Category: Macroeconomic Issues


A rainbow of Ludhiana-made stoles is all set to steal the show at the Royal Wedding this week-end. These stoles are traditional dupattas or chunnaries worn by women of the sub-continent. These stoles are not specific to Muslim women; hence, these will not spark any controversy like the hijab which has been legally banned in countries like France but Indian chunarry has a different story. Media has reported that nearly 4,000 soft wool stoles have been shipped for the eagerly awaited wedding of Prince William and Kate Middleton in London this Friday, courtesy a Ludhiana manufacturer. And the royal couple is also expected to take its pick. According to the reports, Ludhiana’s Centex Exports has shipped the stoles to London-based popular online fashion business store Boden. They will also be gifted to the guests invited for the wedding at London’s Westminster Abbey.

Each stole costs 45 pounds. Made of soft wool, the stoles are in red and blue, brown and scarlet and green and grey color variants. The Union Jack is printed on both sides of the stoles. Moreover, the wool has been knit to form an animal print pattern carrying a small patch with the words, ‘April 29th 2011; William and Kate; with love from Boden’. For Indians, it a singular honor to be asked to create such an important keepsake for a wedding which will be historic. These stoles have been chosen from across the world and also it is a once in a lifetime opportunity. Centex was chosen after a market study by Boden.

‘This is the wedding of fantasy and it becomes the major point for the Britishers to project their royalty. They are the force to reckon with today and when such a huge audience will get the live coverage (which is said to be around 2 billion), every small detail needs to be checked. So the royal family hired the service of third party Boden,’ the chief of the exporting firm told the media. The company went across China and South Korea in search of a supplier as they were looking at very fine quality of wool.

In addition to these stoles, the company has made another 2,600 stoles and scarves for Boden which will be sold online. The royal wedding will be a classic British occasion. The guest list includes dignitaries from across the world like US First Lady Michelle Obama, Australian Prime Minister Julia Gillard and the Beckhams.

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The times are tough and testing, and the life has become difficult for all barring 5% of the elite with perennial sources of ill-gotten wealth. The Government is in a bigger fix than the citizenry. The problems of rising prices and unemployment and the inflation are the real challenges and on top of that there is sometimes motivated, sometimes sincere criticism on the government and everyone, from a man on the street to a celebrated economist, has a package of suggestion to bail the government out of this quagmire.  Some say that the Cabinet should be downsized, some target expenses of PM House. Nobody seems to be offering a solution practical enough which could steer Zardar-Gilani government out of this crisis. It has been reported by The News International that renowned economists are of the view that until the government stops borrowing huge amounts of money from the State Bank, the inflation and interest rates can not be brought under control.

Participating in a discussion, ‘IMF Conditions – Future of Pakistan’s Economy’, organized by the Jang Forum, economics expert Dr Akmal Hussain said that the government had borrowed Rs500 billion from the State Bank, triggering inflation and a simultaneous rise in the interest rates of the commercial banks and depleting the country’s overall economic state. He said that the IMF, while following double standards, was trying to promote economic contraction in Pakistan in this time of recession, rather than promoting economic stimulus, like it had done for the western countries at the time of recession.  This Bretton Woods sister may be gorgeous but she is ruthlessly hypocrite. Akmal Hussain said that there was a dire need of increase in revenue of the country which could not be achieved by limiting public sector development and contraction of the national economy.

The country had lost one third of its infrastructure in the flood disaster and the situation should be exploited as an economic stimulus to invest in public sector and infrastructure building to generate revenues, create employment and deal with the disaster, all at the same time. He said that the budget deficit should be left as a secondary issue as once economic growth was ensured through injection and production of revenue through economic stimulus, the budget deficit would decrease automatically. He said that the European countries, which were going through a budget deficit of nine percent, were making up through economic growth, whereas, Pakistan had only 6.3 percent of budget deficit.
He said that massive amount, around 18 billion dollars, needed for flood affectivities’ rehabilitation could not be reached without international funding. He stressed the need to ensure an effective financial management system, project management and project transparency to build trust of foreign investor and donors, not just in emergent situations but also in routine operations. He proposed a social protection program featuring an Employment Guarantee Scheme on the basis of ‘cash for work’ for which the flood hit areas reconstruction could play as a vital platform.

