Surging Remittances and Growing Exports Offer Hope in Pakistan

[RiazHaq]

In addition to significant foreign institutional investments (FII) in Karachi shares last year, the reports of surging remittances by overseas Pakistanis and the nation's growing exports are the only two other pieces of good news amidst an avalance of bad news on the economic front in Pakistan in 2010.

The State Bank of Pakistan has reported that overseas Pakistanis sent home $5.291 billion during July-Dec, 2010, an increase of $761 million or 17 per cent year over year, according to Pakistan's Dawn newspaper.

Remittances of $863 million were sent by overseas Pakistanis last month, up 23.72 per cent or $165 million compared to December, 2009.

Exports in the July-December 2010 touched almost $11 billion – $1.8 billion, or 20.6per cent, higher than last year’s exports in the corresponding period. Meanwhile, imports stood at $19.2 billion, marking a growth of 19.6 per cent, or $3.2 billion, in the first half, according to the Express Tribune.

Pakistani government has been relying heavily on remittances by overseas Pakistanis to fund the massive trade imbalance, which exceeded $8 billion during the first six months of this fiscal.

The increased remittances and rising exports have helped bring down the nation's current account deficit to $504 million for six months, or 0.6 percent of GDP, about 30% lower than the same period in the previous year.

Foreign direct investment (FDI) declined 15.5 per centin the first six months of the current fiscal year to $828.5 million from $968.9 million in the same period last year, according to the Nation quoting figures from the State Bank of Pakistan.

However, in spite of Pakistan's multiple serious crises, the foreign buyers have continued to be relatively sanguine about Pakistan's prospects.

Pakistan's main stock market ended 2010 with a 28 percent annual gain, driven by foreign buying mainly in the energy sector, despite concerns about the country's macroeconomic indicators after summer floods, according to Reuters. Although it was less than half of the 63% gain recorded in 2009, it is still an impressive rise in KSE-100 index when compared favorably with the performance of Mumbai(+17%) and Shanghai(-14.3%) key indexes. Among other BRICs, Brazil is up just 1% for the year, and the dollar-traded Russian RTS index rose 22% in the year, reaching a 16-month closing high of 1,769.57 on Tuesday, while the rouble-based MICEX is also up 22%.

Pakistan's key share index KSE-100 was just over 1000 points at the end of 1999, and it closed at 12022.46 on Dec 31, 2010, sgnificantly outperforming BRIC markets for the decade. Pakistan rupee remained quite stable at 60 rupees to a US dollar until 2008, slipping only recently to a range of 80-85 rupees to a dollar. In spite of the currency decline, Pakistan's KSE-100 stock index surged 55% in 2009 in US dollar terms and 65% in rupee terms. During the same period of 1999-2009, Mumbai Sensex index moved from just over 5000 points to close at 17,464.81.

If you had invested $100 in KSE-100 stocks on Dec. 31, 1999, you'd have over $1000 today, while $100 invested in Mumbai's Sensex stocks would be worth about $400. Investment of $100 in emerging-market stocks in general on Dec. 31, 1999 would get you about $300 today, while $100 invested in the S&P500 would be essentially flat at $100 today.

Haq's Musings: Pakistan's Exports and Remittances Rise to New Highs

 

[ice_man]

& yet pakistan has no electricity no nothing because of corrupt inept leaders!!!

 

[somebozo]

What is the point of putting money in Pakistan there aren't any small business opportunities available?

 

[RiazHaq]

Small entrepreneurs in Pakistan have fared far better than the large businesses during the current economic mess.

Pakistanis are a very resilient people in the face of multiple serious crises, terrible economic management and bad governance.

Things can improve dramatically if there is even half decent governance.

Haq's Musings: Pakistani Entrepreneurs Survive Economic Downturn

 

[RiazHaq]

Pakistan’s current account surplus for July-December 2010 was a provisional $26 million, compared with a deficit of $2.570 billion in the same period last year, the central bank said on Tuesday, according to Dawn newspaper.

In December, the current account stood at a provisional surplus of $601 million, compared with a deficit of $17 million in November, the State Bank of Pakistan said.

The current account deficit for the fiscal year 2009/10 was $3.946 billion, compared with $9.261 billion in fiscal year 2008/09.

Pakistan’s July-Dec c/a surplus at $26 mln | Business | DAWN.COM

Haq's Musings: Pakistan's Exports and Remittances Rise to New Highs

 

[RiazHaq]

Pakistan's foreign exchange reserves continued to rise through Jan 15, 2011, according to report in Express Tribune:

KARACHI: Foreign exchange reserves rose to a record $17.28 billion in the week ended January 15, up from $17.09 billion in the previous week, the central bank said on Thursday.

Reserves held by the State Bank of Pakistan (SBP) rose to $13.66 billion from $13.44 billion, while those held by commercial banks fell to $3.62 billion from $3.65 billion, said Syed Wasimuddin, chief spokesman for the central bank.

“The main reason for the increase in foreign exchange reserves is the rise in remittances received from overseas Pakistanis,” said Wasimuddin. According to official data, remittances rose 17 per cent to $5.3 billion in the first six months (July-December) of fiscal year 2010-11.

Foreign exchange reserves previously hit a record high in the week ended January 1 as the country received more than $633 million from the US for providing military and logistical support in the fight against terror.

In May last year, the government received $1.13 billion – the fifth tranche of an $11.3 billion International Monetary Fund bailout programme.

In the currency market, the rupee ended weaker at 85.73/80 to the dollar, compared with Wednesday’s close of 85.68/73 because of rising international oil prices.

In the money market, overnight rates fell to 11 per cent, compared with Wednesday’s close of between 12 and 12.50 per cent, because of increased liquidity in the interbank market. Dealers said there are scheduled outflows of Rs53 billion ($613 million) on Friday.

Forex reserves jump to record $17.28b – The Express Tribune

 

[Abu Zolfiqar]

& yet pakistan has no electricity no nothing because of corrupt inept leaders!!!

well yeah, poor implementation of plans --due to gross mismanagement

the U.S. sent a delegation to Pakistan I believe in early 2009. The americans were impressed by the detail and cogent measures drafted, which would end the power shortages. Of course it was all talk and no concrete action.

the shortage is still existing and it has had a horrible effect on industry



as for remmittances, it is good they are surging as they contribute positively towards the current acount (balance of payments) of the country....households get their essentials and of course their 'luxury items' (drives consumption).

many of our comrades who work (slave themselves dawn to dusk) in GCC and EU countries feel obligated to remit more now, given high cost of living in Pakistan as well as flood relief.

just goes to show how strong the family values are in our society, which is good

 

[VCheng]

This is my original post on this topic, but there is a great chart about remittances from Pakistanis abroad that this thread may find useful:

from: Pakistan's troubled finances: Economic blasphemy | The Economist

Economic blasphemy
In saving itself, Pakistan’s government has jeopardised the economy
Pakistan's troubled finances

Jan 13th 2011 | from PRINT EDITION

ON JANUARY 3rd Pakistan’s central bank began printing rupee notes carrying the signature of Shahid Kardar, who was appointed governor of the State Bank of Pakistan in September. Unfortunately inflation has robbed money of over 15% of its value in the past year, and no let-up is in sight for the new notes. It is the most visible sign of an economy slouching towards another financial crisis.

At the start of the year the government raised petrol prices, prompting the Muttahida Qaumi Movement (MQM) to quit the coalition government led by the Pakistan People’s Party (PPP). It left the PPP “with a choice between saving the government and saving the economy,” as Maleeha Lodhi, Pakistan’s former ambassador to the United States and Britain, put it in the News, a Pakistani daily.

On January 6th the PPP made its choice, reversing the price rise. The decision has rescued the government but also robbed the exchequer of 5 billion rupees ($58m) a month. By the end of the fiscal year in June, the government’s deficit could reach 6.5% of GDP, according to Sayem Ali of Standard Chartered bank, or even 8% if oil prices continue to rise, according to Mohsin Khan of the Peterson Institute, in Washington, DC.

Pakistan’s budget has a lot to bear. The World Bank reckons that recovering from the summer’s devastating floods, which damaged over 1.6m homes, will cost up to $10.8 billion. To date, aid has been modest. Donors have pledged just $2.1 billion, or $11 per person, compared with $363 per person promised to Haiti after its earthquake —a slightly unfair comparison perhaps.

