Pakistan Macroeconomics Stay updated with Business News, Pakistan news, Current world news and latest world news with Business Recorder.. http://www.brecorder.com/home/br-research/pakistan-macroeconomics.html Mon, 24 Nov 2014 00:00:29 +0000 SRA Framework 2.0 en-gb What’s in a name? http://www.brecorder.com/home/br-research/pakistan-macroeconomics/fiscal-policy/15140-whats-in-a-name.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/fiscal-policy/15140-whats-in-a-name.html “Tis but thy name, that is my enemy,” said Juliet Capulet, upon learning that the love of her life came from mortal enemies of her own clan. Continuing to address the object of her desire, “What’s in a name? That which we call a rose, by any other name would smell as sweet.”

It is not often that a situation in contemporary times resembles this famous scene from the 16th century play as closely as the relationship between the IMF and Pakistan’s economic managers.

Simply replace the “star cross’d” lovers with Pakistan’s soft-spoken, hard-hitting finance minister and the IMF’s head honcho on the stand-by arrangement, and Sheikh appears to be wooing the Fund with a similar reasoning.

After all, an indirect tax collected at every stage based on the differential between input and output values will generate the same amount of revenues for the government, regardless of whether it is called value-added tax, reformed GST or plain-old general sales tax.

The controversy-prone RGST label was never an adequate name for the tax measures to be introduced in the upcoming budget since the object of the exercise is simply to restore the Sales Tax Act of 1990 to its original, unadulterated form.

So what did the name change accomplish? For one, it allowed the government’s boisterous coalition partners to claim victory over the ‘villainous’ RGST in favour of the oppressed and burdened masses.

Secondly, by passing the buck forward through Statutory Regulatory Orders (SRO) instead of a bill tabled in the Parliament, the government quietly stepped back on its promise to lower the sales tax rate from 17 percent to 15 percent.

Various studies on the subject have proven that raising the tax rate is detrimental to any attempts to increase the tax net as prospective tax payers are incentivised to dodge the taxman.

BR research recently highlighted that the country’s tax gap is not only gigantic (79 percent of GDP), but has also mushroomed over the past four years.

However, a senior tax official brushed aside these concerns, calling the rising gap a ‘figment of calculations’. After all, talk of tax efficiency is just not romantic enough to warrant a place in this tale.

When Pakistan’s economic managers approached the IMF’s balcony (or window), looking for a friend with deep pockets, the Fund had two main demands. According to the IMF, this union would only sustain if the government could broaden the tax base and reduce its dependence on the central bank for deficit financing.

And in all honesty, the envisioned tax structure and its implementation can serve the country well as it encourages documentation of the economy. Initial estimates suggest that the tax-to-GDP ratio could improve to 12.5 percent within the next 3 years from the current (and abysmally low) level of 9.5 percent.

But just as Romeo and Juliet suffered a terrible fate because of their ill-tempered relatives, the country’s revenue collections may also be jeopardized by the powerful lobbyists and cronies already queuing up for exemptions and zero-ratings for their sectors.

The present government and its successors must empower revenue collectors and refrain from introducing ill-contrived exemptions, especially since the implementation of the NFC award has shifted the onus from the federal to provincial governments.

Reducing the number of tax slabs to three is a positive step, but economic managers should also consider lowering the basic sales tax rate to 15 percent to encourage non-filers to enter the tax umbrella.

Failing this, the current romance between the government and the IMF may end quite tragically.

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admin@brecorder.com (Administrator) Fiscal Policy Tue, 24 May 2011 09:06:25 +0000
MDGs: long way off from Pakistan http://www.brecorder.com/home/br-research/pakistan-macroeconomics/political-economy-a-socioeconomics/12345-mdgs-long-way-off-from-pakistan.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/political-economy-a-socioeconomics/12345-mdgs-long-way-off-from-pakistan.html

MDGIt won’t be too hard to guess that Pakistan is not on target to meet the Millennium Development Goals, aimed to be reached by 2015.

The World Bank’s recent Global Monitoring Report 2011 reiterates this view, though with a more optimistic stance than any average Pakistani might hold.

