Today almost all the state owned institutions are in a worst shape, in the following lines we are mentioning some of them and their performance.
Saturday, October 01, 2011
After 64 years of indepe-ndence, Pakistan today, ranks amongst the poorest nations in the world with a vastly illiterate population and extremely poor health conditions, tops in corruption rankings, is “known” for human rights violation, lawlessness and unpredictable socio-economic circumstances. In these years, Pakistan has tried “all possible” forms of governments and political systems — arguably, more political experiments in such a short period than by any other nation in the world. Unfortunately however, despite such lavish political adventurism, Pakistan to date stands undecided about its final political structure and fate.
Today almost all state owned corporations are in a worst shape; in the following lines we are mentioning some of them and their performance.
Pakistan Railways
Pakistan Railways is in really bad condition and costing country huge losses every month. For more than a century the railroad was the dominant form of land transportation in much of the world. It was, and still remains the economic backbone of a country.
Railways in sub-continent was developed by British for their own strategic purposes. After independence in 1947 both India and Pakistan inherited the railway systems. Indian Railways (IR) has staged a dramatic turnaround in recent years. Railways minister of India (2004 to 2009) transformed the IR from a crippling organisation, at the verge of bankruptcy to a profit-making institution.
Pakistan Railways (PR) is in dismal condition and due to the financial problems and ill intentions of the persons who matter, many routes already discontinued. The recent floods added to the misfortune. Several hundred km of railway line have been washed away.
Pakistan Railways has a total of 220 passenger trains/locomotives. Out of 522 total engines only 220 are in working order, and about 100 are in poor condition. The department has decided to shut down a large number of trains due to financial loses.
Today Pakistan Railways with Rs.334 billion liabilities is at the verge of bankruptcy because of corruption, shortage of locomotives and losses incurred due to the running expenses. According to one report Rs 21 billion are spent on wages and pensions every month leaving the department less or nothing for maintenance of power and rolling stocks.
While the rulers were building road networks and motorways in the name of development, no one thought about upgrading and maintaining the railways network. When the motorway's cost was estimated at Rs 24 billion, Pakistan Railways came up with a proposal of upgrading its entire network in Rs.10 billion. However, this aspect was neglected as the motorway was seen as a symbol of progress.
The major losses faced by the Pakistan Railways today are a direct result of decreasing revenues with increased expenditures. The expenditure recently crossed Rs.51 billion in one year out of which Rs.21 billion were allocated for salaries and pensions. The revenues are dwindling to about Rs.23 billion per year.
Revenue share for freight trains has declined from 40 per cent to 25 per cent as a direct result of neglecting this cheap mode of transportation. In Pakistan another institution called National Logistic Cell (NLC) was set up for the transportation of goods during General Zia-ul-Haq's era – an institution that directly competed with Pakistan Railways. As NLC's role grew in the Afghan war and in the later years, Pakistan Railways was sidelined further as it became irrelevant with each passing day.
The rising oil prices and scarcity of locomotives forced the Railways to focus more on passenger traffic than the transportation of goods. The fares were kept low as the government kept on subsidising the department. Pakistan Railways recently gulped Rs.14 billion of taxpayers' money in form of direct subsidies.
Nature has not been too kind to Pakistan Railways either. According to the National Disaster Management Authority (NDMA), the recent floods caused a loss of Rs.6.7 billion to the railway network as several hundred kilometres of lines were washed away. The railway coaches were also the targets of angry mobs and arson attacks after Benazir Bhutto's assassination resulting in huge losses.
A recent report of Auditor General Pakistan revealed that Pakistan Railways has also been maltreated by other institutions as it has often failed to recover its outstanding dues. One of the major receivables — amounting to Rs.254 million — is related to Defence Department. Similarly the recent scandal of Royal Palm Golf and Country Club only highlighted a wider practice of illegal encroachment of land of railways over the years. In September 2010 that 4,231 acres of land of Pakistan Railways had been occupied by a private party. The AGP report also marked other irregularities in Railways' operations. The vast swathes of lands owned by PR inherited from the colonial masters have failed to generate much revenue for the department.
