Pakistan Investment Bulletin October - December 2019 March 26, 2020

1. Pakistan Quarterly Investment Bulletin
Second Quarter Review FY20
Volume 1, Issue 1 (October – December 2019)
Vaqar Ahmed, Ahad Nazir, Tayaba Batool
Sustainable Development Policy Institute
March 26, 2020

2. Table of Contents
1. Message from Research Team.....................................................................................................................................1
2. This Quarter’s News in Brief .......................................................................................................................................2
3. Macroeconomic Outlook .............................................................................................................................................4
4. Analysis of Capital Inflows............................................................................................................................................9
Foreign Direct Investment.................................................................................................................................................9
Foreign Portfolio Investment ...........................................................................................................................................11
External Debt.................................................................................................................................................................15
5. Review of On-Going IMF Programme ......................................................................................................................16
6. CPEC: Challenges & way forward .............................................................................................................................18
7. Future Outlook and Challenges.................................................................................................................................19
List of Tables and Figures
Table 1: General Economic Indicators...............................................................................................................................5
Figure 1: Workers’ Remittances in Pakistan (July 2019 – January 2020)..................................................................7
Figure 2: Loans to Private Sector Business.......................................................................................................................8
Figure 3: Net FDI Inflows in Pakistan (July 2019 – January 2020) ...............................................................................9
Table 2: Net Foreign Direct Investment in Pakistan by Sector (USD million)...................................................... 10
Table 3: Foreign Direct Investment in Pakistan by Country (USD million)........................................................... 10
Figure 4: Net FPI in Pakistan (July 2019 – January 2020)............................................................................................ 12
Table 4: Net FPI in Pakistan by Country (USD million) ............................................................................................. 12
Table 5: Special Convertible Rupee Account (SCRA) (USD thousand) ................................................................. 14
Figure 5: Composition of Gross Public Debt Stocks (in billion rupees)................................................................. 15
Table 6: Pakistan Debt and Liabilities Summary (in billion rupees).......................................................................... 16

3. 1 | P a g e
1. Message from Research Team
Pakistan Quarterly Investment Bulletin is an effort to analyse trends in inflows of foreign
direct investment, foreign portfolio investment, official grants from abroad, borrowing from
bilateral and multilateral development partners and unilateral capital flows. The analysis
contained here goes beyond the usual reporting mechanisms and critically assesses the
quality of flows. The quality indicators suggest how much foreign capital inflows are
contributing towards priority sustainable development goals (SDGs).
In putting this bulletin together research team relies on secondary information published by
the government and credible non-government sources. Additionally, we have also relied on
interviews with investment-recipient enterprises, public sector investment promotion
bodies, and public-private dialogues. In the coming days we hope to increase such
interaction with stakeholders to better address some of their concerns. These efforts are
ultimately envisaged to bring about a level playing field, ensure a fair and competitive
business environment, and removal of any country-specific or firm-specific biases in tax,
credit, and regulatory regime. The views expressed here by the research team are their
own and do not necessarily reflect SDPIs’ point-of-view.

4. 2 | P a g e
2. This Quarter’s News in Brief
 Financial assistance from the United Arab Emirates (UAE), Saudi Arabia, other friendly
nations and multilateral institutions helped shore up the dwindling foreign exchange
reserves to cross the USD 10 billion mark.1
 The central bank received inflows worth USD 452.4 million under the Extended Fund
Facility (EFF) after the successful completion of the first review of Pakistan’s economic
performance carried out by the executive Board of the International Monetary Fund
(IMF). This brings the total disbursement to about USD 1.44 billion out of the total
approved amount of about USD 6 billion. 2
 The investments are expected to increase in Pakistan Investment Bonds (PIBs) after
government withdrew withholding tax on earnings from investment in market treasury
bills and PIBs through Tax Laws (Second Amendment) Ordinance, 2019 promulgated
on December 28, 2019 through presidential order. 3
This will also promote greater
interest in investments with longer dated maturities.
 The early harvest projects under China-Pakistan Economic Corridor are near
completion. In 2020, resources will be focused towards generating economic activity
and job creation as Phase-II focuses on industrialization, socioeconomic development,
agriculture modernization, and tourism promotion. It is expected that the de-
industrialization over the last ten years will also be reversed. 4
 Moody’s Investors Service upgrades Pakistan’s outlook to B3 i.e. ‘stable’ from
‘negative’. 5
The improvement in outlook is expected to revive foreign investors’
confidence in Pakistan, compelling them to invest in significant amounts in different
sectors of the economy.
 United Kingdom (UK) will explore investment potential in clean energy development,
health, and tourism industry in Pakistan. 6
 Board of Investment shared the signing of Pakistan-China joint venture project for
manufacturing of tyres locally in Pakistan in November, 2019. It will enhance exports
of industrial goods and further reduce the current account deficit.
 Ease of doing business reforms helped in gaining 28 points, Pakistan stands at 108 out
of 190 economies.
 Pakistan advanced 18 spots to 14th among the world’s 45 biggest economies, seen as
a nation where social entrepreneurs can make a living and attract good staff.
1
“State Bank of Pakistan’s Reserves Jump Up.” The Express Tribune December 26, 2019. <
https://tribune.com.pk/story/2125509/2-foreign-exchange-sbp-reserves-jump-14m-10-9b/>
2
“Internation Monetary Fund (IMF) First Review Under the EFF.”December 23, 2019.
<https://www.imf.org/en/Publications/CR/Issues/2019/12/20/Pakistan-First-Review-Under-the-Extended-Arrangement-Under-
the-Extended-Fund-Facility-and-48899>
3
Akhter, Shahnawaz. “Federal Board of Revenue Over Capital Gain Tax on Govt. Securities.” December 28, 2019. <
https://www.fbr.gov.pk/tax-laws/132215> and <https://www.thenews.com.pk/print/617576-fbr-perplexed-over-capital-gains-tax-
on-govt-securities>
4
“Ministry of Planning, Development & Special Initiatives.” The Nation December 31, 2019. < https://nation.com.pk/31-Dec-
2019/cpec-phase-ii-to-get-additional-stimulus-in-2020-asad-umar>
5
Siddiqui, Salman. “Moody’s upgrades Pakistan;s Outlook.” The Express Tribune December 2, 2019, <
https://tribune.com.pk/story/2110379/2-moodys-changes-pakistan-credit-outlook-stable/>
6
“Ministry of Planning, Development & Special Initiatives.”<https://www.pc.gov.pk/web/press/get_press/414>

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 The E-commerce market in Pakistan has received great acceleration after acquisition
of Daraz by Alibaba in 2018. The Ecommerce portal owned by TCS, yayvo.com, is also
looking for strategic foreign partners to expand further in the fast growing retail
market of Pakistan.
 Prime Minister made an official visit to China to discuss immediate implementation of
the second phase of the Pakistan-China Free Trade Agreement and for expediting
work on projects relating to hydropower, oil refinery and steel mills.
 Pakistan has rejected the concerns raised by a US Diplomat stating that the view are
based on wrong analysis and incorrect assessment of facts.7
 The 9th
Joint Cooperation Committee (JCC) on CPEC was held in November to
analyse the progress on various CPEC projects. During this time ceremonies were
also organized to inaugurate the Multan-Sukkur Motorway, approval and signing of
Gwadar Master Plan and signing of two MoUs i.e. between All-China Federation of
Trade Unions (ACFTU) and Ministry of Planning for further strengthening the worker
exchanges and another on Healthcare between Ministry of Health and (Research
Development International (RDI).8
 Government has established CPEC Authority to work as one window for all CPEC
related matters. The Authority will be instrumental in removing all the bottlenecks for
efficient implementation of the projects and fasten the pace of work.9
 A need for CPEC consortium of technical and vocational institutes exists to assess the
future technical demand and training of Pakistani students and trainers for taping the
likely job market potential to be created by SEZs. According a study based on letter
of intentions and applications received for buying plots in Rashakai, Dhabeji, Allama
Iqbal and Bostan, special economic zones are expected to create 575,000 direct jobs
in light engineering, marble, plastic and packing, textile, pharmaceutical , steel, food
processing, cooking oil, chemicals, gems and jewellery, ceramics, agriculture
machinery, automobile and electrical appliances. 10
 Vice Chairman of National Development & Reform Commission (NDRC) called on
Prime Minister to acknowledge steps taken Pakistan to enhance coordination and
accelerate completion of CPEC projects during his visit to Pakistan for the 9th
JCC. 11
7
“Ministry of Planning, Development & Special Initiatives.”<https://www.pc.gov.pk/web/press/get_press/375>
8
“Ministry of Planning, Development & Special Initiatives.”<https://www.pc.gov.pk/web/events/get_event/39>
9
“Pakistan establishes CPEC Authority” <https://www.chinadaily.com.cn/a/201910/09/WS5d9d98f4a310cf3e3556f7c5.html>
10
“CPEC special economic zones to create 575,000 direct jobs in Pakistan” <http://www.china.org.cn/world/2019-
11/30/content_75463827.htm>
11
“China Pakistan Economic Corridor Authority.”< http://cpec.gov.pk/news/200>

6. 4 | P a g e
3. Macroeconomic Outlook
Growth and Investment Outlook
Pakistan’s economy experienced a growth rate of 3.34% during FY19 (Table 1). This can be
attributed to softer growth in agriculture (0.85%) and services (4.71%) sectors. Moreover, the
negative growth in manufacturing sector (-0.27%) also pulled down the overall growth rate
from meeting the ambitious target of 6.2%.
The first year of the newly elected government faced two pronged challenges. Firstly, there
was a difficult challenge of rising fiscal and external account deficits. And secondly, the lost
investors’ confidence presented itself at a magnified scale. However, a continuous
improvement can be observed during the first two quarters of FY20. The continuously
bridging deficit, rising remittances and improving investment, all pose a positive economic
stance leading to rebuilding investor confidence. According to the statement issued IMF after
the first review of Pakistan’s extended fund facility, Pakistan’s program is on track and has
started to bear fruit.12
The manufacturing sector presented a negative growth during FY19 due to fall in production
of Jute Goods (14.06%), Cement (5.45%), Caustic Soda (4.69%) and Sugar (13.35%). However,
the recently growing investment trends present an encouraging forecast for the growth in the
manufacturing sector with an aim for import substitution as well as export promotion. In this
regard, the inclusion of a motor assembling firm in the large scale manufacturing is being
considered very helpful. The new automobile assemblers have also started their production
activities despite economic slowdown.
The pressure on the balance of payment has been further appeased by the Government
through containing the import of non-essential items (such as vehicles, leather products,
aerated water, chocolates, coffee, tea, mate and spices). The measures taken in this regard
include the imposition of regulatory duties13
and strict implementation of regulations relating
to quality control.
12
“International Monetary Fund (IMF)” <https://www.imf.org/en/Publications/CR/Issues/2019/12/20/Pakistan-First-Review-
Under-the-Extended-Arrangement-Under-the-Extended-Fund-Facility-and-48899>
13
“Federal Board of Revenue (FBR)” <https://fbr.gov.pk/ShowSROs?Department=Customs>

7. 5 | P a g e
Table 1: General Economic Indicators
Indicator Period FY18 FY19 (P)
Economic growth (real GDP %) Jul-Jun 5.83 3.34
Agriculture (% growth) Jul-Jun 3.94 0.85
Manufacturing (% growth) Jul-Jun 5.43 -0.27
Services (% growth) Jul-Jun 6.25 4.71
Total Investment (% growth) Jul-Jun 12.40 2.80
Consumer price index* (% growth) Jul-Apr 3.7 7.0
Wholesale price index* (% growth) Jul-Apr 4.0 11.7
Exports (fob) in USD million Jul-Jun 23,212 22,958
Imports (cif) in USD million Jul-Jun 60,795 54,763
Current account balance (USD million) Jul-Jun - 19,897 - 13,508
Remittances (USD million) Jul-Jun 19,913.6 16,096.3
Foreign Direct Investment - net (USD
million)
Jul-Jun 3,471 1,667
Portfolio Investment - net (USD million) Jul-Jun 2,210 - 1,417
Foreign exchange reserves with SBP
(USD billion)
Jul-Jun
(period end)
9.9 7.7
Government Total Revenue (PKR billion) Jul-Jun 5,228.0 4900.7
Government Total Expenditure (PKR
billion)
Jul-Jun 7,488.4 8,345.6
Budget Deficit (PKR billion) Jul-Jun - 2,260.4 - 3,444.9
Source: State Bank of Pakistan, * Pakistan Bureau of Statistics, Provisional statistics from
Economic Survey 2018-19.
The agriculture and service sector are also expected to meet the targets set forth for FY20.
Government has designed Prime Minister Agriculture Emergency Program with allocation of
309 billion rupees to uplift agriculture and livestock sectors on modern lines. The program is
envisaged to boost local agricultural production, reduce dependence on imports and improve
lives of poor farmers.
The program’s primary focus is on productivity enhancement of wheat, rice & sugarcane;
oilseeds enhancement; conserving water through lining of watercourses; enhancing command
area of small and mini dams in Barani areas; water conservation in Barani areas of Khyber
Pakhtunkhwa; shrimp farming; cage fish culture; trout farming in northern areas of Pakistan;
and raising livestock.
All the sub-sectors under services experienced a positive growth rate. The growth in
wholesale and retail was observed at 3.11 percent. Transport, storage and communication
registered a growth rate of 3.34 percent. The dominant contributor was the activities by NHA

8. 6 | P a g e
with regard to extension in road network under CPEC. The railway sector also marked a
positive growth with a gross value addition of 38.9 percent during the FY19 in comparison to
similar period last year. The growth in housing services was observed at 4.00 percent. And
finally, finance and insurance sector registered a growth rate of 5.14 percent during FY19 in
comparison to a growth of 7.03 percent last year.
Though the overall growth in services sector was recorded positive, however, it was slower
during FY19 in comparison to the FY18. This can be attributed to the interlinkages of the
services sector with the commodity-producing sectors. Therefore, it is important to increase
the competitiveness of the commodity-producing sector to sustainably increase the growth
in services sector. Furthermore, efforts are being made to boost the tourism business in the
country. Schemes like Kamyab Jawan will also encourage start-ups and youth
entrepreneurship for exportable services.
Review of Select Economic Indicators
External Trade Exports increased during July – December for FY20 by reaching USD 11,533
million against USD 11,181 million for the similar period last year. This shows an increase of
3.15 percent. An overall increase in export receipts was showed by food group (17%). The
export receipts for textile group presented an overall decline (-1.27%). However, knitwear
(0.88%), towels (1.79%), readymade garments (8.97%) and art, silk and synthetic textile
(9.06%) recorded an increase.
Similarly, the export receipts in manufacturing recorded an overall decline of about 1.74
percent. However, the items showing an increase in exports include footballs (10.59%),
leather garments (1.38%), leather gloves (7.68%), footwear (29.66%), surgical goods and
medical instruments (2.21%), cutlery (13.50%), onyx manufactured (7.99%), pharmaceutical
products (2.33%), engineering goods (91.01%), gems (46.6%), Jewellery (38.92%), furniture
(8.29%), cement (2.39%) and guar products (3.30%)
The imports into Pakistan were recorded at USD 23,229 million during July – December FY20.
During the similar period last year the imports were USD 27,952 million showing a decrease
of 16.90%. The decline in import payments can be attributed to transport group (-26%),
petroleum group (-20%), textile group (-7%), plastic materials (-1%), metal group (-6%), rubber
tyres and tubes (-35%), wood and cork (-8%), jute (-39%) and paper and paper board
manufactures (-18%).
An increase in the import payments of power generating machinery (50%), textile machinery
(22%), telecom (64%), agriculture machinery and implements (12%), raw cotton (4%), iron
and steel scrap (12%) and crude rubber (16%) was observed. However, due to an overall
reduction in imports the balance of trade improved by about 40% during July- December FY20
in comparison the similar period last year.

