Glossary

Updated: Tuesday February 03, 2015/AthThulatha Rabi' Thani 14, 1436/Mangalavara Magha 14, 1936, at 07:24:12 PM

_Glossary

Chapter 2-Economic Growth, Savings and Investment

Gross Domestic Product

GDP, of a country is one of the ways of measuring the size of its economy. GDP is defined as the total

market value of all final goods and services produced within a given country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is expressed in monetary terms.

Followings are the three approaches to measuring and understanding GDP:

i. Expenditure Based

Expenditure-based gross domestic product is total final expenditures at purchasers’ prices

(including the f.o.b. value of exports of goods and services), less the f.o.b. value of imports of goods and services.

ii. Income Based

Income-based gross domestic product is compensation of employees, plus taxes less subsidies on

production and imports, plus gross mixed income, plus gross operating surplus.

iii. Output Based

Output-based gross domestic product is the sum of the gross values added of all resident producers

at basic prices, plus all taxes less subsidies on products.

Gross Fixed Capital Formation

The estimates of GFCF in Pakistan are primarily constructed separately for private and public sectors by

economic activity as well as by capital assets. It comprises expenditure incurred on the acquisition of fixed assets, replacement, additions and major improvements of fixed capital viz. land improvement, buildings, civil and engineering works, machinery, transport equipment and furniture and fixture.

Gross National Product

The Gross National Product (GNP) is the value of all the goods and services produced in an economy,

plus net factor income from abroad.

Net National Product

NNP is the total market value of all final goods and services produced by citizens of an economy during

a given period of time (Gross National Product or GNP) minus depreciation.

Flow of Funds

Flow of Funds Accounts gives a picture of lending, borrowing operations and moments of funds within

domestic sectors and with rest of the world along with instruments used in the transactions.

_{Chapter 3- Prices}

Consumer Price Index

Consumer Price Index (CPI) is main measure of price changes at retail level. It measures the changes in

the cost of buying representative predefined basket of goods and services and to gauge the increase in the cost of living in reporting period.

Where

P_n= Price of an item in the current period

P₀= price of an item in base period

^W_i^{= Weight of the i}^th^{item in the base period.}

Wholesale Price Index

Wholesale Price Index (WPI) is designed to measure the directional movements of prices for a set of

selected items in the primary and wholesale markets. Items covered in the series are those, which could be precisely defined and are offered in lots by producers/manufacturers. Prices used are generally those, which conform to the primary sellers realization at ex-mandi (market), ex-factory or at an organized wholesale level

Sensitive Price Indicator

The Sensitive Price Indicator (SPI) is computed on weekly basis to assess the price movements of

essential commodities at short intervals so as to review the price situation in the country.

GDP Deflator

(Implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced,

_{final goods and services in an economy.}

Chapter 4- Public Finance

Direct Tax

_{A tax levied
directly on the taxpayer such as income and property taxes.}

Indirect Tax

A tax levied on goods or services rather than individuals and is ultimately paid by consumers in the form

of higher prices such as sales tax or value added tax.

_{Chapter 5- Money and Credit}

Broad Money (M2)

It is an indicator used to measure liquidity in the economy and includes currency in circulation, other

deposits with State Bank of Pakistan, demand & time deposits (including resident foreign currency deposits) with scheduled banks.

Commodity Operations

Commodity operation means advances provided either to government, public sector corporations or

private sector for the procurement of commodities such as cotton, rice, wheat, sugar, fertilizer etc. Advances to government provided for other purposes are not the part of commodity operation.

Currency in Circulation

Currency in circulation refers to currency held by public i.e currency outside the banking system.

Reserve Money (M0)

It is an indicator used to measure liquidity in the economy and includes currency in circulation, other

deposits with State Bank of Pakistan; currency in tills of scheduled bank’s and bank deposits with SBP.

Market Treasury Bills (MTBs)

They are the short term instruments of the Government of Pakistan with tenors available in 3, 6 and 12 months. They are also sold through Primary Dealers in auctions held on fortnightly basis. They are zero-

coupon securities and are sold at discount to the face value

Auction of Government of Pakistan Market Treasury Bills

MTB auctions are held fortnightly (Wednesday) on multi-priced basis. Only Primary Dealers are allowed

to participate in the auctions. Announcement of auctions are done two days prior to auction date. SBP

decides the target and cut offs.

Pakistan Investment Bonds (PIBs)

They are the long term instruments of the Government of Pakistan with tenors available in 3, 5, 10, 15

and 20 years. They are sold through Primary Dealers (Institutions appointed by the SBP to participate in Government Securities Auctions) in auctions as and when announced (on quarterly basis). They are coupon bearing instruments and issued in scrip less (without physical form) form with interest payment on biannual basis.

