Pakistan Economy & Budget; NIA Pathankot Report; Hillary v Trump

[Riaz Haq]

How’s Pakistani economy doing? Is it gaining strength? How are the major economic indicators looking? What are Nawaz Sharif government’s economic priorities? How has it allocated spending in budget 2016-17 presented to National Assembly by Finance Minister Ishaq Dar? Why does Pakistan rely almost entirely on indirect taxation to raise revenue? Why is there such disproportionate burden for revenue placed on the poor and the middle-income Pakistanis? Why is the taxation system in Pakistan so regressive? What needs to be done to broaden the tax net to increase revenue and make the taxation system more fair. What should the provincial governments do? Should they impose at least a modest agriculture income tax and various service taxes to raise revenue?

How did the Indian National Investigation Agency conclude that Pakistan and its agencies had no role in Pathankot incident in India? Why are they now backtracking from this conclusion? What evidence of India-Pakistan border breach do they have to implicate Pakistani nationals in the incident? Or is it just Indian media hype, part of the Indian government propaganda by some elements to unfairly malign Pakistan?

What are Donald Trump’s and Hillary Clinton's strategies for the general elections in November 2016? Can Trump win by attacking minorities and women? Why the did Trump so personally and viciously attack US Federal Judge Gonzalo Curiel and New Mexico Governor Susana Martinez? Will Hillary’s strategy of questioning Trump’s temperament to be US president work? Will she use fear of mercurial Trump’s potential actions as president with his finger on the nuclear button to scare off voters from the Republican candidate?

Viewpoint From Overseas host Misbah Azam discusses these questions with panelists Ali H. Cemendtaur and Riaz Haq (www.riazhaq.com)


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Related Links:


Haq's Musings

Pakistan FDI Soaring as CPEC Gets Underway

Pathankot Attack in India

Trump Phenomenon

Talk4Pak Think Tank

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[Riaz Haq]

Top 3 #EmergingMarkets to Place Money on: #Pakistan, #India, Central & Eastern #Europe Now http://on.barrons.com/1Uk1MVJ via @barronsonline

INVESTORS SHOULD POKE AROUND for opportunities in these markets in Southeast Asia and Eastern Europe rather than in Latin America.

Pakistan: MSCI says it will announce a decision this month on reclassifying Pakistan from a frontier market to emerging market. Its GDP is expected to grow at a 4.7% clip in the 2016 fiscal year, and its leaders are discussing economic progress with the International Monetary Fund as a $6.6 billion loan package expires this year. The Global X MSCI Pakistan ETF (PAK), while up 13% this year, is down about 5% over the past 12 months.

India: The health of the economy under Prime Minister Narendra Modi, who is set to visit the U.S. this coming week, defies anxiety about bad bank loans and doubts about India’s recalibrated GDP calculations. Standard & Poor’s lowered its credit ratings on Indian Overseas Bank and Bank of India last week, but expects the government to continue to infuse state-run banks with capital. The Reserve Bank of India recently eased restrictions on foreign ownership of private lenders, which should help weaker banks. We reiterate our February recommendation, HDFC Bank (HDB), up 6% this year.

Central and Eastern Europe: These economies are likely to see 3% annual growth and outpace Russia, where the economy is set to slowly recover over the next year, according to Capital Economics. The firm expects Romania’s economy to be among the region’s best performers in 2016. Poland may grow at a 3% clip this year, but political turmoil and inflation bear watching. The SPDR S&P Emerging Europe ETF (GUR) is up 13% so far this year, despite a heavy dose of Russian and Turkish assets.

Where is caution appropriate? Argentina. Wells Fargo last week suggested avoiding Argentina’s stocks and bonds as the economy contracts under the weight of needed economic reform. The country devalued its currency, inflation spiked, and agricultural exports are suffering, with customer Brazil in sorry shape. The Global X MSCI Argentina ETF (ARGT) is up 17% in 2016.

