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December 2006

The Statistical System of Pakistan for reporting on International Trade in Services

This publication has been produced with the assistance of the European Union (EU) as part of an EU-funded Trade Related Technical Assistance (TRTA) programme with the Government of Pakistan. The International Trade Centre (ITC) is implementing the programme. The content of this publication is the sole responsibility of the consultants. Facts and figures set forth in this publication are the responsibility of the consultants and should not be considered as reflecting the views or carrying the endorsement of the EC, ITC, UNCTAD, or WTO. The factual details and in-country resources in the publication have been researched and compiled by the consultants. ITC has not formally edited this report.

Written by: Julian Arkell

© International Trade Centre (UNCTAD/WTO) Palais des Nations, 1211 Geneva 10, Switzerland Email: [email protected] http://www.intracen.org Distribution: UNRESTRICTED December 2006

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Contents

List of Acronyms ii i Executive summary 1

Introduction 1 Overview 1 Recommendations 2 Further technical assistance needed 4 Annexes 4

1. Introduction 5 1.1. Purpose of the project – its rationale 5 1.2. Visits made to stakeholders 5 1.3. Government policy on the service sector and its international trade 5

2. Overview 7 2.1. The present system for the collection of services statistics on trade 7 2.2. Coordination of services censuses and surveys 10 2.3. Enterprise register 10 2.4. Metadata on services data collection 10 2.5. Other central considerations 10

3. Recommendations 11 3.1. Collecting services statistics 11

4. Further technical assistance needed 16 Annex A: List of people interviewed 18 Annex B: Trade policy on services 20 Annex C: Act ivit ies of government agencies related to services statist ics 21 Annex D: EBOPS codes collected by the SBP 22 Annex E: The ten steps of the Manual and the current situat ion in Pakistan 25

i

List of Acronyms

BOI Board of Investment, of MOF

CBR Central Board of Revenue, of MOF

CPC Central Product Classification, of the UN

EBOPS Extended Balance of Payments Classification System

ECNEC Economic Council for National Economic Coordination

EPB Export Promotion Board, of MOC, now TDAP

FBS Federal Bureau of Statistics, of MEAS

GATS General Agreement on Trade in Services, of the WTO

ICFA ISIC Categories for Foreign Affiliates

IIP International Investment Position, report to IMF

IMF International Monetary Fund

ISIC International Standard Industrial Classification of all economic activities

MEAS Ministry of Economic Affairs and Statistics

MIPSI Ministry of Industries, Production and Special Initiatives

MOC Ministry of Commerce

MOF Ministry of Finance

MOFA Ministry of Foreign Affairs

MOLMOP Ministry of Labour, Manpower & Overseas Pakistanis

MOST Ministry of Science and Technology

NADRA National Database and Registration Authority

NSC National Statistical Council, to be superseded by the Users Council

SAARC South Asian Association for Regional Cooperation

SBP State Bank of Pakistan

SMEDA Small & Medium Enterprise Development Authority, of MIPSI

TDAP Trade Development Authority of Pakistan, of MOC

WTO World Trade Organization

WWF Workers Welfare Fund, of MOLMOP

iii

Executive summary

Introduction

The consultant was required to carry out an initial assessment of the ability of the Government of Pakistan to collect, compile and disseminate statistics on the country’s international trade in services – or, in effect, to implement the recommendations of The Manual on Statistics of International Trade in Services, UN, 2002.

The service sector already accounts for some 52% of GDP in Pakistan, is growing strongly, and is seen by the Government as important to the whole economy due to the employment created and as a driver of growth and potentially of services exports.

Overview

The production of statistics on the service sector and services trade is a support function to economic and trade policy making and trade negotiations. In this context the Prime Minister has mandated that the Federal Bureau of Statistics (FBS) of the Ministry of Economic Affairs and Statistics (MEAS) has the responsibility for collecting data from its own censuses and surveys, and for obtaining data from secondary sources which include, specifically the State Bank of Pakistan (SBP) for balance of payments data, federal ministries and agencies, and the statistics divisions of the four Provincial Governments. They have been tasked with following international standards, and for services balance of payments in particular, the recommendations of the UN Manual on Statistics of International Trade in Services (hereafter the Manual).

The SBP is responsible for compiling the balance of payments data and reporting them to the IMF, and similarly on the International Investment Position (IIP), which involves an annual survey of enterprises with 10% or more foreign ownership, and their overseas assets.

Services in the balance of payments

Starting with data for July 2006, the SBP has been supplying the FBS with export and import statistics on all eleven major services sectors listed by the IMF in their current Balance of Payments Manual (BPM5), though this has not yet been readied for publication. The Statistics Department of the SBP is awaiting an IMF assessment of the new system.

The SBP is working on compiling data in greater disaggregated detail in the majority of the CPC-based Extended Balance of Payments Classification System (EBOPS) categories, though not yet the further Memorandum items of the Manual.

Foreign aff i l iates

The SBP collects data on all firms with investment participation by non-residents both at the time of initial registration and regularly thereafter, and the responding firms are classified under ISIC3.

International Trade Centre 1

Eight of the twelve variables listed in the Manual are already collected for foreign affiliates in Pakistan.

The enterprises reporting to the SBP under the IIP system give data on their assets and liabilities abroad, which would include their outward FATS subsidiaries. However, the other FATS variables relating to these enterprises abroad are not collected.

Furthermore, the IIP annual reporting form is not sent to firms with no foreign participation that do own FATS subsidiaries abroad.

Other issues

There is no formal overall coordination mechanism of the ministries and agencies involved in the collection, compilation and dissemination of services sector data, whether on domestic production or international trade.

There is no centrally held register of economically active enterprises of all legal types.

There is no centrally held record of the metadata for censuses and surveys of services sector enterprises.

Recommendations

Implement the UN recommendations

The starting point is acceptance that the recommendations of the UN-approved Manual should be implemented. Given that it is a conceptual framework and not a compilation guide, the challenge is to find practical ways to collect, compile and disseminate the data.

The recommendations of the Manual comprise two main ‘pillars’ concerning the collection and compilation of:

Services balance of payments statistics: first under the IMF BPM5 system, then for the Extended Balance of Payments Classification System (EBOPS)

Foreign Affiliates Trade in Services (FATS) statistics ie the activities of foreign affiliates with more than 50% foreign ownership, first for those in Pakistan, then for Pakistani-owned affiliates abroad.

