Acting chairman of Site Association of Industry (SAI) Ahsan Arshad Ayub said that 60-70 per cent industries out of 3,500 units were remained completely closed. He said about 80 per cent were export-related industries whose shipments failed to reach the ports. Around 600,000-700,000 people work in the Site industrial area in which 80 per cent are on daily wages. Chairman F.B. Area Association of Trade and Industry (FBATI) Shahid Ismail said that 80-90 per cent of the industries were shut as labour could not turn up for want of public transport. The F.B. Area has over 2,000 units in which 150,000-200,000 people are working on daily wages, contract and permanent basis.

A National Assembly panel on Tuesday unanimously approved a bill aimed at capping the federal government’s borrowing from the central bank to 10 per cent of total revenues and kicking the finance ministry out of monetary policy business.

The International Monetary Fund (IMF) will meet a Pakistani delegation in Washington on August 5 for a review of the domestic economy. The meeting is expected to pave the way for release of over $1.8 billion from the IMF, the second last tranche of the $11.4 billion bailout package. Sources pointed out that talks for the fifth review would be quite delicate as the government had not only breached the budget deficit target and central bank borrowing ceilings but was also unable to demonstrate any concrete development on the reformed General Sales Tax (GST) system aimed at abolishing all tax exemptions extended on political grounds. The government has set October 1 as the new deadline to overhaul the sales tax regime after failing to implement Value Added Tax on July 1.

Under the IMF programme which was agreed to in November 2008 for a two-year emergency package amounting to a total of $10.66 billion, Pakistan agreed to zero net borrowing from the State Bank of Pakistan (SBP). According to central bank data released on Friday, the government overshot that target by Rs41.93 billion ($490 million) in the 2009/10 fiscal year, a cause for concern among economists and analysts in Pakistan.

Chairperson of the national assembly’s standing committee on finance, Fauzia Wahab of the PPP, said the central bank is not accountable to anybody and has framed such a monetary policy which does not reflect ground realities and retards economic growth. “New enterprises are not coming up because of the tight monetary policy,” said Wahab. Acting Governor of the SBP, Yaseen Anwar, said inflation is a persistent phenomenon. “If interest rates go down the exchange rate stability will be hurt and the rupee will depreciate against the dollar to unimaginable levels.”

“My experience shows that about 80 per cent of the industries do not meet the minimum wage criterion,” said Karamat Ali, executive director of the Pakistan Institute of Labour Education and Research (Piler).

The country's domestic debts surged by Rs 792 billion to Rs 4.6 trillion in fiscal year 2009-10 due to significant rise in fiscal deficit, revenue shortfall, and slow-down in privatisation process. The State Bank said that during the last fiscal year the government had raised its reliance on domestic debts to meet its financial requirements, and the massive borrowing had put the domestic debt at all-time high level by the end of June this year.

The increase in the deficit in 2009/10, sources said, would have been considerably higher if the government had not slashed development budget by over Rs 180 billion and saved about Rs 24 billion from the Rs 70 billion allocated for Benazir Income Support Program (BISP). Analysts say that given the scale of the destruction wrought by the floods in the country it is unlikely that the budget deficit for the ongoing fiscal year would be less than 8 percent and not even close to the 4 percent target announced by Dr Hafeez Sheikh during his budget speech.

Irfan Qaiser Sheikh also urged the State Bank of Pakistan to immediately announce cut in interest rate, which is a prerequisite to enhance productivity. He said that at the time when business community was expecting some relief, SBP had increased the interest rates and dashed the hopes of the business community, which was expecting a remarkable cut in the existing rate of mark-up.

The government has set a production target of 14 million bales, to be cultivated on 3.2 million hectares for the year 2010-11. This target was set after the introduction of eight kinds of certified seeds of cotton. "According to initial estimates, the country would hardly achieve 11 million bales mark, because of the monsoon rains and floods that have badly hit the crop in the major cotton producing provinces - Punjab and Sindh," sources maintained. Industry sources claimed, the value-added textile industry of the country might also face a difficult situation in the current fiscal year as the price of cotton would go up due to its low production. "Total consumption of the local industry is about 15.5 million bales of cotton against the targeted production of 14 billion bales, showing a shortfall of about one million bales. However after the flash floods, the shortfall might well be around 4.5 million bales. The country would need to import 4.5 million bales to meet the domestic requirements," sources said... The country also failed to increase the exports of textile during 2009-10, which stood at $10.5 billion, they also said. Sources said the government has failed to achieve the cotton-sowing target, and except Punjab, all the remaining three provinces have missed the sowing targets.

The high turnover, he explained, is a result of the high prices of yarn and because the textile business is one of high-volume and of low profit, he added. Gandhi said a yarn trader, paying a three and a half percent withholding tax, means that he must be making at least a ten percent profit which is almost impossible in case of textile business. At average, normal profit margin of a yarn trader is only about one or two percent.

The Chairman All Pakistan Bedsheets & Upholstery Manufacturers Association (APBUMA), M. Anees Khawaja has showed deep concerns over the increase in Policy rate by the SBP and said the textile industry is already under extreme pressure due to consistent energy shortage. He said that industrialists were repeatedly demanding to cut down the interest rate to single digit in order to save injured country's economy, but policy makers at SBP were ignorant of ground realities has further tightened the monetary policy, thus took the decision to increase the policy rate. Now both trade and industry are facing multiple challenges, and in dire need of some financial package.

However, this malaise of non-payment is not limited to the generating companies and PSO, but extends to all those engaged in the power sector giving rise to what is referred to as the circular debt: from customers, specifically the provincial and federal governments who routinely default on their monthly bills, to utility companies that default on payment to their supplier, to the oil marketing companies who default on crude oil payments. This circular debt has disabled the country's generation system from operating at full capacity, leading to massive load shedding for over two years now. The International Monetary Fund (IMF), as well as the federal government, has been fully cognisant of the need to eliminate the circular debt and its elimination was one of the conditions of the Stand-By Arrangement (SBA), as noted in the first Letter of Intent, submitted by the government to the Fund on November 20, 2008.

Inflationary pressures, according to the SBP, are not likely to abate due to further upward adjustments in electricity prices, the increase in GST and a revision in government employees' wages to compensate for the current high inflation. Rising domestic demand, relative to weak productive capacity, also suggests that inflation was likely to persist in FY11. Incorporating all these factors, inflation was projected to remain between 11 and 12 percent during the current fiscal year, or almost at the same level witnessed in the outgoing year. This estimate compares very unfavourably with the inflation target of 9.5 percent announced by the government for FY11...However, it needs to be mentioned that the SBP had to make a choice between containing inflation and inciting the growth impulses in the economy and it seems to have opted for the former due to a peculiar situation prevailing in the country that calls for the suppression of inflation to alleviate the suffering of the ordinary people and block the chances of a tumult in the country, while the objective of growth could take a back seat for the present.