PTI's New Economic Team Line-Up in Pakistan

Who are the members of Pakistan's top new economic leadership team? Who's Reza Baqir? Who's Shabbar Zaidi? Why were the changes necessary? Were the latest changes made to remove previous PMLN government's loyalists considered to be responsible for the current economic crisis? Did their policies and actions contribute to large twin deficits? Did the International Monetary Fund (IMF) force these changes as a condition for the country's bailout?

Pakistan's External Debt. Source: Wall Street Journal

Pakistan Current Account Deficit. Source: State Bank of Pakistan

As Pakistan awaits the news of the discovery of large offshore oil reserves, what lessons should Pakistan learn from the governance failures in Venezuela? Is Venezuela suffering because of its government's hostility toward the United States? Will large oil reserves be a panacea for Pakistan's economic problems?

Viewpoint From Overseas host Faraz Darvesh discusses these questions with Sabahat Ashraf (ifaqeer) and Riaz Haq (

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Riaz Haq said…
Workers’ #remittances to #Pakistan up 8.4% to $17.8 billion in 10 months. #Remittances from #Pakistani diaspora in #UnitedStates rose at the fastest rate at 21.8% year-on-year to $2.786 billion in the July-April period of FY2019

Workers’ remittances grew 8.45 percent year-on-year to $17.875 billion in the first 10 months of the current fiscal year as foreign inflows from all the key countries continued to show growth during the period, the central bank's data showed on Friday.

Remittances, which are one of the country’s major sources of foreign currency, amounted to $16.481 billion during the corresponding period a year earlier.

Though overseas workers sent more money home during the period under review than a year ago growth slowed to single digit since March 2019 amid below-than-expected inflows from Saudi Arabia and the gulf countries, the major sources of remittances.

The State Bank of Pakistan’s (SBP) data showed that the highest percentage growth was witnessed from the US as remittances from the country rose 21.81 percent year-on-year to $2.786 billion in the July-April period of FY2019. Remittances from the UK increased 16.61 percent to $2.755 billion. Remittances from Saudi Arabia rose 2.08 percent to $4.175 billion. The country received $3.786 billion from UAE, including Dubai, Abu Dhabi and Sharjah during the July-April period, up 4.04 percent over the corresponding period a year earlier. Remittances from other Gulf Cooperation Council countries including Bahrain, Kuwait, Qatar and Oman, however, fell 5.39 percent to $1.717 billion in the first 10 months.

Home remittances contributed to more than six percent to GDP, equivalent to 85 percent of the country’s exports and more than one-third of imports during the last fiscal year of 2017/18.

The government and the central bank have taken a number of initiatives to promote transfer of home remittances using formal financial channels.

Analysts said blockchain technology-based remittance service – known as digital ledger – would complement the efforts as transfer of cross-border remittances in near real time would bring convenience and facilitation for both remitters and their beneficiaries. Remittances fuel consumer spending and foster the central bank’s foreign exchange reserves.

The country needs to attract more remittance flows due to dwindling foreign currency reserves and higher foreign debt payments. The foreign exchange reserves held by the SBP stood at $8.984 billion as of May 3 compared with $8.805 billion in the previous week.

The government expected financing gap to reach $10 to $11 billion in the next fiscal year of 2019/20 with a new economic assistance program from the International Monetary Fund likely to provide cushion to anemic balance of payment position.

In April, inflow of workers’ remittances stood at $1.778 billion, which was two percent higher than the previous month and six percent up compared to the corresponding month a year earlier, according to the SBP’s official data.

Riaz Haq said…
Foreign #investors return to #Karachi #Stock Exchange in #Pakistan with the purchase of $6.9 million of shares yesterday, the second-biggest single-day purchase this year, after the country secures a new #IMF loan. #economy #PTI #KSE100 via @markets

Overseas funds returned to Pakistani stocks on Monday after the nation secured a $6 billion loan from the International Monetary Fund, even as domestic investors fueled the market’s biggest decline this year.

