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Pakistan: Selected Issues and Statistical Appendix

Author(s):
International Monetary Fund
Published Date:
November 2005
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V. How Vulnerable is the Corporate Sector in Pakistan?21

A. Introduction

82. Pakistan’s corporate sector has witnessed a remarkable recovery in recent years. Market capitalization of enterprises listed on the Karachi Stock Exchange (KSE), profits of listed enterprises, and advances of commercial banks to the corporate sector have all risen sharply (Table V.1). Large-scale manufacturing production increased, cumulatively, by almost 70 percent over the past five years to 2004/05.

Table V.1.Pakistan: Indicators of Corporate Sector Performance, 1999/2000–2004/05
1999/20002000/012001/022002/032003/042004/05
Market capitalization (in billions of Pakistani rupees)3923394087461,3572,066
Large scale manufacturing (growth, in percent)11.03.57.218.215.4
Profit (before taxation) of listed companies (in billions of Pakistani rupees)6293136230
Banking sector credit to corporate sector (growth, in percent)2.811.3-0.312.829.035.0
Sources: Karachi Stock Exchange; State Bank of Pakistan; and IMF.
Sources: Karachi Stock Exchange; State Bank of Pakistan; and IMF.

83. These developments in good part reflect the success of the government’s reform program. This program has focused on macroeconomic stabilization and market-oriented structural reforms, and has induced a strong positive response from the private sector. By re-building confidence and promoting greater efficiency, the program laid the foundation for a sustained recovery in growth. Implementation of the program also benefited from a favorable external environment, including low interest rates abroad and at home and sizeable foreign exchange inflows.

84. The objective of this paper is to examine the vulnerability of the corporate sector in Pakistan, as the economy enters its third year of strong growth. The speed and scale of the corporate sector’s recovery has raised the question of sustainability and the sector’s ability to withstand shocks. While sustainability will in part depend on overall economic growth in the coming years, the corporate sector’s vulnerability to shocks would also depend on more structural factors related to the sector’s governance system and balance sheet. Section B looks at corporate governance and transparency in Pakistan, and compares these with best international practices and standards. Section C examines various indicators of financial vulnerability, and assesses their implications, based on regional and cross-country comparisons. A sectoral analysis of these indicators for Pakistan provides further insights. Section D draws some conclusions.

B. Corporate Governance and Transparency

85. In a market economy, strong corporate governance and transparency should reduce corporate sector vulnerabilities.

Ownership structure

86. The Asian crisis of the late 1990s drew attention to ownership and control structures as an important factor for corporate governance. In Pakistan, government and domestic private sector ownership are estimated to account for about 34 percent and 53 percent, respectively, of the top 40 listed companies, while foreign ownership accounts for the remaining 13 percent.22, 23 Within the domestic private sector, family control through direct holding or through associated companies of the controlling family is especially high (see Box V.1) and is often obtained through the extensive use of “pyramiding” and cross-shareholdings practices. Hence, although superficially ownership concentration appears to be lower in Pakistan than in East Asia, concentration of control could actually be higher. This concentration, combined with high thresholds to initiate corporate actions, has been found to limit the effective protection of external investors.24 International evidence suggests that a concentration of control can extract value from the firm for the benefit of the controlling group, at the expense of minority shareholders. This can undermine good governance, corporate efficiency, and incentives to mobilize additional capital through equity issuance, and thus capital market development.25, 26

Box V.1.Concentration of Corporate Ownership and Control

Ownership: How much of the share capital of an average company is owned by the top five shareholders?
In percent
Pakistan37.0
Korea38.5
South-East Asia 1/60.8
Control: How frequently do families control more than 40 percent of a company?
In percent
Pakistan
Textiles50.0
Non-textiles38.9
Korea3.5
South-East Asia 2/30.0
Source: Cheema (2003).

Average for Indonesia, Malaysia, Philippines, and Thailand.

Average for Indonesia, Malaysia, and Thailand

Source: Cheema (2003).

Average for Indonesia, Malaysia, Philippines, and Thailand.

Average for Indonesia, Malaysia, and Thailand

Corporate governance

87. Pakistan has made considerable progress in strengthening the corporate governance framework in recent years. In 2003, the Securities and Exchange Commission of Pakistan (SECP) issued a Code of Good Governance. Compliance with this code is mandatory for listed nonfinancial and financial companies, as well as for nonlisted commercial banks.27 The SECP has also strengthened its enforcement capabilities. The de-listing of several companies from the KSE is indirect evidence of the more demanding standards now imposed by the new code.