As Pakistan is to rely on the ITRS system for collecting EBOPS data, its reliability should be assessed after year or so, as it depends on obtaining correctly classified data from the commercial banks.

It appears that the current system deployed by the SBP, which has been extended and strengthened in recent years, looks likely to meet most of the priority requirements of the EBOPS system for the mid-term future.

However, this will pose a real challenge for the commercial banks to respond to, and it will take a while for the system to be run in and stabilise. After a year or so an investigation will be needed to assess whether it was realistic to require the commercial banks to supply such

2 International Trade Centre

detailed data, or whether there are some practical limits that make the data on some sub-sectors unreliable. If the latter, then sector enterprise surveys will be needed.

The SBP presently collects some of the twelve FATS variables, and will need to adapt their annual survey to collect all 12 variables recommended from those enterprises in Pakistan with over 50% foreign ownership. This would implement the recommendations of the Manual for ‘inward FATS’.

A survey of all enterprises abroad owned by Pakistanis might be a challenging and expensive process. It would involve the design and testing of a special survey form and it is not clear what the numbers and scale of such affiliates abroad are, and whether their importance justifies a special survey at this stage (ie for the ‘outward FATS’ variables).

Coordination of services censuses and surveys

In view of the importance of coordinating data collection activities across a wide range of official agencies and disparate yet important service sectors, consideration should be given to the creation of a more formal, standing body to ensure convergence and eventual harmonisation of concepts, definitions, classifications and sampling methodology, based on UN recommended and other international standards. This should be chaired by the Ministry of Commerce. This may require a legal structure effected by means of a national statistical regulatory information coordination ordinance, later to be ratified by Parliament.

As it seems unlikely that the Manual will be revised soon to take account of the updated classifications on which it is based and thus will be operational for a further four years or so, its recommendations should be implemented as they stand. This will ensure comparability with the data of other countries that follow the recommendations of the Manual.

Create a national enterprise register

The FBS should be made responsible for a national enterprise register, to which the relevant other agencies should provide information under Memorandums of Understanding, including the SBP, WTO Cell, MOF, BOI, SECP etc. This register would be central to the whole system and be fully computerised. All entities would be registered and given a unique alphanumeric identification number, whether profit making, non-profit, government owned and so on.

Thus the work just started at the FBS Technical Committee on a Business Register needs to be continued to completion, under the monitoring of the MOC standing committee.

Central database

The FBS needs to set up a computerised central database for statistics on the service sector, into which data would be contributed by all agencies under harmonised formats.

Metadata records

It is recommended that consideration be given to the compilation of a record of metadata information on the collection and compilation of services statistics, which can form the basis


for the relevant parts of the standard ‘Special Data Dissemination Standard’ (SDDS) reported to the IMF.

Further technical assistance needed

An expert assessment will be needed in a year or so of the current SBP survey practice for the ITRS system to identify any shortfalls in the data collected from the commercial banks and authorised currency changers. This will probably have be given by an expert in a central bank from a country which has experience of obtaining EBOPS data through their ITRS system.

Depending on the sectors to be given priority, it could be that officials from the SBP should visit, for a period, the national statistics offices of other countries to obtain mentoring on the specifics of different sector surveys. The Statistics Division of OECD might be able to point to suitably experienced offices among its member countries.

The outcome of the IMF assessment of the present IIP system need to be awaited, and it might indicate where the IMF could give further assistance on the collection of FATS data.

The ITC could play a role in building awareness among the many ministries and agencies involved, by organising a workshop for officials at which the importance of creating a complete system for services statistics would be stressed and the institutional and methodological mechanisms described. A formal proposal for such and event would have to put to the ITC. It might be combined with the workshop in May 2007 to which the Geneva Mission officials have invited WTO statistics officials to conduct.

Annexes

The annexes provide information on:

A List of people interviewed

B Trade policy on services

C Activities of government agencies related to services statistics

D EBOPS codes collected by SBP

E The 10 steps of the Manual and the current situation in Pakistan.


1. Introduction

1.1. Purpose of the project – its rationale

The consultant was required to carry out an initial assessment of the ability of the Government of Pakistan to collect, compile and disseminate statistics on the country’s international trade in services – or, in effect, to implement the recommendations of The Manual on Statistics of International Trade in Services, UN, 2002. This provides for a disaggregation of the IMF balance of payments classification and for recording variables on Foreign Affiliates Trade in Services (FATS). It comprises a UN-approved standard which follows international classifications and provides the basis for international comparability.

1.2. Visits made to stakeholders

The consultant spent two weeks in Pakistan, two days of which were devoted to a workshop in Karachi as part of the wider EC TRTA programme.1 The remaining time was spent interviewing federal and provincial officials and private sector persons in Islamabad, Lahore and Karachi (see Annex A).

1.3. Government policy on the service sector and its international trade

The service sector already accounts for some 52% of GDP in Pakistan, is growing strongly, and is seen by the Government as important to the whole economy due to the employment created and as a driver of growth and potentially of services exports. This is reflected in various policies as described by the Minister of Commerce in his 2006 annual policy speech on trade policy (see Annex B).

1 From 26 November to 9 December, inclusive.


2. Overview

2.1. The present system for the collection of services statistics on trade

The production of statistics on the service sector and services trade is a support function to economic and trade policy making and trade negotiations. In this context the Prime Minister has mandated that the Federal Bureau of Statistics (FBS) of the Ministry of Economic Affairs and Statistics (MEAS) has the responsibility for collecting data from its own censuses and surveys, and for obtaining data from secondary sources which include, specifically the State Bank of Pakistan (SBP) for balance of payments data, federal ministries and agencies, and the statistics divisions of the four Provincial Governments. They have been tasked with following international standards, and for services balance of payments in particular, the recommendations of the UN Manual on Statistics of International Trade in Services (hereafter the Manual).

The principal producers of statistics on services are the SBP, an independent regulatory authority and the FBS. Another division of MEAS compiles the National Accounts. The Federal Bureau of Statistics (FBS) depends on the SBP data for its statutory reports and for compiling the National Accounts.

At the federal level, the National Statistics Commission, soon to become the Users Council, a forum for all stakeholders, and the Planning and Development Commission, both use data from the FBS rather than produce their own.