9. 7 | P a g e
Remittances rose by 8.14 percent during the second quarter of FY20 (i.e. Oct-Dec) in
comparison to the similar period last year. The cumulative amount of remittances for the first
two quarters (i.e. July-December) was recorded at USD 11.4 billion. The largest contributors
to workers’ remittances were Saudi Arabia (22.98%) and United Arab Emirates (20.62%). This
was followed by United States of America (16.58%), United Kingdom (15.38%) and Malaysia
(7%). The workers’ remittances from EU countries were recorded at 2.98 percent.
Figure 1: Workers’ Remittances in Pakistan (July 2019 – January 2020)
Source: State Bank of Pakistan
This marks an increase of remittances by 3.31 percent during July – December FY20 in
comparison to July – December FY19. While the overall remittances grew during the first
two quarters of FY20, some countries showed a decline. These include Dubai (-0.18%),
Sharjah (-67.57%), Bahrain (-3.64%), Kuwait (-8.34%), Germany (-0.98%), Netherland (-1.54%),
Sweden (-6.09%), Denmark (-6.13%), Ireland (-72.79%), Norway (-17.08%), Switzerland (-
39.24%), Australia (-16.14%) and Canada (-8.63%).
Foreign Exchange Reserves with SBP crossed the USD 11.5 billion mark by 30th
December
2019 and witnessed a rise of USD 4.2 billion during July-December FY20. During 1st
Oct –
31st
Dec 2019, the foreign exchange reserves with SBP grew by 48.6 percent as compared to
6.4 percent during 1st
July – 30th
Sep 2019. The rising trend of reserves held by SBP can be
attributed to improvements in the current and capital account balances.
A notable contraction in the current account deficit has been made due to reduction in
imports and rise in, both, exports and workers remittances. Furthermore, there is a
continuous inflow of foreign portfolio investment and foreign direct investment. These inflows
have strengthened the capital account. The quarter also witnessed repayment of USD 1 billion
0
500
1000
1500
2000
2500
USDMillions
FY 2019
FY 2020

10. 8 | P a g e
international Sukuk. However, due to strong current and capital account balances, the foreign
exchange reserves with SBP were maintained at USD 11.5 billion by December FY20.
The reserves held by commercial banks saw a reverse trend. A declined of USD 589 million
was observed during July-December FY20. During 1st
Oct – 31st
Dec 2019, the growth in
foreign exchange reserves with banks remained negative (i.e. -9.4 percent) as compared to
the positive growth of 1.3 percent during 1st
July – 30th
Sep 2019.
Monetary Policy keeping in view the expected inflation projections for FY20, the policy rate
during the quarter was maintained at 13.25%. This can be seen in the statements issued by
SBP on September 16, 2019, November 22, 2019 and January 28, 2020. The private sector
credit has been rising during the given quarter and reached PKR 6,882 billion by end
December, 2019. This was PKR 338 billion higher in comparison to the private sector credit
stocks recorded by end December, 2018.
Figure 2: Loans to Private Sector Business
Source: State Bank of Pakistan
During 1st
Oct – 31st
Dec 2019, the private sector credit grew by 3.9 percent as compared to
-1.7 percent during 1st
July – 30th
Sep 2019. However, it is lesser to the growth rate of 8.7
percent recorded during 1st
Oct – 31st
Dec 2018. This reflects a recovery in the economic
activity, though softer in comparison to similar period last year. Though inflation stands at a
higher side.
4,200
4,400
4,600
4,800
5,000
5,200
5,400
July August September October November December
PKRBillions
FY19 FY20

11. 9 | P a g e
4. Analysis of Capital Inflows
The quarter under review witnessed a steady increase in the capital inflows under all the three
major categories amid global slow down.
Foreign Direct Investment
Foreign Direct Investment (FDI) inflows and outflows include cash received for investment in
equity, intercompany loan, capital equipment brought in/out and reinvested earnings. The total
FDI inflows received during July – December i.e. H1 FY20 are USD 1,731 million. The net FDI
inflow, however, were marked at USD 1.34 billion after accounting for an FDI outflow
equalling USD 391.2 million for the same period.
A 234.9 percent rise is observed in net FDI inflows during Oct-Dec FY 20 in comparison to
the similar period last year. This is because of the USD 795.1 million of investments poured
into Pakistan during Oct-Dec FY20. This amount received as FDI during the second quarter
of FY20 is about 46 percent higher than investment received during the first quarter of FY20
(equalling USD 545.5 million).
Figure 3: Net FDI Inflows in Pakistan (July 2019 – January 2020) – USD Million
Source: State Bank of Pakistan
About 62 percent of net FDI during July to December for FY20 is in telecommunication
(31.31%), power (21.61%) and electrical machinery (8.79) sectors. The remaining 39 percent
accounts for sectors including food (0.97%), food packaging, beverages, tobacco and
cigarettes, sugar, textiles (1.98%), paper & pulp, leather & leather products, rubber & rubber
products, chemicals, petro chemicals, petroleum refining (0.69%), oil & gas
explorations(8.43%), pharmaceutical and OTC products (1.88%), cosmetics, cement, ceramics
(0.97%), basic metals, metal products, electronics (for household consumer and industrial),
automobiles (motorcycles, cars, buses, trucks, vans and trails), construction (0.69%), trade,
-500.0
-400.0
-300.0
-200.0
-100.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
July August September October November December January
FY 2019
FY 2020