88. The draft Corporate Governance Assessment (2005) by the World Bank generally gives high marks to Pakistan. The assessment notes in particular: (a) the existence and quality of an effective overall corporate governance framework; (b) the affirmation of shareholders’ basic rights; and (c) the legal rights of stakeholders in corporate governance. However, the assessment also identifies several weaknesses, including: (a) the only partial compliance with disclosure of arrangements whereby a person has acquired more than 10 percent of voting shares; (b) the lack of facilitation for the exercise of ownership rights by all shareholders (in particular, institutional investors); and (c) the lack of ability of the boards of listed companies to exercise objective and independent judgment.

Creditor rights and insolvency framework

89. Creditor rights have generally been much weaker in emerging markets than in mature economies and Pakistan is no exception. But after significant reforms in recent years, it scores generally better than many other South Asian countries with regard to legal rights, credit information, disclosure, the cost of enforcing contracts, and closing a business. Exceptions are the costs of creating collateral, and the number of procedures and time to enforce contracts, for which Pakistan lags somewhat behind its South Asian neighbors.28 Generally, weaker creditors rights undermine the prospects for achieving a better financing mix, in particular, financing through marketable securities.

Financial transparency

90. Pakistan has now largely adopted the International Financial Reporting Standards. Full enforcement of these standards, which regulate the quality and timeliness of financial data made available by corporations, has, however, been constrained by a lack of human resources and technical ability. Related party transactions among nonbank companies are reportedly not always properly disclosed in practice.29

C. Indicators of Financial Vulnerability

91. Since the Asian crisis, considerable work has been undertaken to identify possible early indicators of corporate vulnerability. This section looks at how Pakistan fares with regard to key financial vulnerability indicators. Two data sources are used. First, the Fund’s Corporate Vulnerability Utility (CVU), whose main advantage is to allow reasonably consistent cross-region and cross-country comparisons. For Pakistan, this database covers some 65–80 major firms listed on the KSE. While this sample represents only about 10 percent of the number of firms listed on the KSE, it accounts for close to 80 percent of the overall market capitalization. This paper will focus on China and India as comparator countries, and on Developed Asia, Emerging Asia, and Global as comparator regions. Second, the SBP compiles detailed information on the accounts of the nonfinancial companies listed on the KSE, offering a much broader database, as well as a more detailed sectoral classification. The SBP is also the main source of information for the financial sector, mainly banks. Details on the sectoral coverage of the SBP database in terms of contribution to overall market capitalization are provided in Box V.2.30

Box V.2.Sectoral Contribution to Market Capitalization

As of end-December 2004, the SBP maintained information on the accounts of all 504 nonfinancial companies listed on the KSE. In terms of market capitalization, the last few years have seen a massive growth in the fuel and energy sector, now accounting for about half of market capitalization, at the expense of the textile, chemical and pharmaceutical, and transport and communication sectors. Notwithstanding significant absolute increases in their own market capitalization, these sectors have seen their share in overall market capitalization decline by almost half, to 7, 11, and 17 percent, respectively. The now much smaller share of the textile sector in overall market capitalization is in sharp contrast with the sector still accounting for more than 60 percent of Pakistan’s exports.

Pakistan: Sectoral Contribution to KSE Market Capitalization, 1998–2005
No. of companies19981999200020012002200320042005
(In percent of aggregate market capitalization)
Textile21711.010.712.312.811.710.17.56.6
Chemical and phramaceutical3820.818.715.815.914.416.613.510.8
Engineering494.33.73.33.84.26.14.43.8
Sugar371.91.61.11.51.31.10.90.8
Paper and board131.11.11.11.51.91.91.40.8
Cement212.72.32.93.44.35.15.74.2
Fuel and energy2619.420.624.626.529.729.541.950.1
Transport and communication1427.931.129.823.519.919.016.317.1
Miscellaneous8910.910.29.211.012.710.58.36.0
Source: State Bank of Pakistan.

End-March 2005, Pakistan Economic Survey, 2004/05.

Source: State Bank of Pakistan.

End-March 2005, Pakistan Economic Survey, 2004/05.

Leverage

92. Leverage in Pakistan is broadly in line with most other emerging economies. According to the CVU, the nonfinancial corporate sector of Pakistan has, at around 75 percent, a debt/equity ratio roughly in line with that of Emerging Asia, lower than Developed Asia and Global, but significantly higher than India (Table V.2a and Figure V.1). Along with the other comparator countries and regions, with the exception of China, Pakistan has seen a decline in debt/equity ratios since the late 1990s. However, there appears to have been a modest reversal in this trend since 2003, in line with the acceleration in bank credit growth. Similar trends are observed in the SBP data with respect to the total liabilities/equity ratio and “gearing” (i.e., total fixed liabilities/total capital employed—whether through equity or debt). This trend is seen in most sectors, with the exception of sugar an cement.

