Author: Ahsan Nisar

Prospects It is a fact that after the tremendous growth in mobile internet, artificial intelligence will soon become the largest future outlet. AI or artificial intelligence – is the science that governs, controls, regulates, and connects all other fields in the world, be they sciences, faculties of engineering, technology, education, or even business. Countries and industries around the globe have been using information technology to develop their businesses by gaining unprecedented expansion. And thanks to new tech startup businesses like Workmatec, Kazola, Botsify, Dcube, Red Buffer, TechinAsia, CricFlex, Farmer’s Lab & Mountainise etc., Pakistan, too, can now benefit from the…

The past few years have been difficult for telecom companies across the world and Pakistan is no exception. Overall revenues and cash flows have dipped despite the fact that consumption of mobile data has increased. This has been mainly because telecom companies have invested heavily in their wireless 3G and 4G networks. Fiscal Year 2018-19 will continue to be a critical time for Pakistani telecom industry as companies will compete intensely for market share in already saturated market. The consumers have become more tech-savvy and companies need to innovate in order to come up to their expectations. As Pakistan moves…

Pakistani society is highly consumption-oriented. This is further accentuated by the fact that consumer spending this Eid-ul-Fit’r crossed one trillion mark. With around fifty points on Consumer Confidence Survey, there is likelihood that mix trend is likely to continue. While rise in global oil prices and third round of Rupee depreciation will cause the inflation to spiral upwards which may subsequently result in squeezed spending patterns, it remains to be seen how availability of excess disposable income will come into play courtesy tax amnesty scheme. From the remittance-receiving perspective, beneficiaries are likely to continue availing the benefit of Rupee depreciation…

“Consumers, by definition, include all of us. They are the largest economic group in the economy, affecting almost every public and private economic decision. But they are the only important group whose views are often not heard”. (John F. Kennedy, 1962). The right to have information about prices of products and services is a very important consumer right.  This right is protected under Article 19-A of Pakistani Constitution which states: “Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law.” This right to information…

In Pakistan, three sectors that have witnessed tremendous growth in terms of innovation and users are Information Communications Technology (ICT), telecommunications and financial services. By joining hands, they could bring millions of marginalized people into formal banking channels. The exclusion of an entire customer base from the formal financial sector has created a window of opportunity for financial service providers in creating digital value propositions. Digital banking is likely to provide huge impetus to financial inclusion. Surrounded by so much potential, it is likely that financial service delivery coupled with technology will have a transformational impact on the country’s unbanked…

The 18th Summit of Shanghai Cooperation Organization (SCO) has recently concluded in the Eastern China’s coastal city of Qingdao. The SCO is a political, economic, and security organization, the creation of which was announced on 15 June 2001 in Shanghai by the leaders of China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. It is the largest regional establishment in the world in terms of geographical coverage and population and is one of the world’s most powerful organizations. Both India and Pakistan officially became member states of SCO on the 17th Meeting of Heads of State Council of SCO in Astana on…

Remittances play a very important role in eliminating poverty of a nation. Remittances not only reflect the domestic labor working in the global economy but also show the connection between growth and integration with the world economy. Hence, remittances improve the integration of countries into the global economy. With the wake of globalization, multiple factors have contributed to labor movement in which better working environment, more opportunities and compensation are on top of priority list. It has been generally argued that globalization has caused loss of power of nation states and dismantled welfare state model that grossly reduced the efficiency…

Pakistanis are one of the most charitable nations in the world. Charitable giving this year will exceed $1.5 billion. As a percentage of Gross Domestic Product (GDP), Pakistanis donate at the same level as Canada and UK and twice as much that of India. Even the corporations here do not lag far behind when it comes to Corporate Social Responsibility (CSR) and charity. Some companies roll out special advertisement campaigns surrounding the theme of Ramazan. The holy month of Ramazan has traditionally been the time of the year when public support has reached a peak, and donations, both zakat and…

Migrant remittances can play a critical role in the economic development of low/middle-income countries. Remittances to developing countries are generally seen as an instrument to reduce poverty and inequality, to provide social benefits and multiplier effects, and to act as buffers against economic shocks. However, the full developmental potential of remittances is far from being realized. While the relevant stakeholders, from the financial institutions to actors from the public sector and the civil society, seem to appreciate the opportunity remittances represents, effective best practices to harness this opportunity are still to be identified. Additionally, expanded access to the financial sector…

Ramazan is that time of the year when expatriates send money to their loved ones back home so that they could celebrate the festive occasion of Eidul-Fitr. The boost during the holy month may also help in arriving at the State Bank of Pakistan estimate of USD 20 billion for the first time in Pakistan’s history. Nevertheless, since Pakistan is a consumption-driven society, hence a meagre amount goes into savings, which results in a low savings rate of 13-14 percent of GDP. Most of the beneficiaries of remittances are highly dependent on the funds sent from abroad and are unaware…

Owners and managers of a large number of SMEs have a deeper craving for Shariah-compliant financial services than large businesses and companies. The conventional banking system has done little to satisfy the borrowing needs of SMEs, thereby making way for Islamic banks to fill the gap. However, the lending to corporate and consumer sector is so huge that it will take Islamic Banking Institutions (IBIs) a long time to increase the share of SMEs in the overall financing mix. Some Islamic banks like Meezan Bank and Dubai Islamic Bank (Pakistan) have already up-scaled their lending to SMEs. For boosting SME…

Islamic mutual fund works in a similar manner as a conventional fund except that the Islamic mutual fund only deploys funds in Shariah-compliant investments. The key players in Islamic mutual fund are: Asset Management Company, Trustee, Shariah Advisor & Registrar. Following are some of the top funds (based on NAV) according to Mutual Funds Association of Pakistan: UBL Al Ameen Funds (Shariah Compliant Money Market — Annualized return) Al-Ameen Islamic Cash Fund (AICF) [formerly UBL Islamic Cash Fund (UICF)] is a mutual fund investment scheme that offers an ideal investment facility, which allows to earn an attractive and stable riba-free…

