Pakistan is a reform story like India’s ─ only better: economist

July 02, 2015

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The construction sector grew at 11.3 per cent through FY14-15, nearly double the 5.7pc target, according to State Bank of Pakistan data. ─ AFP/File
The construction sector grew at 11.3 per cent through FY14-15, nearly double the 5.7pc target, according to State Bank of Pakistan data. ─ AFP/File

Construction and infrastructural development have been cited as the primary drivers behind Pakistan’s emergence as a frontier market by a Bloomberg report.

The construction sector grew at 11.3 per cent through FY14-15, nearly double the 5.7pc target, according to State Bank of Pakistan data.

London-based chief economist at Renaissance Capital Ltd Charlie Robertson said of Pakistan: “It is the best, undiscovered investment opportunity in emerging or frontier markets,” adding, “What’s changed is the delivery of reforms ─ privatisation, an improved fiscal picture and good relations with the IMF.”

Nawaz’s government has boosted infrastructure expenditure by 27pc to Rs1.5 trillion for fiscal year 2015-2016 (FY15-16), as interest rates are the lowest they have been in 42 years and the economy is expanding at its quickest since 2008.

Pakistan is a reform story like neighbouring India’s, but only better, said Renaissance’s Robertson.

Read more: Ishaq Dar eyes 7pc growth by tenure end

Cement producers DG Khan Cement Co. and Cherat Cement Co. have announced plans to expand, while steelmakers Amreli Steels Ltd. and Mughal Iron and Steel Industries Ltd. are raising equity capital.

Bloomberg data shows the cement industry has rallied 57pc over the FY14-15 ─ nearly thrice the benchmark target ─ with Maple Leaf surging 161pc, Fauji Cement jumping 81pc, and DG Khan making gains of 62pc.

Read more: Builders want steps to make cement cheaper

Chief Executive Officer UBL Fund Managers Ltd. Mir Muhammad Ali said, "The construction industry is seeing a boom, and there is still juice left in the cement rally ... Overall economic improvement has also helped.”

Pakistan's $46 billion deal with China for the China-Pakistan Economic Corridor includes $28bn in investments which are expected to have a trickle-down effect.

Read more: $28bn accords for fast-track projects

A builder in Karachi Hassan Baskhi says, “Business has been very good, and there’s no doubt my work has tripled in five years ... There’s huge demand from the middle class for affordable housing.”

The economy has shown resilience to environmental instability. The KSE Index ─ among the world's top 10 performers ─ has grown 16pc over FY14-15, despite sectarian violence, bomb attacks, targeted killings and kidnappings.

Read more: Stocks greet new fiscal year with 445-point rally

Inflation has shown a downward trend over the past twelve months, with the annual inflation for the just-concluded fiscal year resting at 4.53pc.

Read more: Inflation halves to 4.53pc in FY15

Earlier this year, the International Monetary Fund said Pakistan had been making significant progress on targets in the $6.6bn loan programme. The IMF predicted growth of 4.5pc this year following a 4.1pc growth rate last year.

Read more: IMF predicts stronger growth in 2015

Moody's Investors Services, as well as Standard and Poor's (S&P) upgraded Pakistan's credit rating. S&P attributed the improvement to diversification in income generation, the government's efforts towards fiscal consolidation, improvement in external financing conditions and performance, and stronger capital inflows and remittances.