Of course, all emerging assets will suffer if investors make a fast exit from developing-country bond markets, which have grown exponentially since previous cycles. But it’s likely the Fed’s trumpets have already heralded that move.

[Riaz Haq]

Growing fear inside #GOP about #Trump reminiscent of loss of #USCongress after #Goldwater's 1964 defeat @CNNPolitics

http://www.cnn.com/2016/06/05/politics/gop-fears-donald-trump-judge...

The GOP's deepest fear: A Barry Goldwater effect that could last far longer than Trump's political aspirations.
Goldwater, the Arizona senator who was the 1964 GOP nominee and a leader of the conservative movement, alienated a generation of African-American voters by opposing the Civil Rights Act -- opening the door for Democrats to lock in their support for decades. Republicans fret that Trump could similarly leave a stain with Latino voters.

"I am concerned about that," Senate Majority Leader Mitch McConnell, R-Kentucky, said Sunday.
"America is changing. When Ronald Reagan was elected, 84% of the electorate was white," McConnell said on NBC's "Meet the Press." "This November, 70% will be. It's a big mistake for our party to write off Latino Americans. And they're an important part of the country and soon to be the largest minority group in the country."
"I hope he'll change his direction on that," said McConnell, who first made the Goldwater comparison last week in an interview with CNN's Jake Tapper.
That hasn't happened yet. In interviews Sunday, Trump wouldn't back away from his assertion that Curiel's parents' birth in Mexico has left the judge angry over Trump's proposal to build a wall along the U.S.-Mexico border and biased in the legal case over Trump University. Trump even went further, saying on CBS' "Face the Nation" that he'd have similar concerns over a Muslim judge, since he has proposed banning all Muslims from entering the United States.
Trump's remarks led to condemnations from the same leading Republicans that in recent weeks have embraced him -- and accepted that the party's fate in November is inextricably linked to his.
"I don't agree with what he had to say," McConnell said.

"This is a man who was born in Indiana," McConnell said of Curiel. "All of us came here from somewhere else. Almost all Americans are either near-term immigrants like my wife, who came here at age 8 not speaking a word of English, or the rest of us whose ancestors were risk-takers who came here and made this country great. That's an important part of what makes America work."
House Speaker Paul Ryan, just a day after announcing his endorsement of Trump, bashed him on a Wisconsin radio station.
"Look, the comment about the judge, just was out of left field for my mind," Ryan said Friday on WISN in Milwaukee. "It's reasoning I don't relate to, I completely disagree with the thinking behind that."
The criticism from McConnell and Ryan was predictable: Both preside over GOP majorities that are threatened thanks to competitive races in Latino-heavy states like Arizona, Nevada and Florida.
More surprising was the condemnation from Gingrich, who has transparently jockeyed for a spot on Trump's ticket.
"I don't know what Trump's reasoning was, and I don't care," Gingrich told The Washington Post. "His description of the judge in terms of his parentage is completely unacceptable."
Gingrich was even sharper on "Fox News Sunday," calling Trump's remarks "inexcusable."

[Riaz Haq]

#Pakistan farms in crisis as crop prices & farmers' incomes fall. #water #agriculture #economy - http://on.ft.com/2133JKW 