Foreigners bought $6.9 million of shares yesterday, the second-biggest single-day purchase this year. That’s as the benchmark KSE-100 Index fell 2.4% at close, the most in more than five months.

Foreigners “will welcome the loan’s conditions, which mean that policy is going to stay on a credible and reformist path,” said Hasnain Malik, head of equity strategy at Dubai-based Tellimer. The loan “improves foreign investor confidence,” he said.

The agreement with the IMF comes after a sixth-month period that saw rating companies downgrading Pakistan’s credit score and stocks hitting a three-year low. The slump has left the KSE-100 Index trading at a price-to-book ratio of 1.1, the lowest reading in at least a decade, according to Malik.

Riaz Haq said…
Why #IMF bailout? #Pakistan #economy was in crisis when #ImranKhan took office in 2018. Forex reserves plunged by 50% to $7 billion last year, and government was running current-account and budget #deficits of over 5% of #GDP. #PMLN #PTI via @bpolitics

Will this time be different?
Time will tell. Khan has overhauled his economic team, including the installation in May of Reza Baqir, who previously served in senior positions at the IMF, as the central bank governor. His predecessor was fired along with the chief of the tax-collection agency over their “performance.” Khan also appointed Abdul Hafeez Shaikh as his finance adviser after forcing Asad Umar to resign in a cabinet shuffle in April. Much will depend on how successful the new team is in implementing the IMF’s loan conditions and whether measures like higher taxes and energy prices will hurt the prime minister’s political standing.

Does Pakistan have other options?
Khan has also secured $3 billion in financing each from Saudi Arabia, the United Arab Emirates and China. China has been playing a bigger role in Pakistan’s economy, financing billions of dollars of power and road projects as part of its Belt and Road program, funding that typically doesn’t come with the kind of strings attached to IMF loans. In his visit to Pakistan earlier this year, Saudi Crown Prince Mohammed Bin Salman pledged $20 billion in investment in Pakistan, including in an oil refinery, although no agreements have been signed yet.
Riaz Haq said…
Overseas funds returned to Pakistani stocks on Monday after the nation secured a $6 billion loan from the International Monetary Fund, even as domestic investors fueled the market’s biggest decline this year.

Foreigners bought $6.9 million of shares yesterday, the second-biggest single-day purchase this year. That’s as the benchmark KSE-100 Index fell 2.4% at close, the most in more than five months.

Riaz Haq said…
#SaudiArabia grants $9.6 billion payment holiday to #Pakistan. #Saudis would postpone demand for payments of $275m a month for #oil for the next three years, totaling $9.6 billion. via @financialtimes

Pakistan is facing a fiscal crisis, with weak growth, rising inflation and dwindling foreign exchange reserves that barely total enough to cover two months of imports. Prime minister Imran Khan’s government reached a preliminary agreement on a three-year $6bn bailout with the IMF this month that comes with the requirement to implement harsh structural reforms.

The Saudi payments deferral follows Riyadh’s decision in October to grant a $6bn loan to Mr Khan’s government in October 2018. Half of that loan was used as temporary relief to boost Pakistan’s sagging reserves, while the other half was earmarked for oil payments for the fiscal year ending in June.

The announcement comes as Saudi Arabia is working to strengthen its position in the region following a rise in decades-old hostility between the US and Iran, and ahead of this week’s scheduled visit to Pakistan by Javad Zarif, Iran’s foreign minister.

“The timing is very critical. The conflict matrix of the region and rising tension is once again creating politics of alliance,” said Huma Baqai, a professor of international relations at the Institute of Business Administration, Karachi. “The payment deferral is largely to keep Pakistan in the Saudi Arabia-US camp.”

Pakistan has officially said it is neutral on the Iran-US issue. Shah Mehmood Qureshi, the country’s foreign minister, said last week that Islamabad would “not join any camp in case of a conflict”.