In Pakistan, the common definition of a literate person is one who could write his/her name in English. According to this definition, literacy rate of Pakistan is 58% (down from 60%) which is very low as compared to regional peers. In 2015, when the UN laid down Sustainable Development Goals (SDGs), quality education was set as Goal No.4 out of 17 goals. The definition of literacy was also modified to cover financial literacy i.e. a person is deemed to be literate if he/she could undertake basic banking transactions.By virtue of this, the literacy rate of Pakistan will be even lower…

In the emerging economies, the significant contribution of private sector for eradicating illiteracy is a well-known fact. For the last three decades, private sector has emerged as a key provider of education services in Pakistan both in absolute terms and relative to the public sector. Private educational institutions and NGOs/NPOsare playing key role not only in eradicating illiteracy but also enhancing the level of students as well as teachers by providing better academic environment. Below are some of the major players in the education sector of Pakistan: Alif Ailaan It is a non-profit organization working in the field of education…

As was expected, the budget for FY 2018-19 turned out to be ‘people centric’ as this is the election year in Pakistan. By curtailing the tax liability of individuals and increasing minimum pensions, the government has tried to woo the voters for the upcoming elections. It remains to be seen whether the effect of increase in family disposable income is off-set by the spiraling inflation or not. The government has come under fire as the cost of relief exceeds revenue measures. The budget has also left the real estate and construction sector disgruntled as they feel they did not get…

From LNG to coal, livestock to stationery, every sector and every type of business enterprise has been showered with exemptions and tax reductions. While chemicals and oil and gas sectors appear to be gainers, steel, construction, real estate, leather and automotive sector will be major losers. This article aims to analyze the impact of budget on various sectors: Oil and gas The Finance Act has waived the 3% value addition tax on import of LNG. Rate of sales tax was reduced from 17 to 12% on import of LNG by Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) and…

After investment in energy and transport sector under China-Pakistan Economic Corridor (CPEC), China is now making headways in the e-commerce and banking industry of Pakistan through Alibaba, Bank of China and Industrial Commercial Bank of China (ICBC). Realizing the potential of CPEC, Pakistani banks are also opening their branches and representative offices in China. This article aims to analyze the impact of Chinese foothold in the aforementioned sectors of Pakistan. E-commerce market With foundations well in place for digital commerce to flourish in Pakistan, it is only a matter of time before e-commerce takes the Pakistani consumer market by storm.…

Trade volume between China and Pakistan, which stood at $4 billion in 2008, peaked to $15.6 billion in 2016-17. Pakistan’s exports to China were only $1.5 billion in the last fiscal year while imports amounted to $14 billion, according to Chinese statistics. Under first phase of the Free Trade Agreement (FTA), Pakistan gave duty concessions on 35% of tariff lines, which led to a huge influx of Chinese goods and many local industries could not survive. Under the second phase of FTA, China wants Pakistan to offer zero duties on 75% import tariff lines as a result of which FTA-II…

This is the election year in Pakistan so any discussion on budget is to be read in this context. The corporate tax and Super Tax is likely to remain there, however, there may be some relief on the individual tax front. While it may be debated whether the outgoing government should present the budget or not, the scope of budget is likely to be expansionary as the present government will try to woo the voters to the maximum extent possible. This will be an additional burden on the fiscal deficit which may swell above 6% of GDP. It remains to…

The Pakistan Stock Exchange’s (PSX) KSE-100 was Asia’s top-performing Index in 2016 but 2017 proved to be a nightmare. Equity-based funds posted negative returns in the range of 10 to 20%, while brokerage houses had to be content with low volumes that put a dent on their earnings. From its all-time high of 52,874.46 points it touched on May 24 last year, the Index is hovering in the range of 45,000 due to buying in select oversold stocks. While some say that political uncertainty was the main reason for the downfall, others tout civilian-military rife and exit of the finance…

Pakistan expects to use the multi-billion-dollar Chinese investment to significantly enhance its industrial capacity and economic productivity backed by greater energy supply. It anticipates doing this through improved geographical linkages and upgraded road, rail and air transportation systems that facilitate a higher volume of trade flow. It is also eyeing opportunities of transfer of knowledge and technology with its Chinese counterparts. There has been significant progress in the 21 industrial, 8 infrastructure and 12 Gwadar-related projects that have commenced under the China-Pakistan Economic Corridor (CPEC) banner (with several industrial projects now being operational). 4 rail-based mass transit and 6 provincial…

Food insecurity Pakistan has one of the world’s most impressive agricultural systems but it has not used it well or not being able to manage properly. Agriculture sector is still the dominant sector of the economy with profound impact on rural economy. Its forward and backward linkages particularly with the industrial sector, gives it central place as a useful tool for the economic development of Pakistan. In face of increasing population growth especially in developing countries, limited possibilities of further extension of cultivated land, increasing resource degradation and wide gap between potential and national average yield, productivity growth takes an…

The global steel production has nearly doubled since the turn of the century. Pakistan is the 37th largest in world steel production ranking with per capita consumption of steel remaining pegged to 38-40 kgs per annum – about one-fifth of the global average of 198 kgs. The per capita consumption of steel in the US is around 394 kg, for China it is 338 kg and in India it is around 63 kg per capita. With the advent of China-Pakistan Economic Corridor (CPEC), the construction industry is booming, and with several infrastructural projects still in the pipeline, the steel industry…

