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UNCLAS SECTION 01 OF 04 ISLAMABAD 002539 
 
SENSITIVE 
SIPDIS 
 
REF: ISLAMABAD 2477 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON ECONOMIC ISSUES, 7 OCTOBER 2009 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
¶1. (SBU) The All Pakistan Textile Mills Association (APTMA) and the 
business community expressed grave concern over the 6 percent 
increase in electricity prices.  In an October gathering organized 
by APTMA and businessmen, speakers pointed out that industry is 
already smarting from multiple problems, predominantly load 
shedding, gas shortages, and higher interest rates.  Mr. Zahid 
Maqbool, President of Islamabad Chamber of Commerce and Industry, 
urged the GOP to reverse the decision in view of a larger national 
interest to facilitate business profitability and maintain 
competitiveness in export markets worldwide. (Comment: The GOP 
charges higher rates to commercial and industrial enterprises in 
order to help subsidize lower costs for household consumers, so the 
price hike hits industry harder than individuals.  Though 
industrialists continue publicly to criticize the tariff hike, 
privately, many business leaders acknowledge the need to raise 
tariffs to ensure the viability of the power sector.) 
 
¶2. (SBU) Power outages increase throughout country.  The News 
reported on September 28, 2009 that the capacity shortfall for 
Pakistan power now exceeds 3000 megawatt (MW).  Major cities are 
experiencing four to six hours of load shedding per day, and 
significant commercial and residential areas are being impacted. 
The situation is worse in the rural areas, where outages range 
between 10 to 12 hours per day.  It is expected that the crisis will 
worsen due to decreased hydroelectric production, caused by this 
year's low water levels. (Comment: Milder temperatures should lessen 
power demand in the coming months, but the dry winter months also 
mean lower water levels and thus less power from Pakistan's 
hydroelectric system.  Though new power plants totaling 2250 MW (see 
next item) were scheduled to come on-line by December 31, many are 
behind schedule.  The load shedding has taken a toll on Pakistan's 
economy and is credited by the Ministry of Water and Power for 
causing an estimated $3 billion of lost GDP.) 
 
¶3. (SBU) Rental Power Projects (RPPs) remain delayed.  The Private 
Power Infrastructure Board (PPIB) confirmed that all fourteen of the 
RPPs approved by the GOP are unlikely to start operations by year 
end. (Comment:  The PPIB statement comes as no surprise: only one of 
the RPPs has even begun construction. Sources at PPIB claim they 
have released mobilization advances to five RPPs and the sixth will 
 
ISLAMABAD 00002539  002 OF 004 
 
 
be paid in a few days, but the ongoing controversy over RPPs has 
cast a pall over all rental power activity and the fate of the 
remaining nine is uncertain.  If completed, all 14 RPPs could 
provide up to 2250 MW of additional generation.) 
¶4. (SBU) GOP increases power tariff by 6 percent on October 1.  The 
GOP decision is in line with conditions agreed with the 
International Monetary Fund (IMF) to phase out power sector 
subsidies by July 2010.  (Comment: The October 1 hike is an 
important first step, and public opposition to the move was 
reassuringly muted.  Although the move will generate significant new 
revenue, the 12 percent increase agreed with multilateral donors for 
January 1 could prove more problematic.) 
¶5. (SBU) GOP lowers prices for Petroleum Oil and Lubricant (POL). 
Media reported that the GOP reduced its per liter prices for 
gasoline by approximately half a cent per liter, for kerosene by 
0.032 cents, and for light diesel by 0.023 cents in October. 
(Comment: The GOP reductions reflect falling prices on the 
international market.) 
 
