Pakistan's Official GDP Figures Ignore FMCG Sector's Phenomenal Growth

"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.  

Related Links:

Haq's Musings

Pakistan's Growing Middle Class

Pakistan's GDP Grossly Under-estimated; Shares Highly Undervalued

Fast Moving Consumer Goods Sector in Pakistan

3G-4G Roll-out in Pakistan


Riaz Haq said…
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.

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Riaz Haq said…
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.
Riaz Haq said…
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.
Riaz Haq said…
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.
Riaz Haq said…
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.
Riaz Haq said…
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.
Riaz Haq said…
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.
Riaz Haq said…
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.
Riaz Haq said…
The Pakistani government expects to raise about $600 million next month selling a stake in Habib Bank Ltd., the nation’s biggest lender by assets, before undertaking deals for electricity distribution companies and Pakistan International Airlines Corp.
The government owns 609 million shares of Habib Bank, or a 42 percent stake, and it will offer a minimum of 250 million shares, Privatization Commission Chairman Mohammad Zubair said in an interview in London on Friday.
“People are taking much more interest because the government is coming up with transactions every two months,” Zubair said.
Prime Minister Nawaz Sharif aims to raise $2 billion from asset sales in the year ending June 30 to meet conditions attached to a $6.6 billion International Monetary Fund loan. He wants to curb his budget deficit and bring greater efficiency to state-owned companies.
Habib Bank shares fell 0.2 percent to 205.05 rupees in Karachi on Feb. 20. The stock has gained 40 percent in the past year, compared with the 33 percent advance in the Karachi Stock Exchange 100 index.
A decision on the discount the shares will be offered at won’t be taken until just before the actual sale in late March, Zubair said. Pakistan sold a stake in United Bank Ltd. last June at a 7 percent discount and shares in Allied Bank Ltd. in December at a 3 percent discount, Zubair said.
Electricity Distribution
His focus then will turn to selling the first of nine state-owned power distribution companies. Zubair said he aims to invite bids for the electric supply company in the city of Faisalabad within about six weeks, with a goal of completing the deal by the end of September.
“There are buyers out there,” Zubair said. Pakistani and Chinese companies are among those who have expressed interest, he said. The appeal of the companies is “clear. There is known demand, and it is growing. The challenge is to collect revenue,” he said.
The intention is to complete the sales of all nine distribution companies by June 2016, Zubair said.
“We believe that unless you take them all together, it would be difficult to complete the process,” he said. Financial advisers already have been appointed for the first four of the companies.
The government also will seek to complete the sale of a stake in Pakistan International Airlines Corp. by March 2016, Zubair said. The transaction will focus only on the “core” airline unit, with other operations such as ground-handling and catering being kept by the state, he said.
The asset sale program experienced a setback when political turmoil and falling oil prices prompted the government to suspend its sale of shares in Oil & Gas Development Co. Ltd. in November. A month later, the government sold an 11.4 percent stake in Allied Bank for $144 million.
“We are well on track to achieve the $2 billion” target for this fiscal year, Zubair said. “When we were given it, we thought it was conservative. Now, it looks much more challenging because a number of transactions got delayed. We expect to achieve it.”
To contact the reporters on this story: Khurrum Anis in Karachi at; Guy Collins in London at
To contact the editors responsible for this story: Arijit Ghosh at Dick Schumacher
Riaz Haq said…
The (Pakistan) government accepted on Monday it had missed economic growth target for this fiscal year because of the underperformance of agriculture and industrial sectors.

The economy grew at the rate of 4.24 per cent as against the projected target of 5.1pc for 2014-15. Last year the target was 4.4pc, but the growth rate was 4.03pc.

The matter was discussed in the meeting of the National Accounts Committee (NAC) held on Monday.

Out of 20 key growth indicators, the NAC documents showed only 10 were on target. In March 2015, the Asian Development Bank Outlook projected moderate growth in Pakistan at 4.2pc in FY15 and 4.5pc for FY16.

The ADB attributed the low growth to slow pace of reforms in energy, taxation and public sector enterprises.

The NAC cited minor crops, livestock, fishery, small-scale manufacturing, slaughtering, construction, general government services, finance and insurance as key drivers of growth in 2014-15.