If tension spirals out of control, Saudi Arabia may lean on Pakistan for security support, said Zahid Hussain, Pakistan author and political analyst. “Saudi Arabia has always seen Pakistan as part of its security network, including its nuclear weapons,” said Mr Hussain. “Riyadh will expect Pakistan to come to its aid if there is a flare-up in Iran.”

The US could also be using Saudi Arabia to press Pakistan into helping deliver a lasting peace agreement with the Taliban in Afghanistan, said Asfandyar Mir, South Asia analyst at Stanford University. “Pakistan can definitely ramp up the pressure on the Afghan Taliban,” said Mr Mir. “Things are not looking good and I think the US wants Pakistan to do more.”

The last time Riyadh struck a similar deal with Islamabad was 21 years ago, when Pakistan was hit by global sanctions following its first nuclear tests.

A separate oil payments deferral with the UAE appears to have been scrapped, according to a senior government official, declining to give a reason for the decision. The official said he expected the UAE to lend another $1bn by the end of June, bringing the total amount of UAE support in the current July to June financial year to $3bn.

Riaz Haq said…
#Pakistan’s #exports increase by 7% as #production rose. Razzak Dawood said exports of #garments went up by 29%, #cement 25%, basmati #rice 21% and #footwear 26% in the current fiscal year. #Imports declined $4 billion.

Talking to Chairman Faisalabad Industrial Estate Development and Management Company, Mian Kashif Ashfaq in Lahore, Razak Dawood said the trade gap is narrowing down as exports are showing steadying trajectory while imports have reduced by four billion dollars.

Chief Operating Officer FIEDMC Aamir Saleemi was also present on this occasion.

Terming the project of Allama Iqbal Industrial City imperative for industrial development in the country, the Adviser said projects like Faisalabad Industrial Estate Development & Management Company (FIEDMC), would help the industry generating economic activities by attracting foreign and local investors besides enhancing volume to exports to meet the challenges of trade deficit.

Razak Dawood said Pakistan’s exports went up by 7 per cent as production line had gone up despite difficult environment.

“The trade gap was narrowing down as exports were showing steadying trajectory while imports got reduced by $4 billion and overall current account deficit also improved,” he added.

He said that the situation on economic front was not as bad as being portrayed by some quarters and they were ready as well to correct things. However, he also conceded that the economic situation must have improved at much accelerated pace.

He said that the exports of garments went up by 29 per cent, cement 25 per cent, basmati rice 21 per cent and footwear 26 per cent in the current fiscal year.

Abdul Razak Dawood said that the government provided subsidy to export-oriented sector on electricity and gas and it would be continued in coming year.

FIEDMC Chief Mian Kashif Ashfaq unfolding the distinctive features of Allama Iqbal Industrial City to Advisor said this sole project would house as many as 400 industries besides giving employments to 2,500, 00 people. He said approximately Rs400 billion foreign and local investments would be pumped into this project and development project is being carried out on fast track.

He further said FIDEMC always provided state of the art facilities to its customers besides resolving their issues through one window operation on top priority basis. He said the confidence of the investors on is being restored after completion of M3 project.

Mian Kashif said that Prime Minister Imran Khan has changed the image of the country within a short span of time since he formed the government in August last year. “Pakistan which suffered huge economic losses during the last 20-years due to militancy and war against terror, has now come out as a progressive new country under Imran’s leadership,” he added.

He appreciated Abdul Razak Dawood for taking serious steps for the revival of national economy. He said Pakistan’s economic indicators are now improving and soon the government would announce relief packages for the poor strata of the society.

He also said FIEDMC was committed to improve Pakistan’s ease of doing business ranking to under 100 within two years to attract international investors to the country.