In the past, even a former Chief of ISI had been appointed as the minister for Pakistan Railways. The culture of nepotism in appointments in Pakistan Railways at different levels meant that the departmental posts were only distributed as gifts in politics and bureaucracy.
With a rapid increase in the losses incurred and suspension of many trains over the last few years, the graph of Pakistan Railways is only going down and its future looks uncertain. However, there is still a large number of passengers who benefit from the railway network. People often find it difficult to find reservations near holidays. As long as the people continue to prefer this safe and cheap mode of travel, the trains will continue running for them. It is only the policies of top management and leadership that will determine if this public state enterprise can turn into a profitable entity.
In the past, even a former Chief of ISI had been appointed as the minister for Pakistan Railways. The culture of nepotism in appointments in Pakistan Railways at different levels meant that the departmental posts were only distributed as gifts in politics and bureaucracy.
WAPDA
Besides borrowing billions of rupees by Ministry of Water and Power for the initiation and completion of ongoing hydel power projects, Water and Power Development Authority (WAPDA) failed to achieve hydel power generation capacity of 6,720 MW.
According to an approved data available, total installed capacity of hydro-power projects in the country was 6,720 MW till last calendar year, out of which 3,849 MW was in Khyber Pakhtunkhwa, 1,699 MW in Punjab, 1,039 MW in AJK and 133 MW in the Gilgit-Baltistan.
Around 142 hydro-power project sites with a total capacity of 24,736 MW were identified as having high, medium and small heads in Khyber Pakhtunkhwa, out of which not more than 19 hydel projects were in operation with total power generation of 3,849 MW as claimed by the Authority, while public holding office ascertained that 38 projects remained in the pipeline and implementation of these incomplete projects is expected soon with no time-frame.
On the other hand, it is not less than a planning failure on the part of the Authority that not a single hydro-power project has been in operation for the last 10 years, while more than 10 to 12 million acres feet (MAF) of water from 18 hydrological basins in Balochistan, including Zhob Basin, Hingol, Kech Basin and 15 others were wasted because of non-existence of water storage infrastructure.
Similarly, Punjab, with total estimated power capacity of 7,291 MW, could expect more than 296 potential sites over barrages and canals, while only eight projects, including Ghazi Brotha, with a total capacity of 1450 MW, are operational. However, only 1,040 MW power generation has been recorded from Brotha reservoir. Authority claims that 18 hydropower project sites of an estimated total capacity of 193 MW have been identified with medium and low heads at different locations of barrages and canals in Sindh.
The circular debt of Pakistan Electric Power Company (PEPCO) has increased by more than Rs215 billion in July owing to reduction in recovery and failure in receiving fines from power pilferers.
According to a report, power distribution companies including Pepco, Tribal Electricity Supply Company (TESCO) and Faisalabad Electric Supply Company (FESCO) have failed to receive current bills and arrears. Only 86.5% recovery was made in fiscal year 2010-11 as compared to 104.3% recovery in 2009-10.
Pepco's financial condition has resulted in a massive increase in power load-shedding. The company has been unable to pay arrears to oil and gas companies, which has resulted in the reduction of more than 2,000 megawatts .
Pakistan International Airlines
Pakistan International Airlines (PIA) is the flag carrier of Pakistan, whose government owns 85 percent of its shares. PIA fleet now included 23 jets and nine Fokker turboprops.
In the late 1990s, former Prime Minister Benazir Bhutto was accused of illegally giving out jobs at PIA during her second term in office, between 1993 and 1996. Sher Afghan Malik, managing director in 2001, had to deal with a ticket sales scandal that he estimated may have been costing the airline up to PkR2.8 billion ($45 million) a year. There were also complaints of inefficiency and poor customer service, reported the Financial Times. PIA had lost international stature and was considered by some to be primarily an "ethnic carrier" devoted to ferrying expatriates home, rather than a competitive choice for tourists or business travelers.
Hamid Nawaz, a retired lieutenant general who was PIA's chairman, urged management to help turn the airline around. By July 2001, PIA had a PkR20 billion financial package from the government and the trade unions were once again effectively suspended. Malik had earlier expressed hope that making changes to the computer reservations system would help restore profits.