Figure V.1.Pakistan: Nonfinancial Corporate Sector Leverage Indicator, 1998–2003

Table V.2a.Pakistan: Corporate Sector Leverage Indicators (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Debt/equity ratio (CVU)
China41.248.149.652.754.371.9
Developed Asia151.8158.5101.2105.1106.1106.4
Emerging Asia109.385.0101.270.379.473.1
Global168.4110.792.1105.3109.2105.0
India63.648.635.333.337.043.3
Pakistan108.884.695.965.861.278.5
Total liabilities/equity (SBP)
Pakistan206.4142.3137.4141.8149.3149.9
Textile212.1164.1104.5105.7158.0149.6
Chemical and phramaceutical143.8128.5116.3108.0114.097.3
Engineering493.3154.1120.798.7121.8149.5
Sugar102.3111.3145.2149.3-78.2532.1
Paper and board170.2156.9105.296.576.0125.4
Cement2189.1190.2173.414.5104.8299.5
Fuel and energy42.1149.1171.4178.3160.9146.2
Transport and communication100.2107.296.1106.9107.579.9
Miscellaneous285.2221.8243.1246.4229.6255.0
Gearing (SBP) 2/
Pakistan28.432.023.723.415.316.1
Textile35.470.224.127.526.622.1
Chemical and phramaceutical28.126.124.113.722.015.9
Engineering9.513.4-2.87.4-23.36.7
Sugar26.920.223.137.3-95.025.7
Paper and board34.330.823.822.719.26.2
Cement39.847.812.6-34.228.837.5
Fuel and energy35.832.531.147.520.720.7
Transport and communication29.726.921.312.16.17.7
Miscellaneous8.927.124.317.012.211.0
Sources: IMF; and SBP.

Market capitalization weighted.

Total fixed liabilities/total capital employed.

Sources: IMF; and SBP.

Market capitalization weighted.

Total fixed liabilities/total capital employed.

Table V.2b.Pakistan: Corporate Sector Leverage Indicators (Financial), 1998–2004(In percent)
1998199920002001200220032004
Debt/equity ratio (CVU) 1/
China45.435.475.7249.3467.3317.7
Developed Asia190.3198.0248.9216.9202.7235.6
Emerging Asia278.2181.9213.9209.7307.3266.9
Global454.2503.2459.8519.7523.0488.4
India245.8229.4223.4282.4215.7205.0
Pakistan193.1185.3205.3221.8272.6285.1
Borrowings/equity; all banks (SBP)
Pakistan210.0270.0330.0370.0260.0210.0150.0
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Debt

93. Corporate sector indebtedness and foreign currency exposure are low compared with most other emerging economies. In percent of GDP, in Pakistan indebtedness is estimated to have decline from a peak of 19.5 percent in 1999 to 17.4 percent in 2002, but has rebounded to 20.3 percent through 2004 (Table V.3 and Figure V.2), due to the increase in loans from the banking sector. In fact, bank loans now account for as much as 95 percent of total corporate debt. Foreign currency denominated debt accounted for more than 20 percent of total debt in 2003, but had declined to about 15 percent by 2004. The fast growth in the issuance of Term Finance Certificates (TFCs) since 2001 came to a halt in 2004, as banks were able to offer loans at highly competitive rates. By international standards, the level of corporate debt in Pakistan in percent of GDP is more in line with emerging Europe and Latin America than emerging Asia (Box V.3). This reflects the still relatively under-developed state of financial markets in Pakistan, rather than low leverage. Indeed, Table V.2a and V.2b in fact show that the debt/equity ratio (a measure of leverage) in Pakistan is in line with Emerging Asia. Through 2003, the percentage of total debt denominated in foreign currency in Pakistan was similar to that in other emerging markets of Asia, but by 2004, Pakistan had managed to reduce this percentage to well below comparator countries.

94. The share of short-term debt in total debt for the nonfinancial corporate sector in Pakistan is relatively high by Global and Developed Asia standards, as well as compared with India. At about 50 percent in Pakistan, it is close to Emerging Asia and significantly lower than in China. The SBP data further suggest an upward trend in the share of current liabilities in total liabilities in recent years (Table V.4). The sectors apparently responsible for this trend are fuel and energy, transport and communication, as well as chemical and pharmaceutical.

