Pakistan's Fast Growing FMCG Sector Excluded From Official GDP Report

[Riaz Haq]

"In terms of LSM growth, a number of sectors that are showing strong performance; (for example, fast moving consumer goods (FMCG) sector; plastic products; buses and trucks; and even textiles), are either under reported, or not even covered. The omission of such important sectors from official data coverage, probably explains the apparent disconnect between overall economic activity in the country and the hard numbers in LSM." State Bank of Pakistan Annual Report 2014

Economists have long argued that Pakistan's official GDP figures significantly understate real economic activity in terms of both production and consumption.

 

M. Ali Kemal and Ahmed Waqar Qasim, economists at Pakistan Institute of Development Economics (PIDE),  explored several published different approaches for sizing Pakistan's underground economy and settled on a combination of  PSLM (Pakistan Social and Living Standards Measurement) consumption data  and mis-invoicing of exports and imports to conclude that the country's "informal economy was 91% of the formal economy in 2007-08". 

And now the State Bank of Pakistan has focused on the production side of the economy in its annual report for Fiscal Year 2014. The nation's central bankers have singled out the economic activity in large scale manufacturing sector as their focus in the latest report.  They say that the existing LSM (Large Scale Manufacturing) index was based on Census of Manufacturing Industries (CMI) that was conducted in 2006 which included only those sectors which had significant value addition to Gross Domestic Product (GDP) at the time of census. 

In the years since 2006 CMI (Census of Manufacturing Industries) census, Pakistan has seen a significant expansion of its middle class along with rapidly growing consumer demand in sectors such as processed foods and fast-moving-consumer goods (FMCG).  It's one of several major new sectors whose growth is not reflected in the official GDP figures. 

 

Pakistan's Processed Foods and FMCG Sector Source: BMA Capital

According to a report by analysts at Pakistan's Topline Securities that examined 25 consumer firms in various sectors, the 2012 sales of the FMCG firms increased by 17% to Rs. 334 billion while profits grew by 40% to Rs. 24 billion. In the five years between 2008 and 2012, sales of these companies showed a compounded average growth rate (CAGR) of 18%, while profits grew at a CAGR of 20%. 

Engro Foods, a star performer in the sector, reported 191% increase in profit in 2012 alone, led by the dairy and beverages segment. Other players such as Nestle, Proctor & Gamble and Unilever, have also seen explosive growth with many new plants in production to meet demand. The growth in this sector is not reflected in the LSM component of GDP. 

Another key area in large-scale manufacturing is plastics industry. Pakistan Plastic Manufacturing Association says there are 6,000 units operating in the country, employing  600,000 people. This sector is producing a broad range of products from household items, industrial containers, medical and surgical items, auto parts, stationery items and PVC pipes. Yet they are not covered in LSM.

The SBP report further explained that the LSM data was not being reported in Pakistan in accordance with the International Standard Industrial Classification (ISIC) of United Nations Statistics Division’s defined 22 broad categories of manufacturing.  The reporting of LSM is limited to only 15 sectors identified by the ISIC while data pertaining to manufactures of apparels, publishing, printing products and recorded media, fabricated metal products (except machinery and equipment), office and accounting machinery and computers, medical precision and optical instruments and recycling of metal and non-metal waste scrap, is not included as part of Pakistan’s LSM. 

Pakistan has changed a lot since 2006 in terms of economy and demographics. The World Bank moved Pakistan from a low-income to middle-income country in 2007. Pakistan is much more urbanized and more middle class now than it was in 2006. Pakistan's large scale manufacturing (LSM) sector  has changed to respond to meet the rising new product demands of the country's growing middle class consumers. Its time for Pakistan Bureau of Statistics (PBS) to conduct a new manufacturing census and Pakistan Census Bureau to do a population census to paint a more accurate picture of the country's demographics and economy now.  

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[Riaz Haq]

Four years ago, newspapers in India published the intriguing news that their government was likely to benefit from the changes in base year for calculating gross domestic product (GDP) data, as the change would render the fiscal deficit much lower than projected. 

Neighboring Pakistan then amplified the issue by stating that it explained a statistical paradox on living standards between the two countries. This January, India will again rebase its GDP with a newer base year, and the sneaking suspicion regarding who will benefit remains.

Last April, Nigeria, meanwhile, gained the status of the largest economy in Africa, surpassing South Africa after changing its GDP base year from 1990 to 2010. The Nigerian National Bureau of Statistics said that the change would better represent the current structure of the economy. 

