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UNCLAS SECTION 01 OF 03 ISLAMABAD 001274 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EFIN PK
SUBJ:  PAKISTAN ECONOMIC REPORT, MAY 7 - MAY 20 
 
ISLAMABAD 00001274  001.2 OF 003 
 
 
¶1. (SBU) Pakistan featured the following economic news over the last 
two weeks: 
 
* Federal Board of Revenue gets new Chairman. 
* Supreme Court directs government to reduce oil prices 
* Reduced imports shrink Pakistan's trade deficit 
* Karachi Stock Market unchanged 
* Lahore Stock Exchange up 
* Traders' strike closes Islamabad shops on May 11 
* Water outflow from Tarbela Dam exceeds its inflow 
* Load shedding wreaks havoc on manufacturing in Lahore 
* Robust wheat harvest increase government's purchase targets 
 
TOP ECONOMIC STORIES 
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¶2. (SBU) Federal Board of Revenue gets new Chairman.  Retiring 
Chairman of the Federal Board of Revenue, Ahmad Waqar, was replaced 
May 18 by Sohail Ahmed, who was previously an Additional Secretary 
at the Ministry of Finance for a short time, and held various 
positions in the Punjab provincial government prior to that. 
Comment:  Normally the Chairman of the FBR also serves as Secretary, 
Revenue Division, but Ahmed, who is fairly junior, will not hold the 
latter position, according to an FBR official.  Finance Ministry 
sources speculate that Ahmad might have a PPP connection because he 
was posted in the Finance Ministry for only a week before his 
appointment as Chairman FBR.  Finance Advisor Shaukat Tarin has 
referred to Ahmed's appointment as a sign of his seriousness about 
improving revenue collection, which has not met the GOP's 
expectations this fiscal year. 
 
¶3. (SBU) Supreme Court directs government to reduce oil prices.  On 
May 13, the Supreme Court directed the government to pass on lower 
international petroleum prices to domestic users, warning that 
failure to comply would compel the courts to intervene further.  The 
Business Recorder reported that Chief Justice Chaudhry directed the 
Attorney General to seek instructions from the government regarding 
reduction in prices of petroleum products for the people of the 
country.  Comment:  In view of Pakistan's small tax base, the GOP 
has depended on its Petroleum Development Levy as a significant 
source of revenue.  Collections this fiscal year are expected to top 
Rs. 100 billion.  It is expected that the GOP will lower prices by 
about 10 percent in response to the high court's directive, but it 
is unclear whether the Finance Ministry will comply before the end 
of the fiscal year June 30. 
 
¶4. (SBU) Reduced imports shrink Pakistan's trade deficit. 
Pakistan's trade deficit fell from $16.8 billion to $14.1 billion 
from April 2008 to April 2009 primarily due to a significant drop in 
imports.  Exports fell slightly as well.  The Business Recorder 
opined that this situation should be a wake-up call to senior 
government officials, who had predicted earlier that exports would 
increase by 10 percent in spite of the present economic situation. 
Comment:  The trade deficit has decreased by 15.9 percent due to a 
9.7 percent decline in imports, not because of an increase in 
exports. On the contrary, exports dropped by over 3 percent between 
July 2008 and April 2009.  The fall in exports reflects the effects 
of energy shortages, high cost of borrowing and the global financial 
crisis, which has impacted demand. 
 
BANKING AND FINANCE 
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¶5. (SBU) Karachi Stock Market unchanged.  The Karachi Stock Exchange 
(KSE) - 100 Index ended the week of May 15 at 7,177.64, up just 
48.13 points over the previous week.  Market capitalization 
increased slightly from $26.41 billion to $26.46 billion.  Net 
foreign portfolio investment continued its decline with an outflow 
of $11.0 million.  The banking, energy, fertilizer and cement 
sectors continue to be among the top performers.  Comment:  Post 
contacts at the Karachi Stock Exchange said the continued portfolio 
outflows highlight continuing institutional investor concerns 
regarding the law and order situation. 
 
¶6. (SBU) The Lahore Stock Exchange (LSE) 25 index was up, climbing 
3.4 percent over the last two weeks, buoyed by successful military 
action against the Taliban and relative calm in Balochistan and 
 
ISLAMABAD 00001274  002 OF 003 
 
 
Karachi. Transaction counts were average, and there were an equal 
number of winners and losers. 
 
