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UNCLAS SECTION 01 OF 05 ISLAMABAD 001817 
 
SENSITIVE 
SIPDIS 
 
REF: ISLAMABAD 885 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON ECONOMIC ISSUES, 29 JULY 2009 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
¶1. (SBU) Protesters held demonstrations and rallies in various 
cities and towns throughout Pakistan over the 12 to 18 hours of 
electricity load shedding (rolling blackouts).  Protesters set fire 
to passenger trains in Jhang and badly damaged more in Faisalabad 
where a number of vehicles were also pelted with stones.   In 
Peshawar, protesters blocked the Peshawar-Kohat Road and the Grand 
Trunk Road, disrupting the flow of traffic for several hours while 
they shouted slogans against the government and the Pakistan 
Electric Supply Company (Pepco).  People in Islamabad, Rawalpindi, 
Chakwal and Attock suffered enormous problems as transporters kept 
their vehicles off the road to protest high fuel prices and in 
support of a strike called against load shedding.  (Comment:  While 
not nearly as disruptive as events in Karachi, Punjab government 
officials have expressed concern about the mounting unrest in the 
province, and the potential for the provincial government to become 
a target. Politicians with other agendas may have taken advantage of 
load shedding to urge their followers into the streets to settle 
political scores.) 
 
¶2. (SBU) The State Bank of Pakistan (SBP) reported that foreign 
investment into Pakistan declined by 51 percent during fiscal year 
2008-09.  According to the report, FDI stood at USD 3.7218 billion 
in fiscal year 2009 against USD 5.4098 billion in fiscal year 2008, 
a decline of 31.2 percent, while the portfolio investment dropped 
precipitously by 2,725 percent.  (Comment:  In addition to the 
global financial crisis, domestic shocks such as the worsening law 
and order situation, negative economic indicators and power 
shortages have hurt foreign investment in Pakistan.) 
 
¶3. (SBU) The current account deficit of Pakistan has decreased by 36 
percent in fiscal year 2008-09.  The State Bank of Pakistan (SBP) 
revealed that the country has posted a current account deficit of 
USD 8.861 billion in fiscal year 2008-09, compared to USD 13.866 
billion in fiscal year 2007-08.  The current account deficit as a 
percentage of GDP has dropped to 5.4 percent in fiscal year 
2008-2009 from 8.7 percent of GDP in fiscal year 2007-2008. 
(Comment:  This massive decrease is attributed mostly to higher 
remittances and a decline in imports.  However, 5.4 percent is much 
better than the IMF projection for the current account deficit as 
percent of GDP which was -6.5 percent.) 
 
ISLAMABAD 00001817  002 OF 005 
 
 
 
¶4. (SBU) The Ministry of Water and Power announced a 24 percent 
increase in the power tariff which it plans to implement in three 
phases. The first phase is scheduled to commence on October 1, 2009 
with a tariff raise of 8-10 percent.  This will be followed by a 5-6 
percent increase on January 1, 2010, and then another 5-6 percent in 
April, 2010.  Ministry officials told ECON that the cost of power 
per unit is Rs 8.25, while the government is selling it at Rs 5.45. 
(Comment:  The GOP has promised the ADB, the World Bank and the IMF 
before that it would increase the power tariff but has backed down 
each time for political reasons.  The circular debt issue cannot be 
addressed without an increase in the tariffs. Although the ADB and 
the WB have shown willingness to work with the GOP on the proposed 
tariff rise, the IMF is still considering the plan and has not yet 
given the final nod.) 
 
- - - - 
TRADE 
- - - - 
 
¶5. (SBU) On July 27, the Government of Pakistan unveiled its new 
trade policy for fiscal years 2009-2012 (July-June) which will cover 
incentives for non-textile exports (47 percent share in total 
exports).  A separate policy for textiles reportedly will follow. 
The policy aims to grow exports by 29 percent over the next three 
years and sets the export growth rate target at 6 percent for 
2009-10 and 10 percent and 13 percent for each of the successive 
years.  (Comment:  Given Pakistan's constrained budgetary means, 
questions over the execution of the policy are likely to remain 
until there is clarity on how much cash the GOP is willing to put 
into the various incentive plans; it is unclear how much of the 
necessary funds are captured in the recently passed FY 2009-2010 
budget.) 
 
¶6. (SBU) The Business Recorder reported that Pakistan could receive 
access to Tajikistan through Afghanistan under the Afghan-Pakistan 
Transit Trade Agreement (APTTA).  President Zardari announced on a 
visit to Dushanbe July 29 that the two countries agreed to exploit 
the benefits of increased trade once Pakistan concludes the APTTA 
agreement later this year.  On signing this Agreement, Pakistan 
would have access to Tajikistan through the territory of 
Afghanistan.  The access points into Tajikistan from Afghanistan 
discussed Polekhumri-Ali Khanem and Polekhumri-Shir Khan Bandar. 
(Comment: It is not clear at this stage on what terms Pakistan and 
 
ISLAMABAD 00001817  003 OF 005 
 
 
Tajikistan will trade once APTTA is signed and press reports 
indicate the two sides may be considering signing a separate, 
parallel agreement. In 2008 Tajikistan exports totaled USD 1.4 
billion and imports were USD 3.2 billion. Tajikistan's major 
importing partners are Russia (32.1 percent), Kazakhstan (13.1 
percent), China (10.8 percent) and Uzbekistan (8.4 percent).  If 
Pakistan gains trade access to Tajikistan, Pakistani exports will 
have to compete with Russia and China for the USD 3.2 billion 
market.) 
 