Farmers’ incomes have fallen more than 25 per cent in the financial year to the end of June, according to projections by the country’s central bank. While partly due to a global plunge in commodity prices, critics say the problem has been exacerbated by the failure of Prime Minister Nawaz Sharif’s government to step in with support, and that the latest incentives for farmers are inadequate.
Meanwhile, the volume of Pakistan’s cotton crop has crashed by almost 30 per cent, spurring the first contraction in the value of the country’s agricultural output for more than two decades. At least 60 per cent of Pakistan’s 200m people rely directly or indirectly on farm incomes.
“The main issue has been a major drop in prices of crops,” Abida Hussain, a farm owner and former MP, told the Financial Times. “To stabilise agriculture, a way has to be found to deal with that fundamental issue.”
One western economist in Islamabad, who declined to be named, warned that a degraded irrigation network and dysfunctional research community was also hampering Pakistan’s agricultural sector.
“The irrigation system in places is so bad that farmers haven’t received even a drop of water from a canal just a few miles away,” he said. “The management is terrible”.
The focus on farm incomes comes just ahead of the conclusion of an IMF programme this year and despite an economic recovery that has seen gross domestic product growth rise to a forecast 4.7 per cent this year, up from an annual average of about 3 per cent during the five years to 2013.
Helped by a global drop in oil prices and increases in domestic electricity and gas tariffs, Mr Sharif’s government is expected to bring its annual fiscal deficit to about 5 per cent of GDP this financial year, down from 8.8 per cent when the government took charge in 2013. But analysts warned that the budgetary discipline enforced by the IMF may be jettisoned when the loan programme ends in September.
“The government has some of the right numbers for the moment,” said Sakib Sherani, a former adviser to the finance ministry. “But the budget could change after September and the government could adopt populist measures ahead of 2018.”

[Riaz Haq]

#India Held #Kashmir Commander: “Militarily, there's not much more to do than we already have done. We're losing" http://www.voanews.com/content/ap-kashmir-villagers-rise-up-foil-re...

Indian military officials estimate there are some 200 militants in the region, staging attacks on Indian law enforcement and crossing back and forth over the de facto border with Pakistan. It's a steep drop from the 20,000 estimated to have waged the insurgency in the early 1990s, but military officials say their job is getting harder as the villages increasingly get involved.

“It's a big problem, a challenge for us to conduct anti-militant operations now,” said Lt. Gen. D.S. Hooda, India's senior military commander in the region. He noted that armed soldiers had little hope of competing with the militants for public sympathy.

Most citizens in the mostly Muslim region have long resented the Indian presence, and support rebel demands that Kashmir be independent or part of Pakistan.

“Frankly speaking, I'm not comfortable anymore conducting operations if large crowds are around,” Hooda said. “Militarily, there's not much more to do than we already have done. ... We're losing the battle for a narrative.”

Human rights activist Khurram Parvez said that, while the rebels are fewer in number, their influence has grown. Beyond their usual guns and grenades, rebels now carry smartphones to coordinate their movements with village supporters, and load photos and videos onto social media sites.

“It's a more like a symbolic militancy now which tries to rally the support for freedom, and glamorizes militants, resistance and defiance,” Parvez said. “But people listen to them and support them more openly and fiercely.”

Kashmiris in the countryside regularly defy the curfews imposed when the military plans an operation in their area. Some militants have even become household names.

“India's military might have crushed militancy to a large extent, but they've failed to change people's minds,” Parvez said. “Their support for militants and freedom (from India) is now increasingly manifesting in fierce ways.”

Indian forces admit the village defiance is forcing them to change their strategy.

“During an average counterinsurgency operation, general law and order has become more important to tackle than the actual operation itself. It's a matter of serious concern,” top paramilitary officer Nalin Prabhat said.

They're trying to reach out to Kashmir's youth, organizing school debates, sightseeing trips throughout India and visits to sporting events in hopes of persuading them to stay away from the insurgency and anti-India protests.

But the so-called “Operation Goodwill” campaign has so far had little impact among Kashmiris aged 18 to 35 - two-thirds of the region's 7 million people - who have grown up politically radicalized over decades of brutal armed conflict.

Kashmir continues to be one of the most militarized regions in the world. The countryside is crisscrossed by coils of barbed wire. Police and army checkpoints are a common sight, and emergency laws grant government forces sweeping powers to search homes, to make arrests without warrants and to shoot suspected rebels on sight without fear of prosecution.

“Earlier the sight of an army soldier would send us into hiding,” said Zahoor Ahmed Reshi, sitting amid the rubble of what was once his home in the southern village of Gudroo, near Lelhar. The modest wood house was destroyed by an army mortar fired at a rebel who took shelter there during a firefight.

When the village came under siege again in May, hundreds of men and women clashed with the soldiers to help three trapped militants escape.