Auction of Pakistan Investment Bonds

PIB auctions are held on as and when indicated with target amount and Coupon rates by the MOF. Primary Dealers are allowed to participate in the auction which is decided on multi-priced basis. SBP

announces the auction prior to 14 days of auction date to allow short selling to the Primary Dealers on when issued basis. SBP decides the cutoff in consultation with MOF.

Call Money Rate

Interbank clean (without collateral) lending/borrowing rates are called Call Money Rates

Coupon Rate

Coupon rate is interest rate payable on bond’s par value at specific regular periods. In PIBs they are paid

on biannual basis.

Discount rate

Discount is the rate at which SBP provides three-day repo facility to banks, acting as the lender of last

resort.

Government of Pakistan Market related Treasury Bills

They are the instruments created when Government borrows from the State Bank. They are six month

T-bill and their rates are determined on the basis of weighted average arrived in last six month Market

Treasury Bill auction. They are also called as ‘Market Replenishment Treasury Bills’.

Open Market Operation

They are the operation carried out by the SBP for liquidity Management to keep interest rates in line with its monetary policy objectives. Through these operations either the liquidity is mopped up from or

injected in the market by Repo/Out right basis. They are normally short term operations and are done as and when market condition desires.

Repo Facility MTBs/FIBs/PIBs (Outstanding)

They are the short term funding arrangement for getting funds on selling the security as collateral and to

buy back the same on maturity. The funds can be arranged under this by using MTB/FIB’s/PIBs. The reverse is called Reverse-repo.

KIBOR – (Karachi Interbank Offered Rate)

Interbank clean (without collateral) lending/borrowing rates quoted by the banks on Reuters are called

Kibor Rates. The banks under this arrangement quote these rates at specified time i.e. 11.30 AM at Reuters. Currently 20 banks are member of Kibor club and by excluding 4 upper and 4 lower extremes, rates are averaged out that are quoted for both ends viz: offer as well bid. The tenors available in Kibor are one week to 3 years. KIBOR is used as a benchmark for corporate lending rates.

_{Chapter 6-Banking
System}

Scheduled Banks

“Scheduled Banks” means,”All Commercial banks and specialized banks (like IDBP and ZTB etc) which

are included in the list of scheduled banks maintained under sub-section (1) of section 37 of the State

Bank of Pakistan Act, 1956”

Balances with Other Scheduled Banks

These are balances of scheduled banks amongst each other and exclude balances with National Bank of

Pakistan where it acts as an agent of State Bank of Pakistan.

Bills Purchased & Discounted

These refer to advances extended through discounting or purchasing of inland and foreign bills.

Capital

Capital comprises of paid-up capital of Pakistani banks and equivalent rupee amount kept by foreign banks with the State Bank of Pakistan as reserve capital requirement.

Deposits

The data on deposits include the following types:-

i. Call Deposits:

These include short notice and special notice deposits

ii. Current Deposits:

Cheque account deposits wherein withdrawals and deposit of funds can be made frequently by the accountholders. Generally, these are return free deposits kept with the banks.

iii. Fixed Deposits:

Deposits having fixed maturity dates and a rate of return determined or determinable on the basis of a bank’s financial performance during a period.

iv. Other Deposits:

These generally include security deposits, margin deposits and sundry deposits etc.

v. Savings Deposits:

Deposits held by the scheduled banks, consisting of cheque accounts on which a certain return is paid by the institution.

Rate of Margin for advances

Margin for collateral is the excess of the market/assessed value of the collateral over the amount of advance.

Non-Performing Loan

A non-performing loan is a loan that is in default or close to being in default. Many loans become non-

performing after being in default for 90 days, but this can depend on the contract terms.

Chapter 7- Capital Market

Index Number

Stock market index is a used for measuring changes in the prices of stock market securities in respect of

the base year prices. The index is used as an indicator of the overall performance of the economy.

KSE-100 Index

The KSE-100 Index was introduced in November 1991 with base value of 1,000 points. The Index

comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Stock Exchange. One company from each sector on the basis of the largest market capitalization and the remaining companies are selected on the basis of largest market capitalization in descending order. This is a total return index i.e. dividend, bonus and rights are adjusted.

All Share Index

The KSE all share indexes was constructed and introduced on September 18, 1995. This is also a total

return index (dividend, bonus and adjusted rights shares) computed for all companies listed at KSE.

Market Capitalization of ordinary Shares

The Market Capitalization is the total market value of ordinary shares comprising the General Index. The

market value is worked out by multiplying the market price by the total number of shares outstanding and added together for the component groups as also for the entire list to compile the series.