There is always a silver lining in every dark cloud. It so happens that the dark cloud is for someone and the silver lining is for someone else. It is a strange world where miseries of someone mean opportunity to others. Crisis of a nation means potential for big business for greedy business people. A blog post on these pages discussed how blood-sucking international donors were trying to turn Pakistan’s catastrophic floods into a business opportunity. Pakistan’s arch-rival, who has been trying to bleed Pakistan economically, has finally seen some sliver lining in the dark clouds.  Businessweek has reported that basmati-rice shipments from India may surge by about 22 percent after record floods in neighboring Pakistan destroyed crops, cutting supplies, according to India’s biggest rice exporter.

The country’s overseas sales may advance by about 500,000 metric tons in the year from Oct. 1 from this year’s projected total of 2.3 million tons, KRBL Ltd. Chairman Anil Mittal said from New Delhi today. A ban on shipments from India imposed in 2008 on varieties other than Basmati may be lifted, he said. The deadliest floods in Pakistan’s history destroyed crops and damaged infrastructure, and that nation’s rice exporters’ group has forecast exports may plunge as much as 35 percent. India’s ban on non-Basmati-rice exports may be ended next month amid a shortage of storage space, Mittal said in an interview.

“We expect rice prices to rise for the next two years in the export markets where India competes with Pakistan,” Nikita Khilani and Arijit Das, analysts at Kolkata-based VCK Share & Stock Broking Services Ltd., said in a note today. “India will capture at least 20 percent of Pakistan’s export market” this year, they said. “KRBL will be among the chief beneficiaries of this scenario.” KRBL stock, which has more than doubled in the past year, surged as much as 20 percent to 36.45 rupees today in Mumbai, advancing for a sixth straight day. That’s the highest price since at least 2005. The stock may reach 40 rupees, VCK said. Mittal declined to comment on the shares’ jump. Kohinoor Foods Ltd., KRBL’s rival, rose 15 percent to 62.5 rupees, the most since December 2007, while LT Foods Ltd. jumped 20 percent to 77.7 rupees, a one-year high.

KRBL’s Basmati shipments may gain in value by 20 percent in the year ending March 31 from 9.1 billion rupees ($194 million) in the last fiscal year, Mittal said. After late sowing, the new crop is expected to arrive in the market in mid-October, with Indian sellers getting export orders in November, he said.

“We expect prices to remain strong,” Mittal said, without providing forecasts for the fragrant, long-grain variety. “Over the last three years, new markets in Iraq and Iran have been developed for Indian Basmati.” India, the second-biggest producer of rice, implemented the trade ban in April 2008 to increase domestic supplies as global rice prices surged to an all-time high. The restrictions remain in place after a drought in 2009 pared production by 10 percent in the year ended June 30. The government may allow shipments of non-Basmati rice from October as the country may harvest 98 million to 100 million tons of all rice grades in the year to June, Mittal said. “If export is not allowed, there will be the problem of storage.”

It is a strange world where someone’s misery can turn into opportunity for someone else to make quick windfall profits. This is true not only for individual greedy business men but also institutions. In the case of Pakistan, where Government needs to rehabilitate people and reconstruct infrastructure, the only thing needed is money and that too in local currency because almost nothing is to be imported. Any other nation, in such an hour of need, would adopt austerity as a way of life and divert all national and individual savings towards reconstruction and employment generation for those whose livelihood was washed away. Another way is to ask those to cough up who have stashed tons of plundered wealth. They could be given an opportunity to whiten their black money.

However, strange are the ways of the Pakistani Government where the easiest of the way is to ask for external loans and that too very expensive one. At this point in time, debt servicing is 44% of the current expenditure and with additional debts it will rise further and add to the miseries of the people. The only gainers in this calamity are Pakistani businessmen and international lenders like the Bretton Woods sisters and ADB who see a huge business opportunity in investing in reconstruction activities.