Out of some 56 participants, following are the key players of the steel industry in Pakistan: Pakistan Steel Mills Corporation (Pvt) Ltd Established in 1985, Pakistan Steel is Pakistan’s leading steel producer with a production capacity of 1.1 million tons per year. The company specializes in the production of flat steel products including, billets, slabs, hot rolled coils, cold rolled coils, galvanized sheets/coils/formed sections and corrugated sheets. The company is vital to the supply of high quality and cost-effective steel products to the domestic market. Pakistan Steel’s constant efforts in continuous improvement and quality management have resulted in accreditation in…

In any form of business, be it private or public, the importance of risk culture cannot be over emphasized. But when it comes to financial institutions, the dynamics of risk culture change significantly as the nature of banks’ operations make it distinct from all other forms of businesses which call for more intrusive, consistent and strict regulatory regime. Banks, irrespective of their jurisdiction, are required by regulators to establish strong governance, risk and compliance functions to reduce conflict of interests between various stakeholders. However, in spite of enhancement in regulations and supervisory practices, their still remain chances that banks may…

Human resource is the most mobile of the four factors of production and under right conditions it improves with age and experience, which no other resource can do. It is, therefore, regarded as the scarcest and the most crucial productive resource that creates the largest and long-lasting advantage for an organization. To achieve its objectives, any bank undergoes one of the most important processes, which is Strategy Formation. The importance of Strategy Formation is such that it is the business of the Chief Executive of the bank and his senior colleagues, backed by strong analytical support. This process covers very…

Generally, there are misconceptions that current account deficit (CAD) and depreciation of currency are bad omen for any given economy. Talking of current account deficit, it is quite natural for developing economies to have high current account deficit as it indicates faster growth. In any economy goods and services can be either consume, saved or invested. A country with a current account deficit indicates that it is investing more than it is saving, therefore a current account imbalance can simply be viewed as the difference between saving and investment.Historically Pakistan has had a low savings and investment rate. High domestic…

The present economic situation presents some opportunities for Pakistan. But the country also has some serious long-term challenges. Unless the long-term challenges are decisively tackled, such opportunities will only lead to sporadic bursts of growth rather than a sustained upward trajectory. Some of the challenges and prospects faced by Pakistan’s economy are as under: Challenges Mounting debt Rising imports, declining exports Excessive taxation and regulations Lack of political consensus Low savings, consumption-oriented society Lower investment and tax collection Increased government borrowing Shrinking share in world trade Governance and implementation weaknesses Uncertainty due to lack of continuity of policies Prospects Development…

Pakistan is a land of vast potential and countless opportunities, of breathtaking landscapes and hospitable people, of rich traditions and unmatched resilience. Pakistan is now set to embark a new path of progress, peace and prosperity. ‘Emerging Pakistan’ is the narrative of a youthful and vibrant Pakistan; full of hope and passion; with abundant resources and opportunities; open to new ideas and ventures in the areas of manufacturing, human capital, natural resources, agriculture and communication. Manufacturing In 2016, BMI Research report named Pakistan as one of the ten emerging economies with a particular focus on of its manufacturing hub. Sialkot,…

In the wake of grey listing of Pakistan by the inter-governmental Paris based Financial Action Task Force (FATF), State Bank of Pakistan (SBP) has asked all foreign exchange companies to make sure their business is in compliance with the anti-money laundering rules and regulations. Exchange companies play an important role in facilitating remittances of overseas Pakistanis. Out of our total $19 billion plus annual remittances, up to 15-20 percent according to some estimates, comes through exchange companies. If these companies don’t become fully responsible in their conduct, Pakistanis settled abroad might stop using their services and switch over totally to…

The insurance industry in Pakistan is relatively small as compared to its peers in the region. The insurance penetration and density has remained very modest as compared to other countries. However, the situation has been improving over the last 5 years and the insurance industry, especially life insurance has shown tremendous growth. This growth can be attributed to the change in perception of life insurance which is now being perceived as security for prosperous future in the event of some unfortunate incident. Life insurance affects a country’s social and economic structure to a great extent. Due to its nature, life…

Challenges There are always lots of challenges for insurance industry in emerging markets. Most of the challenges are different with respect to the jurisdiction. Following are some major challenges insurance industry is facing in Pakistan: Awareness Skilled Human Resources Clear Rates Customers Access Political Pressure Economic Changes Halal and Haram conflicts Challenging Customer Behavior Inflation Effects Regular Growth Product Development Per Capita Income Technological Development Opportunities Low penetration and density shows that there is tremendous scope for expansion in insurance industry. Following are the opportunities an insurance company is likely to have in most of the conditions: Social Network Awareness…

Problem & context Remittances represent significant financial flows between both developing and developed countries that have rapidly increased in volume in recent years. The global sum of remittances currently equals three times of all official development aid worldwide, reaching over $700 billion in 2017. Migrant workers commonly use remittances to support their families; after going abroad for more-promising work opportunities, they send some of their earnings home. Families who are dependent on remittances from family members abroad are generally in a position of higher risk, and insurance is well suited to reducing the risk of lower-income families. Bancassuarance seeks to…

With its third edition underway in full swing, the Pakistan Super League has gained the status of a festival in the United Arab Emirates (UAE) and Pakistan after successful holding of two editions of the same earlier. On one hand, it helps portray a positive image of Pakistan abroad whereas on the other hand it is a big source of revenues for the Pakistan Cricket Board (PCB). At a time when no international cricket is being played at home since 2009, PSL came to our rescue in the form of a global cricketing product. It has gained the status of…