PIA lost PkR11 billion in 2000. Management expected the company to break even by the end of 2001. Although national pride was an important part of PIA's mission, there was a limit on the price the government was willing to pay for the prestige of having an international air carrier. As in the past, there was the implicit threat that unless the airline could operate on its own, it would simply cease to exist.
PIA suffered a net loss of Rs20.785 billion in 2010 compared with a loss of Rs4.947 billion in 2009, taking the accumulated loss of the national flag carrier to Rs92.327 billion as at December 31, 2010.
PIA had already been performing poorly in the international flights business. Now it has also failed to attract passengers for inter-city travel, said sources. Sources said 31 flights were cancelled by the PIA from August 31 to September 2 including 19 domestic flights and 12 international flights.
SSGC/SNGPL
The gas load-shedding is one of the biggest problems in Pakistan. The shortage increases especially in winter when gas is in great demand. Shortage of CNG is also a big problem affecting the country and its transport sector. Pakistan has a large number of vehicles as compared to other countries. The public transport depends on CNG. And the pity is that our CNG pumps are often closed owing to its shortage. In virtually every city, CNG pumps are closed for two days per week due to gas shortage. Apart from the damage to the transport sector, our industry is also suffering. More and more factories are closing down due to gas shortage. Because of closure of factories the people are getting jobless and the rate of poverty is increased also. Not surprisingly, the suicide rate has also increased. The government should take serious action to fulfill the country's gas requirement.
Oil and Gas Regulatory Authority (OGRA) since its inception has been providing predictable regulatory regime to the public sector utilities and other stakeholders—a step considered essential prior to the anticipated privatisation of the public sector utilities. The authority has also been able to encourage competition in gas sector as the two public sector utilities namely Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd. (SNGPL) now hold non-exclusive licenses for the transmission and distribution (T&D) of natural gas. This has provided an incentive to other potential investors to set up their own T&D network.
With the country facing the threat of even a more severe energy crisis from October this year, the government is reported to be discussing a proposal to impose a drastic gas cut to transport sector, penalise senior officials for failures and publicly criticise the alleged blackmailing tactics adopted by the industrial sector.
Petroleum Minister Dr Asim Hussain was quoted as saying at a meeting that the government might be forced to stop gas supplies to the CNG sector for at least five days a week, under a conservative estimate, and to go for a complete closure in the worst case situation. The measures were discussed by a `special ministerial committee on loadshedding` headed by Finance Minister Dr Abdul Hafeez Shaikh and comprising ministers and secretaries of the water and power and petroleum ministries, heads of the Planning Commission and State Bank, chairman and members of Nepra and representatives of power utilities.
According to sources, the meeting was informed by the petroleum minister that up to 2.5 billion cubic feet of daily gas shortage was likely from November to January against the total demand of about 6.5BCFD. The gas shortage this winter could be worse than the prevailing power shortfall, requiring major conservation measures.
Besides borrowing billions of rupees by Ministry of Water and Power for the initiation and completion of ongoing hydel power projects, Water and Power Development Authority (WAPDA) failed to achieve hydel power generation capacity of 6,720 MW.
According to an approved data available, total installed capacity of hydro-power projects in the country was 6,720 MW till last calendar year, out of which 3,849 MW was in Khyber Pakhtunkhwa, 1,699 MW in Punjab, 1,039 MW in AJK and 133 MW in the Gilgit-Baltistan.
Around 142 hydro-power project sites with a total capacity of 24,736 MW were identified as having high, medium and small heads in Khyber Pakhtunkhwa, out of which not more than 19 hydel projects were in operation with total power generation of 3,849 MW as claimed by the Authority, while public holding office ascertained that 38 projects remained in the pipeline and implementation of these incomplete projects is expected soon with no time-frame.
On the other hand, it is not less than a planning failure on the part of the Authority that not a single hydro-power project has been in operation for the last 10 years, while more than 10 to 12 million acres feet (MAF) of water from 18 hydrological basins in Balochistan, including Zhob Basin, Hingol, Kech Basin and 15 others were wasted because of non-existence of water storage infrastructure.
