Sunday, December 9, 2018

Remittances From Pakistani Diaspora Soared 21X Since Year 2000

Remittance inflows from Pakistani diaspora have jumped 21-fold from about $1 billion in year 2000 to $21 billion in 2018, according to the World Bank. In terms of GDP, these inflows have soared nearly 7X from about 1% in year 2000 to 6.9% of GDP in 2018.

Meanwhile, Pakistan's exports have declined from 13.5% of GDP in year 2000 to 8.24% of GDP in 2017.  At the same time, the country's import bill has increased from 14.69% in year 2000 to 17.55% of GDP in 2017.  This growing trade imbalance has forced Pakistan to seek IMF bailouts four times since the year 2000.  It is further complicated by external debt service cost of over $6 billion (about 2% of GDP) in 2017. Foreign investment in the country has declined from a peak of $5.59 billion (about 4% of GDP) in 2007 to a mere $2.82 billion (less than 1% of GDP) in 2017. While the current account imbalance situation is bad, it would be far worse if Pakistani diaspora did not come to the rescue.

Diaspora Remittances:

Estimated inflows of $20.9 billion make Pakistan the world's 7th largest recipient of remittances for 2018, according data released by the World Bank in its latest "Migration and Remittances" report of December 2018.  In South Asia region, Pakistan is the second largest recipient of remittances of $20.9 billion after top-ranked India's $79.5 billion.

Pakistan Remittances in Millions of US Dollars. Source: World Bank

Remittances from Pakistani diaspora have grown nearly 21-fold since the year 2000.  Pakistanis sent home remittances adding up to 6.9% of the country's GDP in 2018, up from 1% back in year 2000.

Pakistan's Trade:

In 2017, Pakistan exported goods and services worth $22 billion while it imports amounted to $57 billion, a trade deficit of $35 billion for the year. This is a dramatic deterioration from about $2 billion trade deficit (2% of GDP) in year 2000 to $35 billion trade deficit (about 12 % of GDP) in year 2017.

Pakistan Trade Deficit in Billions of US$. Source: World Bank


Pakistan's exports have declined from 13.5% of GDP in year 2000 to 8.24% of GDP in 2017.  At the same time, the country's import bill has increased from 14.69% in year 2000 to 17.55% of GDP in 2017.

Pakistan FDI. Source: The Global Economy

Foreign Direct Investment:

Foreign direct investment (FDI) in Pakistan was a mere $2.82 billion (less than 1% of GDP) in 2017, down from a peak of $5.59 billion (4% of GDP) in 2007.  The lack of foreign investment has contributed to the country's dwindling reserves and balance of payments difficulties requiring it to seek yet another IMF bailout.

Pakistan's External Debt. Source: State Bank of Pakistan via Dr. Ishrat Husain

Pakistan's Debt:

Significant growth in remittances from Pakistani diaspora has clearly helped but the external accounts gap is too big for it. This has forced Pakistan to borrow heavily in recent years. It has raised debt service costs and put pressure on Pakistan's reserves.

Summary:

Remittances from Pakistani diaspora have jumped 21-fold from about $1 billion in year 2000 to $21 billion in 2018, according to the World Bank. In terms of GDP, these inflows have soared nearly 7X from about 1% in year 2000 to 6.9% of GDP in 2018.  Meanwhile, Pakistan's exports have declined from 13.5% of GDP in year 2000 to 8.24% of GDP in 2017.  Foreign investment in the country has declined from a peak of $5.59 billion (about 4% of GDP) in 2007 to a mere $2.82 billion (less than 1% of GDP) in 2017. At the same time, the country's import bill has increased from 14.69% in year 2000 to 17.55% of GDP in 2017. This growing trade imbalance has forced Pakistan to seek IMF bailouts four times since the year 2000.  It is further complicated by external debt service cost of over $6 billion (about 2% of GDP) in 2017. While the current account imbalance situation is bad, it would be far worse if Pakistani diaspora did not come to the rescue.

Related Links:

Haq's Musings

South Asia Investor Review

Can Pakistan Avoid Recurring Balance of Payment Crisis?

