Economic Bulletin January February 2012 2

7/31/2019 Economic Bulletin January February 2012 2

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January - February, 2012

Contents

Editors Corner ii

Poverty in Pakistan 04

Trend in Petroleum & Gas Prices 15

Key Indicators of Islamic Banking Sector Pakistan 16

Market Analysis 18

Book/Report Reviews 21

Pakistan Economy Key Economic Indicators 23

NBP Performance at a Glance


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ii


Editors Corner

Dear Readers,

In a recently published book titled, The Future of Pakistan, Stephen P. Cohenand others have in some of

the essays focused on factors that are important in shaping Pakistan. Demographics has been identified as

a factor that will shape Pakistan in several ways. The country is undergoing a population boom, and it will

soon have one of the worlds youngest populations. Today there are some 180 million people and the

median age of the population is 18 years. Here the question arises, whether this population increase can

be used to Pakistans advantage in the future. It is a basic challenge on how Pakistan responds to its growing

youth population who have to be provided with education, jobs, shelter, food as to prevent them from going

stray. Will Pakistan be able to use the growing population bulge to its advantage or will it lead to disaster.

Stephen P. Cohen writes, population growth is a challenge, not a threat. The critical mediating factors are

state capacity and state response.

Pakistans Planning Commission has developed a New Growth Framework a strategy that seeks accelerated

and sustained growth and development based on economic reform and an emphasis on productivity. They

have in their Report focused on the young and growing population. The Report states, the population of

Pakistan is projected to reach over 350 million by 2050. It is not just the size but its age structure that is

important. The number of those aged 0-14 years will start to stagnate after 2035 (due to fertility decline),

but the number of working age group (15-64 years) and the elderly (65 and above) will continue to increase.

It is the increasing numbers in the working age group that might provide an economic opportunity for the

country. By 2050, more than 236 million people will be in the working age group.

Developing countries are in varying stages of a demographic transition. As a result of declining population

growth and consequent change in the age structure of the population, the proportion of working age

population is increasing in many of the developing countries, alongwith a decline in the proportion of youngdependent population. Countries in the South Asia region are also experiencing this transition. Demographic

transition is taking place in Pakistan also. The share of working age population is increasing and a window

of new opportunity has opened for Pakistan in the form of these young adults who can be an asset for the

development of the country.

Economic gains can accrue from this demographic dividend if the government pursues appropriate policies

with regard to education, vocational/technical training, public health, generation of enough employment

opportunities to productively employ the additional labour force. Without the appropriate set of policies

to benefit from the rising youth labour force, the demographic dividend could infact be a demographic

challenge a cost to the economy. Young people without jobs could be a serious threat to peace and security,

spread of crime and conflict. Good policies can work wonders and the growth in the young labour force

can be an asset rather than a burden.

The Report entitled,Pakistan: The Next Generation British Council, November 2009 seeks in one of the

chapters to find answers to whether our next generation delivers a demographic dividend or is a demographic

disaster more likely? To capture the dividend, the report identifies three factors: expand and improve

education, develop and implement policies for women and families, and labour market reforms to promote

fairness and stability. Education reform, must be as much about delivering quality education as about

improving the quantity of school. Standards of provision need to be improved throughout the educational


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system, from primary to tertiary levels. Policies for women must increase their access to health, education

and other services. Investment in human capital can only pay dividends if the employment opportunities

for young people is simultaneously increased. Young people need vocational training to develop their skills

that are suited to todays challenges.

Providing vocational training is one strategy to build human assets and capabilities, especially for those

who may not have had the opportunity for higher education. Technical and vocational education and training

is a major instrument for employment generation and poverty alleviation. The Government is taking

initiatives to provide relevant skills to the youth, so that they could contribute to the industrial development

of the country. The National Skills Strategy 2009-13, proposes a paradigm shift from curricula based

education to competency based training, to create a demand driven training system responsive to industry

needs. It envisions provision of relevant skills in different areas. There are institutions in Pakistan, like the

National Vocational and Technical Training Commission that impart technical and vocational training in

different trades to jobless youth in the country, the National Institute of Medical and Social Sciences that

imparts training in para medics etc.

Investment in education at all levels is essential as it produces a better educated workforce. This will yield

benefits only if these workers can find suitable jobs. Government policies that lead to stable macroeconomic

conditions would generate economic activity and growth of jobs. The increasing proportion of young labour

force is a major challenge for the government and only if the needful is done can this youth prove beneficial,

otherwise it can have catastrophic consequences.


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uncertainty and economic instability. The

decade witnessed slowdown in economicgrowth, decline in investment, increase infiscal and current account deficits and debtaccumula t ion . As macroeconomicfundamentals deteriorated, poverty increasedand the country was left behind as other SouthAsian countries progressed on most economicand social indicators.

Rise in poverty was accompanied byworsening income distribution. A highlyunequal income distribution makes it harderto reduce poverty. Higher inequality requires

more growth to yield the same reduction inpoverty.

Trends in Income Inequality

Poverty in Pakistan

PovertyTrends

During the 1980s, the period of relativelyhigher growth rate, the percentage share ofincome of lowest 20 percent increased from7.3 percent to 8.0 percent, while the percentageshare of highest 20 percent decreased from45.0 percent to 43.7 percent. During the laterhalf of the 1990s, a period of sluggisheconomic growth, the percentage share of

lowest 20 percent declined from 7.0 percentto 6.2 percent, while for the highest 20 percentit increased from 47.2 percent to 49.7 percentby 1998-99. The income gap that had declinedduring the 1980s showed an increasing trendduring the 1990s.

Between 2000-01 and 2005-06, Governmentestimates suggest a significant decline in the

Poverty remains a serious concern in Pakistan.

The last six decades have been interspersedwith periods of declining and rising poverty.Inadequate access to basic services, lowspending on social sectors, natural calamitiesin recent years, rising food prices, have allcontributed towards the persistence of povertyin the country. The poor not only have lowincome but they also lack access to basicneeds such as education, health, clean drinkingwater and proper sanitation. This consequentlylimits their opportunities to secureemployment. Pakistan has slipped into thelow human development group of countries.

According to the United Nations HumanDevelopment Report 2011, Pakistan ranks at145 among 187 nations, as compared to 125among 169 countries a year earlier. In 2010,Pakistan was categorised as a medium humandevelopment country. The current Report saysthat as many as 49.4 percent of the countryspopulation is living in multidimensionalpoverty, while 11 percent is at risk of beingpushed into the category, 27.4 percent of thepopulation lives in severe poverty.

The 1960s witnessed high levels of poverty,

particularly in the rural areas. This occurreddespite high growth rates in the agriculturalsector. The percentage of people below thepoverty line rose from 40 percent in 1964 to44 percent in 1968. The development processwhich began in the 1950s had led to increasedinequalities, widening the gulf betweendifferent income groups and regions. Povertydeclined during the 1970s and this decliningtrend continued until 1987-88. This was aperiod when investment in agriculture roseand the large scale migration to the MiddleEast in the 1970s and 1980s had resulted in

large remittances inflows. Pakistan was oneof the high performers in the 1980s amongthe developing countries, with growth ratesaveraging 6.5 percent in the decade.

During the 1990s, Pakistan witnessed increasein poverty from 26.1 percent in 1990-91 to32.1 percent in 2000-01, reversing the earlierdeclining trend. This was a period of political

Source: Pakistan Economic Survey 2002-03

1979

1984-85

1985-86

1986-87

1987-88

1990-91

1992-931993-94

1996-97

1998-99

5.5

8.7

6.4

5.8

6.4

5.6

2.34.5

1.9

4.2

Year

Percentage Share of Income

Lowest20%

Middle60%

Highest20%

GDPGrowth

Rate

7.4

7.3

7.6

7.9

8.0

5.7

6.26.5

7.0

6.2

47.6

47.7

48.4

48.5

45.3

45.0

45.646.3

43.6

44.1

45.0

45.0

44.0

43.6

43.7

49.3

48.247.2

49.4

49.7


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One of the important aims of development inany of the developing countries has been theremoval of poverty amongst the masses. The

issue is amongst the foremost objectives oftheir development programmes for the lastseveral decades. Governments have adoptedPoverty Reduction Strategy Programmes, anapproach initiated by theIMFand the WorldBank in 1999, basically a comprehensivecountry based strategy for poverty reduction.Income generating programmes have alsocome to play a major role in alleviating povertyin these countries.

East Asian countries have generally been verysuccessful in eradicating large scale poverty.

These countries include China, Indonesia,Thailand and Vietnam where both the absolutenumber of poor and the percentage ofpopulation under the poverty line havedeclined. South Asia (India, Pakistan,Bangladesh and Nepal) has achieved modestsuccess by reducing the percentage ofpopulation under the poverty line from 60percent in 1960s to 30 percent by 2003. Atthe other extreme, Africa saw an increase inboth absolute number of poor and povertyincidence.

