happens. .Kayani would not budge much. Nobody could tell him otherwise. a nuclear power with a fragile civilian government. 2010 (Floods) have also exposed with yet greater clarity Pakistan's political and institutional shortcomings. 'WE NEED TO MAKE CLEAR ." Jones did not give specifics about what he meant. India and Russia had planned to jointly use the Ayni airfield. blocked its launch . military officials and politicians said. THE CANCER IS IN PAKISTAN' Washington Post. 2010 The Pakistani military. Should a future attempt be successful. September 2010. as it has many times before. PAKISTAN'S FLOODS: BROADER IMPLICATIONS International Institute for Strategic Studies (IISS). The two countries agreed to set up the joint commission 10 years ago but Moscow has. Ashfaq Kayani. preoccupied by a war against militants and reluctant to assume direct responsibility for the economic crisis. Panetta said. No. Mr. The Obama administration had a "retribution" plan. punishing attack inside Pakistan.It is also possible that the political shock induced by the floods and a successful reconstruction effort entailing abundant job opportunities will stimulate new thinking and bring about hitherto-elusive beneficial structural change Fears about Pakistan had been driving President Obama's national security team for more than a year. Underscoring Jones's point. in its stride .In another breakthrough for Pakistan. The effects and implications will extend beyond the 12% of the Pakistani population who have been directly affected by the floods and will impinge upon the policy objectives of the US-led coalition engaged in Afghanistan . just a statement of political fact. Kayani had the power to deliver. but Indian presence there looks doubtful now in the context of the emerging Russia-AfghanistanPakistan-Tajikistan axis. God forbid. ." Afterward. 50 . Medvedev in Sochi gave the green signal for an inaugural meeting of the Russian-Pakistani Inter-Governmental Commission on Trade and Economic and Scientific-Technological Cooperation in Islamabad this month. By George Friedman Pakistan is an American ally which the United States needs. By Bob Woodward September 29. just as Russia has taken India's entanglement with the U. which India helped to renovate. angered by the inept handling of the countrys devastating floods and alarmed by a collapse of the economy. 2010 Stratfor. the SUV had blown up in Times Square.
this is an ambitious goal. The United States has no strong national interest in how Afghanistan is run so long as it does not support and espouse transnational jihadism. Bhadrakumar September 20. The United States isn't going to defeat the Taliban. It needs an end to U. The original goal of the war is irrelevant. 2010 Could Indian withdrawal from Kashmir initiate the Dulles nightmare of a domino effect? Back in the bad old days of the Cold War. According to Chidambaram. and the current goal is rather difficult to take seriously. the Dantewada massacre was a 'wake-up call' that emphasized the urgency of addressing the Maoist insurgency. under strong pressure to act decisively against the Maoists. His government. the Taliban wants to run Afghanistan. KASHMIR: THINKING THE UNTHINKABLE (INDIA SHOULD GIVE KASHMIR TO PAKISTAN) The Hindu.Tracking Opportunity & Risk Related Developments and to contain India. However.S. Even a victory. forays into Pakistan that are destabilizing the regime. A regime change in Srinagar is not the priority today.Most important. coined the phrase thinking the 51 . M. regional strategies in Central Asia and in a not-toodistant future Mr. The government's invitation to China to invest in the development of J&K indeed underscores our growing sense of awareness. whatever that would look like. Dr. Politicising the crisis will be a most irresponsible thing to do. We need to carefully measure the timeline available to normalise the J&K situation. Pakistan needs the United States for the same reason. the heaviest of the backroom hawks of the Pentagon. We suspect that all sides are moving toward this end. but a defeat could harm U. Vithal Rajan October 9. Meanwhile. And playing this role would enhance Pakistan's status in the Islamic world. the United States needs a withdrawal that is not a defeat.S. would make little difference in the fight against transnational jihad. 2010 The political reality is that Pakistan has escalated its rhetoric on Kashmir. few measures have been put in place that will enable the government to fulfil its pledge to overcome the problem of left-wing extremism within three years. It needs the United States over the long term to balance against India. The Intifada unfolding in the Valley has diverse moorings and the killing of innocents may well turn out to be a sideshow in the 20-year deadly game that is far from played out. too. The political reality is that Pakistan has escalated its rhetoric on Kashmir . Pakistan has every reason to play this role. Prime Minister Manmohan Singh has described the rebellion as 'India's gravest security threat.S. But it needs its withdrawal to take place in a manner that strengthens its influence rather than weakens it. India's long-running Maoist insurgency has increased in intensity in recent months. Herman Kahn. has pledged that 'the problem of left-wing extremism [will] be overcome in the next three years'. Such a strategic shift is not without profound political complexity and difficulties. K. the U.S. Kayani will seek his pound of flesh on Kashmir. It must have a stable or relatively stable Afghanistan to secure its western frontier. interests. However. something the United States could benefit from.-Pakistan axis is pivotal for the U. Therefore. and Pakistan can provide the cover for turning a retreat into a negotiated settlement. INDIA'S UNFOLDING INTIFADA IN KASHMIR The Hindu. INDIA'S MAOIST INSURGENCY International Institute for Strategic Studies (IISS) September 2010 The Intifada unfolding in the Valley has diverse moorings.