Meanwhile a well renowned personality of Maritime Sector Chairman Pakistan Ship’s Agents Association (PSAA), Vice President Pakistan Stevedores Conference Ltd (PSCL), and Former Vice President Federation of Pakistan Chambers of Commerce & amp; Industry (FPCCI) Tariq Haleem says that the Pakistani nation, industrialists and the business community should not be disheartened.

Certain amendments in relevant SRO’s are required to make Gwadar Port and Gwadar Free Zone operational. Huge investment is pending due to delays in the amendments. Afghan Transit Trade issues need to be addressed to bring back our lost revenue generating cargoes.
Riaz Haq said…
#Kuwait plans big investment across #Pakistan with initial #investment fund of $20 billion. Kuwait investing in Pakistan since 1960 in companies like Meezan Bank, Careem and Pak-Kuwait Investment Company. Now planning 500 MW power plant in #Balochistan

“The mode of investment will depend on the viability of projects,” he said, adding that the projects might require guarantees and a recovery mechanism.

He (KIA representative Dr Ahmad Idrees) recalled that Kuwait had been investing in Pakistan since 1960 and had entered into collaboration with many companies including Meezan Bank, Careem and Pak-Kuwait Investment Company.
“Now, it is the second phase of major investment,” he said.
Idrees pointed out that KIA had also signed a memorandum of understanding with the Balochistan government for setting up a 500-megawatt power plant.
For streamlining projects and strengthening the investment programme, a three-member coordination committee, headed by Special Assistant to Chief Minister Ashfaq Memon, was also constituted. It was tasked with finalising the projects after due consultations with the stakeholders.

KIA’s representative revealed that his country focused mainly on food security and desired to extend financial and technical assistance to projects related to food security. “Hence, agricultural and livestock projects including food preservation can be included.”

Idrees said his company was also ready to construct a large number of houses in Sindh with payments in easy installments – for instance Rs20,000 a month. “This formula has proved very successful throughout the world,” he said.

Speaking during the meeting, the Sindh minister for works, services and irrigation highlighted that the provincial government mainly focused on food security in the province.

He told the KIA representative that Pakistan Peoples Party Chairman Bilawal Bhutto-Zardari also held a meeting of provincial departments to discuss problems related to food security and issued directives for taking every possible step to overcome the challenge.

Sindh Forest and Livestock Secretary Abdul Rahim Soomro, who was also present in the meeting, said the Sindh government was interested in steering bio-diversity and improving the ecosystem.

“Keeping food security in view, there is a need for developing wetlands,” he said in response to KIA’s willingness to release funds for food security.

Sindh Minister for Local Government Saeed Ghani pointed out that although the provincial government had forged partnerships with the World Bank and Asian Development Bank, “we need additional partners for swift development including that of slum areas.”

He said Sindh was completely prepared to receive investment from Kuwait and other countries.

In response to the KIA’s offer to construct houses in Sindh, some mega development projects were identified by the Works and Services Department, which included the construction of a bridge parallel to the Guddu Barrage to ease the traffic load on it.
Riaz Haq said…
#Pakistan sets FY 2020 #GDP #growth target at 4%. Sees FY 2019 GDP growth at just 3.3%, sharply below target. #economy via @YahooFinance

Pakistan's Finance Ministry expects economic growth in the financial year ending in June to hit 3.3%, well below a target of 6.2% set last year, with key sectors all performing worse than expected, according to a planning document seen by Reuters.

The document also sets a target of 4% growth for the 2020 financial year, underlining the economic headwinds facing the government of Prime Minister Imran Khan.

The targets are due to be published officially on Monday ahead of the budget on June 11, which is expected to include tough austerity measures following a provisional bailout agreement with the International Monetary Fund.

Khan's government came to power in August facing a yawning budget deficit expected at around 7% of gross domestic product as well as a balance of payments crisis, with foreign exchange reserves that cover less than three months of imports.

It has promised reforms to stimulate exports, cut the deficit and overhaul the power sector, and has pushed ahead with an ambitious infrastructure development project with China. But Pakistani households have struggled, with inflation running at more than 9%.

