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UNCLAS SECTION 01 OF 06 ISLAMABAD 000781 
 
SENSITIVE 
SIPDIS 
 
REF: ISLAMABAD 561 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON THE ECONOMIC ISSUES, 09 April 2009 
 
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TOP STORIES 
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¶1. (SBU) Pakistan's economy is projected to grow 2.5 percent in 
FY08-09.  The State Bank of Pakistan (SBP), the Economic and Social 
Commission for Asia and Pacific, and the Asian Development Bank all 
made similar growth estimates after factoring in recent 
manufacturing declines, rupee depreciation, and inflation.  From 
July to January, the economy registered negative growth of 5.4 
percent.  The services sector, which at 53 percent accounts for the 
biggest share of GDP, declined primarily as a result of the global 
economic slowdown.  The IMF said on April 3 that Pakistan's monetary 
policy is appropriate, but there may be room for interest rate 
reductions if inflation declines further; moves which should 
stimulate GDP growth. 
 
¶2. (SBU) The SBP released its report on the second quarter of 
FY08-09.   The report, which covered data through December 31, 
contained few surprises.  Pakistan's macroeconomic indicators have 
begun to improve, and Pakistan has met IMF targets on budgetary 
borrowing, net foreign assets, and net domestic assets.  However, 
the country will likely not meet key GDP, inflation, remittances, 
exports and large-scale manufacturing targets.  While inflation will 
likely remain above 20 percent in the third quarter, the SBP 
predicted that it could fall sharply in the final quarter.  Exports 
were expected to miss the target of USD 22.9 billion and come in at 
around USD 18.5 - USD 19.5 billion. (Comment:  The second quarterly 
report can be found on the State Bank web site: 
http://www.sbp.org.pk . End Comment.) 
 
¶3. (SBU) The Asia Society reports that one million workers have lost 
their jobs in Pakistan's urban areas in the past six months.  A 
report entitled, "Back from the Brink? A Strategy for Stabilizing 
Afghanistan-Pakistan," draws attention to high unemployment as a 
source of tension in Pakistan, where 40 percent of the population 
lives on under USD 1.25 a day.  The vice-president of the World 
Bank, Shahid Burki, said that the per capita income in Pakistan may 
decline significantly this year, increasing the level of poverty. 
(Comment:  Official GOP statistics show unemployment at 5.2 percent, 
an extremely questionable figure which does not take into account 
massive underemployment.  End Comment.) 
 
¶4. (SBU) On March 27, the News and Business Recorder reported that 
 
ISLAMABAD 00000781  002 OF 006 
 
 
the Karachi Electric Supply Company (KESC) signed a memorandum of 
understanding with ABB Pakistan to launch an energy conservation 
program.  In the first stage, the KESC will target industrial and 
bulk electricity consumers to raise awareness about the national 
importance of conserving electricity.  (Comment:  A KESC official 
said that ABB Pakistan would provide his company with technical 
assistance in this regard.  The program plans to target industrial 
users.  He added that KESC did not have the means to enforce the 
GOP's energy conservation program (such as curtailing the operating 
hours of shopping centers, disconnecting billboard power supplies, 
and minimizing street light use).  End Comment.) 
 
¶5. (SBU) Worker remittances have risen 19 percent so far this year, 
but are not expected to meet the FY09 target of USD 7.7 billion. 
The SBP reported that Pakistanis working abroad will likely send USD 
7.3 billion home this year.  On March 31, the Daily Times reported 
that the Federal Minister for Overseas Pakistanis, Dr. Farooq 
Sattar, told the Karachi Chamber of Commerce and Industry that 
incentives would be offered to overseas Pakistanis to double 
remittances to USD 15 billion for FY2009-10.  He plans to meet with 
State Bank Governor Raza to devise an appropriate incentive plan. 
(Comment:  While it is true that remittances continue to rise, there 
is widespread concern that this may be an anomaly related to 
overseas Pakistanis losing their jobs and cashing out assets before 
returning home.  A Ministry of Finance official said that they had 
not observed large returns of overseas Pakistanis, but that the next 
six months should be crucial in this respect.  End Comment.) 
 
