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Pakistan’s Macro Economic Snapshot – July

A Pakistan Risk Review Extract


Inflation (Year on Year):

The non-food, non- energy (NFNE) core inflation index, has begun responding to a decline in the inflationary series and as at July 2009 stands at 14%. CPI, WPI and core inflation are year-on-year figures, i.e. they represent the percentage change in index during a month over the corresponding month of the previous year. CPI is expected to pick up slightly in the month of Ramzan (August, September) while WPI will most likely cross the line over to a deflationary trend if the economy does not pick up steam.


 

Broad Money M2 growth:

From 30th June 2008 levels, M2 growth on 1st August 2009 stood at 8.19%. On a calendar year basis M2 growth over the period Jan to 1-August 2009 was 10% up by 3.38% from the growth levels of Jan-Nov 2008. While on a nominal basis the net effect is still a contraction.

 



 


 

Foreign Investment and remittances:

On a year on year basis worker’s remittances has increased by 19.13% in July 2009 as compared to July 2008. The primary question that is now being asked is how long this strength in remittances will last since a part of this increase is attributed to returning expatriates. Foreign Private Investment (FPI) and Foreign Direct Investment (FDI) both trended down but FPI finally turned positive in June after being in the red for the last five months.

 

Balance of Trade:

Imports picked up reflecting aggressive steps to build fuel oil inventories at lower crude price levels. Export picked up slightly in June reflecting seasonal and fiscal year end effects after remaining negative and/or flat for the last four months. Overall imports were down 11% from 2007-08 levels; exports were also down by 6% from 2007-08 levels.


 

Foreign Exchange Reserves:

Total liquid foreign exchange reserves stood at US$11.72 billion as of 1st August 2009, up from the US$ 6.72 billion in October 2008. IMF released a 1.2 billion dollar tranche in mid August which should push reserve levels up to 13 billion US$ when SBP next reports reserve numbers.

 

Advances, Deposits and Spreads: Banking System

Net Domestic Assets of the banking system grew by Rs. 598.233 billion during the fiscal year 2008-09 as compared to Rs.941.369 billion of the previous year. July 2009 witnessed a fall of Rs. 27.135 billion in these assets from the yearend balance of Rs.4,619.865 billion. The average spread between the lending rate on outstanding loans and the deposit rate on outstanding deposits stood at 7.52% in June 2009.

 

 

Trade Analysis – Imports

Imports in ‘000 US$

 

June (P)

May (R)

June

July-June

July-June

 

2009

2009

2008

2008-09 (P)

2007-08

Total Imports

3,069,827

2,196,909

3,760,984

34,165,486

38,124,109

Freight & Insurance

208,850

167,110

253,764

2,497,033

2,727,212

Net Imports

2,860,976

2,029,799

3,507,220

31,668,453

35,396,897

 

Except for textile all import categories registered negative growth when compared with June 2008 levels. However on a month on month basis imports within petroleum, machinery, agriculture and other chemicals showed significant growth compared to May 2009 numbers.

By value Petroleum, Agricultural& other chemicals, Machinery, Food and Textile held the top 5 spots in imports in June 2009. Over the last few months there has been a significant change in percentage share of import categories due to changing price, demand and consumption levels.

 

 

 

Trade Analysis – Exports

Exports in ‘000 US$ 

 

June (P)

May (R)

June

July-June

July-June

 

2009

2009

2008

2008-09 (P)

2007-08

Total Exports

1,827,202

1,516,122

2,038,869

19,606,562

20,786,095

Freight on Export

34,600

27,100

29,900

394,660

359,200

Net Exports

1,792,602

1,489,022

2,008,969

19,211,902

20,426,895

 

Primary exposure in exports stays with the textile sector. All the major categories have suffered a decline in exports over June 2008 levels. However over May 2009 levels Petroleum exports increased 77%, and Textile and other manufacture by 9% and 7% respectively.

 

 

 

Cumulative Tax Revenue:

Provisional figures for the fiscal year 2008-09 stood at 1.155 trillion. This represents a 14.6% increase over last year’s figures.

 

 

Definitions

Broad Money

Money is defined as assets widely used and accepted as payment. However, assets differ in their degree of “moneyness” and in most countries there are different measures of the money stock. These measures, known as money aggregates vary based on how narrowly they define the concept of money. M1 and M2 are the most widely used money aggregates. M1 (or narrow money) consists primarily of currency and balances held in checking accounts, basically actively used and widely accepted assets used for making payments. M2 (or broad money) includes M1 components as well as other assets considered less money-like such as savings deposits, small denomination time deposits, money market deposit accounts, money market mutual funds. In Pakistan, M2 includes currency in circulation, rupee demand deposits, rupee time deposits and resident FCY deposits at banks.

 

Velocity

Velocity is a measure of the turn-over of money supply in each period. It is measured as the ratio of nominal GDP to nominal money stock. It indicates the amount of economic activity generated by a given money supply. If velocity rises, each rupee of money stock is being used in a greater rupee volume of transactions in each period, assuming that the volume of transactions is proportional to GDP. Increasing velocity, (holding money supply or prices constant) could therefore reflect increased economic growth, whereas declining velocity may reflect dampened economic activity even if money supply is held constant.