http://thenews.jang.com.pk/daily_detail.asp?id=42323


IFIs paint rosy picture of Pak economy



By Khalid Mustafa

ISLAMABAD: Three international financial institutions (IFIs) including JP Morgan, Citigroup and Merrill Lynch have painted a rosy picture of Pakistan’s economy, saying the GDP growth is higher, poverty rates are down, FDI is up and fiscal deficits are down.

However, in their analysis and reports about Pakistan’s economy, the three IFIs mentioned that the current account balance had shown deficit, although overall external balances are healthy.

According to Update Pakistan’s Economy, the first week of the month of February 2007 has been highly encouraging for Pakistan’s economy as three international financial institutions released their reports and economic analysis on the country’s current and future economic outlook.

JP Morgan market primer entitled “Pakistan: Just Push Play” gave a comprehensive outlook of Pakistan’s economy in the new year. This was followed by another document by Citigroup entitled “Asia Sovereign Monthly-Finding Value in a Frothy Market”. In this update, Citigroup reviewed the performance of Pakistan’s economy and future prospects.

Finally, Merrill Lynch’s economic analysis on Pakistan entitled “2007 to be a Challenging Year for Pakistan” was also unveiled. This report reviewed the economic environment in Pakistan.

All the three reports and economic analysis have many good things to say on Pakistan’s economy and its future prospects. According to JP Morgan, Pakistan’s economic performance in the past five years has been commendable.

GDP growth is higher, poverty rates are down, inflation is lower, FDI is up and fiscal deficits are down. However, the current account balance has turned towards deficit, although overall external balances are healthy.

Driving all of these improvements has been an environment of relative political stability under the pro-reform administration of President Musharraf and Prime Minister Shaukat Aziz.

Pakistan’s economy grew 6.6 per cent during 2005-06 - the third consecutive year of GDP growth exceeding 6 per cent compared to the rest of emerging Asia. Recent track record puts Pakistan’s GDP growth rate solidly in the top half of the region’s fast growing economies.

Pakistan’s government is targeting a 6-7 per cent range for real GDP growth over the medium term. Though this target may seem aggressive against a 10-year historical average of close to 5 per cent, recent structural reforms and privatisations have improved the overall business and investment climate substantially.

The industrial sector has performed well in recent years, growing at close to double-digit pace. The start of 2006-07 has been good with July-Sept manufacturing growth around 11.2 per cent.

JP Morgan believes that manufacturing will continue to post double-digit growth in the medium term, as new capacity comes on line in key sectors.

Rivaling the strong growth in industry is the recent track record in services. This is particularly true of growth in telecom and financial sectors.

Pakistan’s financial sector has seen tremendous growth in the past few years and has been the driving force behind sustained above average services sector growth. Banking sector profitability has broken its own record year after year.

The boom in mobile phone subscribers and the number of motor vehicles on the road have provided the impetus for value addition in transport, storage and communications sub-sectors.

Driven by these two sectors, overall services are likely to continue to increase its weight in GDP in the medium term.

Inflation in Pakistan has stayed persistently high, with the most recent reading in December 2006 jumping to 8.9 per cent. Surging exports, an expansionary fiscal stance and abundant liquidity have underwritten rapid output growth over the last three years. These factors, together with the rapid rise in energy cost, have fueled the high inflation rate.

Monetary policy, which had been very accommodative since 2001-02, gradually began to tighten in mid-2004. While headline CPI remains elevated, core inflation has fallen to 5.5 per cent in Dec 2006 from 7.4 per cent a year earlier. The higher level of CPI stems from higher food prices still prevalent in the economy.

Pakistan’s external account has seen significant swings, first into large surplus and now deficits of a similar magnitude. On the other side of the balance of payments, the surge in capital inflows has been more than sufficient to cover the current account deficit, allowing foreign exchange reserves to be stable-to-higher.

Over the medium term, financing the current account deficit will require sustained inflow of non-debt creating capital. This means that the recent success of the privatisation programme must continue, as must Pakistan’s increased attractiveness to foreign investors.

In addition, Pakistan has shown the ability to access international capital markets at attractive spreads over low US treasury yields. The IMF, in its recent assessment, has stated that it believes that Pakistan’s external financing prospects can remain favourable for several years.

According to the Citigroup report, macroeconomic trends are supportive of an improving credit story in Pakistan, which is already increasingly reflected by the recent outperformance of its dollar bonds (particularly the Pakistan 2036).

In addition, Pakistan has succeeded in bringing down public debt from more than 90pc of GDP in 2000-01 to an estimated 56pc in 2005-06, which is estimated to further fall to about 53pc in 2006-07.

Pakistan this year again has been dogged by persistently high inflation of 8.9pc, which is hence accompanied by a tight monetary policy by the SBP.

