December 4, 2002	Wednesday	Ramazan 28,1423

KARACHI, Dec 3: Shaukat Aziz, adviser to the Prime Minister on Finance & Economic Affairs told the Karachi Stock Exchange on Tuesday that the government was heading in the direction which ensured consistency of economic policies and added: “All policies that are in Pakistan’s interest would continue.”

He pointed out to the IMF programme that has to be followed, but said in accompaniment of loud applause from the crowd of bankers, stock brokers, traders and the media, who had gathered in the trading hall of the KSE to hear the Finance Adviser, that this would be the last IMF programme. Aziz reasoned that with the steep rise in foreign exchange reserves on the one hand and reduction in debts on the other—in 10 years time—the two would cross each other and reserves would exceed or equal the country’s borrowings.

Shaukat Aziz said that the Government was comfortable on Privatization, economic growth, revenue collection and exports. He said that the privatization plan was on track and listed the next three items to go on the auction block as: ICP SEMF, followed by NIT and then PSO. He stated that banks had told him that they were charging lending rates between 6 to 14 per cent, on client to client basis and observed that with yields on T-Bills dropping to below 5 per cent and on PIBs to 7 per cent, from 12 per cent some time back, banks were under pressure to decrease lending rates.

The current GDP growth rate, he said, was 4.5 per cent and agriculture and industry were both treading positively. Foreign direct investment (FDI) in the first four months of the current year was $400 million.

“Tax collection looks robust,” said the finance adviser, adding that in the first five months of the current year (July-Nov 2002), there was 15-16 per cent growth in tax numbers. Customs duties, he said, had increased by 35 per cent and sales tax by 25 per cent. He said that the jump in sales tax was not due to refunds, but the domestic sales tax collection had also posted huge increase of 40 per cent in five months, over the same time last year.

The Finance Advisor said: “We are in the midst of massive tax reforms”. He said the government was comfortable with liquidity, that was why the Public Sector Development Spending this year was Rs134 billion, which was the highest ever on this account. He said that the government would continue to strengthen micro economic framework so that joblessness and poverty may be reduced, which was the ultimate objective.

Shaukat Aziz said that the capital market had seen a sea change. He acknowledged that both stock exchanges and the SECP had played a significant role in the past two years in successfully implementing broad-based market reforms in the fields of risk management, governance, transparency and investor protection. He said that the reforms had undoubtedly had a favourable effect on investor confidence, which was reflected in the overall market sentiment, represented by 75 per cent jump in KSE-100 index during the year.

But he said that further improvement and development was required in areas, which included investor protection and education; development of retail investment through internet trading and automation; deepening of the capital market; independent management at the exchanges and risk management.

He pointed to glaring absence of retail investors and advised the market participants to tap the Diaspora outside Pakistan for it was a good time as the world markets were at their lows. He emphasised the need for deepening of the market, by attracting new listings.

“Now that the stock market is doing well, i.e. the cost of capital is low and effectively lower than before, interest rates are far lower and NSS are no longer offering high returns, there is no reason why the stock exchanges should not be able to attract companies to raise money through the stock exchanges,” he said.

He complained that the mutual fund numbers were minuscule, whereas in many other countries, funds in mutual funds were higher than in bank deposits. In regard to mutual funds, he said, the government was considering changes proposed in the Investment Companies and Investment Advisors Rules. “These will allow flotation of closed-end funds in trust form,” he said.

He said it was heartening to note that the stock exchange was working on eventual replacement of badla with margin financing and futures trading; he asked banks to come forward in providing margin financing.

Aziz said that the requirement for independent management at the exchanges was an essential part of a modern, progressive capital market. “In this regard, the exchanges must remain committed to ensuring that their management retains a truly independent character and continues to represent the interests of all stakeholders”, he said.

Managing director KSE, Moin Fudda who spoke earlier said that the appointment of Shaukat Aziz had pleased everyone in Pakistan and abroad and people had no doubt that he would ensure continuity of economic reforms.

With regard to the capital market, he observed it is because of the reforms initiated by the SECP chairman Khalid Mirza, “today 90 per cent of the listed companies are issuing annual reports and holding AGMs within given time frame.”

Moin Fudda, who had assumed charge of MD KSE two and a half months ago, said that members had realized the benefits of undisclosed trading and 10 day badla.

Mr.Fudda said that KSE was taking initiative to improve the IT and within this month, the IT team would launch its home grown software, which would double the present capacity and provide gateway for internet trading.

Mr.Fudda urged that the members contribution to the clearing and settlement fund and investors protection fund be given tax exemption; the railway land issue be settled and decision to keep Friday as working day be kept unchanged.

Mr.Salim Chamdia, chairman KSE in his address of welcome invited the attention of Finance Adviser to the KSE’s proposal of maintaining difference in tax rates between listed and unlisted companies in order to encourage new listings; restore exemption on capital gains on transfer of membership on corporatisation of brokerage houses; reinstate income tax exemption on income arising out of all listed TFCs and exempt capital gains tax on insurance sector.