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Pakistan Economy

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I have a big insha'Allah on this one ;-)


December 18, 2016

China fixing Pakistan energy infrastructure could boost GDP growth to 7% per year and enable a new Asian Tiger economy by 2018
Pakistan Prime Minister Nawaz Sharif is betting on a $21 billion Chinese-backed splurge on energy projects to boost the economy—and his re-election bid.

More than 10,000 Chinese workers are now building at least 10 partly Beijing-financed energy projects across Pakistan that are set to grow the country’s energy output by 60% within two years in the first major boost to supply in two decades.Mr. Sharif’s government plans to inaugurate a nuclear plant this month and a pipeline network in January that will carry large-scale gas imports upcountry.

Mr. Sharif’s promise to solve the electricity crisis propelled him to office at a time when the energy deficit was knocking some 2 percentage points off growth, economists say, stifling industry and leaving school children to study by candlelight.

Pakistan’s economic growth has risen to almost 5% annually under Mr. Sharif’ and his government set a 7% target for the years ahead. That, his government hopes, will boost the moribund private sector, reduce unemployment and provide youth with more alternatives to extremism.

Mr. Sharif’s plan depends heavily on ​China, which​ is translating its long-term strategic ties with Pakistan into an economic partnership, part of a broader infrastructure push across Eurasia. China is financing many plants as commercial investments. But to expedite projects, the Pakistani government is funding ​some​ power stations in the run up to the election, including three gas-fired plants in Mr. Sharif’s home province of Punjab. The eventual aim is to more than double Pakistan’s current output of around 16,000 megawatts.


Washington’s multibillion-dollar civilian aid program for Pakistan has been far less ambitious, adding 1,000 megawatts to the country’s power generation in recent years by enhancing existing power stations.
Aziz likes this

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Much could also be achieved by dealing with teft...

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An opinion.  While I am never completely swayed by such pieces (because this is not a completely black or white situation with an absolute winner and loser coming out), I thought I'd share:



Pakistan Beats India, Again

Panos Mourdoukoutas ,  


After beating India in equity markets, Pakistan beat India in another metric recently: Geopolitics.

The country's leaders have skillfully leveraged Pakistan's strategic geographic location to extract a series of benefits from America and China.

In fact, the performance of Pakistan's equity markets and geopolitics isn’t reflective of their independence from each other.  Geopolitics has been, and will be, a major driver for the country's financial markets.


Back in 2001, Pakistan leveraged its proximity to Afghanistan to extract a big benefit from America: a write off for a big part of its foreign debt--the spark of Pakistan's fifteen-year bull market.

America needed Pakistan as an ally in its war against Afghanistan. And Pakistan's leadership offered to do just that in exchange for the US brokering debt relief for their large external debt - 60 percent of the country’s GDP, with debt serving counting for 30 percent of exports. 

Recommended by Forbes“A unilateral default seemed almost inevitable,” writes Marko Dimitrijevic in Frontier Investor (New York: Columbia Business School, 2017). “However, the United States’ post-9/11 collaboration with the Musharraf government to fight terrorism provided an environment conducive for Pakistan to request the rescheduling of its debt.”

Indeed, in December 2001, the Paris club did just that, cuttingPakistan’s debt by $12 billion, with IMF providing the country additional funding.

The rest is history. Pakistan’s currency strengthened as foreign expatriate remittances and foreign capital flowed into the country, with a good chunk of it ending in financial markets -- which took off, until the 2008-9 financial crisis.

Then China came along to re-ignite Pakistan’s market, once again.

Beijing needed a western route to the Middle East, and Africa--China's second continent. Ideologically that is, which can explain why Beijing committed $46 billion to China-Pakistan Economic Corridor (CPEC). In addition, China has been investing in Pakistan’s infrastructure companies.

In a sense, Pakistan’s gain is India’s loss, as China cannot appease both countries at the same time. In fact, it has done quite the opposite: repeatedly blocking India's efforts to join the Nuclear Supplier Group (NSG).

