Investors Celebrate Pakistan's Continuing Economic Recovery

[Riaz Haq]

Pakistan's benchmark KSE-100 index hit an all-time high after the announcement of the $7 billion IMF bailout deal today. Economic indicators such as inflation, exports and remittances are also showing significant improvement as well. Speaking to reporters after the IMF deal,  the Fund Managing Director  Kristalina Georgieva acknowledged progress made by Pakistan. She said  "The economy is on the sound path. Growth is up and inflation is down". The KSE-100 index rose in early trade to a record high of 82,905.73 points, before giving up those gains later in the day to close 0.7% down at 81,657. It still represents an annual gain of nearly 100%. 

Pakistani Stock Market Outperforms Asian Peers. Source: Bloomberg

Pakistan rupee has remained essentially stable at around Rs. 277 to a US dollar over the last year. Inflation has come down from 37% last year to less than 10% this year.  Exports have climbed 10.54% ($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. Overseas workers' remittances have surged 44% to $5.94 billion in the first two months (July-August) of the current fiscal year 2024-25, compared to the same period last year.  Current account deficit has declined to $681 million in FY24 from $3.275 billion in FY23. The budget deficit for the 2023–2024 fiscal year has been reduced to 6.8% of GDP from 7.7% in the previous year. 

The stock market gains are driven primarily by the increasing profitability of the firms making up the index, in addition to improvement in macroeconomic indicators. The companies listed on Pakistan’s KSE-100 Index have reported their highest-ever earnings of Rs1.7 trillion in FY24, marking a 25% year-on-year increase from Rs1.3 trillion in FY23. In US dollar terms, profits after tax (PAT) rose 10% to $5.8 billion during the same period, according to data compiled by brokerage firm Topline Securities.  Dividend payouts soared 30% as banking, fertilizer, and cement sectors led growth, according to media reports. 

Pakistan has a long tough road ahead to carry out the reforms promised to the IMF in the latest bailout deal. Renegotiating unsustainable IPP (Independent Power Producers) contracts and carrying out long-delayed  privatization of state-owned enterprises to reduce major drain on the taxpayers will not be easy, Boosting tax collection is not easy either. Offering incentives for savings, investments and exports while reducing budget deficits is a difficult feat. It will take a lot of fortitude, finesse and political will to get the results to improve the economy. Pakistani leaders' biggest challenge is to find a way to grow the economy to create enough jobs for the country's growing working age population. Failure to do so could cause major social unrest in the nuclear-armed country of 240 million people. 

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[Riaz Haq]

Textile exports jump to $7.6bn - Business - DAWN.COM

https://www.dawn.com/news/1879463


ISLAMABAD: The textile and clothing exports increased 10.51 per cent in the first five months of the current fiscal year, Pakistan Bureau of Statistics data showed on Tuesday.

After contracting 3.09pc in the first month of 2024-25 in July, the textile exports maintained a bullish trend with robust growth of 13pc in August, 17.92pc in September, 13.11pc in October, and 10.81pc in November, respectively.

Many experts believe it would take a lot of struggle for the sector to compete with regional rivals due to the implementation of harsh taxation measures in the current fiscal year. However, the disruption in supply from Bangladesh has also boosted demand for Pakistani garments.

Textile and clothing exports have been static for the last two years despite having a $25 billion installed capacity due to structural issues, according to textile players.

[Riaz Haq]

Pakistan Notches Best Stock Rally Since 2002 on Growth Momentum


https://finance.yahoo.com/news/pakistan-notches-best-stock-rally-05...

Pakistani stocks recorded their biggest annual gain in 22 years, outperforming nearly all markets worldwide as economic conditions improve and traders bet on more interest-rate cuts.
The South Asian nation’s benchmark KSE-100 Index rose about 84% this year. That makes the index the second-best performer in local currency terms among the more than 90 tracked globally by Bloomberg.
Country watchers expect the boom to continue next year, bolstered by likely more cuts in borrowing costs and easing inflation, while a loan program from the International Monetary Fund helps to stabilize the economy. Pakistan’s economy expanded more slowly than expected last quarter, but has broadly recovered from 2023 when it narrowly escaped a default.
“This year was all about the return of domestic mutual funds to the market following a much steeper cut in rates than expected,” said Bilal Khan, head of international equity sales at Arif Habib Ltd. “Next year, we will see notable inflows from foreigners as investors will not be able to ignore allocating to Pakistan given the performance.”