The SBP is responsible for compiling the balance of payments data and reporting them to the IMF, and similarly on the International Investment Position (IIP), which involves an annual survey of enterprises with 10% or more foreign ownership, and their overseas assets. The Foreign Affiliates Trade in Services (FATS) statistics, or variables (the second ‘Pillar’ of the Manual), relate to the latter field, as these foreign affiliates form a sub-set of the full FDI list.

For other ministries and agencies with related statistical activities, see Annex C.

2.1.1. EBOPS data collect ion and compilat ion

Starting with data for July 2006, the SBP has been supplying the FBS with export and import statistics on all eleven major services sectors listed by the IMF in their current Balance of Payments Manual (BPM5), though this has not yet been readied for publication. The Statistics Department of the SBP is awaiting an IMF assessment of the new system.

The SBP is working on compiling data in greater disaggregated detail in the majority of the CPC-based Extended Balance of Payments Classification System (EBOPS) categories, though not yet the further Memorandum items of the Manual.2 Consideration will have to be given as to whether there are any priorities among the sub-sectors remaining not disaggregated – for example road transport, courier services payments, air passengers, education, health and audiovisual services. Work might also be needed on some of the memorandum items, and on a

2 The Manual has annexes which give the correspondence between the EBOPS and CPC1.0

classifications and the “Services Sectoral Classification List” (GNS W/120) of the General Agreement on Trade in Services referred to for inscribing schedules of specific commitments.


few particular sectors such as construction, insurance and financial services in accordance with forthcoming BPM6 requirements (i.e. respectively: in the compiling economy and abroad; smoothing gross insurance flows; and FISIM3). Given the importance of wholesale and retail (distribution) services in GDP, perhaps also the ‘Franchises and similar rights’ sub-sector might be shown separately – see Annex D for a note on the EBOPS sub-sectors covered by the present SBP collection.

2.1.2. FATS data collection and compilat ion

2.1.2.1. Inward FATS

The SBP collects data on “investment by non-residents in enterprises incorporated in Pakistan and of these enterprises’ investment abroad”, both at the time of initial registration and regularly thereafter, and the responding firms are classified under ISIC3.

The SECP listing is used by the SBP for this enterprise survey (i.e. the SECP abstracts them from its register of 53,000). The MOC registration list of partnerships and individuals is not used. There is no coordination with the FBS on the register of companies.

For the International Investment Position reporting to the IMF data are collected using the form headed: “Annual Foreign Investment Survey, Enterprises Incorporated in Pakistan” (No. DS.FI.1(5)). This category includes every firm registered or incorporated outside Pakistan but operating in Pakistan; and every public or private company incorporated under the companies act and unregistered or registered partnership, in which non-residents have an interest.

Data required include:

• Nature of principal business conducted

1. Paid up capital Voting shares/stocks and non-voting

2. Long-term liabilities to non-residents

Debt securities (bonds, debentures and other securities)

Long term loans

Other long-term liabilities

A. Liabilities

3. Short-term liabilities to non-residents

Short-term borrowings

Currency and deposits (for banks)

Other short-term liabilities

3 Financial Intermediation Services Indirectly Measured, see the Manual paragraph 3.110 on page 43

and box 5 on page 46.


1. Investment in foreign shares

2. Long-term claims on non-residents

B. Claims on non-residents (foreign assets)

3. Short-term claims on non-residents

[The same sub-headings are used as for A 1, 2 and 3 above]

C. Amount of dividends remitted abroad

Interest payable and receivable from abroad and dividends receivable from abroad

1. Interest payable on foreign liabilities

2. Interest receivable on foreign claims

D. Items of investment income

3. Dividends receivable from abroad

E. Reinvested earnings Operating profit, net income, taxes, dividend paid or profit remitted, retained/reinvested earnings, undistributed profit

E. Industry [sic – E is repeated on this form]

Rated annual capacity and capacity utilisation

F. Employment Production workers and managers

G. Memorandum item Changes in shares due to cash and equipment brought into Pakistan or repatriated, and bonus shares issued

Annual reports are checked for these data, if available, but not always identified in the accounts.

Thus the following FATS variables are already collected:

• number of enterprises • operating surplus • net income • taxes payable • employment • assets • net worth • gross fixed capital formation.


Not yet collected are:

• sales (turnover) • value added • imports and exports of goods and services • R&D expenditure.

2.1.2.2. Outward FATS



2.1.2. The recommended ‘ten steps’ of the Manual

An overview of the ‘ten steps’ on the way to the full implementation of the recommendations of the Manual for reporting on EBOPS and FATS is given in Annex E.

2.2. Coordination of services censuses and surveys

There is no formal overall coordination mechanism of the Ministries and agencies involved in the collection, compilation and dissemination of services sector data, whether on domestic production or international trade.

2.3. Enterprise register

There is no centrally held register of economically active enterprises of all legal types.

2.4. Metadata on services data collection

There is no centrally held record of the metadata for censuses and surveys of services sector enterprises.

2.5. Other central considerations

For a modern statistical system, it is important that the statistical sampling methodology is of an international standard and the IT systems are compatible for interconnection and data flow formats, both specialist areas that fall outside the purview of this present report, as does the organisation of a national statistics office.4

4 A standard reference is: “Handbook of Statistical Organisation – the operation and organisation

of a statistical agency”, third edition, ST/ESA/STAT/SER.F/88, UN, 2003


3. Recommendations

3.1. Collecting services statistics

Implementation involves observing the UN classifications for services activities ie the International Standard Industrial Classification of All Economic Activities (ISIC3), and products - the UN Central Product Classification (CPC1).

The starting point is acceptance that the recommendations of the UN-approved Manual should be implemented. Given that it is a conceptual framework and not a compilation guide, the challenge is to find practical ways to collect, compile and disseminate the data.

The recommendations of the Manual comprise two main ‘pillars’ concerning the collection and compilation of:

Services balance of payments statistics: first under the IMF BPM5 system, then for the Extended Balance of Payments Classification System (EBOPS)

Foreign Affiliates Trade in Services (FATS) statistics ie the activities of foreign affiliates with more than 50% foreign ownership, first for those in Pakistan, then for Pakistani-owned affiliates abroad.

3.1.1. EBOPS

Some countries rely on the ITRS system of the central bank, including Germany and a few ASEAN countries, for the collection of EBOPS data, when it is suitably extended and strengthened. However, many countries, including the US and UK, have moved away from basing EBOPS on the ITRS system due to difficulties in obtaining sufficiently detailed information from the commercial banks and other financial institutions. Instead they use a general survey of the international trade in services of enterprises together with data from various sector sources.

As Pakistan is to rely on the ITRS system for collecting EBOPS data, its reliability should be assessed after year or so, as it depends on obtaining correctly classified data from the commercial banks.

It appears that the current system deployed by the SBP, which has been extended and strengthened in recent years, looks likely to meet most of the priority requirements of the EBOPS system for the mid-term future. Although it has not yet got to the point of disseminating data at the greatest degree of detail for EBOPS, due to the need to assess and verify its consistency and reliability, the framework has been constructed in a suitable format. It only remains for the data to be considered statistically dependable according to the usual methodological standards.

This will be a real challenge for the commercial banks to respond to. It will take a while for the system to be run in and stabilise. After a year or so an investigation will be needed to assess whether it was realistic to require the commercial banks to supply such detailed data, or whether there are some practical limits that make the data on some sub-sectors unreliable. If the latter, then sector enterprise surveys will be needed.


3.1.1.1.Al locat ion of EBOPS data to the four GATS Modes of supply

The Manual provides a simple and straightforward initial method for allocating the EBOPS data to the four GATS modes of supply. To achieve a more accurate allocation is challenging, especially for certain sectors where the first and fourth modes need to be separated from each other.

Under GATS there are two distinct categories: (a) services transactions related to the supply of services by the self-employed and employees while they are temporarily abroad (Mode 4), and (b) covering those who take up employment in a foreign affiliate abroad (related to Mode 3). Persons taking up employment in other service enterprises abroad are not covered by the GATS, nor those employed in state agencies such as national health services and social services.

As a first step on Mode 4 it is recommended that the FBS explore the data collected by the Bureau of Emigration and Overseas Employment, Ministry of the Interior, and the Overseas Employment Corporation (perhaps also with the Director of the Workers Welfare Fund who has studied this subject) and consider whether to categorise the data already collected, and how it can serve the purpose of reporting data on Mode 4, the presence of natural persons, in accordance with the approach set out in the Manual (see §§ 3.41-3.48). Perhaps this could be set alongside data on non-GATS movements of workers, and remittances from workers abroad in agriculture, manufacturing, national and local state services and domestic households.

3.1.2. FATS

3.1.2.1. Inward FATS

The SBP presently collects some of the twelve FATS variables, and will have to decide whether to extend the required information on the annual foreign liabilities questionnaire, or to rely on other enterprise surveys carried out by the FBS. Given the relatively small number of inward FATS entities, the former route would probably be the most satisfactory as the SBP could control the timing, methodology and classifications to attain the desired reliability and comparability of the disseminated statistics.

The IIP survey form will need to be adapted to collect all 12 variables recommended from those enterprises in Pakistan with over 50% foreign ownership. This would implement the recommendations of the Manual for ‘inward FATS’.

The following variables should be collected in future: sales, value added, research and development expenditures and compensation of employees. Their exports and imports of goods and services would be reported under the ITRS system.

3.1.2.2. Outward FATS

The SBP only collects data on the activities of enterprises abroad that are owned and controlled by Pakistanis where the Pakistani companies have some foreign participation through shareholding or other investment. Then only information on assets and liabilities is collected. However, the IIP annual reporting form is not sent to firms with no foreign participation that do have FATS subsidiaries abroad.


A survey of all enterprises abroad owned by Pakistanis might be a challenging and expensive process. It would involve the design and testing of a special survey form, after obtaining advice from a national statistics office with experience on this, such as the Bureau of Economic Affairs of the US Department of Commerce, or the Australian Bureau of Statistics. It is not clear what the numbers and scale of such affiliates abroad are, and whether their importance justifies a special survey at this stage (ie for the ‘outward FATS’ variables).

Coordination of services censuses and surveys

In view of the importance of coordinating data collection activities across a wide range of official agencies and disparate yet important service sectors, consideration should be given to the creation of a more formal, standing body to ensure convergence and eventual harmonisation of concepts, definitions, classifications and sampling methodology, based on UN recommended and other international standards.

The ministries and agencies principally involved would be:

Ministry of Commerce (in the chair) Registration, TDAP, WTO Wing

Ministry of Economic Affairs and Statistics

FBS (central and city offices), National Accounts

State Bank of Pakistan

Ministry of Finance SECP, CBR, BOI

Ministry of Industries, Production and Special Initiatives

SMEDA

Provincial Governments Statistics offices

This may require a legal structure effected by means of a national statistical regulatory information coordination ordinance, later to be ratified by Parliament.

Since various international statistical standards are currently being revised, a particular focus will be needed on their phased introduction. These include:

• System of National Accounts - SNA93,

• International Standard Industrial Classification of All Economic Activities - ISC3

• Central Product Classification - CPC1.1

• IMF Balance of Payments Manual - BPM5

• OECD Benchmark Definition of Foreign Direct Investment – BD3

• Tourism Satellite Account, of the UN World Tourism Organisation

However, it seems unlikely that the Manual will be revised soon to take account of these updated classifications and thus will be operational for a further four years or so, its recommendations should be implemented as they stand. This will ensure comparability with the data of other countries that follow the recommendations of the Manual.


A Single Enterprise Register

A complete picture of the economy and its trade can only be obtained if the total universe of economically active enterprises, of whatever legal status, are listed in a central register. This task is conceptually simple, but in practice extremely challenging to attain and maintain. Partial lists are usually held in ministries of commerce, trade, finance, tax, social security, labour, statistics and so on. Their aims and needs vary and with that the bases, coverage, definitions, classifications and codes vary too. When all are assembled in one place there are inevitably overlaps, gaps, and inconsistencies. One agency has therefore to set up the central list and work with each of the agencies that supply their own lists, to ensure that the same definitions are used, and each separate ‘economically active entity’ given a unique identification number, which is distinct from any other coding, especially the various tax codes, given respondent psychology. These numbers must also allow for an enterprise to have various distinct establishments and for these to be related to the owner, and to any new owner that may acquire them. Longitudinal analyses will then become possible over time.

It is usual for firms newly formed to be listed when registered and licensed, but often the bureaucracy involved in formally closing down a defunct firm is too onerous for those affected by failure, yet the register must de-list these entities.

An overall plan to structure the register for the implementation of the Manual is recommended. The FBS needs to be made responsible for a national enterprise register, to which the relevant other agencies should provide information under Memorandums of Understandings, including the SBP, WTO Cell, MOF, BOI, SECP etc. This register would be central to the whole system and be fully computerised. All entities would be registered and given a unique alphanumeric identification number, whether profit making, non-profit, government owned and so on. The database needs to be run by professional computer-literate staff supervised by someone with services statistical expertise, and be the single body to disseminate national data. This body would plan for censuses and surveys and coordinate classifications used and surveys by other agencies, in a manner that would not detract from the powers of those other agencies. Inter-agency disclosure would solely be for coordination. The services experts employed would be key contact persons in the agencies involved, and should not be replaced by non-experts.

Thus the work just started at the FBS Technical Committee on a Business Register should be continued to completion, under the monitoring of the MOC standing committee.

Central database

The FBS needs to be set up a computerised central database for statistics on the service sector, into which data would be contributed by all agencies under harmonised formats.

Metadata record

It is recommended that consideration be given to the compilation of a full compendium of metadata information on the collection and compilation of services statistics, which can form the basis for the relevant parts of the standard ‘Special Data Dissemination Standard’ (SDDS) reported to the IMF and available on their Dissemination Standards Bulletin Board. This format includes descriptions of data coverage, periodicity and timeliness; access to the public; integrity; and quality. It would also be of use in the SAARC context.


A useful source on what metadata to record might be the Eurostat “Balance of Payments Vademecum – update June 2006” which is on their website.


4. Further technical assistance needed

4.1. EBOPS

An expert assessment will be needed in a year or so of the current SBP survey practice for the ITRS and IIP systems to identify any shortfalls in the data collected from the commercial banks and authorised currency changers. This will probably have to come from an expert in a central bank in a country that has experience of obtaining EBOPS data through their ITRS system.

Certain sectors present particular challenges, and it will have to be considered whether special surveys should be designed, tested and implemented either as occasional benchmarks or more frequently depending on policy priorities. These would include:

• Transport: Insurance and freight charges on merchandise trade5

• Travel: Expenditure of tourists and visitors on goods and services

• Construction: in Pakistan and abroad

• Insurance: for the ‘smoothing’ methodology of BPM6

• Banking: for FISIM

• Computer and information

• Professional and business

• Cultural and recreational: Education, health and well-being

• Audiovisual

• Movement of natural persons, Mode 4

Depending on the sectors to be given priority, it could be that officials from the SBP should visit the national statistics offices of other countries for a period to obtain mentoring on the specifics of such sector surveys. The Statistics Division of OECD might be able to point to suitably experienced offices among its member countries.

4.2. FATS

4.2.1. Inward FATS

The outcome of the IMF assessment of the present IIP system should be awaited, and it might indicate where the IMF could give further assistance on the collection of FATS data. The official in the IMF BOP Division with experience on the service sector is Ms Natalia Ivanik, Senior Economist, ([email protected]).

5 The SBP currently use an 8% deduction ratio on CIF values of imported goods for the I&F charges with

an assumption on the proportion purchased from non-residents. This figure is probably on the high side and a survey might be necessary to identify a more realistic level. Once the figures have been adjusted, there would likely be an increase in the goods imports value and reduction in the services import value.


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Increasingly transactions carried out entirely abroad will also have to be tracked, through the IIP survey or other means, on which the IMF could advise.

4.2.2. Outward FATS

The Australian Bureau of Statistics might be approached for the secondment of one of their experts for a short period to the SBP to advise on the design and conduct of a survey on outward FATS variables. Alternatively, USAID might provide such assistance.

4.3. Awareness building

The ITC could play a role in building awareness among the many ministries and agencies involved, by organising a workshop for officials at which the importance of creating a complete system for services statistics would be stressed and the institutional and methodological mechanisms described. A formal proposal for such and event would have to put to the ITC. It might be combined with the workshop in May 2007 to which the Geneva Mission officials have invited WTO statistics officials to conduct.

4.4. Proposal for funding

The Government of Pakistan will have to consider which multilateral funds and bilateral donors might be able to provide resources, both in money and expert consultants, to which they should address requests for capacity building aid.


Annex A: List of people interviewed

My thanks are due to the following for their time and advice:

ISLAMABAD

Ministry of Commerce Manzoor Ahmad Kayani, Deputy Secretary (WTO) Ms Yasmin Masood, Deputy Secretary Arsalan Ahmed, Assistant Director, WTO Wing Ms Raheela Tajwar

Ministry of Communicat ion Ms Atifa Raffat, Deputy Secretary

Ministry of Economic Affa irs and Stat is t ics

Federal Bureau of Stat is t ics Syed Mazhar Hussain Hashmi, Deputy Director General, Khalid Saddiqui, Director, Karachi Office

Ministry of Finance

Central Board of Revenue Ms Seema Raza Bokhari, Secretary (WTO),

Ministry of Industr ies, Product ion and Special In i t iat ives Tariq Bajwa, Joint Secretary

Ministry of Informat ion Technology ( IT and Telecommunicat ions Div is ion) Mushtaq Ahmed Bhatti, Director (Telecom)

Ministry of Labour, Manpower & Overseas Pakistanis Nadeem Irshad Kayani, Director, Workers Welfare Fund

Ministry of Science and Technology Shehryar Khan, Joint Technological Adviser

Pakistan Software Export Board Yusuf Hussain, Managing Director (and two colleagues, Arif Khan and Kashif Jamal)

World Bank S Sayem Ali, Economic Management and Poverty Reduction Unit (and his colleague from Washington: Tercan Baysan, Lead Economist)

KARACHI

State Bank of Pakistan Naseer Ahmad, Joint Director, Statistics Department Shahid Latif, Jr. Joint Director, Statistics Department


Trade Development Author i ty of Pakistan M Anwar Chaudhary, Executive Director Corporate Communication Wamiq Rashid Khan, Executive Director (Research) Sajjad Haider Malick, Executive Director (Financial services and FDI)

Air Cargo Agents Associat ion of Pakistan (ACAAP) S Mohammad Abbas Rizvi, Secretary

Pakistan Hotels Associat ion Ms Fouzia Azhar, Secretary General,

Karachi Cargo Services (Pvt) Ltd. , Internat ional Freight Forwarders Mohsin A Dharsi, Chief Executive

TCS (Pr ivate) Ltd, Express & Logist ics Muhammad Azhar, Senior Manager BPR & Automation Imran Younus FCA, Head of Finance

LAHORE

Ministry of Industr ies, Product ion and Special In i t iat ives

Pol icy and Planning, Smal l and Medium Enterpr ise Development Author i ty Imran Chaudry, Manager, Donor Coordination & International Linkages Ms Aisha Amjad, Assistant Manager

Commerce and Investment Div is ion, Government of Punjab Muhammad Khalid Rasool, Deputy Secretary

Planning and Development Department, Government of Punjab Inaamul Haque, Chairman, Economic and Social Policy Planning Cell, Advisor WTO

National Engineer ing Services Pakistan (PVT) Limited, Consult ing Engineers Engr. M. Mazhar-ul-Islam, General Manager (Contracts), P&M Division

GENEVA

Permanent Mission of Pakistan to the WTO Ms Shaista Sohail, Economic Counsellor Ahmad Mukhtar, Commercial Secretary


Annex B: Trade policy on services

GDP in Pakistan has been growing fast with the real rate attaining 8.4% in 2004-05, second only to China, and income per head reaching $700, however inflation at 9.3% was the highest for eight years. Services already account for about 52% of GDP and have strong linkages with the textiles sector, the main exporter and commodities. In this period services grew at nearly 8%, aided by strong growth in financial services, almost 22%, wholesale and retail trade at 12%, though transport and communication was hardly 6%. In 2003 distribution services accounted for 18% of GDP, transport and communication 11.5% and ‘Other business services” almost 10%. Travel earnings are low because foreign visitors are under 700,000 each year compared with the 700 million global total.

The Minister of Commerce in his recent trade policy speech confirmed that the government looks on the services sector as extremely important to the economy due the size of employment, contribution to GDP and as a driver of growth. Future services exports are seen as of critical importance, and his Ministry has adopted a number of policy measures to facilitate growth and exports. In order to focus policies more surely, it was decided that the State Bank of Pakistan needs to provide greater detail on service exports by disaggregating the various sub-sectors in the eleven broad balance of payments categories. Data for the ten-month period to April 2006 had shown that exports of just three sectors amounted to $396 million (construction, computer-related and business services). The National Corridor Improvement Programme involves the improvement of ports and shipping, highways railways and trucking with new air cargo despatch locations. Research studies on the following service sectors are nearing completion: retail, wholesale, construction, transport and storage/warehousing. International freight forwarding and logistics are together now recognised as a distinct sector and the policy is to upgrade the entire logistics network.6

Various Ministries are involved with promoting services exports, principally the Ministry of Tourism – there is a wealth of attractions from previous civilisations, coastal and mountainous (mountaineering and trekking) areas as well as sporting and cultural features – and the more autonomous Trade Development Authority of Pakistan (successor to the Export Promotion Bureau). Already there are significant exports in certain sectors such as IT related and enabled (including call centres and software, back office support), courier services, and professional and business services. Much more has to be done to stimulate services exports because, despite the success of a few exporters, the majority of services firms have less than 50 employees and currently little or no export awareness or capability.

The Minister of Commerce is planning to set up a Trade in Services Development Authority, which will among other things oversee the collection and compilation of data on service sector activities, and international trade. Pakistan was a founder member of the WTO, and its GATS schedule inscribed specific commitments in six sectors (with 47 sub-sector ‘lines’) with no nationality requirements. In the current Doha round of negotiations, the Pakistan initial offer would remove restrictions on the purchase of land in the already committed sectors, raise the equity cap on foreign participation from 51% to 60% and increase the period of stay for business visitors and intra-corporate transferees. Further liberalisation included in the offer may bring the sub-sector coverage up to about 150 ‘lines’.

6 Trade Policy Speech 2006-007, Humayun Akhtar Khan, Minister of Commerce, 17 July 2006


Annex C: Activities of government agencies related to

services statistics

The Central Bureau of Revenue (CBR) of the Ministry of Finance (MOF) is responsible for collecting all types of tax on economic activities, and there is a GST on services enterprises with turnover above Rs5m per annum. The Securites Exchange Commission of Pakistan (SECP), which regulates the Stock Exchange and listed companies (about 800) is also in the MOF, as is the Boad of Investment (BoI) which registers FDI entities. The Registrar of Companies is a division of the MOC for the registration of all economic activities other the SECP firms. The new successor to the Export Promotion Bureau, the Trade Development Authority of Pakistan (TDAP), a semi-autonomous body, reports to the MOC and may eventually have a statistics division. The MOC also has export and import divisions and others dealing with trade relations and negotiations, and a ‘WTO Wing’ that coordinates trade policy and negotiates under the GATS, the SAARC FTA and bilateral FTAs. It is planning to set up a ‘Trade in Services Development Authority’.

Other Ministries responsible for service sectors include the Ministry of Industries, Production and Special Initiatives, responsible for the Small and Medium Enterprise Development Authority, and ministries responsible for health, education, transport, construction and tourism, and they carry out surveys, though not always on standards, classifications and methodologies set by the FBS. The FBS makes use of this secondary data, and finds problems of mutually inconsistent bases, definitions, methodology and so on. In view of this the Statistics Division of the FBS has recently set up its Technical Committee on the Business Register to harmonise the coverage, areas, codes, definitions and classifications used by all ministries and agencies. It has already decided that there should be one central register of all economically active entities and one statistical database to which all agencies report data and from which they can abstract data. This is likely to be a major exercise taking a long time, and needing networked IT systems and good security and confidentiality safeguards.

The FBS has offices in the capital cities of the four Provinces and in 30 other cities across the country, which control the statistical activities of 150 districts where the enumerators are located. Overall the FBS has some 2,000 staff and is responsible for producing the Annual Statistical Year Book (the latest is ‘2006’) and many other publications. In 2001-04 it carried out a national economic census, and the first findings were published as ‘Economic Census of Pakistan – National Report’ in May 2005.

Each of the Provincial Governments has a statistical office, with which the FBS is in close contact, and which together form further secondary data sources for the FBS.

The MOC needs data on trade in services for its trade negotiating activities and this includes not only existing export and import trends in each sector, but potential for further sector exports to be developed, and thus barriers to those potential markets should be reduced through negotiations.

The MOC chairs an inter-agency Trade Policy Coordination Group, or standing committee, which comprises representatives the main ministries responsible for the service sectors, including the MOF, MEAS, FBS and SBP, and MIPSI. Others attend when issues affecting their responsibilities are involved.


Annex D: EBOPS codes collected by the SBP

SBP relies on the ITRS system to compile the BOP statistics. Since 2003 the BPM5 has been implemented and within two months or so the 11-sector format will become standard. The banks are issued with detailed code lists (based on CPC1.0) for invisibles reporting, and all foreign exchange transactions however small have to be reported, there being no threshold. Banks may put the smallest amounts into the ‘Other’ category within each main product sector.

Recent increases to the reporting requirements have produced problems for the banks that are still being ironed out, and their IT systems adapted. New software is being developed for the forthcoming revamp to accommodate some of the EBOPS detail, including some memorandum items. Priority sectors will be covered first, which after discussion with the internal economic policy and international economic departments, will be approved by the Governor, following consultation also with MOF, MOC and the Bankers’ Association (which represents nearly all banks). All credit card transactions have to go through the local issuing bank and are captured by the ITRS reports. The SBP has to approve (by special permission) any entity holding a bank account in a foreign currency abroad. Hotels that exchange foreign currencies are authorised dealers so their transactions are reported. Any informal currency transactions will eventually end up with an authorised dealer. Informal ‘no cash’ transfers across the border are not captured.

At present they are working on reporting transactions by partner country.

The published data under the 11 BPM5 service sectors is a summary of more detailed information collected from the banks. Special survey forms are sent to airlines, to shipping lines and agents and to embassies etc. The FBS surveys trucking at the land borders, but this only covers merchandise trade. For the insurance and freight charges on merchandise trade a ratio of 8% is used, and no survey has been done recently to verify this. The requirement for respondents to send in the data is provided for under the Banking Companies Ordinance 1984 and the SBP Act. If, for example, Amex or Visa wanted to set up without a bank relationship, then the equivalent of the banking requirements would be enforced for their reporting of foreign exchange transactions. As for information taken from annual accounts of banks and foreign direct investment entities, the SECP insist on adherence to International Accounting Standards Board accounting standards. The ITRS will be updated to BPM6 as soon as practicable.

The IMF was invited to check out their system and report on any upgrading needed, which is expected shortly in draft for comment.

If more detail is needed to report under EBOPS, then some technical capacity building aid will be needed to design the forms and plan surveys, and then an increase in budget to cover extra staff and processing equipment.

For the banks reporting under the ITRS system a guide is given which includes “ITRS Code Lists for Invisibles”, with separate lists for Invisible and Capital Receipts / Payments. This covers


A. Transportation Sea, air, other.

B. Travel Business – official, commercial, other; personal – health and education related, others, including Hajj and other religious

C. Communication services Postal and courier, telecommunications

D. Construction

E. Insurance Life, freight, other direct (marine, accident and health, motor, surplus funds, MAT, other); reinsurance – life, marine, other, auxiliary services to insurance

F. Financial services Intermediary, guarantees, other, refunds

G. Computer and information services

Hardware consultancy, data base, maintenance and repairs, software design etc, other

H. Royalties and licence fees intangible, non-produced, non-financial

I. Other business services Merchanting, operational leasing, miscellaneous business professional: legal, accounting, management consultancy, advertising, research, architectural/engineering/surveying/ technical, agricultural related, journalists and various other items

J. Personal, cultural and recreational services

Audiovisual and related, other

K. Government services n.i.e. Embassies and consulates, international organisations

These reflect the main headings of EBOPS, with many of the disaggregated items. It does not cover the EBOPS Memorandum items.7

[Then follow: L. Income M. Current transfers N. Capital transfers O. Financial account]

The main EBOPS items not identified separately are:

1.4-1.9 space, rail, road, inland waterway, pipeline and other supporting transport

2.1.1 seasonal and border workers

4.1-4.2 construction abroad and in the compiling economy8

7 The Memorandum items are listed on page 84 of the Manual.


7.2 news agency/other information

9.3.7 services between related enterprises

10.2.1 education services

10.2.2 health services

11.2 military units and agencies

Memorandum items.

A policy decision would be needed on whether any of these items should be published in disaggregated format, if the data already collected enables this to be done, or if not, whether future data collection should require them to be reported separately

8 Construction firms are often not registered and this needs to be considered, especially for Afghanistan,

as the cross-border transactions are not captured.


Annex E: The ten steps of the Manual and the current

situation in Pakistan

Taking into consideration limitations faced by countries for its implementation, the Manual recommends that the work be completed in ten phases over the long term. Once fully implemented the detail of information on trade in services would be considerable. The Manual recommends that priority be given to the first five core elements and that the other five elements be implemented incrementally thereafter. The five core elements would provide a basis for a common internationally comparable basic data set. The ten recommended elements are listed below for ease of reference9 and each is followed by a brief description of the current situation in Pakistan.

1. BPM5

Implement the BPM5 recommendations, including the definition, valuation, classification and recording of service transactions between residents and non-residents.

For purposes of preparing the Balance of Payments account, the SBP very recently began to collect and disseminate data under eleven service sectors in accordance with the IMF BPM5. Commercial Banks regularly report to the SBP, through the International Transactions Reporting System (ITRS) described in BPM5, under which all foreign currency transactions must be reported, whether through banks, credit cards or the use of cash.

2. EBOPS: First Part - Disaggregation

Compile balance of payments data according to EBOPS, which involves disaggregating the BPM5 standard components for services into EBOPS subcomponents. Where the compilation of the main EBOPS classification is developed and carried out in stages, compilers should commence with the disaggregation of services of major economic importance to their own economies. Where data for related memorandum items are available as part of this compilation process, these memorandum items should also be compiled.

The SBP has begun to collect and compile data for most of the EBOPS sub-categories, but not any of the memorandum items. This report lists the EBOPS items currently not disaggregated. A decision will have to be made on which would be priorities to tackle over time including from the list of memorandum items.