Pakistan is committed to the achievement ofthe Millennium Development Goals (MDGs)as reflected in its development strategy andalso included in the Medium TermDevelopment Framework, MTDF (2005-10).The government aligned the PRSP strategywith achieving the MDGs. The MDG withregard to eradicating poverty seeks to reduceby half the proportion of population belowthe poverty line (to 13 percent by 2015) andhalve between 1990 and 2015, the proportionof people who suffer from hunger and reducethe proportion of children under 5 years who

are underweight for their age.

A Report published in 2010 shows that thedeterioration that had set in the economic andpolitical situation in 2007 and 2008 is likelyto have adversely affected the poverty situationand employment in the country. Economicgrowth had declined, inflation was rising andthe IMF programme had removed a large

incidence of poverty in the country, falling to22.3 percent (FY06). During this periodmacroeconomic stability was restored to a

large degree, as seen by significant declinesin the fiscal deficit, stability in exchange rate,substantive increase in foreign exchangereserves, improved balance of paymentsposition and containment of inflation. Manyof the gains were subsequently eroded in 2007and 2008.

The slowdown in economic growth since2004-05 has an impact on poverty situation.The Economic Survey 2010-11 says, the latestofficial estimates on poverty are not availablebut evidence suggests substantial increase in

poverty over the last three years.

The above trends in poverty have beendiscussed in an article titled, Poverty andSocial Safety Nets: A Case Study of Pakistan,Muhammad Irfan, where the author has citeda number of studies which explain thissituation. For instance, the high growth of1960s failed to reflect any improvement inthe poverty situation in rural areas because ofthe eviction of tenants and rise in landlessness.In the wake of subdued economic performanceof the early 1970s, a decline in the poverty

level was made possible through escalationin the public sector employment and massiverise in public sector expenditure. Similarly,Middle East emigration and return flow ofremittances had a very favourable impact onpoverty situation in the country beginning late1970s to middle of 1980s. Pakistansexperience suggests a close link betweenemployment generation, remittances andpoverty.

The decade of the 1990s saw host of challengesand problems for the economy. The paper

mentions a number of these problems, suchas budget deficit, rising balance of payments,large stock of debt, worsening unemploymentsituation, decline in GDP growth, lowinvestment, decline in poverty relatedexpenditure and stagnant or declining realwages further compounded the situation.This provides explanation for rise in povertyduring 1990s.

Thedecade ofthe 1990s

Alleviatingpoverty

MDGs


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and the vulnerable; increasing productivityand value addition in agriculture; integratedenergy development programme; making

industry internationally competitive; humandevelopment for the 21st century; removinginfrastructure bottlenecks through public-private partnership; capital and finance fordevelopment; and governance for a just andfair system.

As against this, PRSP I was built around fourpillars; including, accelerating economicgrowth while maintaining macroeconomicstability; improving governance; investing inhuman capital; and targeting the poor andvulnerable.

This Report has discussed at length theoutcomes ofPRSP I. Highlights of the progressmade in achieving the social sector outcomesis given below: -

- Macroeconomic indicators improved duringthe period 2003-07.

- Rising rate of inflation was a cause ofconcern.

- Some progress achieved in indicators forsectors like education, health, access todrinking water and housing.

- Poverty headcount in Pakistan fell from34.5 percent of the population in FY2011to 22.3 percent in FY2006. This decline wasin marked contrast to the rapid increaseduring the 1990s.

- Decline in poverty occurred in both urbanand rural areas.

- While literacy increased during the periodFY2001-02 and FY2006-07 from 45 to 55percent, it missed the target of 59.5 percentset in PRSP-I for the same year.

- Female literacy rate is only improvingsteadily in Punjab, while witnessingfluctuations in the rest of the country.

- Progress has been made in gross enrolmentrate and net enrolment rate at the primarylevel.

- Gender disparities in education remains amajor challenge.

number of subsidies. The Report says that itis likely for poverty to have risen since 2008,for the factors mentioned above are all known

to aggravate poverty.

Realizing the significance of povertyalleviation as not only an end in itself but alsoas a critical factor for sustaining futureeconomic growth, the government has beenshowing an increasing commitment to reducepoverty. It has been a major concern ofsuccessive governments, but it was explicitlystated as an objective only in the InterimPoverty Reduction Strategy Paper (November2001). The IPRSP was the first attempt toformulate a strategy with a long term povertyalleviation perspective. Its focus was to revivegrowth, improve human development andgovernance and reduce the vulnerability ofthe poor to shocks. Structural reforms wereundertaken to improve the overall working ofthe economy. These pertained to tax system,tax administration, trade, financial sector,fiscal, agricultural, governance etc. Thisbrought some positive results, as it helpedimprove the countrys macroeconomicfundamentals and social sector outcomes.

After further refinement, the IPRSP evolvedinto the Poverty Reduction Strategy Paper inDecember 2003 for the period upto 2006.There was strong focus on income generatingopportunities, pursuing stable macroeconomicpolicies, attaining the MDGs for sustainabledevelopment and poverty reduction. Vitalelements of the PRSP included the devolutionprogramme, human development and ruraldevelopment strategy. It also covered gaps inthe poverty reduction strategy identified inthe IPRSP. It has been a key strategy documentof the government for social development ofthe country.

PRSP II was finalized in FY2008-09 coveringthe period 2008-09 to 2010-11. It took intoaccount the prevailing socio economicdevelopments, both domestic and internationaland built upon the governments nine pointeconomic reform poverty reduction agenda.

The nine pillars were: macroeconomic stabilityand real sector growth; protecting the poor

Govern-mentsincreasingcommit-

ment toreducepoverty

PRSP-IOutcomes


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- The role of private sector in primaryeducation has increased over time.

- During the PRSP-I, the target set for access

to safe drinking water, an indicator of thePRSP and MDGs, was not achieved.

- The number of employed persons hadincreased, surpassing the PRSP-I target of42.03 million in FY2005-06.

- Informal sector employment has increased.

- Cumulative pro-poor budgetary and non-budgetary expendi tures as a share ofGDP has increased from 3.77 percent inFY2001-02 to 5.46 percent in FY2007-08.

During this period a Federal FiscalResponsibility Act was passed (2005) thatmade it obligatory for the Government tospend at least 4.5 percent ofGDP on pro-poorsectors and double the expenditures aspercentage ofGDP on health and educationin the next ten years.

The Poverty Reduction Strategy Paper II seeksto steer Pakistans economic growth back tothe range of 5-7 percent a year by stimulatinggrowth in the production sector, creatingadequate employment opportunities,

improving income distribution etc. PRSP IIperiod saw sluggish economic growth, politicalinstability, war against terror, global financialcrisis, food and fuel inflation. Recent trendssuggest that poverty in Pakistan is on therise again.

Partly as a result of the wide ranging reformprogramme articulated in Pakistans PovertyReduction Strategy Paper, the economy grewat an average rate of 7.3 percent annually fromthe beginning of 2000 to the first half of 2007,with moderate inflation. According to the

Economic Survey, the national poverty ratefell by more than 11 percent points between2001-2002 and 2005-06, lifting more than 17million people out of poverty. Social indicatorsshowed some improvement.

However, in recent years Pakistan has facednew challenges to growth and stability.Economic instability was accompanied by

political turmoil. In addition, Pakistanssecurity situation deteriorated as spilloverfrom the war in Afghanistan. These have

brought major costs and new challenges fordevelopment, including the displacement ofmore than two million people.

The Government of Pakistan recognizes thatsocial protection and provision of social safetynets have a major role to play in providingpro-poor growth and tackling inequality. Safetynets are transfer programmes which seek toprevent the poor or those vulnerable to shocksand poverty from falling below a certainpoverty level. In this regard, the Governmenthas undertaken some new initiatives as well

as strengthened earlier ones. Safety net in theform of direct cash transfers both budgetaryand non-budgetary include Zakat, PakistanBaitul Maal (PBM), Employees Old AgeBenefit Institution (EOBI), Workers WelfareFund (WWF), Benazir Income SupportProgramme (BISP) and Microfinance is thecentral instrument for alleviating the sufferingof the poor. Expenditures on PBM, BISP andSocial Security and Social Welfare have beenincluded in the budgetary part of pro-poorexpenditures. Expenditures on Zakat, EOBI

and WWF have been included in the non-budgetary part of pro-poor expenditures.

Zakat levied at 2.5 percent on the wealth ofall muslims is transferred to the needy assubsistence allowances, educational stipends,healthcare, social welfare and marriageassistance. Pakistan Bait-ul-Maal providesassistance to poor households who do notbenefit from zakat. The two main programmesinclude the Food Support Programme mergedwith BenazirIncome Support Programme in2009-10 and Individual Financial Assistance.

The EOBI, the WWF and the Employees SocialSecurity Institutions (ESSI) are the three majorlabour welfare programmes in the country.