Pakistan Economy Hobbled By Underinvestment

Pakistan's IT Exports Surging

Can Indian Economy Survive Without Western Capital Inflows?

Pakistan-China-Russia Vs India-Japan-US

Chinese Yuan to Replace US $ as Reserve Currency?

Remittances From Overseas Pakistanis

Can Imran Khan Lead Pakistan to the Next Level?

China to Expand Manufacturing in Special Economic Zones

15 comments:

Sikandar N. said...

With this kind of trade deficit, I have wondered why the government has not imposed restrictions or at least curtail non-essential goods, such as automobiles, cosmetics, electronics goods, etc. one or two year restrain can go a long way in cutting down the trade deficit.

Abid F. said...

Apparently, the Malaysians pointed out to Imran that halal meat was a multi billion dollar export business worldwide but Pakistan was not a player in this market. So the PTI government is planning to take a plunge in this area and see if they can start exporting halal meat.

They keep focusing on the traditional areas of clothing, sporting goods, etc but they need to start focusing on creating new markets with new products.

Riaz Haq said...

Sikandar/Abid:

I think they need to do both: cut non-essential imports and diversify/grow exports.

Livestock, meat and poultry exports into the huge halal market is a great idea. Argentina and Brazil have built their economies on such exports.

At the same time, Pakistan needs to focus on high value added exports such as IT and aviation.

Pakistan's high tech exports last year surged past a billion US$ and growing at double digit rates.

https://www.riazhaq.com/2018/08/state-bank-pakistan-it-exports-surge-to.html

And over a dozen countries are now buying and deploying Pakistan made Mushshak trainer airplanes based on Cessna design.

https://www.riazhaq.com/2016/12/pakistan-made-airplanes-lead-nations.html

Riaz Haq said...

#Pakistan to focus on #engineering sector #exports.#ImranKhanPM advisor Razzak Dawood invited #Japanese companies to look into the information and #technology, small and medium enterprises and #agriculture value-chain sectors for #investments. https://www.thenews.com.pk/print/404268-pakistan-focuses-on-engineering-sector-exports

Adviser to the Prime Minister on Commerce Abdul Razak Dawood on Monday said Pakistan graduated from its traditional textile and leather sectors to export of engineering goods, while inviting Japanese companies to benefit from the country’s geographical connectivity to Asian markets.


Dawood, while addressing a seminar on Pakistan’s Economic Policy, invited representatives of Japanese companies to look into the information and technology, small and medium enterprises and agriculture value-chain sectors for investment.

“Advisor underlined that Pakistan had graduated from its traditional sectors of textile and leather to the export of engineering goods,” an official statement quoted him as saying.

“He (the advisor) called for taking advantage of Pakistan’s strategic location for exports to the Middle East, Africa and Central Asia.”

Japan External Trade Organization (Jetro) and Ministry of Economy, Trade and Industry of Japan, Ministry of Commerce and Textiles and the Embassy of Pakistan in Japan jointly organised the seminar. Around 200 participants primarily from the Japanese business community attended the event.

Adviser to the Prime Minister on Commerce underscored the importance of furthering trade and investment relations between Japan and Pakistan, while highlighting growing potential of the local market, vibrant demography, low productivity costs, availability of rich natural resources and a liberal investment regime.

“Out of all the G-7 countries, Pakistan has a longstanding trade and investment relationship with Japan and there is a need to build upon the reserve of historical linkages, goodwill, understanding and respect for brand Japan in Pakistan,” Dawood said.

The advisor said the balance sheets of multinational corporations in the country reflect that they are making profits. He invited Japanese businesses to explore huge opportunities in trade and investment in the country. He also highlighted massive investment in infrastructure projects with the potential to make the country a regional hub for trade and investment.

There are 86 Japanese companies operating in the country with some enhancing their investments while new ones entering the local market. A recent annual survey of the Jetro ranked Pakistan as the first in terms of business growth expectation, profitability and local employment.

nayyer ali said...

