Remittances, private inflows lifeline for Pakistan economy

Remittances, private inflows lifeline for Pakistan economy
Overseas Pakistanis workers had set a record by sending home $19.9 billion remittances in the financial year 2015-16 ended June 30.

islamabad - Central bank holds interest rate at record low in new fiscal year

By M. Aftab

Published: Sun 31 Jul 2016, 7:56 PM

Last updated: Sun 31 Jul 2016, 9:59 PM

Pakistan will depend on overseas workers' home remittances, foreign investment and aid inflows in the current fiscal 2017. But, it will continue with the current 5.75 per cent interest rate - the lowest in 43 years, the State  Bank of Pakistan (SBP), the central bank, announced over the weekend.

The Overseas Pakistanis Workers, topped particularly by those working in the UAE and Saudi Arabia, had set a historic record of sending home $19.9 billion remittances in the financial year 2015-16 ended June 30. It had crossed even the government-set target of $19 billion for that year. The projection for 2016-17 is that the overall remittances to be sent home by Pakistanis will rise further by 10 per cent.

Announcing the Monetary Policy for July-August 2017 SBP Governor Ashraf Mehmood Wathra, said in 2016-17, factors affecting the outlook for external sector are broadly similar to that of 2015-16. Even with a slight increase in the current account deficit, on account of expected higher non-oil imports, positive growth in overseas workers' remittances is likely to keep it at manageable levels. At the same time, substantial bilateral and multilateral project loans in the financial account will help maintain an overall surplus in the balance of payments.

"Further addition to this surplus is likely to come from increased foreign portfolio investments on the back of re-classification and up-gradation of Pakistani Stock Market in the Emerging Markets Index of New York-based MSCI," Wathra projected.

As the State Bank chief was announcing the new Monetary Policy, Pakistan Stock Market Index KSE-100 shot up to a historic high of 39,528 points reflecting gains of 377 points, or 0.96 per cent, in just the week ended July 29.  The stock market boom, which is already witnessing a growing and enlarged inflow of investment, in Pakistani shares, by the millions everyday, has raised the PSX to "No. 1 in Asia" with the highest dividend rate, on most portfolio investments in Pakistan.

It comes on the back of an up-tick in the economy, resulting in very high dividends announced by almost all sectors of business and the economy. The highest dividend-yielding companies are led by heavy-weights like banks, financial institutions, cement, fertilizers, energy, oil and gas exploration.

The present and potential investors, particularly from the UAE and Saudi Arabia, are now projecting the rate and volume of higher profitability of their present and potential investments in the Pakistani stocks?

The answer: The upbeat course of upcoming announcements of corporate business results, the expected higher dividends and the inflow of foreign investments and the volume of foreign assistance will set the high road to business and profitability.

The Monetary Policy statement, however, warns that any "unexpected increase in international oil prices may result in wider trade deficit. Further deterioration in the global trade, due to slowdown in China, may accentuate this problem.

Slowdown in the Gulf region may also decelerate growth in the Overseas Workers remittances. Furthermore, uncertainties about economic recovery in the EU, in the post Brexit period, can have repercussions for the financial inflows and trade to the country," the monetary policy statement says.

But surely, there is a silver-lining to the overall economic scenario, and its potential of looking up, even after economic slowdowns. However thus for, in the three-years of Prime Minister Nawaz Sharif's government, and his pro-business cabinet of ministers, there are more and more chances of success of the country, in most fields ranging from the financial markets, and to  industrial growth, helped by the very lowest interest rate in decades. Such an outlook is confirmed by the SBP in its latest endorsement of the governments' business policies.

SBP projects that Pakistan's economic growth is set to increase further in 2016-17. The impetus is likely to come from the continuation of the same positive factors as of 2015-16, which include rising investment under Pakistan Special Development Plan and the $46 billion investment in Pakistan under China Pakistan Economic Corridor (CPEC), improved energy availability to the industry to regain lost industrial output and GDP growth of around two per cent annually, lagged impact of prudent monetary policy, healthy private sector credit uptake, and improving law and order situation and hugely successful war against terrorism.

"Adverse supply shocks, continued declining trend in international commodity prices, and any setback to the security situation, may hamper the possibility of attaining the GDP growth target of 5.7 per cent in 2016-17," the SBP cautioned.

Going forward, the central bank analysis projects that in the absence of these risks, and building on to the current momentum, the GDP growth can also experience a spurt in 2016-17. This positive pulse-reading of the economy is based on two factors.

First: Investments and activities related to Pakistan Special Development Plan CPEC are going to gain full traction which will be crucial in giving a further boost to construction and allied industries, large scale manufacturing, electricity generation and its impact on the services sector, and promoting an investment climate in Pakistan.

Second: A successful end to the IMF programme will bring the much needed confidence boost to Pakistani economy, and the government, which can further enhance the growth prospects in 201617.

The IMF programme provided Pakistan $6 billion plus under its EFF arrangement which contributed to boost Pakistani forex reserves to an all time high of $23 billion.

The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.

More news from Business