[🇵🇰] Economy outlooks for 2024

[ghazi]

Economic woes driving global firms’ exodus​

Mubarak Zeb Khan
December 31, 2023

More multinational companies have divested their assets or temporarily halted their operations in Pakistan continuing a trend that began in calendar 2022.

Over the past 30 months, numerous firms have chosen to relocate their activities outside of Pakistan or reduce operations due to significant political and economic challenges.

Multinational corporations (MNCs) naturally experience fluctuations in their expansion and downsizing efforts, influenced by factors like access to capital, availability of workforce and strategic considerations. In Pakistan, a combination of policy decisions and an unfavourable regulatory environment has made it relatively easy for these companies to make a choice: either cease operations or pursue cost-cutting measures such as downsizing or divesting their assets.

The outgoing calendar year 2023 began with announcements from corporations such as Lotte Chemicals which sold its whole 75pc ownership and Puma Holdings divested its 57pc stake in January. This was a period when MNCs were examining their worldwide footprints while taking into account a variety of issues. Pakistan was rated at the top due to severe political instability and contradictory economic policies.

Political instability and inconsistent policies are main causes

In the oil sector, global energy giant Shell announced on June 14 that it will leave Pakistan after 75 years of existence. Another oil company is expected to make a similar announcement within the next year, reducing the presence of MNCs in the energy industry to a bare minimum. The issue is unrelated to whether or not Shell products will be available following its exit. The items will be available in the domestic market, but the leaving of one of the world’s top 500 corporations would send a negative signal to other MNCs looking to invest in Pakistan. Before making any choice, MNCs always consult with enterprises that already have a presence in a given country.

In the pharmaceutical sector, three MNCs have left or scaled down their activities in Pakistan in the last two and a half years, and many more are considering leaving. MNCs’ representation in pharmaceuticals has gradually declined from 40 to 24. The pharmaceutical sector faces challenges ranging from medication registration to pricing, particularly from bureaucracy and political regimes. While smuggled pharmaceuticals are more expensive, the political government is unwilling to raise the price of paracetamol from Rs1.50 to Rs1.75 per pill, despite the country’s biggest-ever devaluation and inflation.

Another notable example is Telenor Group’s sale of its Pakistan telco operations to PTCL. Airlift, Swvl, VAVA Cars, and Careem are among the prominent enterprises that have discontinued operations in Pakistan in 2022. However, consumer goods MNCs will continue to operate due to profit margins and a consumer market of 250 million.

Causes of leaving

In the 1990s, developing countries began to implement reforms, while in Pakistan, political parties were busy undermining each other’s governments. Since 2014, the same trend has resurfaced with a new vigour, culminating in a new phase in April 2022. Since then, the country has had political and economic challenges.

Unfortunately, the conflict is not about improving institutions but about replacing one person with another. Two families and one individual drive Pakistani politics. MNCs are closely watching these developments that may only expected in some least-developed countries.

The accountability offices were established in response to political victimisation during the 1990s and early 2000s. Courts have been preoccupied for the previous two and a half years with political bails and case clearances, as well as taking up new cases of politicians.

The administration is preoccupied with filing case after case against politicians, while court orders for bail are ignored. Non-compliance with a court decision is also a major concern for investors. Saudi Arabia has recently tied the availability of international arbitration to any investment.

Policymaking in Pakistan is uncertain. The corporate sector was surprised by super taxes on certain industries and foreign exchange bank profits. Instead of letting the State Bank of Pakistan handle foreign exchange manipulation, the government chose the option of taxing banks for exchange transaction gains, which the court stayed. The decision already sends a bad signal to foreign investors.

High borrowing rates of 22pc also make working capital and expansion challenging. Industrial energy costs rise daily. Unabated smuggling, under-invoicing and intellectual property rights infringement are also important worries for MNCs.