The remittances are a double edged sword. Without the cushion afforded by high remittances the government could not have kept the exchange rate so overvalued, and imports would not have soared so much while exports would have grown with a cheaper currency. The overvalued rupee crippled Pakistan's export sector for the last decade, a monumentally stupid act by the PPP and PMLN governments. Exports were rising sharply in the Musharraf years and then stagnated. An overvalued rupee allows Pakistanis to buy foreign goods at bargain prices, so politically there is pressure to maintain that, but in the end, market forces will assert themselves as they have finally done. The drop in the PKR from 100 to 140 per USD is going to markedly stimulate exports while restraining imports as they are now much more expensive. I expect the trade deficit and current account to decline sharply in the next 12 months. The key for the government is to keep the PKR undervalued on a long term basis, that will stimulate the development of export industries while supressing imports.

Anonymous said...

Good news for investors to be announced shortly. Shanghai stock exchange and Karachi stock exchange have agreed for near real-time sharing of market data. Investors on both bourses can diversify investments. All buy and sell transactions can be done in both Pak Rupee and RenMinBi. Chinese Central bank and SBP will have electronic gross settlements enabled. We can expect a barrage of investments soon from our brothers.

Riaz Haq said...

#UAE plans to deposit $3 billion in #Pakistan's central bank "in the next few days", the UAE state news agency WAM reported on Friday, while a Pakistani official said #Islamabad also hopes it will allow deferred payments for #oil supplies. #IMF #economy
http://www.arabnews.com/node/1423831#.XB0L2ByGdkA.twitter

Pakistan is battling to bring under control a gaping current account deficit that's wobbled its economy and lowered growth.
Islamabad is engaged in bailout talks with the International Monetary Fund (IMF) but has also sought financial help from allies China and Saudi Arabia.
The UAE deposit is aimed at supporting Pakistan's monetary policy, WAM said, citing the state-run Abu Dhabi Fund for Development.
Hours after the WAM announcement, Pakistani Information Minister Fawad Chaudhry told Reuters that Islamabad was "also hoping to get deferment for oil payments" from UAE.
Chaudhry declined to disclose the sum of assistance sought through deferred payments, but said this was part of the discussions that led to the UAE announcing it would deposit $3 billion with Pakistan's central bank.
The minister added that the UAE planned to make investments in Pakistan, including a refinery and desalination plants.
In October, Saudi Arabia said it would loan Pakistan $6 billion, including a $3 billion deposit for its foreign currency reserves and another $3 billion in deferred oil payments.
China, Pakistan's staunchest ally and financial benefactor, has also pledged to help but has not announced the size of any assistance package.

Riaz Haq said...

The United Arab Emirates has announced its intention to deposit US$3 billion (equivalent to AED11 billion) in the State Bank of Pakistan "to support the financial and monetary policy of the country", reported WAM, the official news agency of the Emirates.

https://www.dawn.com/news/1452799

The Abu Dhabi Fund for Development said, in a statement today, that it will deposit the said amount in the coming days to enhance liquidity and monetary reserves of foreign currency at the bank.

The country's support for Pakistan's fiscal policy is based on the historical ties between the two people, said WAM, and the two friendly countries and the desire to further develop the bilateral cooperation in all fields.

Following the announcement, Prime Minister Imran Khan took to Twitter to thank the UAE government for "supporting Pakistan so generously in our testing times".

"This reflects our commitment and friendship that has remained steadfast over the years," said the prime minister.


The Abu Dhabi Fund for Development has financed eight development projects in Pakistan with a total value of AED1.5 billion, including AED931 million in grants, added WAM. The funds covered projects in sectors such as energy, health, education and roads.

Pak-UAE ties
The PTI-led government, which completed its 100 days in power on November 26, counted "resetting relations with key partners including Saudi Arabia and the UAE" among its accomplishments in its performance report.

Since assuming office in August, the premier has visited the UAE twice.

The first visit took place in September when Khan visited Saudi Arabia and then the UAE. He was received by Crown Prince of Abu Dhabi Sheikh Mohammed bin Zayed bin Sultan Al Nahyan and the two countries had agreed to strengthen economic, trade and investment relations.

The next month, a UAE delegation — comprising CEOs/senior officials of major companies including Mubadala Petroleum, ADIA (Sovereign Wealth Funds), Etisalat, DP World, Dubai Investment Authority, Emaar Properties, Aldahra Agriculture and Abu Dhabi Fund for Development — arrived in Pakistan.