As a result, Nigerian GDP almost doubled compared with when it was calculated from a 1990 base year.

Indonesia is set for a similar occurrence with the upcoming economic growth announcement in February. GDP, the main element to measure economic growth, will appear in a new base year: 2010.

The year 2000 has been used as a base year for 14 years, or 56 quarters of GDP calculation. Since the base year is essential to develop GDP, it should be renewed or rebased when the economic structure can no longer be appropriately represented by the current base year. 

However, changing the base year requires a lot of effort and money, especially in developing countries where administrative data are not yet sufficiently available. 

Taking these points into consideration, the Central Statistics Agency (BPS) has decided to rebase GDP from base year 2000 to base year 2010. The base years prior to 2000 were 1993, 1983, 1973 and 1960.

Resetting the base year is usually accompanied by introducing a new classification of GDP components, either components in GDP by expenditure or GDP by industry. Every change in base year usually presents more detailed component classifications of GDP.

More importantly, rebasing usually changes GDP levels because of improvement in methodology, coverage and data source quality. As the result, the level of GDP will likely rise. 

After changing the base year from 1993 to 2000 a decade ago, Indonesian GDP in 2000 at current prices was Rp 1.27 quadrillion (US$100.64 billion) using 1993 as the base year, but higher by 9.87 percent using 2000 as the base year. This means there was an additional Rp 125 trillion in nominal GDP amount for the same economy.

Changing the base year from 1983 to 1993, GDP for the year 1993 also came out in two versions. The first version based on 1983 amounted to Rp 302 trillion and the second version based on 1993 totaled Rp 329 trillion, an increase of Rp 27 trillion. 

However, the economic growth figure will not be affected significantly, neither upward nor downward. Rebasing mostly affects the size of the economy, not the growth. 

This is because as regards the growth, the principle of comparability should be applied as a new set of items can only be compared with another new set of items. Put briefly, an apple can only be compared with an apple.

Nevertheless, the above statement is open to criticism. This is because new data coverage added to the GDP calculation will surely bring a new set of commodities. 

And as new commodities, they stick to the rule of industrial life cycles, which states that new commodities grow more quickly than old commodities. 

Consequently, overall growth will likely be higher than the old series, although in many cases, the difference is negligible.

- See more at: http://www.thejakartapost.com/news/2015/01/21/indonesia-change-base...

[Riaz Haq]

With over 100 million people below the age of 30 aspiring to change their lives, the rise of Pakistan is just a matter of time, Morgan Stanley Chief Investment Strategist David M Darst said on Tuesday.
“Demographics will play a major role in coming decades. Pakistan is among those nine countries in Asia that will add another China in the next 35 years and the impact of this change will be phenomenal on the world economy,” he said while giving a lecture on “The World Economic Environment: Where’s the Global Capital Going”.

It was part of a special series of lectures that was organised by The Aga Khan University here at its auditorium.
With a young population of an average age of 22 years, “I believe the opportunities that the young entrepreneurs from Pakistan have are going to make an exceptional contribution to the economy of the region,” he added.
Darst, who is the author of 11 books and has a PhD in economics from Yale, said it is wrong to believe that Pakistan is lagging behind due to its proximity with Afghanistan, Iran and India. “In fact, I believe Pakistan is in the centre of Asian countries like Iran, Bangladesh, Vietnam and Indonesia that will significantly contribute in the world economy in coming decades.”
Speaking about the strong fundamentals of Pakistan’s stocks, he said, with 31% returns in dollar terms Pakistan led the world markets in 2014. “What is important is that the stocks in Pakistan are still very cheap compared to the markets in the industrialised world and they are performing better than many markets in terms of returns,” he added.
“I am surprised to see low number of investors in the bourses of Pakistan. This must change considering the strong fundamentals of Pakistani stocks.”


Darst said women in the world are playing an important role in today’s world economy. The rise of the entrepreneurs from the developing world, especially women entrepreneurs, will also bring significant positive changes in this century.
Listing down the challenges to the global economy, he said though Pakistan and India have benefitted from the current sharp decline in oil prices, sudden fall in oil prices has rejuvenated fears of deflation in many countries.
He said Europe is redefining itself and the sharp changes in Europe can surprise the world at large.
Speaking on the challenges facing Europe in relation to Greece, he said the new elected prime minister of Greece could take decisions that may not go well with the euro and the overall economy of the continent.

http://tribune.com.pk/story/828679/shift-in-focus-rise-of-pakistan-...