_{Chapter
8-Domestic and External Debt}

Domestic Debt

Domestic debt refers to the debt owed to creditors resident in the same country as the debtor. It can be of

sovereign nature, i.e., borrowed by a government or non-sovereign, i.e., borrowed by the corporate. Sovereign domestic debt in Pakistan is further classified into three main categories: permanent debt, floating debt and unfunded debt.

i. Permanent Debt

Permanent debt includes medium and long-term debt such as Pakistan Investment Bonds (PIB)

and prize bonds.

ii. Floating Debt

Floating debt consists of short-term borrowing in the form of T-bills.

iii. Unfunded Debt

Unfunded debt refers mostly to outstanding balances of various national saving schemes.

National Saving Schemes

There have been different saving schemes in Pakistan since independence. The data reflects outstanding

position as on end Month. Followings are the definition of existing schemes.

i. Bahbood Savings Certificates

This is a ten years' maturity scheme, launched by the Government on 1st July, 2003. Initially it

was meant for widows only, however, later on the Government. extended the facility for senior citizens aged 60 years and above from 1st January, 2004. These certificates are available in the denominations of Rs.5,000/-, Rs.10,000/-, Rs.50,000/-, Rs.100,000/-, Rs.500,000 and Rs.1,000,000/-. Profit is paid on monthly basis reckoned from the date of purchase of the certificates. Only widows and senior citizens aged 60 years and above are eligible to invest. The minimum investment limit in this scheme is Rs.5,000, whereas, the maximum limit is Rs.3,000,000/-.

ii. Defence Saving Certificates

The Government of Pakistan introduced Defence Saving Certificates scheme in the year 1966.

This is the only scheme having 10 years' maturity with built-in feature of automatic reinvestment after the maturity. These certificates are available in the denominations of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000. The minimum investment limit is Rs.500/-, however, there is no maximum limit of investment in this scheme.

iii. Pensioners' Benefit Account

This ten years' maturity scheme was launched by the Government on 19th January, 2003. The

deposits are maintained in the form of accounts and the profit is paid on monthly basis reckoned from the date of opening of the account. The pensioners of Federal Government, Provincial Governments, Government of Azad Jammu & Kashmir, Armed Forces, Semi Government and Autonomous bodies are allowed to invest.

iv. Regular Income Certificates

This five years' maturity scheme for general public was launched on 2nd February, 1993.Profit

on this scheme is paid on monthly basis reckoned from the date of issue of certificates. These certificates are available in the denomination of Rs.50,000, Rs.100,000, Rs.500,000, Rs.1,000,000, Rs.5,000,000 & Rs.10,000,000.

v. Savings Accounts

These are ordinary accounts and frequent withdrawals (twice a week) can be made from this

account. The minimum investment limit is Rs.100 in the scheme besides no maximum limit. However, only one account can be opened by person at an office of issue. The deposits can be withdrawn any time from the date of deposit. However, there is a limit of two withdrawals within a week's time.

vi. Special Savings Accounts

This three years maturity scheme was introduced in February, 1990. The deposits are

maintained in form of an account. Profit is paid on the completion of each period of six months. The minimum investment limit in this scheme is Rs.500. There is no maximum limit, however, the deposits are required to be made in multiple of Rs.500.

vii. Special Savings Certificates (Registered)

This three years maturity scheme was introduced in February, 1990. These certificates are

available in the denomination of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000. Profit is paid on the completion of each period of six months. The

minimum investment limit is Rs.500, however, there is no maximum limit of investment in the scheme.

External Debt

External debt, at any given time, is the outstanding amount of those liabilities that require payment(s) of

principal and interest by the debtor at some point(s) in the future and that are owed to nonresidents by the residents of an economy.

Private non-guaranteed debt

Private non-guaranteed debt is defined as the external liabilities of the private sector, the servicing of which is not guaranteed by Government.

Public and Publicly guaranteed debt

External obligations of a public debtor including national government control banks and autonomous

bodies and external obligations of a private debtor that are guaranteed for repayment by a public entity.

_{Chapter 9- Balance of Payments
and Foreign Trade}

Nominal Effective Exchange Rate:

An index of the bilateral nominal exchange rates of one country relative to its major trading partners. The bilateral nominal exchange rate index with each trading partner is weighted by that country’s share in imports, exports, or total foreign trade.

Foreign Exchange Kerb Market

Authorised Money Exchange Companies operating in the market.

Balance of Payments

The balance of payments (BOP) is a statistical statement that systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world.

