Showing posts with label State Bank of Pakistan. Show all posts
Showing posts with label State Bank of Pakistan. Show all posts

Thursday, May 5, 2022

SBP Governor Dr. Reza Baqir's 3-Year Term Saw Expansion & Modernization of Financial Services in Pakistan

Pakistan's chief central banker Dr. Reza Baqir's 3-year term saw a broad expansion and modernization of the nation's financial services industry. The impact of Baqir's policies can be seen in multiple sectors including agriculture, housing, manufacturing, exports, financial digitization and record-high investments in technology startups. Supported by Dr. Baqir's accommodative monetary policy during the COVID19 pandemic, Pakistan poverty headcount, as measured at the lower-middle-income class line of US$3.20 PPP 2011 per day, declined from 37% in FY2020 to 34% in FY2021, according to the World Bank's Pakistan Development Update 2022 released this month. The report said Pakistan's real GDP shrank by 1% in FY20, followed by 5.6% growth in FY21.  Pakistan’s economy created 5.5 million jobs during the past three years –on an average 1.84 million jobs a year, which is far higher than yearly average of creation of new jobs during the 2008-18 decade, according to the Labor Force Survey (LFS) published by the Pakistan Bureau of Statistics (PBS). 


SBP Accomplishments on Dr. Reza Baqir's Watch 1. Source: SBP


State Bank of Pakistan's TERF (Temporary Economic Refinance Facility) helped drive double-digit growth in large scale manufacturing (LSM) and its RDA (Roshan Digital Accounts) simplified overseas Pakistanis' investment and boosted the nation's foreign exchange reserves. 

SBP Accomplishments on Dr. Reza Baqir's Watch 2. Source: SBP


Under Dr. Reza Baqir's leadership, the SBP supported the Rozgar Scheme, Loan Extension and Restructuring Package, and RFCC (Refinance Facility to Counter Covid) to deal with the economic impact of the COVID pandemic. To promote digital payments, the SBP waived all charges for customers using online fund transfer services. Further, to ease on-boarding of new customers to use online banking channels, the SBP waived the requirement of biometric verification to activate internet and mobile banking accounts. 

World Bank Pakistan Update 2022:

A World Bank report released in April 2022 credited the PTI government led by former Prime Minister Imran Khan for timely policy measures, particularly the Ehsaas program, for mitigating the adverse socioeconomic impacts of the COVID-19 pandemic. Here's an excerpt of the report titled Pakistan Development Update 2022:  

"The State Bank of Pakistan (SBP) lowered the policy rate and announced supportive measures for the financial sector to help businesses and the Government expanded the national cash transfer program (Ehsaas) on an emergency basis. These measures contributed to economic growth rebounding to 5.6 percent in FY21.  However, long-standing structural weaknesses of the economy, particularly consumption-led growth, low private investment rates, and weak exports have constrained productivity growth and pose risks to a sustained recovery. Aggregate demand pressures have built up, in part due to previously accommodative fiscal and monetary policies, contributing to double-digit inflation and a sharp rise in the import bill with record-high trade deficits in H1 FY22 (Jul–Dec 2021). These have diminished the real purchasing power of households and weighed on the exchange rate and the country’s limited external buffers." 

Digital Banking:

Digital transactions in Pakistan soared 31.1% to Rs. 88 trillion or $500 Billion in fiscal year 2020-21, according to the nation's top central banker. “If the figure is $500 billion now, you can imagine the pace at which we are digitizing,” said Dr. Baqir Raza, Governor of the State Bank of Pakistan, adding that those transactions showed a year-on-year growth of 30.6% in volume and 31.1% in value. The nation's central bank also reported that the large-value payments segment, known as Real-time Inter-Bank Settlement Mechanism (PRISM),  saw growth of 60% by volume and 12.8% by value to Rs. 444.6 trillion or $2.5 trillion in FY 2020-21. There are several factors driving rapid shift to digital technology, including expanding digital infrastructure, new technologies and the government's efforts to document Pakistan's huge undocumented economy. Grey-listing of Pakistan by the Financial Action Task Force (FATF) has also played a role. 


Internet & Mobile Banking in Pakistan. Source: SBP

Digital Transactions Growth: 

Growth in digital transactions was led by major uptake in mobile banking (29% increase in the number of users and 133.6% and 178.7% hike in volume and value, respectively) and internet banking (32% increase in the number of users and 65.1% and 91.7% up in volume and value, respectively), according to the State Bank of Pakistan. “If the figure is $500 billion now, you can imagine the pace at which we are digitizing,” said Dr. Baqir Raza, the head of Pakistan's central bank.“Therefore, there is a huge potential for enhancing financial inclusion,” he added. 

