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Pakistan’s economy make a comeback

There are signs of business activity picking up in Pakistan at a faster pace as worries about new coronavirus (COVID-19) infections fade in the country. Pakistan is adding fewer active cases as population is fast approaching herd immunity. The economic growth is now being led by an aggregate demand push. Some of the sectors that are showing signs of pickup are as under:

Construction

Cement sales rose 38% from a year ago to 4.8 million tons in July, and near a record level seen in October. The government program to give amnesty to tax evaders, provided they fund construction projects, is expected to fuel activity. The demand for cement is expected to rise further as work resumes after the lockdown. Further, because of tax measures, the dispatches may continue their upward trend. Substantial decline in interest rates and mandatory targets given for banks to increase housing and construction financing to at least 5% of private sector credit may also be helpful.

Fuel/power

Gasoline sales in June rose to a record high as people return to work after lockdown measures eased in May. Sales have stayed elevated in July and August. Fuel for power generation has increased as well. Fuel oil sales rose in June to the highest in a year while LNG spot cargo purchase resumed in June after a six-month hiatus.

Automobile

Local car deliveries have recovered to about 10,000 units after four months as the end of lockdown brought in new demand. Kia Motors Corp.’s local unit is planning to add a second shift at its factory in Karachi from January 2021.

Manufacturing

Manufacturing output improved for a second consecutive month in June. The overall recovery in large-scale manufacturing will likely be stronger in the October-to-December quarter with worldwide demand picking up. Home appliances are also seeing robust momentum.

 

Gold trade

Gold prices rose for the sixth consecutive quarter— gaining 6.9% in Q12020. Prices have been driven by:

  1. Safe-haven buying amid elevated uncertainty, buoyed by aggressive monetary easing by major central banks — policy interest rates have plummeted to historically low levels and at record pace.
  2. Disruptions to mine production due to pandemic containment measures, especially in South Africa and South America, further supported prices.
  3. Global refining capacity has also fallen considerably. Switzerland’s refineries — which process one-third of global gold supply — suspended operations, while refineries in Singapore and Turkey operated at reduced capacity.
  4. Strong investor demand and supply disruptions have more than offset weak jewelry demand in China and India associated with lockdowns. Gold prices are forecast to average 14.9% higher in 2020.
Tourism industry

The hotel and tourism industry of Pakistan produces employment opportunities for around 1.5 million people, which is 2.5 percent of the total employment annually produced by the country. The tourism industry in 2018 accounted for 10.4 percent of the global GDP, which equals to $8.8 trillion. In Pakistan, this sector had just started to show potential before COVID-19 hit. Top US travel magazine Conde Nast ranked Pakistan first in travel destinations for 2020. The tourism industry contributes to Pakistan’s economy through foreign currency inflow, job opportunities and infrastructure. In addition, numerous small-scale businesses like hotels, restaurants, car rental agencies and tour companies are associated with the tourism industry. This sector will also help create thousands of job opportunities in both the formal and informal sectors, which will ultimately lessen the burden on the government.

Telecom sector

Telecom sector has an investment potential of about US$ 1 billion, which can be tapped. After receipt of additional capital of Rs7.4 billion ($45m) into Telenor Microfinance Bank from Ant Financial and Telenor, Telenor Pakistan has brought total FDI to $185 million in the last two years alone as equity injection into Telenor Bank/Easypaisa to grow Pakistan’s digital payment ecosystem.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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