And it has sided openly with Pakistan in the India-Pakistan Kashmir impasse, as evidenced by statements by China’s senior officials on the sidelines of the ongoing 71st session of United Nations General Assembly in New York, as previously discussed in a piece here

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Alibaba founder expresses interest in Pakistan's e-commerce sector


Chairman Alibaba Group Jack Ma met Prime Minister Nawaz Sharif on Wednesday and expressed his interest in investing in Pakistan's e-commerce sector, reported the state-run Pakistan Television.

"We are ready to invest for establishing an e-commerce platform in Pakistan," said Ma while meeting the premier on the sidelines of the World Economic Forum in Davos.

Ma added that his company was closely monitoring progress of Pakistan's e-commerce sector.

Alibaba's founder said he wants to support small scale industries in developing countries and informed Nawaz that the Alibaba Group has been facilitating 60 million companies across the globe.

Referring to the China-Pakistan Economic Corridor (CPEC), he said it would provide opportunities for promotion of the bilateral economic ties between China and Pakistan.

During the meeting, he also invited the prime minister to visit his company headquarters in Ghuangzou.

Nawaz on the occasion praised the services of Ma's group for the e-commerce sector and also invited him to visit Pakistan.

Alibaba is China’s dominant player in online commerce, with its Taobao platform estimated to hold more than 90 per cent of the consumer-to-consumer market, and its Tmall platform is believed to have over half of business-to-consumer transactions.

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Pakistan to be 20th largest economy by 2030


PricewaterhouseCoopers, one of the world's largest professional-services firms, just released its predictions for the most powerful economies in the world by 2030. The report, titled "The long view: how will the global economic order change by 2050?" ranked 32 countries by their projected global gross domestic product by purchasing power parity. PPP is used by macroeconomists to determine the economic productivity and standards of living among countries across a certain time period.


While PwC's findings show some of the same countries right near the top of the list in 13 years, they also have numerous economies slipping or rising massively by 2030. Check out which countries made the list. All numbers cited in the slides are in US dollars and at constant values (for reference, the US's current PPP is $18.562 trillion):


Interesting thing to note;


The Indian economy comes third at $19.5 trillion, more than 10 times the size of the predicted Pakistani economy at $1.8 trillion.


Also there are 8 Muslims countries on that list, who have an estimate combined economic power matching that of India. We won't live to see it in our lifetime, but a Muslim version of the EU would bring more than a billion people out of poverty, end a huge amount of war around the world, and bring economic prosperity to large swathes of Africa and Asia. 