MDG goals focus on enhancing access to education, reducing gender disparity in education, eradicating poverty, improving maternal health and improving water and sanitation facilities.

Compared to its South Asian peers, – India, Sri Lanka and Bangladesh – Pakistan is on target for only a few of the goals, while the others have managed to be on the road to achieving more targets than Pakistan. The star of the quad is Sri Lanka, which is on target for most of the goals.

Interestingly one of the very few goals that Pakistan is on target to meet, is poverty reduction. In this aspect the country has beaten regional peers, including Sri Lanka.

Ironically, while confirming Pakistan’s relative edge at poverty reduction versus India and Bangladesh, the latest Human Development Report 2010 (HDR) depicts Sri Lanka as faring quite better than Pakistan in terms of poverty.

According to the report, 14 percent of Sri Lankans live below $1.25 a day against 22.6 percent in Pakistan. Note that it was the United Nations which initiated the MDGs in 2000, and the United Nations Development Programme which issues the HDR.

On the other hand, while the WB’s MDG appraisal mentions the non-availability of data for Pakistan as far as completion of primary schooling for all children is concerned, it would be a no-brainer to conclude that the country is not on target.

Given that the primary enrollment ratio – percentage of primary-school going children – mentioned in the HDR is the lowest at 66 percent in Pakistan, compared to over 80 percent in its counterparts, Pakistan is far behind its peers in this area.

And the goal of bringing about gender parity in education has a similar tale to tell, with the percentage of girls to boys enrolled at the secondary level in schools less than that of India, Bangladesh or Sri Lanka at below 80 percent.

A comparison of maternal mortality ratio (per 100,000 live births) reveals Sri Lanka to be the only country of the four, to be on target to meet the goal of reducing the maternal mortality ratio by three-quarters. A look at the ratios mentioned in the HDR reveals that Pakistan’s maternal mortality ratio at 320 is lower than that of India’s and Bangladesh, both over 450.

But for the goal of reducing the under-five mortality rate (per 1000 births) by two-thirds, Pakistan is far from target, with Bangladesh being the only one of the four to be on target in this arena.

For the goals of halving the proportion of people without access to safe drinking water and to sanitation, India and Sri Lanka alone are on target for the former, while only Sri Lanka is on target for amending its sanitation facilities.

Quite obviously, Pakistan is not on target for most of the goals. Though it’s close to them, the chances of achieving the intended goals by 2015 appear slim.

The WB highlights sound policies and institutions to be pivotal for achieving the MDGs since these are fundamental for effective service delivery to the poor. With Pakistan standing at the lower end of institutional strength, it’s not really hard to guess if MDGs will see the light of the day in Pakistan by 2015.

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Political economy & socioeconomics Mon, 25 Apr 2011 06:38:33 +0000
KSE: much too soon to confirm a break-out http://www.brecorder.com/home/br-research/pakistan-macroeconomics/capital-markets/12343-kse-much-too-soon-to-confirm-a-break-out.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/capital-markets/12343-kse-much-too-soon-to-confirm-a-break-out.html

KSEAfter nearly 40 days of lifelessness, excitement is slowly crawling back in at the KSE. As it turns out, select buying by foreign and local investors has pushed the benchmark index to a level which is seen ‘pointing towards a recovery’.

The KSE-100 ended at 11,954 points last week – its highest since March 14 – after marking an intra-week high of 12,023 points, which was also its biggest intra-day tick since mid-March. That, and the fact that last week’s average trading volume rose 25 percent (week-on-week), is gently creating ripples of optimism.

Big boys from the local mutual fund industry, who had been selling profusely in March, are also back at the buying counter.

NCCPL data show that mutual funds – led by NIT and PICIC, according to market sources – have bought $20.46 million worth of equities in the month to-date, nearly offsetting the sale of $21.02 million last month. Last week alone, the mutual funds poured in some $13 million, focussing on select banks and the oil and gas sector.

Foreign portfolio investors are also back in business. Boosted by $6.3 million of net purchases last Thursday, it’s the biggest single day inflow since mid-January; foreigners have bought $3.6 million worth of stocks in April to-date.

