Despite challenges, Pakistan's resilient economy continues to strengthen and grown

Despite challenges, Pakistan's resilient economy continues to strengthen and grow

There’s been a flurry of economy related news about Pakistan recently, and we’ve tried to hit the highlights at least. Another positive development is the substantial growth in Pakistan’s foreign reserve position which has now reached an all time historic high of $18.25B. This increase is due to many factors, the two most important being the increase in foreign exchange remittances being sent to the country by Pakistani workers abroad, and the improvement in the import/export gap. That this high has been achieved at a time when global oil prices are relatively steep, is even more expensive. One would imagine that as oil prices ease – which seems to be an almost universal expectation – the rate of growth of the national foreign exchange reserve would accelerate further.

The implications of this rise are interesting. In the near-medium term, one would imagine this addresses any fears of weakness in the Pakistani Rs. So for near/medium term investments of foreign moneys into Pakistan, value loss due to a depreciation in the Pak Rs. presents a much reduced risk. With that being considered, the KSE is still posting tremendous returns and numerous banks in the country are offering 11-14.5% returns on deposits, CDs and TFCs. 10-11% is fairly typical on CD-like instruments with a 90-180 day maturity. Research has shown that, in Pakistan, the foreign exchange reserve position actually has a positive correlation with the stock market levels. So a rise in the reserve levels almost certainly implies a rise in the KSE index. Thus, with the foreign exchange rising continuously, remittances increasing and hence the Pak Rs. stabilizing, an 11% return on a 90 day note presents a great opportunity for short term, almost no risk exposure to the Pakistani market, with tremendous return potential. There is nothing to suggest that a large number of folks have picked up on this opportunity, but we’ll see if this becomes a popular option in the weeks ahead. 

We continue to believe that the projections for Pakistan’s economy and investment potential in the country over a 5-year time horizon remain stellar. During this time, regional stability is expected to heighten with the announced withdrawal of NATO forces from Afghanistan. The financial burden of the WoT is expected to thus diminish within Pakistan and a return to the country’s “natural” GDP growth rate of 6-8% can be counted upon. With the backdrop of rising exports, an officially declared if rather conservative goal of bridging the power gap over a 5-7 year timeframe, and rising remittances, the prospects for Pakistan’s economy are sound.

No related content found.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter