The government budgetary borrowings from the central bank – reported to have shot up to just below Rs170 billion at the start of this month – to finance its budget are a major contributor to the surge in inflationary pressures in the economy because these contribute to growth of reserve money, which rose by 4.25 per cent year-on-year until September 3 from three per cent a year earlier.

Banks provide farm loans to about 1.4 million growers or one fifth of an estimated seven million potential borrowers. “Most of small and medium-sized growers have no access to agricultural loans and they borrow from informal sources,” said the head of an agricultural credit of a large local bank. Farmers estimate cumulative annual demand for crop and agricultural development loans at Rs2000 billion whereas banks’ lending remains below Rs300 billion. “Filling in this gap is a long-term policy issue... The federal government has set a target of 25 million tonnes wheat production this year and officials say that plans for free distribution of wheat and gram seeds are on the cards.

Cotton crop takes at lest 60 days to mature after the application of fertiliser. That means the crop would mature in the second week of November – the most propitious time for wheat sowing. Its picking would take another 10 to 15 days, and then soil preparation for wheat another week or so. The sowing might thus be delayed till mid- and even late-December, which, by no means, is desirable: after November 20, each day costs the farmer about 10 kilograms in yield. The factors forcing Punjab to save cotton as much as it can are truly compelling. The loss of every million bales deprives the rural economy of around Rs32 billion, increasing poverty correspondingly. It forces the textile industry to import the same quantity at the cost of very precious foreign exchange. Since 60 per cent of exports depend on cotton, it is wise to save it to the last boll. But, the provincial government also needs to ensure that food safety is not compromised next year. The huge carry-over stocks (about six million tons at present) do provide it huge space for manoeuvering. But it maintained the stocks at a massive cost – around Rs2.5 billion in per month interest payments to banks on a loan of over Rs200 billion. The ambitious package would cost the provincial government around Rs10 billion – an amount that it neither has nor can generate from its own sources.The province was able to grow around 18 million tons of wheat only when the Punjab government launched one billion rupees wheat maximisation programme, and literally focused all its financial, human and infrastructural resources on it. For the last two years, it has not only abolished the plan, but also was “relatively ignoring” the crop because of huge stocks that it could not clear from the 2007-08 yield. It reduced production last year by at least two million tons.

Most of the inundated farmlands are much below the level of Indus bank and the floodwater is facing difficulty in receding into the river. It will take months for the agriculture lands to become ready for cultivation. According to reports, on an average 4-5 feet water is still standing in the farmlands, spread over a large area. No effort is being made by the irrigation department for draining out the floodwater from farm fields. Lack of machinery, manpower, and finances have been underlined as major causes for it. Agriculture lands in Shikarpur, Jacobabad, Kashmore, Larkana, Shahdadkot, Thatta and parts of Dadu districts have been hit by the deluge. I don’t see any chance of the Rabi crops being planted this year, at least in these districts,” Secretary Agriculture Sindh Agha Jan Akhtar said.

The KP uses about 1.9 million acres for wheat cultivation. The provincial seeds industry provides 10 per cent of the total wheat seeds requirement of 80,000 metric tons to farmers.
This year the demand for wheat seed has increased. In the past, 70 per cent of the KP farmers used their own stock while the rest bought seeds. Now as floods have destroyed wheat stocks in Charasadda, Nowshera and the DIK and Lakki Marwat, the government will have to provide seeds to more farmers.

The yards had handled 86 ships with 778,598 light tonnage displacement (LDT) during the 2008-09 fiscal and the number rose to 107 ships having 852,022 LDT during 2009-10, giving something to cheer for the ship-breakers who had been under severe strain in preceding years.

Last year, wheat was cultivated on 2.7 million acres because of an attractive support price of Rs950 per 40kg. Growers in Jacobabad, Kashmore, Qambar-Shahdadkot, Larkana districts, who used to produce gram, got interested in growing wheat. Even katcha area has been producing wheat, sugarcane, cotton and paddy. Sindh Chamber of Agriculture president Dr Nadeem Qamar is hopeful about wheat cultivation on the left bank, provided irrigation department officials work effectively to provide water on time. He, however, sees no chances of Rabi crop on Indus right bank area. “The area is completely devastated by floods. I see no future for Rabi crop for our right bank counterparts,” he said.