 

But all of this is micro-level optimism – not enough to overshadow the challenges ahead. The uptick in trading volume is certainly not va-va-voom, nor is the recovery in foreign portfolio inflows.

Last week’s average volume (50 million) is still half of the average seen in the first two months of the current calendar year. It is also less than the average volume (62 million) of the ongoing consolidation phase that began after the market slipped to its recent low of 11,223. Trading momentum in April to-date is also weak, with an average turnover of 49 million, as against 72 million in March.

The problem lies in the lacklustre behaviour on the part of foreign portfolio investors. The positive inflow this month, after the stormy sell-off of nearly $17 million last month, may be reassuring for some. But the quantum of inflow is still too little to turn chickens into bulls.

Plus, on a broader spectrum, the KSE-100 is still in a broad range of consolidation, which means there is no point turning bullish before the market crosses 12128~12300 with conviction. In case, it isn’t able to cross this level, a correction till early 11000s might be in the offing.

But if momentum builds enough to take the index over 12128~12300, the market could easily sail towards 12600~12700, a break-out from which can potentially make way for 13250~13500.   Then again, that is a ‘BIG IF’ in current times of uncertainty that may well be garnished by the typical pre-budget fears anytime soon.

 

 

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Capital markets Mon, 25 Apr 2011 06:27:42 +0000
Two to tango http://www.brecorder.com/home/br-research/pakistan-macroeconomics/political-economy-a-socioeconomics/12104-two-to-tango.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/political-economy-a-socioeconomics/12104-two-to-tango.html

‘Reforms’ is perhaps one of the most resounding words in Pakistan these days. From drawing rooms to ‘chai-khanas’; from Islamabad to business hubs, this word is ringing bells everywhere -- with most participants passing the bucket to the government.

The government, no doubt, is responsible for providing basic amenities for the populace. But it is increasingly becoming evident, in the words of certain officials, that social contract between the government and the governed is breaking down.

“You don’t pay taxes because you don’t get government facilities, whereas the government can’t provide facilities because there aren’t enough taxes – it becomes a kind of a chicken and egg problem,” the official said, while referring to the vicious cycle.

Understandably, the government should take some confidence building initiatives, perhaps by ensuring improved transparency and lower corruption and then making incremental changes. But at the same time, the role of private sector in bringing about the reforms is equally important.

In a recent development, the State Bank of Pakistan also articulated this notion – though rather quietly and subtly. “This will require support from across the political divide and from other state and civil society institutions to ensure their smooth implementation,” wrote the central bank in its latest monetary policy statement.

This was the first time ever the SBP urged civil society to come forward and lobby for meaningful economic reforms as regards taxation, rationalisation of subsidies, debt management and allocation of resources.

“The civil society needs to be honest about the problems; because while the government or other official bodies may have a problem, the society cannot be exonerated”, the official commented on the role and responsibility of people.

Some civil society institutions, like the Pakistan chapter of Center for International Private Enterprise, are already making headlines with their efforts in this context.

In recent years, the CIPE has helped various associations, like the Pakistan Business Council and Pasha, form a collective business and economic agenda and recommend various reforms. Initiative like the upcoming youth entrepreneurship development in IT sector is another example.

Such endeavours, however, are few and far between -- and not because of civil society’s lack of capacity.

“They have the capacity; some of the outspoken representatives of the civil society held important positions in their times -- though it’s another issue that they didn’t do much when they were at the helm of affairs,” says Adil Gilani, Chairman, Transparency International Pakistan, while pointing to the lack of will in the private sector.

“Even up to 60-70 percent of the NGOs operating in Pakistan are corrupt,” Gilani added. In other words, the private sector could do well to stop, what Hammad Siddiqui, Senior Program Manager of CIPE, calls “the supply side of corruption”.

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Political economy & socioeconomics Fri, 22 Apr 2011 09:07:55 +0000
Investors playing the waiting game http://www.brecorder.com/home/br-research/pakistan-macroeconomics/inflation-a-monetary-affairs/12099-investors-playing-the-waiting-game.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/inflation-a-monetary-affairs/12099-investors-playing-the-waiting-game.html

With the government counting on sovereign bond market and local commercial banks eyeing lucrative investment avenues, the second Treasury-bill auction of the fourth quarter was fairly well covered and successful.

The amount of bids placed outstripped the auction target amount by 1.6 times. The government also accepted bids close to Rs233 billion, over and above the asked amount of Rs225 billion.

The benchmark paper alone accounted for nearly three-fourth of the total participation level in the auction. On the other hand, tenders for the 3-month and 12-month papers amounted to Rs44 billion and Rs50 billion, respectively.

In line with fundamentals and market-based forecasts, the poor participation level in 3-month paper is pointing to stable interest rate in the next few months. Market sentiments improved on account of slight respite in inflation, stability in rupee and improvement in overall balance of payment.

Since a long term interest rate outlook is dicey at the moment, the exposure in benchmark paper provides an opportunity to lock returns at the current level and, wait until economic conditions become clearer.

As around Rs294 billion worth of T-bills were scheduled to mature on April 21 -- amount that is slightly higher than the pre-auction target amount - the investor placed lower bids for 6-month paper to increase their chances of acceptance.

The auction bid pattern shows that the lowest bid placed for 6-month paper fell by 11 bps to 13.48 percent as against the previous treasury auction held earlier this month.

Eyeing an opportunity, the government sold around Rs168 billion worth of 6-month papers. The weighted average yield on 6-month paper fell to 13.60 percent from around 13.65 percent in the previous auction, while the cut-off yield dropped by 7bps to 13.62 percent.

However, the government sold Rs17 billion and Rs 47.5 billion worth of 3-month and 12-month paper, respectively, keeping the weighted average yield on these papers constant at the last auction’s level of around 13.25 percent and 13.83 percent, respectively.

 

As commercial banks are aggressive in increasing their investment portfolios to minimize exposure to risky advances and loan portfolios; T-bill auction would continue to see strong market participation. However, if inflationary pressure increases down the line, bulk of the buying pressure would again shift to 3-month paper. However, if the macroeconomic indicators improve further then the 12-month paper could become the next talk of the town.

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) Inflation & Monetary Affairs Fri, 22 Apr 2011 08:47:29 +0000
Current account: On the bright side? http://www.brecorder.com/home/br-research/pakistan-macroeconomics/external-account/11863-current-account-on-the-bright-side.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/external-account/11863-current-account-on-the-bright-side.html

Finally, it’s that time of the month, when Pakistan’s economic managers can have their feel good moment, while the politicians brag and boast of their performance. And why shouldn’t they?

The latest external account numbers released by the central bank confirm the notion that Pakistan’s balance-of-payment position is in safe waters -- $99 million to be precise, for the first nine months of current fiscal year; which by the way is also the best nine-month performance since FY05.

Even month-on-month changes are confidence boosters. SBP data show that trade balance in March dropped about 11 percent over February, whereas remittances also jumped 25 percent month-on-month.

A closer look at the trade balance isn’t really disappointing either. Although, the SBP hasn’t released its detailed trade numbers as yet, that released by the FBS does provide a clue.

Share of textile exports dipped to 52 percent of total overseas sales in the quarter ending March, down from an average 57 percent in the first two quarters. That – despite the fact that textile exports in the third quarter grew 15 percent over the average overseas sales in the first two quarters -- shows that perhaps diversification is slowly taking place.

Within the textile segment too, there have been some positive developments. According to FBS data, nine-month sales saw a decline in the quantity sold of the low end items, whereas that of value added items saw decent increases. (See table)

On aggregate basis, however, both low end and value added textile items saw substantial increases – thanks to soaring commodity prices in international markets. But just as rising commodity prices also helped fatten the food export bill, it also increased the cost of overseas purchases.

With global oil prices eyeing the pre-crisis levels, the cost of oil imports rose 11 percent in the first nine months, offsetting the 5 percent decline in the quantity of oil purchased during the period. The double-hit combo of higher quantity and higher prices also stoked the food import bill during the period.

So while higher rising commodity prices may be boon for the exports, it’s equally a bane for the country’s imports – especially considering that Pakistan’s imports are largely inelastic.   Oil imports make up nearly one-third of the total import bill, one that is expected to increase as summer approaches and the need to burn more fuel for power generation takes its toll.

As long as remittances are increasing, one might feel cushioned from the raging oil bull. But just imagine if the remittance inflows stop, or taper off. Already, certain official quarters are expressing their fears that remittances might fast become Pakistan’s Dutch Disease. If these fears materialise, then the country better up the ante on diversification of exports as well as of markets.

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s.rs96@yahoo.com (Shoaib-ur-Rehman Siddiqui) External Account Wed, 20 Apr 2011 10:53:04 +0000
Can pay, won’t pay! http://www.brecorder.com/home/br-research/pakistan-macroeconomics/fiscal-policy/11126-can-pay-wont-pay.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/fiscal-policy/11126-can-pay-wont-pay.html By virtue of agriculture being a provincial subject, each province has in place a presumptive regime for the collection of income taxes from this sector. Going by the dictionary of Provincial laws, agricultural income consists of rents received from property used for agricultural purposes and income derived from cultivation or from owner-occupied buildings on the property.

However, the quantum of revenue generated through these taxes has so far been paltry. Official data show that in FY06, total revenue collected under this head by Punjab made up only 2.1 percent of the total revenue generated by the provincial government and the contribution of agricultural income tax in other provinces is equally dismal.

Lack of oversight and unjustifiable exemptions are among the biggest reasons behind the insignificant contributions to revenue from the agriculture sector, despite its significant contribution to the economy.

According to the Agriculture Census 2000, 85 percent of the total cultivable land in Punjab is exempt from agricultural income tax (AIT) because landholdings of up to 12.5 acres are considered to be ‘subsistence level’ and are thus exempt from AIT. Similarly, in Sindh, AIT is charged at different rates depending on the area under cultivation.

While proponents of the status quo have long-argued in favour of maintaining the current slabs, tax experts, including government officials, contend that minimum limits for taxable acreage are extremely high.

Renowned tax expert Shabbar Zaidi highlighted that, “The study being quoted as justification for maintaining the minimum taxable landholding at 12.5 acres was conducted in 2001,” asserting that since then the income of agriculturists has surged on the back of rising crop yields and commodity prices.

Market sources reveal that at present, the average annual rate of rent on agricultural land in Punjab is more than Rs50,000 per acre. In other words, if the rental income from farm land is Rs50,000 per acre, any individual who has rented out six acres of agricultural land receives Rs300,000 per annum. Yet, by virtue of the 12.5 acre-floor rule, this income is barred from being taxed since the land holding falls in the ‘subsistence level’.

Following the doctrine of equitable taxation, if income of more than Rs300,000 earned in other documented sectors is taxable, then the same criteria should apply to agricultural income.

In an earlier interview with BR research, Jehangir Khan Tareen had highlighted that even though an agricultural income tax collection mechanism is in place, it is not enforced because of a “lack of political will”. Elaborating on his response, Tareen said that as long as influential landlords and politicians do not pay taxes, others cannot be compelled to meet their obligations either.

To put this statement into perspective, consider the ultimatum issued to the Sindh government by the Sindh Cotton Association during a press conference in Hyderabad last week. Representatives of cotton growers warned legislators that if agriculturists or middlemen working with them are subjected to taxation, they would withdraw support for the local politicians in the next elections.

Incidentally, none of the participants mentioned the economic viability of their businesses or the reasoning for their inability to pay taxes.

Viewed in the context of crop yield and prices, it may be noted that the current price of raw cotton or phutti in Punjab is about Rs5900 per maund, while in Sindh, the same is priced about Rs5500 per maund. Similarly, the support price for wheat, as announced in budget FY11 is Rs 950 per 40kg. In fact, increases in the prices of wheat, cotton, rice and other crops have outpaced inflation in recent times, further bolstering incomes in the agriculture sector.

Mindful of the lack of political will, Finance Minister Hafeez Sheikh has stressed that tax reforms will take place, regardless of politicking. Yet actions speak louder than words and the government’s quick back-stepping on other tax reforms hints that any plans to increase the tax burden on the agriculture sector will remain on the back burner for now.

It is regrettable that just as blanket subsidies have continued on electricity and fuel prices on the pretext of guarding the financially vulnerable; unrealistic floors on agricultural income tax will also persist on the excuse of subsistence level earnings.

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smurtazag@hotmail.com (Syed Murtaza Gheblehzadeh) Fiscal Policy Thu, 14 Apr 2011 05:34:38 +0000
Tax stalemate http://www.brecorder.com/home/br-research/pakistan-macroeconomics/fiscal-policy/10853-tax-stalemate-.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/fiscal-policy/10853-tax-stalemate-.html Formulators of the national budget appear caught between a rock and a hard place as they scramble to produce a budget that not only curbs the widening gulf between government revenues and expenditures; but also face the unenviable task of improving documentation of the economy, and consequently, the tax net.

Fears that the government will resort to increasing the burden of taxes on those already paying taxes appear well-founded based on the government’s inability to break the tax impasse in recent times. The annual budget for FY10 failed to add any significant number of tax payers to the ledgers of the Federal Board of Revenue as policymakers cut corners in favour of taxing the already taxed.

The ‘FY12 Tax Proposal’ report published by the Overseas Investors Chamber of Commerce and Industry (OICCI) voices the same apprehensions of stakeholders, explicitly calling on the government to expand its resource pool instead of continuing the legacy of burdening the existing tax payers.

Starting from the emphasis on bringing agriculture sector into the tax net, which accounts for 22 percent of the GDP and just contributes 1 percent of the total tax revenue, the report stresses on increasing documentation to bring more business into the tax rate. The report also urges the government to improve coordination and linkages between various government departments.

With regard to industry-specific proposals presented in the report, the OICCI suggests bringing auto dealer network under wholesale/ retail mode. Presently, auto dealers are just acting as agents between auto assemblers and customers.

Under the proposed mechanism, dealers will maintain inventories of automotives, which would reduce delivery times and do away with the ‘own’ money system.

To make alternations in the existing supply chain system, the OICCI has made a pitch for reduction in turnover and withholding taxes since the commission earned by a dealer on a car sale is very nominal compared to the amount of taxes.

The report also mentions that distributors of fast moving consumer goods also face high withholding taxes which limit documentation as currently they earn a nominal margin on the company list price and incur high operating expenditures.

Industry experts believe that the wholesale retail mechanism will encourage documentation, as sub dealers will also become a part of the supply chain and help the government increase tax revenue by taxing distributors’ net profits.

Tax consultants opine that, in addition to the rationalisation of withholding tax, growth in tax revenue depends on how successful is the government in bringing more and more trading business on to the paper and tax their net profits – a move much-needed for effective implementation of RGST.

Ultimately it boils down to the same thing – that without taking tough and stringent measures to improve documentation, it would not be possible for the government to equalise and rationalise the tax burden amongst all profit-making segments of the economy.

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smurtazag@hotmail.com (Syed Murtaza Gheblehzadeh) Fiscal Policy Tue, 12 Apr 2011 05:51:18 +0000
Remittances: the March factor http://www.brecorder.com/home/br-research/pakistan-macroeconomics/external-account/10852-remittances-the-march-factor-.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/external-account/10852-remittances-the-march-factor-.html Money doesn’t grow on trees. But when it comes to remittance inflows in Pakistan, the onset of spring sees a rather sharp increase in worker monies coming home to their families.

The central bank’s latest data show that remittances inflows jumped 25 percent month-on-month in March 2011 – its highest month-on-month increase since March 2010, when it increased 30 percent over February 2010.

This March factor has been a common feature in the last few years. And apparently it’s not because of the PRI scheme. Officials, speaking on condition of anonymity, attribute this trend to two major reasons.

One, is the low base effect on a month-on-month basis; remittance inflows typically start tapering off from October/November and remain low till February. That’s not only because of lesser number of working days during this period, but also because a number of Pakistanis come home for vacations in the winters, owing to which remittance inflows drop in this period.

Officials also attribute the seasonal up-tick in March to the commencement of classes at secondary level education – and hence school fees etc – that triggers a demand for workers’ money.