Figure V.2.Corporate Sector Indebtedness and Shareholder Equity, 1997–2004

Box V.3.Corporate Indebtedness: Some International Comparisons

Corporate debt outstanding in percent of GDP (2003)
All emerging markets62.0
Asia76.0
Europe24.0
Latin America28.0
Pakistan20.3 (2004)
Foreign currency debt in percent of total debt
China21.3
India20.9
Malaysia29.8
Thailand30.8
Pakistan22.8 (2003); 15.5 (2004)
Sources: IMF Global Financial Stability Report (April 2005); and SBP.
Sources: IMF Global Financial Stability Report (April 2005); and SBP.
Table V.3.Pakistan: Corporate Sector Indebtedness, 1997–2004 1/(In billions of Pakistani rupees)
End-June
19971998199920002001200220032004
Term finance certificates234510194445
Nonfinancial22336133334
Financial0112461111
Banks00000034
Others01124687
External debt207184154143112
Nonfinancial16515213111799
Financial3728444232232613
Loans from financial sector4685576416637367228301,065
Nonfinancial 2/449537612629700687776991
Of which: in foreign currency6162
Financial1920303437355374
Banks: borrowing from other FIs2246681113
Others: borrowing from banks and other FIs1718262831274260
Total debt5075886897107787648991,123
Nonfinancial4515396146317067008091,025
Financial5649757973649098
Memorandum items:
Total debt (in percent of GDP)17.318.219.518.718.717.418.620.3
Loans from financial sector (in percent of total debt)92.394.793.093.394.694.592.394.8
Foreign currency debt (in percent of total debt) 3/22.815.5
Sources: SBP; and IMF staff calculations.

Excludes debt to government, government-guaranteed external debt, and borrowing from the SBP.

Loans from banks and other financial institution.

External debt and domestic loans in foreign currency.

Sources: SBP; and IMF staff calculations.

Excludes debt to government, government-guaranteed external debt, and borrowing from the SBP.

Loans from banks and other financial institution.

External debt and domestic loans in foreign currency.

Table V.4.Pakistan: Corporate Sector Debt Indicators (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Short-term debt/total debt (CVU)
China78.683.380.177.382.582.1
Developed Asia40.437.638.641.841.339.6
Emerging Asia41.044.146.743.143.153.0
Global34.735.435.834.331.030.3
India31.034.535.434.635.831.6
Pakistan41.345.251.757.755.251.3
Current liabilities/total liabilities (SBP)
Pakistan67.966.871.578.379.780.4
Textile74.870.566.869.171.973.8
Chemical and phramaceutical69.167.772.385.675.779.0
Engineering92.791.591.594.095.996.1
Sugar80.479.479.585.786.884.5
Paper and board65.568.671.669.168.988.3
Cement51.055.666.064.362.151.8
Fuel and energy61.859.870.771.175.074.6
Transport and communication57.062.768.883.392.391.3
Miscellaneous91.781.985.089.387.188.7
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Equity

95. Mobilization of capital through equity has accelerated somewhat, but equity remains modest in comparison with debt in Pakistan (Table V.5). However, the data needs to be interpreted carefully because of a significant impact of the privatization process. Hence, although listed capital increased by almost PRs 200 billion between 2001 and 2005, fresh equity capital mobilized in the period was less than PRs 13 billion through 2004.31 In 2002, and to some extent in 2003, shareholder equity did increase significantly, by PRs 157 billion and PRs 55 billion, respectively. However, half of the increase in 2002 resulted from the retention of profits in the nonfinancial sector. In 2003, most of the increase in shareholder equity reflected the increased capitalization of banks. In percent of GDP, overall shareholder equity, which had declined to 10.2 percent by 2001, rebounded to 13.2 in the following two years, but was still only marginally higher than in 1998. The findings appear to be consistent with the view that structural factors, including the state of corporate governance, may continue to hamper the growth of the equity market.

Table V.5.Pakistan: Corporate Sector Equity Capital Mobilization, 1998–2005(In billion of Pakistani rupees)
End-June
19981999200020012002200320042005
Listed capital 1/211215236236291301374422 2/
Fresh equity capital in the year 3/0022614
Shareholder equity; nonfinancial 4/284309318319433447
Of which:ordinary share capital175185192190228247
surpluses108124127129205201
Shareholder equity; financial 5/1048498107150190
Of which:ordinary share capital1048498107150190
surpluses
Shareholder equity; all388393417426583637
Of which:ordinary share capital280269290297378437
surpluses108124127129205201
Memorandum items:
Shareholder equity (in percent of GDP) 6/12.011.111.010.213.213.2
Of which:ordinary share capital8.77.67.67.18.69.1
surpluses3.43.53.33.14.74.2
Sources: Karachi Stock Exchange (KSE); Security and Exchange Commission of Pakistan (SECP); and SBP.