The growth rate, however, is provisional as final numbers for full year will firm up later. The agriculture sector posted growth of 2.88pc against 3.3pc target in 2014-15. Last year the sector grew by 2.69pc. Major crops recorded a paltry growth of 0.28pc against the target of 1.5pc.

The worrisome factor is that yield of some crops posted negative growth. The wheat production was projected at 25.478 million tonnes for this year as against 25.979 million tonnes last year, a decline of 1.93pc.

The sugarcane yield declined by 7.13pc, maize by 5.04pc during this fiscal over the same period last year.

There is fear that low yield of minor crops could lead to higher food inflation. Livestock, the second largest sub-sector of agriculture, posted a growth of 4.12pc against the target of 3.8pc. The fishery sector expanded 5.75pc as against 0.98pc last year. And forestry exhibited a growth of 3.15pc against a negative growth of 6.74pc last year.

The industrial sector posted a growth of 3.62pc against the target of 6.8pc in 2014-15. Last year it grew by 4.45pc. Of these the mining and quarrying sector recorded a growth of 3.84pc against the target of 6.5pc. The manufacturing recorded a growth of 3.17pc down from 4.46pc last year. The projected target was 6.9pc.

The LSM posted a growth of 2.38pc against the target of 7pc, small-scale manufacturing 8.24pc against the target of 8.4pc and slaughtering 3.32pc against the target of 3.6pc.

The growth in construction sector was 7.05pc compared to 7.25pc last year. And supply of electricity, and gas also depicted a growth of 5pc against a negative growth of 26.38pc last year. The services sector grew at 4.95pc in 2014-15. Last year it grew by 4.37pc.

The major contributors were the general government services, which grew by 9.44pc, finance and insurance 6.18pc, housing services 4pc, transport 4.21pc and wholesale and retail trade 3.38pc this fiscal year over the last year.
Riaz Haq said…
#Pakistan Central Bank Unexpectedly Cuts Benchmark Rate to 42-Year Low via @business

Pakistan’s central bank unexpectedly cut its benchmark interest rate to the lowest in 42 years in an attempt to spur economic growth as inflation slows in the sixth-most populous nation.
The State Bank of Pakistan lowered the discount rate for a fourth straight meeting to 7 percent from 8 percent, central bank Governor Ashraf Mahmood Wathra said Saturday in Islamabad. That’s the lowest since August 1973. Fourteen of 15 economists in a Bloomberg survey predicted a cut to 7.5 percent; one saw a reduction to 7 percent.
Inflation in South Asia’s second-largest economy has eased each month this year as transport and food prices fell, giving the central bank room to boost growth that the International Monetary Fund predicts will be slower than previously forecast.
“They are maintaining the nation’s upward growth strategy” with this cut, Saad Khan, an economist with Karachi-based brokerage Arif Habib Ltd., said by phone. “This is super good news and will help equities rally.”
Pakistan’s benchmark stock index is the third-best performer in the world since 2009, according to data compiled by Bloomberg. Textile shipments make up almost half of the exports in the fourth-largest cotton and rice producer.
Target Rate
The central bank announced a new target for the overnight repo rate at 50 basis points or half a percentage point below the benchmark to better manage liquidity in the interbank market as part of the IMF loan program.
The new rate is part of a band where the benchmark is the ceiling and repo is the floor. The floor rate has been set at 5 percent after reducing the band by 50 basis points, according to a bank statement on the website.
Saturday’s decision came after the IMF this month scaled back Pakistan’s growth forecast for the year through June to 4.1 percent from 4.3 percent and 4.5 percent from 4.7 percent for the following 12 months.
The country is still making “significant progress” in meeting targets under a $6.6 billion loan program and the next tranche of $506 million may be released by mid-June, IMF Pakistan mission chief Harald Finger said this month.
The latest rate reduction will probably be the last for several months as a rebound in oil costs will spark price pressures, economists said.