[Riaz Haq]

The general public is expecting low inflation in coming months, a recent survey shows.
Lower expected inflation for the next six months is the dominant view among the respondents of the January edition of the Consumer Confidence Survey, which is jointly conducted by the State Bank of Pakistan (SBP) and the Institute of Business Administration (IBA) every two months.
The survey covers three broad themes: overall consumer confidence indices, inflationary expectations and other key highlights about households’ perception of important indicators.
It reveals Pakistanis believe prices of everyday items and services will increase at a slower-than-usual pace in months ahead. It is important to note that the expectations about inflation actually play a most significant role in determining the overall price level in an economy. Economists believe prices go up partly because people expect them to rise.
According to a recently released research paper on inflation expectations and economic perceptions written by researchers at Yale University and the SBP, inflation expectations are ‘systematically exaggerated’ in developing countries like Pakistan.
The paper concludes that the bias is entrenched for low-income, less educated, female and younger respondents.
“We also find that the recent fuel and energy price (revision) announcements play an important role in determining perceptions of inflation, which suggests that these commodities play an anchoring role for inflationary expectations,” it said.
Perhaps it explains why Prime Minister Nawaz Sharif personally announces every time fuel prices are adjusted downwards. Hearing their prime minister announce a cut in petroleum prices clearly dampens overall expectations about inflation.
Going by the recent shift in respondents’ perceptions about economic conditions, Sharif’s strategy is clearly working.
The survey uses the Consumer Confidence Index (CCI) to measure households’ perceptions about the economy. Showing an increase of 10.4% over the last survey released in November, the CCI stood at 153.93 points in January – its highest level since its inception three years ago.
Similarly, both sub-indices of the CCI, which measure households’ current and future economic conditions, registered a significant rise in January over November.
Year-on-year inflation during the first half of the current fiscal year clocked up 6.1% compared to 8.9% recorded over the same period of preceding fiscal year.
According to Taurus Securities Head of Research Zeeshan Afzal, declining prices of global commodities, lower food inflation, base-effect of major electricity price hikes of October 2013 and lower government borrowings from the SBP resulted in a prolonged dip in inflation. He expects inflation will remain between 4% and 5% during January-June.
The central bank brought down the key interest rate last week by 1% to 8.5% mainly on the back of declining inflation. It has also revised its inflation forecast for 2014-15 from 8% to 4.5%-5.5%.
The percentage of households expecting a decline in the prices of energy items over the next six months in January was 12.2% as opposed to only 4.7% in November. The percentage of households anticipating a decrease in the prices of food items over the next six months in January was 7.1% as opposed to 3.9% in November.
The survey also revealed that 15.7% of more than 1,800 surveyed households were ‘positive’ about government policies in January as opposed to just 10.7% in November. Similarly, the percentage of households expressing interest in buying a car or a house in the next six months also increased in January compared to November.

http://tribune.com.pk/story/830899/deflationary-pressure-consumers-...

[Riaz Haq]

State Bank of Pakistan (SBP) Governor Ashraf Mehmood Withra has said that Pakistan’s economy was improving day-by-day.

Talking to Pakistan Television, he said that foreign reserves were increasing, while inflation was decreasing due to the economic policies of present government. Efforts were being made to achieve the GDP growth rate of seven per cent. To a question, Withra said that a good response was received for the the Eurobond. The governor said that steps were taken to ensure merit and enhance professional capability of the SBP staff. Some of them were sent abroad for improving their skills in relevant fields. To another query, he said that the SBP had good working relations with private and public sector institutions.

http://www.dailytimes.com.pk/business/01-Feb-2015/pakistan-s-econom...

[Riaz Haq]

The year-on-year inflation rate in Pakistan has dropped to 3.88% in January from 4.3% in December and the latest number is a multi-year (11-year) low (on falling energy prices).

The Pakistani rupee fell to a near two-month low on 2 February as official data showed price pressures further eased in the South Asian country.

The year-on-year inflation rate in Pakistan has dropped to 3.88% in January from 4.3% in December and the latest number is a multi-year low.

USD/PKR rose to as high as 101.40, its highest since early December, and up from the previous close of 101.10. At the highest of the day, the rupee was down 0.3% against the greenback.

The Pakistani currency has been on a downtrend since mid-December and as of now, the USD/PKR pair is testing the 38.2% Fibonacci retracement of its October-December selloff.

A break of the current level will take the pair to 101.80 before hitting the 102 level. The nearest 102 level to watch out for is 102.17.

The 14-day moving average has not broken above the 50-day mark as yet, despite the upward correction in the pair since December, and such a break will trigger a more important buy signal.