Current Account

Current account covers all transactions (other than those in financial items) that involve economic values

and occur between resident and nonresident entities. Also covered are offsets to current economic values provided or acquired without a quid pro quo. Specifically, the major classifications are goods and services, income, and current transfers.

Current transfers

These are offsetting entries for real resources or financial items provided, without a quid pro quo, by one

economy to another.

Direct investment income

It is the profit on equity participation and interest on debt earned by direct investor abroad

Capital Account

Capital account covers capital transfers and acquisition / disposal of non-produced, non-financial assets.

(i) Capital transfer

Capital transfers relate mainly to investment grants used for financing the gross fixed capital

formation of the recipient economy. It consists of the transfer of ownership of a fixed asset or the debt forgiveness.

(ii) Acquisition / disposal of non-produced, non-financial assets

These refer to the purchases and sales of assets such as land, copyrights, licenses, patents etc.

Financial Account

Financial account records all transactions associated with changes of ownership in foreign financial

assets and liabilities.

Errors & Omissions

It is a balancing item intended to offset overstatement or understatement of recorded components due to statistical discrepancies.

Workers’ Remittances

Workers’ remittances are current transfers for family maintenance by migrants who are employed and

residents in new economies. (A resident is a person who stays, or is expected to stay for a year or more in an economy.)

Nostro Account

An account held with a bank outside Pakistan.

Foreign Direct Investment

Direct investment implies a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence by the direct investor on the management of the direct

investment enterprise. Direct investment comprises the initial transaction between the two entities—that is, the transaction that establishes the direct investment relationship—and all subsequent transactions between the entities and among affiliated enterprises, both incorporated and unincorporated. For direct investment, direct investor owns 10 percent or more of the ordinary shares or voting power (for an

incorporated enterprise) or the equivalent (for an unincorporated enterprise).

Foreign Portfolio investment

Portfolio investment implies holding by non-resident of less than 10% share in equity securities,

investment in debt securities (in the form of bonds and notes) and investment in money market instruments of local company.

Balance of Trade

The balance of trade is the difference between the monetary value of exports and imports for an economy

over a certain period of time.

Balance of trade statistics compiled by Federal Bureau of Statistics is based on physical movements of merchandise goods into and out of the custom territory of Pakistan recorded by the customs authorities. Foreign trade includes exports, re-exports, imports and re-imports carried through sea, land and air routes.

The trade data of SBP is, on the other hand, based on realization of export proceeds and import payments made through banking channel for goods exported and imported. The trade transactions such as land borne trade, imports through foreign economic assistance, exports & imports by Export Processing Zones and personal baggage etc. are not covered in the reporting by the banks. Data on these transactions are collected from the relevant sources and included in the exports receipts and import payments reported by the banks to arrive at the overall trade data. Still some discrepancies may arise in the two sets of trade data due to valuation, timing and coverage of transactions.

Unit Value & Quantum Indices:

These indices are used to measure changes in the unit value and quantity of Exports & Imports with reference to base year. Laspeyer’s formula is used for the computation of these indices that is as under.

Where:

P_n= Price (Unit Value) of each item during the current period

^P₀^{= Price (Unit Value) of each item during the base period}

^Q_n^{= Quantity data (Volume) of each item during the current period}

^Q₀^{= Quantity data (Volume) of each item during the base period.}

Re-Export

Goods imported and returned to the exporting country for any reason without any modification or change

in its original shape or form, is termed as re-export.

Re-Import

Goods exported and returned to the consignor country without any modification or change in the original

shape or form is termed as re-import.

Terms of Trade:

It shows the change in the average price of a country’s aggregate exports in relation to the change in average price of its imports.

Terms of Trade = Index of Unit Values of Exports x 100

Index of Unit Value of Imports

Income

The Income component of balance of payments is restricted to income earned from the provision of two

factors of production viz, labor and capital. Accordingly income earned from the labor is called compensation of employees while income earned from capital is called investment income.

Portfolio Investment Income

Portfolio Investment Income includes dividend on equity securities (share holding of less than 10 %) and

interest from holding of foreign bonds, notes, and money market instruments.

Reserves Assets

Reserve assets consist of those external assets that are readily available to and controlled by monetary

authorities for direct financing of payments imbalance. In BOP, they cover monetary gold, SDRs, reserve position in the fund, foreign currency reserves and other claims.

Services

Services component implies receipts & payments for provision and acquisition of services of an

economy to and from the rest of the world.

Real Effective Exchange Rate:

An index of the price of a basket of goods in one country relative to the price of the same basket in that country's major trading partners. The prices of these baskets should be expressed in the same currency using the nominal exchange rate with each trading partner. The price of each trading partner's basket is weighted by its share in imports, exports, or total foreign trade.