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Every Pakistani now owes over Rs115,000
By Bilal MemonPublished: February 25, 2017
KARACHI: Much talk has revolved around the narrative on Pakistan’s economy. The government would have you believe that it has been the best thing that happened to the country in a long time. It will cite international publications and foreign institutions when a positive report emerges from within the complex web of what is the country’s economic structure.
Here is some context.
Every Pakistani owes over Rs115,000 as the country’s pile of total debt and liabilities increased to Rs23.14 trillion by the end of December 31, 2016, a year-on-year increase of 10%, according to provisional figures updated by the State Bank of Pakistan (SBP).
In three years, Pakistan has taken on $25b in fresh loans
The share of external debt and liabilities stood at Rs7.8 trillion, or roughly $74 billion, but the PML-N would tell you, as part of its effort to show it was a good government, that the total stock of debt – domestic and otherwise – has reduced to 69.1% of GDP from 71.1% a year ago.
But with an ever-increasing debt pile comes another problem for the country’s economic managers. Foreign exchange reserves held by the SBP have come down to $17 billion and the current account deficit has widened by 90% in the first seven months (Jul-Jan) of 2016-17, standing at $4.72 billion. Together with falling exports, near-stagnant remittances, repayments to international creditors and increasing oil prices, pressure on reserves is likely to be fiercer than it was before.
“Both government debt and, related to it, the government’s gross financing needs are high,” IMF Mission Chief Harald Finger told The Express Tribune in an emailed response.
“Under baseline assumptions, we project a gradual decline in the ratio of government debt to GDP through the medium term but this is subject to uncertainty, and adverse economic shocks could push the debt ratio higher.”
Will Pakistan need another bailout?
Critics say Pakistan, which completed the latest IMF programme in September 2016, will be in need of another bailout package near election time, slated to be held in the mid of 2018.
“Pakistan will need to go to the IMF for another bailout around election time – either right before it or right after it,” said Dr Ashfaque Hasan Khan, principal and Dean, School of Social Sciences and Humanities at the National University of Sciences & Technology (NUST), Islamabad.
“There is panic among the ranks. Reserves have fallen by $1.9 billion since October 2016 and the government’s financing requirements will increase in the near-term. The current account deficit is likely to hit the $7-8 billion mark this fiscal year and debt servicing requirements will add to the pressure on the country’s reserves.
“There are no more flows from the Coalition Support Fund (CSF). Exports are falling and remittances are unlikely to compensate. They (government) will tell you that the import bill is rising because of CPEC-related machinery, but that is not the case. Imports under the food and auto vehicles category are rising, and this is because the rupee is strong, making imports cheaper.”
The latest SBP decision
Dr Ashfaque’s statement comes on the heels of SBP’s decision to impose 100% cash margin requirement on import of certain consumer items. In a statement released on Friday, the SBP said the “regulatory measure would, interalia, discourage the import of these items and would have nominal impact on the general public.”
The requirement of 100% cash margin has been prescribed on items such as motor vehicles (both CKDs and CBUs), mobile phones, cigarettes, jewelry, cosmetics, personal care, electrical & home appliances, arms & ammunitions etc.
Pakistan’s way out of the debt crisis
“The State Bank expects that this regulatory measure would help accommodate incremental import of growth-inducing capital goods.”
The last part of the SBP’s statement refers to those goods that will arrive as part of the CPEC initiative. But it also conveys the worry followers of the economy have over Pakistan’s balance of payments situation and the currency’s strength.
“The rupee has appreciated by 27% cumulatively over the past three years relative to trading partners in inflation-adjusted terms, which has certainly been among the factors affecting exports,” said IMF official Finger.
Dr Ashfaque says the key things to address are “senseless taxation measures” – which he believed were meant to appease the IMF – stuck refunds of exporters to show higher revenue and an uncompetitive exchange rate. “A stronger rupee means cheaper imports. By keeping the rupee’s strength, exporters are suffering as well. Pakistan’s borrowing needs will only increase from here on and by 2019-20, the stock of external debt will touch $110 billion.”
Published in The Express Tribune, February 25th, 2017.

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Granted $6.4b in loans, Pakistan fails to utilise $4.6b