However, the 101 support has to hold for more upsides in the pair. If it breaks below that level, then the next level to watch will be 100.21 before testing levels below 100.

http://www.ibtimes.co.uk/pakistans-rupee-falls-two-month-low-inflat...

[Riaz Haq]

Pakistan has witnessed a 100 percent increase in currency in circulation from Rs. 1,224 billion to Rs. 2,500 billion during the last five years, said Kazi Abdul Maktadir, Deputy Governor Operations, State Bank of Pakistan.
Every year, on average, 1.9 billion pieces of currency notes of various denominations are printed from 2009 to 2014.
He was addressing participants of Conference on Currency Management: Strategies for the Future, organized by State Bank of Pakistan at a local hotel in Lahore today.
Muktadir said that to better manage the rising levels of currency in circulation, improving quality of banknotes in circulation and bringing sophistication in the currency management processes, SBP is now moving ahead with the procurement of state-of-the-art cash handling machines for sorting, bundling, and shredding. With one-stop solution machines that will be capable of sorting, detecting counterfeit, shredding, preparing packets and bundles SBP aims to bring efficiency in the area of banknote processing through latest technology.
Acting Governor State Bank of Pakistan Saeed Ahmad has said that the SBP sees total transformation of cash processing business from manual to automation in next five years and thus would like to see commercial banks aligning their plans with State Bank in this direction.
He said that banknotes are face of a central bank and ensuring circulation of clean notes, removal of soiled and counterfeit notes, and redistribution of fit notes in the system is amongst key responsibilities of the SBP as all necessary steps are being taken to this effect.

Saeed Ahmad elaborated that the SBP has been making extensive efforts to implement its clean notes policy for the last 10 years but with limited success largely due to lack of automation in cash processing. “We have thus planned fast track automation of currency management function both at the central bank and commercial banks level,” he added. He also underscored the role of commercial banks in automation of their cash processing systems.
The Acting Governor elaborated that automation of cash processing at SBP is necessary but it could not be effective in achieving its objective of ensuring adequate and uninterrupted supply of high quality and clean banknotes across the country unless commercial banks also automate their cash processing systems.
The central bank is developing a documentary for educating the masses about the security features of banknotes. Further, a smart phone application on Pakistani banknotes designs and security features is also being developed for enhancing public awareness.

http://www.pakistantribe.com/story/31254/pakistans-currency-in-circ...

[Riaz Haq]

IMF raises Pakistan's GDP growth outlook
International Monetary Fund, or IMF, has raised GDP growth outlook for Pakistan to 4.7 per cent in financial year 2015-16 and said the country is expected to achieve 4.3 per cent year-on-year growth in current fiscal year ending on June 30.

Outgoing IMF mission head for Pakistan Jeffrey Franks said fund has scaled up its gross domestic product (GDP) growth forecast for Pakistan from 4.4 per cent to 4.7 per cent during July-June 2016 period as the country’s economy is in better shape after the implementations of economic reforms in the past 18 months.

“The sharp drop in oil prices represents an historic opportunity to reduce the vulnerability of the economy by building stronger fiscal and external buffers,” Franks told Khaleej Times on the sidelines of joint Press conference with Pakistan’s Finance Minister Ishaq Dar in Dubai on Thursday.

He said unexpected decline in oil prices gives $4 billion cushion to Pakistan economy and the government should utilise the advantage to address some of the long-standing imbalances in the energy sector.

“Some progress has been made in addressing the structural impediments to higher and more inclusive growth, but few important challenges remain and need to address for sustainable stable economy,” he said.

Elaborating, he said the government should take appropriate steps to enhance the independence of the central bank, resolve energy sector deficiencies on permanent basis, complete the legal framework for deposit insurance and privatise or restructure public enterprises.

Dar expressed the hope that Pakistan economy is on track to achieve its GDP growth target of 5.1 per cent during current financial year 2014-15 as all the major economic indicators are on positive trajectory.

“IMF always gave a cautious outlook, but we are confident of achieving our 5.1 per cent GDP growth target despite some challenges in the country,” Dar said.

To a question, he said Pakistan economy suffered significant losses due to sit-in protests and fall in oil prices, but the PML (N) government led by Prime Minister Nawaz Sharif managed to overcome the crises due to prudent economic policies, financial discipline and strict control on expenditures.

Dar also highlighted the economic reforms undertaken by the government since June 2013 and expressed his satisfaction over the performance of the economy.

