ADB downgrades Pakistan’s GDP growth by 1% for current fiscal year

The Asian Development Bank (ADB) has asked Pakistan’s government to urgently address large budget and current account deficits, rising debt obligations. (AFP/file photo)
Updated 27 September 2018

ADB downgrades Pakistan’s GDP growth by 1% for current fiscal year

  • Pakistan has targeted 6.2 percent GDP growth rate for the current fiscal after achieving 5.8% in FY2018
  • IMF’s stabilization program may depress growth, Dr. Ashfaque Hasan, Economic Advisory Council member warns

KARACHI: The Asian Development Bank (ADB) has asked Pakistan’s government to urgently address large budget and current account deficits, rising debt obligations, and falling foreign exchange reserves after it downgraded Pakistan’s economic growth rate forecast for the next financial year by 1 percent to 4.8 percent. 

In its Asian Development Outlook 2018 update, ADB pointed out that challenges to maintaining growth momentum are tighter monetary and fiscal policies to contain domestic demand, currency depreciation, and tension in the global trade environment. 

“Assuming government success in obtaining financing, Pakistan has reasonable growth prospects for FY2019 on the strength of improved security and energy supply, continued investment in the CPEC (China-Pakistan Economic Corridor) and other initiatives, and recognition of the need to rein in deficits,” the report added. 

ADB added: “This requires mobilizing substantial external financing to buy time for orderly reform to reduce the large external and domestic imbalances. Such resources may be acquired from bilateral and multilateral sources, the diaspora, and international capital markets. 

“Pakistan is estimated to have grown by 5.8 percent in the fiscal year to June 2018, higher than forecast of ADB in 2018, but the outlook is clouded by a large budget deficit, a deteriorating current account deficit, and falling foreign exchange reserves,” ADB reported. 

Pakistan’s outgoing PML-N (Pakistan Muslim League Nawaz) government had targeted 6.2 percent growth rate of country’s economy for FY2019, which economists said was not a realistic figure. 

“I have asked the government to present the correct picture. If the government is going to tell the exact number then the growth number will be consistent with ADB’s projection,” Dr. Ashafaque Hasan Khan, member of government’s Economic Advisory Council, told Arab News. 

Pakistan’s current account deficit swelled to $18.1 billion — 5.8% GDP — during FY2018. “The current account deficit is now expected to moderate to 5 percent in FY2019, but exceed the projection of 4.5 percent,” ADB added.

ADB said that Pakistan’s exports are expected to continue to expand due to currency depreciation, fiscal incentives, and improved electricity supply and connectivity. However, slower growth in some advanced economies poses a risk to the forecast, as do rising trade tensions and protectionism.

“Growth in import demand will be contained by some scaling back of budgeted expenditure, additional import duties and taxes under discussion in the government, tighter monetary policy, and a freer exchange rate. The current account balance will benefit as well from more stable prices for oil and other imported commodities. Import growth already slowed in the first 2 months of FY2019. Worker remittances will continue to cushion the current account, but any significant increase will depend on more effort to tap diaspora resources,” the Asian lender noted. 

Pakistan’s Finance Minister, Asad Umar, recently dispelled the impression of financial emergency in the country, in an interview with Arab News. “The government is battling on all fronts to curtail the balance of payment deficit. We are taking measures to increase exports, solving issues of Pakistani laborers in the Middle East, and curtailing imports. The combined outcome of the actions would reduce the balance of payment deficit,” he noted. 

Dr. Salman Shah, former finance minister, told Arab News: “The government is not realizing how quickly the situation worsens. The impact of recent price hike of inputs (gas) are likely to have negative impact on the growth. Government should send credited signal in the market if they are going to the IMF or not.” 

However, Dr. Ashfaque Hasan Khan warned against moving to IMF. “Forget about the growth rate, 10 million jobs and 5 million houses if we go to IMF because the IMF program is designed in such a way that it is a stabilization program. The program will curtail aggregate demand, and if there is no demand, who will produce? Growth will hover around 4 percent.”

Dr. Khan added: “The government has taken insufficient action in the budget (supplementary finance bill) that forces me to say that the government has decided to go to IMF.”

ADB also raised its Inflation forecast to 6.5 percent in FY2019 due to currency depreciation and higher international oil prices. Pakistan’s central bank had increased policy rate to 7.5 percent in July 2018 in an effort to contain inflation.

The bank will announce monetary policy for next two months and is expected to further raise policy rate. “The central bank is expected to raise policy rate by 100 bps as external account pressure continues despite measures taken by government”, Muhammad Sohail, financial expert and CEO of Topline Securities, said. 