According to Foreign Minister Shah Mahmood Qureshi, the one-day visit of the delegation — headed by Dr Sultan Aljaber, minister of state and CEO of Abu Dhabi National Oil Company — was a follow-up to the prime minister’s maiden visit to Abu Dhabi.

In November, the premier embarked on his second trip to the UAE amid reports that the gulf state was ready to extend financial assistance to Pakistan. Khan was received by the Abu Dhabi crown prince in the UAE capital and was accorded a reception at the presidential palace, which was followed by delegation-level talks.

He was accompanied by a high-level delegation comprising Foreign Minister Qureshi, Finance Minister Asad Umar, Petroleum Minister Ghulam Sarwar Khan, Power Minister Omar Ayub Khan, PM’s Adviser on Commerce Abdul Razak Dawood, PM’s Adviser on Accountability Shahzad Akbar and Chief of the Army Staff Gen Qamar Javed Bajwa, among others.

During his day-long trip, the prime minister had also met Sheikh Muhammad bin Rashid Al Maktoum, the vice president and prime minister of the UAE and ruler of Dubai.

Riaz Haq said...

With #UAE aid, #Pakistan bridges half gap with reduction in the current account deficit from $19 billion to around $13 billion for FY 18-19. #Debt servicing is now estimated at $8.8 billion. @pid_gov expects $4.5 billion in commercial loans. #economy #IMF https://tribune.com.pk/story/1872107/2-uae-aid-pakistan-bridges-half-financing-gap/

With an announcement by the United Arab Emirates (UAE) that it is giving $3 billion in loans, Pakistan government has bridged half of the financing gap after including Saudi Arabian assistance, but it still waits for another $6 billion that will mainly come from commercial banks.

The Ministry of Finance’s financing lineup shows deposits of $6 billion by the monetary authorities, after the assistance from the UAE and Saudi Arabia. On top of that, receipt of $4.3 billion has been estimated on account of oil financing facilities from the Islamic Development Bank and Saudi Arabia during the current fiscal year.

Still, $4.5 billion would be required in commercial loans from foreign banks to meet the revised external financing requirement of $22 billion, said sources in the Ministry of Finance.
IMF projects inflation rate to hit 14% by June

They said Pakistan had already received $450 million worth of foreign commercial loans in first five months of the current fiscal year and it needed another $4 billion in the remaining seven months.

The UAE announced on Friday that it would deposit $3 billion in the State Bank of Pakistan (SBP) to bolster the country’s dwindling foreign currency reserves. With the announcement, the UAE will match the assistance from Saudi Arabia, which had agreed to park $3 billion in Pakistan’s foreign exchange reserves.
--
Saudi Arabia has already announced a $6-billion assistance package, equally divided between cash and oil supply on deferred payments. Of that, $2 billion has already been deposited with the central bank.

In the outgoing week, Finance Minister Asad Umar told a parliamentary panel that Pakistan would pay 3.18% interest on the Saudi loan.

“It is expected that loan terms for the UAE financial assistance will be similar to the Saudi loan,” said a senior government official.
----

For the current fiscal year 2018-19, the finance ministry has projected that gross external financing requirement of Pakistan will be $22 billion, down from initial estimates of $28 billion. This is primarily due to reduction in the current account deficit projection from $19 billion to around $13 billion, according to the ministry’s estimates.
During the first five months of FY19, the current account deficit stood at $6 billion, which was 11% less than the comparative period of previous year. But the pace was not enough to restrict the deficit to $13 billion in the remaining seven months of the year.

Debt servicing has now been estimated at $8.8 billion, suggesting repayment of some of the maturing deposits has been deferred.

Against the annual budgetary projection of $2 billion, the government has estimated receiving $4.5 billion on account of commercial loans. These include $1.7 billion in short-term commercial loans and $2.8 billion in medium-term commercial borrowings. Most of these loans are expected to come from Chinese commercial banks.