BISP is the new cash transfer basedprog ramme init iated by the prese ntgovernment, which provides a cash grant ofRs1000 to each deserving household basedon the established criteria. Upto 5 million

Socialsafety nets

Zakat


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Direct Transfers and Beneficiaries

Evaluating the social protection programmespracticed in Pakistan, the Asian Development

Bank in its report entitled,Pakistan PovertyAssessment Update, December 2008, states,despite the general overall increase in socialsafety expenditures in recent years, majorconcerns remain regarding the limitedcoverage of existing social safety instrumentsand hemorrhaging of funds on account ofleakages. The programmes are also not welltargeted and often do not reach the neediest.In order to reduce leakages, the paymentsunder social protection programmes are nowbeing routed through banks and post offices.A new management information system is

being piloted in three districts to cross-checkdata against the disbursements made underthese programmes. Leakages, however, remainprofound under the current social protectionprogrammes and badly affect the efficiencyof targeted programmes.

For zakat, it states, while zakat enjoys a broad-based source of funding, its redistributive

poor households are expected to receiveassistance under the Programme. An amountof Rs15.3 billion was disbursed during 2008-

09 while Rs32 billion was disbursed in 2009-10. An allocation of Rs50 billion has beenkept during the current financial year for thispurpose. There are a number of microfinance

(Rs. Mn)

Source: Poverty Reduction Strategy Paper, Annual Progress Report FY2007-08* Thousand Numbers

Zakat

Pakistan Bait-

Ul-Mal (all

Programmes

Micro-credit

EOBI

All

Programmes

5254

1710

-

-

1049

76

1366

NA

7669

1810

5330

1639

3159

1614

2979

286

1742

115

13265

3654

3692

1370

3270

1671

5158

470

1929

121

14322

3632

4520

2373

3838

3130

6655

606

2899

281

17912

6390

4612

2494

3911

1460

9947

906

3446

260

21916

5120

2482

1457

5521

2129

13138

1154

4237

273

26974

5563

2877

1085

3432

1159

28669

1939

5787

290

-

-

2874

1289

2261

2110

33775

1966

6442

310

-

-

-

-

1678

596

26949

2101

5059

-

-

-

Amount disbursed

Total beneficiaries*

Amount disbursed


Amount disbursed


Amount disbursed


Amount disbursed


2001-02Disbursement/

BeneficiariesProgrammes

2010-11

upto Q32009-102008-092007-082006-072005-062004-052003-04

8009

1754

-

-

2337

249

1592

108

12119

2078

2002-03

providers in the country, which are trying toensure wider outreach, thus positivelyimpacting the livelihoods of large numbers.

Given below is the data in relation todisbursement and beneficiaries of the variousprogrammes in practice.

Evaluatingthe Socialsafety netprograms

function is marred by substantial targetingerrors and leakages that can be as high as 30

percent of total payments. Pakistan Bait-ul-Maal is heavily reliant on budgetary supportand therefore vulnerable in times of fiscalstress. LabourWelfare Schemes, the Reportstates, across the board however, theseprogrammes face issues of poor accountabilityand weak governance mechanisms and lowcoverage. The findings of a recent impactstudy of Khushali Banks microfinanceprogramme established the programmespositive impact on livelihoods andempowerment of women.

Lack of food security is an important indicatorof vulnerability says the Asian DevelopmentBank(ADB) in its Report,Poverty AssessmentUpdated Pakistan, December 2008. The risingfood prices between February 2005 February2008 has generated new concerns with regardto food security for the most affected poorand the vulnerable. It has been estimated thata 20 percent rise in food prices in Pakistan


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BoxTargeting Efficiency of Poverty

Reduction Programs in PakistanG. M. Arif

Asian Development Bank

The challenge of poverty in Pakistan is huge. In itspoverty reduction strategy, the government seeks tobesides other areas focus on augmenting targetedinterventions and expanding social safety nets so totransfer benefits directly to the poor. The belowmentioned paper examines the efficiency of threelarge poverty reduction programs: zakat, microfinanceand Lady Health Workers.

We give below excerpts from the paper.

- Pakistans approach to poverty reduction, as outlinedin the Government of Pakistans Poverty ReductionStrategy Paper (PRSP), focuses on sustained higheconomic growth with an emphasis on (i) developinghuman resources, (ii) promoting good governance, and(iii) targeting the poor and vulnerable.

- This paper focuses on the targeting performance ofthree of the main poverty reduction interventions thatare implemented across Pakistan:

(i) pure income transfers zakat,

(ii) self-employment microfinance, and

(iii) doorstep provision of preventive health facilities theLady Health Workers Programme (LHWP).

- The coverage of public zakat is, however, far smallerthan the eligible population merits.

- Overall, more than a third of zakat recipients (35%)reported that they did not receive the full amount ofzakat due to them (2000/01 PSES). Forty percent ofthe urban zakat recipient sample did not receive the fullamount due, while the corresponding figure for ruralareas was 34%.

- The analyses also show that there is large number ofpoor households who deserve to be classified as

mustahiqeen. The limited resources available to localzakat committees (LZCs), however, do not allow themto reach all the poorest of the poor. For the LZCs, it isnot easy to select only a few beneficiaries from amonga large pool of poor households. The Government shouldtherefore consider seriously enhancing the resourcesthat are disbursed as public zakat, but concomitantlyimprove the selection procedure for mustahiqeen aswell as the transparency of the system this would help

ensure that poor beneficiaries receive the full benefitsof zakat.

- The Lady Health Workers Programme is a broad-targetscheme that was designed in the early 1990s, with theobjective of providing basic community services to allpoor rural and urban areas in Pakistan. Under theprogram, a large number of lady health workers werestationed in each district of the country, the majorityplaced in rural areas.

- Current coverage of public zakat is far less than theeligible population. In 2000/01, one third of Pakistans

total households were below the poverty line, makingapproximately 7 million households eligible for zakat.Even assuming that all public zakat funds were disbursedonly among these poor households and there was noleakage to nonpoor households, coverage was abysmallylow, hardly a tenth of the needy population.

- About 80% of households who applied for zakat froma public source were also located in rural areas, whereasone third of households who neither applied for norreceived zakat were from urban areas. These simplestatistics reinforce the argument that needy beneficiariesare concentrated in rural areas. The distribution of zakatprimarily in such areas is thus a step in the right direction.

- Politicization, i.e., favors for political gain, seems tobe a major problem affecting the distribution of zakat.

- The results of this study show that public zakat currentlycovers far fewer households than the number actuallyeligible. The problem is practical rather than theoretical:there are insufficient zakat funds to provide all poorhouseholds with their basic needs. The findings of thisstudy suggest some success in zakat targeting,particularly in rural areas, but this is marred by theleakage of zakat funds to relatively better-off households,particularly in urban areas. One solution to this is toconstitute urban zakat committees only in poor slum

areas to ensure that the benefits are transferred to thosehouseholds most in need, while private zakat giversliving in affluent urban communities look after needybeneficiaries living in their localities.

- There is a significant amount of leakage in terms ofbeneficiaries who fail to receive the full amount ofzakat they are entitled to. This is manifested in an

Continued on Page 14


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BoxPoverty Alleviation Policies, Programmes and Outcomes in Pakistan

Poverty in South Asia: Challenges and Responses

Human Development in South Asia - 2006Despite achieving a reasonable economic growthrate, Pakistans progress in terms of humandevelopment and poverty reduction has been muchslower. The country has over the years, initiatedvarious poverty alleviation programmes. A sectionof the above mentioned chapter of the HumanDevelopment Report 2006 seeks to review theseprogrammes. We give below some excerpts from thatsection of the said chapter, in particular, which reviewsthe poverty alleviation programmes.

- There are two major factors that are limiting the paceof poverty reduction in Pakistan. First, inequality bothin income and physical assets as well as in humandevelopment indicators has been growing in Pakistanover the years.

- With rising inequality, the benefits of economic growthdo not trickle down to the poor. Second, humandeprivation in terms of low education, poor health andsanitation facilities, non-availability of clean drinkingwater etc. are all restricting the poor to be a part of thegrowing economy of Pakistan.

- There are two major factors that are restricting the poor

in Pakistan to benefit from rising economic growth.First, lack of human capital in terms of education,training and health is preventing the poor to benefitfrom economic growth. Second, the poor are notprovided with enough income earning opportunities interms of jobs.

- No doubt, the long term solution to poverty in Pakistanlies only in accelerated human development along withthe generation of adequate employment opportunities.

- Realizing the significance of poverty alleviation as notonly an end in itself but also as a critical factor forsustaining future economic growth, the government ofPakistan has been showing an increasing commitment

to reduce poverty.

- The success of poverty reduction efforts is, therefore,contingent upon the integration of the poor andcommunities through participatory institutions alongwith a carefully crafted system for provision of requisitefinancial resources to the communities.

- The zakat system is one of the major poverty alleviationprogrammes in Pakistan.

- There are certain positive features of the system of cashtransfers under zakat. These include:

(a) its fiscal sustainability,

(b) its strong redistributive function, and

(c) low administrative cost due to the voluntary nature ofmost of its administrative tiers.

- Despite these positive features, there are certain concernsthat are undermining the potential of zakat as an effectivepoverty alleviation programme. First, the programmelacks financial transparency.

Second, the programme has a modest coverage and thelevel of assistance per beneficiary is inadequate.

