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CURRENCY WATCH & CURRENCY TALK

OWAIS S KALIA

LOCAL SCENARIO

The calendar year is going to be ended with some gloomy picture on economic and financial side. The rupee is gradually but constantly getting down against the major world currencies, inflation has yet remains to be controlled. The frequent changes in the administrative set-up have forced many financial measures and schemes to be kept unattended properly. The result is that Pakistanis compelled to get its debts rescheduled, some of them have already been rescheduled and some rescheduling is in the way.

DEBTS RESCHEDULING

Pakistan has signed a debt rescheduling agreement of $235 million with South Korea and similar agreements with France has been concluded. The debt agreements are part of an overall relief packages, arranged by the Paris Club for Pakistan in January last, for rescheduling of $3.3 billion debt over a period of 20 years. Pakistan will pay back the ODA loans in 20 years with a 10-years grace period. The non ODA loans are payable in 18-years with a grace period of three years.

Pakistan and Sweden have also signed an agreement to consolidate and reschedule $81 million. The agreement followed a general agreement between the members of aid-to-Pakistan consortium that is now known as the Paris Club.

Outstanding external debts have increased to $30.3 billion at the end of June 1999 indicating a rise of $1.65 billion or 5.7 percent over the previous year. The annual report of the State Bank says that the total national debt increased by Rs 441.9 billion (17.8 percent) to Rs 2,927 billion. The ratio of total debt to gross domestic product (GDP) rose from 90.8 percent on June 1998 to 96.7 percent as on June 30, 1999.

Against all this the foreign exchange reserves of Pakistan amounted to $1.503 billion on December 25, 1999. According to a weekly statement released by SBP here, approved foreign exchange amounted to $1.240 billion and balance held outside Pakistan in approved foreign exchange reserves stood at 263 million dollars on December 25, 1999.

Pakistan and its creditor banks signed Pakistan Trade Maintenance Agreement for the rescheduling of $512.30 million for short-term trade credits. Around $50.5 million rescheduling agreement has been signed with Arab Investment Company; $27.70 million with ANZ Grindlays; $39.10 million with ABC Islamic Bank; $40 million with Chase/Indosuez; $150 million with ABN Amro Bank N.V.; $25 million with Dubai Islamic Bank; $100 million with Faysal Islamic Bank; $30 million with ANZ Grindlays while Citibank has rescheduled $50 million.

The signing of the Pakistan Trade Maintenance Agreement (PTMA) will improve country's short-term foreign currency issue rating from selective default to "B" by Standard & Poors.

FOREIGN INVESTMENTS AND LOANS

The official statistics of the Board of Investment (BoI) in respect of foreign direct investments in Pakistan for the month of October, 1999 reflected a 33 percent decline at $67.5 million as compared to $98.4 million in September this year. The cumulative figures of foreign investment in the country during the first four months of the current financial year was estimated at $215.8 million. At the same time the outflow of foreign capital from the country in the form of capital gains and profits on portfolio investment in addition to encashment of originally invested capital during this period reportedly accounted for $59 million. Thus the net inflow of foreign investment during July-October, 1999 stood at $156.8 million.

Most of the investment related to balancing, modernisation and replacement programmes of the existing multinational companies operating in the country. Thus the overall picture of foreign investment flows into the country continues to indicate a markedly sluggish pace.

Individuals and foreign institutions have agreed to purchase almost 80 percent new Eurobonds worth over $610 million, which have 10 percent return per annum and will mature after six years with three year grace period and for annual amortisation payments.

Already two nationalised banks Ñ Habib Bank and National Bank of Pakistan Ñ have around $375 million worth of sovereign, Eurobonds and floating rate notes and now they have accepted the government's step to convert these bonds into new notes.

Pakistan has made a $15 million interest payment on November 30 of $300 million in floating rate notes, fulfilling the international obligations as promised by the military government. Pakistan made interest coupon payment on a three-year floating rate note worth $300 million due to expire on May 30, 2000.

FOREIGN EXCHANGE

The government has severely restricted the avenues of use of the foreign exchange regime for whitening tax-evaded money by severely curtailing the business of money changers in the country. As the government, in its efforts to handle balance-of-payments, gave more and more immunities to foreign exchange deposit holders, the country's tax-system became hostage and suffered more revenue drain than revenue income.

The Forex Association of Pakistan (FAP) will propose to the government to allow its collection of remittances in foreign exchange from overseas Pakistani in order to provide them "quick and cheap" transfer of cash which will help build the country's foreign exchange reserves.

EXPORTS

Pakistan's spinners have achieved a major break-through on the export front of value-added textiles and are eyeing a record target of $6 billion during the current fiscal ending on June, 2000 as cheaper lint cotton prices have given the needed push to their competitive edge on the world markets.

Incidentally, our export prices (197.04 cents per kilo) are the lowest as compared to our major competitors including India, which are quoted around 230 cents per kilo, Turkey 330 cents and Brazil 253.50 cents per kilo.