By Shahbaz Rana
Published: March 19, 2017
In case of Jamshoro power generation project, the total contract award amounted to only $22.8 million or 2.5% of the approved loan amount even after 58% of time had elapsed. PHOTO: FILE
In case of Jamshoro power generation project, the total contract award amounted to only $22.8 million or 2.5% of the approved loan amount even after 58% of time had elapsed. PHOTO: FILE
ISLAMABAD: Pakistan has failed to utilise $4.6 billion or almost three-fourths of the $6.4 billion in loans the Asian Development Bank (ADB) gave for various projects, and is paying extra charges on ‘idle money’.
Usual bureaucratic inefficiencies, startup delays and extremely complex procedures defined by the ADB for awarding contracts of projects remained some of the key reasons behind the dismally low disbursements.
As of the end of December 2016, Pakistan could utilise only $1.8 billion or 27% of the total loans, showed official documents of the Manila-based lending agency.
ADB’s lending
As there is a time value of money as well, Pakistan is paying 0.15% in “commitment charges” on majority of the undisbursed amount. The $4.63 billion includes both expensive and concessionary loans.
In 2016, it took almost five months to make a project loan effective after its approval from the Board – a time that can easily be shortened to a couple of weeks. However, projects’ start-up compliance was better than the previous year’s when it stood close to seven months.
World Bank indirectly backs harmful projects, says report
The ADB-financed portfolio is not moving at a swift pace despite the fact that its Country Director, Werner Liepach, has easy access to Q Block – the seat of the Finance Ministry – and to Finance Minister Ishaq Dar. In other countries, it is rare that heads of lending agencies meet with the top political leaderships, according to officials who have worked in these organisations at the international level.
This week, the ADB and Pakistan completed the review of the country portfolio for the period of December 2016. By end 2016, the ADB-financed total active portfolio increased to $6.7 billion including policy loans. The portfolio is comprised of 37 investment projects and one sector reform programme.
OICCI suggests scrapping super tax in budget proposals
However, the project portfolio review revealed that the chronic issues affecting the disbursement of loans largely remained unaddressed even in the last year. This denied or delayed the intended benefits the policymakers conceived while seeking these foreign loans.
“The Executing Agencies/Implementing Agencies’ delays in decision-making, inherent problems of administering the contracts and performance of supervisory and management consultants undermine economy and efficiency in delivery”, noted the ADB documents.
Due to slow progress, the ADB even cancelled $193.6 million loan amount in 2016. Six projects remained problematic last year.
The situation was equally worse in the energy sector- supposedly the PML-N government’s top priority area. There were 14 active loans worth $2.9 billion in the energy sector but disbursements stood at only $440 million last year.
At the end of 2016, out of 30 active loan projects, 24 projects were rated as “on track” but the amounts could not be fully disbursed in these projects. The pace of work on the project could be one genuine reason for less disbursement. But when one compares the figures of contract awards with the cumulative disbursements, the bureaucratic inefficiency appears to be the reason behind the slow financial progress. The cumulative contract awards stood at $2.9 billion by the end of last year but the disbursements against these awards amounted to $1.8 billion.
ADB stresses ‘full recovery’ of consumer bills
The ADB said that in 2016 the institutional arrangements of Project Management Units (PMUs) remained a challenge. The project management unit of Energy Efficiency Investment Program could not be made functional despite lapse of seven long years. A PMU at NTDC remained understaffed for almost all of 2016 and resultantly project implementation suffered in the absence of adequate resources.
The PMUs of CAREC Border Services Project, Water Resources Development Project could not be fully established by the end of 2016.
In terms of lending modality, the multi-tranche financing facility (MFF) accounts for 31% of the active loan portfolio. However, except for the MFF in the Agriculture sector, more than half of the MFF amount remained uncommitted. A substantial underutilisation was in the transport and energy sectors.
Since 2011, the energy sector accounted for nearly half of Pakistan’s active portfolio, standing at $2.9 billion by end of 2016.
In case of Jamshoro power generation project, the total contact award amounted to only $22.8 million or 2.5% of the approved loan amount even after 58% of time lapsed. Some of the key reasons for delayed procurement are related to unavailability of designs, weak procurement capacities of the government agencies, litigation and delays in PMU establishment, according the ADB.
However, Pakistani authorities blamed the ADB for the delay due to complex procedures for the award of contracts.
In the eyes of the ADB, lack of effective understanding of ADB’s procurement guidelines, general lack of understanding of national and provincial procurement rules, absence of a fully functional internal approval mechanism and frequent transfer/posting of key project staff were reasons behind the delays.
Published in The Express Tribune, March 19th, 2017.

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There has to be more focus on improving our exports. These numbers are just awful. 


$30 billion trade deficit ‘failure of govt policies’
| | Politicians, traders term situation cause of concern for policymakers

June 14, 2017/ 1 Comment SHARE :     
Imran Ali Kundi

ISLAMABAD -  Opposition parties and business community have expressed concern over the widening of trade deficit that has surged to $30 billion during the 11 months of the ongoing financial year due to massive increase in imports and decline in exports.

Pakistan’s trade deficit has recorded at historic level of $30 billion during the 11 months (July-May) of the current fiscal year as against $21.11 billion of the same period of the previous year showing an increase of 42.12 percent.