Analysis: Economic woes driving global firms’ exodus

Over past 30 months, numerous firms have chosen to relocate their activities or reduce operations due to political and economic challenges.

www.dawn.com

 

[ghazi]

Banks’ retail transactions: Q1 share of digital payments soars to 80pc​

Rizwan Bhatti
December 31, 2023

Banks’ retail transactions: Q1 share of digital payments soars to 80pc

KARACHI: The share of digital payments in retail transactions of the banking system increased to 80 percent during...

www.brecorder.com

 

[Old School]

Pakistan to ask for new, longer-term bailout during IMF review​

The International Monetary Fund (IMF) will hold a second and last review of Pakistan's $3 billion stand-by arrangement (SBA) this week, the finance ministry and the IMF said on Wednesday, during which the South Asian nation will ask for a new longer-term bailout.
The four-day review begins on Thursday, the ministry said in a statement, and if successful, will release a final tranche of around $1.1 billion secured by Islamabad under a last-gasp rescue package last summer, averting a sovereign debt default.
"Pakistan has met all structural benchmarks, qualitative performance criteria and indicative targets for successful completion of the IMF review," the ministry added, hoping for a successful IMF staff level agreement after the appraisal.
"The mission will be focused on (the) completion of Pakistan's current SBA-supported programme, which ends in April 2024," the fund said through a spokesperson.
Prime Minister Shehbaz Sharif has already directed his finance team, headed by newly installed Finance Minister Muhammad Aurangzeb, to initiate work on seeking an Extended Fund Facility (EFF) after the standby arrangement expires on April 11.
Pakistan to ask for new, longer-term bailout during IMF review | Reuters

 

[Old School]

An Economy Perpetually in Crisis Is Shredding Pakistan’s Middle Class​

Pakistan's political and economic turmoil is chipping away at the gains in living standards that families have worked hard to achieve, leaving middle-class people like Asim struggling and the poor battling to survive
An Economy Perpetually in Crisis Is Shredding Pakistan’s Middle Class - WSJ

 

[Old School]

Pakistan to discuss Extended Fund Facility with IMF next month, says finance minister​

Finance Minister Muhammad Aurangzeb said on Friday that the matter of an Extended Fund Facility (EFF) with the International Monetary Fund (IMF) will be discussed in Washington next month as the country looks to alleviate a full-scale economic crisis.

The standby $3 billion arrangement with the global lender expires on April 11, and the two sides reached a staff-level agreement regarding the disbursal of the final tranche of $1.1bn earlier this week.

“We have expressed our strong interests in an EFF with the IMF, but the quantum is not clear yet,” Aurangzeb said at a media briefing, adding that the lender was “very receptive” to the request.

The US has also been “very supportive” in the matter, the minister said.

Prime Minister Shehbaz Sharif, after being sworn in for a second time, had directed his finance team to begin work on seeking an EFF from the IMF.

A day ago, he had said that Islamabad needed another bailout package from the Fund, which he had linked to across-the-board structural and economic reforms.

 

[Old School]

Deadly Pakistan attacks threaten China economic ties​

A string of deadly attacks on Chinese interests in Pakistan is threatening to slam the brakes on Beijing's multibillion-dollar investment in the country and further escalate security demands on Islamabad, analysts say.

Five Chinese engineers and their Pakistani driver were killed in a suicide attack Tuesday in Besham, about 270 kilometres northwest of the capital. The victims were on their way to the Dasu hydropower project, a China-backed 4,320-megawatt electricity generation development. Construction work on the $4.2 billion project was suspended in the wake of the violence.

The Besham incident was the third deadly attack on or near Chinese interests in just one week.

The Gwadar Port Authority Complex and a naval air base were separately targeted in southwestern Pakistan last week by separatists who see Chinese nationals as exploiting the region's resources. Gwadar is a cornerstone of the China-Pakistan Economic Corridor (CPEC), a $50 billion component of the Belt and Road Initiative (BRI), Beijing's globe-spanning infrastructure push.

 

[Deleted due to Error (Muji Iqbal)]

China and Saudi Arabia should bail Pakistan out.

 

[Old School]

Finance Minister Aurangzeb hoping for new IMF deal by end of fiscal year​

Finance Minister Muhammad Aurangzeb on Friday expressed hope for reaching a Staff-Level Agreement (SLA) with the International Monetary Fund (IMF) by the end of the fiscal year (June 30), adding that there have not been any final discussions with the Fund yet.

The $3 billion standby arrangement with the global lender expires on April 11, and the two sides reached a staff-level agreement regarding the disbursal of the final tranche of $1.1bn last week. The minister has previously voiced the government’s intention to seek “larger and longer” bailout package from the IMF.