“I assure you that Pakistan economy is moving in right direction and will achieve higher growth rates in future,” he said.

Governor of the State Bank of Pakistan Ashraf Wathra said the country has potential to register even higher growth rate in medium term.

“Pakistan has a proven history of achieving six per cent-plus growth in the past. We have to revive the economy and hit at least seven per cent GDP growth in coming years,” he said.


http://www.khaleejtimes.com/biz/inside.asp?xfile=/data/uaebusiness/...

[Riaz Haq]

From Wall Street Journal: India Economists’ Embarrassing Confession: They Don’t Know What GDP Is

India’s radically revised gross domestic product data have apparently left economists dazed and confused because they are uncharacteristically silent about what growth was last quarter.

India is scheduled to announce GDP figures for the quarter ended Dec. 31 on Monday but instead of the regular rush of forecasts, economists seem to have created a cartel of silence, choosing not to make predictions using India’s new methodology.

Last week India surprised all the experts by recalculating GDP growth for the fiscal year ended March. Using a new calculation method, India’s economy expanded 6.9% that year, well above the 4.7% growth the country had announced earlier.

“The revision was massive,” said Siddhartha Sanyal, India economist at Barclays. “We don’t know what the GDP was in the previous quarter, so how do we estimate what is going to happen?”

The change happened because the government brought forward the base year used in GDP calculations by seven years to fiscal 2012. It also switched from using production costs to market prices.

While the headline growth figure shot up with the new calculations, the absolute GDP figure was basically the same as it was before, making it hard for economists to figure out exactly where the new-found growth came from. Meanwhile, the government didn’t give the revised quarterly data or new calculations for this year.

“We are completely blind at the moment,” said Saugata Bhattacharya, chief economist at Axis Bank.

While the new numbers suggest that last year the economy was rebounding strongly, some economists are still skeptical. Most other indicators that year suggested growth was sputtering, they said.

“I am not convinced that there is (such) good news,” said Glenn Levine, an economist at Moody’s Analytics. “If it’s true that the economy is growing close to 7%, then that suggests there isn’t much slack in the economy.”

That’s something economists are finding hard to digest given other indicators such as industrial production have pointed to weakness.

With a lot of questions about the new data still remaining unanswered, economists are only estimating growth for last quarter based on the old method even though the government won’t be announcing those numbers anymore.

Forecasts of eight economists surveyed by The Wall Street Journal using the now-outdated method range between 5.0% and 5.5%, compared with the 5.3% expansion in the September quarter.

While few will venture a guess on what numbers will be announced Monday, “the broader picture is that the economy is improving,” said Axis Bank’s Mr. Bhattacharya.

http://blogs.wsj.com/indiarealtime/2015/02/06/india-economists-emba...

[Riaz Haq]

NEW DELHI—India’s economy is expected to grow at 7.4% in the current fiscal year, a growth rate that rivals China’s, reflecting a strengthening recovery but also a recent radical revision in the way the country calculates its gross domestic product.

The Indian statistics ministry was careful Monday to play down any notion of a horserace with Beijing. “There is no comparison,” said Ashish Kumar, director general of the Central Statistics Office, since China’s economy is several times larger than India’s. “We are not here in a beauty contest.”

ENLARGE

An employee cuts sheet metal on a bandsaw inside an Ishwar Engineering Co. factory in Mumbai on Feb. 7. PHOTO: BLOOMBERG NEWS

If India can sustainably boost its growth rate to a level outpacing that of its northern neighbor and strategic rival, it would mark a comeback for the South Asian nation, whose economy had until recently appeared to have lost its shine amid corruption scandals and gaping trade and budget deficits.

It would also provide a major political boost to the government of Prime Minister Narendra Modi, who won a landslide electoral victory last year after pledging to revive the economy and drive development so India could catch up with its richer neighbors in East Asia. For the final three months of 2014, the third quarter of India’s fiscal year, gross domestic product grew 7.5%, the statistics ministry said, buoyed by accelerated growth in government spending and financial services.

But the country’s new growth figures—and the revised calculations that underpin them—have provoked confusion and jubilation in roughly equal measure.

Shubhada Rao, chief economist at Mumbai-based Yes Bank , said the robust revived data, considered alongside other indicators of continued frailty, “do not add up in terms of the extent of improvement” in GDP.

Late last month, the statistics ministry said it was updating the base year used as the reference point for measuring price changes, as well as incorporating newer, more-comprehensive data into its GDP calculations, which aim to measure the country’s total economic output.

