Pakistan's KSE-100 shares index topped 80,000 points on Wednesday as stocks climbed more than 600 points, making it the world's best performing stock market. The benchmark KSE-100 index has posted an annual return of 89% during FY24 (July 2023-June 2024) in PKR terms while in US dollar terms, the return was 94%, as the Pakistani rupee appreciated against the US dollar, according to Pakistani media reports. This outstanding market performance is generally being seen as a consequence of a series of unpopular decisions by the military-backed government of Prime Minister Shahbaz Sharif to carry out economic reforms to win the IMF support.
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| Pakistani Stock Market Outperforms Asian Peers. Source: Bloomberg |
Specifically, some analysts attribute the record increase in Pakistani share prices to multiple factors, ranging from the government's investor-friendly budget to the expectation of closing a longer term IMF deal. Others believe the relatively low price-earnings (P/E) multiples of Pakistani stocks make them attractive to investors.
Awais Ashraf, director of research at AKD securities, attributed the stocks upward momentum to “expected entry into the larger IMF program and expected monetary easing boosting investor confidence in equities”, according to Dawn newspaper.
“The majority increase in return is attributed to re-rating of Price to Earning (PE) from 2.2-2.4x in June 30, 2023 to 3.94x in Jun 28, 2024,” said a Pakistani investment firm Topline Securities in its report. It attributed the PE multiple re-rating to “improving economic indicators, i.e. increase in exports and remittances by 11% and 9%, respectively in 11MFY24, decline in inflation from peak of 38.0% in May-23 to 11.8% in May 2024.”
Foreign portfolio investors are coming back to Pakistan’s debt and equity markets after a prolonged absence, marking a significant shift in market sentiment, according to a report in The Express Tribune newspaper. The short-term external investment has surged by a remarkable 84%, catapulting to a 30-month high, now standing at Rs 501.30 billion (US$ 1.8 billion) .
There is a distinct difference in how the new budget, compliant with the IMF requirements, has been received by the ordinary public compared to the investor class. Higher taxes on consumption in the new budget have angered most consumers but the prospects of lower fiscal deficits and significant macro-economic improvements are generally being welcomed by investors. The government, backed by the Pakistani military, sees the need to improve the macro-economic indicators as essential to improving the long-term health of the national economy.
Related Links:
Haq's Musings
South Asia Investor Review
Why Hasn't Pakistan Economy Grown Faster the 5% Average Since 1960s?
Pakistan to Swallow IMF's Bitter Medicine
Agriculture: A Bright Spot in Pakistan's Economy
Meat and Dairy Revolution in Pakistan
Pakistanis Consuming More Calories, Fruits and Vegetables
Eid ul Azha: Multi-Billion Dollar Urban-to-Rural Transfer
Pakistan's Rural Economy
Pakistan Among World's Largest Food Producing Countries
26 comments:
"The government, backed by the Pakistani military, sees the need to improve the macro-economic indicators as essential to improving the long-term health of the national economy." - Mr Haq
IMF Data per capita PPP $ (* estimate)
2000 2010 2020 2024*
Bangladesh 1703 3144 6384 9416
India 2087 4216 6508 10123
Pakistan 2880 4341 5539 6955
Mr Haq, not being critical here but, what should Pakistan be doing to change course? Importantly as well, what went wrong structurally that led to this point?
I fear I'm cutting in here, but I think the short answer to "what went wrong" can be seen in the first sentence you have quoted itself - "The government, backed by the Pakistani military". Civilian setups in Pakistan seem more worried about when their khaki backers would pull the rug from under their feet than about implementing necessary structural changes and reforms. Unless Pakistan's political class feel confident that their mandate comes from voters, and not from an unelected, unaccountable "establishment", things would only keep going south. Economic reforms aren't easy. In any chaotic democracy with multiple political actors, stakeholders and vested interests it would require difficult consultations as well as decisive actions that may prove unpopular with sections of the society. Governments may fear backlash from voters and their support bases, but the last thing they need to fear is being pulled down by unelected forces. The civilian setups in Islamabad know that they are at the mercy of someone else and that they may not complete their terms. So instead of performing the long-overdue surgery on the country's chronic economic woes, they try to apply band-aids and pass the buck to the next setup that would be anointed by the powers-that-be.
GDP estimates provided by member states to the IMF are not always comparable, especially if a member state has made significant and unusual changes to their national income accounting methodology, such as India.
India made fundamental changes to its methodology for estimating its GDP (that it then provides to the IMF) in 2015 from the 2011-12 base year. This has led to a well-documented and studied problem of India having substantially overestimated its economic growth and therefore aggregate GDP.
This methodological problem was already seen as erroneous, with India’s entire national income accounting methodology in need of major revision before the start of this decade, such as this June 2019 Harvard paper by Arvind Subramanian: “ India’s GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications” (https://growthlab.hks.harvard.edu/files/growthlab/files/2019-06-cid-wp-354.pdf).
Here is a shorter related paper by Rajeswari Sengupta (of the Indira Gandhi Institute of Development Research) on this matter as well (highlighting issues with both Indian accounting of GDP at PPP and nominal values): “Some problems with India’s GDP data and the way forward” (https://casi.sas.upenn.edu/sites/default/files/upiasi/Motwane%20grant%20II%2C%20Rajeswari%20Sengupta%20paper.pdf).
One problem (amongst others) is how the GDP deflator used by India’s Central Statistics Office (CSO) shifted from a volume based one, to a value based one. This was in addition the CSO not changing its existing practice (unlike much of the world) to use “single deflation” not “double deflation”; the CSO gave no explanation for this decision.
