ECC expands scope of Afghan transit trade

ECC expands scope of Afghan transit trade
25.02.2004 ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet has approved deletion of 14 items from the negative list under the Afghan Transit Trade (ATT) agreement.

The meeting, presided over by Finance Minister Shaukat Aziz on Tuesday, also confirmed receipt of $500 million Eurobond proceeds that helped official foreign exchange reserves to touch $12.5 billion mark. Pakistan has also received offers from five leading international financial institutions to swap these bonds from a five-year fixed coupon to a floating rate for reducing the cost by at least two percentage points.

According to an official announcement, the meeting removed razor and shaving blades, capacitors, video cassettes, vegetable ghee, cigar and cheroots, art silk fabrics, shampoo, refrigerator, air conditioners, PVC and PMC material, dyes and chemicals, yarns, soaps and black tea from the non-tradable list under the ATT. This would leave only six items on the negative list, under the 1965 transit deal for the landlocked Afghanistan, including cigarettes, cooking oil, TV sets, tyres and tubes, auto parts and telephone sets.

The economic committee also announced 25 per cent freight subsidy to facilitate exports of potatoes. The meeting also approved in principle a reduction in customs duty on import of phosphatic fertiliser from 10 per cent to 5 per cent. A similar reduction in duty for the import of other capital equipment would be considered in the next budget, the ECC announced. The meeting also decided to allow export of livestock, excluding poultry, subject to a No Objection Certificate (NOC) by the Ministry of Food and Agriculture (MINFAL). The quota of animals export would be restricted to 10,000 large animals per month.

The meeting also decided that MINFAL would issue NOC for 500 large animals, 1500 sheep and goats and 50 camels at one time to regulate mutton and beef prices in the country through intervention in the export regime. The ECC decided to remove vegetable ghee and cooking oil, and their raw materials, from the DTRE regime to curb illegal trade, which is affecting local prices.

The meeting also allowed foreign banks operating in the country to set up as many as 50 branches, as against the current limit of 25. It approved a proposal to participate in the World Expo 2005 at Aichi Japan. "The Expo would provide an opportunity for image building and improve trade and investment."

In a detailed review of the economic performance, the meeting noted the large-scale manufacturing sector (LSM) has shown a robust growth rate during first half of the current fiscal year. According to the announcement, LSM sector registered a growth rate of 14.7 per cent during July-December 2003, including food, beverages and tobacco 17.5 per cent; textile and apparel 4.7 per cent; leather products 53.5 per cent, paper and paper board 9.2 per cent; chemical, rubber and plastic 12 per cent; petroleum products 1.6 per cent; tyres and tubes 11.4 per cent; non-metallic mineral 16.2 per cent; basic metal industries 18.6 per cent; metal products and machinery 37.5 per cent; and automobile 58.6 per cent. The industrial sector growth shows a broad-based recovery.

The LSM growth excluding sugar shows 14 per cent increase, excluding textile 19.2 per cent; excluding automobile sector 12 per cent, and excluding both auto and textile growth comes to 15.5 per cent, showing healthy recovery in all the major industries.

"The increase in manufacturing sector will enable Pakistan to have a GDP growth rate more than the target of 5.3 per cent set for the year," the ECC announced. A senior official of the Ministry of Finance claimed that the growth could touch 5.7 per cent mark during the year if the trend was sustained over the remaining part of the current fiscal year.

The committee maintains that about Rs 215 billion credit off-take by the private sector during July-January period of the current fiscal year indicates increased economic activity in the country. While the public sector corporations retired Rs 29.1 billion during this period, and commodity operations registered a negative growth of Rs 26.4 billion, the bank borrowing for budgetary support registered a hefty increase of Rs 88.6 billion in the review period, against the yearly target of Rs 15 billion. The bank borrowing for budgetary support increased due to rationalisation of the interest rates on the national saving schemes, which reduced fresh inflows in these instruments. Overall monetary expansion registered a growth rate of 10.8 per cent, or Rs 224.5 billion, against the full fiscal year target of Rs 230 billion, or 11.06 per cent. The rate of inflation, measured by the Consumer Price Index (CPI), is also on the rising path for the last few months. Overall CPI inflation increased by 3.38 per cent during the first seven months, and Whole Sale Price Index (WPI) registered an increase of 6.43 per cent.

However, the trends in foreign private investment have been less than satisfactory so far. Net flow of foreign private investment totalled $301.6 million during July-January 2003-04, against $617.8 million during the corresponding period of the last fiscal year. Foreign Direct Investment (FDI) during this period indicated an inflow of $339.5 million, compared with $596.4 million of the corresponding period of 2002-03. Portfolio investment registered an outflow of $37.9 million in the review period, against an inflow of $21.4 million in the comparable period of last fiscal year. However, the Ministry of Finance says the payment of about $200 by the Aga Khan Foundation, as first tranche for Habib Bank Limited (HBL), during the next couple of days would positively change the investment data. Last year, FDI registered rising trend on the back of a similar payment by strategic buyer of United Bank Limited (UBL). The investments in the Greenfield projects remained low in recent years.

A senior official of the Ministry of Finance said some of the investment flows were possibly reported as remittances sent by overseas Pakistanis. He said the government would analyse the data in this regard to come to a conclusion. The remittances totalled $2.26 billion during July-January period of the current fiscal year, against $2.53 billion of the first seven months of 2002-03.

The meeting also approved setting up of Investment Facilitation Centres at Karachi, Lahore, Islamabad, Peshawar and Quetta to provide one window services to investors.

Exports during the first seven months of the current fiscal year, increased by 13.56 per cent to total $6.97 billion, against $6.14 billion in the corresponding period of the last fiscal year. Imports also registered a growth of 16.2 per cent in this period total $7.95 billion, against $6.84 billion of last year. The import of machinery registered 23.1 per cent growth.

Finance Minister Shaukat Aziz said the government is confident to achieve 4 per cent budget deficit target for the year. "The macroeconomic data for the first half of the year indicates that all benchmarks are on track," he said. The tax revenue collection during first seven months of 2003-04 increased by 14.9 per cent to total Rs 274 billion, including 13 per cent growth in direct and 15.5 per cent growth in indirect taxes.

It also approved a bank guarantee to provide bridge financing of Rs 2.5 billion to Pakistan Steel Mills (PSM). The official handout claimed that PSM profit is likely to increase from Rs 1.2 billion of last year to Rs 2 billion during the current year. PSM sales have increased to Rs 23 billion due to rising demand of steel products in the country, helping it to prepay expensive loans of around Rs 11 billion. PSM plans to enhance its production capacity to 3 million tones.

The meeting also reviewed the Gwadar Seaport Project, saying the progress is ahead of its construction schedule. It endorsed the payment mechanism for the project, and agreed to continue till the completion of the contract. The ECC also discussed plans to effectively connect Gwadar Port through road network with rest of Pakistan, as well as with Afghanistan and the Central Asia.

AP

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