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UNCLAS SECTION 01 OF 04 ISLAMABAD 002847 
 
SENSITIVE 
SIPDIS 
 
REF: ISLAMABAD 2767 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON ECONOMIC ISSUES, 18 NOVEMBER 2009 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
 
¶1. (SBU) National Assembly Runs out of Time to Pass Anti-Money 
Laundering (AML) Bill.  On Nov 4 Business Recorder reported that the 
National Standing Committee on Finance passed the AML bill, with the 
recommended amendments from the government.  According to the 
report, the Finance Minister, Shaukat Tarin, publicly stated that 
the National Assembly would vote on the bill before the end of this 
legislative session. 
(Comment: On November 18, the National Assembly prorogued its 
legislative session early without bringing forward the AML Bill for 
a full vote.  Officials at the Ministry of Finance stated they would 
propose a new AML Ordinance, with amendments, to the Prime Minister 
and President as a stop-gap until the National Assembly reconvenes 
on December 7.  The current AMLO expires, along with 36 other 
Presidential ordinances, on November 28.) 
 
 
¶2. (SBU) Gas rationing set to begin in Punjab and North West 
Frontier Province on November 15.  On November 4, the News reported 
that under the 2009-10 winter gas load management plan, approved by 
the Federal Cabinet on November 4, industrial users and Compressed 
Natural Gas (CNG) pump stations will go without gas two days per 
week.  Industrial interest groups complained bitterly in the press 
about the impact of the plan, but textile mill owners conceded to 
EconOffs that this year's plan is better than last year's approach 
of cutting gas for weeks on end.  On November 5, various media 
sources reported that the manufacturing sector is strongly opposed 
to the government's decision to discontinue gas supply to industries 
for two days a week, saying this will increase the cost of running 
industries and further aggravate present conditions.  The gas load 
management plan will be in effect from November 15 to March 15. 
Karachi's major trade and industrialists associations complained 
that an additional day off would significantly burden the 
manufacturing sector, adding that in times when industrial 
production is low and negative sentiments are high, the government 
should help the industry rather than imposing such anti-industry 
decisions. 
(Comment: According to our contacts at the Ministry of Petroleum, 
the GOP's plan to ration gas to CNG stations would be hard to 
implement due to its political ramifications.  As in previous years, 
 
ISLAMABAD 00002847  002 OF 004 
 
 
they also noted that cutting the supply of natural gas only to CNG 
stations would be extremely difficult in light of the fact that gas 
for both customers share the same pipeline.  These obstacles have 
thus far prevented the GOP from meeting the plan's proposed November 
15 start date.) 
 
 
¶3. (SBU) The Federal Cabinet approved a new Sugar Policy on November 
¶4.  According to local newspapers, the new policy calls for a low, 
uniform national price through November, shifting to free market 
pricing thereafter.  Most of the plan then focuses on protecting 
access to inexpensive sugar for the poor through the Benazir Income 
Support Program and the government-subsidized Utility Stores.  The 
Trading Corporation of Pakistan will be authorized to import both 
raw and refined sugar, and sugar beet cultivation is to be 
encouraged. 
(Comment: This "new" policy largely reiterates existing policies. 
Far more people expect to benefit from subsidized sugar than the 
government can afford or intends to serve.) 
 
 
----------------- 
BANKING AND FINANCE 
----------------- 
 
 
¶4. (SBU) State Bank of Pakistan (SBP) launches new refinancing plan 
aimed at modernizing Small and Medium Enterprises (SME):  On 
November 3, Business Recorder reported that the State Bank of 
Pakistan (SBP) launched a new refinancing facility for modernization 
of SMEs as part of its overall strategy to focus on the development 
of the SME sector in the country.  Under the scheme, financing will 
initially be available to SMEs in agriculture, for the import and 
purchase of new rice husking machines, paddy driers and parboiling 
plants by sponsors of rice husking units. 
 
 
¶5. (SBU) Trading in Terms Finance Certificates (TFC) under the Bonds 
Automated Trading System (BATS) started November 2.  On November 3, 
Business Recorder reported that the trading of TFCs on the Karachi 
Stock Exchange (KSE) began November 2 with the introduction of the 
BATS.  According to the report, volumes were low on the first day as 
investors were not familiar with the trading of debt market 
securities. 
 
ISLAMABAD 00002847  003 OF 004 
 
 
(Comment:  This represents the introduction of trading in corporate 
bonds in Pakistan, and is the first of several steps towards 
creating liquidity in the corporate and public debt market.) 
 
 
------------- 
STOCK MARKET 
------------- 
 
 
¶6. (SBU) Karachi Stock Exchange (KSE): Political and security 
concerns, including the National Reconciliation Ordinance (NRO) 
debate,  kept the market down, with the 100 Index ending the week of 
November 13 at 9067.17, up 1.5 percent over the previous week's 
close.  Overall market capitalization was down from $31.74 to $31.45 
billion, with net foreign portfolio investment outflows of $7.5 
million. 
(Comment:  KSE contacts said that security concerns and the NRO will 
continue to keep the market under pressure.  However, the IMF, which 
is conducting its third review of under Pakistan's Stand-By 
Arrangment, issued a statement indicating that while risks remain in 
the economy, there are signs of recovery such as declining inflation 
and improving external deficit position.  The discussions are 
expected to be completed shortly, paving the way for the release of 
the 4th tranche of funds totaling $1.2 billion.  In addition, the 
government is considering tapping debt markets via an Islamic issue 
in the first half of next year (expected to be between $500 million 
and $1 billion) would be the driven force to market up in the next 
couple of weeks.) 
 
 
¶7. (SBU) The Lahore Stock Exchange (LSE): The LSE Index has been in 
a holding pattern, slipping just under one percent since November 1. 
 Investors made no bold moves in or out of the market, taking a 
"wait and see" attitude toward President Zardari's National 
Reconciliation Ordinance woes and increased terrorist attacks in 
Peshawar. 
 
--------------- 
POWER AND WATER 
--------------- 
 
 
¶8. (SBU) Tarbela and Mangla reservoir levels have dropped more than 
 
ISLAMABAD 00002847  004 OF 004 
 
 
a foot a day since November 1, according to Water and Power 
Development Authority (WAPDA) data.  At the current pace, Tarbela 
could be out of water in as little as five weeks.  (Comment: The 
government has promised a relatively high price for next spring's 
wheat, in the hopes of encouraging a repeat of 2009's bumper crop. 
However, low reservoir water levels throughout the growing season 
could interfere with irrigation needs and leave production results 
at the mercy of Mother Nature.) 
 
PATTERSON