For several years after this change to the 2011-2012 base year, GDP growth in India was overestimated by 2.5-3% a year, which compounded over more than a decade can lead to substantial overestimation of India’s current GDP. Even this does not fully convey the overestimation. The overestimate of GDP growth by 2.5-3% a year was noted in 2019, so it does not fully take into account the wrenching effects of the even greater distortions in the Indian economy caused in the last few years (Demonetisation (2016), GST (2017), Covid lockdowns). These distortions disproportionately impacted and continue to impact India’s large and poorly documented informal sector (where most Indians work). However, estimations of this sector’s economic growth by India’s CSO have been absurdly assuming the same growth rate for the informal sector as for the (already overestimated) formal sector in all years since the 2011-2012 base year!
Fair enough. Perhaps you can shed some light into how China calculates it GDP, and how reliable its advertised numbers are as well? And while Pakistanis are busy questioning India's economic numbers to make Pakistan's own abysmal economic indicators not look so bad, perhaps they can also explain how India manages to maintain over $600 billion in forex reserves (which is more or less in proportion to its advertised GDP numbers and is one-fifth or one-sixth that of China's) while Pakistan struggles to keep it even above $10 billion without requesting deposits from Chinese and Saudis?
Savings at 47-Year Low, Subdued Consumption, Low Wages, Job Woes: The Troubles Facing India's Economy
India’s household net financial savings in fiscal year 2023, as a percentage of gross domestic product (GDP), was at 5.3% – the lowest in around five decades.
Between FY12 and FY22 (excluding the COVID-19 year FY21), the net financial savings hovered between 7-8%, the Financial Express reported.
This is not a new revelation as these numbers were released by the Reserve Bank of India in September last year. However, the finance ministry, at the time, had said that “changing consumer preference for different financial products” was the real cause for decline in net financial savings of households. And therefore, these numbers are not a sign of rural distress.
https://thewire.in/economy/savings-at-47-year-low-subdued-consumption-low-wages-job-woes-the-troubles-facing-indias-economy
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Digging deeper: Do India’s stunning 8.4% Q3 GDP numbers have more to it than what meets the eye
"The numbers released by the Ministry of Statistics and Programme Implementation (MOSPI) show a 10-year high divergence that economists see as contradictory.
Apart from the Gross Domestic Product (GDP), it is the Gross Value Added (GVA) that helps decipher how well a country’s economy is performing. GVA helps calculate the performance from the supply side of things. Simply put, GVA is GDP excluding indirect taxes and subsidies.
India's GVA growth moderated to 6.5 per cent on an annual basis in Q3FY24, in line with economists’ expectations. India’s GVA has slowed down in Q3 from 8.2 per cent in Q1FY24 and the upward revised figure of 7.7 per cent in Q2FY24.
Syed: "This has led to a well-documented and studied problem of India having substantially overestimated its economic growth and therefore aggregate GDP"
Similar to India's high GDP estimates unsupported by the underlying data, Bangladesh's GDP growth figures are also not supported by the underlying data.
Please read the following by Bangladeshi economist Prof MA Taslim published in 2021:
A reduction in export is a reduction in export production and hence, in GDP. Nearly nine-tenths of the imports of the country is production-related, viz. capital machinery, intermediate and primary inputs. A reduction in their import necessarily implies a reduction in production or in inventories.
Tax revenues, particularly VAT, are strongly related to income and hence, GDP. Bangladesh Bank data show that the GDP growth rate was always positive during the last four decades. The growth of the tax revenue was also positive and mostly much above the GDP growth rate except for the year 2019-20 when it turned negative despite a fairly robust estimated growth. The past trends would suggest a larger reduction in GDP growth unless the tax shortfalls are blamed mainly on increased corruption or inefficiency of the tax collection authority.
A higher economic growth normally leads to a higher demand for electricity. The failure to provide electricity stifles growth. This was the logic behind the emphasis on rapid expansion of electricity generation in recent years. It increased every year during the last dozen years except for 2019/20 when the average maximum generation declined by 1.2 per cent (not shown in Table), and so did the sales revenue of PDB by 2.5 per cent. To highlight the impact of the Covid-19 pandemic the table also shows the reduction in demand in the April-June quarter of 2020 when the government had imposed a lockdown of sorts. The electricity demand sharply declined by 10.5 per cent over the same quarter of 2019. In contrast, the demand had increased by 15.8 per cent in the same quarter of 2018.
https://thefinancialexpress.com.bd/views/views/is-gdp-growth-overestimated-1611505242
Vineeth: "perhaps they can also explain how India manages to maintain over $600 billion in forex reserves"
I wrote a blog post about back in 2021.
So how did India manage to build over $600 billion in US dollar reserves? The top contributor to India's reserves is debt which accounts for 48%. Portfolio equity investments are known as “hot” money or speculative money flows accounted for 23% of India's forex reserves, according to an analysis published by The Hindu BusinessLine.
While India has accumulated the largest forex reserves in its history, its debt to GDP ratio is also nearing an all-time record of 90%, the highest in the South Asia region. India's debt has risen by 17% of its GDP in the last two years, the most of any emerging economy. By contrast, Pakistan's debt to GDP ratio has increased by a mere 1.6% to 87.2% from 2019 to 2020.
https://www.riazhaq.com/2021/12/how-does-india-build-large-forex.html
IMF Warns India on Debt Concerns, Says It May Exceed 100% of GDP
https://thewire.in/government/imf-warns-india-on-debt-concerns-says-it-may-exceed-100-of-gdp-centre-disagrees
The IMF said that long-term risks are high because the country needs considerable investment to improve resilience to climate stresses and natural disasters.
