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]

Chinese premier opens trip with joint opening of Beijing-funded New Gwadar International Airport ahead of two days of SCO meetings

https://www.scmp.com/news/china/diplomacy/article/3282458/chinas-li...


Premier Li Qiang reiterated China’s pledge to upgrade a multibillion-dollar economic corridor with Pakistan and deepen joint counterterrorism efforts with its military as he arrived in Islamabad on Monday.
Li, who is on his first visit to the South Asian country as premier, will be attending a Shanghai Cooperation Organisation heads of government meeting in the Pakistani capital during his four-day trip.

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Li’s visit is the latest high-level exchange this year as China and Pakistan mark the 73rd anniversary of the establishment of diplomatic relations.

Sharif visited China in June for a five-day trip that included a meeting with President Xi Jinping. A joint statement following the meeting also pledged to build “an upgraded version” of the CPEC, with the new phase featuring the key themes of “growth, livelihood, innovation, green, and openness”.

Islamabad has implemented strict security measures for the 23rd Meeting of the SCO Council of Heads of Government starting on Tuesday.

SCO is a regional economic and security bloc largely driven by China and Russia that has seen its remit grow in the two decades or so since its formation.

All 10 SCO members, including China, Russia, India and Iran will be attending the two-day meeting under the chairmanship of Pakistan. The annual meeting focuses on the trade and economic agenda of the organisation.

[Riaz Haq]

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Arif Habib Limited
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Textile exports increased by 18% YoY during Sep'24

Textile exports increased by 17.6% YoY (-2.4% MoM) to USD 1.6bn during Sep’24. During 3MFY25, exports increased by 9.3% YoY to USD 4.5bn.

https://x.com/ArifHabibLtd/status/1846967653568504037

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Arif Habib Limited
@ArifHabibLtd
Trade balance detailed update

Trade deficit increased by 24% YoY to USD 1.8bn during Sep’24

During Sep’24, exports stood at USD 2.8bn (+15% YoY | +3% MoM). Imports during the month remained at USD 4.7bn (+18% YoY | +4% MoM). During 3MFY25, trade deficit also increased by 5% YoY to USD 5.5bn.

https://x.com/ArifHabibLtd/status/1846966925337022951

[Riaz Haq]

Pakistan Remittances ($8.79 b) and Trade Deficit ($5.5 billion) Q1 FY 2024-25

https://x.com/ArifHabibLtd/status/1846966925337022951

https://x.com/arifhabibltd/status/1843884748168478837?s=43&t=Uy...

[Riaz Haq]

Chinese development association to invest $13 billion in Pakistan in five years — state media

https://www.arabnews.com/node/2575998/pakistan

Initial investment layout of $8-13 billion expected to surge to $30 billion, says state media
China is a major ally and investor in Pakistan that has pledged over $65 billion in various projects
ISLAMABAD: The China Asia Economic Development Association (CAEDA) will invest up to $13 billion in a free trade zone in Pakistan in the next five years, state broadcaster Radio Pakistan reported on Sunday.
As Pakistan reels from a prolonged economic crisis that has seen its foreign exchange reserves fall to critically low levels and its currency deteriorate significantly, Islamabad has sought to attract foreign investment from regional allies such as China and the Middle East to bolster its fragile economy.
The South Asian country set up the Special Investment Facilitation Council (SIFC) last year to attract foreign investment in economic sectors such as mining, agriculture, tourism and others. The SIFC is a hybrid civil-military body formed to fast-track investment-related decisions.
“China Asia Economic Development Association (CAEDA) will make an investment of 13 billion dollars in free trade zone of Pakistan in the next five years,” Radio Pakistan said.
“The initial layout of this investment is between 8 to 13 billion dollars while it is expected to reach 30 billion dollars,” it added.
The free trade zone is aimed at catering to Pakistan’s domestic needs and those of the global market, Radio Pakistan said. It added that a duty-free shopping mall is also part of the zone where international goods will be available for Pakistani citizens.
The state broadcaster said CAEDA has also sent 20 fishing boats to Pakistan with an investment of $500 million.
“Supported by Special Investment Facilitation Council, a delegation of the Association discussed agreements with Ministries of Energy and Health regarding refined petroleum products, solar power grid connection and investments in pharmaceuticals,” it said.
China is a major ally and investor in Pakistan that has pledged over $65 billion in investment in road, infrastructure and development projects under the China-Pakistan Economic Corridor (CPEC) project. CPEC is a part of the Belt and Road Initiative, a massive China-led infrastructure project that aims to stretch around the globe.
Chinese investment and financial support since 2013 have been key for Pakistan’s struggling economy, including the rolling over of loans so that Islamabad is able to meet external financing needs at a time its foreign reserves are low.
Though time-tested allies, recent security challenges have put a slight strain on Pakistan’s ties with China. Separatist and religiously motivated militants have attacked Chinese projects in Pakistan over recent years, killing Chinese personnel.
Earlier this month, a suicide blast claimed by the separatist Balochistan Liberation Army (BLA) killed three people in Pakistan’s southern port city of Karachi, including two Chinese nationals, who were targeted in the attack.
Five Chinese workers were killed in a suicide bombing in March, which was the third major attack on Chinese interests in Pakistan in a week.
China has called on Islamabad to ensure security for its citizens in Pakistan. The South Asian nation has in turn sought to ease Chinese fears, vowing to provide fool-proof security to its citizens living and working in the country.

