Wednesday, May 8, 2019

PTI's New Economic Team Line-Up in Pakistan

Who are the members of Pakistan's top new economic leadership team? Who's Reza Baqir? Who's Shabbar Zaidi? Why were the changes necessary? Were the latest changes made to remove previous PMLN government's loyalists considered to be responsible for the current economic crisis? Did their policies and actions contribute to large twin deficits? Did the International Monetary Fund (IMF) force these changes as a condition for the country's bailout?

Pakistan's External Debt. Source: Wall Street Journal

Pakistan Current Account Deficit. Source: State Bank of Pakistan

As Pakistan awaits the news of the discovery of large offshore oil reserves, what lessons should Pakistan learn from the governance failures in Venezuela? Is Venezuela suffering because of its government's hostility toward the United States? Will large oil reserves be a panacea for Pakistan's economic problems?

Viewpoint From Overseas host Faraz Darvesh discusses these questions with Sabahat Ashraf (ifaqeer) and Riaz Haq (

Related Links:

Haq's Musings

South Asia Investor Review

Pakistan's Debt Crisis

Can Pakistan Avoid Recurring IMF Bailouts?

Expectation of Massive Offshore Oil Discovery in Pakistan

CPEC Financing: Is China Ripping Off Pakistan?

Information Tech Jobs Moving From India to Pakistan

Pakistan is 5th Largest Motorcycle Market

"Failed State" Pakistan Saw 22% Growth in Per Capita Income in Last 5 Years

CPEC Transforming Pakistan

Pakistan's $20 Billion Tourism Industry Boom

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Riaz Haq's YouTube Channel

PakAlumni Social Network


Riaz Haq said...

Workers’ #remittances to #Pakistan up 8.4% to $17.8 billion in 10 months. #Remittances from #Pakistani diaspora in #UnitedStates rose at the fastest rate at 21.8% year-on-year to $2.786 billion in the July-April period of FY2019

Workers’ remittances grew 8.45 percent year-on-year to $17.875 billion in the first 10 months of the current fiscal year as foreign inflows from all the key countries continued to show growth during the period, the central bank's data showed on Friday.

Remittances, which are one of the country’s major sources of foreign currency, amounted to $16.481 billion during the corresponding period a year earlier.

Though overseas workers sent more money home during the period under review than a year ago growth slowed to single digit since March 2019 amid below-than-expected inflows from Saudi Arabia and the gulf countries, the major sources of remittances.

The State Bank of Pakistan’s (SBP) data showed that the highest percentage growth was witnessed from the US as remittances from the country rose 21.81 percent year-on-year to $2.786 billion in the July-April period of FY2019. Remittances from the UK increased 16.61 percent to $2.755 billion. Remittances from Saudi Arabia rose 2.08 percent to $4.175 billion. The country received $3.786 billion from UAE, including Dubai, Abu Dhabi and Sharjah during the July-April period, up 4.04 percent over the corresponding period a year earlier. Remittances from other Gulf Cooperation Council countries including Bahrain, Kuwait, Qatar and Oman, however, fell 5.39 percent to $1.717 billion in the first 10 months.

Home remittances contributed to more than six percent to GDP, equivalent to 85 percent of the country’s exports and more than one-third of imports during the last fiscal year of 2017/18.

The government and the central bank have taken a number of initiatives to promote transfer of home remittances using formal financial channels.

Analysts said blockchain technology-based remittance service – known as digital ledger – would complement the efforts as transfer of cross-border remittances in near real time would bring convenience and facilitation for both remitters and their beneficiaries. Remittances fuel consumer spending and foster the central bank’s foreign exchange reserves.

The country needs to attract more remittance flows due to dwindling foreign currency reserves and higher foreign debt payments. The foreign exchange reserves held by the SBP stood at $8.984 billion as of May 3 compared with $8.805 billion in the previous week.

The government expected financing gap to reach $10 to $11 billion in the next fiscal year of 2019/20 with a new economic assistance program from the International Monetary Fund likely to provide cushion to anemic balance of payment position.

In April, inflow of workers’ remittances stood at $1.778 billion, which was two percent higher than the previous month and six percent up compared to the corresponding month a year earlier, according to the SBP’s official data.

nayyer ali said...

