How Pakistan’s economy fared in the year 2017
Pakistan’s economic growth has historically been tumultuous and unsteady, which adds to the uncertainty of the country’s economic conditions.
However, the latest trends show an upward projection.
Pakistan’s economy has become 42nd largest in terms of the gross domestic product (GDP) while 25th largest in the world in terms of purchasing power parity. Plus, there are increasing and encouraging signs of bulk foreign investments in the near future in the country.
Despite some blemishes and political instability, Pakistan’s economy marked entry into good books of global rating agencies in 2017 with the trend of rather sluggish growth which is forecasted to soon gain momentum.
The economy grew by 5.2 percent in fiscal year 2017, which is the highest growth rate in the last decade. On average during Jul-April FY 2017, inflation recorded at 4.1 percent. While, foreign exchange reserves stood at $20.7 billion in December against the previous year’s $24 billion.
A large number of Memorandum of Understandings (MoUs) and agreements were signed with foreign countries and international bodies during the year.
The China Pakistan Economic Project (CPEC) also played key part in different economic sectors specially construction (cement and steel) and some major development projects.
Later part of the year saw forced devaluation of rupee in the country, which climbed consumer product prices. Rupees value was 104 against one dollar in January which devalued to be 110 in December. This will have direct impact on the country’s imports and exports.
Here are some important happenings on Pakistan’s economic front in 2017:
How international bodies rated Pakistan’s economy
IMF says Pakistan outlook ‘favourable’
The International Monetary Fund (IMF) said the outlook for Pakistan’s economy is “favourable”, citing Chinese infrastructure investments among reasons for growth, but warned of risks to recent progress.
Confidence in Pakistan is growing, with the IMF saying last year that the country had emerged from crisis and stabilised its economy after completing a bailout programme.
However the IMF warned in a report in June 2017 that macroeconomic stability gains have started to erode and could pose risks to the economic outlook.
“Pakistan’s outlook for economic growth is favourable, with real GDP estimated at 5.3 percent in … 2016/17 and strengthening to 6 percent over the medium term on the back of stepped-up China Pakistan Economic Corridor investments, improved availability of energy, and growth-supporting structural reforms,” the report said.
“However, macroeconomic stability gains … have begun to erode and could pose risks to the economic outlook,” it added.
Moody’s keeps Pakistan’s B3 ranking with stable outlook
Credit rating agency Moody’s kept Pakistan’s B3 rating with a stable outlook in a recent analysis, saying strong growth performance, fiscal deficit reduction and improved inflation dynamics underpin the rating.
At the same time, credit challenges include a relatively high general government debt burden, weak physical and social infrastructure, a fragile external payments position, and high political risk, the rating agency said. In particular, the government’s very narrow revenue base weighs on debt affordability. Moreover, exports and remittance inflows have slowed and capital goods imports have risen, resulting in renewed pressure on the external account.
Moody’s annual credit analysis method of Pakistan includes economic strength, which is assessed as “moderate”, institutional strength “very low (+)”, fiscal strength “very low (-)” and susceptibility to event risk “high”.
The rating agency notes that prospects for growth have improved following Pakistan’s successful completion of its three-year Extended Fund Facility (EFF) program with the International Monetary Fund (IMF) in September 2016 and the launch of the China-Pakistan Economic Corridor (CPEC) project in 2015.
The CPEC project has the potential to transform the Pakistani economy by relieving infrastructure bottlenecks, and stimulating both foreign and domestic investment, it said. However, headwinds to further fiscal consolidation and renewed pressure on the external account present downside risks to the rating.
Bloomberg terms Pakistan’s economic growth ‘pleasant surprise’
An article published in a New York based international news agency’s magazine has called the economic growth in Pakistan a pleasant surprise.
According to the article published in Bloomberg magazine, most of the developments taking place in Pakistan are welcoming.
The write up in the business journal said that the performance of the stock market in Pakistan is exemplary which yielded 46 percent profit in FY15-16.
The article also mentioned that the economic growth rate of Pakistan has also improved which manifests that the country is on the correct path of economic progress.