Third, the targeting of the programme is weak in thesense that a disproportionate share of zakat is capturedby the non-poor.

Fourth, the identification of the poor that is the mostvital element to ensure efficient targeting is weak.The identification of the eligible candidates is primarilydone by the Local Zakat Committees that are highlysusceptible to political influence.

- One of the major weaknesses of Pakistan Bait-ul-Mal(PBM) is its heavy reliance on budgetary support,rendering it vulnerable in times of fiscal stress. Thecoverage of the programme is inadequate since it reachesa mere 25 percent of the poorest 20 percent households.The size of the assistance is small since it meets lessthan 20 percent of the income gap of those living inabject poverty. There are too many programmesspreading PBM over areas it does not have comparativeadvantage. There is also a lack of internal controls anda high level of political interference.

- In Pakistan, improved access to small credit is seen asa potent means for increasing the income of the poor.Microcredit has a track record of meeting the demandsand needs of the poor at the grassroots level.

- The coverage of micro-credit from all the above windowsis limited and not fully catering to the substantial demandfor credit.

- The implementation of poverty alleviation programmessuffer from several problems such as inadequatecoverage, weak identification of the poor, politicalinterference, deficient targeting, and lack of financialtransparency.


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could increase the incidence of poverty by asmuch as 8 percentage points. A previous ADBpaper,Food Security in Pakistan, studies the

status of food security in Pakistan confirmsthe issue of inequity in the distribution of foodsupply. The study noted that food supplies inPakistan, notably protein and energy suppliesrose over the last decade daily per capitaprotein supplies increased from 58 grams in1990 to 63 grams in 2001 (an 8% increase),while daily per capita calorie suppliesincreased from 2315 in 1990 to 2457 in 2001(an increase of 6.1%). It concluded that thepersistence of hunger despite this increase inper capita food indicated that food insecurityin Pakistan was really a problem of sub-

optimal distribution and not so much a problemof insufficient availability of food.

The ADB in a paper, South Asia WorkingPaper Series No.10 has estimated the priceelasticity of poverty, which measures thepercentage increase in poverty when foodprices increase by 1 percent. It measures theeffect of food prices rising by 10 percent, 20percent and 30 percent in the change inpercentage of poor and the total headcountsof poor in South Asia.

Impact of Food Price Increases on Povertyfor South Asia vs. Developing Asia(25 Countries), $1.25-a-day Poverty Line

proportion of the population vulnerable todisease, loss of livelihood, etc. The earthquakeof 2005, reportedly resulted in a loss in

employment and livelihood of more than324,000 jobs or around 29 percent of the totalemployed population (above age 10) in theeight affected districts ofAJKand Khyber-Pakhtunkhwa. The largest job losses were inagriculture, small business/shops andconstruction. The floods 2010 affected over20 million people and the reconstruction costsassociated with the floods were estimated atapproximately $8.74$10.85 billion. Giventhe spread of the damage that they have causedto standing crops, livestock, publicinfrastructure, the economic costs weresubstantial.

Besides the above, infrastructural shortagesare causing immense damage to the economy,as they not only constrain growth, but haveimplications on employment, exports anddevelopment in general. Frequent andprolonged period of power outages hasparticularly hit the industrial sector. TheInstitute of Public Policy in their AnnualReport 2010, show that the cost to the economyof outages to the industrial sector in 2009were Rs230 billion, equivalent to 11 percentof industrial employment, partly in the caseof daily wage and part time workers. Loss ofemployment has significant consequences onthe level of poverty in the country, wherealready poverty is on the rise due to risingprices and lower growth.

The war on terror and the resulting securitycrisis in the country have impacted the

budgetary priorities of federal and provincialgovernments. Security related expenditures inPakistan have grown in recent years. SocialPolicy and Development Centre in their AnnualReport 2009-10, state, the combined federaland provincial expenditures on security reachedRs800 billion or 4.7 percent ofGDP in 2010-11 compared to Rs177 billion or 4.2 percentof GDP in 2000-01, indicating an averagecumulative growth of 17 percent per annum.While the growth in security related expenditureremained in double digits during the entireperiod, it grew at a much faster rate of 22percent per annum in the later part of the 2000s.

Source: ADB South Asia Working Paper Series 10.

n/a

2.5

1.8

2.9

2.1

2.7

2.0

2.2

1.2

2.1

1.9

n/a

5.0

3.5

5.8

4.3

5.4

4.1

4.5

2.4

4.1

3.9

n/a

7.5

5.3

8.8

6.4

8.1

6.1

6.7

3.6

6.2

5.8

n/a

3.8

0.01

22.8

6.7

29.5

0.6

3.47

0.24

37.658.4%

64.4

n/a

11.5

0.03

68.5

20.0

88.5

1.7

10.4

0.71

112.858.4%

193.2

Afghanistan

Bangladesh

Bhutan

India-Rural

India-Urban

India average*/sum

Nepal

Pakistan

Sri Lanka

South Asia average/sumPercentage of increase

in total poor in developing

Asia by South Asia

Developing Asia

Change in percentage of poor(in percentage points) with an

increase in food prices by:

n/a

7.7

0.02

45.6

13.4

59.0

1.1

6.9

0.47

75.258.4%

128.8

Change in number of poor(in millions) with an increase

in food prices by:

10% 20% 30% 10% 20% 30%

The war on terror, the security concerns,natural disasters have changed the budgetarypriorities of the government. Natural disasterscreate large scale destruction leaving large

Budgetaryprioritieschange


12/24

12


Costs of terrorism are both direct and indirect.These have been identified by the Institute ofPublic Policy in their Annual Report 2009.

Direct costs include:

- value of human lives lost or of injuries

- value of property or infrastructure destroyedor damaged

- costs of enhanced spending on security.

Indirect costs identified include:

- delay in implementation of developmentprojects in affected areas

- slowing down of domestic economic activity- increased unemployment in affected regions

- costs of displacement of local population.

Expenditure for maintenance of law and order,defence has increased over the recent years.Then there are costs of internally displacedpersons in terms of potential relief andrehabilitation costs. Higher securityexpenditure says the report run the risk ofcrowding out other expenditures related tothe provision of basic social and economicservices and thereby having an adverse impactespecially on the lower income groups.

Category-wise PRSP Expenditures as percentage of GDP

The poor also suffer from the loss of propertyand livelihoods in the affected areas whichare among the most backward regions of thecountry. In effect, the war on terror has shiftedexpenditure priorities away from the socialsector. There was a slow down in the pace ofsocial development during the later part of2000. The Table given below shows the trendin poverty related expenditures as percentageof GDP from 2001-02 to 2009-10 afterexcluding subsidies.

Trends in Security Related Expenditure

Source: SPDC Annual Review 2009-10

Source: SPDC Annual Review 2009-10

0.20.10.1

1.91.50.40.0

0.50.20.00.30.0

0.20.10.00.00.00.0

0.70.70.03.6

0.50.40.1

2.31.70.50.1

0.80.40.00.30.0

0.10.10.00.00.00.0

0.70.70.04.5

0.60.50.1

2.41.80.50.1

0.90.60.00.20.1

0.10.00.00.00.00.0

0.80.70.04.8

0.80.70.1

2.51.90.50.1

1.00.80.00.20.0

0.40.10.00.00.30.0

0.10.00.14.9

0.90.70.2

2.61.90.60.1

1.20.90.00.30.0

0.20.10.00.00.10.0

0.10.00.14.9

1.00.80.2

2.51.80.60.1

1.51.20.00.20.0

0.40.20.00.00.10.0

0.90.90.16.3

1.00.80.2

2.61.90.70.0

1.10.70.00.10.2

0.40.20.10.00.10.0

0.90.80.15.9

0.80.60.2

2.31.50.70.0

1.30.70.00.40.2

0.50.40.00.10.10.0

1.11.00.15.9

I. Market Access andCommunity ServicesRoads, Higways & BridgesWater Supply & Sanitation

II. Human DevelopmentEducationHealthPopulation

III. Rural DevelopmentAgricultureLand ReclamationRural DevelopmentPeoples Works Programme-II

IV. Safety NetsSocial Security & WelfareFood Support ProgrammePeoples Works Programme-I

Natural CalamitiesLow Cost Housing

V. GovernanceLaw & OrderJustice AdministrationAdjusted PRSP Expenditures

2001-02 2009-102008-092007-082006-072005-062004-052003-04

0.30.30.1

2.11.60.50.1

0.70.30.00.30.0

0.10.00.00.00.00.0

0.80.80.04.1

2002-03

Costs ofterrorism

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Average Growth Rate (%)

FY01 to FY11

FY01 to FY08

FY08 to FY11

YearDefence Affairs

& ServicesFederal Provincial

TotalSecurity

As a %ageof GDP

145.9

190.9

230.5

239.0

294.7

332.9

351.1

344.5

422.2

533.7

611.9

15.9

13.6

21.2

10.1

10.3

11.7

14.0

17.5

20.4

22.9

26.1

27.3

37.4

51.3

18.2

14.8

26.2

177.3

225.0

270.6

289.7

351.9

405.0

436.0

441.1

539.0

690.2

799.7

16.6

14.2

22.0

4.2

5.1

5.6

5.1

5.4

5.3

5.0

4.3

4.2

4.7

4.7

1.6

0.9

3.2

21.4

23.8

28.5

35.7

39.7

51.7

62.0

70.5

89.4

119.1

136.5

20.6

18.8

24.9

(Rs.bn)


13/24

13


The serious economic and political challenges,alongwith the severe earthquake (2005), floods(2010), infrastructural bottlenecks, the rise in

the incidents of militancy and terrorism andtheir spread from the tribal areas to all partsof the country have had a severe adverse affecton social and economic progress. Funds havehad to be redirected to other heads,undermining development priorities. All thishas adversely affected progress in theachievement of the Millennium DevelopmentGoal (MDG) targets.