12. 10 | P a g e
transport, storage facilities (1.07%), financial business (12.09%), social services and personal
services.
A snapshot of the net FDI with respect to major sectors for July-December FY20 in
comparison to the same period last year is presented in the table 2. The telecommunication
and power sector were facing large outflow during the same period in FY19. However, the
investments have started to regain during FY20.
Table 2: Net Foreign Direct Investment in Pakistan by Sector (USD million)
Jul-Dec FY19 (P) Jul-Dec FY20 (P)
Telecommunications - 137.4 419.7
Power - 329.5 289.7
Financial Business 202.2 162.1
Electrical Machinery 124.7 117.8
Oil & Gas Explorations 157.3 113.0
Construction 287.3 9.3
Pharmaceuticals 45.1 25.2
Textiles 32.2 26.5
Food 4.2 13.0
Ceramics 3.1 13.0
Petroleum Refining 5.8 9.2
Storage Facilities 1.8 14.3
Other 399.3 127.8
Total 796.8 1,340.6
Source: State Bank of Pakistan
Major countries contributing towards the aforementioned FDI inflows along with the
respective inflow and outflows are presented in the table below:
Table 3: Foreign Direct Investment in Pakistan by Country (USD million)
Country Inflow Outflow Net
China 501.0 78.6 422.5
Norway 318.5 30.0 288.5
Malta 111.1 0.0 111.1
United Kingdom 98.3 30.0 68.3
Hongkong 62.5 5.4 57.1
Netherlands 68.9 23.8 45.0
United States 48.6 4.6 44.0
Japan 49.5 6.5 43.0
Malaysia 35.7 0.6 35.1
Other 437.6 211.6 226.0
Total 1,731.8 391.2 1,340.6
Source: State Bank of Pakistan
Other countries making more than USD 50,000 foreign direct investment in Pakistan include
Switzerland, Germany, Hungary, Italy, Luxembourg, Turkey, South Korea, Bahrain, Singapore,
Egypt, Sweden, Libya, Lebanon, Qatar, Poland, Oman, Thailand, Denmark, Canada, Ireland,

13. 11 | P a g e
Iceland, France, Saudi Arabia, Finland, Kuwait and U.A.E. However, the net foreign direct
investment appears negative for Iceland, France, Saudi Arabia, Finland, Kuwait and U.A.E due
to FDI outflows amounting higher than the inflows.
A steady monthly FDI inflow of USD 18.5 million from Malta during July 2019 to December
2019 can be observed in the country wise data from State Bank of Pakistan. Earlier, a monthly
FDI outflow of USD 11.7 million was noted for Malta during the FY19 i.e. from July 2018 till
June 2019. A similar pattern can also be observed for FDI inflow from Lebanon (USD 0.4
million) and Poland (USD 0.2 million).
Though major portion of this increase observed in FDI during the first two quarters of FY20
was driven by a one-off cash infusion into telecom industry for license purchase and
investment from china in power sector. However, keeping in view the quantum leap achieved
by Pakistan in doing business reforms to improve the ranking by good 28 points and rise to
the rank of 108 in the global ease of doing business ranking from the previous 136, it is
expected that FDI will pick up at an even higher pace in the coming days. Moreover, the
economic stability and certainty in the wake of IMF programme is set to bear its fruits.
Foreign Portfolio Investment
The international investment in Pakistan’s equity markets and framework of Special
Convertible Rupee Account (SCRA) is considered portfolio investment. The growing
confidence of international investors in the positive outlook of Pakistan’s economy has
increased the investments in local denominated financial assets. Therefore, capital inflow
through foreign portfolio investment witnesses an increase during the first two quarters of
FY20. The net foreign portfolio investment reached USD 471 million by the end of second
quarter FY20. This comprises of USD 18.8 million (3.98 percent) foreign private investment
and USD 452.2 million (96.02 percent) foreign public investment.
Contrary to this, the close of second quarter for FY19 observed a negative value of net FPI
at USD -419.77 million due to an FPI outflow of foreign private investment equalling USD
419.82 million and negligible foreign public investment amounting to USD 0.05 million. The
recovery in FPI can be attributed to investors’ confidence in market sustainability due to
continuously improving balance of payment situation and market-based exchange rate system.
IMF programme also offers comfort to the investors and adds to their confidence.

14. 12 | P a g e
Figure 4: Net FPI in Pakistan (July 2019 – January 2020) USD Million
Source: State Bank of Pakistan
Major countries contributing towards the aforementioned FPI are presented in the table
below:
Table 4: Net FPI in Pakistan by Country (USD million)
Jul-Dec FY20 (P) Jul-Dec FY19 (P)
United Kingdom 21.8 -35.4
U.A.E 13.3 -3.5
Hong Kong 12.7 -1.1
United States 11.2 -196.2
Singapore 6.3 10.0
Sweden 3.9 -13.3
Egypt 3.6 -2.1
Netherlands 2.4 0.7
Finland 2.1 -2.3
Other 393.6 -176.5
Total 471.0 -419.8
Source: State Bank of Pakistan
Other countries with more than USD 50,000 net FPI in Pakistan for FY20 include France,
Japan, Germany, South Korea and Saudi Arabia. Other countries with less than USD 50,000
net FPI in Pakistan for FY20 include Italy, New Zealand, Norway, Belgium, Argentina, Austria,
Bahamas, Bangladesh, Bosnia Herzegovina, Brunei, Congo, Denmark, Hungary, Iceland,
Indonesia, Iran, Kenya, Lebanon, Liberia, Libya, Malaysia, Malta, Nigeria, Oman, Panama,
Philippines, Poland, Portugal, Seychelles, South Africa, Sri Lanka, Thailand, Turkey and Qatar.
The net FPI appears negative for China, Kuwait, Australia, Canada, Switzerland, Bahrain,
Ireland, and Luxembourg.
-1000
-500
0
500
1000
1500
July August September October November December January
FY 2019
FY 2020