¶6. (SBU) Pakistan's public debt rises by $14 billion.  The News 
reported October 8 that the State Bank of Pakistan (SBP) estimates 
that during the last Pakistani fiscal year, the government added 
approximately $14 billion to the stock of the country's public debt. 
 Domestic debt rose by a worrisome $7.3 billion over the FY ending 
July 2009, to $47.8 billion, and external debt and liabilities 
increased from $46.2 billion over the same period to $52.8 billion, 
or 62.8 percent of GDP. (Comment:  According to the Fiscal 
Responsibility and Debt Limitation Law, public debt should not be 
more than 60 percent of GDP and should decline by 2 to 3 percent per 
year.) 
 
- - - - - - - - - - 
BANKING AND FINANCE 
- - - - - - - - - - 
 
¶7. (SBU) On September 30, the SBP announced its policy rate would 
remain unchanged at 13 percent.  According to a press release from 
the SBP, while inflation on a yearly basis and the balance of 
payment position have improved, fiscal and real sector performance 
is still tenuous and the risk of inflation remains.  Lending to the 
private sector remains subdued, but the emerging global economic 
recovery augurs well for Pakistan's economy.  However, limited 
progress on electricity sector reform and the GOP's fiscal position 
dilutes optimism for affordable credit. 
 
ISLAMABAD 00002539  003 OF 004 
 
 
 
¶8. (SBU) Federal Board of Revenue (FBR) plans to introduce reward 
system for tax collectors.  The Chairman of FBR, Mr. Sohail Ahmed, 
told The News that the Board will offer a certain percentage of 
revenue collected as a cash reward to "successful" tax collectors. 
The Board is targeting annual revenue of $16.38 billion for 
Pakistani FY2010 (which runs from July 1, 2009-June 30, 2010).  The 
Chairman stated, however, that revenue collection will be well shy 
of the first quarter target, although he predicted it will make up 
ground in subsequent quarters with the collection of advance 
withholdings for corporate and income taxes. (Comment: We predict 
the rewards-based strategy will only lead to a marginal increase in 
revenue collections at best, given the sluggish economy and 
Pakistan's narrow tax base.) 
 
- - - - - - - 
STOCK MARKET 
- - - - - - - 
 
¶9. (SBU) The Karachi Stock Exchange (KSE)-100 Index ended the week 
of October 2 at 9,455, roughly 2 percent below the previous week's 
close.  Overall market capitalization declined slightly to $33 
billion, and net foreign portfolio investment inflow totaled $14 
million. (Comment:  Contacts from the exchange described the decline 
as a technical correction.  The U.S. commitment to support Pakistan, 
higher remittances, and a current account surplus are expected to 
remain the driving forces for market gains in the upcoming 
sessions.) 
 
¶10. (SBU) The Lahore Stock Exchange (LSE) remained bullish during 
the week with improvement in volume trading.  The LSE 25-share index 
added 76.3 points to close at 2,988 points against its opening of 
2,912 points.  The volume is on track to well exceed turnover of 
14.7 million shares on October 2. 
 
- - - 
TRADE 
- - - 
 
¶11. (SBU) On September 27, the News and other papers reported that 
Pakistan seafood exports increased in August compared to the same 
period last year.  The exports increased to 5,327 tons, a 5.9 
percent increase, and export value reached $9.7 million.  Measures 
that have been taken to improve the conditions of boats and harbor 
 
ISLAMABAD 00002539  004 OF 004 
 
 
facilities are credited for the increase. (Comment:  Marine 
Fisheries Department (MFD) contacts confirmed the report and said 
the MFD, along with the provincial fisheries authority, took several 
steps to improve harbor facilities and modify boats, which helped to 
increase the exports.  He also said that he expects the EU ban to be 
lifted soon, and that an EU inspection delegation is expected to 
visit in late October.  (The EU had de-listed all Pakistani seafood 
exporters in April 2007).  Absent the EU market, seafood producers 
increased exports to China, the UAE, Thailand, South Korea, Saudi 
Arabia and Indonesia.  Despite these other significant increases, 
officials emphasized the importance of the EU market, which offers 
stable prices, a large network of countries, and consistent 
standards.) 
 
PATTERSON