The Asian region is expected to meet the Asian Development Outlook 2018 forecast of 6 percent growth in 2018. The projection for 2019 has been trimmed by 0.1 percentage points to 5.8 percent. Excluding Asia’s high-income newly industrialized economies, the region is expected to expand by 6.5% this year and 6.3% in 2019, according to ADB.

Saudi bourse’s 2020 net profit surged ahead of listing

Updated 24 June 2021

Saudi bourse’s 2020 net profit surged ahead of listing

  • Net profit rose 227 percent in 2020 from a year earlier

DUBAI: Saudi Tadawul Group, the owner and operator of the country’s stock market, said its net profit rose 227 percent in 2020 from a year earlier, while revenue more than doubled with a boost from trading commissions.
It posted a profit after zakat or Islamic tax of 500.5 million riyals ($133.5 million), it said in a statement.
Unlisted Tadawul gave a peak of its earnings ahead of a planned initial public offering later this year that will allow it to expand and strengthen its position globally.
Saudi Arabia’s stock exchange has converted itself into a holding company ahead of the listing.
Tadawul is the ninth largest exchange in the world in terms of market capitalization which stood at around $2.6 trillion, partly boosted by the listing oil giant Saudi Aramco in 2019.

Saudi Mobily and Zain mull towers listing

Updated 24 June 2021

Saudi Mobily and Zain mull towers listing

  • “Options include forming a consortium to buy phone towers owned by both parties
  • Another option is to operate the towers on behalf of the two companies through an intermediary

RIYADH: Etihad Etisalat Co. (Mobily) and Mobile Telecommunication Company Saudi Arabia (Zain KSA) are studying several options regarding Towers Co., including the possibility of listing as much as 30 percent in the Saudi market, CNBC Arabia reported, citing two banking sources.
Financial regulators in the Kingdom agreed to the merger earlier this year.
“There are several options on the table and consultants have been appointed to study the matter,” an investment banking source told CNBC Arabia.
“Options include forming a consortium to buy phone towers owned by both parties by acquiring a minority stake with Mobily and Zain enjoying majority stakes,” said the source.
“There is also an option to operate these towers on behalf of the two companies through an intermediary company with a rate of return (RoR) system,” he added.
Consultants have already been appointed to study the proposed offering, with discussions currently underway, another source said.
“The aim is to reach an appropriate choice about the matter at a time when the two companies are looking to maximize their returns from the assets of the towers activity after the merger, as those towers are estimated at more than 18,000 towers,” he said.
An alliance of companies outside Saudi Arabia may join local firms to acquire a stake in the new company, the banking source said.

Saudi Arabia’s Bank AlJazira to raise $500m via Islamic bond sale

Updated 24 June 2021

Saudi Arabia’s Bank AlJazira to raise $500m via Islamic bond sale

  • The sale is of Additional Tier 1 bonds, the riskiest debt a banks can issue
  • The sukuk will price in the range of 3.95 percent to 4.05 percent

DUBAI: Bank AlJazira is expected to raise $500 million on Thursday via an Islamic bond sale, a document showed on Thursday.
The bond or sukuk will price in the range of 3.95 percent to 4.05 percent, tighter than initial guidance of between 4.25 percent and 4.375 percent after the deal attracted more than $1 billion in orders, the document from one of the banks on the deal showed.
Alinma Investment Company, Aljazira Capital and JPMorgan are arranging the deal, which is expected to launch later on Thursday, the document, which was reviewed by Reuters, showed.
The deal is for Additional Tier 1 bonds, the riskiest debt instruments banks can issue, which are designed to be perpetual in nature but issuers can redeem or “call” them after a specified period. AlJazira’s sukuk will be non-callable for five years.
The deal was the latest in a series of international debt sales from the Gulf, as banks, companies and governments take advantage of low interest rates to bolster finances hit by last year’s oil price crash and the COVID-19 crisis.
Gulf banks and companies are expected to make up a clear majority of total issuance this year, a change for a region where sovereigns made up roughly half of all issuance last year and in 2019.
Several banks in the region have issued AT1 bonds this year to bolster their Tier 1 capital, including Kuwait Finance House selling $750 million AT1 Islamic bonds on Wednesday at 3.6 percent.

Sudan gold exchange to help bolster foreign-currency reserves

Updated 24 June 2021

Sudan gold exchange to help bolster foreign-currency reserves

  • Most Sudanese gold is smuggled out of the country
  • Exchange will initially offer spot trades only, with futures and options to come

RIYADH: The launch of a gold exchange in Sudan will help regulate trade in the yellow metal and eliminate the smuggling that has led to a scarcity of foreign currency in the country, the Financial Markets Authority (FMA) Director General, Shawgi Azmi said in an interview with Asharq.