‘Inflationary Pressures’
“The decision has been taken to spur private-sector borrowing and encourage business activity,” Adeel Ahmed Khan, chief executive officer at BMA Asset Management Co. in Karachi, said before the announcement. “With global oil prices rising, I predict the government now will be faced with inflationary pressures that may force the central bank to hold rates.”
Inflation will average about 4.2 percent in 2015 before accelerating to 5.4 percent in 2016, according to a Bloomberg survey published in April. Consumer prices rose 2.11 percent in April, the slowest rate in Bloomberg data going back to 2009.
Standard & Poor’s and Moody’s Investors Service have raised their outlooks on Pakistan’s credit rating to positive from stable since March. The firms cited Pakistan’s improving financial position and growth prospects as Prime Minister Nawaz Sharif sells state assets and courts Chinese investment to help narrow the budget deficit
Riaz Haq said…
Over last two years: #Pakistan’s food, beverage exports to #UAE increase 27% …

Pakistan’s food and beverage exports to the United Arab Emirates (UAE) have increased 27% in the last three years, making it an area worthy of attention after textiles, said the consul general of Pakistan in Dubai.

While rice remains the country’s top export commodity to the Emirates, the food segment remains a potential area as Pakistan continues its fight to increase foreign exchange revenue through exports.

“Pakistan’s food and agro-products exports touched $0.5 billion last year compared to 2012’s number of $362.4 million,” said Commercial Counsellor of Dubai Consulate Saeed Qadir, adding that Pakistan had boosted sale of its traditional agricultural products and expanded reach into areas such as processed meat and poultry products, tea, concentrated milk and cream, certain fruits and vegetables, spices, herbs and confectionaries.

Rice remains Pakistan’s leading food export to the UAE. According to TDAP figures, Pakistan’s rice sales jumped 11 fold to $207.8 million compared to the last two years. Meat and processed frozen food exports crossed the $100 million mark in the last three years.

As for fruits and vegetables, exports increased over 100% in three years. Sales of dried fruits and vegetables to the UAE rose to $9.7 million and $7.8 million, respectively. Exports of potatoes reached $5.9 million last year – an eight-fold increase compared to the 2012 figures, while fresh and frozen meat exports crossed the $50 million mark.

“Moreover, for this sector, there awaits a major export push as more than 90 Pakistani companies are taking part in the Gulfood 2016; the world’s largest annual food and hospitality trade platform, scheduled in Dubai later this month,” said the CG.

“In this exhibition, Pakistani exhibitors will be looking to source new buyers for a wide range of Pakistani food and agro sector products including fresh and frozen foods, rice, fruits and vegetables, sauces, nuts, sweets, confectionery and tea,” said Consulate General of Pakistan, Dubai Consul General Javed Jalil Khattak.

“Buyers can leverage Pakistan’s cost-competitiveness, lower transport costs and delivery time, and the quality, freshness, taste and aroma of our diverse produce”, he added.

The Pakistan pavilion at Gulfood 2016 will feature among 117 national and trade association pavilions. There will also be a first-time group participation from Russia, Costa Rica, Belarus, Mauritius and New Zealand (returning after a six-year break). In all, some 5,000 international companies from 120 countries and more than 85,000 food and beverage, wholesale, retail, distribution and hospitality professionals from five continents will take part in the event.

Data released by global macroeconomic research firm, BMI International, shows that Pakistan remains a buoyant market for consumer sales and food and beverage investment. The firm is forecasting a 9.9% per capita compound annual growth rate (CAGR) in food consumption until 2019, a 3.2% per capita CAGR growth in domestic soft drinks sales and 9.5% per capital CAGR in mass grocery retail sales.

“There are enormous business opportunities emerging in Pakistan for both food and beverage imports and exports, as evident by the recent international investment in manufacturing plants in Karachi, Multan and Islamabad,” explained the Exhibitions and Events Management Dubai World Trade Centre Senior Vice President Trixie Lohmirmand.
Riaz Haq said…
#Netherland's FrieslandCampina International Holding BV to buy #Pakistan's #Engro Foods for $460 million. …

A Dutch dairy cooperative is set to buy out a Pakistani food giant with an investment of around $460 million, in what would amount to the largest private sector takeover by a foreign firm in the country’s history.

FrieslandCampina International Holding BV intends to acquire a 51 per cent stake of Engro Foods Limited, one of the largest listed companies at the benchmark Pakistan Stock Exchange (PSX), a notification on the bourse’s website said Thursday.

The deal would bring in a minimum investment of $460 million based on the Pakistani firm’s present stock value.

Engro Foods’ 2015 profit up 256%

“Yes, it is the largest ever deal in the private sector,” analyst Faisal Shaji, head of research at Standard Capital Securities, said.