[Riaz Haq]

https://www.bloomberg.com/news/articles/2024-10-15/funds-tread-back...

Pakistan's short-term local government bonds are set for their first annual inflow from foreign investors in five years, buoyed by high yields and a stable rupee in an improving macroeconomic environment.

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UED5VWKGU65RTR4H4XEKN2RP3M.jpg
Funds Return to Pakistan Local Bills as Economy Stabilizes
bnnbloomberg.ca


(Bloomberg) -- Pakistan’s short-term local government bonds are set for their first annual inflow from foreign investors in five years, buoyed by high yields and a stable rupee in an improving macroeconomic environment.Net overseas inflows into Treasury bills rose to $875 million in 2024, according to State Bank of Pakistan’s latest data from Monday. That’s a turnaround from four straight years of outflows totaling $1.4 billion.Pakistan’s success in stabilizing its cash-strapped economy is bearing fruit, with investors more confident on its ability to pay debt, thanks largely to the International Monetary Fund’s support. The nation’s treasury bills yield about 16% to 17%, among the highest in Asia.“Investors see a stable currency and high rates that is attracting them to Pakistan,” said Suleman Rafiq Maniya, an independent wealth manager in Karachi. In a sign of the nation’s growing appeal, JPMorgan Chase & Co. led a group of foreign investors in a visit to the country last month. Finance Minister Muhammad Aurangzeb discussed fixed-income investment opportunities with the group, assuring them of the government’s support in facilitating their investment.
The nation’s foreign reserves have increased to the highest in more than two years after an approval by the IMF for a new $7 billion loan package last month.Pakistan’s other assets have performed as well. The benchmark stock index has risen 73% in the past 12 months, making it the world’s best performer. Dollar bonds have delivered returns of nearly 40% this year, according to data compiled by Bloomberg.The treasury bills are still a decent investment option while the upside for government bonds is limited, Clifford Lau, portfolio manager at William Blair Investment Management wrote in a note last week after visiting Pakistan.

[Riaz Haq]

Arif Habib Limited
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KSE100 Index recorded it's highest - ever closing at 86,467

KSE-100 index went up by 409 points (+0.5%), closing at all time high level of 86,467.

https://x.com/ArifHabibLtd/status/1848686739965043044

[Riaz Haq]

Pakistan Finance Chief Sees ‘Encouraging’ China Debt Talks

https://www.bnnbloomberg.ca/business/international/2024/10/22/pakis...