Express Tribune, while updating on flood relief activities has reported that the World Bank has increased funding to help Pakistan cope with catastrophic flooding by $100 million, to a total of $1 billion, the bank said in a statement on Thursday. “The World Bank is committed to helping the people of Pakistan during this time of need and has made $1 billion available to finance immediate recovery needs and longer-term reconstruction,” the statement quoted World Bank President Robert Zoellick as telling Pakistani Finance Minister Hafeez Shaikh in Washington.

The same newspaper has also reported that the International Monetary Fund will give Pakistan $450 million emergency loan for flood aid, providing some relief for a government overwhelmed by the disaster. IMF Managing Director Dominique Strauss-Kahn said in Washington on Thursday that the funds would be dispersed in ‘coming weeks’.

Strauss-Kahn said discussions with a delegation led by Finance Minister Abdul Hafeez Shaikh on how to ‘reorganise’ an $11 billion IMF loan program. He said Islamabad remained committed to terms including tax and energy sector reforms. The IMF package had kept afloat and economy that was already fragile before the floods rampaged from the northwest to the south, damaging crops and infrastructure which Prime Minister Yusuf Raza Gilani estimated could hit $43 billion, almost one quarter of last year’s gross domestic product.

Meanwhile demonstrators marched against the new International Monetary Fund (IMF) loan plan in front of the World Bank’s offices in Islamabad.

The human society is made up of men and women who have been co-existing in different roles, most perennial being that of husband and wife. Traditionally, and it is still current in most of the societies, husband is the bread-winner and wife looks after the house. In certain societies, like in South Asian rural areas, women have accepted the additional role of associates with the male family members in the hard chores of farming which till the advent of mechanized farming involved tough manual labor. In spite of equal partnership, women folk were never perceived to be earning family members.

Daily Telegraph has recently initiated an interesting debate in its Family Section projecting varying points of view as to who does more productive work. The paper’s research population is western society where majority of women are as hard-working as the men, yet the debate goes on. In this paper yesterday, Mr Lyndon responded triumphantly to recent findings that if work and domestic chores are added together, men and women do roughly equal amounts of work. This, he was convinced, was the final straw for a feminism that claims that women work harder. He fervently hoped this would be an end to feminism’s “entire edifice of lies”.

It is not understood why people enter into this useless and endless debate and accuse each other of spreading lies. The writer claims that the Feminists have spread the untruth that women have jobs and have to run the house, too. According to Lyndon, this double-shift lie derives from the “feminist creed that men are lazy, snobbish, barbaric and incapable of switching on the vacuum cleaner without breaking it”. Jenni Murray and her truth-twisting collaborators will be forced to acknowledge their errors. The reason is a report from Dr Catherine Hakim of the London School of Economics, who by adding domestic work, childcare, voluntary work and paid employment together, has concluded that men and women do the same amount of what she calls “productive” work – an average of eight hours. Unfortunately, her report does not explain what “productive” is.

There is no doubt that men can cook. They clear up – in our household much more efficiently than women. They now do jobs that, when I was young, they were much less enthusiastic about, such as cleaning the bathroom. Many would not be ashamed to answer the door in a pinny, holding a feather duster. But there is another kind of domestic work that doesn’t look nearly as productive. Lying awake in bed at night worrying about how you will entertain the children for yet another day of the summer holidays: is that productive? What about breaking off at the office to scribble a note to yourself to organize a costume for your child’s school play? Or fretting about when you’ll fit in uniform-buying before the start of term? Or nagging your eight-year-old to change into something respectable for tea with your elderly aunt?

The paper claims that women are forever texting the babysitter, ringing up their child’s friends’ mothers to organize play dates, arranging music lessons and then coordinating husbands to provide the lift, filling in the forms for field trips and booking dental appointments, taking the kids to the doctor, sending notes in to school and keeping control of the laundry. This is engine-room work. It often doesn’t result in anything tangible, but without mothers taking on these responsibilities, the whole ramshackle jalopy of family life would grind to a halt. I’m not suggesting men never do these jobs. Some exceptional men, especially where they have sole charge of children, do all of them. But they remain the exception rather than the rule. What matters isn’t so much whether chores are shared equally, as whether partners feel the arrangement is equitable – whether the sacrifices and compromises are worth it, because reciprocated by love, or a successful family life, or a better household income. And here we get into muddy waters.