The International Monetary Fund (IMF) has warned that India’s general government debt may exceed 100% of gross domestic product (GDP) in the medium term, Business Standard reported, saying that long-term risks are high because the country needs considerable investment to improve resilience to climate stresses and natural disasters.
“This suggests that new and preferably concessional sources of financing are needed, as well as greater private sector investment and carbon pricing or equivalent mechanism,” the IMF said in its annual Article IV consultation report.
"So how did India manage to build over $600 billion in US dollar reserves? The top contributor to India's reserves is debt which accounts for 48%. Portfolio equity investments are known as “hot” money or speculative money flows accounted for 23% of India's forex reserves.."
Considering the size of its advertised economy, why has Pakistan been unable to attract these "speculative money flows" like India did and is struggling to keep its reserve levels even at $10 billion while India keeps it comfortably above $600 billion?
"India's debt has risen by 17% of its GDP in the last two years, the most of any emerging economy. By contrast, Pakistan's debt to GDP ratio has increased by a mere 1.6% to 87.2% from 2019 to 2020."
I must confess I'm no economist, and I have no clue how this "debt" thing works for a country, and how much debt would actually be considered "normal" and how much would be "unsustainable". But you might be able to explain in layman terms why everyone seems to be talking about the imminent risks about Pakistani economy going bankrupt without an IMF program while none seems to be talking about such risks for India. With regard to Pakistan, economists seem to be no longer talking about growth risks but about averting a sovereign default. The only time we heard that talk in India was back in 1991.
Vineeth: "Considering the size of its advertised economy, why has Pakistan been unable to attract these "speculative money flows" like India did and is struggling to keep its reserve levels even at $10 billion while India keeps it comfortably above $600 billion?"
Simple answer is geopolitics. The US sees India as a counterweight to China. It is encouraging western investors to invest in India. Pakistan is no longer a key US ally. It's seen as being closer to China.
You may argue that investors are looking at India based on merit alone given its massive population now bigger than China's. But Warren Buffet's late partner Charlie Munger didn't see it that way. Here's what he said last year:
“Now you turn to India. And I would say, I’d rather work with a bunch of Chinese than I would the Indian civilization mired down, caste system, over-population, assimilated the worst stupidities of the democratic system, which by the way Lee Kuan Yew avoided, it’s hard to get anything done in India. And the bribes are just awful"
His firm Berkshire Hathaway did have some investment but it exited.
It was previously invested in India's One 97 Communications Ltd, which owns the payments company Paytm, but exited it through a $164 million block deal last year. For future investments in India, Buffett said that it's “something that more energetic management at Berkshire could pursue.”
“The question is do we have any advantage, in either insights into those businesses or contacts that will make possible some transaction that parties in India would particularly want us to participate,” Buffett said
Are you telling me Pakistan is struggling to maintain even minimum reserves of $10 billion (even as India maintains 60 times as much) just because US is shepherding Western firms to invest in India and not Pakistan? Forget India, and take a look at the list of countries that have more forex reserves than Pakistan at the moment. (In case you struggle to find Pakistan in the list, it is at 80th position below Ivory Coast, Paraguay, Bosnia, Tunisia and North Korea.)
https://en.m.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves
Can geo-politics explain this? The only real difference I see in external situation for Pakistan in recent times is that after US withdrawal from Afghanistan, all the freebies in the form of Coalition Support Funds have dried up. US govt may not be happy with Pakistan, but they aren't going to stop Western firms from investing in the country. And I don't think Western firms are so foolish to bet their money in India just because their governments "encourage" them to. And what about China? If US is no longer "encouraging" Western firms to invest in Pakistan, surely the all-weather friend can step in and shepherd its companies to invest in Pakistan in a big way? Why isn't that happening despite the country's cosy relations with China and its much-hyped strategic location?
Companies invest in a country when they see an economic opportunity and prospect of assured returns for their investments. Likewise, they exit countries when they don't see the anticipated profits. Companies have invested in India and divested from here based on such purely business considerations. For eg: while companies like Suzuki and Kia are investing in India in a big way to increase their production and exports from here, American firms like Ford and GM exited the Indian market due to poor sales. That's how it is. For companies to succeed in any large market, they need to study it and tailor their products for it.
I agree that India is burdened with a notorious and not-so-business-friendly bureaucracy - a vestige from the decades of its state-socialist (aka "license raj") past. But caste system and democracy? Why would businesses even care about that when all that should matter to them is the ease of doing business, profits and the market? Democracies by their very nature can be noisy and chaotic, even more so for a large country of 1.4 billion with many regional and linguistic divides. The only institutional complication that caste system presents in India is in the form of legally-mandated quotas for historically disadvantaged groups ("reservations"). But that reservation system exists only in the public sector and not private ones. Caste system should not be any more of a concern or hindrance for investors like Charlie Munger or Warren Buffet than for the other foreign firms that have invested in India in a big way. I would say linguistic and cultural diversity probably presents a greater challenge for a foreign company in India, as they would need to tailor their ads, marketing, helpline and service systems to handle customers from diverse linguistic and cultural backgrounds. Hindi, for example, would not work in the South and East of the country.
To emphasize, the question here is not why India's forex reserves are at the levels it is, or whether it is unnaturally high (which its not, as it is only in proportion to the size of its advertised GDP), but why Pakistan's forex reserves are abysmally low for an economy of its size when even a tiny landlocked country like Nepal manages to have forex reserves above $18 bn. India's forex reserves have grown in proportion to its GDP, while Pakistan's forex reserves remain in the same levels it was 20 years ago!
Foreign exchange reserves of a country are not an independent veracity check of a country’s GDP. The implication that a country’s GDP and its foreign exchange reserves are two economic variables that must relate to each other as some kind of correlated ironclad mathematical identity, such that foreign exchange reserves must be “in proportion to the size of advertised GDP” is unheard of.
National GDP size is not in of itself determinative of foreign exchange reserves. The fact that India ran out of foreign exchange reserves in the early 1990s does not mean, to state the obvious, that India’s economy in the early 1990s must therefore have been smaller than India’s economy in the decades before that. That is palpably untrue. There is no correlation of this kind between a nation’s foreign exchange reserves and its GDP size. Neither is a nation’s foreign exchange reserves meant to be some fixed percentage of its GDP; there are all over the place as even a cursory glance at national foreign exchange reserves and GDP size can tell.
Elements that drive foreign exchange reserves include factors such as exports and imports (generally always in the negative for India), and capital account movements. India’s foreign exchange reserves are not some gigantic national savings account, but in large part a reflection of obligations representing foreign debt and equity investments of varying durations.
India typically imports more than it exports (its trade balance therefore is negative). Meanwhile, foreign currency enters India and gets exchanged for an Indian rupee denominated asset, which in India’s case has generally been a debt or equity instrument. This is an obligation that can be redeemed at a future point (exchanged back into foreign currency).
This is also why “hot-money” flows into equity or short-term debt instruments are less desirable, as it can exit very quickly (exacerbating a foreign exchange crisis), as opposed to, say, longer term foreign physical investment. There is relatively little of the “Suzuki and Kia” and “Ford and GM” form of physical investment into manufacturing in India’s case; manufacturing actually makes up a smaller proportion of India’s economy than it did 30 years ago. By contrast, China, especially in previous decades, got large amounts of such foreign physical investment; in China’s case, such investment also consistently generated far more foreign exchange for China that the initial foreign exchange investment obligation.
Drivers of such capital account movements are diverse, but absolutely include how favourably placed a nation is in Washington’s (and by extension the West’s) geopolitical estimation, especially after the end of the post-war Bretton Woods System in the 1970s. This typically takes the form not so much of overtly “shepherding” Western firms into some country, but by ostracising undesirable nations by impeding their access to Western corporate investment, thereby increasing the relative merit of other countries for Western corporate investment. This ostracization can be done by restricting undesirable nations’ access to the dollar-based banking system, technology transfer restrictions, supply-chain restrictions, impeded access to Western market via tariffs, outright bans on market access via sanctions, etc, while not having such restrictions for other nations. Does one need to point out the range of measures taken by the US regarding China, Russia, Iran etc? Such measures also penalise non-Western corporate investment into such nations, as those non-Western concerns in turn become subject to Western sanctions. Does anyone really believe “companies invest in a country when they see an economic opportunity and prospect of assured returns for their investments” in the absence of this overarching context?
I didn't say forex reserves of a country will be of certain size or percentage relative to its GDP. I merely said India's forex reserve levels have naturally grown over the years in proportion to the size of its economy and its import needs. Smaller economies with export surplus often have disproprtionately large forex reserves as well. Forex reserves are essentially a hedge against uncertainities in the external environments like wars or a global economic crisis so that the country can pay for its essential imports or debt obligations. And it makes sense that with India's advertised GDP being one-fifth or one-sixth that of China's, it maintains its forex reserves at a similar proportion. But the question none of the Pakistanis here seem to answer is, why is Pakistan with its large $300 bn dollar economy has been struggling to maintain even minimum forex reserve levels (without begging the Chinese and Saudis to make deposits to shore up the reserves, that is). I repeat again: the question here is not whether India's forex reserves are unnaturally large (which its not), but why Pakistan's is so low - over 60 times smaller than India's - when even other economies in the region with economies far smaller than Pakistan's (like Nepal) has been able to maintain higher reserve levels? Pakistan seems to be experiencing the same "balance of payments crisis" as India did back in 1991, except that in Pakistan's case the crisis never seems to end. The country is limping from one IMF bailout to another.
US govt may be unhappy with Pakistan for geo-political reasons and for its duplicity during the "War on Terror" (safe havens for OBL, Taliban etc), but the country is not under any kind of US sanctions unlike China, North Korea, Russia or Iran. US govt is not stopping Western firms from investing in Pakistan. Western investors are staying away due to the country's chronic instability - political, economic and security. For that matter, even Chinese investors are staying away from making big investments in the country. Its only that US is no longer in the mood to give freebies to Pakistan or bail it out as in the past. In all fairness, you cannot blame US for Pakistan's economic woes now. It's clearly self-inflicted.
So, the call center scammers in India are depositing their dollars with India's Reserve Bank now? I see a pattern here. From a typical Pakistani perspective, there can be only three possibilities why India's economy is seemingly doing better than Pakistan and why the country is not behind Pakistan in the queue for an IMF bailout.
(a) Indians are fudging the numbers to fool the world.
(b) Indians are scamming the world with their call centers.
(c) Geo-politics and US conspiracies.
Did I miss something?
By the way, the comment about Indian scam artists reminded me about an old Pakistani news story - Axact (tagline: "World's leading IT company") and its degree mills. I wonder how much of their earnings went to SBP's reserves. :)
Also, manufacturing makes a lesser portion of Indian economy now than 30 years ago not because the manufacturing sector contracted, but because the services sector like IT expanded rapidly during the 1990s. India's manufacturing sector is still large by regional standards (eg: automotive manufacturing) but looks small only in comparison to China. Again here I see the 1:5 or 1:6 proportion between the two economies. India's yearly production of automobiles is one-fifth that of China, and ranks 4th behind China, US and Japan.
https://en.m.wikipedia.org/wiki/List_of_countries_by_motor_vehicle_production
Pakistan clinches IMF bailout deal, to raise tax on farm income | Reuters
https://www.reuters.com/markets/asia/pakistan-shares-hit-fresh-record-after-new-imf-deal-2024-07-15/
The new agreement introduced increased tax on agricultural incomes, underscoring the need to increase government revenue and reduce recurrent deficit to win the lender's approval.
The IMF said it had got assurances from Pakistani authorities - provincial and federal - that they would bring taxation on agricultural incomes on par with corporate and other tax rates.
Agricultural income has historically been taxed much lower than other sectors, despite contributing 23% to the GDP, employing 35% of the labour force, and bringing in an annual income of around 9 trillion Pakistani rupees ($32.37 billion).
Under the IMF deal, the highest effective tax rate can rise to as much as 45% from the current 15%. It will be implemented from 2025, a move that was termed "unprecedented" by brokerage and investment banking firm JS Global.
"These changes could contribute to inflation, particularly in food prices, affecting consumers nationwide," said Ghasharib Shaokat, head of product at Pakistan Agriculture Research, adding that larger farmers will be affected more.
Inflation averaged close to 30% in FY23 and 23.4% in FY24, which ended on June 30.
Policymakers have long wanted to do this, but were unable because Pakistani governments do not want to risk their popularity among the rural voter base, said Vaqar Ahmed of the Sustainable Development Policy Institute, a think tank.
"Most of the good reforms for fiscal consolidation, unfortunately, have not come as a result of our own political will and have come as a result of external push," he said.
Prime Minister Shehbaz Sharif's government is also based on a weak coalition and faces political pressure of a popular jailed opposition leader, former premier Imran Khan.
But Sharif says his government is committed to tough but unavoidable reforms.
Pakistan has been struggling with boom-and-bust cycles for decades, leading to 22 IMF bailouts since 1958. Currently the IMF is fifth-largest debtor, owing $6.28 billion as of July 11, according to the lender's data, opens new tab.
The latest economic crisis has been the most prolonged and has seen the highest ever levels of inflation, pushing the country to the brink of a sovereign default last summer before an IMF bailout.
The conditions of the programme have become tougher. The latest bailout is aimed at cementing stability and inclusive growth in the crisis-plagued South Asian country, the IMF said.
A source close to negotiations with the IMF told Reuters that the agriculture income tax was agreed weeks ago, but was deliberately not highlighted by the government because of the sensitivity of the matter.
The IMF has said the SLA agreement is subject to approval by its executive board and the confirmation of necessary financing assurances from Pakistan's development and bilateral partners.
This would include rollovers or disbursements on loans from Pakistan's long-time allies Saudi Arabia, the United Arab Emirates and China.
($1 = 278.0000 Pakistani rupees)
‘Pakistan’s coalition govt to last just 18 months’ amid political turmoil: Fitch report
https://pakobserver.net/pakistans-coalition-govt-to-last-just-18-months-amid-political-turmoil-fitch-report/
American credit rating agency Fitch shared a worrisome report about Pakistan’s current political instability that could hinder economic recovery.
In its latest Country Risk Report, Fitch Business Monitor International highlighted the critical condition of Pakistan’s economic recovery, pointing out that political turmoil will affect economic activities.
The report pointed out unstable political situation, with Pakistan Tehreek-e-Insaaf (PTI) founding chairman and former Prime Minister Imran Khan expected to remain behind bars despite legal victories.
It said the PML-N led coalition government will remain in power for next 18 months, with no immediate plans for new elections. Fitch also mentioned a potential scenario where a technocratic administration could take over if the government changes.
This implies that Pakistan will continue to implement IMF-mandated reforms, enabling the economy to grow by 3.2% in 2024/25. The report projects that the policy rate could reach 16 percent this fiscal year and 14 percent next year, while the exchange rate has stabilized beyond expectations.
USD is expected to reach Rs 290 by the end of this year and Rs 310 next year, the report said. Achieving budget targets under the IMF program is considered challenging, although the fiscal deficit is expected to decrease from 7.4 percent to 6.7 percent, it added.
Fitch also warned that another flood or natural disaster could significantly threaten the already fragile economy.
Pakistan’s current account posts deficit of $681mn in FY24 - Markets - Business Recorder
https://www.brecorder.com/news/40313476
Pakistan’s current account posted a deficit of $681 million in FY2023-2024, massively lower by 79% than the deficit of $3.275 billion in the previous fiscal year, revealed data released by the State Bank of Pakistan (SBP) on Friday.
The CAD amounts to 0.2% of GDP, which is the lowest in the last 13 years, said brokerage house Arif Habib Limited (AHL).
“This significant decline was driven by a 6% reduction in the trade deficit and an 11% increase in remittances,” it added.