¶7. (SBU) Traders' strike closes Islamabad shops on May 11.  The 
Traders' Action Committee Islamabad called for a "shutter down" on 
May 11 to protest the arrest of 43 of its members for their 
involvement in disturbance in the city court, sparked by a 
controversial eviction notice.  The Nation reported that in 
Islamabad "not a single shop" was open, greatly inconveniencing 
residents.  Comment:  While most shops in Islamabad were closed 
early in the day, many out of fear of retaliation by the Committee, 
by evening the majority had reopened.  The Secretary General of the 
Traders Action Committee told Post that the absence of rent laws had 
hurt business.  Although disturbing court proceedings can be 
punished by up to two years in prison, the judge held the protestors 
for only 48 hours, so the action fizzled quickly. 
 
ENERGY, POWER AND WATER 
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¶8. (SBU) Water and Power Development Authority (WAPDA) data show 
that outflows from Tarbela Dam have exceeded inflows since April 25. 
 The reservoir has dropped more than 20 feet in three weeks to 1,392 
feet on May 14, just 23 feet above Tarbela's dead level.  On May 10, 
Lahore Electric Supply Company (LESCO) officials said they expected 
load shedding (rolling blackouts) to ease next month as reservoirs 
filled.  Their hopes will be dashed if Tarbela's water level 
continues to drop. 
 
¶9. (SBU) Varying estimates of power supplies and demand resulted in 
unscheduled load shedding in Lahore, wreaking havoc on 
manufacturing, according to press reports.  Several business leaders 
told Lahore Econoff that unscheduled load shedding is crippling 
small and medium sized enterprises, especially in the textile 
industry.  They added that even regularly scheduled load shedding 
has dramatically increased the cost of production for larger 
industrial units that run their own generators, making their 
products less competitive. 
 
AGRICULTURE 
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¶10. (SBU) The Punjab Food Department and the Pakistan Agricultural 
Storage and Services Corporation (PASSCO) expanded their response to 
the robust wheat harvest by increasing their purchase targets to a 
total of 8 million metric tons (MMT).  South Asia 
Partnership-Pakistan, a development and human rights NGO, claimed 
that a survey covering 168 villages indicated that Punjab growers 
may have as much as 10 MMT of wheat available for sale.  Punjab 
Chief Minister Shahbaz Sharif told Lahore Principal Officer May 2 
that the province had adequate facilities for wheat storage (see 
Lahore 087), but three days later the press reported that the Food 
Department was renting private warehouses to supplement government 
holding capacity for the duration of the buying season. 
 
TAXATION 
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¶11. (SBU) Lahore-based officials of the Federal Board of Revenue 
(FBR) made headlines with dramatic tax enforcement actions.  The 
Business Recorder said FBR Lahore would recover some Rs 60 million 
from three businesses as a result of their on-going crackdown on tax 
evasion.  Additional investigations are under way.  Members of the 
American Business Council told Principal Officer on May 13 that they 
while they insist that their members pay all taxes, they felt that 
many non-U.S. brands routinely dodged taxes.  The leadership of the 
Pakistan Industrial and Traders Association Front told Lahore 
Econoff May 5 that its members were willing to pay taxes, but the 
government should also broaden its tax base to include services and 
agriculture. 
 
DEVELOPMENT 
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¶12. (SBU) Punjab Chief Minister Shahbaz Sharif said May 4 that the 
"teeming millions" who believe that Pakistani elites are fleecing 
the country at the expense of the lower classes are perhaps "not 
 
ISLAMABAD 00001274  003 OF 003 
 
 
very far from the truth."  The statement was part of his remarks to 
the second meeting of the National Policy Platform for 
Competitiveness and Economic Growth (NPPCEG), a project co-sponsored 
by USAID and the Ministry of Finance.  He called textiles Pakistan's 
"most important link to industrialization" and argued that Punjab 
agriculture was full of "missed opportunities."  He added that his 
vision for Pakistan includes small and medium sized enterprises 
integrated in the global subcontracting and supply chain. 
 
¶13. (SBU) Investment in Port Qasim.  The Daily Times reported that a 
second container terminal at Port Qasim Authority will be completed 
in 2010 with the help of Dubai Port World, at an estimated cost of 
$250 million.  According to the Ministry of Ports and Shipping, the 
government's port modernization plan includes coal clinker/cement 
terminal, a liquids terminal, and liquified natural gas terminal. 
The projects total over $1 billion, and will increase the port's 
capacity by 20 million tons.  Comment:  A description of the 
projects can be found at http://www.portqasim.org.pk. 
 
 
 
 
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