As for the highest ever single-month inflow of $1.05 billion last month, hats should be off to PRI managers.

It appears that their efforts have been reaping phenomenal fruit, with the $11 billion target for FY11 becoming clearer by the day. Officials expect to take the annual remittance inflow to $20 billion over the next two to three years.

 

So far, most efforts have been directed to improve the payment infrastructure. These include reducing service delivery time and increasing on the ground presence. Reportedly, some 300 agreements have been signed between Pakistani and global banks.

In addition, large banks are lending out their branch network to smaller and medium sized banks to augment their penetration in under-served areas, whereas home remittance centers are also planned to be set up in the far-flung areas.

The combination of these efforts has boosted banking penetration. “Two years ago, only 30 percent of the remittances sent through banks used to be channeled to the beneficiaries’ direct bank account; today that number is about 60-63 percent,” one official told BR Research.

The achievements thus far mostly stem from PRI’s focus on converting informal inflows into formal. ‘Send-more-to-Pakistan’ will be the next phase, as remittance channels will be connected to a variety of savings schemes at home.

That, however, will be the real test to measure the confidence of overseas Pakistanis. And looking at their participation in local equities (NCCPL data show dismal participation of overseas Pakistanis), it appears the PRI managers will have a tough time convincing them to invest in Pakistan.

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smurtazag@hotmail.com (Syed Murtaza Gheblehzadeh) External Account Tue, 12 Apr 2011 05:47:17 +0000
National Investment Trust http://www.brecorder.com/home/br-research/pakistan-macroeconomics/capital-markets/10851-national-investment-trust-.html http://www.brecorder.com/home/br-research/pakistan-macroeconomics/capital-markets/10851-national-investment-trust-.html The National Investment (Unit) Trust is getting bigger and bigger. Boosted by growth in dividend income along with Rs1.45 billion earned from the difference between unit selling and buying price (element income), the country’s leading and oldest mutual fund saw profits jump 29 percent in the first nine months of current fiscal year.

As its fund managers remained focused increasing their holdings, together with the growth in AUM and better take-home profits shared by the KSE listed companies, the fund’s dividend income increased to Rs1.57 billion in 9MFY11 as against Rs1.28 billion earned in the year-ago period. However, the expansion in fund portfolio slightly tailed off its capital gains.

Backed by high appetite for equity securities and better performance of investment portfolio, the fund’s AUM reached Rs37 billion at the end of March, as against Rs32.9 billion same period a year earlier.

“As the government has imposed capital gains tax, NIT’s fund managers refrained from aggressive trading which resulted in lower capital gains,” market sources told BR Research.

The NIT-State Enterprise Fund also recorded phenomenal growth in dividend income, while its capital gain remained stagnant at last year’s level. However, SEF’s net income fell on account of lower element income. Element income can be defined as the difference between unit selling and buying price.

During the same period, the NIT-EMOF fund recorded a slight drop in net income in the face of growth in dividend income and capital gain. It seems that growth in expenses due to higher impairment losses on equity securities and higher management participation fee might have been behind the decline in EMOF’s net income.

To take the benefit of rising interest rate environment, NIT started two fixed income mutual funds in last fiscal year, NIT-GBF and NIT-IF. As GBF and IF holds 98 percent and 69 percent exposure in government securities and bonds, respectively, higher discount rate helped funds record remarkable growth in the net incomes of both these funds.

With the AUM of around of Rs2.9 billion, NIT-GBF earned 12 percent for investors in the previous quarter, outperforming the benchmark return of 11.59 percent, which is the weighted average yield of the 6-month T-bill and 1-month deposit rate of A and above rated scheduled ban (with a ratio of 70 percent and 30 percent ratio).

The future of NIT-GBF and NIT-IF funds look promising as both funds will gain from the higher discount rate. However, even if the discount rate decreases down the line, NIT-GBF and NIT-IF investors would book growth in income from capital gains.

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smurtazag@hotmail.com (Syed Murtaza Gheblehzadeh) Capital markets Tue, 12 Apr 2011 05:40:54 +0000