DAILY BUSINESS NEWS SUMMARY IN BRIEF: 27.05.2011

Business News

Friday, May 27, 2011 09:03
-	Asian shares edge up but Tokyo hit by CPI data
-	Dollar falls in Asia over weak US data
-	Oil higher on dollar weakness
-	Budget deficit to climb over Rs1 trn At Block Q midnight oil is once again being burnt. Budget 2011-2012 is scheduled to be announced in a week?s time. Once again we will have inflated revenue receipts, a healthy developmental allocation, a constrained steam of expenses and an awfully alluring budgetary deficit. At Block Q the motto is: A life spent making mistakes is not only more honorable but more useful than a life spent making real budgets.
-	Faisalabad industry suffers from gas loadshedding
-	Forex reserves rise to $17.07bn They are due to meet in July to discuss the possible release of the sixth tranche. (Reuters)
-	Euro firms on China scholar''s investment comment
-	Asian shares up on Wall St rise, bargain buying Gold opened in Hong Kong at $1,525.00-$1,526.00 per ounce, up from Wednesday''s close of $1,523.00-$1,524.00. (AFP)
-	Oil up in Asian trade after rise in US equities
-	KSE surges by 122 points on fresh buying A stock dealer said that prevailing bullish sentiment pushed the KSE-100 index to a 3-month high level while volume rose to 14-day high to 3.3billion rupees. (Reuters)

Clinton due today for crucial talks

ISLAMABAD: Political and military leaders of Pakistan and the United States will sit face-to-face on Friday in an effort to work out fresh ‘rules of engagement’ for salvaging their troubled relationship caused by deep-rooted mistrust and differences over fighting militancy.
US Secretary of State Hillary Clinton will be joined by Joint Chiefs of Staff Committee Chairman Admiral Michael Mullen at the make-or-break talks with Pakistan’s civilian and military leadership.
There appears to be a standoff on the question of unilateral strikes by the US against militants’ hideouts on Pakistani territory. The two countries have publicly taken maximal position on the issue, but Islamabad is likely to persuade Washington to forgo the option of unilateralism which is seen here as humiliating for the country.
Both sides have taken positive steps ahead of the talks to improve the atmosphere.
Ms Clinton’s visit comes after deep introspection and a serious reassessment of ties by both sides.
Last week Pakistan returned the wreckage of the helicopter which had gone down because of technical problems during the May 2 Abbotabad raid and, more significantly, renewed its resolve to act decisively against terrorists and their hideouts. The Defence Committee of the Cabinet, which met on Wednesday to discuss the weekend attack on Navy’s Mehran base in Karachi, resolved to use all means at the country’s disposal to firmly deal with the problem.
On its part, the US started pulling out its troops based in Pakistan largely for training purposes on Pakistan military’s request — something demanded by the army immediately after the embarrassing Abbotabad incident.
The visit by US Senate Foreign Relations Committee Chairman Senator John Kerry, who had held icebreaking talks here last week, was followed by two official delegations — one led by Special Envoy for Afghanistan and Pakistan Marc Grossman and the other by CIA Deputy Chief Mark Morrell.
The visits by the two delegations were to lay groundwork for Ms Clinton’s visit and to enable her to have discussions in the “right context and with right understanding”.
Notwithstanding Pakistan’s commitment to going the whole hog against terrorism, Secretary Clinton still appears to be sceptical about the assurances already conveyed to Washington.
Speaking in Paris before embarking on the trip to Islamabad, she said Pakistan had not always acted decisively and that it was time to meet Washington’s “expectations”. In somewhat reassuring words for her hosts in Islamabad, she reiterated US commitment to maintaining strategic relationship with Pakistan.
In Islamabad, which has maintained complete silence about the visit, Prime Minister Gilani met Foreign Secretary Salman Bashir and Minister of State for Foreign Affairs Hina Rabbani Khar to work out the strategy for the discussions.
In a statement issued after the meeting, Mr Gilani was quoted as saying: “Pakistan believes in peaceful coexistence and desires to strengthen friendly relations with the global community in the interest of international peace and prosperity.”
He sought international support for Pakistan’s fight against terrorism.