“People have overcome their fear,” the 48-year-old villager said. “Everybody is now saying, it's do or die.”

[Riaz Haq]

Standard Chartered Bank Aims to Double #Pakistan Profit on Loan Demand in Growing #Economy http://bloom.bg/1PfzsSO via @business

The bank is targeting an advance to deposit ratio of at least 45 percent in 12 months from 35 percent in the first quarter, according to Shazad Dada, chief executive officer of Standard Chartered Bank Pakistan Ltd. The industry as a whole will see the same trend, he said, with ratios rising to as much as 70 percent in three years from 46 percent in 2015.

“The economy has opened up” and there is demand from private-sector borrowers, Dada said in an interview in Karachi, the commercial capital. “Putting money to work is the easy part. It’s finding the right quality, right sponsors, right business ideas.”
Pakistan’s Prime Minister Nawaz Sharif is seeking to boost economic growth to its fastest pace in more than a decade after achieving stability through an International Monetary Fund loan program that averted an external payments crisis in 2013.


Suspicious Money
South Asia’s second-largest economy may prove to be a bright spot for Standard Chartered, which posted its first annual loss in more than a quarter of a century last year and is seeking to restructure or jettison about $100 billion of assets. The company declared $1.34 billion of impairment losses on loans in neighboring India last year, a legacy of its now-abandoned policy of rapidly expanding in emerging markets.
In Pakistan, finding quality assets and exercising discipline in extending credit will be key to driving the business, Dada said. His unit’s operating profit climbed to 15.4 billion rupees ($147 million) last year, almost triple the amount in 2010, data compiled by Bloomberg show.
For Pakistan, the risks for banking are associated with “suspicious money” being put through lenders for illicit purposes such as terrorism financing, corruption and human trafficking, Dada said. The country placed in the lower half of Transparency International’s 2015 Corruption Perceptions Index with a ranking of 117th out of 168 countries tracked by the organization.
Standard Chartered had boosted its scrutiny of money flows, Dada said. The unit he oversees has more than doubled financial-crime compliance staff to 57 this year from 23 in early 2015, he said.
Lower Rates
The London-based lender has been enhancing controls on money laundering, bribery and other offences and has been operating under deferred prosecution agreements with U.S. authorities since 2012, when it settled cases related to money-laundering failures and breaches of U.S. sanctions against Iran.
The bank’s Pakistan shares have fallen 15 percent this year, compared with the benchmark index’s 9.5 percent gain. Standard Chartered’s stock in London lost 3 percent in that time.

Pakistan’s private sector is being tempted to borrow after the country cut its discount rate by the most in Asia last year, and by 375 basis points in the past two years, after the drop in oil prices. The nation’s central bank unexpectedly cut its benchmark interest rate to 5.75 percent this month before the government presented its budget for the new financial year last week. Pakistan’s consumer confidence level rose to the highest level in eight years in the March quarter, according to New York-based Nielsen, which tracks the data.
Outstanding private-sector loans in Pakistan climbed about 9 percent to $35.4 billion as of April from a year earlier, central bank data show.
“The rise in loans tell you the economy is picking up steam and banks mean real business after heavily investing in government securities for years,” said Yawar uz Zaman, head of research at Karachi-based Shajar Capital Pakistan Pvt.

[Riaz Haq]

Dailytimes | #Pakistan cement industry focusing on captive power generation plants & sell excess - http://go.shr.lc/1tspCsN via @Shareaholic

The cement industry of Pakistan is turning towards power generation, which would not only cater to their needs but would also supply electricity to the national grid.

The outlook for the Pakistan cement industry is positive with expansion expected over the next few years. Key reasons include improved sector fundamentals backed by higher demand, cost efficiencies driven by lower international coal prices and captive power generation reducing energy costs, capacity expansions and low to minimal risk of cement price destabilisation. As a result, cement demand is forecast to grow by at least eight percent over the next five years (FY16-21) on the back of an average GDP growth of 4.7 percent.