The International Labour Organisation estimates that 5.3 million jobs may have been lost or affected by devastations caused by the floods. It emphasises that labour-intensive job creation programmes are urgently needed to lift millions of people out of poverty. The ILO has also offered to assist families and communities in rehabilitation and rebuilding.

The FBR’s high-ups want complete monopoly over tax collection—sharing it with provinces will deprive them of unlimited powers and speed money. They insist on uniform reformed GST implementation with one collecting authority at federal level “to avoid complications”. They want it not for avoiding any complications but for self-aggrandisement.

The impact of the downturn, however, has not been even. While Lahore and Karachi have seen vacancy rates hover between 40 and 50 per cent during the year 2010, Islamabad has seen vacancies reach only 10 per cent, largely due to a higher incidence of recession-proof government clients. Property values have fallen across Islamabad and Karachi but not Lahore. Most observers, including those at BMI have been unable to explain the phenomenon.

The government’s domestic net financing needs will increase after the floods and about Rs2 trillion ($23.28 billion) in treasury bills will need to be rolled over this fiscal year, the IMF said, while private demand will soften and undermine the already weak recovery in private sector growth. “The SBP (State Bank of Pakistan) is facing a difficult balancing act,” the IMF said.

Fauji Cement’s profit plummeted 75 per cent to Rs250 million for fiscal year 2010 compared with last year’s Rs1 billion. “The company’s fall in net profit was mainly due to a three per cent decline in cement dispatches and 26 per cent lower selling prices year-on-year,” said senior research analyst Sana Abdullah at IGI Securities.The complete sector has felt the heat as giants Lucky Cement and DG Khan Cement reported a fall in profits by 31 and 55 per cent, respectively, during the same period.

The country has been supported by the overseas Pakistanis who sent record amount of $8.9 billion last year and remitted record amount during July-August of the current year. The country received $933 million in August and $1.724 billion during July-August which was 13 per cent higher than last year.

When asked why was the government not asking international lending institutions to write off their loans, Ms Khar claimed it was not an easy decision because of its long-term repercussions. She said the move would make the country a pariah state.

National Assembly was informed Thursday that PSDP may be cut by 30% to 50% in view of recent floods to divert resources for rehabilitation and reconstruction of affected areas.

A few years ago a man committed suicide in Karachi after being hounded by a recovery team for defaulting on a Rs250,000 loan. The ensuing outrage caused the SBP to caution banks from employing hostile tactics when recovering loans. It is a sad reflection on society when defaulters of small loans are hunted down, while the multi-million rupee loans of the well-connected are written off.

Consumers have yet to see any respite in prices of essential items after Eid as rates of some items, especially vegetables have climbed to an all time high. The government, which is now more engaged in post-flood situation, besides striving hard to save the current setup, has not taken any serious measures to contain food inflation. For instance, the wholesale rate of sugar, after reaching the peak of Rs78 per kg ahead of Eid, has now come down to Rs76.50 per kg...

A report in this newspaper yesterday suggests the defence budget has been quietly hiked by an astonishing 25 per cent, from the budgeted figure of Rs442bn to over Rs550bn. As usual, neither the government nor the military has seen fit to divulge any details, making it difficult to comment on the need for such an extraordinary increase. A few comparisons may put the figure of Rs110bn in the proper perspective. Rs110bn is close to half the amount public-sector enterprises rack up in losses each year — a key area of reform and restructuring that the international financial institutions have been emphasising. Rs110bn exceeds the entire gains that the reformed General Sales Tax is expected to make. The sum is also roughly equal to the amount which would be raised by the controversial ‘flood tax’ that has been mooted. One single head of expenditure, then, is already set to absorb all the revenue gains that are expected to be made this year — even before those gains are realised. Surely, the public is owed an explanation.

The share of tax revenues distributed to provinces rose significantly in 2010-11 under NFC and since spending responsibilities have not yet been transferred, the federal budget expected provinces to save most of the additional funds and run surpluses this fiscal year.
Nevertheless, subsidy needs for the electricity sector are to be determined and will likely to exceed the Rs30 billion or 0.2 per cent of GDP, provided in the budget. The report also showed concern that new ‘circular debt’ in the energy sector continues to accumulate. . Initial estimates from the State Bank put loan losses related to floods at about Rs54 billion, of which Rs34 billion are loans to agriculture.Although significant, this is unlikely to materially affect the banking system as total private sector loans amount to close Rs3 trillion.