The government has dropped the plan of issuing $3 billion worth of Eurobond and Sukuk in the current fiscal year and proceeds of only $700 million have been projected, probably on account of Diaspora bonds.

Commercial borrowing has been replaced with sovereign bonds aimed at avoiding a high financing cost in the absence of an International Monetary Fund (IMF) programme. But this will increase refinancing risks due to the short tenor of commercial borrowings.

Another $2 billion is expected to come from some “unidentified sources”.

Nearly $2 billion in Chinese project financing has been estimated for the current fiscal year to meet the financing gap.

---

Project financing from these two organisations has now been estimated at slightly over $1 billion.

Riaz Haq said...

#Beijing to lend $2 billion to #Pakistan to shore up rupee. This financial support signals deepening #economic ties between #China and Pakistan even as #Islamabad is negotiating with the #IMF for a potential $7 to $8 billion loan. #CPEC https://www.ft.com/content/bd083b78-0d70-11e9-acdc-4d9976f1533b via @financialtimes


China has pledged to lend at least $2bn to Pakistan to shore up its foreign exchange reserves and prevent further devaluations of the rupee against the dollar, two senior government officials have told the Financial Times.

The financial support, which is not being publicly announced by China, comes as the government of Prime Minister Imran Khan is struggling with a weakening fiscal position, high debt repayments and dwindling reserves.

“China’s promise to Pakistan is an indication of their commitment to help us avoid a crisis. If the rupee falls sharply and we need to prevent its slide, we can turn to China,” said a senior government official in Islamabad.

Chinese officials were not immediately available for comment.

The promised financial support signals deepening economic ties between China and Pakistan even as Islamabad is negotiating with the IMF for a potential $7bn to $8bn loan.

Pakistan’s finance ministry and the IMF are due to resume discussions later this month on details of the package, which is expected to come with tough conditions, such as slimming down the country’s bloated state-owned enterprises through job cuts.

The rupee has lost more than a fifth of its value against the dollar since late 2017 and Fitch has cut Pakistan’s debt rating deeper into junk territory last month. Pakistan’s foreign reserves, at $7.3bn, have dropped to about one and a half months of import cover, regarded as a critically low level, said economists.

After decades of close military co-operation, Beijing has been stepping up financial support for Pakistan, with Chinese state-backed banks lending $4bn to Islamabad in the year ending June 2017.


China has committed to invest more than $60bn in infrastructure, energy, railway and road projects in Pakistan under the China-Pakistan Economic Corridor, a centrepiece of Chinese president Xi Jinping’s Belt and Road Initiative. The corridor is intended to link China’s western region with Pakistan’s newest deep seaport financed by Beijing at Gwadar near the Gulf.

In December, Mr Khan’s cabinet approved a plan to issue renminbi denominated “panda bonds” in the Chinese market, which one officials said could raise $1bn to $1.2bn.

Analysts said that by not publicly announcing its offer to Pakistan, Beijing hoped to avoid further raising US concerns over its relationship with Islamabad.

In July 2018, Mike Pompeo, the US secretary of state, warned the IMF against a bailout to Pakistan that would help the country pay back its loans to China.


Zubair Khan, a former Pakistan commerce minister, said China’s discreet dealings with Pakistan were not meant to “undercut” the IMF. “China is a very important member of the IMF. They [China] also want Pakistan to fix our economy,” he said.

Pakistan’s allies in the Middle East are also stepping up to help Islamabad. Saudi Arabia has pledged to lend $6bn to Pakistan in the financial year to June 2019 while the United Arab Emirates has promised to lend another $3bn during the same period.

The south Asian country’s recurring challenges include a persistent failure to reform one of the world’s worst performing tax collections. Less than 1 per cent of Pakistan’s population pays income tax.

Riaz Haq said...