The Invest and Finance Securities Limited, while reviewing the performance of seven local cement companies, stated that on the flip side, weakening exports (16 percent of total cement dispatches during 9MFY16) and electricity/gas tariff hikes have marginally impacted the industry dynamics. As part of the China-Pakistan Economic Corridor initiative and an increased focus on infrastructure spending by the Pakistani government, around $44 billion in transport infrastructure and energy-related construction in the next 15 years - cement demand is predicted to be robust.

Pakistan currently has a cement production capacity of about 45Mta (with current capacity utilisation rates at 83 percent), which is expected to rise to around 52.5Mta 
by FY19. Lucky Cement is setting up a 2.4Mta plant in Punjab, reflecting an investment of around Rs 21 billion. Acquisition of land and supplier confirmation is expected to conclude by the end of FY16. The expansion would take the company's existing capacity to over 10Mta. It would also bring a further 10MW waste heat recovery (WHR) power plant online by the end of 2016 besides expanding its international footprint in Congo and Iraq.

Meanwhile, DG Khan Cement is currently undertaking expansion in the southern zone with a 2.6Mta cement plant that is expected to come online in FY19. The company would also bring a 30MW coal-fired power plant and pursue further expansion in the south by FY18. Maple Leaf Cement, which has a cement production capacity of 3.4Mta in Iskanderabad District, Mianwali, is expected to bring a 40MW coal-fired power plant online by the end of FY17.

Fauji Cement Company's 3.4Mta plant is situated near Jhang Bahtar village, tehsil Fateh Jang, District Attock. The company started power generation from its 12MW WHR plant back in May 2015 and would reduce the cement producer's reliance on the national grid for its power supplies.

Cherat Cement Company Limited is currently carrying out a 1.3Mta expansion at its 1Mta plant at Lakrai Village, Nowshera. Following commissioning in FY17, the project would take the total nameplate capacity to 2.3Mt. In addition to its existing 6MW WHR plant, the company is undertaking installation of another 6MW WHR plant at its new production site.

Pioneer Cement Limited announced plans to install a 12MW plant at Chenki, Khushab, which would have an installed capacity of 2Mt. The company announced its plan to install a 12MW WHR plant at an estimated cost of Rs 1.5bn. The plant is expected to meet around 38 percent of the company's total electricity requirement resulting in enhancement of the margins.

[Riaz Haq]

#MSCI Emerging Index Adds #Pakistan, Snubs #China A-Shares from Mainland markets #EmergingMarkets http://blogs.barrons.com/emergingmarketsdaily/2016/06/14/msci-emerg... … via @barronsonline

Stock indexer MSCI said Tuesday it won’t include mainland-Chinese A shares in its key emerging market index.

MSCI also said that Pakistan would be reclassified as an emerging market, coinciding with MSCI’s May 2017 semiannual review.


The Deutsche X-trackers Harvest CSI 300 China A-Shares exchange-traded fund (ASHR) slipped 2% after hours after rising more than 1% in regular trading Tuesday. The iShares China Large-Cap ETF (FXI), the largest U.S. ETF invested in Chinese equities, was also lower, down 0.5%. The Global X MSCI Pakistan ETF (PAK) was not moving after hours. The A-shares ETF is down 17% this year, while the larger China Large-Cap fund is down more than 6%. Pakistan stocks have rallied on the potential for inclusion, with a 12% rise so far this year.

[Riaz Haq]

Surging #California #economy grew 5.7% to $2.46 trillion making it the world’s 6th largest in 2015.
http://www.sacbee.com/news/politics-government/capitol-alert/articl...


California, along with Oregon, had the nation’s highest rate of economic growth in 2015 and has vaulted to sixth largest economy in the world.

The federal Bureau of Economic Analysis says that California’s economy expanded by 5.7 percent in 2015, second only to Oregon’s 5.9 percent in nominal terms and tied with Oregon at 4.1 percent in constant dollars.