Services sector posted a deficit of $567 million in July-August of current fiscal year as compared to $481 million in corresponding period of last fiscal year, depicting an increase of 17.87 percent or $86 million. Export of Services trade mounted by 5 percent or $27 million to $589 million in first two months of current fiscal year relative to $562 million in same period of last fiscal year. Similarly, imports under services sector registered an increase of 11 percent due to high payments on account of transportation, travel services, insurance, technical fee, royalties and government sector. Services sector imports stood at $1.156 billion in July-August of fiscal year 2010-11 as compared to $1.043 billion in corresponding period of fiscal year 2009-10, depicting an increase of $113 million.

The foreign investors have repatriated over 100 million dollars abroad on account of profit and dividend, despite slackness in the Pakistan's economy and global economic recession. However, repatriated amount during the first two months of the current fiscal year is some 3.4 percent lower than the repatriation in the same period of the last fiscal year 2010.The central bank on Friday revealed that country has attracted 171.4 million dollars foreign direct investment (FDI) in July-August of current fiscal year related to 344.5 million dollars in the same period of fiscal year 2010. Foreign investors have repatriated 85.7 million dollars on account of return on FDI in the first two months of the current fiscal year over the 90.8 million dollars in the same period of the last fiscal year, depicting a decline of 14 percent. While, during the period return on foreign private investment has posted an increase of 12 percent or 1.6 million dollars to 15.2 million dollars from 13.2 million dollars. Only 8 sectors out of some 36 sectors, showed increase in the repatriation of profit, while remaining all sectors depicting downward trend. Beverages, Textile, Fertiliser and personal services are leading sector, where from not a penny has sent abroad by the foreign investors. The major repatriation has registered from the power sector, where from foreign investors has repatriated 47 million dollars in July-August of fiscal year 2010-2011 over the repatriation of 34 million dollars in corresponding period of the last fiscal year, depicting an increase of 38 percent. It may be mentioned here that the government of Pakistan has allowed a 100 percent repatriation of profit to the foreign investors. Therefore, foreign investors are fully enjoying the government's policy by transferring their profit back since 2004.

Mohsin said the country could take a full advantage of the present energy limitations in Bangladesh and serious wage hike in China, as few international buyers have started turning faces to Pakistan, now. "Pakistan should reap the full benefit of this situation and increase exports to improve trade deficit," he urged the government. With a firm belief, he said advantage of VAT imposition was almost negligible as compared to huge export loss. He urged the government to revisit its decision on VAT imposition to save the export industry from a possible collapse.

Despite a short fall of about 1.5 million tons in rice production due to devastating floods, Pakistan will be able to export rice worth $2 billion during FY 2010-2011. Former Chairman Rice Exporters Association of Pakistan (Reap) and a prominent rice exporter, Azhar Akhtar, told Business Recorder on Saturday that Pakistan has about 0.8 million tons of milled rice worth $800 millions as a carryover of the previous crop. He said the demand of Pakistan's superior quality basmati rice is picking up in the international market at a rate of $1050 to $1100 per ton. Akhtar said though the unprecedented floods have damaged rice over 7,08,000 hectares area out of the total of 2.64 million hectors, especially in Sindh, yet Pakistan is likely to produce about 5 millions tons of basmati and other rice varieties this season against the target of 6 million tons of rice. The country consumes about 2.2 million tons annually and exports the surplus quantity of rice.

The Inter-national Monetary Fund (IMF) has observed that the government of Pakistan is spending $2 billion a year on subsidising power, and urged it to reform the power sector so that support is directed at the poor and the needy, and not in an untargeted fashion.

The 10 percent income tax surcharge is estimated to generate additional revenue of around Rs 55 billion. According to sources, it is expected that the government may issue ordinance for imposition of 1.5 percent flood disaster duty on non-essential imports. The duty is estimated to generate additional revenue of Rs 11 billion for the flood affected population of the country.