Catherine Hakim, like Neil Lyndon, has form in attacking feminists, although not because feminists are “pernicious and poisonous”, but from the loftier position of female choice. A group of privileged women, she claims, has denied choice to “ordinary” women by insisting that all women want to work. It is true that many women decide to soft-pedal on their careers to concentrate more on mothering. Where families are affluent, privileged women may choose not to work at all. But it remains the case that women are consistently paid less than men, and couples may decide that a male career is a better bet.

So it’s complicated. As a feminist, I can honestly say that I have never thought of men as lazy, snobbish, barbaric and hazardous with a vacuum cleaner. I dare say there is the odd man out there who would fit Lyndon’s description, but I don’t know any. I adore men and depend in all sorts of ways on one of them in particular. That is not to say I don’t think things could be improved. Catherine Hakim’s report notes that, in Germany, household income is aggregated between couples and then split equally for tax purposes. This seems an excellent way of recognizing the importance of domestic work. It would also be gender-neutral and, my guess is, encourage men to do even more than they’re doing now. [Courtesy: Daily Telegraph]

We are making all-out efforts to shut-down the industry and businesses in Pakistan. Apart from the fact that industries and businesses are hardly making any contributions and their slowing down is not felt by the common man in terms of sharp decline in the quantum of tax revenues, there are certain industries which are in export business earning foreign exchange and the businesses and industries offer employment opportunities. Their slowing down or closure will result in unemployment, though it will save energy for air-conditioning etc. State Bank of Pakistan has decided to increase the interest rate in the wake of persistent inflation in spite of the official target to bring it down to 9%. This inflation, and a persistent inflation at that, indicates that money is overflowing in the economy and has exceeded the amount of goods leading to a situation where goods are virtually sold through auction and rates are dictated by the suppliers.

The traditional approach to arrest the inflationary trends is to take the money out of the market and divert it to other uses. These other uses could be many but the quickest way to divert the money from the economy is towards investment. For this purpose, the Central Bank offers attractive returns on the moneys invested. One of the best ways of offering attractive returns is to control the interest rate and fix it a higher rate so that those with excess liquidity can find alternative use of their money to make more money.

This approach has some pitfalls like it increases the cost of doing business. With increase in the rate of interest, the financial cost also shoots northward making businesses totally unviable. Naturally, if a business has been started keeping in view existing hurdle rate and suddenly, the business finds the hurdle rate shooting up; the entire feasibility of the business crumbles. This has a chain effect in the economy. Given the fact that businesses are already falling apart due to non-availability of the basic input like gas and electricity and there becoming dearer by the day, this decision of increase in the interest rate will deal a severe blow to the already collapsing economy.

Business Recorder has reported that the business community has rejected the increase in interest rate, pronouncing it as anti-industry and anti-economy move by State Bank of Pakistan. Business community Saturday showed deep concerns over the increase in interest rate and termed it an irrational decision, especially for the industrial sector, already facing enormous problems. They feared that country would witness another spell of economic slow-down due to the decision.

They said the industry is already under extreme pressure due to consistent power shortage, prevailing law and order situation, high bank charges and interest rates where foreign investors are hesitating to invest. Nothing was going in the favor of business community; industrialists were repeatedly demanding to bring down the interest rate to single digit so that the ailing industry is able to recover from depression, however, the adverse decision would only give severe damage to the economy, cost of doing business would go up as a result of recent increase in power tariff and now increase in interest rates.

The industrialists and businessmen are of the unanimous view that instead of boosting, the decision to increase interest rate will slow down the economy.