Pakistan is one of the fastest growing economies in the region and that is a good sign for the auto industry as well. Pakistan’s automobile industry is likely to double the annual car assembling to half a million units within the next 10 years if economic policies remain consistent and interest rate continues to bolster auto financing. The demand for four-wheel vehicles will rise from 0.28 million to 0.5 million in Pakistan within the next 12 years, according to a report by the Small and Medium Enterprises Development Authority (SMEDA). Moreover the China-Pakistan Economic Corridor (CPEC) will bring a lot…

Investments from China and other foreign companies likely to give boost to commercial truck and pickup sector. Pakistan is currently going through a transition phase in the automobile sector, with the approval of the latest Auto Policy 2016-2021. According to the policy, new investors can set up their production plants in Pakistan and boost import for less than half the normal price as an added perk. Automobile sales in Pakistan, including pick-ups and trucks, have remained strong in the last few years. Higher economic growth, improving security situation and higher bank financing have all contributed to supporting the sales of…

Natural gas is Pakistan’s primary source of energy and has committed to various pipeline and terminal projects for delivery to homes, industries and power plants. Gas makes up more than a half of the country’s energy source and it uses its natural production for domestic use, with imports of Liquefied Natural Gas (LNG) being considered to meet the supply gap. Natural gas caters for 37.68 percent of the country’s total energy supply, with a 40 percent increase in gas demand during the winter. Currently Pakistan has LNG of 4-5 million tonnes contracted and another 4-5 million within the current fiscal…

Issues Pakistan has currently two types of gas — imported and local. Textile, fertilizers, CNG stations and power sectors are using the Liquefied Natural Gas (LNG) under ring fencing regime. However, the domestic, commercial and some industrial players are using the domestic gas. But in future when the flow of imported gas volume in gas system increases, the two-tier gas pricing regime will not last and in that case one-tier gas pricing regime after mixing local and imported gases will not be applicable. The government is not clear on what kind of gas pricing regime should be in implemented in…

Pakistan was built on a dream, a desire, a vision that surpassed all bounds to become a glorious nation. It is a land of vast potential and countless opportunities, of breathtaking landscapes and hospitable people, of rich traditions and unmatched resilience. Pakistan is now set to embark a new path of progress, peace and prosperity. ‘Emerging Pakistan’ is the narrative of a youthful and vibrant Pakistan; full of hope and passion; with abundant resources and opportunities; open to new ideas and ventures under the themes of Opportunity, Sustainability & Mobility. Opportunity With the 10th largest labor force in the world,…

Developing an understanding about the nature and economic drivers of Pakistan is crucial to critical thinking about its impact on the economy. However, one needs to look at a more complete picture. The purpose of this article is to analyze the effects of investments in various avenues on the economic growth. Pakistan direly needs massive investment in energy and transport infrastructure projects to cut blackouts, boost growth and create jobs. There is no doubt that the country’s potential is under-utilized at the moment and in the near future, through devising right policies, Pakistan can emerge as one of the fastest…

Home remittances and money sent back by Pakistanis working abroad have financed the bulk of Pakistan’s trade deficit for the last many years. Remittance inflows, however substantial, continue to fall. Worker remittances have shown some unexpected improvement, and in the first 6 months of fiscal year 2018, increased by 8.72% from the same period in fiscal year 2017. If this rebound can be sustained for the rest of fiscal year 2018, it may ameliorate the external sector. As for year-end remittance numbers, the central bank expects full year FY18 remittance to range between $19.5 and $20.5 billion; the Planning Commission…

In order to reduce dependency on the greenback gradually over time, Pakistan has decided to use Chinese yuan for bilateral trade. The yuan attained the status of a global reserve currency, the third one after the US dollar and the euro, on Nov 30, 2016. For Pakistan, the rupee-yuan settlement of trade with China is important because it would reduce need for US dollars to a significant extent as Pakistani imports from China are in excess of $10 billion. Initially, even if 25 percent of our imports from China are to be financed in yuan, our dollar requirements would decline…

The financial services market is undergoing a lot of changes. Customers always have appetite for more and are well knowledgeable, looking for convenience and ease when it comes to financial services, particularly via internet and mobile phones making innovation and transformation two most powerful forces that are reshaping the banking industry. Customer expectations, technological capabilities, regulatory requirements, demographics and economics are some of the challenges that banks need to overcome in order to sharpen their tools for entering into the new era. Modern powerful tendencies are reshaping the banking industry. Social media and evolution of mobile technologies force retail banking…

As the technological landscape changes, so too does the expectation of consumers who shop in stores and online. Mobile technology, social networking and advanced analytics have aided in changing the shopping experience. It is no longer a question of whether or not consumers will migrate to online sales in greater numbers. For instance, regardless of whether or not they actually buy online, around 50 percent of consumers say they prefer to shop online. Age seems to make a difference as well – shoppers younger than 40 show the greatest likelihood of online shopping. One of the reasons more consumers are…

In today’s context e-commerce is a potent tool to further the goal of financial inclusion by drawing more people within the digital financial services space, irrespective of income and social status. Through simple payment and delivery options, innovative e-commerce solutions have the potential to transform the overall consumer shopping experience and positively influence customer behavior change particularly with regards to moving away from cash, thereby encouraging traditional brick-and-mortar retail shops to expand their electronic presence. With foundations well in place for digital commerce to flourish in Pakistan, it is only a matter of time before e-commerce takes the Pakistani consumer…

Pakistan is currently passing through a demographic transition, which has resulted in a ‘youth bulge’ (63% of our population comprising of youth, 69 million aged below 15) and an increase in the working-age population as a share of the total population. To reap the ‘demographic dividend’ of this change, the economy needs to provide education and create productive and remunerative employment for young workforce entrants. Foreign entrants such as Uber & Careem, through their entry, have acknowledged the economic potential of a nation with young population. Moreover, innovation through digitization and entrepreneurship are playing their part in human capital development.…