The Bloomberg article further commented that poverty and incidents of terrorism are going down in Pakistan.
It also stated that inflation is not a problem for the country now.
Standard & Poor’s affirms Pakistan’s ‘B/B’ ratings with stable outlook
The global rating agent Standard & Poor’s (S&P) in its report in October affirmed Pakistan’s ‘B’ long-term and short-term sovereign credit rating.
The outlook for the long-term ratings remains stable. Affirmation of Pakistan’s rating reflects that economic prospects remain favourable and external and fiscal metrics of the country will not worsen materially from their current level, reported press information department.
‘The Economist‘ predicted Pakistan to be fastest-growing Muslim economy
London-based ‘The Economist’ magazine also had positive outlook towards Pakistan’s economy.
‘The Economist’ in 2014 had forecast Pakistan to be world’s sixth fastest-growing economy.
In 2017, the four world economies ahead of Pakistan were: India (7.5%), Vietnam (6.6%), China (6.4%), and Philippines (6.4%).
However Pakistan remained ahead of large Muslim economies such as: Indonesia (5.2%), Malaysia (4.6%), Egypt (4.0%), and Turkey (2.9%), according to the Economic and financial indicators of the magazine.
Pakistan outperforms India in equity funds and geopolitics: global media
Pakistan’s stock market outperformed the Indian equity market with a huge gap since the beginning of the new century.
Indian paper Economic Times cited Bloomberg data as showing that over the past 16 years, the (Morgan Stanley Capital International) MSCI Pakistan index climbed over 14 per cent in dollar terms on a compounded annual growth (CAGR) basis, while the MSCI India index has advanced 8.39 per cent annually during the same period.
Pakistan also beat India in another geopolitics, according to American business magazine Forbes.
“The country’s leaders have skillfully leveraged Pakistan’s strategic geographic location to extract a series of benefits from America and China,” said the article published on January 9.
The author noted that the Pakistan government in 2001, leveraged its proximity to Afghanistan to get a big part of its foreign debt written off from the US.
Noteworthy MoUs/ agreements
Pakistan and Turkey
Pakistan and Turkey in February signed ten agreements and Memorandum of Understandings for cooperation in different fields.
The agreements and MoUs were signed in the fields of hydro carbons, environment, forestry, information, exchange of financial intelligence relating to money laundering and exchange of armed forces personnel.
Pakistan and South Africa
Pakistan and South Africa in March signed a Memorandum of Understanding on ‘Defence and Defence Industrial Cooperation’.
Under the MoU, a Joint Defence Committee was to be constituted to pave the way for strengthening and diversifying bilateral defence cooperation.
It called for cooperation in training of the armed forces officers and soldiers, acquisition of defence equipment and joint ventures.
Pakistan and China
Pakistan and China in May signed several MoUs and agreements related to China Pakistan Economic Corridor (CPEC) project.
The two countries agreed on implementation of the upgradation of ML1 and the establishment of Havelian Dry Port in Pakistan. The neighbouring countries also signed a grant agreement on the Gwadar airport and an MoU on cooperation within the framework of the Silk Road Economic Belt and the 21st century Maritime Silk Road Initiative.
“It was also agreed that in accordance with the vision of cooperation, development and win-win progress under the Belt and Road Initiative, the two countries will make full use of existing bilateral cooperation mechanisms, multilateral mechanisms that they have both joined, such as CPEC, to form synergy, give each other support and learn from each other so as to complement and fully display each other’s strengths.”
Pakistan with JICA
The Ministry of Energy and Power Division Wednesday inked an MoU with Japan International Cooperation Agency (JICA) on energy conservation.
Under the programme, JICA would extend support through their experts for developing an effective phasing out strategy of inefficient appliances ensuring mandatory Pakistan Energy Labelling Regime and for the study of upgrading National Power System Expansion plan, said a press release.
PSX with Shanghai Consortium
Pakistan Stock Exchange and Shanghai Consortium of China signed a 40 percent share purchase agreement in Karachi.