Similarly, Punjab, with total estimated power capacity of 7,291 MW, could expect more than 296 potential sites over barrages and canals, while only eight projects, including Ghazi Brotha, with a total capacity of 1450 MW, are operational. However, only 1,040 MW power generation has been recorded from Brotha reservoir. Authority claims that 18 hydropower project sites of an estimated total capacity of 193 MW have been identified with medium and low heads at different locations of barrages and canals in Sindh.
The circular debt of Pakistan Electric Power Company (PEPCO) has increased by more than Rs215 billion in July owing to reduction in recovery and failure in receiving fines from power pilferers.
According to a report, power distribution companies including Pepco, Tribal Electricity Supply Company (TESCO) and Faisalabad Electric Supply Company (FESCO) have failed to receive current bills and arrears. Only 86.5% recovery was made in fiscal year 2010-11 as compared to 104.3% recovery in 2009-10.
Pepco's financial condition has resulted in a massive increase in power load-shedding. The company has been unable to pay arrears to oil and gas companies, which has resulted in the reduction of more than 2,000 megawatts .
Pakistan International Airlines
Pakistan International Airlines (PIA) is the flag carrier of Pakistan, whose government owns 85 percent of its shares. PIA fleet now included 23 jets and nine Fokker turboprops.
In the late 1990s, former Prime Minister Benazir Bhutto was accused of illegally giving out jobs at PIA during her second term in office, between 1993 and 1996. Sher Afghan Malik, managing director in 2001, had to deal with a ticket sales scandal that he estimated may have been costing the airline up to PkR2.8 billion ($45 million) a year. There were also complaints of inefficiency and poor customer service, reported the Financial Times. PIA had lost international stature and was considered by some to be primarily an "ethnic carrier" devoted to ferrying expatriates home, rather than a competitive choice for tourists or business travelers.
Hamid Nawaz, a retired lieutenant general who was PIA's chairman, urged management to help turn the airline around. By July 2001, PIA had a PkR20 billion financial package from the government and the trade unions were once again effectively suspended. Malik had earlier expressed hope that making changes to the computer reservations system would help restore profits.
PIA lost PkR11 billion in 2000. Management expected the company to break even by the end of 2001. Although national pride was an important part of PIA's mission, there was a limit on the price the government was willing to pay for the prestige of having an international air carrier. As in the past, there was the implicit threat that unless the airline could operate on its own, it would simply cease to exist.
PIA suffered a net loss of Rs20.785 billion in 2010 compared with a loss of Rs4.947 billion in 2009, taking the accumulated loss of the national flag carrier to Rs92.327 billion as at December 31, 2010.
PIA had already been performing poorly in the international flights business. Now it has also failed to attract passengers for inter-city travel, said sources. Sources said 31 flights were cancelled by the PIA from August 31 to September 2 including 19 domestic flights and 12 international flights.
SSGC/SNGPL
The gas load-shedding is one of the biggest problems in Pakistan. The shortage increases especially in winter when gas is in great demand. Shortage of CNG is also a big problem affecting the country and its transport sector. Pakistan has a large number of vehicles as compared to other countries. The public transport depends on CNG. And the pity is that our CNG pumps are often closed owing to its shortage. In virtually every city, CNG pumps are closed for two days per week due to gas shortage. Apart from the damage to the transport sector, our industry is also suffering. More and more factories are closing down due to gas shortage. Because of closure of factories the people are getting jobless and the rate of poverty is increased also. Not surprisingly, the suicide rate has also increased. The government should take serious action to fulfill the country's gas requirement.
Oil and Gas Regulatory Authority (OGRA) since its inception has been providing predictable regulatory regime to the public sector utilities and other stakeholders—a step considered essential prior to the anticipated privatisation of the public sector utilities. The authority has also been able to encourage competition in gas sector as the two public sector utilities namely Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd. (SNGPL) now hold non-exclusive licenses for the transmission and distribution (T&D) of natural gas. This has provided an incentive to other potential investors to set up their own T&D network.
With the country facing the threat of even a more severe energy crisis from October this year, the government is reported to be discussing a proposal to impose a drastic gas cut to transport sector, penalise senior officials for failures and publicly criticise the alleged blackmailing tactics adopted by the industrial sector.