The Social Policy and Development Centre(SPDC) in their Annual Review 2009-10, hasin one of the chapters focused upon theprogress Pakistan has made in key goalsincluding poverty reduction, education, healthand water supply.

Reduction of extreme poverty to half by 2015is the first MDG. The MDG Report 2010, showsthat the three indicators related to this goalhave worsened since 2006 and this goal lagsbehind the target. There are no recent povertynumbers available, but partial evidencesuggests a worsening in income inequality.Since 2008, with the multiple crisis faced by

Pakistan, with the economy slowing downand the quality of life deteriorating, it is equallylikely that poverty would have risen again.SPDC estimates show the incidence of povertyto be 38 percent in 2007-08, and may havecrossed 40 percent by end 2010.

A section of the Report highlights the progressin some of the indicators of the MDGs duringthe ongoing security crisis. These relate topoverty, education and literacy and health.Both education and health form part of human

conditions and affect the poverty level in thecountry. Improvements in the education sector,raises the literacy level, improves livingstandards, enhances quality of life andcontributes to economic growth and stability.Education also affects other outcomes, likehealth, employment, income generation,maternal and infant mortality, family health,fertility levels and population growth.

Poverty is both a cause and consequence ofpoor health. Poor people are vulnerable todiseases for they live in environments

without clean water, sanitation and decentshelter. They do not have the resources touse the health services available if they fallsick, which has serious consequences fortheir health. Health perspective is reflectedin poverty reduction strategy. The PovertyReduction Strategy Paper II reflectsgovernments commitment towards achievingthe MDGs.

The progress regarding reduction of extremepoverty to half by 2015 (the first MDG) hasbeen mentioned in the preceding paragraphs.

The MDG 2 (achieve universal primaryeducation) and MDG 3 (promote genderequality and womens empowerment) relateto the need for greater access to primaryeducation.

The Millennium Development Goals Report2010, shows that progress is slow with regardto achievement of Goal 2 is concerned andall three indicators lag behind targets. TheMDG target of achieving 100 percent literacyby 2015 requires a substantial increase in the

next few years. A considerable shortfall isexpected in achieving the set targets. TheReport points at the decline in completionrate, which implies that more than a quarterof the students enrolled in primary schools donot complete their education. The ongoingsecurity crisis has also affected theachievement of universal primary education.Primary net enrollment rate, which had madesignificant progress in the first half of 2000s,slowed down in later years. Similarly, theincrease in literacy rate has also slowed down,says the SPDC Report.

Goal 4 ofMDGs states that under five mortalityrate should be reduced by two-thirds, between1990 and 2015. Pakistan has hardly made anyprogress in this indicator. With regard to otherindicators of child health, improvement hasbeen limited in the later half of 2000. Therehas been a setback to most of the indicatorsof social development after 2004-05. Higher

Progresstowardsachieve-ment of

MDGs


14/24

14


spending on security because of the continuingwar on terror, the deteriorating law & ordercondition has reduced public spending on

social services and caused a slowdown in thepace of social development, consequentlyimpacting poverty.

Box

organized system of bribery and corruption, whichreduces the value of the transfers made to the poor.

- Another important component of the Governmentspoverty reduction strategy is the expansion of themicrofinance facility to channel benefits to the poor.

- The Rural Support Programmes approach involves anumber of key players in the process of poverty targeting.These include social organizers and activists withincommunities, who bear the greatest responsibility forensuring participation of the poor and channelingprogram benefits to them.

- Most microfinance organizations use a loose criterionto identify poor and non-poor households.

- Other important variables that need to be consideredwhen targeting the poor through microcredit programmesinclude household income, expenditure, and povertystatus.

- Moreover, the result of the analysis show that one fifthof the zakat recipients in the sample study were fromthe third and fourth income quintiles, i.e., beneficiaries

who do not necessarily classify as the poorest of thepoor.

- It is commonly argued that poverty targeting is intrinsicto microcredit program design because the affluent arenot likely to want small loans, perhaps for reasons ofsocial status.

- Small loans are also better suited to the repaymentcapacities of the poor. In spite of this, most microfinance

programs fail to target the poorest households, a keyreason being that there is no verifiable mechanism foridentifying the poor.

- The third poverty reduction program assessed here isthe LHWP. The broad conclusion that can be drawn isthat the LHWP has not yet reached the mostdisadvantaged areas or the poorest households.

- The papers analyses thus provide broad guidelines forimproving the targeting efficiency of narrow-targetprograms in general and zakat in particular. Its keyrecommendation is the development of a transparentmechanism based on household physical and socialassets that could help identify the poor and ensure thatcash/in kind benefits are transferred to such households.


15/24

15


CNG Prices

Khyber Pakhtunkhwa, Balochistan & Pothawar Sindh & Punjab

Trend in Petroleum & Gas Prices

HOBC Gasoline Kerosene High Speed Diesel Light Diesel Oil

Prices of Petroleum Products

Natural Gas Consumer Prices

Domestic (max.)Domestic (min.)CommercialIndustrial

140.00

120.00

100.00

80.00

60.00

40.00

20.00

0.00

01-0

7-2

001

01-1

2-2

001

01-0

1-2

002

01-0

7-2

002

01-1

2-2

002

01-0

1-2

003

01-0

7-2

003

01-1

2-2

003

01-0

1-2

004

01-0

7-2

004

01-1

2-2

004

01-0

1-2

005

01-0

7-2

005

01-1

2-2

005

01-0

1-2

006

01-0

7-2

006

01-1

2-2

006

01-0

1-2

007

01-0

7-2

007

01-1

2-2

007

01-0

1-2

008

01-0

7-2

008

01-1

2-2

008

01-0

1-2

009

01-0

7-2

009

01-1

2-2

009

01-0

1-2

010

01-0

7-2

010

01-1

2-2

010

01-0

1-2

011

01-0

7-2

011

01-1

2-2

011

01-0

1-2

012

01-0

2-2

012

01-0

3-2

012

(Rs/Litre)

1994

1200

1000

800

600

400

200

0

(RsPerMillionB

tu)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

90.00

80.00

70.00

60.00

50.00

40.00

30.00

20.00

10.00

(Rs/kg)

Aug 01

2009

Jan 01 Jul 30 March 01 Apr 02 May 02 Aug 07 Jan 01 Feb 01 Feb 27 Mar 01 Apr 01

2010 2011 2012


16/24

16


(Rs bn)

Source: State Bank of Pakistan

Key Indicators of Islamic Banking Sector - Pakistan

Assets

% of banking industry

Deposits


Financing & Investment


Liabilities

Capital / Equity

Markup Income

Markup Expenses

Net Markup Income

Provision Expenses

Non M arkup Income

Operating Expense

Profit (B.T)

Profit (A.T)

Full Fledged Islamic Banks (Nos)

Conventional Banks with Islamic

Banking Branches (Nos)

Total No. of Branches

2004 2005 2006 2007 2008 2009 2010

44

1.4

30

1.3

30

1.3

39

5

1

0.5

0.6

0.006

0.6

0.8

0.4

0.3

2

7

48

71

2.1

50

1.8

48

1.7

64

8

3

2

2

0.2

1

1

1

1

2

9

70

119

2.8

84

2.6

73

2.3

103

16

6

3

3

0.2

1

3

0.8

0.9

4

12

150

206

4.2

147

3.8

138

3.5

176

29

13

7

6

0.8

2

6

2

2

6

12

289

276

4.9

202

4.8

186

4.3

240

36

22

11

11

1

2

10

2

2

6

12

515

366

5.6

283

5.9

226

4.5

324

42

32

17

14

3

4

13

2

2

6

13

651

477

6.7

390

7.2

338

6.2

431

44

36

20

16

3

4

15

3

2

5

13

751

2003

13

0.5

8

0.4

10

0.5

11

2

0.4

0.2

0.2

-0.002

0.3

0.3

0.2

0.2

1

3

17

Islamic Banks Operating in Pakistan as on December 31, 2010

1. Al Baraka Islamic Bank

2. Bank Islami Pakistan Limited

3. Dawood Islamic Bank Limited

4. Dubai Islamic Bank Pak Limited

5. Meezan Bank Limited

Commenced Operations1991

March 31, 2005

April 27, 2007

March 20, 2006

March 20, 2002

No. of Branches89

102

50

51

220


17/24

17


Performance of Islamic Banks Operating in Pakistan(Rs Bn)