According to Merrill Lynch, the strength of Pakistan’s economy in the face of various exogenous shocks in 2005-06 and the country’s future prospects in 2006-07 appear to be on track.

In their opinion, the continuation of positive structural trends of economy is due to the government’s far-reaching macroeconomic and structural reforms initiated over the last several years, which subsequently have propelled the economy to annual expansion of about 7 per cent over the last five years.

A new dynamism has taken hold in economic activity and social indicators have improved, which together augur well for continued rapid development, said the analysis.

Merrill Lynch estimates that Pakistan’s economy is likely to grow by 7-7.5 per cent in 2006-07, backed by robust domestic consumption. They also see great progress in reducing inflation from 9.3pc in 2005-06 to 7.75pc in 2006-07.

I bet the reports had many bad things to say about the economy as well......?

Hope not......

I work for JPMorgan,hopefully pakistan's economy will continue to improve, and my company will invest there!.

GDP growth of 7-7.5% is indeed a very good sign. May Allah bless Pakistan. May Pakistan prosper and attain its destiny.

Even with 11.2% growth in our industrial sector in last year, our exports have not improved, due to more money to spend, our people are consuming more at home, we seriously need to look in improving our exports and put a cap on domestic consumption.

That could mean, that the domestic consumption is gulping the industrial growth. Domestic consumption is a good thing.

I am more concerned about the rise in imports. Hopefully the GoP does something to reduce the import of luxury items and oil.

http://www.nation.com.pk/daily/feb-2007/17/bnews5.php


Pak economy moving towards stability: ML

Erum Zaidi


Karachi - Merrill Lynch, renowned global rating agency, has observed that the ongoing economic reforms remain a core priority in Pakistan and this should sustain high economic growth and lead to further financial stability, despite market has under appreciated.

In its report issued on Friday titled the Gross Prophet and Regional Strategy, Merrill Lynch has said that best stocks in Pakistan are Adamjee Insurance, MCB, United Bank and Fauji Fertiliser bin Qasim.

Merrill Lynch hosted the annual New Frontiers Conference in Singapore, with over seven hundred one-on-one meetings between investors and companies from Pakistan, Sri Lanka, Vietnam and Mongolia.

Report said that all the four countries have privatization programs that are helping to boost growth, and stock coverage by brokers remains far behind the rest of the region.
Investors held meetings with the corporate and government officials from Pakistan, Vietnam, Sri Lanka and Mongolia.

The four countries shares in common GDP growth close to +8% this year, above the regional average of +6.7%, but below China, where we expect +9.6%, and India, where we expect +8.6%.

Report said that in Pakistan, one can own 100% of any company in any sector, and in the past 18 months, Standard Chartered has bought Union Bank, China Mobile bought Paktel, and Philip Morris bought Lakson Tobacco.

This year Pakistan State Oil is to be privatized. The banks have been pretty much taken over by foreign players, and all five cellular operators are foreign-owned.

Amongst the frontier market Pakistan remains a key OW. In particular the sustained high level of economic growth (+7% plus) is preferred. Its strong demographic potential for consumption also helps while the combination of minimal foreign investment restrictions and an aggressive privatisation program has increased Pakistan’s access to global capital and improved the country’s financial stability to boot.

Barring an unlikely change to key government and economic personnel in the run up to this year’s elections, Reports foresees no change in the pace of Pakistan’s economic reforms.

Under this current assumption of ongoing improvements in Pakistan’s financial stability, it is believed that the market is mis-priced and under-valued. Ideas to fous on would be rural expansion focused companies; Adamjee Insurance, Fauji Fertiliser bin Qasim, MCB and United Bank.

The private sector has enjoyed greater involvement in the running of the economy, resulting in a stronger, more sustainable economic growth. Recognition of this can be witnessed by changes to the slowdown in
fiscal expenditure has allowed Pakistan four credit rating upgrades.

Pakistan’s public debt to GDP ratio has now fallen to 54% (was 100% plus) and through continued support of the Fiscal Responsibility Act will fall further. Annual FDI has risen over ten-fold and now stands at USD3.5bn for the first six months of FY07.

After Standard CharteredÆs purchase of Union Bank, most of the banking system is in foreign hands. Unlike in India or Vietnam, there are no foreign ownership restrictions. Foreign companies continue to buy Pakistani companies with recent examples being China Mobile and Philip Morris.

The KSE100 Index has risen from 1,500 in 2001 to over 12,000 now.

There is greater transparency, low valuations while yields remain exceptionally high. Recent significant events include; MSCI recognition (June 2006), Moody’s rating upgrade to B1 and large over-subscribed GDR issues in MCB (December) and OGDC. The government will return to the global bond markets with an issue in February.

Privatisation of state assets is now one of the most advanced globally (2006 IPOs equaled USD1.5bn and in 2007 it will be higher still). Appetite for equities remains high.