15. 13 | P a g e
Most of these foreign portfolio investments are made by foreign persons, foreign institutions
or non-resident Pakistani’s in securities listed in Pakistan Stock Exchange and marketable
government securities. A Special Convertible Rupee Account (SCRA) is opened with an
authorized dealer in Pakistan. The amounts are credited to these accounts after conversion
of foreign currency into Pakistani Rupee. Such accounts can be fed by remittances from
abroad. The balance available therein can be used to purchase any share quoted on the Stock
Exchange or Government Securities (T-bills or PIBs).
Treasury Bills (T-bills) and Pakistan Investment Bonds (PIBs) are the two broad types of
government marketable securities issued by the Government. The objective is to finance fiscal
deficit while lending support to Public Sector Development Programme (PSDP). T-bills have
maturities of 12 months or less and are considered short-term securities. On the other hand,
PIBs are considered long-term securities and have maturities of more than 12 months.
Purchases of equity, T-bills or PIBs are debited from the SCRA and sale proceeds are credited
into SCRA. The funds in such accounts can be transferred outside Pakistan at any time without
prior approval of the State Bank.14
And these outward remittances will be allowed at the rate
of exchange obtaining at the time of the remittances.
The economists and analyst are worried on the large FPI inflows in Pakistan during the second
quarter of FY20 as most of these investors have been attracted with the high interest rate
offerings. And such investors are likely to flee due to interest rate changes or anticipated
exchange rate fluctuations.
14
“State Bank of Pakistan (SBP)” http://www.sbp.org.pk/epd/1992/C33_150392.htm and “Ministry of Finance”
<http://www.finance.gov.pk/publications/MTB_Guide.pdf>

16. 14 | P a g e
Table 5: Special Convertible Rupee Account (SCRA) (USD thousand)
Inflow Outflow Cumulativ
e Net
Flow
Equity T.Bills PIBs Total Equity T.Bills PIBs Total
July 19 91,226 14,899 - 106,125 73,792 - - 73,792 32,333
Aug 19 53,112 77,092 - 130,204 52,713 5,808 - 58,521 71,683
Sep 19 65,174 246,328 3,190 314,692 72,699 - - 72,699 241,993
Oct 19
81,140 115,856 - 196,996
101,30
6 7,508 -
108,81
4 88,182
Nov
19 83,523 713,311 - 796,834 87,528 10 - 87,537 709,297
Dec 19 131,26
7 300,917 7,100 439,283
144,72
4 5,096 -
149,82
0 289,463
Jan 20
66,076
1,445,09
0
25,52
5
1,536,69
0 74,047
32,33
8 -
106,38
5 1,430,306
Source: State Bank of Pakistan
Table 5 shows the composition of international investment in special convertible rupee
account from July 2019 till January 2020. According to the country wise details issued by SBP,
most of these investments in Equities and T-Bills are made by European and Middle East
countries including UK, Netherlands, Ireland, Luxembourg and UAE. The investment in PIBs
during September and December 2019 are received from the USA. A further diversification
in this trend may be observed during the third and fourth quarter of FY20.
This investment in government securities will help in deepening the financial markets by
increasing the amount of funds available for local market. The investor base will be diversified
and more funds will be available with banks for private sector lending. Its growing demand will
also help in reducing cost of borrowing for the government by lowering the yield.
Though market concerns prevail due to highly speculative nature of these international
investments as these increases the risk and make the economy vulnerable. However, due to
the level of these investments being as low as USD 289 million (as noted for December, 2019),
it poses limited risks. Moreover, with growing investor confidence and comfort, the tenor of
these investments will increase as more investments will be made in longer dated instruments.
The recent development relating to simplification of taxation policies and procedures for
investment, especially international, in government securities will also promote interest in
investments in longer dated maturities.
The government also plans to launch Panda bonds in the coming days. The approval of Federal
Cabinet for Chinese Yuan-denominated bonds has been received. This has been decided in
the light of Pakistan’s improved economic outlook and country’s growing financial demand.
The International Finance Corporation (IFC) and Asian Development Bank (ADB) were first
to issue Panda bond in 2005. Later, it was issued by many other countries. Poland was the
first European Sovereign Government to issue such a bond. Later, other countries like
Republic of Hungary and Philippines also issued Panda bonds. Since notes are sold in China,
therefore, mainly they attract Chinese investors. However, the investor base has greatly