Key sectors in Pakistan's economy are all performing below the levels foreseen in last year's budget, which was passed under the previous government of Shahid Khaqan Abbasi.

Agriculture is seen growing just 0.8% compared with a 3.8% target, industrial output is set to rise 1.4% against a 7.6% target and services are forecast to grow 4.7%, compared with a target of 6.5%.
Riaz Haq said…
Economy suffers major setback in FY19, growth rate slows to 3.3pc
Mubarak Zeb Khan

Pakistan’s economy suffered a major setback with all key sectors failing to perform according to expectations resulting in just 3.3 per cent economic growth rate, significantly short of 6.2pc growth target for the year 2018-19.

“Growth of agricultural, industrial and services sectors is 0.85pc, 1.4pc and 4.7pc respectively,” said an official announcement on Thursday, painting a dismal performance of the overall economy in the first year of Pakistan Tehreek-i-Insaf government. “The provisional growth of GDP for the year 2018-19 has been estimated at 3.3 pc”.

The government has anticipated 3.8pc in agriculture, 7.6pc in industry and 6.5pc in services, thus target of 6.2pc GDP growth. All these targets fell flat.

These figures were framed in the 101st meeting of the National Accounts Committee — chaired by Secretary Planning, Development and Reform Zafar Hasan — to review the Gross Domestic Product (GDP). Provisional estimates for the year 2018-19 for GDP and Gross Fixed Capital Formation (GFCF) have been presented on the basis of the latest data available for six to nine months.

As per the available data, the crop sector faced the consequences of acute water shortages during the first half of the 2018 and thus only wheat depicted positive growth of 0.5pc and cotton, rice and sugarcane witnessed negative growth at -17.5pc, -3.3pc, and -19.4pc, respectively.

Other crops (such as onion, tomatoes and fruits) showed growth of 1.95pc mainly because of increase in production of pulses and oil seeds. Livestock sector registered a growth of 4pc whereas forestry has grown at 6.5pc due to increase in production of timber.

Agriculture sector is targeted to grow by 3.8 percent on the basis of expected contributions of Important Crops (3pc), other crops(3.5pc), cotton ginned (8.9pc), livestock (3.8 pc), fisheries (1.8 pc) and forestry (8.5 pc). All these targets were missed except the one related to livestock.

The overall industrial sector on the other hand showed an increase of 1.4pc. The mining and quarrying sector declined by 1.96pc. The large scale manufacturing (LSM) sector, which is driven primarily by QIM data (from July 2018 to February 2019), showed a contraction of 2.1pc.

Electricity and gas sub-sector has grown by 40.5pc mainly due to better performance of Wapda and distribution companies and IPPs. The construction activity has decreased by 7.6pc.

Industrial sector is targeted to grow by 7.6pc during 2018-19. Manufacturing sector is targeted to grow by 7.8pc with LSM growth rate of 8.1pc, small scale and household manufacturing 8.2pc, construction 10pc and electricity generation and distribution and gas distribution by 7.5pc.

Services sector remained major contributor to economic growth as its value added increased by 4.7pc. Within services sector, wholesale and retail trade sector grew by 3.1pc whereas transport, storage and communication sector has registered a growth of 3.3pc.

Finance and insurance sector shows an overall increase of 5.1pc on account of positive contributions from scheduled banks (5.3pc), non-schedule banks (24.6pc) and insurance activities (12.8pc) despite decline in central banking by 12.5pc. General government services has grown by 7.99pc and other private services, a set of computer related activities, education, health and social work, NGOs etc. has contributed positively at 7.1pc.
Riaz Haq said…
New #Pakistan central bank boss Reza Baqir dismisses free floating #rupee idea. The nation's #currency will not be left completely to the #market. The State Bank of Pakistan #SBP will intervene when necessary to stabilize it

Pakistan’s new central bank governor Reza Baqir on Monday dismissed the idea of a free floating rupee as he outlined reforms aimed at ending instability in the South Asian economy.