Source: Annual Reports of the Banks

BanksAssets

Meezan Bank Limited

Dubai Islamic Bank Pakistan Ltd

Al Baraka Islamic Bank

Bank Islami Pakistan Limited

Dawood Islamic Bank Limited

Total

Equity Deposits Advances Investment

(Rs Mn)

Interest Income Interest Expense Net Interest Income Non Interest Income Revenue

Admn Expense Operating Profit Provision/Other Expense Profit/Loss (B.T) Profit/Loss (A.T)

Selected Ratios (In %)

Net Interest MarginNet Profit MarginPre-Tax MarginIntermediate CostCost of Fund

ROE ROA ROD Non Interest Income Interest Spread

Cost of Fund Earning Assets Admn Expenses/Employee Staff / Branch Profit(A.T) / Branch NPL/Gross Advances

Meezan Bank Limited




Dawood Islamic Bank LimitedTotal

Meezan Bank Limited





Total

Meezan Bank Limited





20092008 2010 20092008 2010 20092008 2010 20092008 2010 20092008 2010

20092008 2010 20092008 2010 20092008 2010 20092008 2010 20092008 2010

20092008 2010 20092008 2010 20092008 2010 20092008 2010 20092008 2010

20092008 2010 20092008 2010 20092008 2010 20092008 2010 20092008 2010

20092008 2010 20092008 2010 20092008 2010 20092008 2010 20092008 2010

20092008 2010 20092008 2010 20092008 2010 20092008 2010 20092008 2010

Meezan Bank Limited





Meezan Bank Limited





85.3

32.0

16.5

19.1

9.6

162.5

124.2

35.4

19.8

34.3

13.1

226.8

154.8

39.9

60.8

45.0

17.7

318.2

6.3

5.1

4.1

5.2

4.1

24.8

9.1

6.0

3.5

4.7

4.8

28.1

10.7

6.0

6.1

4.7

4.3

31.8

70.2

25.5

10.9

12.5

5.1

124.2

100.3

28.0

15.1

28.0

6.8

178.2

131.1

31.4

49.3

38.2

12.6

262.6

39.5

18.1

7.8

6.3

5.6

77.3

41.7

20.6

9.4

10.5

4.8

87.0

54.2

22.8

26.9

16.7

5.6

126.2

14.5

3.0

2.8

5.0

2.0

27.3

23.3

2.8

3.4

6.8

2.9

39.2

55.0

5.9

15.6

13.7

5.1

95.3

6803

2724

1060

1469

85512911

10102

3647

1914

2177

113218972

12290

4072

2199

3806

126323630

3088

1377

598

729

4036195

4970

1806

1235

1222

6519884

6606

2130

1659

2057

72613178

3715

1346

462

739

4526714

5132

1841

679

955

4819088

5684

1942

540

1749

53710452

708

336

95

196

461381

1598

365

302

343

572665

2475

366

247

207

643359

4423

1682

557

935

4988095

6730

2206

981

1298

53811753

8159

2308

787

1963

60113818

2627

1791

950

1028

434

6830

3530

1724

1411

1755

686

9106

4461

2096

1509

1896

987

10949

1796

-109

-393

-93

64

1265

3200

482

-430

-457

-148

2647

3698

212

-722

68

-386

2870

804

162

-2

136

4

1104

1460

130

369

122

257

2338

1571

194

851

23

439

3078

992

-271

-391

-229

60

161

1740

352

-799

-579

-405

309

2127

18

-1572

45

-825

-207

621

-182

-260

-53

33

159

1025

227

-564

-489

-293

-94

1650

8

-1040

47

-535

130

4.7

6.6

7.4

6.4

10.1

5.4

6.7

9.2

6.0

10.0

5.4

7.0

4.9

6.2

7.0

4.0

8.6

11.7

9.0

10.8

3.9

6.4

10.6

8.6

10.6

3.6

6.9

4.5

5.7

9.5

13.2

-8.9

-33.9

-13.8

6.6

14.9

8.8

-36.1

-23.0

-34.1

14.4

0.4

-64.3

1.1

-62.2

14.0

-10.8

-46.7

-5.7

6.6

15.2

10.3

-57.5

-37.8

-54.5

20.2

0.3

-132.1

2.4

-89.0

5.7

6.5

4.6

6.0

6.4

5.8

6.8

4.7

5.2

5.0

4.9

6.3

1.7

6.0

4.3

10.3

-3.9

-6.6

-1.3

0.9

13.3

4.1

-15.0

-9.9

-6.6

16.6

0.1

-21.7

1.0

-11.8

0.8

-0.7

-0.2

-0.3

0.4

1.0

0.7

-3.1

-1.8

-2.6

1.2

0.02

-2.6

0.1

-3.5

1.0

-0.9

-3.4

-0.5

0.8

1.2

0.8

-4.3

-2.4

-4.9

1.4

0.03

-3.2

0.1

-5.5

16.0

20.0

17.1

21.0

9.2

23.7

16.5

30.8

26.4

10.6

30.3

15.9

31.4

10.6

10.6

5.7

6.5

3.3

5.4

2.0

5.9

6.7

4.1

5.8

1.7

5.1

6.2

1.8

6.8

3.2

4.7

6.6

6.0

5.9

5.7

5.6

6.7

8.6

6.6

6.8

5.6

6.9

5.1

7.0

5.9

0.9

3.0

1.9

0.9

1.9

1.1

3.1

2.4

1.2

1.5

1.2

3.6

1.4

1.4

2.1

17

26

12

12

11

16

16

10

14

9

17

11

12

13

9

3.7

-7.9

-6.5

-0.5

1.6

5.1

6.5

-9.4

-4.8

-5.9

7.5

0.2

-11.7

0.5

-10.7

3.7

1.9

0.2

3.5

1.1

8.6

3.7

13.8

9.1

1.8

8.4

8.4

19.4

5.4

6.7


18/24

18


Market Analysis

The market during the period January-

February 2012 was bullish with strongvolumes. Overall, the KSE-100 Index duringJanuary to February, 2012 gained 1,593 pointsor 14.0 percent to close at 12,877 on averagedaily turnover of 128.42 million shares.

The market was mostly positive during January2012 due to the apparent resolution of theCGT issue in regards to its modalities andcollection.

The Market (January-December 2011)

The net outflow of foreign funds from the

bourse during the first two weeks of the monthwas US$6.50m. The Index staged a minorrally on January 13 based on news reportsthat the SECP has forwarded tax reliefproposals to the FBRincluding reform of thecollection mechanism forCGT. The KSE-100gained 105 points to close at 11,014 on January13. The fertilizer stocks bucked the negativetrend during the second week due to hike inurea price by Rs210 per 50kg bag by ENGROto compensate for the impact ofGIDC.

During the third week of January, the marketwitnessed brisk turnover ahead of earningsannouncements of major companies andpositive expectations of investors that theGovernment of Pakistan will accept theproposals of the SECP regarding the CGT. TheIndex surged by 760 points (+6.9 percentWoW) to 11,774 on January 20. Average dailyvolumes ballooned by 208.8 percent duringthe week (86.88m shares) compared to theprevious week when they averaged 28.13mshares. During the first 3 days of the week,the KSE-100 Index surged by 533 points to

end January 18 at 11,547.

The bullishness in the market was driven byinstitutional buying interest in oil, energy andfertilizer stocks on the back of positiveexpectations of earnings and payoutannouncements. In addition, the appointmentof Aitzaz Ahsan as Prime Minister Gilanislawyer in the contempt of court case sentpositive signals in the markets that a morereconciliatory tone may be used by thegovernment in dealing with the judiciary. The

market was slightly negative on January 19because of profit taking in selective Indexstocks such as OGDC. The market surged by259 points on January 20; ahead of the financeministers meeting with the stock brokersregarding CGT on January 21.

The market was mixed during the fourth weekof the month with a strong start and finish and

350

300

250

200

150

100

50

-

Shares (m)Turnover IndexIndex13,000

12,500

12,000

11,500

11,000

10,500

30-Dec-11 18-Jan-12 6-Feb-12 23-Feb-12

The market began 2012 on a negative note asthe KSE-100 Index shed 438 points or 3.9percent from the January 2 to 12 to close at10,909. The first week of January saw profittaking in OGDC and NESTLE. The sellingactivity in OGDC might be attributed to thediscouraging discovery numbers from Zinblock. In addition, U.S. President signed intolaw the bill that would suspend US$700m inmilitary aid to Pakistan.

The bearish spell continued into most of thesecond week of the month mainly on the back

of continuous depreciation of the Pak Rupeeagainst the US Dollar and heightened tensionbetween the government and the military.Further adding to investors jitters was theSupreme Courts reprimand of the PrimeMinister regarding the non-implementationof itsNRO decision and articulated 6 optionsthat the court may use to implement itsdecision.