3. Foreign Direct Investment Statist ics

Collect complete statistics on foreign direct investment (FDI) (i.e., the flows, income, and period end positions) classified by ISIC Rev.3 activities to be complementary to the FATS statistics. For those countries that must delay the implementation of FATS statistics, FDI statistics provide an alternative interim indicator of commercial presence.

The SBP collects data on all firms with FDI participation both at the time of initial registration and regularly thereafter, and the responding firms are classified under ISIC3.

9 The Manual, para. 1.18-1.28.


4. FATS: Basic Variables

Certain basic FATS statistics should be recorded, such as sales (turnover) and/or output, employment, value added, exports and imports of goods and services, and number of enterprises. For achieving comparability when reporting to international organisations, these are classified by specified activity categories based on ISIC Rev.3, i.e., ICFA.

For inward FATS, the SBP presently collects, through its International Investment Position annual survey, data from all FDI enterprises, and could readily show the FATS sub-set separately for the following variables: number of enterprises, operating surplus, net income, taxes payable, employment, assets, net worth and gross fixed capital formation. The following are not collected (on the standard annual form No DS.FI.1(5)): sales, value added, research and development expenditure, compensation of employees and exports and imports of goods and services, though the last are reported under the ITRS system.



5. Trade in Services by Partner Country

Compile statistics on trade in services by partner country. For transactions between residents and non-residents, the aim would be to report partner country detail at the level of services trade as a whole and for each of the main types of services in BPM5. In the case of FATS and FDI, it would be to report partner country detail both in the aggregate and for the major industry categories within ICFA. In both cases, it is recommended that countries give a higher priority to providing data with respect to their most important trading partners. To the extent possible, countries should use a common geographical basis for all three sets of statistics.

The ITRS system collects partner country data for most of the EBOPS categories, and the data could be aggregated for the major trading partners and country groupings as specified by the Ministry of Commerce.

6. EBOPS: Second Part––Completion

Complete the implementation of EBOPS to the extent relevant to the compiling economy, including the memorandum items. Memorandum items should be compiled, where the data necessary are available, as part of the data collection process for the related EBOPS components. Other memorandum items should be compiled where there is a demand for these data in the compiling economy. An elaboration of the full EBOPS classification and its memorandum items together with their correspondence to CPC, Version 1.0 is shown in annex III of the Manual.

See Step 2 above. It should first be examined at the policy level if there is already a need to disaggregate any of the remaining EBOPS sub-categories and provide some memorandum items.


7. FATS: Further Details

Augment the basic FATS statistics by compiling data on additional aspects of the operations of foreign affiliates, such as assets, net worth, operating surplus, gross fixed capital formation, taxes on income, research and development expenditures, and compensation of employees.

Detail of sales by product is desirable, not least because of the potential comparability between FATS data and trade between residents and non-residents. While compilation on this basis may well have to remain a long-term goal for most countries, as a first step toward a product basis, countries may wish to disaggregate sales in each industry as between services and goods. In addition, countries that are building their statistical systems for FATS on existing data systems that already include product detail may wish to use this detail from the outset because it could help them in monitoring commitments under GATS that are specified in terms of services products. Similarly, countries that are building their FATS data systems from the ground up should consider the feasibility of providing for a product dimension.

See step 4 above. The SBP presently collects a few of the FATS variables, and will have to decide whether to extend the required information on the annual foreign liabilities questionnaire, or to rely on other enterprise surveys carried out by the FBS. Given the relatively small number of inward FATS entities, and probably the few outward FATS entities abroad, the former route would probably be the most satisfactory as the SBP could control the timing, methodology and classifications to attain the desired reliability and comparability of the disseminated statistics. A decision will have to be made on whether the outward FATS position is sufficiently significant at this stage to justify a special survey.

8. Persons Working Abroad

Collect statistics on natural persons under the GATS framework, both those from the compiling economy working abroad and foreign natural persons working in the compiling economy, taking into account the needs, resources, and special circumstances of the compiling country. In this process, the framework, and definitions set out in Annex I of the Manual should be used as a guide.

This type of information is not presently collected in Pakistan, and there is no international standard to guide the compilation of resident and non-resident transactions data related to persons supplying services, or working in services FATS firms, abroad. The “Technical Subgroup on the Movement of Persons – Mode 4” of the UN “Interagency Task Force on Statistics of International Trade in Services” has recently produced a recommendation on the elements of personal transfers and remittances, which has yet to be agreed.

It is hoped that they will soon decide on what to include under the GATS Mode 4 for statistical purposes and to ensure that there is no duplication with the Mode 3 FATS statistics. The relationship of a narrow Mode 4 definition of data and its distinction from data emanating from migration and labour market statistical systems, and on remittances, has to be clarified

9. Trade between Related and Unrelated Parties

Within the statistics on trade in services between residents and non-residents, separate out the trade with related parties from that with unrelated parties.

The Manual cites the identification of trade between related parties as a low priority, and recommends separate identification of trade flows between related parties where the ownership


is 10% or more of the capital (i.e. for the whole FDI category). The Manual suggests that it may be difficult to identify separately the service products so traded, and thus at first only the total values of these services transactions would be recorded. However, if the nature of the services can be ascertained, they can be so allocated, but where not they would be allocated to the EBOPS component ‘Services between affiliated enterprises n.i.e’ (285), together with any charges for general management and contributions to overheads.

This level of collection could be obtained from the ITRS system of the SBP if required.

10. GATS Modes of Supply

Allocate the transactions between residents and non-residents over the GATS modes of supply. The simplified procedure set out in paragraphs 3.41-3.49 of the Manual may be used as a starting point in compiling a first approximation of this allocation.

The FBS could readily follow the simplified approach of the Manual, for disaggregating the information collected through the SBP ITRS system in order to allocate the data to the four modes of supply for EBOPS and FATS purposes, and this would be in accordance with the recommendations of the Manual. However, it could take much more work to obtain data from enterprises on the split of their earnings between Modes 1 and 4, which is where the most likely improvement might be needed.

Expert assessment needed of the situation described above

For the next stage of capacity building, an expert assessment is called for of the reliability of relying on the use by the SBP on its ITRS system for the collection and compilation of statistics in accordance with the recommendations of the Manual. This directly includes the following steps: 1, 2, 4, 5, 6, 8, 9 and 10.

A similar assessment is needed of reliability of relying on the use by the SBP on its IIP system for the collection and compilation of FATS statistics ie steps 3, 4, 5, 7, and 9.


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