Opposition parties, including Pakistan People’s Party and Pakistan Tehreek-I-Insaf, have asked the government to revisit its trade policy to control the trade deficit. Similarly, the Islamabad Chamber of Commerce and Industry has said that policies of the incumbent government have failed to enhance the exports and control trade deficit.

“Finance Minister Ishaq Dar’s economic strategy is not working. It is sinking the country into a dangerous external debt trade. He must revisit his policies,” PTI MNA Asad Umar said in his tweet. He asked the government to reduce cost of doing business, stop delaying export refunds to hide the deficit and rely on export industry to generate resources, he added.

Similarly, PPP Senator Saleem Mandviwalla expressed great concern over the rising trade deficit of the country, which has gone up to an all-time high of over $30 billion. He termed it a dangerous trend, saying it would create serious balance of payment problems, push the country towards heavy borrowing and further difficulties.

Mandviwalla said Pakistan was going to touch a default point very soon; it would not be able to repay its external debt which has crossed $73 billion. Just a week ago Pakistan repaid a loan of $1 billion by obtaining another loan from China. “If this situation continues, Pakistan will go again to IMF for another loan,” he added.

“Unfortunately, in the recent budget, the PML-N government has not given any plan to control the widening trade deficit of the country,” he said and added the commerce ministry had no role in the three-year-trade policy, which was being run by the finance ministry.

The PPP senator said, “Pakistan, with declining foreign remittances and increasing burden of local and foreign debt and liabilities, is entering the red zone of the financial crisis. Declining exports and foreign direct investment (FDI) constitute an ugly add-on to the looming danger”.

Mandviwalla was of the view that both the government and exporters needed to move out of a mindset of short-term concessions and try to work out a sustainable strategic export plan.

Similarly, the Islamabad Chamber of Commerce and Industry expressed great concern over an all-time-high trade deficit that has reached US$ 30 billion in the first 11 months of the current fiscal year, which would create serious problem of external balance of payments for the struggling economy.

Khalid Iqbal Malik, president, Islamabad Chamber of Commerce and Industry, said Pakistan’s trade deficit was around $20 billion when the current government came into power in 2013 and business community was expecting that the government would take strong measures to promote exports for reducing the trade deficit. However, during the period from 2013 to 2017, trade deficit had increased by almost 50 percent, showing failure of policies of the current government to promote exports up to the real potential of the country.

He said under the three-year strategic trade policy framework, the government had set an annual export target of $35 billion by 2018, but in the 11 months of the current fiscal year, exports had fallen to $18.54 billion from $19.14 billion during the same period of the previous year while imports were on the rise, which should be a cause of concern for the policymakers.

He said exports were falling despite the government’s claims of providing round-the-clock power supply to the industry. He affirmed the government had also been providing Rs 3 per unit concession in electricity tariff to export-oriented industries since 2016, but all these concessions had failed to arrest the falling trends of exports. He recalled the prime minister had announced a subsidy package of Rs 180 billion for textile, clothing, sports, surgical, leather and carpet sectors to boost exports. However, the impact of this package on exports had yet to be seen.

Khalid Iqbal Malik said Pakistan was heavily depending on textile industry for exports while the share of textile was on the decline in the global export market. He urged the government to reconsider its export policy and make a new strategy to promote exports of engineering goods and value-added IT products that would give significant boost to our exports and reduce trade deficit.

He said the main reason of the falling exports was the government had not addressed the challenges hurting the export-oriented industries as no effective measures were taken in the budget 2017-18 for industrial progress, increase in exports and decrease in the cost of production to enhance the competitiveness of Pakistani goods in the international market.

He said under the STPF 2015-18, the government had notified five cash support schemes to improve product design, encourage innovation, facilitate branding and certification, upgrade technology for new machinery and plants, provide cash support for plant and machinery for agro-processing and give duty drawbacks on local taxes. He stressed it was high time for the government to fully honour its commitments towards exporters to turn around the dwindling exports and decrease the rising trade deficit

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