Marketwas mixed

Marketwitnessesbriskturnover


19/24

19


Averagedaily

volumesrise

Februarystarts on abullishnote

profit taking during the middle sessions.Average daily volumes rose by 67.2 percentWoW to 145.24m shares, while the Index was

up by 185 points (+1.58 percent WoW) to11,960 on January 27. On January 23, themarket continued its bullish trend fromFebruary 13 on the euphoria of the FederalFinance Ministers announcement in the weekto accept all the proposals of the SECPregarding the modalities of the CGT collectionand freezing the tax rates forCGT for the next2 years,as well.

The KSE-100 Index surged by 262 points toclose Mondays session at 12,037. The next3 sessions saw the market enter into a slight

corrective phase. Technically, the market wasgradually moving into the overbought zonewhich was one factor driving profit taking inselective Index stocks from the oil, bankingand fertilizer sectors. Another driver for profittaking was the re-emergence of sectariankillings in Karachi. From January 24 to 26,the KSE-100 Index shed 153 points to 11,883.The market staged a minor recovery onJanuary 27 (Friday) leading to a gain of 76points. The KSE-100 Index remained lacklusterfor the last 2 sessions of the month. The Index

shed 85 points to end the month on January31 at 11,874.

The market displayed a gradual rise coupledwith brisk volumes during the month ofFebruary under review on the back of buyingactivity by both local and foreign investors.

The market started February on a bullish notecoupled with a spark in daily turnover. TheKSE-100 Index gained 356 points or 3.0percent from the beginning of the month toclose on February 10 at 12,231. The buying

activity in selective energy, banking, oil andfertilizer stocks on the back of renewed foreigninterest was the main driver behind the positivemovement in the Index. This sanguine activitywas present despite the somber 1QFY12review of the economy by the SBP, negativeassessment by the IMF and Moodys InvestorService and resurgence of inflationary threatportrayed in the January 2012 figures.

The market made steady gains during the thirdweek of the month on the back of buyinginterest in selective Index stocks by both local

and foreign investors despite the status quostance on the policy rate kept by the SBP onFebruary 11. Average daily volumes were upslightly by 3.2 percent WoW to 175.04 millionshares. The Index surged by 264 points (2.16percent WoW) to 12,495 on Friday, February17. The market started the week on a flatnote as the Supreme Court charge sheetedthe Prime Minister for contempt of courton February13 causing some uncertaintyamong investors over the immediate politicaloutlook.

Most of the activity on February 13 and 14was concentrated on lower tier scrips. TheKSE-100 Index gained 30 points over 2sessions to close Tuesday (February 14) at12,261. Turnover picked up over the next 2days as there was buying activity in majorIndex stocks from oil, fertilizer and bankingsectors. There was speculation regarding theearly implementation of the pro-investmentchanges in CGT that were announced lastmonth. In addition, ENGRO announced onFebruary 16 annual results and payouts that

exceeded market expectations. The KSE-100Index jumped by 233 points from February15 to 17.

The bulls remained in the driving seat formost of the fourth week of the month on theback of results announcement and foreignbuying interest. Average daily volumes surgedby 36.9 percent WoW to 239.62m shares. TheIndex rose by 210 points (1.69 percent WoW)to 12,706 on February 24, a 10-month high.The net foreign inflow of funds in the bourse

during the week was recorded at US$1.55m.The market registered steady gains during thefirst 3 days of the week due to buying interestin selective energy, cement and banking stocksin anticipation of earnings and payoutannouncements and finalization of debt swapdeal of Rs136bn in the form ofTFCs to relievethe short term borrowing on the balance sheetsof the energy sector.


20/24

20


There was special focus in scrips such asDGKC, OGDC, UBL, HBL and MCB. The KSE-100 Index gained 107 points over 3 days to

12,603 on February 22, closing at a 14-monthhigh. The KSE-100 Index shed 87 points onFebruary 23 on the back of profit takingespecially in OGDC as its 1HFY12 result wasslightly disappointing. The market staged afight back on February 24 as gains wererecorded across the board led by buyinginterest in oil, power and banking sectors.

The KSE-100 Index made moderate gains overthe last 3 sessions of the month. The Indexincreased by 171 points to end the month onFebruary at 12,877.

The Pakistan market PE at 6.11x is trading ata 51.1 percent discount to the regional averageof 12.50x. Based on dividend yield, Pakistanis the most attractive at 8.37 percent ascompared to the regional average of 2.80percent, followed by Taiwan (4.35 percent)and Thailand (4.06 percent).

RegionalValuation

With another earnings season ending, thefocus will return to the political scenario andthe upcoming budget expected in May. Manyevents are happening on the political frontsuch as the contempt of court case against thePrime Minister, Senate elections andMemogate inquiry. Developments on thepolitical scene might adversely impact investorsentiments in the immediate term. In addition,the changes in the CGT regime have not beenofficially notified by the GoP throughlegislation/ordinance and/orSRO, leading tomore anxiety for investors heading into March.

(Contributed by Taurus Securities Ltd,a subsidiary of National Bank of Pakistan)

LookingAhead

ChinaHong Kong

India

Indonesia

Malaysia

Pakistan

Philippines

Singapore

South Korea

Taiwan

Thailand

Country

12m F

PEx

12m F

Dividend Yield (%)

2.002.88

1.54

2.41

3.31

8.37

2.47

3.54

1.48

4.35

4.06

Source: Thomson One Analytics, Date: February 16, 2012

10.1812.41

12.05

13.00

13.91

6.11

13.57

13.03

9.46

15.97

11.40

Regional Valuation Comparison


21/24

21


Book/Report Reviews

second chapter on this theme, discusses the

use of innovative teaching approaches throughaction research for B.Ed programmes. Thisresearch was aimed at studying how teachingand learning could be made more interactiveand interesting for students of a B.Edprogramme by using innovative teachingapproaches through action research.

A third theme in the book is learning fromresearch in higher education. There are threechapters in this section. The purpose of thefirst study entitled, Graduate Students inEducation in a Public SectorUniversity inPakistan: Quest forQuality, was to understandstudents experience of their graduate studiesand what they know about their programme,policies and procedures. What is the experienceof graduate students from induction and coursework to supervision and completion of theirgraduate studies in education.

The next chapter on this theme, entitled:Improving Quality ofEducation throughEnhancement ofTeachers Capacity: PolicyImplications forHigherEducation in Pakistan,

discusses on what quality of education is andhow it could be achieved in contemporaryschools. The last chapter focuses on sharingsome reflections and insights from the tripartiteinstitutional cooperation between the twoPakistan universities and one Norway baseduniversity.

Pakistan A Dream Gone SourRoedad KhanOxford University PressNinth Impression 2011

The book is a collection of the authorspersonal reminiscences and observations basedon nearly forty years in the service of Pakistan.It seeks to answer some questions like: howdid the Pakistan dream turn sour? where didwe go wrong? what has the role of our nationalinstitutions been and what is their contributionto the present unpleasant situation? is it our

Education in Pakistan

Learning from Research PartnershipsAyesha Bashiruddin, Zubeda Banaand Arbab Khan AfridiOxford University Press 2012

In 2005, two Pakistani based universities,namely, the Aga Khan University Institutefor Educational Development (AKUIED), inthe private sector and Institute of Educationand Research Peshawar University (IERPU)in the public sector and one Norway baseduniversity, viz Centre for InternationalEducation, University College Oslo, developed

research partnership to work together topromote joint research studies, professionaldevelopment of faculty and students and wholeschool improvement in teacher education inPakistan. This book is based on researchstudies that were conducted and some paperswhich were presented in a conferencecollaboratively held by the project.

Three themes have been discussed in the book,namely, learning from research in schools,learning from research in teacher education

institutions and learning from research inhigher education. The first theme has fourresearch studies; teaching grammar; beliefsand practices of teachers of English; effectsof teaching and learning in large primaryclasses in Peshawar primary schools; theimportance of the context in schoolimprovement (the author reflects on andpresents an analysis of the Whole SchoolImprovement Programme which was designedand implemented in four governmentsecondary schools established and run by theUniversity of Peshawar and the fourth study

is exploring indigenous leadership practices:case study of school principals in the KhyberPukhtunkhwa province.

There are two studies with regard to the secondtheme. In the first chapter of this theme, theauthors study both male and femaleperspectives about the role of teachingpracticum on their learning to teach. The


22/24

22


destiny to be ruled by practitioners of the artof larceny, loot and plunder? is the nationalready passing through its terminal stage? is

it too late?

It is the story of six Presidents who ruledPakistan from 1958 onwards. Each one ofthem, in his own way, has, directly orindirectly, contributed to our generationsanguish and sense of betrayal, to our loss ofconfidence in our rulers, in our country, inour future, in ourselves, and to the souring ofthe dream of Pakistan, writes the author.