During the gong ceremony at the Pakistan Stock Exchange, the finance minister elaborated that the details of the deal would be discussed during the spring meetings in Washington where the delegation led by him would go around “14th to 15th April”.
The finance minister elaborated that they had requested to “enter a larger and longer programme” during the SLA discussions to which the IMF was receptive, adding that the size of programme hasn’t been decided yet.

 

[Old School]

[H2]It seems that some circles are trying to undermine finmin's role in the cabinet[/H2]
FINANCE MINISTER Muhammad Aurangzeb wants to conclude a larger, medium-term deal with the IMF before the current fiscal year is out. He is also hopeful of getting to the finish line in time. Speaking to reporters at the PSX on Friday, he expressed hopes of reaching a staff-level agreement for the new programme with the Fund by end FY24.

According to him, the lender has been "very receptive" to Pakistan's request for a larger programme in recent communications. While there was no final decision yet, he said, "it is our desire that by the time we wrap up this fiscal year an [agreement] is reached". He has repeatedly argued that Pakistan requires IMF discipline for at least the next three years to "execute" the long-delayed structural changes in the economy.

Apparently, the finance minister has also earned the goodwill of the lender, and the upcoming talks on the new programme on the margins of the spring meetings of the Bretton Woods institutions will, hopefully, pave the way for early finalisation of the new loan programme.

At a time when the minister needs the government's full backing to pull off the crucial deal and implement tough economic reforms over the next several years, it seems that some circles are trying to undermine his role in the cabinet. Prime Minister Shehbaz Sharif's decision to name Foreign Minister Ishaq Dar to the all-important Council of Common Interests and keep Mr Aurangzeb out of it looks like an attempt to contain his role in decision-making.

Sadly, this was not the only occasion, since the formation of the new government a month ago, that he has been sidelined. Some days ago, Mr Sharif, in a break from tradition, decided to chair the ECC, the top policymaking forum. It was only after widespread criticism that he yielded the position to the finance minister. Likewise, the latter's role in the privatisation process was also diminished when Mr Dar was appointed head of the Cabinet Committee on Privatisation.

In the CCI's case, what exactly is the foreign minister expected to contribute to the council's deliberations? On the other hand, the presence of the finance minister in the CCI — the top constitutional forum mandated to discuss and decide on matters and disputes related to the federation and the provinces — is of utmost importance at this moment because the implementation of several IMF programme goals and policy reforms hinge on the active involvement of the federating units.

There is no better forum than the CCI to enlist the buy-in of the provinces on the IMF programme and reforms. It can only be hoped that sense will prevail and the prime minister will replace Mr Dar with his finance minister in the CCI in the larger interest of the country.

 

[ghazi]

[H2]Fiscal gap to widen to 7.4pc of GDP[/H2]

Khaleeq Kiani
April 18, 2024

ISLAMABAD: Projecting stagnant tax-to-GDP ratios over the next five years, the International Monetary Fund (IMF) on Wednesday estimated Pakistan's fiscal deficit — the gap between total resources and expenditures — for the current fiscal year at 7.4 per cent of GDP, almost 1pc higher than 6.5pc target set by the federal government.

On the positive side, however, the fund anticipates a gradual decline in debt-to-GDP ratios and general government expenditures over the medium term. Also, the primary fiscal balance has been estimated to remain 0.4 to 0.5pc of GDP over the next five years, compared to a 0.9pc primary deficit in FY23.

The centre had estimated the overall fiscal deficit at Rs6.9 trillion for the current fiscal year (6.53pc of GDP) on the anticipation that provinces would offer Rs600bn surplus to scale down the federal deficit otherwise estimated at Rs7.5tr or 7.1pc of GDP. The IMF had previously projected the fiscal deficit at 7.6pc of GDP in October last year but has since revised it to 7.4pc, apparently based on the latest data shared by the government last month as part of a quarterly review.

In its fiscal monitor released on Wednesday as part of spring meetings of the IMF and the World Bank currently in progress in Washington, the fund forecast fiscal deficit declining 7.3pc of GDP in FY25 — significantly higher than its 6.9pc forecast made in October last year. In the same direction, the IMF made upward adjustments in deficit estimates for Pakistan.