In 2019, 127 tons of Sudanese gold was traded on foreign exchanges, while official statistics from the central bank showed that Sudanese production amounted to only 20 tons, he said.

Sudan is one of the largest African gold miners, producing between 70 and 120 tons annually, and as many as 5 million of its citizens involved in gold prospecting, Azmi said.

The gold exchange will start with the spot sales only, while other terms of trade, such as futures contracts and options, are expected to be introduced at a later stage.

Sudan’s prime minister is expected to agree soon to launch a commodities exchange focused on agricultural crops, while the FMA is researching a livestock exchange, Azmi said.

Dubai plastic waste-to-clothes startup looks to KSA

Updated 24 June 2021

Dubai plastic waste-to-clothes startup looks to KSA

  • The company converts plastic bottles — collected from schools, events and businesses across the city — into clothes
  • The UAE produces at least 10 million recyclable bottles per day

ABU DHABI: A Dubai company that makes clothing from plastic water bottles plans to expand in Saudi Arabia and Egypt after the pandemic forced a complete rethink of its business model.

DGrade was established by Kris Barber in 2010 to address the vast amount of plastic water bottles being produced in the UAE.

The company converts plastic bottles — collected from schools, events and businesses across the city — into clothes.

(DGrade website)

But when the pandemic closed schools across the country, DGrade was forced to rethink how it operates. It also provided the impetus for the company to consider moving into new regional markets.

The clothes-making process begins by putting the plastic through hot and cold washing until it turns into flakes.

“Once we have the flakes, they’re then put through an extrusion process and turned into a fiber,” Emma Barber, managing director of DGrade, told Arab News. Its plant takes about 150,000 bottles per hour and 75 million bottles per month, she added.

Dubai British School event. (Dgrade Website)

Before the pandemic, the team used to collect plastics from schools and events around Dubai, Barber said. But with the closure of schools and a ban on events, DGrade was faced with a potential halt in its raw material.

Despite the closures, it still managed to collect 1 million bottles in the 2019-2020 school year.

“A lot of children have been collecting plastics at home, bringing them to schools and dropping them off,” Barber said.

Simply Bottles Al Mamzar Clean-up, November 2018. (DGrade website)

“We’re planning to expand in Saudi Arabia because of the huge population and also the amount of plastic.”

She said Egypt is also attractive because of its huge population, plastic waste issues and an already well-established textiles sector.

DGrade also plans to import plastic from Gulf countries. It is coordinating with companies in Saudi Arabia, Kuwait and Qatar to bail plastic and bring it to the UAE, Barber added.

Simply Bottles Green Fair, ENOC head office. (DGrade website)

On financial support from the banks, she said: “We’ve been looking for some working capital in terms of bridging loans. It has been difficult because the banks are unable to give you that kind of money due to local legislation and restrictions.”

But she said DGrade will soon announce a second round of investment with a large European company that plans to take an equity share.

“Without the investment that we managed to obtain, it would’ve been almost impossible to fund what we’ve done so far on our own,” Barber added.

To expand the business further, she said it coordinated with some companies to place outdoor bins at private events, which are chargeable at 100 UAE dirhams ($27.23) per month, in order to collect as many bottles as possible.

“We’re talking to ministries, waste management companies and private sector organizations to see if we can place larger cages into residential and community areas so people can place plastic at their convenience,” she added.

Dubai Chamber Sustainability Network. (DGrade website)

Like many companies large and small, DGrade was forced to slash costs during the pandemic. It moved to a smaller office, reduced staff wages and made half of their team redundant, Barber said.

The UAE produces at least 10 million recyclable bottles per day and the output is 18 million kg per year of recycled flake, she added.

Multiple companies have switched back to bottled water and away from dispensers in order to keep their staff safe, she said.

DGrade targets uniform or work-wear companies across all sectors. It has developed 200 types of fabric, all from recycled polyester.

Expo 2020 Dubai T-shirts @Expo 2020 Winter Festival Sale, December 2019. (DGrade website)

“The traditional fashion industry is highly polluting and damaging to the environment,” said Barber. “Traditional fabrics, such as cotton, are highly water- and land-intensive. They also use pesticides and fertilizers.”

Every year, 100 billion garments are produced worldwide and 92 million tons become waste, according to a 2021 BBC Earth report.

DGrade’s aim is not to promote the use of plastic, but to ensure that when it is used it is being responsibly managed and recycled, Barber said.

“In 99 percent of cases, recyclable plastic is the greenest packaging option available. It’s far better for the environment to use plastic than glass, aluminum or paper,” she added.

DGrade’s process of converting plastic to clothes produces 55 percent fewer carbon emissions, and uses 20 percent less water (which it recycles and reuses) and 50 percent less energy, she said.