The economy in 2019 by Hammad Azhar



The economy has slowed down, the Rupee has been devalued, interest rates have gone up and there has been some increase in the rate of inflation in the country. Why has this happened? And what prospects does the economy hold in 2019? This article answers the above questions in an honest and as simple a manner as is possible.

https://www.thenews.com.pk/print/413356-the-economy-in-2019

Pakistan’s economy is recovering from what can be best described as a ‘consumption led’ growth period that was financed by short term debt instruments and a stifling of investment climate. Consumption as percentage of GDP went up from the already worrying figure of 91.8% in FY14 to 94.5% in 2018. Correspondingly, total gross investment (that includes government investment also) in Pakistan was reported at just 16.4% of GDP in FY18 whereas India’s figure stands at close to 30% and Bangladesh is at 31% of GDP. Additionally, our spur of consumption spree was associated with policies in the past that instead of channeling the countries resources into savings, investments and industrialization further aggravated the problem of private investment. And here’s how:

To begin with, we saw a very visible deterioration in the economy’s fundamentals as the country exited the last IMF program in 2016 and all forms of fiscal and monetary discipline were abandoned. What this means is that we were fuelling growth in the economy by spending from resources that we did not have. For example, in the last financial year alone, RS 1300 billion of government spending was financed by printing money and monetization of public debt. The previous government was also happy to ask FBR to withhold genuine refunds to the tune of hundreds of billions of Rupees of businessmen and entrepreneurs that further squeezed their working capital and halted all their expansions. This whole model broadly represented the previous government’s fiscal policy and it’s no surprise that it fuelled only consumption growth. And it also led to whopping RS 2300 billion or 6.6 % of fiscal deficit in the system i.e. the excess of government spending over government’s income.

Now let’s take a look at the monetary side. In the first 4 years of the previous government, the Real Exchange Rate (the buying power of the currency in comparison to other currencies) appreciated by 28% without any improvement in the trade deficit to justify this increase. This means that our exports became that much uncompetitive in the international markets and we began subsidizing our imports. This led to the closure of hundreds of export houses and fuelled a largely consumption led increase in our imports. From a point where we had a Current Account deficit of just USD 2.5 BN in 2013, the figure soared to USD 19 Billion in 2018.

The second aspect of monetary policy is Interest Rates. The interest rates were kept low in the past but that also did not translate into any notable increase in private sector borrowing, the loans that our entrepreneurs use for investments and setting up businesses and industry. The reason that private sector was not advanced these loans by the banks is that the government was doing what the economists call ‘crowding out’ the private sector. The banks were more than happy to lend to the government in the form of Treasury Bills. So in effect, the lower interest rates actually did not lead to any investment and the whole monetary scheme of things further fuelled the consumption spree.

The result of the above mentioned fiscal and monetary policies was not surprising for any economist. The country came on the verge of bankruptcy at the close of the last financial year (FY2018). Once both the IMF program ended and oil prices began to rise, the superficial nature of the whole economic model unfolded and the State was left with nothing to finance its fiscal expenditures and its huge import bill.

So what has the new government done about this? And what does it plan to do in order to make sure that the repeat of the above does not take place?

Riaz Haq said...

#Saudi #investments at #Gwadar port will soon be announced in #mining, #energy, #oil, #electricity, #renewable #energy sectors in #Pakistan. #Saudi delegation of #businessmen, #investors, members of #trade and #industry chambers visiting #Gwadar. #CPEC https://aawsat.com/node/1530696

A delegation of Saudi businessmen, investors and members of trade and industry chambers visited Wednesday Pakistan’s Gwadar port, the main hub for the China Pakistan Economic Corridor linked to the Silk Road initiative.

During the visit, the delegation reviewed investment opportunities at the port as well as in the special economic zones created by the Economic Corridor.

Saudi ambassador to Pakistan Nawaf al-Maliki indicated that Gwadar has many commercial and investment benefits for Saudi investors.

He pointed out that the Pakistani government promised to provide them with incentives and services.

Maliki stressed that the Kingdom is keen to invest in the Economic Corridor, saying Saudi investments at Gwadar port will be announced soon, a move that contributes to boosting Pakistan’s economic stability.

Adviser to the Saudi Minister of Energy, Ahmed al-Ghamdi, told Asharq Al-Awsat that the Saudi-Pakistani Coordination Council for Economic Collaboration will inform businessmen and other government agencies in Saudi Arabia about investment opportunities in the Pakistani port.

“Saudi Arabia is seeking to find an investment opportunity in Pakistan in general and in the port (Gwadar) in particular given its strategic area,” he said.