The government must cauterise the Kashmir wound. Luckily for all of us. because the people there do not consider Let us ask another hard question. ECONOMIC IMPLICATIONS OF US CONGRESSIONAL ELECTIONS (NOV 2010) . is the answer once again. 52 Could Indian withdrawal from Kashmir initiate the Dulles nightmare of a domino effect. modern standards of governance. India should use its scarce resources where they are most needed. If Indian troops are out of Kashmir. cruelty. aircraft carriers. What will be lost along with Kashmir? An unreal and bloated sense of self-importance. The mountainous barrier between the Kashmir Valley and India is a better defensive line to guard than the present long untenable frontier of the Line of Control. it should not fritter away its resources on nuclear weapons. we mean the ordinary aamjanta of the poor. Ronald Reagan had a better idea.Tracking Opportunity & Risk Related Developments unthinkable.' Indians are not the leaders of Asia the Chinese are. Can we use similar hardline approaches to review the Kashmir imbroglio? The first question to ask is. because discontent against corrupt. Would not letting Kashmir go give the palm to Pakistan. high-handedness. to regain if possible. The answer clearly is a resounding No'! There are no resources' of any kind from Kashmir. If India wishes to be considered a good second to China. and strictly prevent any more human rights abuses. because the people of the Valley are dependent on our protection? No'. themselves Indians. India must be proactive in demanding an immediate international settlement of a problem created by Nehru. Indian rulers have yet to realize they are no longer in charge of the jewel in the crown.' and wish all Indians to go to the devil. The American people are dependent on oil from the Middle East. It has taken Great Britain 60 years to realize it is no longer the centre of an empire. Hanging on to the great economic resource drain of Kashmir will only worsen the situation. Would withdrawal increase militancy? Most probably. and that is the real reason for their hegemonic control over the region. India's inveterate enemy? On the contrary. elitist. the supply of which is crucial for our well-being. not only among Muslims but across a wide section of the poor and middle-classes. with all Indian Muslims rising up as one man to demand more partitions? While few Indian Muslims have any reason to thank the Indian state for the non-benign neglect they have received over 60 years. perhaps unjustly. and non-democratic rule is widespread.' meaning strategies for wiping out the Soviet Union with nukes. the same result could be achieved by an undeclared economic war and arms race that would force the communists to scratch themselves out of the tournament. do Indians need Kashmir? By Indians. and the struggling middle classes. would it jeopardise the security of Indians? Not really. and a bankrupt diplomatic policy. tighten military spending. or Commonwealth Games. but that is the end result of poor governance. Indians have no such reason to retain control of Kashmir. Should we be there in Kashmir against all odds out of moral obligation. they are spread thinly everywhere and new partitions are a geographical impracticality. to help people raise themselves out of poverty. it might catastrophically weaken its real enemy Whatever the final shape of the outcome.
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