(Bloomberg) -- Pakistan is getting a promising response from China over its request to lengthen maturities for Belt and Road Initiative loans, according to its finance minister, signaling potentially more breathing room for the nation that has been squeezed by costly past borrowing.The South Asian nation is looking to increase the maturities for debt taken to build power plants and “create enough space” to lower electricity prices, Muhammad Aurangzeb said in an interview in Washington. Electricity prices have tripled for some people in Pakistan in the past few years and surpassed house rent for some.“We have just started that discussion and the response is encouraging,” Aurangzeb said Tuesday on the sidelines of the annual meetings of the International Monetary Fund and World Bank. “These are early days in terms of those negotiations. The former JPMorgan Chase & Co. banker discussed debt with Chinese officials during a visit to the country in July. Pakistan is seeing a period of stability after securing a new $7 billion loan program from the IMF. It has also seen partners including China roll over debt of $16 billion from a total of about $26 billion due in the current fiscal year that started in July. The government also plans to initiate discussions on obtaining additional financing from the IMF through its climate resiliency fund, he said.Having gone through 25 loan programs over half a century, the South Asian nation must institute durable reforms in the key areas of tax collection, energy sector and state-owned enterprises to end a cycle of indebtedness, the finance minister said separately at an IMF forum later in the day.
“We’ve had so many programs. We’ve had boom and bust cycles,” Aurangzeb said. “We do not have a choice but to ensure that we continue with the structural reforms.” He added that the government knows it has no business being in business and that it must provide an enabling environment to support the private sector. It also aims to shrink government costs by cutting the number of ministries and closing 150,000 federal positions.To boost tax revenue, Pakistan will target sectors including retail and agriculture that have opposed previous attempts at taxation. The nation’s provinces will move forward on legislation on the agriculture side by January and aim to start collection by July, the finance chief said in the interview with Bloomberg.The country has been a flagship destination for China’s Belt and Road Initiative of lending to developing countries that helped the nation end its decades-long electricity blackout issues. Now its seeking to extend the maturity of debt for nine power plants built by Chinese companies under the multibillion-dollar economic corridor. Pakistan’s period of stability has seen consumer price increases decelerate to the lowest in almost four years. Pakistan’s short-term local government bonds are set for their first annual inflow from foreign investors in five years, buoyed by high yields and a stable rupee. The benchmark stock index has risen 70% in the past 12 months, making it the world’s best performer.Pakistan’s central bank has cut its benchmark interest rate for three consecutive meetings by 450 basis points to 17.5% from a record 22%. The next meeting on Nov. 4 may see the central bank reduce the policy rate, said Aurangzeb.

[Riaz Haq]

Arif Habib Limited
@ArifHabibLtd
KSE-100 index hits record high, surpasses 88,000 Mark

oThe KSE-100 Index surged by 1,751 points (+2.01%) today, closing at a historic high of 88,946 points. This marks the fifth-largest one-day points gain in the index's history.

oThe remarkable performance brings the index's CY24TD gain to an impressive 42.4%, and MoM gain of 9.7%.

https://x.com/ArifHabibLtd/status/1849420372111687855

[Riaz Haq]

Arif Habib Limited
@ArifHabibLtd
As of Sep’24, Pakistan's Debt-to-GDP ratio has dropped to 65.7%, marking its lowest level since Jun’18. The Domestic Debt-to-GDP ratio is at 43.1%, while the External Debt-to-GDP ratio stands at 22.7%.

@GovtofPakistan

@StateBank_Pak

#SBP #Pakistan #Economy #AHL

https://x.com/ArifHabibLtd/status/1856013052644061281

[Riaz Haq]

Pakistan’s trade deficit contracts 31% YoY to $1.5bn in October 2024 - Pakistan - Business Recorder


https://www.brecorder.com/news/40330236


Pakistan’s trade deficit significantly decreased by 31% to $1.5 billion in October 2024 as compared to the same month of the previous year, data released by the Pakistan Bureau of Statistics (PBS) showed on Friday.

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Pakistan’s remittance inflow at $3.05bn in October 2024, up 24% year-on-year - Markets - Business Recorder


https://www.brecorder.com/news/40331410

On a month-on-month (MoM) basis, the inflow in October was 7% higher when compared to $2.86 billion in September 2024.

During 4MFY25, remittances went up by nearly 35% YoY to $11.8 billion as compared to $8.8 billion in 4MFY24.

Experts credit the increase in inflows to the stability of the exchange rate, a narrowing gap between open and inter-bank market rates, increase in digital payment channels and a rise in the number of workers relocating abroad, especially to GCC countries.

“These stronger inflows will help Pakistan maintain PKR stability and contain the current account deficit,” said Mohammed Sohail, CEO Topline Securities, in a note.

Home remittances play a significant role in supporting the country’s external account, stimulating Pakistan’s economic activity as well as supplementing the disposable incomes of remittance-dependent households.