The adviser revealed that several Saudi state projects in mining, energy, oil, electricity and renewable energy, are underway in Balochistan province.

For his part, a member of the Council of Saudi Chambers, Khalil Mansour al-Afraa, stressed that the Council’s efforts come in tandem with the search for investment opportunities in industry and infrastructure by Saudi businessmen.

Afra revealed to Asharq Al-Awsat that an exhibition for businessmen from Pakistan and China will be held at the port in March.

Riaz Haq said...

#Pakistan asks #China to diversify #investments, PM adviser Razzak Dawood says. Country wants more #Chinese money in #agriculture, #industrialization and #education. #CPEC https://asia.nikkei.com/Spotlight/Belt-and-Road/Pakistan-asks-China-to-diversify-investments-PM-adviser-says

So far, most CPEC projects have focused on power and infrastructure. But Dawood said the country has actually canceled some power projects due to them being "too large and unnecessary."

"Now, we are saying, 'No thank you.' Pakistan is asking China to look at industrialization, agriculture and education in line with the CPEC," he explained.

He said Pakistan have to diversify CPEC projects. After being criticized about its loan shark-like tactics related to the Belt and Road Initiative, China has been reconsidering its approach. An expert in Chinese politics pointed out, "Now the Chinese leadership is reviewing CPEC by mobilizing their research institutes. They are paying much more attention to the situations in recipient countries and their sentiment toward China."

Pakistan is going through hard times. The country has suffered a severe financial crunch due to huge expenditures on infrastructure, especially in the power sector, and too many imports of electrical equipment, steel products and other necessities related to the CPEC. As a result, its current-account deficit has skyrocketed and foreign reserves have dropped to their lowest level in four years.

In its latest outlook, the International Monetary Fund sees Pakistan's economic growth slowing to 4% in 2019. But Finance Minister Asad Umar recently pointed out that the economy is already on the road to recovery.

Dawood explained that Umar is not talking about growth rate, but about stabilizing the economy. "We will go through a period of lower growth for one or two years, then our economy will pick up," Dawood said.

Now, both domestic industrialists and foreign investors are closely watching the country's negotiations with the IMF over an $8 billion bailout package.

Dawood stressed, however, that Pakistan is not relying solely on the IMF. "We are approaching friendly countries, that is, Saudi Arabia, the United Arab Emirates and China, " he said. Pakistan has already confirmed receiving aid packages from Saudi Arabia and UAE.

According to Dawood, Pakistan "will make necessary arrangements" to overcome its current difficulties.

The country is also trying to meet the IMF's call for tax reform. Dawood noted Pakistan has introduced a reform package that includes simplification of tax layers and the rebalancing of direct and indirect taxes. "The informal sector does not pay tax, so widening the tax net is important," he said.

This autumn, the country launched the "Make in Pakistan" initiative to boost exports, cut the trade deficit and develop the country's skills. "We are giving incentives again to manufacturing in Pakistan. We also reduced custom duties, and are talking a lot to get market access to China, Indonesia, Malaysia and so on," he said.
Pakistan is pinning its export hopes on manufactured goods like motorcycles, tractors, refrigerators, washing machines and transformers. It also hopes to tap into the global demand for information technology products and workers. "We have around 35,000 technical graduates every year," Dawood pointed out. "We know competition is very tough, but now Pakistan is exporting $3 billion of IT services and software annually."

Regarding foreign investment in Pakistan, Dawood gave some examples. "Unilever, Coca-Cola, Telenor and Suzuki Motor have made investments. Now, Exxon Mobile has re-established its office in Pakistan after more than 20 years, and announced a $250 million investment."

Riaz Haq said...

#Pakistan, #UAE finalize $6.2 billion #support package expected to be announced by Crown Prince Sheikh Mohammed bin Zayed Al Nahyan during his visit to #Islamabad starting on Sunday (Jan 6). It includes $3.2 billion deferred oil payments, $3 billion cash. https://www.dawn.com/news/1455585

He said the UAE’s package was exactly of the same size and terms and conditions as given by Saudi Arabia. The UAE package was finalised on Thursday evening, he said.