Petroleum Minister Dr Asim Hussain was quoted as saying at a meeting that the government might be forced to stop gas supplies to the CNG sector for at least five days a week, under a conservative estimate, and to go for a complete closure in the worst case situation. The measures were discussed by a `special ministerial committee on loadshedding` headed by Finance Minister Dr Abdul Hafeez Shaikh and comprising ministers and secretaries of the water and power and petroleum ministries, heads of the Planning Commission and State Bank, chairman and members of Nepra and representatives of power utilities.
According to sources, the meeting was informed by the petroleum minister that up to 2.5 billion cubic feet of daily gas shortage was likely from November to January against the total demand of about 6.5BCFD. The gas shortage this winter could be worse than the prevailing power shortfall, requiring major conservation measures.
PIA suffered a net loss of Rs20.785 billion in 2010 compared with a loss of Rs4.947 billion in 2009, taking the accumulated loss of the national flag carrier to Rs92.327 billion as at December 31, 2010.
Dr Shaikh said the government had been injecting liquidity into the power sector to solve the chronic circular debt problem every now and then but they had been compounded after every two to three months, which was not a sustainable proposition.
A Pepco representative said distribution companies had to pay about Rs210 billion arrears to Pepco and they had enough liquidity but were showing higher expenditures to hold up payments.
The committee asked the power ministry to hold Wapda's senior officers responsible for theft, kundas and overloading and impose fines, hold departmental proceedings and restrict their promotions.
Many drivers run their vehicles on CNG, previously a cheaper substitute for petrol or diesel fuel. But the government diversion of scarce supplies of natural gas to power plants has resulted in a weekly two-day moratorium on sales to motorists and pushed CNG prices up to the point that CNG is now the same price as petrol.
Consumer Price Index-Issues and Challenges in Pakistan
Given the importance of Consumer Price Index (CPI), there has been long debate on its measurement issues. It is the best and most well-known indicator of inflation. It is also used to measure the impact of changes in the monetary and fiscal policy of a country. Any measurement error in CPI may overstate or understate inflation that will have serious repercussions for monetary, fiscal and other economic policies.
Theory of price indexes in our country is left to the specialists who mostly belong to international institutions like IMF, UN, World Bank etc. General guidelines suggested by the specialists are followed by the FBS. There is no research agenda by the Federal Bureau of Statistics (FBS) of Pakistan to improve the CPI by its own.
Like other developing countries, FBS of Pakistan is facing two main constraints in revising the construction of the CPI. The first one is the lack of sufficient trained economists and statisticians in the area of price statistics, and second is scarcity of financial resources.
CPI Pakistan: re-composition bound to invite criticism
Change in Consumer Price Index (CPI) basket and calculation methodology yields a lower than expected CPI: FBS released Aug-11 inflation numbers, stating CPI inflation at 11.56%, much below market expectation of 13.2%. Aug-11 inflation numbers used FY08 as base year, with revised weights based on FY08 expenditure survey, while calculation methodology of house rent index was also altered. Had the previous calculation methodology been used, Aug-11 CPI inflation would likely have been reported at 12.6%. Weights and categories of SPI and WPI have also been altered, leading to revision in historical data.
Almost all of last 3 yr data points showing lower inflation would invite skepticism: FBS has revised down CPI inflation for FY09, FY10 and FY11 by 374bps, 163 bps and 26bps respectively to 17%, 10.1% and 13.7%. All but one of the 37 monthly data points revised show downward adjustment in inflation.
Key changes in CPI: 1) Weight of food items reduced by 551 bps to 34.83%, 2) Calculation methodology of house rent index changed to survey data of actual house rents, 3) Introduction of three new categories, 4) increase in number of cities covered from 35 to 40 and 5) increase in number of essential items from 374 to 487.
Rebasing and re-composition is a routine exercise… Pakistan's CPI was rebased in FY60, FY70, FY76, FY81, FY91, FY01 and FY08. China's CPI has been recomposed twice since 2001, with the latest rebasing taking place in Jan-11 envisaging 220 bps cut in food category weight, while Malaysia altered its CPI basket and Base in CY11, cutting food category's weight by 110 bps.