IMF says revenues to stay stagnant despite falling expenditures in five years
​

In doing so, the fund forecast a 5.8pc fiscal deficit for FY26, followed by 5.1pc in FY27 and staying at 4.6pc in FY28 and FY29. In October last year, the IMF predicted Pakistan's fiscal deficit to be 6.9pc in FY25, 5.4pc in FY26, 4.4pc in FY27 and 4.4pc in FY28.
The fiscal monitor for April 2024 also put primary budget surplus — the difference between revenues and expenditures
excluding interest payments — at 0.4pc of GDP for FY24, followed by 0.5pc in FY25 and then staying stable at 0.4pc over the next three consecutive years and again at 0.5pc in FY29. In October last, the IMF had pitched a primary deficit for FY23 at 1.2pc of GDP compared to 0.5pc claimed by the government, which turned out to be a 0.9pc deficit, according to the latest statement of the IMF.

Referring to the revenue side, the IMF projected general government revenue to be 12.5pc of GDP for the current fiscal year ending June 30, up from 11.4pc last year. The fiscal monitor predicts general government revenue at 12.4pc for the next two fiscal years, FY25 and FY26, 12.3pc in the following two years, FY27 and FY28, and then back to 12.4pc in FY29.

The fund has not changed its revenue-to-GDP ratio estimates for all these years.

On the expenditure front, the fiscal monitor estimates general government expenditure at 19.9pc of GDP for FY24, significantly higher than 19.2pc in FY23. It then anticipates a gradual yearly decline over the medium term as debt servicing costs ease. The general expenditure will drop to 19.6pc in FY25), followed by 18.1pc in FY26, 17.5pc in FY27, 17pc in FY28 and 16.9pc in FY29. The fund has slightly revised its previous forecasts about the expenditure to GDP ratio by 0.2 to 0.3pc for these years.

Falling govt debts

Likewise, the IMF expects the gross government debt to ease down to 71.8pc of GDP at the end of the current fiscal year from 77.1pc last year. It anticipates a declining trend, but more is needed to eliminate vicious violations of the Fiscal Responsibility & Debt Limitation Act (FDRLA), which seeks to ensure that debt always remains below 60pc of GDP.

The IMF projects the gross government debt-to-GDP ratio to come down to 69.4pc next year, followed by 68.4pc in FY26 and 66.8pc in FY27. The debt is expected to drop to 64.8pc in FY28 and 63.1pc in FY29.

The fund noted that Pakistan would be among the economies with relatively high deficit levels and projected to undergo rapid fiscal consolidation over the medium term.
Published in Dawn, April 18th, 2024

 

[ghazi]

[H2]Economic outlook uncertain with high downside risks, warns ADB[/H2]
Dawn
April 13, 2024

KARACHI: The Asian Development Bank (ADB) has said Pakistan's economic outlook is uncertain, with high risks on the downside, as political uncertainty will remain a key risk to the sustainability of stabilisation and reform efforts.

In its April 2024 'Asian Development Outlook', the Manila-based lending agency said on Thursday that potential supply chain disruptions from the escalation of the conflict in the Middle East would weigh on the economy, reported Dawn.com.

With Pakistan's large external financing requirements and weak external buffers, disbursement from multilateral and bilateral partners remains crucial, it said, adding that these inflows could be hampered by lapses in policy implementation.

The ADB highlighted that support from the International Monetary Fund (IMF) for a medium-term reform agenda would considerably improve market sentiment and catalyse affordable external financing from other sources.

The report projected that economic growth in Pakistan for the FY25 would reach 2.8 per cent, driven by higher confidence, reduced macro-economic imbalances, adequate progress on structural reforms, greater political stability, and improved external conditions.

Growth was estimated to remain subdued during FY24 and pick up next year, provided economic reforms take effect, it said.

Meanwhile, real gross domestic product (GDP) was expected to grow by 1.9pc in 2024, driven by a rebound in private sector investment linked to progress on reform measures and transition to a new and more stable government.

The report further forecast that inflation will remain at about 25pc this year, driven by higher energy prices, but was expected to ease in 2025.

While improvement in food supplies and moderation of inflation expectations would likely ease inflationary pressures, further increases in energy prices envisaged under the IMF Stand-By Agreement were projected to keep inflation high, it observed.