Govt finalises budget with size estimated at Rs3.8trn

ISLAMABAD: The government has finalised a consolidated budget of Rs3.854 trillion for the next financial year, envisaging a revenue of Rs2.787 trillion, fiscal deficit of Rs912 billion and provincial transfers of Rs1.224 trillion.
The budgetary allocations indicate that current expenditures of most of the federal ministries will be frozen at the level of the current year because of tight fiscal position.
Official documents available with Dawn show the government has set a tax revenue target of Rs2.1 trillion, 2.3 per cent above the current year’s revised target of Rs1.71 trillion. This includes a Rs1.952 trillion tax target of the Federal Board of Revenue (FBR) against current year’s revised estimate of Rs1.588 trillion. The non-tax revenue is estimated at Rs687 billion, up 30 per cent from this year’s revised estimate of Rs526 billion.
Of the total revenue of Rs2.787 trillion, the provinces would get Rs1.224 trillion and Rs1.513 trillion would be for the federal government.
The government had set a revenue target of Rs2.410 trillion for the current year, but it has now been revised to Rs2.235 trillion, because of a shortfall in FBR collection, non-introduction of RGST and slow economic growth.
The centre’s total expenditure has been estimated at Rs2.549 trillion, up from current year’s revised estimate of Rs2.314 trillion. The centre would extend Rs55 billion subsidies to the provinces.
The size of the federal Public Sector Development Programme has been estimated at Rs280 billion against current year’s original estimate of Rs270 billion which was brought down to Rs180 billion.
Another Rs35 billion would be spent for flood relief assistance, slightly less than current year’s Rs40 billion.
Pensions would require Rs118 billion against Rs107 billion this year. Likewise, federal government’s service delivery cost has been estimated at Rs200 billion, which is about Rs20 billion more than current year’s revised estimate of Rs180 billion – brought down from budgeted Rs221 billion.
SECURITY AND INTEREST: The government would earmark Rs495 billion for defence, about 12 per cent more than current year’s allocation of Rs442 billion. Another Rs340 billion would be made available through grants for security expenditure, up 19.3 per cent from current year’s Rs285 billion. Put together, security-related expenditures would amount to Rs835 billion against this year’s Rs727 billion, up by 15 per cent.
An almost equally a large amount of Rs786 billion would be paid as interest cost, which is about Rs60 billion or 8.3 per cent more than current year’s revised debt servicing of Rs726 billion. The government had earmarked Rs699 billion in the 2010-11 budget for debt servicing which has been revised to Rs726 billion.
About Rs50 billion would be allocated for the ministry of interior, up from current year’s Rs44 billion.
BUDGET DEFICIT: The federal government’s fiscal deficit has been estimated at Rs1.036 trillion that is expected to be reduced to Rs912 billion because of a Rs124 billion cash surplus to be provided by the provincial governments. For the current year, the government had envisaged an overall deficit of Rs685 billion (4.5 per cent of GDP) that has now been revised to Rs960 billion or 5.5 per cent of GDP. The provinces were expected to generate a cash surplus of Rs167 billion but it was revised to Rs112 billion.
The budget deficit would be met through Rs95 billion worth of grants, net domestic bank borrowing of Rs807 billion and net external borrowing of Rs10 billion.
PROVINCIAL FINANCES: The provinces would get Rs1.224 trillion, up 23 per cent from the revised estimate of Rs993 billion during the current year. At the time of budget announcement last year, the centre had promised net transfers of Rs1.034 trillion to the provinces, which has been revised to Rs993 billion, a reduction of about Rs40 billion.
The provincial governments are expected to generate a tax revenue of Rs78 billion next year, slightly higher than current year’s revised estimate of Rs67 billion. Provincial non-tax revenue is expected at Rs69 billion against Rs66 billion revised estimate of this year.
The total expenditure of the provinces has been estimated at Rs1.305 trillion against current year’s estimate of Rs1.056 trillion.
FEDERAL MINISTRIES: A total of 17 ministries have been devolved to the provinces and, therefore, there would be no allocation for them for current expenditure in the budget. The remaining 31 ministries have been given the ceiling of about Rs155 billion for their current expenditure.
Some of the key ministries that have been given major allocations include the interior ministry, Rs50 billion; cabinet division, Rs5 billion; establishment division, Rs1.4 billion; commerce, Rs4.8 billion; defence ministry, Rs6.8 billion; finance and revenue, Rs22 billion; foreign affairs, Rs12 billion; housing and works, Rs2.4 billion; Kashmir and Gilgit-Baltistan, Rs8 billion; and States and Frontier Regions along with Fata, Rs16 billion.

Inflation target: Planning Commission, MoF differ

The Planning Commission and Ministry of Finance are in disagreement over 2011-12 inflation target, documents reveal. The Planning Commission has forecast an inflation of 13 percent while the pundits in the Ministry of Finance have set a target of 12 percent.

Inflation estimates are premised on the performance of key macro economic indicators including growth as well as the expected impact of budgetary allocations on various sectors and revenue sources besides the monetary policy statement issued by the State Bank of Pakistan.

Sources revealed that the Planning Commission, in a summary prepared for the National Economic Council (NEC) meeting has set 13% Consumer Price Index (CPI) inflation target for the next fiscal year against 12% projection by the Ministry of Finance.

The Planning Commission also identified higher government borrowing from the banking sector for budgetary support, increasing price of electricity and petroleum products as well as rising prices of essential commodities in the international market as main factors behind the rising inflation estimate.

The NEC to be presided over by Prime Minister and attended by all the Chief Ministers to review annual plan for the current fiscal year and proposed annual plan for the next year, has been requested to limit government borrowing to about 10% of revenue of 2010-11 with the objective of controlling the inflation. Lower government borrowing, considered critical to limiting monetary expansion and to encourage private sector credit, would help decrease the CPI inflation index and increase the GDP growth rate in the next fiscal year.

The government must make efforts to bring the inflation rate down during the next fiscal year by following fiscal stringency, tight monetary policy and by ensuring adequate supply of essential items because price stability is critical for making long term economic decisions. The new taxation measures have contributed to an increase in production cost in the agriculture sector and pushed the average CPI inflation which is likely to touch 15 per cent for the current fiscal year against the annual plan target of 9.5%.

An official told Business Recorder that inflation has eroded purchasing power of each rupee earned sending more below the poverty line during the last three years. Inflation has been in double digits for the last 23 months. Given the ramification of rising inflation, price stability must be top priority for the next fiscal year, they added.

 MOHAMMED SALEEM MANSOORI

RAFI SECURITIES (PVT.)LTD.