Citibank Pakistan is the financial advisor.

Shahji added the deal would be closely watched by international investors eyeing the emerging South Asian economy.

“Pakistan is already in the radar range of the world corporate sector and this deal further lifts its image outside,” he said.

If finalised the Dutch takeover would boost Pakistan’s foreign direct investment statistics.

FDI was down by 57 per cent to $336 million in Pakistan for the first seven months of the current financial year compared to the corresponding period in the last financial year ending June 2015.

Pakistan expects its economy to grow by 4.5 percent for the 2015-16 financial year due to lower oil prices, planned improvements in the energy supply, investment related to the China Pakistan Economic Corridor (CPEC), buoyant construction activity, and acceleration of credit growth.
Riaz Haq said…
From United Nations Industrial Development Organization (UNIDO):

Pakistan Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$135.03 in 2005 to $143.84 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 18.05% in 2005 to 17.41% in 2014

India Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$155.73 in 2005 to $168.42 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 15.10% in 2005 to 13.85% in 2014

China tops the list of world's 10 largest industrial producers. It is followed by the US, Japan, Germany and South Korea, according to United Nations Industrial Organization (UNIDO).

India ranks 6th in the world in terms of total manufacturing output in 2013, up from 9th place in 2008,

India's manufacturing value added (MVA) per capita of 161.7 in 2013 is among the lowest in the world. It's up from 131.9 in 2008.

In fact India's 2008 MVA per capita of 131.9 was lower than Pakistan's 141.1. Since 2008, Pakistan's MVA per capita has slipped to 139.1 in 2013 while India's has increased to 161.7 in this period.

Bangladesh's MVA per capita has jumped from 82.2 in 2008 to 118.3 in 2013.

On UNIDO’s industrial competitiveness index, most industrialized countries lost ground in the last three years. Among the five most competitive are four high-income countries (Germany, Japan, the Republic of Korea and the United States), along with China ranking fifth. The four are among the world’s most industrialized countries and, with China, account for 59 percent of world MVA.
Riaz Haq said…
Shadow Economies All over the World
New Estimates for 162 Countries from 1999 to 2007
Friedrich Schneider
Andreas Buehn
Claudio E. Montenegro

Pakistan's shadow economy estimated at 36%

Activities associated with shadow economies are facts of life around the world. Most societies
attempt to control these activities through various measures such as punishment, prosecution,
economic growth or education. To more effectively and efficiently allocate resources, it is
crucial for a country to gather information about the extent of the shadow economy, its
magnitude, who is engaged in underground activities, and the frequency of these activities.
Unfortunately, it is very difficult to get accurate information about shadow economy
activities, including the goods and labor involved, because individuals engaged in these
activities do not wish to be identified. Hence, doing research in this area can be considered a
scientific passion for “knowing the unknown.”
Although substantial literature5
exists on single aspects of the hidden or shadow economy and
comprehensive surveys have been written by Schneider and Enste (2000), and Feld and
Schneider (2009), the subject is still quite controversial as there are disagreements about the
definition of shadow economy activities, estimation procedures utilized, and the use of their
estimates in economic and policy analysis.6
Nevertheless, there are some indications that the
shadow economy has grown around the world, but little is known about the development and
the size of the shadow economies in developing Eastern European and Central Asian (mostly
former transition) countries, and high income OECD countries over the period 1999 to
2006/2007. The period was chosen as it has the most comprehensive data availability. This
study is an attempt to fill this gap by using the same estimation technique and almost the same
data sample used in Schneider and Buehn (2009) and Schneider and Enste (2000).
Therefore, the goal of this paper is twofold: (i) to undertake the challenging task of estimating
the shadow economy for 162 countries in various stages of development and located in
several regions throughout the world7
and (ii) to provide some insights about the main causes
of the shadow economy. To our knowledge, such an attempt has not been undertaken so far;
hence, we provide a unique database of the size and trends of the shadow economy in 162
countries over the period 1999 to 2006/2007. This is an improvement compared to previous
work – we used the MIMIC (Multiple Indicators Multiple Causes) estimation method for all
countries, thus creating a unique data set that allows us to compare shadow economy data.
Riaz Haq said…
#Tesco tests waters in #Pakistan with Alpha #Supermarkets tie-up. Plans 50+ stores via @Reuters

Britain's biggest retailer Tesco (TSCO.L) will stock its products at a Pakistani supermarket chain, a Tesco official said on Thursday, dipping its toes in a country of nearly 200 million with rising consumer spending and a growing middle class.

Tesco has been expanding rapidly in emerging markets to bolster sluggish growth in western Europe and is among a growing band of companies attracted by Pakistan's fast-growing consumer market, encouraged by the highest economic growth since 2008 and improved security.

"We have agreed on a wholesale partnership with Alpha Supermarkets in Pakistan, under which Tesco products will be stocked at two of its stores," Jared Lebel, head of new market development at Tesco, told Reuters.

He said that Limestone Private Limited, which owns the Alpha Superstores chain, planned to open 50 smaller express stores and four Alpha stores stocking Tesco products within the next three years.

"We are excited about Pakistan as a market," Lebel said. "A big factor in coming to Pakistan is rising consumer spending."

A spokesman for Tesco in London said: "We're looking forward to seeing how customers respond."

Fauzia Khuhro, head of business development at Limestone, told Reuters that Tesco products would hit its shelves in about 10 days.

"Alpha Supermarkets will be the only retailer in Pakistan that stocks Tesco private-label products," Khuhro said. "We will offer a complete range of Tesco product categories, from food and non-food items to frozen and fresh foods."

Tesco's partnership with Alpha Supermarkets was announced by British High Commissioner Thomas Drew and Limestone at a press briefing in Karachi on Tuesday.

Riaz Haq said…
From being world leader in surveys, #India is now facing a serious #data problem: NSS #GDP estimate half of CSO's

The National Sample Survey (NSS), when launched by the NSSO in 1949, was the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. The methods used by the NSS became the standard for household surveys the world over.

For example, the use of inter-penetrating samples — essentially, two independent samples drawn from the same population — to test the reliability of the survey results, was developed by Mahalanobis in a 1936 paper and remains a standard tool for survey design. The Living Standard Measurement Surveys the World Bank still carries out in many countries are a direct descendent of the NSS.

We quibble about whether growth was 7.1% or 7.4%, ignoring the fact that our two main sources of official consumption data, the NSS and the GDP data produced by the Central Statistical Organisation (CSO), now tell entirely different stories.
If you believe the NSS, GDP could be just about half of what it is according to the CSO. There are occasional academic debates about which one is correct, which no one in power pays any attention to. And yet, it is almost surely true that both estimates (and their growth rates) are off by a huge margin. More worrying, this divergence has been known for nearly 50 years (though it has grown a lot).

And though we are occasionally told that the NSS is understaffed, or that no one knows where the CSO got a particular number, there is absolutely no political interest in improving things. From being the world leader in surveys, we are now one of the countries with a serious data problem while people talk about the really good data you can get in Indonesia or Brazil or even Pakistan.
Riaz Haq said…
5 Most Profitable Business Sectors in Pakistan:

Pakistan business sector is growing fast, a country with 193.2 million estimated population in 2016 has shown strong growth in the past five years which is expected to grow further. A study published by Harvard indicates that Pakistan’s economic growth will surpass China’s in the next 20 years, growth statistics and current development in the country including China Pakistan Economic Corridor CPEC attracts more businesses to invest in Pakistan from across the globe. Recently, France, United Kingdom, Turkey and China has shown special interest to start bilateral trade with Pakistan and private sector companies from these countries are also leapfrogging to make considerable investments in Pakistan.

Despite, these are many sectors in Pakistan that are underdeveloped but these five sectors including; FMCG, Chemicals and Fertilizers, Automotive, Textile and Energy/Petroleum are the most growing and profitable in Pakistan.

The data acquired from Karachi Stock Exchange KSE from 2013 to 2017 indicates that top companies who performed well are from the above five sectors. The companies witnessed strong growth and profitability over the four years.


FMCG is the most lucrative and huge business sector in Pakistan, companies that are consistently growing and becoming more profitable includes; Colgate Palmolive, Unilever, Nestle and Engro Foods. The market is huge and still in growing stage whereas industry has few multinational players covering the whole market.

2 Chemicals and Fertilizers

“Chemicals and fertilizers” is another big sector which caters even bigger market, companies like ICI Pakistan, Fauji Fertilizer, Engro Fertilizers and Chemicals, Abbot, Lucky Cement and some other are dominating the market with strong growth over time and profitability.

3 Automotive

The automotive industry in Pakistan forms oligopoly, global players like Toyota, Honda and Suzuki dominates the market. However, Pakistan has allowed other automakers to setup car assembly plants in Pakistan, increasing disposable income and the transport needs in the country make the market more attractive, potential and profitable.

4 Textile

Pakistan’s textile industry is popular in all over the world; however, due to lesser facilities and government support Pakistan is not able to streamline its textile growth but the textile industry accounts for 57% of the country overall exports. There are several companies in this sector including Premium Textile and Din Textile that are quite lucrative.

5 Energy/Petroleum

Where there are people there is a need for energy in all segments of life whether you are at home, traveling, working, playing and having leisure energy and petroleum products are inevitable, Pakistan’s energy and petroleum needs are growing rapidly, it is estimated that Pakistan’s energy needs will surpass 50,000 MW by 2025. Petroleum and energy sector in Pakistan is expected to grow further and become more profitable in the future.
Riaz Haq said…
Unilever announces fresh $120 million investment in Pakistan

Pakistan’s fast-moving consumer goods segment is set to see fresh investment after Unilever Plc – a Dutch consumer goods giant – announced foreign direct investment (FDI) of $120 million (Rs11 billion) for expansion of its operations in the country over the next two years.

The announcement comes as a welcome sign for Pakistan that has suffered from low levels of FDI in recent years.

“A majority of the investment will be made to enhance manufacturing operations across Unilever’s four factories in Pakistan over the next two years,” a statement quoted the company as saying on Monday.

The company manufactures about 30 brands in the areas of home care, personal care, foods, beverages and ice cream in Pakistan.

“Unilever is aiming to make it (Unilever Pakistan) a billion-euro firm next year (by December 2019) from 800-810 million euros (in revenues) at present,” company’s Senior Manager Corporate Affairs Hussain Ali Talib told The Express Tribune.

“In 2013, Unilever Overseas Holdings, which is a majority shareholder in Unilever Pakistan Limited, invested over €400 million ($530 million) in Pakistan, which is the single largest foreign direct investment in the recent history of Pakistan,” the statement said.

It called Unilever’s operations in Pakistan amongst the best performing business units within Unilever’s global operations. “The new investment reaffirmed Unilever’s strong commitment to local operations and to Pakistan’s economic potential,” it said.

The announcement about the investment was made by a delegation of Unilever Pakistan in a meeting with Adviser to the Prime Minister on Finance Miftah Ismail.

“The investment is indeed an acknowledgement of the country’s growth potential and the macroeconomic stability it has gained over the last four years,” the statement quoted Ismail as saying.

The planned investment supports Pakistan’s narration of being a growing economy with over 70 million middle-class population out of a total of over 200 million.

Pakistan has been on the radar of foreign investors over the past couple of years. FDI increased 15.6% to $1.94 billion in the first eight months (July 2017 to February 2018) of the current fiscal year from $1.68 billion in the same period of previous year, according to the State Bank of Pakistan.

Overseas Investors Chamber of Commerce and Industry Secretary General M Abdul Aleem recently said many European investors in the auto, infrastructure and liquefied natural gas (LNG) import terminal sectors would make major investment decisions for Pakistan in the near future.

Some of them were waiting for regulatory approvals to initiate the investment process in Pakistan, he said.

Stability in Pakistan integral to China’s development, reiterates Chineseambassador

“Pakistan carries a huge potential to grow. Investment climate will be much better in the post-election period,” he emphasised, adding “FDI may total around $3 billion this fiscal year.”

In the previous fiscal year 2016-17, the country had received $2.73 billion in FDI.

Unilever Pakistan CEO Shazia Syed said “we have been part of Pakistan’s growth for nearly 70 years, during which time we have seen our business grow to over 30 brands…we take pride that over 95% of our brands are produced locally, creating employment for thousands, contributing to the exchequer and simultaneously creating a better future every day for the people of Pakistan.”
Riaz Haq said…
FMCG sector, a major driver of packaging demand, is seeing double digit growth. Increase in awareness of hygiene and urbanization all boost demand for packaging in Pakistan.

