pak turnaround

7/30/2019 Pak Turnaround

1/13

September 2006

Pakistan An Economic Turnaround


2/13

1

International

isolation

- Exports doubled- FX risen five fold- Stable currency- Annual FDI doubled

Pakistans Turnaround Synopsis

Historical Bottlenecks Late 1990s

Highly

sanctioned

Near-zero

GDP growth

Threat ofsovereign

default

Deep

recession

A Reinvigorated Tiger

- Sanctions removed

- Increased integrationwith global economy

- Growth quadrupledto 78%

- Increased wealthlevels

- Growing middle class

- Fiscal deficit halved- Inflation contained

- Recent internationalsovereign bonds

issues oversubscribed- KSE: one of the best

performing markets


3/13

2

5.7

4.7

5.4

6.6

Pakistan ASEAN Latin America MENA

142

161

207

96

125

7282

111

182

3.1

8.2

8.4

6.4

5.1

6.68.07.87.4

2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E

Nominal GDP (US$ billion) Real GDP Growth (%)

Source: Pakistan Ministry of Finance, Economist Intelligence Unit, Abraaj Analysis

The Growth Story

Nominal GDP (US$ billion) & Real GDP Growth (%)

Pakistan witnessing rapid and sustainable economic growth

One of the fastest growing economy in Asia

Expected to surpass the US$ 200 billion mark by 2010

Real GDP Growth 06 (%)


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3

45.048.6

49.341.7

9.75.7

1991 2002

2,5902,780

2,9803,200

3,420

2,0702,210

1,980

2,410

2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E

Source: Economist Intelligence Unit, Pakistan Federal Bureau of Statistics

Lowest 20% Middle 60% Highest 20%

The Growth Story (contd)

Wealth levels have increased and a large middle-class is emerging

GDP per Capita (US$ PPP) Household Income Distribution (%)

Rising disposable income

Increasing income distribution largely a result of decreasing unemployment

Accelerating income growth across lower and middle segments of population


5/13

4

9.2 9.1

11.2

12.3

14.4

16.5

2001 2002 2003 2004 2005 2006

Source: Economic Intelligence Unit

13.2

36.229.7

106.1

Pakistan China Indonesia Malaysia


Exports have become competitive and almost doubled in last five years

Exports (US$ billion) Exports (% of GDP), 2006

Low cost advantage spurring exports

Broadening geographical reach and more access to US, EU and UAE markets

Potential to increase and diversify target countries


6/13

5Source: Pakistan Ministry of Finance, Economic Intelligence Unit

322485

798

1,524

3,521

949

2001 2002 2003 2004 2005 2006


International investors have begun to take notice of the Pakistan story, however significantupside remains as FDI flows are still far below regional levels

Foreign Direct Investment (US$ million) Foreign Direct Investment (% of GDP), 2006

2.8

13.9

1.1

9.1

Pakistan Singapore India UAE

Opening up of economy leading to strong foreign interest

FDI inflow more than doubled in 2006

Broad based inflow across sectors


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47

46

44

36

34

38

2001 2002 2003 2004 2005 2006

Source: Pakistan Ministry of Finance, Economic Intelligence Unit


Significant decline in external debt

External Debt (% of GDP)

Consistent decline in external debt / GDP ratio

Concerted effort to move away from poorly structured high-interest debt

Allowing increasing government expenditure on value-added projects

External Debt (% of GDP), 2006

34.0

19.1

16.0

30.8



8/137Source: Pakistan Ministry of Finance, Economic Intelligence Unit

2.1

4.8

9.8

12.613.1

12.3

2001 2002 2003 2004 2005 2006


Rapidly increasing foreign exchange reserves and a stable currency

Foreign Exchange Reserves (US$ billion)

61.159.859.157.258.5

60.9

2001 2002 2003 2004 2005 2006

Exchange Rate (Year-end, PKR:US$)

Strong remittance flow and growing exports leading to accumulation of foreign reserves

Reserves providing currency stability

Standard & Poors upgrade long-term local and foreign rating


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Fiscal Deficit (% of GDP)

4.3 4.3

3.7

3.2

3.4

2.4

2001 2002 2003 2004 2005 2006*

6.16.3

4.8

3.2 3.1

4.0

2001 2002 2003 2004 2005 2006

* Excluding earthquake-related spending

Source: Pakistan Ministry of Finance, State Bank of Pakistan

The Turnaround Strategy

External debt re-profiling and fiscal reforms were at the centre of the multi-faceted strategy

Interest Payments (% of GDP)

Restructuring and debt write-off leading to reduction in interest payment

Improved stability of economy; manageable fiscal deficit

Recent hike largely due to absorption of high oil prices


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A dynamic privatization program

Strong political support

3,598

34317818

558671

33

21

7

9

12

2001 2002 2003 2004 2005 YTD2006

Value of Privatization (US$ million) Number of Deals

Company Sector Company Sector

Pakistan Petroleum Oil & Gas Morafco Industries, Fais Industry &Real Estate

Pakistan State Oil Oil & Gas Lyallpur ChemicalFertilizer

Chemicals

Sui Southern Gas Co Oil & Gas Hazara Phosphate Ferter Industry &Real Estate

Sui Northern Gas Pipeline Oil & Gas Tomato Paste Plant Industry &

Real Estate

National Investment Trust Financial Pakistan TourismDevelopment Corp.

Tourism

State Life Insurance Co. Financial Sindh Engineering Construction

Faisalabad ElectricSupply Co

Utilities Heavy MechanicalComplex, Taxila

Industry

Genco 1 (Jamshoro) Utilities Heavy Electrical Complex,Hattar

Power

Peshawar Electric SupplyCo

Utilities Pakistan Machine ToolFactory, Karachi

Industry

National Power Con Co Utilities Service InternationalHotel, Lahore

Sale of Land

Source: Privatization Commission of Pakistan

Privatizations (US$ million) Current Privatization Pipeline

The Turnaround Strategy (contd)

Privatizations was another key focus


11/1310Source: Pakistan Ministry of Finance, Economic Intelligence Unit

67.863.964.9

40.5


17

47

30

46

10

9.7x

9.2x7.7x

12.9x

4.4x

2002 2003 2004 2005 YTD 2006*

Market Capitalization

Trailing P/E Ratio


Financial sector reforms catalyzed economic transformation

Bank Lending (% of GDP), 2006 Market Capitalization (US$ billion) & P/E Ratio (times)

Financial sector transformation was the main driver of economic growth

Increased availability of credit for all segments of the economy


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InvestmentPolicy &Environment

RegulatoryFramework

Strengthening of the institutional capacity of a number of independent regulatory bodies in Pakistan thathave developed management structures, technical expertise, technology and enforcement capacitycompatible with international best practices

Government is playing an effective role to transparently execute and institutionalize regulations designedto win the confidence of investors and general public

All sectors are open to FDI with equal treatment of local and foreign investors

100% foreign equity allowed, and royalties, franchise fees, capital, profits, dividends etc all fully repatriable

Attractive tax / tariff incentives package

Low cost of doing business, one-window facilitation

Reduction in corporate tax rate from 39% in 2005 to 35% by 2007 for private companies

PowerDevolution

Source: Pakistan Board of Investment


Creation of an enabling and governed economic framework

Policy Description

Transferring powers and responsibilities, including those related to social services from the federal andprovincial governments to local levels

Strengthening governance by increasing decentralization, transparency, accountability of administrativeoperations, and peoples participation in their local affairs


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