VZCZCXRO6133
RR RUEHLH RUEHPW
DE RUEHIL #0443/01 0610228
ZNR UUUUU ZZH
R 020228Z MAR 09
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 1675
INFO RHEFDIA/DIA WASHINGTON DC
RHEFSNG/HMSNG WASHINGTON DC
RUZDHTR/HOTR WASHINGTON DC//USDAO ISLAMABAD PK//
RUWSMXI/AMC INTEL CEN SCOTT AFB IL//INO/J2-J//
RUEPVAA/CDR JSOC FT BRAGG NC//J2/HSE//
RHMFISS/CDR USCENTCOM MACDILL AFB FL//CCJ2-JCH/HSE//
RHLFABN/CDR USESUCOM ABNCP VAIHINGEN GE//ECJ2/ECJ3/ECJ5-A//
RHMFISS/CDR USSOCOM MACDILL AFB FL//SOJ2/HSE//
RHMFIUU/CDR USTRANSCOM TCJ2 SCOTT AFB IL
RHMFISS/CDRUSAREUR HEIDELBERG GE//AEAGB-IAD//
RUEAIIA/CIA WASHINGTON DC//DDI/OEA//
RUEPVAA/COMJSOC FT BRAGG NC
RHEFDIA/DIA WASHINGTON DC//DHO-3//
RHEFDIA/DIA WASHINGTON DC//MIO-4//
RUETIAA/DIRNSA FT GEORGE G MEADE MD//M112/S2132HT//
RUEKJCS/JOINT STAFF WASHINGTON DC//J2/J5-EUR//
RUZFNAI/NASIC WRIGHT PATTERSON AFB OH
RUZFNAI/NASIC WRIGHT PATTERSON AFB OH//DEKA/FCTP//
RUZFNAI/NASIC WRIGHT PATTERSON AFB OH//DXOA/TAAO//
RHEFNGB/NGIC INTEL OPS CHARLOTTESVILLE VA
RHEFNGB/NGIC INTEL OPS CHARLOTTESVILLE VA//IANG-CE-CM/IANG-GS-AA//
RHEFNGB/NGIC INTEL OPS CHARLOTTESVILLE VA//IANG/CE/CECM//
RUCXONI/ONI WASHINGTON DC//32/211//
RUEALGX/SAF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC//USDP-ISA-ADMIN//
RULWAAM/STRATCOM IDHS-90 OFFUTT AFB NE//J22123//
RUEPGAA/US SURVEY DIV SHAPE BE
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RUEHIL/USDAO ISLAMABAD PK
RUCQSAB/USSOCOM INTEL MACDILL AFB FL
RUEHLO/AMEMBASSY LONDON 9789
RUEHNE/AMEMBASSY NEW DELHI 4542
RUEHBUL/AMEMBASSY KABUL 9919
RUEHLH/AMCONSUL LAHORE 6847
RUEHKP/AMCONSUL KARACHI 1164
RUEHPW/AMCONSUL PESHAWAR 5775
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 05 ISLAMABAD 000443 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR ECON ETRD EFIN EINT EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON THE ECONOMIC ISSUES FROM 25 FEBRUARY 2009 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
¶1. (SBU) The Business Recorder reported that the European Union and 
Pakistan signed a civil aviation agreement on February 24, which 
allows EU-based airlines to operate flights to Pakistan from any EU 
state which already has an agreement with Islamabad.  "The agreement 
signed today is good news for both Pakistani and EU airlines as well 
as for passengers, as it removes the legal uncertainty" from 
existing bilateral deals, said EU Commission vice-president Antonio 
Tajani. Legal clarification was necessary because a European court 
ruled in 2002 that aviation agreements between one EU nation and a 
non-EU country were discriminatory and in breach of EU law.  The EU 
has negotiated similar accords with 45 countries. Comment: Manzar 
Jamal, Director Air Traffic, Civil Aviation Authority told ECON on 
February 25 that General Pervaiz Haider, Additional Secretary 
Aviation, signed the agreement yesterday. Per the agreement, EU 
states that do not have a bilateral agreement with Pakistan but 
which have an agreement with another EU state that has an agreement 
with Pakistan will be able to fly to Pakistan. Pakistan has aviation 
agreements with 18 EU members. Jamal noted that India has had three 
rounds of negotiations with the EU on this topic but has been unable 
to reach agreement. 
 
¶2. (SBU) Money sent home by overseas Pakistanis in the first seven 
months of Pakistani fiscal year 2009 (from July to January) surged 
to $4.277 billion, an increase of over 18 per cent from the same 
period in FY 08 ($3.623 billion).  The main sources of these funds 
were the U.S., the U.A.E., Saudi Arabia, and the Gulf Cooperation 
Council countries (Bahrain, Kuwait, Qatar and Oman).  (Comment:  We 
have heard from several GOP and international officials that this 
surge is not necessarily a positive - it may be an indication that 
Pakistanis have lost their overseas jobs, particularly in places 
like Dubai that are experiencing massive layoffs, and are 
transferring assets prior to returning home.  End comment.) 
 