Recently, the Pakistan Pulp Paper & Board Mills Association made an appeal to the government for a level playing field. The association contended that the local paper industry cannot compete with duty free/sales tax free imports while the local industry is being taxed at full rates.

The background to this appeal is the international market conditions of the paper industry. China has enforced legislation related to environment protection which has resulted in the shutting down of units in different sectors within the paper industry. Therefore, China has started importing paper from all over the world while banning waste paper imports, causing paper prices to become volatile.

In the local market, prices of final products have fallen to unprecedented level due to uneven demand and supply conditions. Imports quantity of newsprint paper has risen as the price per unit has fallen to a low of Rs56 per kg. The association, in their appeal contended that the news print paper was being used to produce text book and exercise books due to which units within the industry were forced to shut down 3 days per week in 2017. While paper products are struggling however, packaging is flourishing.

Various factors are driving the growth in the packaging sector. The Punjab Food Authority has imposed an embargo on the sale of open-food products through its Food Regulation 2017. FMCG sector, a major driver of packaging demand, is seeing double digit growth. Increase in awareness of hygiene and urbanization all boost demand for packaging.

Thus it comes as no surprise that major players are undergoing expansion plants. Roshan packages last year incurred Rs832 million for expansion projects of its corrugation plant.

Cherat Packaging Limited installed a new Universal Papersack line that has a capacity of more than 135 million bags per annum last year. Century Paper has approved plans for installing additional capacity up to 130,000 metric tons per annum of Coated Board, subject to technical and financial feasibility.

The paper and paperboard industry contributes marginally to LSM at 2.3 percent. However, it grew by 7.2 percent in the last fiscal year as per SBP’s report. Its growth is being driven by the packaging sector which has been positively impacted by LSM’s growth as it supplies the packing of products.

Riaz Haq said…
Printing Industry Highlights

The global market for printing is forecast to US$ 898 billion.
Asia contributes 39% which is estimated at US$ 350 billion.
Pakistan’s estimated Print Market is around US$ 4.5 billion.
(Paper & Board US$ 2.75bn, Flexible US$ 1.5bn and Machineries & Others US$ 0.25bn)
Printing & Graphic Art Industry caters to & serves diverse sectors :
Financial Sector Education
Pharmaceutical, Food & etc.
In Pakistan, PAPGAI is the only representative body and is registered with Ministry of Trade & Commerce and incorporated with Security Exchange Commission of Pakistan.
Riaz Haq said…
Pakistan has changed a lot since the last time the GDP was rebased. There are many new sectors and categories of products such as fmcg and services like data services being offered to meet the demand of the growing middle class. These products and services are currently left out of the official GDP calculation. Just rebasing the GDP to 2015 will result in significant upward revision.
Riaz Haq said…
Shan Foods considering sale of majority stake valued at about $250 million. Possible buyer Unilever Foods Pakistan's net sales rose 7% to 9.6 billion rupees ($62 million) for the first nine months this fiscal year. #Pakistan #FMCG #food via @business

Shan Foods Pvt. is considering the sale of a majority stake that could value the Pakistani spice maker at about $250 million, according to people familiar with the matter.

The company is working with a financial adviser on the sale and has approached potential buyers including Unilever Plc., said the people said, who asked not to be identified as the discussions are private.

A deal would give potential acquirers exposure to the world’s sixth most populous nation that was the fastest retail market globally until an economic crisis recently. The nation is looking to stabilize its economy after securing a $6 billion bailout from the International Monetary Fund.

Deliberations are ongoing and Shan Foods can still decide to sell a non-majority stake or keep the business, the people said. Representatives for Shan Foods and Unilever declined to comment.

Shan Foods, founded in 1981, is known for its small boxes with spices and recipe mixes that are used in South Asian cooking, according to its website. Its products are available in 65 countries, the website shows.

Among measures to revive the economy, Pakistan discourages consumer good imports that makes it a boon for local manufacturers including Unilever’s operations there. Unilever Pakistan Foods Ltd.’s net sales rose 7% to 9.6 billion rupees ($62 million) for the first nine months this year, according to the company’s website.
Riaz Haq said…
A base year is a benchmark with reference to which national account figures such as GDP, gross domestic saving and gross capital formation are calculated.

