Power, trade to support sustainable Pak growth
Key catalyst over the medium term will be new investments into critical infrastructure
Pakistan’s economy has bright prospects ahead as the structural reforms under the $6 billion IMF programme and new investments in power and trade infrastructure are set to pave the way for sustainable growth in years to come, says a top banker.
Zafar Masud, president of Bank of Punjab, said the effective data-driven response to the Covid pandemic leading to efficient management of smart lock-downs helped the economy navigate through the crisis. GDP growth has accelerated to four per cent in fiscal year 2020-21, driven primarily by record fiscal and monetary stimulus.
“The government is now targeting growth of six per cent over the next two years. However, targeted reforms will be needed to make growth more equitable and sustainable over the medium term. Indigenous reform agenda will remain the real game-changer,” Masud told Khaleej Times in an interview.
“Rich in natural resources and a young growing population located next to two of the largest and fastest growing economies in the world [China and India], Pakistan has always had a high growth potential. However, in the past, the country has not lived up to its growth potential due to a plethora of internal and external issues. This could all change in coming years as a result of key structural reforms that have been initiated under the $6 billion IMF Extended Fund Facility and new investments in critical power and trade infrastructure as part of the $46 billion China Pakistan Economic Corridor,” he said.
Why economy underperformed
Masud said Pakistan has underperformed regional economies over the past two decades mainly due to security challenges and major structural bottlenecks including crippling power shortages and frequent balance of payment crisis.
“A key catalyst that will drive the economy towards a higher growth trajectory over the medium term will be the new investments into critical power and trade infrastructure, mainly under CPEC. As a result, power production capacity, at affordable prices, as well as transmission, will be enhanced significantly and improvements in road, railways, logistics and ports infrastructure will significantly reduce the cost of doing business,” he said.
"Secondly, consequent to key reforms undertaken by the government over the past couple of years aimed at moving towards a market-based exchange rate regime, reducing large tax exemptions, etc, we see significant improvement in macroeconomic fundamentals. The current account has posted a surplus in 2021 and the government has managed to limit the build-up in high-risk external public debt," he added.
Lastly, he said the key catalyst for the improved economic outlook is the effective data-driven response to Covid pandemic.
“The calibrated response of the government has helped strike a balance between protecting lives and protecting livelihoods. Now the vaccination programme has started and the government aims to vaccinate 30 million-plus people in 2021, which will be a crucial success to ensure growth momentum.”
High credit costs
To a question about the high credit cost in Pakistan, he said it is a reflection of weak fundamentals of the economy. A low deposit base (45 per cent of GDP) and heavy government borrowing over the last decade have led to a crowding-out of private sector credit (asset deposit ratio of 48 per cent). Similarly, high borrowing costs from international markets reflect weak international credit ratings and contribute towards keeping domestic credit costs high.
"Key reforms undertaken are expected to improve the economic fundamentals and will gradually lead to lower credit costs, particularly for the private sector. However, in the interim, realising this challenge, the government has introduced many concessional financing schemes to promote financial inclusion and support access to credit in unconventional small and micro businesses/projects," he said.
Roshan Digital Account
Masud said the Roshan Digital Account (RDA) programme will provide prospective customers an exclusive opportunity to remotely open an account in Pakistan through an entirely digital and online experience without visiting any branch in Pakistan. Further, the RDA product will provide innovative banking solutions to individuals seeking to undertake banking, payment and investment activities in Pakistan.
"Opening of the account will require only a basic set of information and documentation. This initiative has been a huge success in attracting unconventional investment-driven remittances in government certificates, etc. BOP is the first bank to allow the opening of RDA accounts free of charge, which will facilitate attracting consumption-driven remittances further mainly from non-banking channels," he said.
He said investment opportunities in the Pakistani property market, including in both commercial and residential real estate, are on the cards to be added to the bouquet of facilities being offered under the RDA. "Once the central bank allows the same, BOP will be offering overseas Pakistanis the most competitive markup rates enabling them to fulfill their dream to own a home," he said.
To a question, he said BOP offers an array of its own products for savings in different time horizons under the low-risk category, including the government's Naya Pakistan Certificates offered for a term of three, six and 12 months; and three and five years, carrying the most competitive profit rates; overseas Pakistanis are highly encouraged to invest in these.
Furthermore, the Pakistani bourse has been one of the best-performing in the region and that also poses a very good investment opportunity depending upon the risk appetite of the investor. Real estate will always remain a very good opportunity in medium- to long-term investment positions, he said.
Serving overseas Pakistanis
Masud said banks play a critical role in the efficient allocation of scarce financial resources, leading to higher productivity and growth. He said banks in Pakistan are investing heavily in upgrading digital banking services, which have now become an essential requirement (no longer a luxury), focused on reducing the cost of doing business and enhancing the outreach of banking services to offer the most convenient banking services to clients.
"We’re the most active bank in the country to promote government concessionary financing schemes like Kamyab Jawan and Punjab Rozgar. These schemes will help facilitate the much-needed entrepreneurial spirit in skilled and educated youth, particularly in the IT sector, which poses a big opportunity for enhancing exports, and allow access to funding in sectors that have not been the conventional focus of financial institutions like micro-SMEs and agriculture. These sectors will be the engine of real sustainable growth."
"In addition to that, and most importantly, we’re the No.1 bank in affordable housing, which will have far-reaching social and economic impact on the country, all of which will translate into sustainable, long-term GDP growth," he added.
Exploring international markets
Masud said BOP is seriously looking at options to explore international markets especially in the Gulf region.
"I see Bank of Punjab on the road of being part of the big five in the next five years. We are expanding our core business and taking a lead role in niche financing avenues. At the same time, we are strengthening our risk, compliance and audit functions," he said.
"We aim to enhance our branch footprint in strategic markets over the next few years. We’ve all the strategies of entering into international market in our medium-term plan through investment in offshore banking units in Bahrain and the Dubai International Financial Centre in the UAE."
As far as serving the overseas Pakistani community is concerned, he said the bank is already serving them by first offering free RDA facilities, coupled with a number of conventional value-added services in the space of remittances and banking on the ground.
Foundation to improve passenger safety
Masud was also one of the two people who survives the devastating PIA aeroplane crash in May last year. Flight PK-8303 of Pakistan International Airlines crashed in Karachi just before landing.
"It was indeed a horrific incident that resulted in the loss of 97 precious lives including passengers and aircrew. Relieving the ordeal of unfortunate plane, I found myself very lucky to survive against all odds," he said.
"I strongly believe that this was all due to the prayers of my family, friends and especially the entire nation, which was desperate for a good news out of this horrendous accident, which happened to be at the most uncertain, peak time of coronavirus. This incident has further strengthened my resolve to work with more zeal and fervour for the welfare of our beloved country and my fellow countrymen," he said.
“Management by empathy has become my hallmark in life," he said.
"To prevent such tragic episodes, I am in the process of setting up a foundation to improve the environment of passenger safety and security in all modes of transportation," Masud said.
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