The OPEC and non-OPEC production cuts and the rising demand have been in play, which has lifted the crude oil prices to over $60 a barrel. This increase in crude oil prices will be celebrated by the oil and gas E&P companies around the world that have been investing in the low price – and hence low-cost era. Though prices are expected to rise in 2018, they are likely to set in a range of $60-70 per barrel. And while better oil price scenario has worked in the interest of these firms, the industry has also received another boost from…

Natural gas is one of the principal sources of energy in our economy. The past decade has witnessed substantial changes in the policy use of natural gas. Out of the box, unproductive and inefficient usage of natural gas has nearly exhausted our quantified conventional natural reserves. Paradigm changes in the development of technology have created the potential to recover more natural gas from shale formations, which can be used to meet our growing demand for energy and to sustain economic development. Shale gas is becoming increasingly important source of natural gas across the world with estimates of more than 15,000…

The government has failed to adopt what is normally termed ‘any marketing strategy’ to boost manpower exports with a view to enhance declining home remittances. On the other hand, India is on a rampant path to take over Pakistani manpower market in the Middle East for which Indian Prime Minister Narendra Modi visited United Arab Emirates (UAE), Saudi Arabia and Qatar last year and successfully achieved new workforce supply orders, no doubt, at the cost of Pakistan. India is said to have made inroads in Gulf Cooperation Countries (GCC) which had traditionally been Pakistani manpower market. Unfortunately, no attempt was…

Pakistan is currently passing through a demographic transition, which has resulted in a ‘youth bulge’ (63% of our population comprising of youth, 69 million aged below 15) and an increase in the working-age population as a share of the total population. To reap the ‘demographic dividend’ of this change, the economy needs to provide education and create productive and remunerative employment for young workforce entrants.Foreign entrants such as Uber and Careem, through their entry, have acknowledged the economic potential of a nation with young population. Moreover, innovation through digitization and entrepreneurship are playing their part in human capital development. Below…

Muslims will make up more than a quarter of the world’s population by 2030. The global Islamic market was worth over $3.6 trillion in 2013, and the market is projected to be worth over $5 trillion by 2020, according to reports published in the leading magazine. The Halal food market is projected to be worth $1.6 trillion by 2018. This sector is also estimated to be growing faster than the conventional food market, and could exceed 17% of the world food market by 2018. Halal’s burgeoning popularity can be linked to religious fervor; and beliefs that it’s cleaner, healthier and…

The country’s agricultural sector has three major roles in the national economy: provides food to consumers and fibre to the industry, earns foreign exchange, and provides a market for industrial goods/machinery. However, the share of agriculture in gross domestic product (GDP) has declined since independence, falling from 53 percent in 1949-50 to 19.8 percent in 2016-17. Pakistan has made significant progress in food production over the last several decades. However, food security is still a key challenge due to high population growth, rapid urbanization, low purchasing power, high price fluctuations, erratic food production, and inefficient food distribution systems. According to…

Highlights of 2017 8.5% growth in Large-Scale Manufacturing (LSM) Inflation rate of 3.9% Super strong growth in lending to the private sector 74.4% growth in Foreign Direct Investment (FDI) worth $939.7 million 19.5% growth in the Federal Board of Revenue (FBR) Tax Revenues and a double-digit growth in exports Considering the mixed trends in the macro-economy, which includes challenges and opportunities, GDP growth is expected to remain between 5-6 percent in 2018. The economy is expected to benefit from accommodative macroeconomic environment, activities related to the China-Pakistan Economic Corridor (CPEC) and constantly improving energy supply and security situation. Pakistan’s annual…

Microfinance Microfinance is just one tool in the war against poverty. For microfinance to be successful at poverty reduction, it must be used in conjunction with education, health and other social interventions. Microfinance becomes a multiplier force in such a scenario. Not only does it reduce poverty, it creates an even playing field by bringing the marginalized population into the banking net. The reality is that this customer-base pays an exorbitant price for the services that the banked population uses. The microfinance industry has been successful in opening mobile accounts, but has yet to make these accounts active. The microfinance…

Pakistan is, and has been, a highly consumption-oriented society. The much lower level of investment in Pakistan reflects, in large part, a much lower level of national savings. The ratio of gross investment to GDP has averaged 15percent since 2010 and is actually somewhat lower than it was in the previous four decades. In contrast, gross capital formation in India has risen very sharply and has been well above 30 percent of GDP during the last decade. Improving the security situation, more effective rule of law and better relations with its neighbors would greatly strengthen faith in the future of…

In the wake of widening external deficits, dwindling reserves and uncompetitive exports in the back drop of political uncertainty, the million-dollar question that arises is where to invest in 2018? Well, definitely not the Bitcoins, at least till the time it is recognized as a currency. While the economic managers are still busy understanding the sector-wise impact of the recent fall in the rupee’s value, meanwhile, investors keep themselves away from taking long-term positions in stocks. Even foreign investors, whom everyone expected to swoop in to pick up stocks in the event of rupee depreciation, have continued to keep their…

Review of banking industry In order to propel economic growth, the State Bank of Pakistan has recently identified three priority areas for extending loans — agriculture, SMEs and low-cost housing finance with focus on financial inclusion and Islamic banking. Right mix of agriculture sector policies can give an immediate push to growth. Although, the banks disbursed Rs700 billion in agriculture sector loans, the data shows that the production loans are even lower than the previous year’s level. Banks also have not done well in the SME sector, as in a span of just 10 years, the SME lending as percentage…

The strong rupee policy stance adopted by the government has caused grave damage to the economy. From managed float regime, it had become a fixed rate regime which caused drop in exports and remittances. The continuation of high growth in imports led to a widening of current account deficit, and consequently to depletion in the country’s foreign exchange reserves. Pakistan is facing major challenges of growing public debt, stagnation in exports, widening of the current account deficit, overvaluation of the nominal and real effective exchange rates, slowing down of growth in credit to the private sector, expansion of the informal…