In FY24, the country’s total export of goods and services amounted to $38.9 billion. Imports clocked in at $63.3 billion during the period, according to SBP data.
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Pakistan's IT exports up by 24% to $3.2bn in FY24 - Profit by Pakistan Today
https://profit.pakistantoday.com.pk/2024/07/19/pakistans-it-exports-surge-by-24-to-reach-us3-2-billion-in-fy24/
Pakistan's IT exports surge by 24% to reach US$3.2 billion in FY24. In a significant economic development, Pakistan's Information Technology (IT) exports have soared to US$3.2 billion in the fiscal year 2024, marking a robust 24% year-on-year increase from the previous fiscal's US$2.59 billion.
The latest data, released by the State Bank of Pakistan, underscores the sector’s resilience and growth amidst global economic challenges.
For June 2024 alone, Pakistan recorded IT exports worth $298 million, up by 33% compared to the same period last year. Despite a month-on-month decline of 10%, June’s exports surpassed the twelve-month average of $262 million, highlighting sustained momentum in the sector.
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FY24 exports soar 10.54pc to $30.645bn YoY - Business & Finance - Business Recorder
https://www.brecorder.com/news/40310979
ISLAMABAD: The country’s exports increased by 10.54 percent ($2.921 billion) to $30.645 billion during the fiscal year 2023-24 compared to $27.724 billion in the corresponding period of 2022-23, says the Pakistan Bureau of Statistics (PBS).
The monthly trade data released by the Bureau noted that Pakistan’s trade deficit narrowed down by 12.32 per cent in the fiscal year 2023-24 as it stood at $24.089 billion compared to $27.474 billion during the fiscal year 2022-23.
Imports declined by 0.84 per cent to $54.734 billion during the fiscal year 2023-24 as compared with $55.198 billion in the fiscal year 2022-23.
The data further noted that the trade deficit widened by 30.39 per cent on a year-on-year basis and stood at $2.390 billion in June 2024 compared to $1.833 billion during the same month of 2023.
The imports increased by 17.43 per cent on a YoY basis and remained $4.919 billion in June 2024 compared to $4.189 billion in June 2023. The exports increased by 7.34 per cent on a YoY basis and remained $2.529 billion in June 2024 compared to $2.356 billion in June 2023.
On a MoM basis, the trade deficit widened by 15.13 per cent to $2.390 billion in June 2024, as compared to $2.076 billion in May 2024. Exports recorded a 10.92 per cent negative growth to $2.529 billion in June 2024 when compared with $2.839 billion in May 2024.
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Remittances in FY24 - BR Research - Business Recorder
https://www.brecorder.com/news/40313433
Remittances to Pakistan grew by 10.7 percent year-on-year in FY24 to $30.3 billion. The annual tally is the second highest in the country’s history at $30.3 billion in FY24 after $31.2 billion in FY22. Remittances during June 24, the last month of the fiscal year stood at $3.16 billion, up by 44 percent on a year-on-year basis, but down by 3 percent on a month-on-month basis.
Pakistan Stocks Near Record High After Biggest Foreign Buying in a Decade – BNN Bloomberg
By Chiranjivi Chakraborty and Faseeh Mangi
https://www.bloomberg.com/news/articles/2024-09-19/pakistan-stocks-hit-record-high-after-biggest-foreign-buying-in-a-decade/
(Bloomberg) -- Stocks in Pakistan closed near their record high on Thursday as robust foreign inflows and improving macro-economic indicators boosted sentiment.Pakistan Stock Exchange’s benchmark KSE-100 index gained 1.1% to close just shy of the previous record of 81,865.10, after touching a new high earlier in the day. The gauge has risen more than 30% this year, aided by foreign investors’ net purchases of $87 million in local shares, the highest since 2014, data compiled by Bloomberg showed. Pakistan’s stock market has been one of the best performers globally this year, buoyed by improving economic outlook and a crucial initial loan deal with the International Monetary Fund in July. In recent months, the nation’s current account balance has improved, and the central bank has slashed interest rates as inflation is easing.That said, the rally faces risks going forward. Pakistan was downgraded to a frontier market status from secondary emerging market by FTSE Russell in July, with the decision coming into effect from Sept. 23. Vanguard Group Inc., which provides investment management and advisory services, is cumulatively holding as much as $160 million worth of Pakistan stocks, and is expected to trim holdings ahead of the new status, Topline Securities Ltd. said in a note this week.
For some market watchers, the stocks still have more room to run, driven by fertilizer and energy shares.Pakistan is still “very cheap for foreign investors” and those investments will continue, more so after the interest-rate cut by the Federal Reserve, said Aqeel Karim Dhedhi, chairman at the AKD Group that includes one of the nation’s largest brokerage houses.©2024 Bloomberg L.P.
86 top companies post record Rs1.7 trillion profit
Despite inflation, high interest rates, and poor output, profits soar by 25% in FY24
https://tribune.com.pk/story/2498512/86-top-companies-post-record-rs17-trillion-profit
Pakistan's top 86 companies, listed on the national stock market, have posted a record net profit of Rs1.7 trillion for the fiscal year ending June 30, 2024, marking a 25% increase despite tough economic conditions, including high inflation, record interest rates, and brief rupee devaluation.
The historic growth in profitability in some large-scale manufacturing industries, including cement, fertiliser, automobile, and chemical sectors at the Pakistan Stock Exchange (PSX), contrasts with their poor volumetric output reported by the Pakistan Bureau of Statistics (PBS). This suggests that these industries sold fewer goods at significantly higher prices, allowing them to navigate the economic crisis.
According to a comprehensive report by Topline Research titled "Pakistan Strategy – Record Corporate Profitability in FY24; Earnings Up 25% YoY; Dividend Up 30% in FY24," net profitability in US dollar terms rose by 10%, reaching $5.8 billion compared to FY23.
The earnings surge was primarily led by the banking sector, which posted Rs591 billion in profits, up 35% year-on-year. The fertiliser sector followed with Rs168 billion in net profit, marking a 75% increase, while the cement sector earned Rs115 billion, rising 38% compared to FY23.
Notably, the PSX was the world's best-performing market in FY24, as the benchmark KSE-100 Index soared by 89%, reaching a record high of 78,445 points, up from 41,453 at the start of the fiscal year. The index hit an intra-day record high of 81,850.5 points in recent weeks, closing at 81,484 points on Tuesday.
Topline Research highlighted that banking sector earnings, which accounted for 36% of the KSE-100 index's total profitability, were driven by higher Net Interest Income (NII), bolstered by elevated interest rates throughout the year. The central bank maintained its key policy rate at a record high of 22% from June 2023 to June 2024, before cutting it by 450 basis points to the current 17.5%.
Fertiliser sector profitability surged by 75%, reaching Rs168 billion, thanks to a 2% increase in urea offtake, a 40% rise in DAP sales, and significant price hikes of 59% for urea and 9% for DAP.
The cement sector saw a 38% increase in profits to Rs115 billion, driven by higher retention prices and lower coal costs, despite a decline in local demand.
Other sectors, such as chemicals, engineering, and refineries, experienced slower earnings growth in FY24, with profitability rising by 38%, 27%, and 25%, respectively. The technology sector reported a loss of Rs5.7 billion, primarily due to losses incurred by Pakistan Telecommunication Company (PTC).
The pharmaceutical sector, however, witnessed a 71% increase in profitability, reaching Rs10 billion, up from Rs6 billion in FY23, mainly due to improved margins following the deregulation of non-essential products and reduced finance costs.
Topline Research analysed 86 companies out of the KSE-100, representing 95% of the market capitalisation.
Firms distribute Rs666 billion in dividends
The top 86 companies announced a combined cash dividend of Rs666 billion in FY24, up 30% from Rs512 billion in FY23. This translates to a 40% dividend payout in FY24, compared to 39% in the previous year.
The payout ratio for the oil and gas exploration (E&P) sector increased from 21% in FY23 to 27% in FY24, as companies saw improved cash flows due to higher gas prices. The banking sector's payout ratio also rose from 42% in FY23 to 47% in FY24, thanks to record profitability.
The banking sector remained the largest contributor to dividends, distributing Rs278 billion, followed by the oil and gas exploration sector with Rs118 billion, and the fertiliser sector with Rs90 billion.
Arif Habib Limited
@ArifHabibLtd
#IPO of BF Biosciences Limited, #Pakistan's pioneering biotech manufacturing facility.
BF Biosciences is a joint venture between Ferozesons Laboratories Limited and Bago Group of Argentina specializing in the manufacture of Hepatitis and Oncology medicines.
• Registration Dates: 23rd - 26th Sep
• Book Building Dates: 25th & 26th Sep
• Floor Price: PKR 55/- per share
• Offer Shares: 25 million
• Transaction Size: PKR 1,375 million - PKR 1,925 million
• EPS (FY24): PKR 5.86
• P/E at floor: 9.38 x (trailing)
The Company will utilize IPO proceeds for the purchase of plant & machinery, acquire export certifications and procure raw and packing materials, for managing working capital needs
The group has agreements with number of international partners including Gilead Sciences, Inc, Boston Scientific and Bago Group.
https://x.com/ArifHabibLtd/status/1838547366007443734
IMF's $7 billion bailout sends Pakistan stocks to new peak
By Gibran Naiyyar Peshimam and Asif Shahzad
https://www.reuters.com/markets/asia/imfs-7-billion-bailout-sends-pakistan-stocks-new-peak-2024-09-26/
IMF approves $7 billion bailout for Pakistan
Pakistan's stock index hits record high of 82,905.73
PM Sharif and IMF's Georgieva emphasize need for reforms
ISLAMABAD, Sept 26 (Reuters) - Pakistan's benchmark share index (.KSE), opens new tab hit a life-time high in opening trade on Thursday, hours after the International Monetary Fund's board approved a long-awaited $7 billion bailout deal for the struggling economy.
The IMF said the new programme will require "sound policies and reforms" to strengthen macroeconomic stability and address structural challenges alongside "continued strong financial support from Pakistan's development and bilateral partners".
An immediate disbursement of about $1 billion will take place, an IMF statement said.
Pakistan's stock benchmark index rose in early trade to a record high of 82,905.73 points, before reversing those gains later in the day to close 0.7% down at 81,657.
"We will need to take difficult decisions if we want to make it our last programme with the IMF," Pakistan's junior finance minister, Ali Pervaiz Malik, told local Geo News TV on Thursday.
Prime Minister Shehbaz Sharif thanked the IMF managing director Kristalina Georgieva and said the country would continue to implement the tough economic reform agenda, he told reporters in New York on the sidelines of United Nations general assembly on Wednesday.
Georgieva congratulated Pakistan for moving forward with "home-defined" reforms.
"The economy is on the sound path," she told reporters after the board meeting. "Growth is up and inflation is down," she said.
Islamabad had been working on implementing conditions, which Sharif had previously called "strict" to secure the 37-month loan programme agreed in July. One condition was to secure additional external financing, which the country was struggling to do.
Local media reported that Islamabad recently signed its most expensive commercial loan ever for $600 million at 11% interest as a last-ditch bid to cover the financing gap and secure board approval.
farrukh saleem
@SaleemFarrukh
1.PSX had a return of 80%
2.Interest rate is down 2%
3.Petrol price is down by Rs57/liter
4.Inflation is down from 37% to 9.5%
5.Sovereign credit worthiness has gone up a notch
6.IMF on track
7.Exports up $3B
8.$12B rollover done
https://x.com/SaleemFarrukh/status/1836725188643454998
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Arif Habib Limited
@ArifHabibLtd
KSE100 Index recorded its highest-ever closing at 82,722
KSE-100 index went up by 755 points (+0.92% DoD) to close at 82,722 pts.
https://x.com/ArifHabibLtd/status/1841801335013859417
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Arif Habib Limited
@ArifHabibLtd
AHL reported that this surge in sales is attributed to rising demand alongside a notable decline in the prices of Motor Spirit (MS) and High-Speed Diesel (HSD), which fell by 20.19% and 20.06% year-on-year, respectively.
https://x.com/ArifHabibLtd/status/1841701062866051564
Petroleum product sales surge 20% in September fueled by increased demand
https://profit.pakistantoday.com.pk/2024/10/02/petroleum-product-sales-surge-20-in-september-fueled-by-increased-demand/
Pakistan's petroleum consumption hits 1.27 million tons, driven by falling prices and robust petrol and diesel offtake
Petrol sales saw a remarkable 22% year-on-year rise, totaling 0.63 million tons in September 2024, up from 0.52 million tons the previous year. Meanwhile, HSD dispatches surged by 25% year-on-year, reaching 0.49 million tons in the same month.
Conversely, Furnace Oil (FO) sales experienced an 18% decline, dropping to 0.07 million tons due to diminished demand for FO in power generation, compared to 0.08 million tons in September last year.
On a month-on-month basis, petroleum product offtake increased by 5% from August’s 1.22 million tons, attributed to lower demand in August due to heavier rainfall.
For the first quarter of FY25, total petroleum product sales fell by 3% year-on-year to 3.68 million tons, compared to 3.81 million tons in the same period last year. While sales of HSD and FO declined, petrol sales remained stable, with volumes recorded at 1.85 million tons for petrol, 1.42 million tons for HSD, and 0.21 million tons for FO.
Company-wise, Pakistan State Oil (PSO) reported an 8% increase in offtake for September 2024, totaling 0.55 million tons. Additionally, HASCOL and Shell Petroleum saw substantial growths of 76% and 17% year-on-year, respectively, while Attock Petroleum Limited (APL) experienced an 8% decline in dispatches.
The case for agriculture exports - Business - DAWN.COM
https://www.dawn.com/news/1845946
In 1990, Pakistan’s exports-to-GDP ratio was around 14.8pc, which was significantly higher than that of China, India, and Bangladesh. Over the last three decades, these countries have predominantly experienced export-led growth, resulting in increased exports-to-GDP ratios of 19.7pc, 21.9pc, and 13.2pc, respectively, in 2023, as per World Bank data.
Unfortunately, due to flawed economic policies and the misplaced priorities of successive governments, Pakistan has bitterly failed to achieve export-led growth. Particularly during the Nawaz Sharif regime (2013-2017), the dollar exchange rate was artificially capped at Rs100 for four years. This policy made imports cheaper, leading to a surge in imports while exports declined.
In fact, the policy shook the very foundation of Pakistan’s export sector and disrupted the value chains of exportable products. While the intention was to keep inflation in check and to win the country’s next election — a short-term political gain — it came at the expense of long-term export growth. Consequently, Pakistan transitioned to a consumption-based economy, and the business community shifted its investment focus from manufacturing to trading and real estate sector.
The government, however, continued to collect taxes and duties on imports — a hassle-free method of tax collection and boosting revenue — without acknowledging that it came at the cost of a massive current account deficit. As a result, Pakistan’s export-to-GDP ratio decreased from 12.2pc in 2013 to 8.2pc in 2017, according to World Bank data.
Now, with the exception of some niche markets, Pakistan is struggling to increase its exports. The manufacturing sector feels incapacitated in maintaining its competitiveness in global markets due to a high policy rate of 20.5pc, electricity costs three times higher than those in neighbouring countries, and, to top it all off, frequently changing trade policies and tax regimes.
Historically, our manufacturing sector, particularly the textile sector, has relied on the government’s subsidies and incentives, which have hindered productivity, product diversification, and product quality improvements to the level needed to compete in global markets.
As the government withdraws these tax-related concessions and other incentives due to the financial crisis, manufacturers and exporters openly state that they will relocate their businesses to other countries, offering better incentives and a business-enabling environment.
However, amidst these economic challenges, the business environment, and current government policies, agriculture and information and communication technology (ICT) are the two sectors that can be relied upon for export growth, even during the current economic stabilisation phase.
Agriculture and IT are relatively less capital-intensive and do not require significant energy inputs. Their electricity needs can be efficiently met through solar power for offices and tube wells. Moreover, contrary to manufacturing, their turnaround period is in months, not years.
These sectors also offer another significant advantage: unlike the manufacturing sector, they are not heavily reliant on imports. Consequently, when they export, there is no corresponding considerable increase in imports.
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