According to the new base year, Bangladesh was an economy of Tk 34,840 billion in current prices in FY21, up 15.7 per cent from Tk 30,111 billion as per the previous base year.

"The size of our economy is huge, and the new base year will reflect it," he said, adding that a real scenario would allow the government to make more informed policy decisions.

Zahid Hussain, a former chief economist of the World Bank's Dhaka office, also welcomed the new base year.

He said timely revisions to data on GDP and its components determine the accuracy of national account estimates and their comparability across countries.

With the finalisation of the new series, Bangladesh will be ahead of all other Saarc countries in terms of the recency of the national account's base year.

Only the Maldives (2014) and India (2011-12) come close, while Pakistan (2005-06) and Sri Lanka (2010) are well behind.

"Improved data sources increase the coverage of economic activities as new weights for growing industries reflect their contributions to the economy more accurately," said Hussain.

The last revision was done in 2013.

The size of the agriculture, industry and services sectors has expanded as per the new base year.

The new base year uses data on about 144 crops while computing the contribution of the agriculture sector to the GDP, which was 124 crops in the previous base year.

The gross value addition by the agriculture sector rose to Tk 4,061 billion in current prices in the last fiscal year, up from Tk 3,846 billion in the old estimate, the BBS document showed.

The industrial sector saw the addition of the data on the outputs of Ashuganj Power Station Company, North-West Power Generation Company, Rural Power Company, cold storage for food preservation, Rajshahi Wasa, and the ship-breaking industry.
Riaz Haq said…
THE size of Pakistan’s informal economy is estimated to be as much as 56 per cent of the country’s GDP (as of 2019). This means that it’s worth around $180 billion a year, and that is a massive amount by any yardstick. by LalaRukh Ejaz IBA Karachi Professor

The country’s large black economy is inextricably linked to the levels and quality of governance exercised by the state. In the course of fieldwork for my doctoral research for the University of Southampton, I found that many Pakistani women who were setting out starting their own businesses did so in the informal sector. The reasons they gave usually related to their experience of dealing with the bureaucracy and government machinery in Pakistan which they found to be dominated by red tape and tedious and complicated procedures.

This is precisely what drives many people who want to engage in economic activity towards the undocumented economy. The headache of having to deal with a large bureaucracy, of complying with complicated and long registration procedures, of getting approvals and licences from various government agencies and departments make it difficult for most people to operate within a documented framework.

A large black economy is an indication of misgovernance and indicates a failure of the government to ensure that all businesses and entrepreneurial ventures are included in the formal sector. This failure in turn leads to reduced tax revenue collection since all entities outside of the formal economy do not pay any tax to the government.

Pakistan’s black economy is linked to governance.

Given that the size of the black and informal economy is estimated at over half of the country’s GDP, bringing it under the documented net would bring hundreds of billions in tax revenue. Those funds would then be spent on social sector development projects and help the FBR meet its annual revenue collection targets.

The solution is to increase the size of the formal economy and this can be done by making transparent and efficient those institutions tasked with registering and regulating businesses. Instead of harassing businesses and entrepreneurs, agencies like the FBR should act as facilitators and make it easier for new ventures to be registered and come under the documentation net. This would in turn be good for the FBR because achieving the tax collection target would be easier than if they were in the black economy.

Government requirements for new businesses are linked to the general level of governance. A state whose primary aim is to improve the lives of its citizens will prioritise good governance over all other things and will formulate and implement policies that enable this. In fact, such a state will also be able to realise that having such priorities ends up helping it as well, not least because a happy populace is a more economically productive populace.

Unfortunately, in a country like Pakistan, so far, this has not been the case. A multitude of licences and permissions are required from a wide variety of federal, provincial and local government departments to operate a business or a store. Having to comply with all of these requires not only a lot of time on the part of the entrepreneur but also funds for greasing the cogs of the bureaucratic machinery that regulates businesses and commercial enterprises in Pakistan.

The result of this is that a significantly growing number of entrepreneurs, and especially those that happen to be female, are increasingly veering towards the informal sector. This is both good and bad — good because it enables economic activity to take place, and jobs to be created, away from the unwanted glare of government inspectors and officialdom, and bad because the incomes generated from such activity don’t end up getting counted in the national GDP and nor are taxes paid on it.

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