¶3. (SBU) A City District Government of Karachi (CDGK) official told 
CG Karachi on February 20 that the CDGK municipal services office 
has begun implementing the city's new "infrastructure tax" on 
residential and commercial land owners.  One million bills had been 
sent, and an additional 700,000 bills would be sent out over the 
next few days.  He noted that the tax is intended to cover municipal 
services such as street sweeping and garbage collection, as well as 
infrastructure improvements including roads, parks, and 
streetlights.  The new fee structure is based on a resolution passed 
by the Karachi city council in June 2008.  The Karachi Water and 
Sewer Board is also collecting fees for fire protection, street 
 
ISLAMABAD 00000443  002 OF 005 
 
 
sweeping and garbage disposal. 
 
¶4. (SBU) The Karachi Stock Exchange closed down 118 points at 5,850 
on February 24.  The market has hovered between 5,000 and 6,000 
points since the beginning of 2009, down approximately two-thirds 
from its high of more than 15,000 in April 2008.  (Comment:  The 
Karachi Stock Exchange fell another 294 points on February 25 to 
close at 5,580, its sharpest decline since June 2006.  The sharp 
market drops were presumably a market reaction to the deteriorating 
domestic political situation following the disqualification of 
opposition leaders Nawaz and Shahbaz Sarif.  End Comment.) 
 
------------------- 
Banking and Finance 
------------------- 
 
¶5. (SBU) The February 13 Business Recorder and other papers quoted 
State Bank of Pakistan (SBP) Governor Syed Salim Raza stating that 
new SBP initiatives were designed to ease bank liquidity 
requirements in order to encourage financial institutions to expand 
microfinancing arrangements.  Raza made the comments at the Karachi 
launching of the "Access to Finance Survey," jointly sponsored by 
the Swiss Agency for Development Cooperation and the World Bank. 
(Comment:  An SBP spokesperson confirmed the Governor's statement, 
but added that the SBP had yet to issue any regulations on the 
issue.  End comment.) 
 
¶6. (SBU) According to a Pakistan Bankers' Association (PBA) 
official, his organization and the International Finance Corporation 
(IFC)  agreed on February 18 to work together to implement 
sustainable banking principles in Pakistan.  Included in their goals 
are new banking products targeting renewable energy, energy 
efficiency, micro-finance, financing for women entrepreneurs, and 
low-income housing loans. They will also promote greater 
transparency and sustainable development.  The PBA and IFC will work 
together to develop guidelines, tools, and checklists to help 
Pakistani banks evaluate associated social and environmental risks. 
 
-------- 
Business 
-------- 
 
¶7. (SBU) The Cabinet Committee on Privatization recently approved 
privatization of 21 State owned enterprises. In the Committee 
meeting, Federal Minister for Privatization Syed Naveed Qamar said 
that the new privatization policy envisions transfer of 12 percent 
of shares of all State owned enterprises to the workers of these 
entities. He said that the committee approved privatization of 
 
ISLAMABAD 00000443  003 OF 005 
 
 
Peshawar Electric Supply Company (Pesco), National Power 
Construction Company, Faisalabad Electric Supply Company (Fesco) and 
Kot Addu Power Company (Kapco).  It also approved privatization of 
SME Bank Limited, Pakistan Railways, Heavy Electrical Complex, 
Pakistan Machine Tool Factory, Pakistan Mineral Development 
Corporation (PMDC), Marafco Industries, PTDC Motels and Restaurants, 
Utility Stores Corporation, Pakistan Post, National Insurance 
Company, Pakistan Reinsurance Company and State Life Insurance 
Corporation.  (Comment: Islamabad 412 reports in more detail on the 
new privatization policy.  End comment.) 
 
¶8. (SBU) Pakistan's trade deficit widened to $10.727 billion during 
the first seven months (July to January) of the Pakistani 2009 
fiscal year, compared to a deficit of $10.357 billion in the same 
period of the last fiscal year, an increase of 3.5 percent. 
According to official data released by Federal Bureau of Statistics, 
Pakistan's exports were $10.934 billion from July to January this 
year, compared with the exports of $10.122 billion in the same 
period last year, an increase of 8.02 percent. Approximately 83.5 
percent of exports during the first half of the year were rice, 
cement and chemicals. Approximately 95 percent of imports in the 
first half of the year were petroleum, fertilizer and wheat. 
(Comment:  An official at the Ministry of Commerce stated that low 
export growth is due to a number of factors including unprecedented 
power and gas outages, depreciation of the rupee, increase in cost 
of capital, and production and capacity constraints.  End comment.) 
 