After trading in the tight range of 104-105 per dollar since December 2015, the Rupee plunged to as low as 110 per dollar to settle around 108.40-50 per dollar. Economists and businesses have been urging the government to devalue the rupee, saying it was hurting exports and contributing to the depletion of Pakistan’s foreign currency reserves. A weaker rupee would help the economy grow and ease balance of payments pressures. The recent devaluation will help exportable products become competitive in the international market. The government had no choice as the trade deficit has crossed all limits. While on one hand,…

Among the seven Gulf Cooperation Council (GCC) countries, the UAE is the biggest investor in Pakistan. From 2004 to 2017, its public and private sector investments totaled more than $6 billion. Several key companies such as Emirates National Oil Company, International Petroleum Investment Company, Etisalat, Al Ghurair, Abraaj Capital, Dana Gas, Emirates Investment Group, Emaar, DP World, Julfar, Arabian Packaging Company and others have invested in Pakistan. Vast UAE foreign direct investment and joint ventures have been operating successfully in Pakistan for years. A large number of high-dividend FDI investment and joint venture opportunities exist in Pakistan. These include sectors…

Value Added Tax (VAT) is expected to be introduced at a rate of 5 percent with some limited exceptions including basic food items, healthcare and education. The UAE are planning to implement on 1st January 2018 — other Gulf Cooperation Council (GCC) countries may do so at the same time or by 1st January 2019 at the latest. The GCC member states are in the process of approving the long anticipated common framework for the introduction of a Value Added Tax (VAT) system in the GCC. The common VAT framework will form the basis for the introduction of a national…

[dropcap]P[/dropcap]akistan is a net oil importer and meets about 75 percent of needs through imports. Oil imports carry the heaviest weight in total imports of the country. Pakistan has a total refining capacity to process around 400,000 bpd or about 19MTPA of crude oil, against the current demand of 24MTPA. Total global refining capacity is 97 million bpd, and Pakistan, with nominal world share of 0.4 percent, is ranked 48th. Demand for oil products in the country is expected to grow steadily at seven percent on year-on-year basis, according to recent studies, in particular for the furnace oil, motor spirit,…

[dropcap]W[/dropcap]ith the affairs of Ministry of Finance now an open secret, the cat is finally out of the bag. The fresh statistics have exposed the cosmetic touches done to the economy causing concerns about long-term sustainability of the external sector. The current account deficit widened to US$ 5.0 billion during July-Oct FY18 as compared to $2.3 billion during the corresponding period in FY17. The good news is that Pakistan’s exports have seen an improvement during July-Oct FY18 growing at 11.3 percent as compared to the decline of 3.1 percent in the comparable period last year; and remittances have recorded a…

[dropcap]P[/dropcap]akistan has a well-developed cement industry with abundant raw material availability in the country. The country ranks amongst the top five exporters and 14th largest cement producer in the world. Cement is the prime ingredient used in the construction industry. Cement consumption has a direct correlation to economic growth and improvement in the living standards of society. The cement industry in Pakistan is currently thriving, thanks to the country’s booming construction industry and high demand for residential and commercial developments within the country. The growth can be seen affecting both the commercial and residential sectors, with many new housing developments…

[dropcap]D[/dropcap]espite having an extremely well-developed cement industry, Pakistan’s per capita cement consumption which stands at 140 kgs, is the lowest in the world – the global average is 400 kgs per capita. Poor economic growth, lack of government interest in infrastructure projects and high real estate and housing prices have kept local cement demand fairly low and for many years, cement manufacturers, especially those based in the south region (Sindh and Balochistan), have focused mainly on exports. Manufacturers whose production facilities are in the north (Khyber Pakhtunkhwa and Punjab) have shied away from exports due to prohibitively high costs of…

[dropcap]E[/dropcap]very year, National Savings Day is celebrated on 31st October, still Pakistan continues to be categorized among the low savers of the world. Historically, the highest national savings rate has been much lower than regional peers at the same income level. One of the strong reasons for the informal saving channel to exist is the paucity of savings instruments that an individual has access to. The financial system now needs to focus on providing innovative liability products to give the investors and savers various options to choose from, according to their risk/return preference. Extending outreach of financial services to currently…

[dropcap]T[/dropcap] wo aspects of our economic environment that weigh down on growth are the huge (effective) share of indirect taxes in tax revenue and the second is the declining contribution of national savings to national development. Instead of fueling growth, savings are largely recycled by banks to serve government’s fiscal needs. SAVINGS AND INSURANCE The concept of life insurance has evolved from a primary emphasis on conventional insurance protection to a relatively advanced form of a savings product. Life insurance products enhance the role of insurance in an economy by helping in the: (1) mobilization of savings; (2) development of capital…

[dropcap]N[/dropcap]early all will say CPEC is a game-changer, but some will ask for whom? Others will flag that CPEC is the largest foreign investment into Pakistan, but many will question whether the country will be able to bear the debt burden resulting from it. The ongoing debate on financing the burden of CPEC needs to be analyzed based on facts rather than opinions. The total committed amount under CPEC of $50 billion is divided into two broad categories: $35 billion is allocated for energy projects while $15 billion is for infrastructure. The entire portfolio is to be completed by 2030.…

[dropcap]A[/dropcap]s incredible as it may seem in this hyper-connected, technologically advanced era, half the planet’s population exist as “financial nomads”—those who nourish and shelter themselves without using traditional banking services. While the wealthy live at the top of a metaphorical pyramid, taking financial security and banking services for granted, there are billions of people who struggle at the pyramid’s base in an exhausting state of financial exclusion and insecurity. Times are changing rapidly, but despite global uncertainty, technology has the capacity to reach and equip people in all walks of life. Advances in communications have reconfigured the ease with which…