Workers remittances are a double edged sword. They give the country 20 billlion in foreign exchange which allows Pakistan to run a 20 billion dollar trade deficit witout incurring a current account deficit. This masks poor export performance and allows the country to maintain an overvalued exchange rate, which would otherwise be marked to market if these remittances were not covering up a multitude of sins. The rapid growth of remittances allowed Pakistan to get by with little or no export growth for the last decade, which ultimately resulted in the current balance of payments crisis.
If the IMF can force the country to keep the exchange rate undervalued that will boost exports, bring the deficit down, and help to build back up forex reserves. The IMF is also going to demand that Pakistan cut subsidies and spending and remove tax breaks such that Pakistan runs a primary budget surplus (before paying interest on government debt). This will be contractionary in the short run. GDP growth this fiscal year looks like it will be a bit over 3%, and likely about the same next year. After that we should begin to see growth finally pick up in a sustainable way.

Riaz Haq said...

Pakistan agrees to 13th bailout in 30 years from the IMF

"Pakistan is facing a challenging economic environment, with lackluster growth, elevated inflation, high indebtedness, and a weak external position," IMF representative Ernesto Ramirez Rigo said in statement.
"This reflects the legacy of uneven and procyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses. The authorities recognize the need to address these challenges, as well as to tackle the large informality in the economy, the low spending in human capital, and poverty."

Khan met with IMF director Christine Lagarde in February, as he sought to secure funding from the agency despite being a longterm critic of its previous dealings in Pakistan.
The IMF has been criticized in the past for imposing strict austerity on receiver nations, forcing governments to cut social programs and privatize national industries.
Khan has spoken of the need for a major anti-poverty program to boost Pakistan's economy and help its worst off citizens, but this will involve considerable spending that is typically antithetical to the conservative IMF.
These types of restrictions are one of the reasons Khan has been publicly attempting to avoid returning to the IMF to seek more funding. In October, Saudi Arabia agreed to advance Islamabad $6 billion in financial support. But that has not been enough to plug the gaps in Pakistan's economy -- issues Khan inherited and has been struggling to get under control.
The Pakistani Prime Minister has also turned to China for help. Beijing has invested heavily in the country under President Xi Jinping's Belt and Road Initiative.
"I can tell you one thing, the Chinese have been a breath of fresh air for us ... They have been extremely helpful to us," Khan said earlier this year.
China's increasing presence in Pakistan has not been without incident, however. On Sunday, militants attacked a five-star luxury hotel in Gwadar, in Balochistan province. The city is at the center of China's multi-billion-dollar Belt and Road infrastructure project.
Five people were killed in the attack, for which a Pakistani separatist group claimed responsibility, warning of more attacks in China and Pakistan in a post on an unverified Twitter account. CNN could not independently confirm whether the account, which claims to belong to the Baolchistan Liberation Army, is authentic.

Riaz Haq said...

Foreign #investors return to #Karachi #Stock Exchange in #Pakistan with the purchase of $6.9 million of shares yesterday, the second-biggest single-day purchase this year, after the country secures a new #IMF loan. #economy #PTI #KSE100 via @markets

Overseas funds returned to Pakistani stocks on Monday after the nation secured a $6 billion loan from the International Monetary Fund, even as domestic investors fueled the market’s biggest decline this year.

Foreigners bought $6.9 million of shares yesterday, the second-biggest single-day purchase this year. That’s as the benchmark KSE-100 Index fell 2.4% at close, the most in more than five months.

Foreigners “will welcome the loan’s conditions, which mean that policy is going to stay on a credible and reformist path,” said Hasnain Malik, head of equity strategy at Dubai-based Tellimer. The loan “improves foreign investor confidence,” he said.

The agreement with the IMF comes after a sixth-month period that saw rating companies downgrading Pakistan’s credit score and stocks hitting a three-year low. The slump has left the KSE-100 Index trading at a price-to-book ratio of 1.1, the lowest reading in at least a decade, according to Malik.

Riaz Haq said...

Why #IMF bailout? #Pakistan #economy was in crisis when #ImranKhan took office in 2018. Forex reserves plunged by 50% to $7 billion last year, and government was running current-account and budget #deficits of over 5% of #GDP. #PMLN #PTI via @bpolitics

Will this time be different?
Time will tell. Khan has overhauled his economic team, including the installation in May of Reza Baqir, who previously served in senior positions at the IMF, as the central bank governor. His predecessor was fired along with the chief of the tax-collection agency over their “performance.” Khan also appointed Abdul Hafeez Shaikh as his finance adviser after forcing Asad Umar to resign in a cabinet shuffle in April. Much will depend on how successful the new team is in implementing the IMF’s loan conditions and whether measures like higher taxes and energy prices will hurt the prime minister’s political standing.