In one of the chapters the author talks aboutMr. Jinnahs concept of the role of civilservants in independent Pakistan. This is oneof the least known speeches of the Founderof the Nation, says the author. The Quaidsadvice to civil servants was to serve whichevergovernment is formed according to theConstitution and whoever happens to be theprime minister, coming into power in theordinary constitutional course. Little attentionwas paid to this advice. The author furtherwrites, the most arduous search will not turnup many civil servants anywhere in the countrytoday who do their duty as servants to thepeople and the state, fearlessly and honestly;who are not influenced by political pressurefrom any political party or individual politician,and who do not have a stake in supportingone political party or another, or one politicalleader or another.

In the chapter, fifty years of independence,the author writes, Pakistan today faces itsmoment of truth. There seems to be a crisisof public confidence in the countrys futureand in the institutions that constitute its politicalapparatus. He further states, Pakistan todaypresents an image of a country plagued bypolitical, ethnic, and sectarian divisions. Never

before has public faith in the countrys futuresunk so low. There is widespread and growingcynicism among the people. The country asa whole appears to be adrift, lackingconfidence about its future. There is no leaderable to prepare the country for the twenty-first century. Nobody knows where the countryis headed without effective leadership to guideor direct it and few seem to care.

Company Law in Pakistan2012Prof. Dr. Khawaja Amjad Saeed

This book is an updated and expanded editionof the authors earlier written book CompanyLaw in Pakistan published in 1997. Itincorporates changes in the CompaniesOrdinance and related legislation. Whereverrelevant the amendments introduced have alsobeen included in the concerned chapters. Thenew additions that have been made in updatingthe 2012 edition, includes among others; anexecutive summary of every chapter; inclusionof a separate chapter which summarizesamendments made in todays Companies

Ordinance 1984, through various FinanceActs, 2007 and 2008. Self-test questionsalongwith solutions have also been includedat the end of each chapter.

The book consists of 19 chapters, where thelast chapter, titled Latest Amendmentsdiscusses the extensive changes that have beenmade in the Finance Act 2007 and 2008. Thesummary at the beginning of each chapter,provides the readers an overview of thechapter.

The introductory chapter of the book providesthe readers with the history of company lawin Pakistan, related aspects, types ofcompanies, powers and functions of theCommission etc. The following chapterdescribes in detail the promotion andincorporation of a company, followed by achapter which gives in detail the preparationofProspectus, followed by chapters on

Allotment, Shareholders of a Company,Management ofCompanies, Meetings and

Resolution toPreparation ofAnnualAccounts.Another chapter describes the salient features

of legal provision governing the auditors ofa company. One of the chapters highlights theimportance of proper ascertainment of profitswith its concept and difficulties in thedetermination of profits. There is a chapteron legal provisions governing foreigncompanies, on legal provisions governingwinding up and on legal matters relating tonon-banking finance companies.


23/24

23


non-food non-energy

Pakistan Economy Key Economic Indicators

Unit

Output and Prices

GNP Size (MP)

GDP Size (FC)

Income Per Capita

Real Growth

GNP

GDP

Agriculture

Manufacturing

Services Sector

Prices

Consumer Price InflationWholesale Price Inflation

Food Inflation CPI

Non Food Inflation CPI

Core Inflation

GDP Deflator

Gold Tezabi (Karachi)

Petrol Super

Kerosene Oil

Wheat Flour (Avg. Quality)

Savings and Investment

National Savings

Domestic Savings

Gross Fixed Investment

Public Sector

Private Sector

Public Finance

Revenue Receipts (Fed Govt)

Tax Revenue

Total Expenditure

Fiscal Deficit

FBR Tax Collection (Fed Govt)

Direct Taxes

Indirect Taxes

Internal Debt Outstanding

Funded Debt

Unfunded Debt

Monetary Sector

Growth of Monetary Assets M2

Currency in Circulation

Rs.bn

Rs.bn

$

(%)

(%)

Rs./10 grams

Rs/Ltr

Rs/Ltr

Rs/Kg

% GDP

% GDP

% GDP

% GDP

% GDP

Rs.bn

% share

% share

Rs.bn

% Internal Debt

% Internal Debt

%

Rs.bn

18847

17107

1122

2.8

2.4

1.2

3.0

4.1

13.923.3

18.0

10.6

9.7

18.8

37658

75.70

84.89

29.56

13.6

9.3

11.8

3.3

8.5

11.7

8.9

14.8

4.0

1558.0

38.7

61.3

6017

72.5

27.5

16.0

1501.4

2004-05

6634

6123

724

8.7

9.0

6.5

15.5

8.5

9.36.8

12.5

7.1

7.2

7.0

8216

40.74

29.11

13.28

17.5

15.4

17.5

4.3

13.1

13.8

8.9

17.2

3.3

590.4

31.0

69.0

2158

59.8

40.1

19.3

665.9

2005-06

7773

7158

823

5.6

5.8

6.3

8.7

6.5

7.910.1

6.9

8.6

7.5

10.5

10317

55.12

36.19

13.06

18.2

16.3

20.5

4.8

15.7

14.2

9.4

18.5

4.3

713.5

31.5

68.5

2337

62.3

37.7

15.2

740.4

2006-07

8831

8235

905

6.7

6.8

4.1

8.3

7.0

7.86.9

10.3

6.0

5.9

7.7

12619

56.00

39.09

13.64

17.4

15.6

20.9

5.5

15.4

14.9

9.7

19.1

4.3

847.2

39.4

60.6

2610

64.0

36.0

19.3

840.2

2007-08

10452

9921

1022

3.7

3.7

1.0

4.8

6.0

12.016.4

17.6

7.9

8.4

16.2

16695

57.83

43.44

18.07

13.6

11.5

20.5

5.4

15.0

13.7

9.9

18.7

7.6

1007.2

38.4

61.6

3275

68.8

31.2

15.3

982.3

2008-09

13070

12110

1017

4.0

1.7

4.0

-3.6

1.7

20.818.2

23.7

18.4

17.6

20.0

22195

67.68

66.79

25.64

12.5

9.8

16.6

4.3

12.3

13.2

9.8

16.5

5.3

1161.2

38.2

61.8

3861

67.1

32.9

9.6

1152.2

2009-10

15403

14066

1068

5.1

3.8

0.6

5.5

2.9

11.712.6

12.5

11.1

11.0

11.9

29587

67.56

72.65

28.77

13.1

9.3

13.8

3.6

10.2

13.8

10.0

17.4

6.3

1328.6

39.8

60.2

4654

68.7

31.3

12.5

1295.4

2010-11


24/24

24


July-March a excludes deposits of scheduled banks b excludes advances to scheduled banks

1 SBP 3 day repo rate was renamed as SBP reverse repo rate wef August 17, 2009

Source: Pakistan Economic Survey 2010-11

Annual Report 2010-11, State Bank of Pakistan

Credit to Private Sector

Credit to Public Sector

Borrowings for Budgetary Support

Resident Foreign Currency Deposits

Demand Deposits / Money Ratio

Capital Market (KSE)

Listed Capital

Market Capitalisation

Listed Companies at KSE

Banking Sector

Scheduled Banks Depositsa

Scheduled Banks Advancesb

Non-Performing Loans All Banks

Lending and Deposit Rates

Deposits

Advances

Open Market Operation

SBP 3-Day Repo1

Treasury Bills Yield - 6 Months

KIBOR - 6 Months (Offer)

Pakistan Investment Bonds - 5 yrs

Interbank Call Rates (Overnight)

SBP Export Finance Rate

External Sector

Exports

Imports

Balance of Trade

Current Account Balance

Workers Remittances

Foreign Investment in Pakistan

Direct

Portfolio

Debts

External Debt and Liabilities

Domestic Debt Outstanding

Internal Debt as % of GDP

National Saving Schemes

Total Reserves

Gold

Liquid Fx Reserves

Exchange Rate (Average for year)

Rs.bn

Rs.bn

Rs.bn

Rs.bn

%

Rs.bn

Rs.bn

Nos

Rs.bn

Rs.bn

Rs.bn

weighted average

% per annum

% per annum

weighted average

% per annum

% per annum

% per annum

weighted average

%

%

$ bn

$ bn

$ bn

$ mn

$ mn

$ mn

$ mn

$ mn

$ bn

Rs.bn

%

Rs.bn

$ mn

$ mn

$ mn

Rs/US$

Unit

3141

3020

2602

368

60.5

920

3217

638

5489

3311

579

4.53

13.46

14.0

11.92

13.4

14.03

12.41

10.0

24.81

40.41

15.27

268

11201

1999

1635

365

61.8

6017

33.3

1820

20941

3117

17824

85.5017

1712

752

647

180

32.1

439

2068

659

2428

1694

177

1.37

8.81

9.00

7.96

8.46

7.50

6.10

6.50

14.39

20.59

6.18

1534

4168

1677

1525

153

35.8

2158

33.5

940

13338

917

12421

59.3576

2004-05

2114

834

708

196

31.9

496

2801

658

2817

2071

173

1.96

10.61

9.00

8.49

9.36

9.65

8.80

7.50

16.45

28.58

12.01

4990

4600

3872

3521

351

37.6

2337

30.7

936

14354

1268

13086

59.8566

2005-06

2480

927

810

207

65.0

631

4019

658

3373

2376

214

2

Documents

Economic Bulletin January February 2012 2