[dropcap]A[/dropcap]fter thorough analysis, following have been identified as some of the major causes of power shortage in Pakistan: Increase in circular debt because of failure to curb power theft Inability to recover billed amounts from consumers Decline in hydro power because of water shortage Decrepit secondary transmission lines The increase in circular debt was bound to happen because it is inherent in government policy. Circular debt clogs the system as it deprives cash flow to all players at each stage of the supply chain. Government policy and management has much to do with it. At one end of the chain,…

[dropcap]A[/dropcap]ccording to Investopedia’s definition, “Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century. Originally, the term applied to technology applied to the back-end of established consumer and trade financial institutions. Since the end of the first decade of the 21st century, the term has expanded to include any technological innovation in the financial sector, including innovations in financial literacy and education, retail banking, investment and even crypto-currencies like bitcoin.” Banking has historically been one of the business sectors most resistant to disruption by technology and the ubiquity of mobile devices has…

[dropcap]B[/dropcap]asic mind set of any type of investor is to manage the risk and maximize the returns. The common phenomenon in managing the risk is diversification or, in other words, not putting all the eggs in one basket. The diversification requires choosing which baskets to put your eggs in; and most importantly how much? This gap of lack of knowledge and expertise to invest in the financial markets lead the experts to come up with solutions for investment and minimizing the risk through efficient management of large portfolios consisting of debt and equity instruments. The investors are primarily concerned with…

COMPLIANCE [dropcap]C[/dropcap]ompliance function at banks continuously strives for improving the compliance environment and minimizing compliance risk for the institutions through independently assessing compliance risk and evaluating banks’ internal controls for adherence to applicable laws, rules and regulations, including identifying compliance issues and independently reporting on the state of compliance activities across the institutions. Banks’ approach towards the management of compliance risk is covered in their Compliance Policy which outlines the requirements of the compliance programs and defines roles and responsibilities related to the implementation, execution and management of the compliance programs. These requirements work together to drive a comprehensive risk-based…

[dropcap]I[/dropcap]n 2014, the Organization for Economic Co-operation and Development (OECD) established the Common Reporting Standard (CRS), laying the groundwork for a new global network of tax reporting. The CRS calls on the tax authorities of participating countries to obtain information from their financial institutions and automatically exchange that information with other countries on an annual basis. The purpose of the CRS is to combat international tax evasion. There are now more than 1,300 bilateral relationships in place across 101 jurisdictions committed to exchanging information in 2017 and 2018. This comprehensive cross-border transfer of sensitive financial data between jurisdictions raises important…

FINANCIAL INCLUSION [dropcap]I[/dropcap]n recent years, financial inclusion is one area where stakeholders of the financial ecosystem have been focusing lately as part of a broader strategy to reduce poverty, encourage economic development and promote stability and security. The term ‘financial inclusion’ refers to the provision of accessible, usable, and affordable financial services, either through the formal or informal financial sector, to underserved populations. Financial inclusion also applies to underbanked’ communities, where people lack reliable access to or are unable to afford the associated costs of financial services. On a macroeconomic level, financial inclusion is linked to economic and social development,…

[dropcap]A[/dropcap]ccording to World Bank’s forecasts, owing to improved security and energy supply situation, economic growth in Pakistan is expected to increase from 5.2 percent in FY2017 to 5.5 percent in FY2018. This is contingent on the fact that growth among the world’s seven largest emerging market economies is forecasted to increase and exceed its long-term average by 2018. Recovering activity in these economies should have significant positive effects for growth in other emerging and developing economies. After a prolonged slowdown, recent acceleration in activity in some of the largest emerging markets is a welcome development for growth in their regions…

[dropcap]T[/dropcap]raining and development are vital for progressive organizations. It is a fact that poorly trained employees can pose a serious operational risk and threat to very existence of banks. Therefore, banks need to pay due attention to training and development of their employees. Employee development is a joint, on-going effort on the part of an employee and the organization for which he or she works to upgrade the employees’ knowledge, skills, and abilities. Successful employee development requires a balance between an individual’s career needs and goals and the organizations need to get work done. Employee development programs make positive contributions…

[dropcap]A[/dropcap]fter the recent Habib Bank Limited (HBL) saga and National Bank of Pakistan (NBP) Bangladesh scam, the need for prudent bankers could not be over emphasized. There was a time when stalwarts like Agha Hassan Abdi, Shaukat Tareen, Zakir Mehmood, Ishrat Hussain dominated the banking industry. While such names are rare to find these days, still Pakistan could boast of producing good bankers that are not only serving domestically but are also proving their mettle in Gulf Cooperation Council countries. A host of bankers hailing from Pakistan are already serving in the higher management of banks in Kingdom of Saudi…

[dropcap]A[/dropcap]s compared to the fellow South Asian countries, Pakistan has a relatively friendly policy for the Foreign Direct Investment (FDI) making the country as one of the next best alternatives for the international investors who wish to invest in the industrial and manufacturing sector. While the investment outlook has improved, particularly with the improvement in law and order, however, corruption remains a major hurdle to foreign investment. Also, presently, FDI is coming from a handful of countries, which indicates that a lot needs to be done to make the country attractive for international investors. After being the frontline state in…