---------------- 
Energy and Power 
---------------- 
 
¶9. (SBU) The Ministry of Petroleum appointed Irfan Qureshi to be the 
Managing Director of Pakistan State Oil (PSO) on February 24. 
Qureshi, who will take charge in the next week, is replacing Kalim 
Siddiqi.  Qureshi is currently the Manager of Government Policy and 
Public Affairs at Caltex (Chevron) Pakistan Limited.  Siddiqui has 
been Managing Director of PSO since October 2008.  State-owned PSO 
is the largest oil marketing company in Pakistan, followed by Shell, 
Caltex and Total.  Comment: A good contact of the Economic Section, 
Qureshi is a persistent and versatile professional with 30 yeas' 
experience in sales, marketing, logistics, customer service, and 
public and government relations. 
 
¶10. (SBU) Pakistan State Oil (PSO) has paid Rs. 5 billion to oil 
refineries to enable them to place orders for new imports of crude 
oil, although it still owes them Rs. 63 billion. The Business 
Recorder reported that the Finance Ministry released this amount 
after the Petroleum Ministry intervened.  Earlier, the Finance 
 
ISLAMABAD 00000443  004 OF 005 
 
 
Ministry had released Rs. 6.35 billion to Pakistan Electric Power 
Company (Pepco) to make payments to PSO.  PSO also has reportedly 
paid Rs. 4.5 billion to oil refineries during the past week. PSO 
still is owed Rs. 75 billion by its clients, including government 
agencies. 
 
¶11. (SBU) Pakistan has signed an agreement with the World Bank 
whereby it will pass future price increases on petroleum products on 
to consumers, rather than absorbing them as a subsidy, the Business 
Recorder reported. 
 
¶12. (SBU) According to the Business Recorder, an inter-ministerial 
committee has been formed to address LPG pricing.  The Committee met 
January 30 and reviewed proposals for setting a uniform LPG price. 
A tax on locally produced LPG would create a level playing field for 
LPG importers; the lower price of locally produced LPG compared to 
imported LPG has hurt importers' business and impedes the flow of 
LPG imports into the country.  A second option under consideration 
is to waive the general sales tax on imported LGP. 
 
----------- 
Agriculture 
----------- 
 
¶13. (SBU) As a step to curb sugar hoarding, the State Bank of 
Pakistan (SBP) now requires a 50 percent cash margin to finance 
trade in sugar.  The price of sugar has been rising over the last 
two weeks because demand is high and the supply is low.  To 
discourage sugar hoarding, the SBP cautioned banks and development 
financial institutions to strictly comply with this regulation. The 
SBP has instructed banks and development financial institutions that 
all existing loans or advances against security of sugar stocks 
(disbursed before the crushing period of 2008) should be fully 
adjusted not later than March 31, 2009.  (Comment:  Islamabad 383 
reports on the recent forays of the Trading Corporation of Pakistan 
into the sugar trade. The SBP regulation makes it more expensive for 
sugar traders to hold onto their sugar stocks, and provides them 
with a strong financial incentive to move sugar into the market in a 
timely fashion.  End comment.) 
 
------------------ 
Telecommunications 
------------------ 
 
¶14. (SBU) The Director of Economic Affairs for the Pakistan 
Telecommunications Authority met with Econ the week of February 25, 
and reported that the once robust sector is suffering due to the 
economic slowdown.  However, telecommunications companies continue 
 
ISLAMABAD 00000443  005 OF 005 
 
 
to invest in infrastructure, and the Authority hopes to see growth 
in the broadband segment of the market.  PTA reported that 
teledensity in Pakistan is approximately 60 percent, with 90 percent 
of this attributable to cellular phones. 
 
----------- 
Development 
----------- 
 
¶15. (SBU) The FATA Development Authority (FDA) provided 196 diplomas 
on February 23 to students graduating from the Khyber Institute for 
Technical Education (KITE).  The Pakistan Army established KITE in 
collaboration with the FDA, providing four months of technical 
education in fields such as basic computing, office automation, 
basic surveying, auto mechanics, refrigerator/AC repair, and mobile 
phone repair. 
 
¶16. (SBU) A number of NWFP government officials are urging 
internally displaced persons (IDPs) to return to their homes in 
Swat, and have promised them more than Rs. 3.8 million in 
development aid.  Officials promised to provide Rs. 300,000 to the 
family of every deceased person and Rs. 50,000 to the family of 
every injured person.  The Awami National Party (ANP) has sought 
donations from the United Nations and international relief bodies, 
as well as the United Arab Emirates, to rebuild educational 
institutions, hospitals, bridges, roads and mosques.  A Pakistani 
Army spokesman said on February 23 that the peace deal in Swat would 
be followed by a comprehensive strategy for development and 
reconstruction in the area. 
 
FEIERSTEIN