Baqir was last month appointed to lead the central bank in Pakistan, which has been hit by ballooning current and fiscal account deficits and repeated devaluations of the rupee.

Pakistan’s policy is a “market based exchange rate system” that follows supply and demand, but that will not be left completely to the market, Baqir said in his first press conference as State Bank of Pakistan (SBP) governor.

“So, if there is a volatility, then state bank intervenes. You need to keep a close eye on the market. That is our regime and we want to go with this regime,” Baqir added.

Pakistan’s currency has lost almost 50% of its value since December 2017, stoking inflation and putting pressure on the government as voter anger at higher prices grows.

Last week Pakistan’s finance ministry signalled that worse is to come, with economic growth of 3.3% in the financial year ending June, well off the government’s target of 6.2%, with growth seen falling to 2.4% in 2019/2020.

Pakistan agreed in principle to a $6 billion International Monetary Fund (IMF) bailout in April amid speculation that the fund wanted Pakistan to adopt a free float as part of any assistance package.

Baqir, an ex-senior IMF economist, said that the government was enacting economic reforms aiming to shore up confidence.

This included ending the “strong rupee” policy, which had led to pressures building up within the economy, but would not extend as far as a fully free floating currency.

“An exchange rate that remains fixed for a long time is not in our favour. On the other hand, a free float also is not suitable,” Baqir said in the coastal financial hub of Karachi.

Pakistan has always said the rupee is freely traded, but traders say the central bank underpins the exchange rate in a thinly traded market in what is a de facto managed float system.

The previous government pursued a strong rupee policy, effectively fixing the rupee against the dollar at a rate that the IMF and analysts said was too high, leading the country to burn through its foreign currency reserves to defend the rupee.

Baqir said the central bank’s independence was vital and it will now follow market realities, adding that it will no longer give loans to the government and cut money printing by the central bank that has stoked inflation.

“This is very big improvement for financial and monetary policy,” he said. (Additional reporting by Asif Shahzad: Writing by Drazen Jorgic; Editing by Alexander Smith)

Riaz Haq said…
Fitch cuts growth for #Pakistan to 3.2% in FY2018/19 and 2.7% in FY19/20 with tighter monetary/fiscal policies. #CPEC will provide support to #economy. "Construction of many key CPEC projects has already started and will stretch over the coming years.”

Fitch Solutions, the US-based global research house, has revised down Pakistan’s economic growth forecast, believing tightening of monetary and fiscal policies under the International Monetary Fund (IMF) bailout would negatively impact GDP growth.

“We at Fitch Solutions, have revised our forecast for Pakistan’s real GDP (gross domestic product) growth for FY2018/19 (July-June) and FY19/20 to come in at 3.2% and 2.7% respectively, from 4.4% and 4.0% previously (versus the Bloomberg consensus of 3.3% and 3.5%),” the global research house said in a report on ‘Economic Analysis – IMF deal to weigh on Pakistan’s growth in the short run.’

“We believe that the bailout package from the IMF will see tighter monetary and fiscal policies in Pakistan, which will be negative for growth in the near term,” it said.
However, investment into the China-Pakistan Economic Corridor (CPEC) will continue to provide some support to the economy, it added.

After close to eight months of negotiations, Pakistan reached an agreement with the IMF in May for a $6 billion bailout package to address its balance of payment crisis. Following the agreement, the State Bank of Pakistan (SBP) increased the policy rate by 150bps.

Shortly after, the Ministry of Finance presented a budget in June with the aim of trimming Pakistan’s primary deficit to 0.6% of GDP in FY19/20, from 1.9% of GDP in FY18/19 according to the IMF’s estimates. “Given the tighter monetary and fiscal policies amid an already subdued economic growth outlook, we at Fitch Solutions have revised (down) our forecast for Pakistan’s real GDP growth,” it said.

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