Pakistan economy to grow by 2-2.5% this year, says Dr Shamshad

Caretaker Finance Minister Dr Shamshad Akhtar said that Pakistan’s economy is expected to grow by 2-2.5% in the ongoing fiscal year.

“Despite challenges, there has been significant progress in macroeconomic, exchange rate, and financial stability. Growth is to rebound into the positive trajectory in the range of 2-2.5%, with agriculture expected to grow by 5.6%, and industry by 2.5% this fiscal year,” she said.

The projections were made during Dr Akhtar’s keynote address via video link at the IPO Summit-2024 held in Karachi on Saturday.

She said that despite the Federal Board of Revenue’s (FBR) “struggle to launch additional reforms”, tax collection target is projected to touch Rs10 trillion.

The interim minister said that owing to the adoption of austerity measures, the government has managed to generate a primary surplus and the “substantial deficit on the current account itself has turned to a surplus thus far”.

“Until and unless you have two of these accounts manageable, the fiscal and current account, we will not be able to reduce the interest rates,” she said.

Dr Akhtar noted that capital markets cannot thrive under “very high-interest rates”.

Vulnerability of economy: Shamshad highlights five critical areas

On the external front, the caretaker minister said that foreign exchange reserves have reached $9.1b due to the International Monetary Fund (IMF) tranche and multilateral flows.

“With the realisation of quick disbursement of multilateral flows from World Bank, Asian Development Bank, AIIB, which have also been enhanced by the International Monetary Fund (IMF) release of the second tranche, the foreign exchange reserves have reached $9.1 billion from the lows of $4 billion at the beginning of our term,” she said.

She said foundations have been laid for attracting foreign investments, which will pay high dividends moving forward to the incoming governments.

“The economic recovery process has boosted business confidence and market sentiment,” said Dr Akhtar, citing indicators i.e. the recent bullish performance of the Pakistan Stock Exchange (PSX), and an increase in foreign portfolio inflows.

Global markets and IPO trends

The caretaker finance minister also elaborated on the global financial scenario, saying that post-pandemic, a tectonic shift has been witnessed in the IPO landscape.

“Record high inflation and the calibrated global central banks response have led to significant tightening of liquidity,” she said.

“For years, the North American IPO scene dominated, but the tide is turning Asia Pacific now reigns supreme, accounting for over half of the global deals and nearly half the proceeds. China, Japan and South East Asia lead the charge today fuelled by tech-driven innovation.”

“Nothing is stopping us (Pakistan), but we have to get out of the mindset of bank-driven financing,” she said.

The caretaker finance minister pointed out that the private credit remains stifled, “because of old style, obsessive and non-transparent lending.”

“We as capital markets, globally and domestically, believe in transparency, effective governance, full disclosures, fighting the anti-money laundering dimensions,” said Dr Akhtar.

Economic growth has to be backed by structural reforms: Shamshad

She said that while technology once ruled the IPOs, new challengers are emerging today in the form of healthcare, consumer staples and renewable energy. “These are attracting investor attention, reflecting changing parities and market dynamics.”

Join the ESG bandwagon

She said that Environmental, social, and corporate governance (ESG) factors have become deal-makers. “Investors increasingly seek companies that align with sustainable practices, creating opportunities for businesses to showcase their strong ESG commitments,” she said.

“Join the bandwagon of ESGs and attract the flows into your IPOs, would be my message to you,” she said.

She said regulatory waters are constantly in flux and factors including new accounting standards, stricter listing requirements, and increased scrutiny on data privacy can impact IPO timelines and valuations. “Adaptability and proactive approach is a key to navigate these regulatory undercurrents.”

“We need to fast-track our development, and that only comes if we embrace innovation and technology with open arms,” she said.

Domestic IPO scenario

On the domestic IPO trends, Dr Shamshad Akhtar highlighted that during the first half of the calendar year 2023, the KSE-100 index inched up by only 3% in rupee terms and 19% down in USD terms.

“However, with the interim setup’s tough yet necessary reforms, the same index in the second half of the calendar year witnessed around 50% return in both USD and PKR term,” she said.

“True potential of the stock market can only be realized when we enhance the retail investor base,” she said.

She said during the CY23, PSX only witnessed one IPO, where we only managed to raise Rs435 million in funding. “One single IPO was the lowest, which we have raised in the 15 years of PSX history,” she said, expressing disappointment over the outcome.

“This is an economy with huge scope.”

“We will be able to kill the undocumented and informal economy, should we start documenting them through IPOs,” she added.