There was a post in this blog forewarning the nation about a couple of national Titanics who were waiting in the wings to sink the entire economy. Pakistan Steel has already got the bail-out package but it has yet to be bailed out unless the more hefty package is announced. The amount of money that the Government has so far doled out to bail this white elephant out was sufficient to build another Steel Mills of the same size.

The other one of these Titanics is Pakistan’s national flag-carrier which was previously great people to fly with when it was making money but later converted to come fly with us when it started making losses. It is living on the blood of common Pakistanis who may not have even seen an aircraft. It has now been reported that Pakistan International Airlines (PIA) has asked the government to approve a financial support package to ensure sustainability of the national airline. This emerged during the 326th Board of Directors meeting which was held at the carrier’s office in Lahore. Express Tribune has reported that the plan will be presented to the federal government for approval after a few adjustments desired by the board are included in the proposal.

The board also urged the government to review the aviation policy to make it more equitable for all stakeholders. A level playing field for Pakistani airlines was demanded. Directors also agreed that shareholders’ support in the form of equity injection is vital for a sustainable turnaround. The equity is hard-earned income of not the directors but common Pakistanis who have the misfortune of being owners of the airlines but who can not ask a simple question; why should we pay for your inefficiency?

In order to cater the shortage of pilots for various aircraft, it was decided that the airline would give an option to those pilots who had reached the retirement age of 60 years to rejoin on contract basis. After the air crash of Air Blue, will it be wise to let over-aged pilots to fly the planes? The Civil Aviation Authority (CAA) of Pakistan has already allowed pilots to fly up to the age of 62 years.

The meeting was chaired by Defense Minister Chaudhry Ahmed Mukhtar who has no clue to as to what an airline business is. He is the same gentleman who being the Defense Minister had given a brilliant opinion about drones: drones do not take off from Pakistani bases, these only land there.

A great country like Pakistan having world-class leaders and a strong democracy guaranteed by all the stakeholders should not have to follow the footprints of foreigners, particularly westerners. And UK should be the worst example to follow. They have been our colonizers and can never be our friends, so why follow them. Moreover they may be setting inappropriate examples for us to dare us to follow them. This may be a perfect Zionist conspiracy.

This post is intended to forewarn our economic managers not to follow the examples set by the UK’s new Premier. A Businessweek column by Mark Gilbert informs that Cameron is about to embark upon an unprecedented experiment. He has told government departments to brace for spending cuts of as much as 40 percent as he seeks to shrink both the UK’s record budget deficit and a public sector that now accounts for nearly 20 percent of all UK jobs. They may have experienced budget deficit for the first time but for us, this is just normal every year in June. We are used to it. UK, with its growing population of South Asian origin, should also get used to it.

The paper informs that with the biggest deficit among Group of Seven nations and the worst looming shortfall in Europe this year according to European Union forecasts, the UK doesn’t want to be the next Greece [he could not write Pakistan because Pakistan is already known around the world for other reasons]. Less than a minute into a June 22 budget speech, Chancellor of the Exchequer George Osborne suggested that bond vigilantes are driving U.K. economic policy. “Questions that were asked about the liquidity and solvency of banking systems are now being asked of the liquidity and solvency of some of the governments that stand behind those banks,” he said. “I do not want those questions ever to be asked of this country.” The austerity debate is now not about whether fiscal tightening in advanced economies is necessary, but on when it should begin in earnest.

That’s why policymakers around the world will be watching Britain—especially those at the Federal Reserve, which is not yet ready to follow Osborne’s lead. The Fed’s colors are still tied to the mast of maintaining stimulus and keeping borrowing costs as close to zero as possible. At its June 22-23 meeting, the Fed said it would even “need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably.”

America has remained Pakistan’s traditional and perpetual ally at every hour of its (America’s) need and for this reason, both the countries passionately share at least one passion- spending. Spend at all costs, even if you have to beg, borrow or steal and even sell grandma’s jewelry or/and dispose off family silver, but you must spend. Spend and unlike USA, spend out of public kitty. That will keep the economy going. This is the reason, Pakistan and the USA, even after realizing the need to tighten the belt, are not ready to accept austerity. Both want someone else to do it first and UK has done it. Are we ready to follow? The columnist writes: “With the world economy threatening to slide into a double-dip recession, both the US and the UK are nevertheless talking about fiscal austerity. The only good news for Obama is that Cameron is going first.”

Watch out guys. Don’t buy austerity and never ever fall into its trap.

Pakistan was at the verge of insolvency in the 90s when it had to contract fresh debts, at exorbitant costs, to service existing debts. Then happened 9/11 leading USA to seek Pakistan’s cooperation. The financial institutions had to queue up to offer financial assistance to Pakistan. IMF was booted out and the lenders, most notably the Paris Club offered moratorium and other concessions on Pakistan’s foreign debts. Pakistan, however, could not assess its position and utility in this war and dictate its terms. It was probably happy for coming out of isolation and being recognized as a state despite being chained in sanctions.

If it had negotiated its price for being a frontline state in advance, it would have been in a much better position today when it has a number of economic issues including war on terror which alone is costing it very dearly. Pakistan has paid an immense price for being a front-line state in this war. The direct and indirect costs of our involvement over the last five years have been more than Rs2 trillion ($30 billion). This was the underlying message of Poverty Reduction Strategy Paper released by the IMF and reported in the Express Tribune. The paper noted that Pakistanis have largely lived in a state of denial for years with notions that “this is not our war” and we are “fighting the war for the US”. The economic cost aside, the cost to our image in the world, confidence in our nation’s capabilities and psychological impact on our people is unquantifiable. Taking cue from the acknowledgment of the IMF, the paper suggests that Pakistan should use this as an opportunity to plead for debt relief.

The paper makes a strange assertion that Pakistan’s foreign debt situation is not as bad as it is made to be believed in certain segments of the media. As of March 2010, total foreign debt stood at $54.5 billion. Out of that, Pakistan owes a group of 18 nations called the Paris Club $14 billion, other bilateral lenders $1.8 billion, multilateral agencies like the IMF, World Bank, Asian Development Bank, Islamic Development Bank, etc, around $32 billion. By demanding a relief initially from bilateral loans that are payable to the nations in the Paris Club, and other countries like China, Saudi Arabia, Kuwait and loans from Germany and Japan taken during the last two and a half years, Pakistan can easily get relief to the tune of $15.8 billion.

With success in due course which will depend on our diplomatic and political canvassing, we can make the same demand to the multilateral lenders as well to seek the debt relief. Pakistan’s demand for debt relief is not unjust. It is our role in standing up to terrorists that gives us the opportunity to seek such relief. First and foremost, despite a difficult macro-economic environment, Pakistan has never defaulted on its obligations. Earlier in January 2010, Pakistan successfully repaid its $500 million Euro-Sukuk. All other obligations to the global debt markets are being met as per schedule.

It is worth noting that Pakistan’s Credit Default Swap (CDS) had widened both after the assassination of former Prime Minister Benazir Bhutto and then in the summer of 2008 when a near run on banks was witnessed after rumors emerged that Pakistan was freezing foreign currency accounts. The result of these two events was a flight of capital from the country, causing a liquidity crunch, increase in interest rates and then the economic crash that began in the West from August to September 2008 made the return of the capital back to Pakistan difficult. To put it into context, Pakistan fulfilled its obligations aptly despite taking expending huge sums of money on the war against terror, despite defaults being the order of the day the world over at the time.

At the time of rumors of a run on banks in June-August 2008 and when the fight against militants was taking place in Swat, Pakistan’s CDS touched as high as 30 per cent. It is only in due course of time and showing the world that Pakistan is capable of handling the terrorism problem, we find that our CDS is back to the point when troubles started. In a nutshell, today we are a less risky place for an investor than we were 24 months earlier.

In October 2009 when Hillary Clinton was in Pakistan, in a meeting with legislators the matter of writing off the debt, standing approximately at $2 billion, Pakistan owed to the US was raised. Clinton had assured that she would raise the matter with the US Treasury as it was a fresh issue. However, nothing much has happened as the media tirade that followed the Kerry-Lugar Bill and echoing support by the opposition and military made the matter of writing off the debt inconsequential. It is high time that we raise the issue again with the US, which leads the world, and if it is willing to write off our debt, we can move from one country to another to seek the same relief.