- - - - - - - - - - - 
BANKING AND FINANCE 
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¶6. (SBU) On March 24, Morgan Stanley Capital International (MSCI) 
moved Pakistan into its Frontier Markets Index, ending a long period 
of uncertainty regarding the country's classification after it was 
removed from the MSCI Emerging Markets Index at the end of December 
¶2008.  The index is a widely used reference of institutional 
investors, who have taken millions of dollars out of portfolio 
investments in the country over the past year.  (Comment:  Junaid 
Mirza, a director of the Karachi Stock Exchange, said that 
Pakistan's exclusion from the Emerging Market Index was expected due 
to the stock market's three-month suspension of trading when the 
emergency floor was imposed in late August.  Mirza said that the 
change is a downgrade and indicates a high risk country.  However, 
 
ISLAMABAD 00000781  003 OF 006 
 
 
Mirza expects that Pakistan will soon be reinstated in the Emerging 
Markets Index, which is revised quarterly.  End Comment.) 
 
¶7. (SBU) The Karachi Stock Exchange (KSE)-100 index ended April 3 at 
7,432.88, up 9.25 percent over its March 27 closing (6,803.46). 
Total share turnover was 330.16 million, up from 229.62 million from 
the week before.  Market capitalization increased to USD 27.76 
billion from USD 25.41 billion during the week.  The net foreign 
investment outflow was USD 7.5 million.  The banking, energy, 
fertilizer and cement sectors were among the top performers. 
(Comment:  KSE contacts told Consulate Karachi that the market was 
driven by the IMF's release of the second tranche (USD 847 million) 
of its Stand-By Arrangement, and by World Bank approval of a USD 500 
million loan.  Local institutions and high net worth individuals 
were the main investors during the week.  End Comment.) 
 
¶8. (SBU) The Lahore Stock Exchange shrugged off the terrorist attack 
on the police training center and continued its bull run, gaining 10 
percent over the last 2 weeks.  Volume was heavy and the rally was 
broad.  Gainers outnumbered losers more than 2 to 1. 
 
- - - - - 
BUSINESS 
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¶9. (SBU) Twelve thousand jobs may be lost as a major knitwear 
concern closes its operations in Lahore and Multan, according to the 
News.  The All Pakistan Textile Mills Association echoed this grim 
assessment in the Business Recorder, arguing that political turmoil 
and load shedding were crippling Pakistan's textile sector. 
 
¶10. (SBU) Leading traders in Peshawar shut down their businesses for 
a day to protest lawlessness and kidnappings.  The March 28 strike 
continues a four-month trend of agitation from businesspeople 
seeking the restoration of law and order in NWFP.  The Business 
Recorder reported a 50 percent reduction over the last four years in 
trucking operations in NWFP, a crucial business in the province. 
(Comment:  According to trucking association officials in Peshawar, 
the long-term decline in NWFP trucking reflects militant activity in 
areas like Swat, Bannu, Bajaur, Orakzai and Parachinar.  Although 
threats and attacks directed at truckers driving cargo to 
Afghanistan have increased in the last six months, the slowdown in 
trucking is related more to problems with the staging procedures in 
Peshawar.  One local source observed that U.S., NATO and ISAF 
 
ISLAMABAD 00000781  004 OF 006 
 
 
forces' consignments "are rolling through the area without fail, 
despite the tough circumstances."  End Comment.) 
 
- - - - 
PORTS 
- - - - 
 
¶11. (SBU) On March 24, the Daily Times reported that the cost of 
container handling at terminals in Pakistan's ports is more 
expensive than others in the region, after foreign shipping lines 
raised their charges by 15 percent.  Handling charges for a 20-foot 
container went from USD 82 to over USD 94, and from USD 129 to USD 
142 for a 40-foot container.  A comparative study of tariffs of the 
regional ports shows Karachi Port is the most expensive port in 
South Asia, followed by Port Qasim, Jawaharlal Nehru Port (India), 
and Sri Lanka Port.  Regional ports in Singapore and Dubai are less 
expensive and provide better service.  (Comment:  Karachi Chamber of 
Commerce and Industry President Anjum Nisar said that trade and 
industry associations have requested the GOP to bring port and 
terminal charges in line with those of other regional ports, but the 
government has yet to act.  End Comment.) 
 
¶12. (SBU) On April 2, Port Qasim Authority officials confirmed that 
the port's USD 11.4 million Liquid Cargo Terminal (LCT) is now 
operational.  The LCT is the first private-sector project in 
Pakistan established to handle liquid bulk products such as edible 
oils and molasses.  The port jetty has a common user pipeline 
designed to meet the requirements of tank terminals. 
 