17. 15 | P a g e
internationalized overtime. This presents Pakistan with a unique opportunity to attract long-
term investor. Other long-term bonds such as Eurobonds and Sukuk are also planned to be
launched soon but Panda bonds seems to have taken precedence over the rest.
External Debt
The external debt is primarily raised to finance development expenditure such as canals dams,
power generation projects, highways, motorways and other transport projects. Moreover,
these external loans also help to diversify borrowing sources, expand the investor base, lower
the cost of borrowing, build exchange rate reserves and provide general budgetary support.
It includes loans obtained from multilateral and bilateral sources, Eurobonds, Commercial
Banks and the IMF.
Figure 5 presents the external debt vis-à-vis domestic debt for December 2019 in comparison
to December 2018 and more than 20 percent increase can be observed for all the categories.
It is interesting to see that the increase in government external debt (16.74%) and government
domestic debt (6.82%) during June 2018 to December 2018 is higher than during June 2019
to December 2019 i.e. -0.56% and 4.56% respectively.
Figure 5: Composition of Gross Public Debt Stocks (in billion rupees)
Source: State Bank of Pakistan
Total external debt and liabilities reached USD 111 billion by the close of second quarter for
FY20 i.e. by December 2019. This makes it 39.5 percent of GDP.
16,416.3 17,535.7
20,731.8 22,649.9 21,676.4
7,795.8
9,101.1
11,055.1
10,598.0 10,993.0
740.8
819.0
921.0
992.7 1,042.3
Jun-18 Dec-18 Jun-19 Sep-19` Dec-19
Government Domestic Debt Government External Debt Debt from IMF

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Table 6: Pakistan Debt and Liabilities Summary (in billion rupees)
Dec - 2018 Dec - 2019
Government External Debt 9,101.1 10,993.0
Debt from IMF 819.0 1,042.3
External Liabilities 970.0 1,538.6
Private Sector External Debt 2,061.4 2,392.8
PSEs External Debt 363.7 637.9
Intercompany External Debt from Direct Investor
Abroad 430.8 592.8
Total External Debt and Liabilities 13,746.1 17,197.4
Source: State Bank of Pakistan
During the first half of FY20, major contribution to total external debt and liabilities is being
made by Government External Debt (63.9%). This is followed by Private Sector External Debt
(13.9%) and External Liabilities (8.9%). The total disbursements during July to December FY20
under multiple foreign economic assistance programs stood at USD 5.7 billion including both
loans (95.6%) and grants (4.4%).
5. Review of On-Going IMF Programme
The International Monetary Fund (IMF) successfully completed the first programme review
under the extended arrangement of the extended fund facility (EFF) on December 19, 2019.
The Board assessed Pakistan’s economic performance during the first quarter of FY20 against
the given targets (including the performance criteria, continuous performance criteria,
indicative targets and structural benchmarks). Following completion, the government
authorities were allowed to draw the second tranche of about USD 452.4 million out of this
39-month EFF of about USD 6 billion. This makes the total disbursement to about USD 1,440
million.
The planned reforms are divided into following four main categories:
i Fiscal policies
ii Poverty reduction and social protection
iii Monetary and financial sector policies
iv Structural policies
The objective is to achieve macroeconomic stability and to support robust and balance
growth. According to the staff report completed on December 4, 2019, Pakistan’s program
progress is on track and has started to bear fruit. Decisive policy implementation since June
has started to reverse Pakistan’s large imbalances, preserving financial stability and leading the
economy on the path of economic stability.
Fiscal Policy reforms aimed at sustaining the progress on fiscal adjustment to contain debt
dependence. These include strengthening tax revenue mobilization, including the elimination
of tax exemptions and loopholes, and prudent expenditure policies.

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The reforms supporting revenue mobilization and fiscal consolidation performed well as the
Q1 domestic tax revenue growth rates were strong. However, the indicative target of net tax
revenues collected by the Federal Board of Revenue (FBR) was missed due to lower than
expected customs receipts that have been negatively affected by the faster-than-expected
external adjustment.
Poverty Reduction and Social Protection reforms aim at expanding social safety nets,
reducing poverty, and narrowing the gender gap. The commitment towards enhancing social
safety nets will help alleviate social costs and build support for women through reforms.
In this regard, BISP’s banking contracts were finalized according to the agreed timeline. The
structural benchmark relating to launching the financial inclusion strategy for women was
implemented within the agree timeline. An update on Waseela-e-Taleem benefit structure has
also been prepared.
Monetary and Financial Sector Policies are imperative for preserving financial stability
and ensuring sustainability. These include SBP’s commitment to a flexible, market-determined
exchange rate and using interventions only for disorderly market conditions. The objective is
to cushion the economy against external shocks and rebuild reserve buffers.
According to the staff appraisal current monetary stance is appropriate. Moreover, the review
acknowledged increased efforts of authorities to address AML/CFT deficiencies. The current
monetary stance was noted as appropriately tight under the IMF programme’s latest review.
Furthermore, a comprehensive plan has been developed with the help of international financial
institutions for the improvement in collection, reducing losses and enhancing governance in
the energy sector. The IMF indicated the regular adjustment of energy tariffs for bringing the
sector in line with the cost recovery.
The latest review of IMF programme highlighted the adoption of a comprehensive plan to
address the accumulation of arrears in the power sector because its full implementation can
serve as the key for improving collection, reducing losses and enhancing governance. The
structural benchmark regarding determination and notification of adjusted electricity tariff was
fully met. However, the indicative target on power sector arrears was missed.
Structural Policies include efforts for improving governance, transparency and efficiency of
State Owned Enterprises (SOE) for boosting economic activity and rebuilding private sector
business investment. The reforms of the state-owned enterprises sector will help put
Pakistan’s public finance on a sustainable path and have positive spill overs by levelling the
playing field and improving the provision of services to foster private sector investment.
In this regard international auditors have been selected and hired to conduct new audit (2018)
of Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM). The IMF programmes’
latest review also highlighted the efforts by the authorities for improving business environment
and strengthening governance.