But reduction in food category weight is too steep: A steep 551bps reduction in weight of food group is too steep in our view, given the booming Chinese economy managed a reduction of mere 220 bps during five years ending Dec-10, while Malaysia managed a reduction of 110bps during the same period. Food weight in Pakistan's CPI at 34.3% is too close to Malaysia (30.3%), and China (31.8%); economies with much higher GDP/capita.
Category of “liquor and tobacco” indicates re-composition is “not-a-home-grown”, hurriedly done exercise: Inclusion of “liquor” was initially a surprise to us. However, further investigation revealed the categories of CPI are not home-grown by FBS and rather copied from Malaysian CPI basket. This further adds to doubts regarding legitimacy of CPI. It is difficult to argue that the household expenditure survey for CPI should not have used categories in line with domestic consumption trends.
Likely lower CPI for Sep-11 indicates further DR cut; but monetary easing is a risky bet in the current scenario: Base effect of post floods food price inflation would further pull down CPI inflation under 11% during Sep-11 to Nov-11. In view of talks of farewell to the IMF program, and absence of regular State Bank of Pakistan (SBP) governor, our base case estimate of 50 bps cut in Oct-11 MPS seems conservative. However, we believe monetary easing, could be highly risky given uncertain outlook on the external account. Though CAB for Aug-11 was well under control, trade deficit reported by SBP was USD455mn lower than that reported by FBS. Inflationary pressures still exists as 1% MoM run rate from Oct-11 onwards would push CPI close to 14% by FY12 end, while 2HFY12 average would likely touch 13.5%.
Pak Govt's pressure nixes Transparency International's 2011 corruption survey
Arm-twisting by the corruption-plagued Pakistan Government has prevented Transparency International Pakistan (TIP) from producing its annual National Corruption Perception Survey (NCPS) this year.
IBA, which conducted last year's NCPS survey for the TIP, expressed its reluctance to do it this year for the reason that its students have been harassed by Pakistani government agencies for their last year's work. TIP Chairman Adil Gilani, who too was harassed by the government for highlighting serious cases of corruption and the rising trend of the menace in the country.
The TIP-government relations became bad in 2010 because the rulers were extremely displeased with the successive Transparency reports showing the present Pakistan People's Party (PPP) regime as amongst the most corrupt entities in the world.
The NCPS 2010 showed that 70 per cent of the Pakistanis perceived present government more corrupt than that of former dictator General Pervez Musharraf.
According to the survey, the overall corruption in 2010 increased to an awe-inspiring level of 223 billion rupees, as compared to 195 billion rupees in 2009. While launching the survey last year, the TIP had observed that the credibility of Pakistan was almost at the lowest level, which is evident from the fact that there has been no funding in the previous two years from the Friends of Pakistan trust fund managed by the World Bank.
Findings of the NCPS Survey 2010 showed lack of accountability, lack of merit, and low salaries as the three main reasons of corruption. However, instead of checking corruption and improving Pakistan's image, the government started using third-rate tactics to bar independent international organisations from assessing the levels of corruption in the country.
Such has been the situation that no less than TIP Chairman Adil Gilani started receiving threats. He was also involved by the government-controlled Federal Investigation Agency (FIA) in an alleged corruption case to prevent him from producing reports of corruption. (ANI)
Similar to the NCPS 2002, NCPS 2006 and NCPS 2009, NCPS 2010 comprises the perception of levels and frequency of corruption faced by common Pakistanis on a daily basis. Unlike the previous surveys, the corruption comparison of corruption between present and previous federal and provincial previous governments has been more detailed this time, as the respondents on each province is asked to given his opinion about his own provincial governments performance, and also the federal government performance.
Another aspect of the survey is the opinion of general public on few very important governance issues. They are: National Corruption Perception Survey 2010 has revealed that police remains the most corrupt sector, Power was seen as 2nd most corrupt and Land administration has moved up from being 4th corrupt since the last two surveys to being third.