Although improved supplies tempered food inflation, it remained high, driven largely by rising prices for energy and inputs to agriculture. Core inflation also remains elevated, reflecting domestic recovery and the pass-through of upward adjustments in energy prices, the ADB said.

On the supply side, it noted that post-flood recovery in agriculture would lead to growth. The report said output would rise from a low base on improved weather conditions and a government package of subsidised credit and farm inputs supporting expanded area under cultivation and improved yields.

Higher farm output would help expand manufacturing, which would also benefit from the increased availability of critical imported inputs. Large-scale manufacturing expanded in three of the first six months of 2024, the report highlighted.

According to the report, the relaxation of import restrictions and economic recovery were expected to widen the current account deficit.

However, imports were expected to expand during the year as domestic demand strengthened, and the stabilisation of the currency market made it easier for firms to import inputs. Thus, the current account deficit was projected to widen to 1.5pc of GDP in 2024.

The report pointed out that Pakistan would continue to face challenges from substantial new external financing requirements and the rollover of old debt, exacerbated by tight global financial conditions.

The ADB said tax collection increased by 29.5pc, as reforms in the personal income tax, higher taxes on property transfers, and the reintroduction of taxes on cash withdrawals from banks and the issuance of bonus shares raised direct tax collections.

Revenue mobilisation was expected to strengthen in the medium term, reflecting planned reforms to broaden the tax base, it added.

 

[ghazi]

[H2]Pakistan to grow at 2pc, face 25pc inflation: IMF[/H2]
Khaleeq Kiani
April 17, 2024

ISLAMABAD: Notwithstanding a relatively better global outlook, the International Monetary Fund (IMF) on Tuesday maintained Pakistan's economic growth prospects for the current fiscal year at two per cent, which it had revised downward in January from its previous estimate of 2.5pc.

In its flagship World Economic Outlook (WEO 2024), released on Tuesday, the IMF kept the country's growth rate at 3.5pc for the next fiscal year. In January, the Fund had lowered the current year's growth rate by 0.5pc from 2.5pc and by 0.1pc from 3.6pc for FY25, which it anticipated in October 2023.

The growth estimates are based on the Fund's recent quarterly review of Pakistan's macroeconomic position as part of the $3bn Stand-By Arrangement (SBA) on which the two sides reached a Staff-Level Agreement (SLA) on March 20.

The IMF forecast is slightly higher than projections made by its Washington-based cousin — the World Bank — at 1.8pc early this month. The IMF's growth forecast is significantly lower than the government's 3.5pc GDP growth target for the current year but generally in line with the State Bank of Pakistan's expectation of 2pc to 3pc announced last month as part of the Monetary Policy Statement.

Lender lifts global growth forecast to 3.2pc this year

The IMF estimated that Pakistan's average inflation will decelerate to 24.8pc this year from 29.2pc last year and further slow to 12.7pc in FY25. Also, the Fund projected the current account deficit increasing to 1.1pc of GDP this year from 0.7pc last year and rising further to 1.2pc next year.

On the other hand, the IMF estimated that the unemployment rate would gradually decline from 8.5pc in FY23 to 8pc this year and 7.5pc next fiscal year.

Raises global growth

In the WEO report, the IMF raised the global growth rate for 2024 to 3.2pc, 0.1pc higher than its 3.1pc forecast of January and significantly higher than its October forecast of 2.9pc. "The forecast for 2024 is revised up by 0.1bps from January and by 0.3bps from October 2023".

The pace of expansion is low by historical standards, owing to both near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and longer-term effects from the Covid-19 pandemic and Russia's invasion of Ukraine; weak growth in productivity; and increasing geo-economic fragmentation.

The WEO expected the global headline inflation to fall from an annual average of 6.8pc in 2023 to 5.9pc in 2024 and 4.5pc in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. The latest forecast for global growth five years from now — at 3.1pc — is at its lowest in decades. The pace of convergence toward higher living standards for middle- and lower-income countries has slowed, implying persistence in global economic disparities, the IMF said.

The relatively weak medium-term outlook reflects lower GDP per person growth stemming, notably, from persistent structural frictions preventing capital and labour from moving to productive firms. It noted that dimmer prospects for growth in China and other large emerging market economies will weigh on the prospects of trading partners, given their increasing share of the global economy.