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The IMF has been applauding Pakistan on the considerable progress made by its authorities
for advancing reforms. So far, all end-December performance criteria have been met and
structural benchmarks have been completed. Moreover, the fiscal performance has been
labelled as strong in the first quarter of FY 2020.
6. CPEC: Challenges & way forward
In the recent weeks we have seen heightened concerns from local stakeholders on some
concessions which were being discussed between both governments. The upper house of the
parliament rejected the bill asking to provide customs duty exemptions to China Overseas
Port Holding Company, Gwadar International Terminals, Gwadar Marine Services Limited and
Gwadar Free Zone – an area dedicated for Chinese businesses.15
It was reported that the
government and National Development Council has been keen to offer this concession
however faced push back from the parliament. In case this concession goes through it will be
for a period of 40 years.
The Cabinet was also seen divided over decision to award contract of public housing
programme to a Chinese enterprise. The Cabinet members who blocked this move
questioned transparency in the procurement procedure. They advised the Ministry of Housing
& Works to revise the bid documentation. Initially, this Chinese firm had received an
intimation from provincial Government of Punjab to build 20,000 houses.16
This award of
contract will also be difficult to process transparently as it is not part of the original CPEC
portfolio and something which appeared in PTI’s manifesto.
At a civil service level there are now voices informing that work on CPEC or priority special
economic zones could get stalled due to current capacity constraints. The Secretary,
Cabinet Division informed that
the long-term plan of China Pakistan Economic Corridor (CPEC) may be “stunting”, as it did
not result into a ‘mutually constitutive’ development alliance between the two sides.17
The Secretary also informed that Industry Cooperation Fund that was initially conceived has
not materialized. To move forward in mutually beneficial manner, according to him, it was
important to go beyond the usual policy recommendations. He emphasized the need for
defending genuine interests of the local industry, reducing litigations and any frauds related to
15 For example see “Senate body rejects Tax Laws (Amend) Bill 2019.” Accessed via web:
https://www.thenews.com.pk/print/627797-senate-body-rejects-tax-laws-amend-bill-2019, accessed
on: March 26, 2020.
16 For example see “Chinese company to build 20,000 houses in Punjab under PM housing project.”
Accessed via web: https://arynews.tv/en/chinese-company-houses-punjab-prefab/, accessed on:
March 26, 2020.
17 “CPEC long-term plan stunting for Pakistan: senior official.” Accessed via web:
https://www.thenews.com.pk/print/627175-cpec-long-term-plan-stunting-for-pakistan-senior-official,
accessed on: March 26, 2020.

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Chinese businesses in Pakistan, and bringing all ministries in Islamabad on the same page
regarding expectations of Chinese government.
The status of CPEC Authority is also not clear as the government has not been able to get
the bill passed (which formalises establishment of this Authority). The Authority continues to
function based on the Presidential Ordinance (having a duration of four months). Several team
members of the former Centre of Excellence on CPEC (CoEC), which was working under
Ministry of Planning, Development & Special Initiatives have also left, since the time CoEC was
placed under CPEC Authority.
7. Future Outlook and Challenges
The performance of Pakistan’s economy during the quarter under review has been
encouraging despite the global economic slowdown. The challenges are going to mount even
more in the wake of falling demand for Pakistani exports and with the advances being made
by the Coronavirus. A slowdown in remittances and FDI could also pose issues for balance of
payments.
The Government has initiated ‘Pakistan Regulatory Modernization Initiative’ to improve
regulations and facilitate the business segment. The initiative is an important development
toward making the process of permits and registration easy. This will positively impact the
foreign investment as well as small and medium industries. A consolidated approach involving
all the government offices is being undertaken to ensure the restoration of investors’
confidence.
The imposition of tough conditions on Uber-Careem merger by the Competition Commission
of Pakistan (CCP) have also set a good example reflecting the efforts of Government for
ensuring a level playing field for new entrants and for encouraging a healthy competition. The
sell-off of Daraz to Ali Baba of China is still being studied in case this leads to any predatory
practices which ultimately lead to a reduction in consumer welfare.
CPEC initiative may also see some changes in the overall portfolio. The early harvest phase
of CPEC addressed the infrastructure development works. Phase-II is envisaged to focus on
productive industrial and agriculture sectors. The intent expressed in the long term plan for
investment in agriculture sector will serve as a decent way forward. The fall in international
oil prices will reduce the import bill. This will also help boost the industrial sector of the
country. However with threats emanating from Coronovirus, it is likely that the scope of
CPEC may now also cover health sector, crisis and recovery phase post-COVID19.
The inflow of hot money has built reserves to strengthen the economic position and provided
temporary relief. However, a more viable and long term approach will be to acquire
investments with long term tenor. Businesses can also be encouraged by improving the doing
business ranking further. The privatization plan to privatize state-owned entities (SOEs) and

22. 20 | P a g e
public sector enterprises (PSEs) will also encourage the private investment (including both
local and foreign).
In the early days of COVID19 threat we are already witnessing departure of hot money. A
response from the central bank is awaited regarding how the authorities are aiming to deal
with such outflows and in case China will be requested again for a short term balance of
payments support.
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