Vast majority of people considered the past Federal government to be cleaner. This is quite similar if we look at the response towards provincial governments, except Punjab. However, if we look at the results from provinces from a standalone point of view, Punjab is the only province where present provincial government is cleaner than previous provincial government.
Pakistanis continued to believe that private sector is less corrupt than the government sector. Builders/Contractors according to those who think private sector is more corrupt, leads from all private sector avenues. This is quite in line with the rise in rank of land administration among the most corrupt sectors.
Most important cause of corruption, according to Pakistanis, is lack of accountability. Lack of merit and low salaries follow it. Following this trend Pakistanis wanted accountability of public officers, appointment on merit and adequate salaries as the remedies for corruption.
A Pepco representative said distribution companies had to pay about Rs210 billion arrears to Pepco and they had enough liquidity but were showing higher expenditures to hold up payments.
The committee asked the power ministry to hold Wapda's senior officers responsible for theft, kundas and overloading and impose fines, hold departmental proceedings and restrict their promotions.
Many drivers run their vehicles on CNG, previously a cheaper substitute for petrol or diesel fuel. But the government diversion of scarce supplies of natural gas to power plants has resulted in a weekly two-day moratorium on sales to motorists and pushed CNG prices up to the point that CNG is now the same price as petrol.
Consumer Price Index-Issues and Challenges in Pakistan
Given the importance of Consumer Price Index (CPI), there has been long debate on its measurement issues. It is the best and most well-known indicator of inflation. It is also used to measure the impact of changes in the monetary and fiscal policy of a country. Any measurement error in CPI may overstate or understate inflation that will have serious repercussions for monetary, fiscal and other economic policies.
Theory of price indexes in our country is left to the specialists who mostly belong to international institutions like IMF, UN, World Bank etc. General guidelines suggested by the specialists are followed by the FBS. There is no research agenda by the Federal Bureau of Statistics (FBS) of Pakistan to improve the CPI by its own.
Like other developing countries, FBS of Pakistan is facing two main constraints in revising the construction of the CPI. The first one is the lack of sufficient trained economists and statisticians in the area of price statistics, and second is scarcity of financial resources.
CPI Pakistan: re-composition bound to invite criticism
Change in Consumer Price Index (CPI) basket and calculation methodology yields a lower than expected CPI: FBS released Aug-11 inflation numbers, stating CPI inflation at 11.56%, much below market expectation of 13.2%. Aug-11 inflation numbers used FY08 as base year, with revised weights based on FY08 expenditure survey, while calculation methodology of house rent index was also altered. Had the previous calculation methodology been used, Aug-11 CPI inflation would likely have been reported at 12.6%. Weights and categories of SPI and WPI have also been altered, leading to revision in historical data.
Almost all of last 3 yr data points showing lower inflation would invite skepticism: FBS has revised down CPI inflation for FY09, FY10 and FY11 by 374bps, 163 bps and 26bps respectively to 17%, 10.1% and 13.7%. All but one of the 37 monthly data points revised show downward adjustment in inflation.
Key changes in CPI: 1) Weight of food items reduced by 551 bps to 34.83%, 2) Calculation methodology of house rent index changed to survey data of actual house rents, 3) Introduction of three new categories, 4) increase in number of cities covered from 35 to 40 and 5) increase in number of essential items from 374 to 487.
Rebasing and re-composition is a routine exercise… Pakistan's CPI was rebased in FY60, FY70, FY76, FY81, FY91, FY01 and FY08. China's CPI has been recomposed twice since 2001, with the latest rebasing taking place in Jan-11 envisaging 220 bps cut in food category weight, while Malaysia altered its CPI basket and Base in CY11, cutting food category's weight by 110 bps.
But reduction in food category weight is too steep: A steep 551bps reduction in weight of food group is too steep in our view, given the booming Chinese economy managed a reduction of mere 220 bps during five years ending Dec-10, while Malaysia managed a reduction of 110bps during the same period. Food weight in Pakistan's CPI at 34.3% is too close to Malaysia (30.3%), and China (31.8%); economies with much higher GDP/capita.