With this, Pakistan would get a total saving of about $7.9bn on oil and gas imports from the two friendly countries — accounting for more than 60 per cent of annual oil import bill of about $12-13bn, he said. This includes about $3.2bn each of oil supplies on deferred payments from the UAE and Saudi Arabia and about $1.5bn trade finance from the International Islamic Trade Finance Corporation (ITFC).

The total financing support from the UAE and Saudi Arabia, including the ITFC’s trade finance, would be around $13.9-14bn when cash deposits of $3bn each from the two countries were also included, he said.

This is in addition to a deep-conversion oil refinery to be set up by Parco — a joint venture of Pakistan and Abdu Dhabi — worth $5-6bn at Khalifa Point and an expected petro-chemical complex by Saudi Arabia at Gwadar Oil City.

On top of that, the government has also started backchannel discussions with Qatar for some relief in terms of reduction in LNG prices or a relaxed payment schedule, but that is now at an early stage.

In reply to a question, the cabinet member said Pak­istan was deepening relationships with all three friendly Islamic nations without compromising bilateral ties for geo-political reasons.

He said the UAE crown prince would be paying a two-day visit, adding that all arrangements had been finalised in this regard.

He said Saudi Crown Prince Mohammad bin Salman was expected to arrive in the country in the first week of February and an MoU for establishing a petro-chemical complex was still being worked out on the request of Riyadh.

Pakistan has already received $2bn in cash deposit from Saudi Arabia at an interest rate of 3.18pc while the third tranche of $1bn is due in the first week of February. The Saudi oil facility would also start rolling out this month with an average $274 million per month.

Pakistan is currently importing about eight cargoes of LNG every month, costing $4.2 to $4.5bn a year and more than one-third of this could be financed through ITCF support. With support from Qatar, Pakistan is expecting about $9bn cushion in total oil and gas import bill.

Riaz Haq said...

#Saudi to set up $10 billion #oil #refinery in #Pakistan."#SaudiArabia wants to make Pakistan's economic development stable through establishing an oil refinery and partnership with Pakistan in #CPEC" Saudi Energy Khalid al-Falih told reporters in #Gwadar https://cnb.cx/2TJMPDz

Saudi Arabia plans to set up a $10 billion oil refinery in Pakistan's deepwater port of Gwadar, the Saudi energy minister said on Saturday, speaking at the Indian Ocean port that is being developed with the help of China.

Pakistan wants to attract investment and other financial support to tackle a soaring current account deficit caused partly by rising oil prices. Last year, Saudi Arabia offered Pakistan a $6 billion package that included help to finance crude imports.

"Saudi Arabia wants to make Pakistan's economic development stable throughestablishing an oil refinery and partnership with Pakistan in the China Pakistan Economic Corridor," Saudi Energy Khalid al-Falih told reporters in Gwadar.

He said Crown Prince Mohammad bin Salman would visit Pakistan in February to sign the agreement. The minister added that Saudi Arabia would also invest in other sectors.

Beijing has pledged $60 billion as part of the China Pakistan Economic Corridor (CPEC) that involves building power stations, major highways, new and upgraded railways and higher capacity ports, to help turn Pakistan into a major overland route linking western China to the world.

"With setting up of an oil refinery in Gwadar, Saudi Arabia will become an important partner in CPEC," Pakistan Petroleum Minister Ghulam Sarwar Khan said.

The Saudi news agency SPA earlier reported that Falih met Pakistan's petroleum minister and Maritime Affairs Minister Ali Zaidi in Gwadar to discuss cooperation in refining, petrochemicals, mining and renewable energy.

It said Falih would finalise arrangements ahead of signing memorandums of understanding.

Since the government of Prime Minister Imran Khan came to power in August, Pakistan has secured economic assistance packages from Saudi Arabia, the United Arab Emirates and China.

In November, Pakistan extended talks with the International Monetary Fund as it seeks its 13th bailout since the late 1980s to deal with a looming balance of payments crisis.

The Pakistani prime minister's office had said on Thursday that Islamabad expected to sign investment agreements with Saudi Arabia and the UAE in coming weeks.