Pakistan has earned $98 million from tourism last year with a rise in the number of visitors despite growing political tension and nuclear tests. More than 400,000 tourists visited last year, up 14.3 percent from the previous year. In increase this year is also solicited.

Export of marble can be raised to $40 million within a span of three years against country's total export of $5 million. At present overall world marble export is around $6.150 billion. The NWFP, Balochistan and the Federally Administered Tribal Areas (FATA) jointly have marble reserves of 160 million tonnes while the country's granite reserves are several billion tonnes. Though the demand for marble and granite has kept on increasing the world over during the last 20 years, but Pakistan could not capture any significant part of the world market.

Currently, the processing industry relies upon local machinery and equipments with a few high efficiency imported machines. Low skill, poor technology and low investment on the part of local businessmen is equally responsible for low growth of marble sector in Pakistan.

Leather exporters have fetched export orders worth $5 million from the foreign buyers of leather goods during the 20th Pakistan Leather Show last month. Foreign buyers from the USA, the UK, Germany, France, Japan, Turkey, Korea, the UAE, Spain and Russia visited the exhibition and shown keen interest in Pakistan leather products which were on display.

On the country heavy import duty on raw material and accessories used in manufacturing of footwear has resulted in the decline of footwear exports from Rs 43 million to Rs 35 million.

The State Bank has taken serious note over complaints that some banks are still asking for 35 percent cash margin for the import of raw material. The circular of the SBP on this subject has said that the bank requirement of 35 percent cash margin is against and violation of the spirit of the earlier circular issued by the SBP.

The exportable surplus of 2.389 million tonnes rice would be available this year after an estimated domestic consumption of 2.5 million tonnes. But the sources express doubt whether the country would be in a position to export it because of stiff competition from other rice growing countries.

To develop more interaction with the business community and encourage their role for the country, the Chief Executive, General Pervez Musharraf, has asked the Ministry of Finance to prepare a list of top 25 exporters and tax payers for recognition through awards. Addressing an award ceremony at the Karachi Stock Exchange, the Chief Executive expressed his strong will to maintain a close contact with the business community. He lauded their role after creation of Pakistan by saying that the business community gave life to Pakistan in 1947 and "will again give life to the country" at this crucial juncture.

Heavy Mechanical Complex (HMC) will export sugar and cement plants worth over $300 million besides balancing, modernisation and rehabilitation of existing plants in five countries. Negotiations are on at different levels with five countries including Bangladesh, Nigeria, Sudan Iraq and Syria for the supply of sugar and cement plants, manufactured by HMC.

Commerce Minister Abdul Razak Dawood told that the country's exports are rising and in November the exports increased by 14 percent as compared to the same period last year.

During the last month, the exports amounted to $714 million as against $626 million in the corresponding period last year showing $88 million growth while imports increased by 9.3 percent last month and totalled $849 million compared with $777 million in the same period last year.

According to meat industry sources, Pakistan is to export three times more meat to Saudi Arabia and other Gulf states during the month of Ramazan.

The Export Promotion Bureau has drawn up a plan to revive the export of sports and surgical goods which once brought fame to Pakistan in the world community.

GENERAL

An increase of one million tonnes is expected in the wheat production next year raising the total production to more than 20 million tonnes. To increase wheat production and bring down the import bill, the government has announced enhancement in the wheat support price along side an exemption of six months to the small farmers in return of their loans. Currently Pakistan is spending Rs 36 billion annually on wheat import.

"Companies using or supplying illegal computer software in Pakistan are now at risk both legally and financially. Software piracy can result in both, civil and criminal liability and expose a company to heavy fines and cause acute embarrassment," says a Business Software Alliance (BSA) spokesman. Criminal charges can be made against the directors and managers of any company who consent to illegal copying of software.

Recently over 30 persons have already been arrested in the major cities, including Karachi and Lahore, involved in providing illegal software.

Pakistan's present indigenous crude oil production is about 55,000 barrels per day. According to forecast, Pakistan will be importing 17.3 million tonnes of crude oil and petroleum products in 1999-2000 increasing the import bill to US$2.6 billion which would be a huge burden on the Pakistan economy. It was stated by Minister for Petroleum and Natural Resources Usman Aminuddin.

In 2010, according to forecasts, the world's thirsty economies would demand about 10 billion more barrels than the industry would be able to produce.

CURRENCY RATES

In the local currency market the dollar opened at Rs 54.30 and closed at Rs 53.90, the lowest of the month. The highest of the month was Rs 54.35 on 9th, 10th, and 16th of the month.

Pound sterling started at Rs 87.00 and ended at Rs 87.50, the lowest of the month. The highest of the month was Rs 88.35 on the 8th.

Japanese yen commenced at Rs 0.529, the highest of the month and ended at Rs 0.524. The lowest of the month was Rs 0.522 on 15th and 16th.

Swiss franc started its journey at Rs 28.1 and ended at Rs 27.80, the lowest of the month. The highest of the month was Rs 28.55 on the 9th.