The BEA pegged the state’s economic output last year at $2.46 trillion and with several of its international rivals, particularly Brazil and France, experiencing slumps, that would place California at sixth place, behind only the U.S., China, Japan, Germany and the United Kingdom. The state had been the eighth largest economy, and passed France and Brazil with the release of the latest report.

The BEA data were released just as Gov. Jerry Brown and legislators are finalizing a 2016-17 budget that’s based, in part, on recent declines in revenue growth and Brown’s oft-voiced warnings that the state is overdue for recession after a very long recovery from last decade’s Great Recession.

“The next recession is getting closer,” Brown warned in his revised budget last month, “even if we cannot tell exactly when it will hit.”

Brown’s warning is rooted, in part, on a global economic slowdown because the state’s economy is highly interconnected with that of other nations.

The most recent estimates of global economic trends say that while the U.S. and China both saw gains in 2015, Japan, Germany and the United Kingdom faded slightly, and the economies of France, Italy and Brazil dropped sharply – in Brazil’s case by nearly 30 percent. In 2014, California and Brazil were virtually tied, but by 2015 California’s economy was more than a third larger.

In broad BEA categories, California’s finance and insurance sector was the largest in 2015 at $535 billion, with government at $300 billion and manufacturing at $278 billion following. Agriculture, once an economic mainstay, was just $39 billion.

Read more here: http://www.sacbee.com/news/politics-government/capitol-alert/articl...

[Riaz Haq]

U.N. Warns #Trump May Be 7 Months Away From Acquiring #Nuclear Weapons. Poses #Global Risk http://www.theonion.com/r/53093 via The Onion

 

According to an alarming new global risk report published Tuesday by the United Nations Office for Disarmament Affairs, presumptive GOP presidential nominee Donald Trump may be just seven months away from acquiring nuclear weapons. “A year ago, the threat didn’t seem great enough to warrant serious concern, but at this moment, a nuclear-capable Trump is now a very real and very imminent possibility,” said UNODA high representative Kim Won-soo, adding that the agency’s current projections showed Trump potentially procuring nuclear weapons, as well as advanced ballistic missile technology, as early as January of next year. “The longer we wait to act, the closer he comes to obtaining a nuclear arsenal. The final red line for preventing him from acquiring this devastating capability comes in early November. If he is not properly dealt with before then, there will be no way to stop him from going nuclear.” While U.N. officials said the international community should prepare for the destabilizing effects of Trump acquiring such weapons, they still held out hope that citizens of his nation might yet rise up against him and topple the extremist before he posed a global existential threat.

[Riaz Haq]

Why #Bangladesh is a bigger threat to #India than #Pakistan today. #ISIS #AlQaeda #Taliban http://www.oneindia.com/feature/why-bangladesh-is-bigger-threat-ind... … via @oneindia

The worry is of course the radicals' reaching the eastern border and the opportunity is to bring Dhaka closer to New Delhi than it is to Beijing for China has shown a determination in challenging India by encircling it through the smaller countries in South Asia. New Delhi needs to engage with Bangladesh for it poses a bigger security threat than Pakistan today. At the same time, it offers a huge economic opportunity to integrate South Asia like never before. IS has a better chance of reaching India via the eastern front The IS has a better chance to flourish in Bangladesh and enter India from the east for two reasons: first, the IS has a bigger challenge to reach India from the west owing to the presence of the Taliban in Afghanistan and Pakistan. Bangladesh, on the other other hand, is a more fertile territory for the IS to grow, thanks to the country's shrunk space for media and other freedom and the inability of the government to deal with the problem. Secondly, India has a more clumsy border to the east which is also given lesser strategic significance compared to that with Pakistan or China. We have seen in the recent past how extremist elements have been entering easily in the border state of West Bengal and conducting sinister activities. If New Delhi doesn't act to tighten things up in the east, the potential of India-Bangladesh relations could not just be ruined but even India's internal security would be jeopardised.

Read more at: http://www.oneindia.com/feature/why-bangladesh-is-bigger-threat-ind...