This initiative has to begin from parliament and the ministry of finance. A suitable course of action in this regard could begin with devising a strategy involving the ministry of finance, ministry of foreign affairs and State Bank of Pakistan to envisage the scenarios and conditions that can be put on the negotiating table. After a thorough homework, all political parties’ heads can be involved to bring them on board on this matter.

At the same time while presenting the benefits of debt relief, the political stakeholders can be presented a plan of action as to what the state will do with the savings made due to the debt relief. After necessary approvals and agreement within the country is achieved, an effectively planned and executed lobbying with concerned quarters in Washington, DC, has to begin. In Washington, Pakistan has to tap necessary support of the US State and Treasury Department, World Bank and the IMF.

Critics of the proposal will talk about the impact on Pakistan’s image and standing in global capital markets. It is important to note that lenders always have scenarios to envisage a write-off which can be coupled with conditions that need to be met in order to seek an advantage. The IMF and World Bank already have a Heavily Indebted Poor Countries (HIPC) Debt Initiative and Multilateral Debt Relief Initiative (MDRI) whereby debts of indebted countries can be written off to provide due relief.

Pakistan is making improvements by leaps and bounds. Its credibility may not have been established but its credit riskiness has nosed down. It is now at some good position of credit worthiness. What is this position, let’s see. Oh no, not visible. Let’s look at it from the other side. Lo and behold. It has fourth position from the other side of the scale. Very prominent and very distinguished. The Global Sovereign Credit Risk Report for the second quarter of 2010 has ranked Pakistan’s sovereign debt the fourth most risky in the world.

According to Express Tribune, the report issued by CMA stated that the riskiness of debt owed by the Government of Pakistan has marginally reduced since last quarter when the country was ranked third on the list of world’s riskiest sovereign debtors. The risk premium on debt issued by the government stands at 719 basis points. The country’s sovereign debt currently holds a ‘B’ rating, an improvement from last quarter’s rating of ‘B minus’. Pakistan’s sovereign debt is still considerably riskier than all other Asian countries, despite dropping 131 basis points since hitting the peak of 850 basis points on April 27.

Good news is that Pakistan is ranked ahead of Venezuela, Greece and Argentina which are the riskiest sovereign debtors of the outgoing quarter.

CEO Topline Securities opined “thanks to the International Monetary Fund, Pakistan’s foreign exchange reserves are now worth more than five months of imports. Investors are viewing this as a positive sign. Political and security situation in the country has also been improving gradually over the past few months helping to bring down risk premium associated with the country’s sovereign debt.”

According to the report, Norway has maintained its title as the safest government to lend to. Its risk premium stands at 26.7 basis points. Iceland, Dominican Republic and Egypt have shown the most improvement in terms of reduction in risk premium on sovereign debt since last quarter.

On the flip side, Greece, Belgium, Spain and Portugal have posted the worst quarterly performances. The report cited that “towards the end of the quarter Greece temporarily overtook Venezuela as the sovereign with the highest default probability and has been the worst performer this quarter, globally.”

Risk premium on sovereign debt issued by Greece has increased by 190 per cent to reach 1,003.4 basis points.

The report also highlighted that “all of the worst performers have come from Western Europe this quarter, with protection costs for the poorest performers more than doubling,” adding “major widening action in European sovereign credits indicates that the eurozone remains the hub and focus of the global debt crisis, none of the Western European Sovereign CDS (credit default swaps) have tightened this quarter”.

Analysts said Pakistan is unlikely to face major problems due to the worsening economic situation of Western European states. Mohammad Sohail commented “the country is not heavily dependent on exports. Most of our international trade is with the US and China so we should remain fairly insulated from the crisis unfolding in countries like Greece and Belgium.”

CMA is a wholly-owned subsidiary of CME Group, the world’s largest derivatives exchange. CME is considered one of the leading sources of independent data on credit markets.