Pakistan and Malaysia
Pakistan in November signed an inter-governmental agreement with Malaysia on the supply of Liquefied Natural Gas (LNG) between the two countries.
The government in January signed four agreements to set up two 1,650 MW coal based power plants in Hub and Thar under the CPEC project.
The agreements included two each for implementation and power purchase and were signed between representatives of China Power Hub Generation Company (Private) Limited (CPHGC), Hub Power Company (HUBCO) and Private Power Infrastructure Board (PPIB).
A 1,320 MW coal fired power plant, under the agreements, would be set up in Hub area of Balochistan with an estimated cost of over $2 billion while 330 MW project would be established in Thar area of Sindh at a cost of $500 million.
The Hub project would be completed by August 2019 while the Thar project would start generation by December 2019.
The 1,320 MW power project is based on super critical technology while 330 MW power project is based on sub-critical technology.
The Thar project is a pilot project and it would attract huge investment in the future.
First unit of the 1320-megawatt coal fired power plant was inaugurated in November at Port Qasim in Karachi.
The Unit One will generate 660 megawatt electricity, and has been completed at a cost of two billion dollars in a record time of 30 months which is ahead of scheduled time. The second unit of the plant will also become functional in February 2018.
This is the first project that has been completed under CPEC.
HBL ceases operations in NY
Habib Bank Limited (HBL) voluntarily decided to cease its branch operations in New York, which mainly offered US dollar transaction clearing services. The branch was operating in the US city since 1978.
The bank has decided to fulfill US dollar clearing services through a correspondent bank, just like a large number of other banks around the globe do.
This decision was taken after the New York State Department of Financial Services proposed to fine the bank up to $630 million for “deficiencies relating to compliance with state and federal laws at its US branch.”
Forced devaluation of Pakistani rupee
The Pakistani rupee has shed over 5 percent after the central bank withdrew its support during mid-December, effectively devaluing the local currency.
The Pakistani rupee, which has mostly traded in a tight range of 104-105 per dollar since December 2015, had slumped from 105.55 per dollar to 110 in a matter of few days.
The depreciation of Pakistani rupee was welcomed and termed by the IMF as ‘helpful for economic growth’.
“Continued exchange rate flexibility will be important to facilitate external adjustments to support exports and economic growth,” Harald Finger, who led an IMF staff mission’s visit to Islamabad, said in a media briefing at the end of his visit.
KSE-100 hits 17-month low
Following the rupee devaluation, the KSE-100 Index of Pakistan Stock Exchange (PSX) shed 598 points, a 17-month low.
The KSE-100 Index registered a decrease of 598.30 points or 1.53% to settle at 38,481.70 in December.
Army chief’s comment on economy sparks controversy
Chief of the Army Staff Gen Qamar Javed Bajwa’s statement in October highlighting grey areas of the economy sparked a controversy whether the Army chief had the right to speak on economy or not.
Talking to businessmen and the military leadership of Karachi, he had said the army shared some apprehensions on the economic developments in the country.
He said the economy was showing mixed indicators as growth had picked up but the debts were sky high.
Later, Director General Inter Services Public Relations Asif Ghafoor while talking to local news channel was asked to shed light on the statement so he said “if the country’s economic health was not bad, it was not good either”.
Interior Minister Ahsan Iqbal strongly responded to this asking Asif Ghafoor to refrain from making comments on the national economy. “Such statements can dent Pakistan’s image globally,” he said.
Senior politicians from the ruling and opposition parties rebuffed Ahsan Iqbal’s statement.
Prime Minister Shahid Khaqan Abbasi said the COAS had the right to discuss the economic conditions.
“The army chief has expressed his opinion. He went to address an economic forum, everyone does that,” he maintained.
Leader of the Opposition in the National Assembly Syed Khursheed Shah said anyone could comment on the economy.
The army chief has right to talk about the national economy, he insisted, adding that the government should give a briefing to him over the state of economy.
Federation of Pakistan Chambers of Commerce and Industry also jumped on the bandwagon and said the military could not remain indifferent to the degenerating economic situation.