- - - - - - - - - 
ENERGY AND POWER 
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¶13. (SBU) Pakistan Electricity Power Company (PEPCO) previously 
indicated that load shedding might end as early as April 1. 
However, rolling blackouts continue, according to the Daily Times, 
with tailors missing deadlines and losing business and neighborhoods 
in Lahore suffering from water shortages.  The Pakistan Industrial 
and Traders Associations Front told the News that load shedding was 
"killing" industry.  Local newspapers reported that PEPCO 
temporarily suspended load shedding during President Zardari's March 
28-29 visit to Lahore, however. 
 
¶14. (SBU) Pakistan Petroleum Ltd. (PPL) acquired a 75 percent 
 
ISLAMABAD 00000781  005 OF 006 
 
 
interest in Tullow Pakistan Developments, Ltd (a subsidiary of 
UK-based Tullow Oil Plc) in the Chachar gas fields.  The remaining 
25 percent working interest in Chachar will continue to be held by 
Government Holding (Pvt) Ltd.  Located in Sindh, Chachar is an 
extension of the Kandhkot gas field, wholly owned and operated by 
PPL.  It was commissioned in August 2007 and supplies purified gas 
to Guddu Thermal Power Station.  Production from the three wells is 
around 10 million cubic feet per day. 
 
- - - - - - - - - 
AGRICULTURE 
- - - - - - - - - 
 
¶15. (SBU) Pakistan will not meet its 2009 wheat production target. 
The Ministry of Food and Agriculture (MinFA) reports that Pakistan's 
wheat harvest will be under 23.5 million tons, short of its goal of 
25 million tons.  This is still one million tons more than 
Pakistan's estimated consumption, however.  MinFA claimed that the 
decline in production, despite a 6 percent increase in cultivation 
area, was because less water and fertilizer were available to 
farmers.  Dawn reports that Punjab province anticipates a robust 
crop, possibly exceeding 18 million tons.  Farmers are concerned 
that a bumper crop will cause a price crash, however.  (Comment: 
Punjab Secretary Food, Irfan Elahi, told Econoff that provincial 
government procurement will maintain an adequate price floor.  End 
Comment.) 
 
¶16. (SBU) Several local newspapers reported that flour prices in 
Punjab increased by more than 10 percent, to Rs. 460 (USD 5.75) per 
20 kg bag, after the Punjab Food Department started phasing in the 
impact of the new official wheat purchase price.  Punjab Food 
Secretary Irfan Elahi told Econoff April 1 that he expects that 
Punjabis will pay approximately Rs. 500 (USD 6.25) per 20 kg of 
flour by April 15, which is in line with the price in other 
provinces. Elahi also stated that Punjab's "sasti roti [cheap 
bread]" or "two rupee roti" subsidy scheme would cost Rs. 24 million 
(USD 300,000) per day once flour reaches Rs. 500 per 20 kg.  As an 
indication of its political significance, Chief Minister Shahbaz 
Sharif has floated the idea of implementing a "one rupee roti" 
program. 
 
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TELECOMMUNICATIONS 
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ISLAMABAD 00000781  006 OF 006 
 
 
 
¶17. (SBU) Telenor Pakistan plans to establish cell phone service in 
North Waziristan, with work starting this month.  The GOP has 
authorized Telenor Pakistan to erect three transmission towers to 
provide mobile phone service to all of North Waziristan Agency.  The 
towers will reportedly be constructed inside government 
installations to protect them from saboteurs.  Located in Miramshah, 
Mirali and Boya, the towers will connect the agency with the rest of 
the country.  Presently, there is no cellular phone service in the 
North Waziristan agency. 
 
- - - - - - - - - - - - 
SCIENCE AND TECHNOLOGY 
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¶18. (SBU) On April 2, the News reported that the American Society 
for Microbiology (ASM) set up a country liaison office at the Jinnah 
University for Women in Karachi.  Dr. Shahana Urooj Kazmi, a Dean at 
the University of Karachi (KU), has been appointed the first country 
liaison officer.  Last year, the ASM accepted all 12 KU graduate 
student research papers submitted to the organization.  This year, 
10 of these students will travel to Boston to present their papers. 
(Comment:  Dr Kazmi confirmed the news on April 3.  She added that 
she would like to establish ASM/PSM (Pakistan Society for 
Microbiology) centers in universities across the country.  End 
Comment.) 
 
PATTERSON