Yet Pakistan’s fiscal troubles are antediluvian. It is one of the most lightly taxed countries in the world. Fewer than a quarter of the country’s firms declare any taxable revenues, and only 11 out of every 1,000 of its citizens pay tax on their incomes, according to the World Bank. As a result, tax revenues amount to a mere 10% of Pakistan’s GDP.

The government had hoped to raise that ratio by broadening its sales tax, which is riddled with exemptions. Yet it lacked the heart to defy lobbies which slip through the threadbare tax net. They include exporters who escape tax on their domestic sales, as well as retailers and wholesalers who elude tax altogether. The proposed reforms also proved unpopular with the broader public, who resent paying anything to a government that gives them so little in return.

The government’s failure has jeopardised its agreement with the IMF, which is withholding the remaining $3.5 billion of the bail-out funds it offered back in 2008. At that time, the rupee was tumbling and Pakistan’s foreign-exchange reserves barely covered three weeks’ worth of imports. If the country is not yet in similar trouble, it can thank Pakistani folk abroad, whose remittances surged by 16.8% in the second half of 2010, compared with a year earlier (see chart). This is one reason why the rupee has not sunk further, and why the central bank’s reserves still cover six months’ worth of imports.

Yet foreign investment has slowed to a trickle, and higher commodity prices will add to the country’s import bill. Meanwhile, Pakistan’s foreign debt must be serviced. The finance minister is in a pickle. If Pakistanis lose heart, too, they may quit the currency, scrambling for dollars instead. Should that happen, Pakistan’s reserves will quickly vanish. And here is the big difference between 2008 and today: Pakistan has already had its IMF rescue.

from PRINT EDITION | Asia

 

[RiazHaq]

This is my original post on this topic, but there is a great chart about remittances from Pakistanis abroad that this thread may find useful:

On the Economist story, it's important to understand that most of Pakistan's tax revenue is from indirect taxation, like excise and import taxes.

A large part of Rs. 5 billion a month lost due to roll-back of petroleum prices can be recouped by cracking down on smuggling disguised as the Afghan Transit Trade.

The Afghan transit trade (ATT) through Pakistan has long been exploited as a way to smuggle goods into Pakistan without paying import duties. Now the Supreme Court is looking into the disappearance in Pakistan of containers addressed to Afghanistan, according to The News:

ISLAMABAD: The Federal Board of Revenue (FBR) chairman Salman Siddique submitted in the Supreme Court on Thursday a list of 58 officials who held positions from January 01, 2007 to December24, 2010, when the national exchequer suffered a whooping loss of Rs37 billion because of pilferage of containers which entered the Pakistani territory under Afghan Transit Trade (ATT).

The list submitted with the Registrar office through CBR’s counsel Raja Muhammad Irshad in compliance with the Supreme Court orders includes the names of former chairpersons of CBR/FBR, members of Customs, Customs Collectors Karachi Port and Port of Qasim, Collectors of Quetta and Peshawar, secretaries commerce and finance, Director General Customs Intelligence and Investigation and the relevant officers of NLC who held the charge during that period.

The report contains the names of four former Major Generals of the National Logistics Cell (NLC) and three former chiefs of FBR. According to FBR counsel Raja Muhammad Irshad, the list contains the names of former Finance Secretary, former FBR chiefs Abdullah Yousuf, Ahmed Waqar, Sohail Ahmed and member Customs Muneer Qureshi. He said the names of six former secretaries, three former FBR chairman, three former heads of NLC and 44 officials of Customs are mentioned in the 58 members list.

Federal Tax Ombudsman (FTO) Dr Shoaib Suddle has already submitted a comprehensive report over the matter in the Supreme Court testifying that a huge number of containers containing have been pilfered inside the country without crossing the border causing enormous loss to the national exchequer to the tune of Rs19-37 billion.

He pointed out that the loss caused at the hands of Customs Department during the past almost four years is only a tip of the iceberg.

The report said strict action is required against all the concerned officials of the Customs and other departments, who held charge during that period. The court thereupon directed the FBR chairman to furnish a list of these officials. The court has directed all these people to file their reply on the report of FTO through FBR by January 27.

ATT containers scandal