doubt Pakistan's economy has graduated from revival phase to expansion
era. It has managed to meet almost all the targets, including CBR
revenue collection. CBR has rather collected more than the target, which
most of the critics had termed unachievable. As the details for the
achievements for the full year have started pouring in, review of third
quarterly report of State Bank of Pakistan (SBP) may not be more than a
ritual. Therefore, an appropriate approach would be to explore some of
the key emerging trends.
SBP report should only be read as an indicator of emerging trends.
Performance of agriculture, large-scale manufacturing, banking, foreign
trade show substantial growth. Growing demand for virtually all the
products and services, at the back of improving per capita income, is
expected to provide further impetus to the manufacturing sector. Higher
domestic sales and exports have also improved capacity utilization of
almost all the industries. A 25% reduction in excise duty on cement and
cut in duties/taxes on other materials used in construction are expected
to grossly accelerate the construction industry in the country. The boom
in construction will lead to improved activities in more than 40 other
were apprehensions that the interest rates may go up in the longer term.
However, the cut off yields on T-Bills and Pakistan Investment Bonds
hint towards further reduction in average interest rates. The lower
return of banks deposits (virtually being negative) and further
reduction of returns on National Savings Schemes is expected to increase
the flow of funds to equities market. Prices of shares of almost all the
blue chip companies have gone up considerably. The prices have hiked
mainly due to the demand and supply gap. Not only that but the prices of
second and third tier scrips have also gone up to unrealistic levels.
GoP has announced to divest more shares of Sui Southern Gas Company (SSGC),
National Bank of Pakistan (NBP) and Pakistan International Airline (PIA).
The GoP also intends to enlist Oil and Gas Development Company (OGDC) on
local stock exchanges and divest part of its holding in the company. The
latest news is that Pakistan Steel will also be listed at the stock
exchanges and 10% of its shares will be offered to general public. While
some of the analysts believe that the GoP's divestment plan may lead to
a decline in the KSE-100 index. However, others believe that the
indicated percentages are too small to meet the market appetite.
influx of billions of dollars into the country, through unilateral
remittances, the rate of inflation has remained around 3.5%. Many
economists had expressed their apprehensions that influx of dollars in
such colossal quantity would push the inflation rate up, but this did
not happen. The reason being that bulk of these funds has gone into real
estate and equities markets. Though, a part of these funds are being
utilized for consumption, it has only improved the production and
productivity. No shortage of any product has been observed as yet.
Therefore, if the demand has not surpassed the supply the probability of
rate of inflation going up is still low.
key factor contributing to lower rate of inflation is the stability of
exchange rate. The rupee dollar parity has helped in containing the
cost-pushed inflation low. Many analysts still say that the parity may
have gone to as low as Rs 45 to a dollar had the SBP not been following
the sterilization policy. The hike in crude oil prices due to attack on
Iraq was a temporary phenomenon. Oil prices have now stabilized, rather
showing a downward trend. The proof of this saying is the hike and fall
of polyester staple prices in the domestic market.
are substantial evidences that surplus liquidity is flowing to the
equities market. The indicator is the prevailing Badla rate. It is
estimated that at present Badla investment hovers around Rs 12.5
billion. It is on record that when Badla investment touched this level
in the past the average Badla rate crossed 40% level. However, the rate
is around 10% at present.
recent T-Bills and PIBs auctions clearly established the fact that the
banks are suffering from 'surplus liquidity syndrome'. Under the
prevailing scenario the banks are forced to extend more and more funds
to agriculture sector and undertake aggressive consumer financing. Auto
financing has been on constant rise and rates are coming down. After
achieving higher capacity utilization and threat of competition from the
low cost cars of Chinese origin local assemblers have reduced prices of
various models. Increase in supply and reduction in prices, coupled with
easy financing of cars, would further improve the performance of
large-scale manufacturing sector.
but not the least, the already enhanced textile quota by the European
Union and signing of Trade and Investment Framework Agreement (TIFA)
with the US has the potential to further accelerate economic activities
in the country. However, the benefits can only be achieved if political
stability is ensured and the elected government also abstains from
introducing popular policies to attain mileage.