- - - - - - - - - - - - 
ENERGY, POWER AND WATER 
- - - - - - - - - - - - 
 
¶7. (SBU) Pakistan Electric Power Company (PEPCO) Managing Director 
(MD) Tahir Basharat Cheema announced that PEPCO has launched 20 new 
projects to ensure the availability of an additional 3,500MW of 
electricity by the end of the calendar year.  Cheema told press that 
the introduction of a pilot automatic meter-reading system at Bhaati 
Gate and Shadman in Lahore has reduced losses by 40 percent. 
 
¶8. (SBU) According to Water and Power Development Authority (WAPDA) 
data, heavy rains and snow melt have helped raise water levels in 
the Tarbela reservoir by 96 feet since July 1.  This improvement in 
reservoir levels is welcome news.  Tarbela is now just 47 feet below 
maximum holding capacity and could top off by mid August.  Mangla 
reservoir has risen 21 feet since July 1, leaving it only 23 feet 
below capacity.  (Comment: This dramatic improvement in reservoir 
levels since June bodes well, but substantial future river flows may 
be lost because of the lack of additional reservoir capacity. Demand 
for maximum power generation could result in rapid draining of the 
reservoirs after the monsoon season, which could complicate efforts 
to use hydroelectric power as means to address load shedding through 
the end of the year.) 
 
¶9. (SBU) In a meeting on July 24, the Executive Committee of the 
Lahore Chamber of Commerce and Industry (LCCI) pressed a French 
trade delegation for access to nuclear power plant technology, in 
addition to other economic assistance.  The delegation, headed by 
French Minister for Foreign Trade Anne Marie Idrac, stressed that 
France could only cooperate with Pakistan on nuclear safety and 
security within the bounds of international law.  Idrac did, 
however, promise support on other energy and economic fronts. 
(Comment: The increased load shedding has made nuclear energy a hot 
 
ISLAMABAD 00001817  004 OF 005 
 
 
issue again, with Consulate Lahore personnel encountering pleas for 
a nuclear deal in at least four gatherings during the week of July 
20.) 
 
¶10. (SBU) The GOP is planning to ration natural gas in the winter. 
Sui Northern Gas Pipelines Ltd (SNGPL) Managing Director Rasheed 
Lone told the press that SNGPL will upgrade existing gas meters to 
limit natural gas consumption. When a consumer increases the usage 
of gas appliances, the gas pressure will drop, preventing the use of 
additional home appliances.  Lone stressed that low-end consumers 
would not be affected; the rationing would apply only to those users 
paying over Rs. 10,000 per month for their natural gas bill. 
(Comment:  We understand that limiting consumers' access to natural 
gas is part of the GOP strategy to ensure additional gas supplies 
will be available for power generation - a means of reducing the 
substantially higher cost of producing power from fuel oil and 
narrowing the disparity between generation costs and the price the 
GOP is willing to charge consumers for electric power.  While the 
GOP plan may be advantageous to the power generation industry and 
the GOP balance sheet, consumers will likely hold a far more 
negative view.) 
 
- - - - - - - 
STOCK MARKET 
- - - - - - - 
 
¶11. (SBU) The Karachi Stock Exchange KSE-100 Index closed at 
7674.77, after losing 36.29 points on Tuesday, July 28, 2009. 
Investors still remain concerned over the declining currency value 
and further delay on the announcement of a new monetary policy.  The 
index is up 33 percent since the start of 2009 but down 51 percent 
from its lifetime high of 15,676.34 on April 18, 2008. 
 
¶12. (SBU) The Lahore Stock Exchange (LSE) was volatile throughout 
July, but the LSE 25 Index still climbed 7.9 percent on the strength 
of oil and banking stocks.  Market capitalization was up 5.6 
percent, and volume has been average all month. 
 
- - - - - 
BUSINESS 
- - - - - 
 
¶13. (SBU) Citibank is closing five branches in Pakistan (Multan, 
Gujranwala, Sialkot, Jhelum, and Hyderabad) on September 1, reducing 
 
ISLAMABAD 00001817  005 OF 005 
 
 
the number of branches from 23 to 18.  According to a press release, 
Citibank needs to direct its "human and financial capital and our 
distribution channels ... towards a more streamlined and sustainable 
business model. We are consolidating our business into a more 
efficient network of branches, phone banking and state-of-the-art 
online banking services in line with our 'clicks not bricks' 
strategy." 
 
- - - - - - - 
AGRICULTURE 
- - - - - - - 
 
¶14. (SBU) Local media reported that the GOP imported USD 1 billion 
worth of wheat in fiscal year 2008-2009, representing a 23 percent 
increase from the previous year.  GOP officials attribute the huge 
import bill to high international wheat prices combined with 
problems with hoarding and smuggling.  (Comment: Despite having a 
bumper crop of wheat in 2009, Pakistan was forced to import a large 
amount of wheat over the winter months.  High international prices 
and hoarding/smuggling were reportedly the sources of the problem; 
however, the main cause of the huge wheat import was GOP 
mismanagement of the commodity.) 
 
FEIERSTEIN