Category of “liquor and tobacco” indicates re-composition is “not-a-home-grown”, hurriedly done exercise: Inclusion of “liquor” was initially a surprise to us. However, further investigation revealed the categories of CPI are not home-grown by FBS and rather copied from Malaysian CPI basket. This further adds to doubts regarding legitimacy of CPI. It is difficult to argue that the household expenditure survey for CPI should not have used categories in line with domestic consumption trends.
Likely lower CPI for Sep-11 indicates further DR cut; but monetary easing is a risky bet in the current scenario: Base effect of post floods food price inflation would further pull down CPI inflation under 11% during Sep-11 to Nov-11. In view of talks of farewell to the IMF program, and absence of regular State Bank of Pakistan (SBP) governor, our base case estimate of 50 bps cut in Oct-11 MPS seems conservative. However, we believe monetary easing, could be highly risky given uncertain outlook on the external account. Though CAB for Aug-11 was well under control, trade deficit reported by SBP was USD455mn lower than that reported by FBS. Inflationary pressures still exists as 1% MoM run rate from Oct-11 onwards would push CPI close to 14% by FY12 end, while 2HFY12 average would likely touch 13.5%.
Pak Govt's pressure nixes Transparency International's 2011 corruption survey
Arm-twisting by the corruption-plagued Pakistan Government has prevented Transparency International Pakistan (TIP) from producing its annual National Corruption Perception Survey (NCPS) this year.
IBA, which conducted last year's NCPS survey for the TIP, expressed its reluctance to do it this year for the reason that its students have been harassed by Pakistani government agencies for their last year's work. TIP Chairman Adil Gilani, who too was harassed by the government for highlighting serious cases of corruption and the rising trend of the menace in the country.
The TIP-government relations became bad in 2010 because the rulers were extremely displeased with the successive Transparency reports showing the present Pakistan People's Party (PPP) regime as amongst the most corrupt entities in the world.
The NCPS 2010 showed that 70 per cent of the Pakistanis perceived present government more corrupt than that of former dictator General Pervez Musharraf.
According to the survey, the overall corruption in 2010 increased to an awe-inspiring level of 223 billion rupees, as compared to 195 billion rupees in 2009. While launching the survey last year, the TIP had observed that the credibility of Pakistan was almost at the lowest level, which is evident from the fact that there has been no funding in the previous two years from the Friends of Pakistan trust fund managed by the World Bank.
Findings of the NCPS Survey 2010 showed lack of accountability, lack of merit, and low salaries as the three main reasons of corruption. However, instead of checking corruption and improving Pakistan's image, the government started using third-rate tactics to bar independent international organisations from assessing the levels of corruption in the country.
Such has been the situation that no less than TIP Chairman Adil Gilani started receiving threats. He was also involved by the government-controlled Federal Investigation Agency (FIA) in an alleged corruption case to prevent him from producing reports of corruption. (ANI)
Similar to the NCPS 2002, NCPS 2006 and NCPS 2009, NCPS 2010 comprises the perception of levels and frequency of corruption faced by common Pakistanis on a daily basis. Unlike the previous surveys, the corruption comparison of corruption between present and previous federal and provincial previous governments has been more detailed this time, as the respondents on each province is asked to given his opinion about his own provincial governments performance, and also the federal government performance.
Another aspect of the survey is the opinion of general public on few very important governance issues. They are: National Corruption Perception Survey 2010 has revealed that police remains the most corrupt sector, Power was seen as 2nd most corrupt and Land administration has moved up from being 4th corrupt since the last two surveys to being third.
Vast majority of people considered the past Federal government to be cleaner. This is quite similar if we look at the response towards provincial governments, except Punjab. However, if we look at the results from provinces from a standalone point of view, Punjab is the only province where present provincial government is cleaner than previous provincial government.
Pakistanis continued to believe that private sector is less corrupt than the government sector. Builders/Contractors according to those who think private sector is more corrupt, leads from all private sector avenues. This is quite in line with the rise in rank of land administration among the most corrupt sectors.
Most important cause of corruption, according to Pakistanis, is lack of accountability. Lack of merit and low salaries follow it. Following this trend Pakistanis wanted accountability of public officers, appointment on merit and adequate salaries as the remedies for corruption.
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