[dropcap]F[/dropcap]oreign Direct Investment (FDI) has not been picking up in Pakistan for the last three years despite regular investments from China. The State Bank of Pakistan (SBP) has called an increase in FDI ‘imperative’ for the sustainability of the economy’s external sector. Foreign Direct Investment in Pakistan increased by US$2,761.10 million in 2016. Foreign Direct Investment in Pakistan averaged US$2,651.26 million from 2010 until 2016, reaching an all-time high of US$3,184.30 million in 2010 and a record low of US$2,099.10 million in 2012. Gross FDI inflows have been either declining (in FY14 and FY15) or only marginally increased (in FY16)…

[dropcap]D[/dropcap]espite encouraging advancements in the number of first time bank account holders, a startling gender gap persists in financial inclusion as a result of a variety of barriers to access across the developing world. Bringing women into the formal financial sector not only empowers them directly but also leads to welfare gains for the entire household and the community at large. At present, out of the 2 billion unbanked globally, 1.1 billion are women. The problem is especially acute in developing economies with women 20 percent less likely than men to have a formal bank account and 17 percent less…

[dropcap]P[/dropcap]akistan has the lowest rate of female entrepreneurship in the world, with only 1% of female entrepreneurs compared to 21% of male entrepreneurs. Access to finance is one of the factors that has prevented women from engaging in entrepreneurial activities, with only 5% of women having access to an account at a formal financial institution. Beyond this, there are many structural, institutional and socio-cultural barriers that restrict the entrepreneurial capabilities of Pakistani women. Below are a few norms that are particularly important to understand and address so that we can bring more women into the formal financial sector. Limited or…

FIRST WOMEN BANK LIMITED [dropcap]F[/dropcap]irst Women Bank Limited is a unique financial institution, a scheduled commercial bank, set up in 1989 by the then Prime Minister Benazir Bhutto, who wanted a bank that would meet the banking needs of women. It was incorporated in the public sector as a Public Limited Company on 21st November 1989 under the Companies Ordinance, 1984. The Bank commenced its business on 2nd December 1989 with a paid up capital of Rs100 million; 90% of which was contributed in varying proportions by five leading public sector banks of the country. They were: National Bank of…

[dropcap]O[/dropcap]n April 23, 2016, Pakistan signed Paris climate agreement, joining 174 other nations in a commitment to combat climate change. The Paris Agreement is an agreement among 175 countries within the UN Framework Convention on Climate Change (UNFCCC) dealing with CO2 emissions reduction. The agreement went into effect on November 4, 2016. The contribution that each individual country will make to combat climate change should be reported every five years and are to be registered by the UNFCCC Council. Research and development in e-car business date back to the 19th century. With the first electrically powered car being produced in…

[dropcap]P[/dropcap]akistan’s auto market is considered among the smallest, but fastest growing in South Asia. Over 280,000 cars were sold in the fiscal year 2016-17, rising from just above 200,000 units during fiscal year 2015-16. At present, the auto market is dominated by Honda, Toyota and Suzuki. However, on 19th March 2016, Pakistan passed the Auto Policy 2016-21, which offers tax incentives to new automakers to establish manufacturing plants in the country. In response, Renault-Nissan, Kia Motors, Audi, Volkswagen and Hyundai have expressed interest in entering the Pakistani market. Pakistan is a market of more than 200 million people. Given the…

AFFORDABILITY & ACCESS TO FINANCE [dropcap]P[/dropcap]akistan has a housing backlog of almost 10 million units (source: ABAD’s Real Estate Research, 2016 and Lamudi’s White Paper 2017). Only one percent of the housing units developed annually cater to 68 percent of Pakistan’s total population, comprising people who earn a maximum monthly income of Rs30,000. On the other hand, almost 56 percent of housing units target 12 percent of the population, comprising individuals with a monthly income of Rs100,000 and above. Currently, the housing shortage is estimated to be over nine million units with demand growing at a rate of 0.6 million…

[dropcap]T[/dropcap]he housing finance market is among the most important in the economy. It accounts for a sizeable portion of the production activity of a country, through its backward linkages to land markets, building materials, tools, durable goods and labor markets. During the last few years, favorable developments in the economy have facilitated the offering of housing finance by financial institutions. The increasing scope of finance for housing in Pakistan has led many local and foreign banks to be engaged in house financing activities. Low interest rates stimulate the real estate sector by encouraging home-buying activity and by making it less…

GROWTH TRENDS AND FUTURE PROSPECTS OF ISLAMIC HOME FINANCING [dropcap]A[/dropcap]fter the steps taken by State Bank of Pakistan (SBP) to promote housing finance in Pakistan and interest taken by banks to engage in home financing, the housing finance sector is growing. It is important to note that share of Islamic banking in Pakistan’s banking industry is more than 10 percent, however, in case of mortgage financing the share of Islamic product is over 20 percent. Today, Islamic Banking is available through 6 full-fledged Islamic banks and 16 conventional banks having Islamic banking branches. Islamic banks are currently able to offer…

[dropcap]P[/dropcap]akistan’s banking sector is passing through a phase that is both challenging and exciting. While challenges emanate from low interest rate scenario, maturity of high yielding government securities, rising cost of doing business, lack of broad based growth in private sector credit appetite, rising undocumented economy with high unbanked population and changing regulatory framework. Currently, there are robust growth opportunities in the retail segment across the country including rural areas and continuing opportunities for digital transformation led by technology and telephony services. The banking industry is undergoing significant transformation and the pace of commotion in the industry is accelerating. More…

[dropcap]S[/dropcap]ocial media is particularly a powerful channel of communication and therefore is of significant value to firms. Social media allows firms to contact their customers and vice versa, both pre- and post-sale. There are now more ways than ever to receive promotions, deals and points from financial services companies. Financial institutions are using the social web to facilitate payments, provide deals and gain customer’s trust. Social media has become a standard channel of communications for customers. Digital devices are growing on an exponential level. Globally, 46% of consumers have access to social media with digital devices to make informed purchases.…