Does Pakistan have other options?
Khan has also secured $3 billion in financing each from Saudi Arabia, the United Arab Emirates and China. China has been playing a bigger role in Pakistan’s economy, financing billions of dollars of power and road projects as part of its Belt and Road program, funding that typically doesn’t come with the kind of strings attached to IMF loans. In his visit to Pakistan earlier this year, Saudi Crown Prince Mohammed Bin Salman pledged $20 billion in investment in Pakistan, including in an oil refinery, although no agreements have been signed yet.

NICOP said...

Riaz sb, what would be a realistic price for rupee for overseas Pakistanis to send in money. Lost $ savings due to exchange erosion. Do you suggest early withdrawal for Pak Banao bonds?

Anonymous said...

USD 150 pkr where is the export boom?

Riaz Haq said...

Anon: "so where is the export boom?"

Exports are rising in terms of product volume but not in terms of dollar volume because of major currency devaluation right now.

Over time, as rupee stabilizes, the dollar volume will rise.

Read up on J curve.

"Immediately after the devaluation of a currency, the immediate reaction is that exports will remain unchanged while imports will increase. Traders with preexisting contracts with foreign producers and manufacturers will honor their agreements. In the short run, there will be a lag in changing the consumption habits of imports, and there will be an immediate jump followed by a lag until traders stop importing expensive products. The demand for expensive imports and the demand for cheaper exports will be unchanged in the short run, as consumers look for cheaper alternatives.

The long-term implication of currency devaluation or depreciation is that local consumers will switch to comparable locally-produced products. Also, foreign traders will purchase more products that are being exported to their country than they will buy their country’s products. The products exported to their country are relatively cheaper due to the weakened currency value. At this stage, the country experiences the desired outcome of improving the current account balance. The J Curve forms when the country’s currency appreciates and the value of exports become more expensive than the value of imports."

Riaz Haq said...

NICOP: "Do you suggest early withdrawal for Pak Banao bonds?"

I think a better play for expats is to invest in PAK ETF on current weakness.

Foreign investors are net buyers of Pakistani shares right now.

Here's Bloomberg:

Overseas funds returned to Pakistani stocks on Monday after the nation secured a $6 billion loan from the International Monetary Fund, even as domestic investors fueled the market’s biggest decline this year.

Foreigners bought $6.9 million of shares yesterday, the second-biggest single-day purchase this year. That’s as the benchmark KSE-100 Index fell 2.4% at close, the most in more than five months.

Riaz Haq said...

Unilever Chief Shazia Syed "#Pakistan is a land of opportunities..things will start improving after 2nd half of next fiscal year. The limbo won’t last longer than that, because the size of population offers a lot of growth opportunities". #FMCG #economy

"The next twelve to eighteen months are going to be tough, but things will start improving after second half of the next fiscal year. The limbo won’t last longer than that, because the size of population offers a lot of growth opportunities"

"We are optimistic. Pakistan is a land of opportunities. Senior representatives from foreign principals of most of our members recently visited Pakistan, which is a clear sign of interest, and nearly all of our members are in expansion mode. As a country we have to showcase opportunities as well as the areas for improvement, as any mature investor knows that no country is without issues. What makes the difference is how these issues are managed."

It was better to take stock of the situation before going to the IMF, and it is also fine to explore low hanging fruit such as loans from friendly countries because we all know IMF’s conditions do have an impact on growth and welfare.

"As OICCI (Overseas Chamber of Commerce and Industry) , we understand the rationale behind government’s decision to delay the IMF programme, especially considering the rather aggressive statements made by the US officials as well as the whole China-IMF-Pakistan story. I think as a result of the delay, and support from friendly countries, the IMF has mellowed down a bit.
However, it would have been better if a sense of timeline was provided earlier on, such as that the IMF will be reached out to after the budget or in the coming fiscal year. That would have brought clarity to businesses. You may recall there was no clarity of statements about the timing, or whether we were going to the fund at all! That created a little bit of panic in the market during the last few months."

Shazia Syed is the Chairperson & CEO of Unilever Pakistan Ltd who has recently taken charge as the President of the Overseas Investors Chamber of Commerce and Industry (OICCI) for the 2019 term. In her 26 years with Unilever, she has worked across various categories at the company, including three years with Unilever Vietnam as Business Unit Leader for Personal Care, and later as its Vice President. Before Shazia took over as CEO of Pakistan operations in late 2015, she was the Chairperson of Unilever Sri Lanka. Until last year she had also served as a Director of the Pakistan Business Council (PBC).