INTERNATIONAL SCENARIO

INVESTMENTS

As the year 1999 draws to close, the total amount of foreign direct investment (FDI) in the world can exceed the $700 billion mark, according to a report by Unctad. "This will be phenomenal after a rise of almost 40 percent to more than $640 billion in 1998," the United National Conference on Trade and Development (Unctad) said. According to it, developed countries account for most of this investment.

Countries, including Pakistan, India and Bangladesh in South Asia, which do not attract FDI, are in danger of becoming marginalised according to the Unctad report. For developing countries as a group, FDI is the most important source of external finance. Their share in total (FDI) grew steadily until 1997, when it rose to 37 percent, but it then declined to 28 percent in 1998, the report noted.

Hundreds of millions of the world's poor live in countries where crushing debt stands in the way of lasting poverty reduction. Although the heavily indebted poor countries (HIPC) initiative has yielded some positive results, the International Monetary Fund says that recent developments and experiences have highlighted the vulnerability of many HIPC to exogenous shocks.

"It is our duty to reinforce and enhance this programme to provide faster, deeper and broader debt relief," the IMF says in a document on HIPC.

JAPAN ECONOMY

Japan said that its economy is improving moderately and a cabinet minister voiced confidence that by the end of the fiscal year starting next April it will be well on the way to a full recovery. A monthly report by the Economic Planning Agency said "the recovery in private sector demand is weak and the economy has not escaped from its severe condition, but with the effects of various policies and an Asian economic recovery, the economy conditions to improve moderately."

Japan's parliament has enacted a 6.79 trillion yen ($66 billion) supplementary budget for this fiscal year which the government hopes would help put the struggling economy on the road to a sustainable recovery.

INDIA

India's total foreign exchange reserves, which include foreign currency assets gold and special drawing rights, rose by $33 million to $34.321 billion in the week ended on December 10, according to Reserve Bank of India. The rise in the reserves was due to a rise in foreign currency assets, which increased $33 million to $31.279 billion. The bank doesn't provide explanations for week-to-week changes in the reserves. Factors that affect reserves include interest payments on multilateral loans, revaluation of foreign currency assets and intervention by the central bank in the foreign exchange market by selling or buying dollar.

GENERAL

In a major step forward for e-commerce in Europe, EU trade ministers reached political agreement on a proposed legal framework to encourage buying and selling on the Internet.

Out going IMF Managing Director Michel Camdessus has acknowledged that the IMF Ñ an advocate of economic rationality and discipline Ñ will never be popular institution. He confessed in an interview that IMF has failed to adequately explain itself to the public.

"It is very recently we realised that the conventional interpretation of our purposes might not be serving us well," he said in remarks set for publication of December 13.

CURRENCY RATES

In the world money market Pound sterling started at 1.5984, the lowest of the month and ended at 1.6148. The highest of the month was 1.6285 on the 9th.

German mark commenced at 1.9368 and closed at 1.9347. The highest of the month was 1.903 on the 9th while the lowest of the month was 1.9529 on the 3rd.

Japanese yen started at 102.2 and ended at 102.10. The highest of the month was 101.52 on the 23rd while the lowest of the month was 103.54 on 16th.

Swiss franc opened at 1.5856 and closed at 1.5902. The highest of the month was 1.5566 on the 9th while the lowest of the month was 1.5966 on the 3rd.

RATES OF PAKISTANI RUPEE IN TERM OF ONE UNIT OF

FOREIGN CURRENCY DURING THE MONTH OF DECEMBER-1999

DURING THE MONTH

OPENING CLOSING

RATE HIGHEST LOWEST RATE

AS ON: AS ON:

CURRENCY 01/12/99 RATE ON RATE ON 31/12/99

U.S. DOLLAR 54.30 54.35 9th 53.90 30th 53.90

POUND STERLING 87.00 88.50 9th 87.00 1st 87.20

GERMAN MARK 28.10 28.55 9th 27.80 30th 27.80

FRENCH FRANC 8.35 8.25 9th 8.50 30th 8.25

SWISS FRANC 34.25 35.80 31st 33.90 29th 35.80

SWEDISH KRONA 6.38 6.50 9th 6.30 3rd 6.30

HOLLAND GUILDER 24.85 25.50 10th 24.60 31st 24.60

CANADIAN $ 36.70 37.10 29th 36.50 3rd 36.95

AUSTRALIAN $ 34.40 35.25 22ND 34.20 4th 35.00

JAPANESE YEN 0.529 0.533 23rd 0.522 15th 0.524

HONG KONG $ 6.95 6.95 24th 6.90 29th 6.93

SINGAPORE $ 32.25 32.55 23rd 32.10 3rd 32.30

MALAYSIAN RINGGIT 14.15 14.25 11th 14.05 31st 14.05

UAE DIRHAM 14.80 14.80 23rd 14.70 31st 14.70

SAUDI RIYAL 14.47 14.84 24th 14.35 31st 14.35

KUWAITI DINAR 178.20 178.35 14th 176.70 31st 176.70

INDIAN RUPEE 1.25 1.26 31st 1.25 1st 1.26

NORWEGIAN KRONE 6.73 6.85 9th 6.60 3rd 6.70