The ministry also shifted its focus to GDP computed at market price, not at factor cost, as its main indicator of economic expansion. Market-price GDP gauges activity by adding up consumers’ and firms’ spending, whereas factor-cost GDP tabulates producers’ costs.

The first growth estimates produced using the new methodology showed growth in the previous fiscal year, which ended last March, well above what was originally announced: 6.9% instead of 4.7%. The size of the economy, however, was relatively unchanged.

That revision seemed difficult to square with the events of that year, in which the threat of tighter monetary policy by the U.S. Federal Reserve roiled emerging markets and provoked emergency intervention by India’s central bank.

Monday’s data included bumped-up estimates of growth for the current fiscal year as well. Growth in the three months that ended in September was revised to 8.2% from the original estimate of 5.3%. And in the quarter before that, the official growth rate was changed to 6.5% from 5.7%, indicating substantial acceleration between those two quarters instead of a slight slowdown as previously estimated.

The latest figures, which describe the economy’s performance since Prime Minister Modi took office last spring, also seem much stronger than what other data imply. Mr. Modi has taken some steps to improve the business environment and streamline bureaucratic procedures. Indian companies announced $64 billion in new investment projects in the fourth quarter of 2014, by one estimate—the highest level in four years.

But they don’t appear to be putting big money on the table yet. Exports in December shrank 3.8% in dollar terms from a year earlier.

Financial constraints are a major reason investment hasn’t picked up. Corporations are burdened with debt and banks are reluctant to lend. Finance officials have said the government budget for the coming fiscal year, which will be unveiled at the end of this month, will likely include substantial investments in railways, roads and housing to compensate for weak investment by private firms.

Such indications of subdued activity have vexed economists trying to understand the new, peppier GDP figures. “We are still trying to connect the dots,” said Dharmakirti Joshi, chief economist at the Mumbai-based rating agency Crisil. He said that for him, the main difficulty for forecasting India’s future growth is that different indicators now paint divergent pictures of manufacturing activity.

For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. The new GDP data, meanwhile, show a 5.3% jump in manufacturing for that year. “There’s a big disconnect,” Mr. Joshi said.

Vidya Mahambare, an economics professor at the Great Lakes Institute of Management in Chennai, suspects India’s growth figures for the first decade of the 2000s will eventually see big revisions as well. Calculated using the new parameters, economic expansion during the fat years might have maxed out at 10% or even 11% instead of 9%, Ms. Mahambare said. “Whatever we thought about potential growth and business cycles—everything changes.”

For now, though, Mr. Modi’s government is spurring optimism that deep, structural obstacles to economic growth are gradually being removed. “Things are so clogged up throughout, whether you’re talking about infrastructure projects being stalled, permissions not coming in, clearances not coming in,” said Satish Reddy, chairman ofDr. Reddy’s Laboratories Ltd. , a Hyderabad-based pharmaceutical giant.

He counseled patience. “Everybody is bullish about India. Everybody has the confidence. But it just needs some time to play out and really translate into numbers,” Mr. Reddy said.

—Rajesh Roy contributed to this article.

http://www.wsj.com/articles/india-projects-7-4-gdp-growth-this-fisc...

[Riaz Haq]

Pakistan's capital market regulator has published long-awaited rules for the issuance of sukuk, or Islamic bonds, as part of efforts to strengthen governance and broaden their appeal to investors.

The regulator first drafted the rules in October 2012, but efforts have accelerated under a five-year plan that authorities hope will double the industry's share of the banking sector to 20 percent by 2020.

The rules come at a time when issuance of corporate sukuk in Pakistan is gathering pace, helping broaden an Islamic capital market which in recent years has relied on the government for the bulk of such deals.

The current pipeline of sukuk includes utility K-Electric , which is planning a sukuk worth 22 billion rupees ($217 million), which would be Pakistan's largest corporate sukuk to date.

Pakistan Mobile Communications (Mobilink) and Bank Islami Pakistan also plan sukuk of their own.

Under the rules, sukuk will have to be structured to comply with standards of the Bahrain-based Accounting and Auditing Organisation for Islamic Finance Institutions (AAOIFI), as well as those set by the local regulator.

AAOIFI standards indicate how Islamic financial products should be structured; complying with the standards could increase the appeal of sukuk to investors by addressing consumer concerns about their religious authenticity.

The rules require issuers to conduct an annual audit to ensure the sukuk confirms to sharia requirements. Sukuk must also carry a credit rating not lower than triple BBB. 

http://www.reuters.com/article/2015/02/10/pakistan-sukuk-rules-idUS...