Pakistan State Oil is next to go while we learnt that the state-owned insurance companies will be available for sale as well.

exactly. increasing exports is a valid target however if the economy is growing by domestic consumption that isn't bad either. the only adverse reaction is the rise in inflation which needs perhaps a slightly more hawkish approach to controlling it. and obviously imports need to be brought down from current levels.

regards.



that is interesting. didn't pakistani stocks undergo a correction in the later half of last yr?

also the fact that those industries that have a more rural focus are tipped to be the best performing stocks makes sense if the govt is pushing for further economic development of rural areas.

Yes, there was a big correction in stock market few months back, it was combination of profit taking by investors, manipulation of brokers and natural trend reversal as market went straight 45 degree in previous year, so whoever had a chance to get double their investment tried to cash the profits.

Our stocks are the cheapest at the moment keeping in view 100% year over growth and in some case more then that.

Man, i am loving it

well thats good news but inflation rate is also high and we shouldnt forget that and imports should be decreased i totally agree with that point

Presently ur inflation rate is around 5-6%.

Having 3-6% inflation is rather health for an economy and do not pose any threat espacially when our growth rate is around 8%.

http://www.dawn.com/2007/02/18/ebr2.htm


Merrill Lynch bullish on Pakistan




By Dilawar Hussain

KARACHI, Feb 17: “Sell Indonesia, buy Pakistan”, the international financial services firm, Merrill Lynch (ML) recommends Pakistan, Sri Lanka, Vietnam and Mongolia as ‘new frontiers’ in their latest regional investment strategy report released on Thursday (Feb 15).

Among the four countries, Spencer White, the strategist who prepared the report says: “Pakistan remains one of our highest conviction overweight recommendations”.


He reasons that the on-going economic reforms remains a core priority and that it should sustain high economic growth and lead to further financial stability, something which ML “feels the market has under-appreciated”. Best exposure to Pakistan has been recommended on rural expansion focus companies, which ML identifies as Adamjee Insurance; MCB; United Bank and Fauji Fertiliser Bin Qasim.

Talking about the region, ML says preference is shifting from China to Korea and Taiwan and the cyclic rotation from Singapore and Indonesia to Thailand.

“India remains unloved”, declares White. Finding commonalities in the four countries of the new frontiers (Pakistan, Sri Lanka, Vietnam and Mongolia), ML lists the following: All have GDP growth close to plus 8 per cent this year; privatisation across various segments of these economies is the key; This privatisation is a reflection of these smaller countries’ strong desire to “keep up with the Joneses” and all four countries fits the bill where “markets are better than broking, not the broking better than the market”.
The ML report discusses in detail why even among the four ‘new frontier’ countries, it considers Pakistan to be the “winner”. The report narrows down the choice between Pakistan and Vietnam.

It states that while ML likes Vietnam and had been overweight on that market for over a year, but its move from 300 to over 1,000 in the past 12 months meant it no longer was cheap. Almost three times as expensive as Pakistan and in spite of its improved turnover, Vietnam traded a sixth of what Pakistan does.

Showing almost a ‘crush’ on Pakistan, ML report mentions that Pakistan has the best privatisation-liberalisation programme of all four markets.

“Unlike in India and Vietnam, there are no foreign ownership restrictions in Pakistan and you can own 100 per cent of any company in any sector”. In the past 18 months, Standard Chartered has bought Union Bank; China Mobile has bought Paktel and Philip Morris has bought Lakson Tobacco.

This year Pakistan State Oil (PSO) is to be privatised. The banks have been pretty much taken over by foreign players and all five cellular operators are foreign-owned, the report says.

In particular, says Merrill Lynch, we like the sustained high level of economic growth (plus 7 per cent) and Pakistan’s strong demographic potential for consumption.

As regards demographics, Merrill Lynch mentions that Pakistan has one of the world’s biggest populations. Of the 160 million, over 100 million are under the age of 21. And the report concludes: “This group will not retire until 2060 and will help power domestic consumption, which is already strong (e.g. growth in consumer staples, autos and telephony)”.

One thing some of you guys need to grasp is that, in order to achieve one thing, we have to forego other aspects of the economy. We cant have everything going for us at the same time.

The GoP let go of inflation, to achieve higher growth, expecting poverty/unemployment would reduce and some years down the road, they will take measures to control inflation. Inflation will be there, if there is high growth, you cant escape that. There are increasing signs from SBP that inflation is being reigned on. Tightening of money supply in the market, and banks have to deposit more money with the SBP than before.

With more investments and setup of industries within our shores, (esp oil refineries), our import bill will reduce, reducing our trade deficit, which in turn will give GoP breathing space to control inflation.

alot of our ppl are underemployed as well,but i think ppl are generally more confident abt investing their money now and are taking some risks and chances.