E-Banking in Pakistan. Source: Dawn

Pakistan's central bankers have taken the plunge into the world of digital payments with their own offering: Raast. It aims to create an instant low-cost payment system that can seamlessly and securely connect government entities, a variety of banks, including microfinance banks (MFBs),  electronic money institutions (EMIs) and State Bank authorized payment service providers (PSPs) like 1Link and NIFT which may choose to take advantage of it.  Currency and coins in circulation account for about 43% of Pakistan's total money supply. The introduction of Raast is part of the government's effort to modernize and document the nation's cash-based informal economy. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion. Digital financial services will also promote e-commerce in Pakistan. 

Raast Digital Payment System. Source: State Bank of Pakistan



Raast Digital Payments:

Raast is a system of digital payment infrastructure. It is essentially a pipe that is intended to connect government and financial institutions with consumers and merchants with each other to process payments instantly at very low cost.  

Raast will be boosted by Pakistan government's decision to use it to pay salaries, pensions and pay welfare recipients under Benazir Income Support and Ehsaas Emergency Cash programs. 


It has been developed in-house by the State Bank of Pakistan  in collaboration with Karandaaz, Bill & Melinda Gates Foundation and supported by the World Bank, the British government and the United Nations.

Private Payment Apps:

Several private payment apps, including EasyPaisa and JazzCash, are already operating in Pakistan. These apps lack interoperability with each other. Each operates in its own silo. Neither of these offer links to financial institutions and government entities. 

There are also several EMIs (Electronic Money institutions) in Pakistan. These include NayaPay, SadaPay and Finja.  EMIs are not banks, but can store deposits. These are not tied to any banks or telcos. They could all use back-end plumbing offered by Raast. 

Payment Service Providers (PSPs) :

1Link and NIFT payment and switch networks, supported by different groups of Pakistani financial institutions, currently process the bulk of credit/debit card and ATM transactions as well as e-payments in Pakistan. State Bank's Raast promises to be cheaper and faster than these networks. Raast also offers processing of e-payments by government entities. 

Raast Future Roadmap:

State Bank of Pakistan  intends to demonstrate Raast's usefulness by first processing government payments to individuals, including government employees and Ehsaas welfare beneficiaries, before expanding it for business applications.  SBP’s plan is to start person-to-person (P2P) payments using just the phone numbers in Q3/2021 and then bring merchants on board with QR codes by Q1/2022. 


Summary:

 Dr. Reza Baqir's 3 years as Pakistan's top central banker saw a broad expansion and modernization of the nation's financial services industry. The impact of Dr. Baqir's policies can been seen in multiple sectors including agriculture, housing, digitization and record-high investments in technology startups. Digital transactions in Pakistan soared 31% to $500 billion in FY 2020-21. Among the factors driving rapid shift to digital technology are: expanding digital infrastructure, new technologies and the government's efforts to document Pakistan's huge undocumented economy. Grey-listing of Pakistan by the Financial Action Task Force (FATF) has also played a role.  The State Bank of Pakistan's launch of Raast digital payment infrastructure represents a great leap forward for the use of financial technology (FinTech) and financial inclusion in the  country.  It will also promote e-commerce in Pakistan. Undocumented economy poses a serious threat to the country because it creates opportunities for criminal activities and tax evasion.  Raast is part of the government's effort to modernize payment systems and document the nation's cash-based informal economy. 

Speaking with CNN"s Julia Chatterly, the State Bank of Pakistan Governor Reza Baqar said last year that the Pakistani government is currently studying the idea of issuing central bank digital currency (CBDC). China is showing Pakistan the way with its CBDC. There will be an announcement on the country's CBDC in the next several months. Because CBDC is issued by the central bank, it can help the country fight crime and corruption. Pakistan is also promoting digital payments to enhance financial inclusion and document the economy. Eliminating digital payment fees during the covid pandemic has resulted in 100%-200% jump in such transactions. He said fintech companies and digital payment processors like Stripe are welcome to operate in Pakistan. It has the world's 5th largest population with young demographics offering tremendous growth opportunity.


Here's a brief video of Dr. Reza Baqir's CNN interview with Julia Chatterly:

https://youtu.be/BZ8MAi-_Qb4


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Wednesday, January 21, 2015

State Bank: Pakistan's Actual GDP Higher Than Official Figures Show

"In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM." State Bank of Pakistan Annual Report 2014
Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.
M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE),  explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of  PSLM (Pakistan Social and Living Standards Measurement) consumption data  and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08". 

 And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity in large scale manufacturing sector as their focus in the latest report.  They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census. 

 In the years since 2006 CMI (Census of Manufacturing Industries) census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG).  It's one of several major new sectors whose growth is not reflected in the official GDP figures. 
Pakistan's Processed Foods and FMCG Sector Source: BMA Capital
According to a report by analysts at Pakistan's Topline Securities that examined 25 consumer firms in various sectors, the 2012 sales of the FMCG firms increased by 17% to Rs. 334 billion while profits grew by 40% to Rs. 24 billion. In the five years between 2008 and 2012, sales of these companies showed a compounded average growth rate (CAGR) of 18%, while profits grew at a CAGR of 20%.


Engro Foods, a star performer in the sector, reported 191% increase in profit in 2012 alone, led by the dairy and beverages segment. Other players such as Nestle, Proctor & Gamble and Unilever, have also seen explosive growth with many new plants in production to meet demand. The growth in this sector is not reflected in the LSM component of GDP. 

 Another key area in large-scale manufacturing is plastics industry. Pakistan Plastic Manufacturing Association says there are 6,000 units operating in the country, employing  600,000 people. This sector is producing a broad range of products from household items, industrial containers, medical and surgical items, auto parts, stationery items and PVC pipes. Yet they are not covered in LSM.

The SBP report further explained that the LSM data was not being reported in Pakistan in accordance with the International Standard Industrial Classification (ISIC) of United Nations Statistics Division’s defined 22 broad categories of manufacturing.  The reporting of LSM is limited to only 15 sectors identified by the ISIC while data pertaining to manufactures of apparels, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM.

Pakistan has changed a lot since 2006 in terms of economy and demographics. The World Bank moved Pakistan from a low-income to middle-income country in 2007. Pakistan is much more urbanized and more middle class now than it was in 2006. Pakistan's large scale manufacturing (LSM) sector  has changed to respond to meet the rising new product demands of the country's growing middle class consumers. Its time for Pakistan Bureau of Statistics (PBS) to conduct a new manufacturing census and Pakistan Census Bureau to do a population census to paint a more accurate picture of the country's demographics and economy now.  

Related Links:

 Haq's Musings

 Pakistan's Growing Middle Class

 Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued

 Fast Moving Consumer Goods Sector in Pakistan

3G-4G Roll-out in Pakistan







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Monday, July 14, 2008

Crisis of Confidence Triggers Karachi Stocks Selloff

In spite of cheaper valuations of Karachi stocks from shrinking price earnings multiples relative to other markets, foreign investors in Pakistan continue to be nervous. As soon as the trading range was revised to plus or minus 5%, many investors took advantage to sell their holdings Friday and pushed the KSE-100 down more than 4%. The decline continued this week as the KSE-100 index lost 265.84 to close at 11,695.82. Earlier in the morning, it opened at 11,961.66. This is a far cry from the peak of 15739.25 earlier this year.

"The measures taken on Friday proved to be an exit strategy for foreign investors," Asad Iqbal, managing director at Ismail Iqbal Securities Ltd. told Business Recorder newspaper in Karachi.

Securities and Exchange Commission Chairman Razi-ur-Rehman believes the market has a liquidity crisis and he blamed the bearish trend in the equity market on the State Bank of Pakistan's (SBP) tight monetary policy, which has affected market liquidity.

The State Bank raised interest rates to 12 percent from 10.5 percent in May which hurt the stock market. Traders are expecting another increase in the next scheduled meeting before July 31 to curb inflation and support the rupee.

The rupee ended firmer at 69.50/60 on Monday as sentiment improved slightly after the introduction of stabilization measures last week and on rumors the government may curb imports, traders said, according to Business Recorder. State Bank of Pakistan is reportedly taking steps to arrest the rapid decline in Pakistan's dollar reserves. According to the latest SBP weekly report, the foreign exchange reserves fell to $11.123 billion, down from $15.6 billion at the end of last year.

The State Bank last week moved to stabilize the rupee after it set its weakest ever closing level at 72.85/90 on July 8.

Among the most active stocks Friday, volume leader NIB Bank fell 8.7 percent to 9.69 rupees, Oil and Gas Development Co Ltd shed 5 percent to 110.45 rupees, while Arif Habib Securities was 4 percent lower at 143.49 rupees.

The Karachi stocks had rallied earlier from measures that included a 1-month ban on short selling, a special 30 billion rupee ($446 million) fund set up to stabilize volatility, and revision of the short circuits to 10% on the upside and 1% on the downside, announced June 24, 2008. Please read my post "Karachi Stocks Rally after Ban on Short Selling" to learn more about recent changes at the KSE.
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