On the KSE. The amounts also reflect the impact of privatization.

Through end-March 2005.

SECP. The amounts cover primary offerings only (hence exclude privatization). May include some already paid-up capital.

SBP data base.

SBP data base (excluding insurance companies).

Nonfinancial and financial.

Sources: Karachi Stock Exchange (KSE); Security and Exchange Commission of Pakistan (SECP); and SBP.

On the KSE. The amounts also reflect the impact of privatization.

Through end-March 2005.

SECP. The amounts cover primary offerings only (hence exclude privatization). May include some already paid-up capital.

SBP data base.

SBP data base (excluding insurance companies).

Nonfinancial and financial.

Liquidity

96. Corporate liquidity is lower in Pakistan than in most comparator regions and countries. This is evident from both the current ratio (current assets/current liabilities) and the Quick ratio (current assets minus inventories/current liabilities) (Tables V.6a and V.7). In the financial sector, liquidity also appears to be lower in Pakistan than in comparator regions or countries (Table V.6b).32 Based on the Quick ratio, the cement, sugar, paper and board, and textile sectors have especially low liquidity, although the ratio for the textile sector did improve significantly in 2003 (Table V.7).

Table V.6a.Pakistan: Corporate Sector Liquidity—Current Ratios (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Current ratio (CVU)
China2.51.71.71.61.41.3
Developed Asia1.61.71.81.61.81.8
Emerging Asia1.71.61.61.81.81.8
Global1.51.51.81.71.71.7
India1.41.51.72.11.71.8
Pakistan1.11.21.11.11.21.2
Current ratio (SBP)
Pakistan1.31.51.31.41.51.4
Textile1.21.21.31.21.21.6
Chemical and phramaceutical1.72.01.72.22.52.2
Engineering1.51.51.61.81.71.7
Sugar1.11.01.11.21.71.5
Paper and board1.61.61.61.61.81.3
Cement0.80.90.91.01.11.2
Fuel and energy1.52.01.51.51.41.4
Transport and communication1.01.11.01.01.21.2
Miscellaneous1.11.21.21.21.31.2
Sources: IMF; and State Bank of Pakistan.

Market capitalization weighted.

Sources: IMF; and State Bank of Pakistan.

Market capitalization weighted.

Table V.6b.Pakistan: Corporate Sector Liquidity—Current Ratios (Financial), 1998–2004 1/(In percent)
1998199920002001200220032004
Current ratio (CVU)
China1.62.11.61.81.61.7
Developed Asia1.31.41.41.41.41.5
Emerging Asia1.92.53.12.32.52.2
Global1.41.41.61.71.51.7
India1.4
Pakistan0.5
Liquid assets/ liquid liabilities; all banks (SBP)
Pakistan0.40.40.30.40.50.40.4
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.7.Pakistan: Corporate Sector Liqudity—Quick Ratios (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Quick ratio (CVU)
China2.31.41.21.11.00.9
Developed Asia1.21.31.51.21.41.4
Emerging Asia1.21.21.21.31.41.3
Global1.01.11.41.31.31.2
India0.90.91.01.41.10.7
Pakistan0.80.80.80.80.70.8
Quick ratio (SBP)
Pakistan0.50.50.50.50.60.6
Textile0.20.30.30.20.20.6
Chemical and phramaceutical1.01.10.91.11.61.3
Engineering0.60.40.60.60.70.8
Sugar0.20.30.50.30.60.3
Paper and board0.40.40.50.50.40.3
Cement0.20.20.30.30.30.4
Fuel and energy0.50.50.40.40.40.5
Transport and communication0.30.40.50.50.50.6
Miscellaneous0.10.10.20.30.30.3
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

97. The interest coverage ratio has sharply recovered to about 25 percent in 2003. This reflects the decline in interest rates as well as the recovery in profits. Its level is now roughly in line with all regional comparators, but considerably below India and considerably above China (Table V.8). A low interest coverage ratio has continued to characterize the cement, sugar, and textile sectors according to the SBP data. Transport and communication and paper and board have seen a significant improvement in this ratio in recent years, while the engineering and chemical and pharmaceutical and engineering sectors have continued to show high coverage.

Table V.8.Pakistan: Corporate Sector Liquidity—Interest Coverage Ratios (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Interest coverage ratio (CVU)
China14.718.519.618.317.914.9
Developed Asia22.224.731.639.131.830.8
Emerging Asia14.018.416.523.027.128.1
Global18.420.428.015.617.124.3
India14.623.136.755.484.973.9
Pakistan6.68.912.915.024.124.3
Operating profits/ financial expenses ratio (SBP)
Pakistan13.729.826.4
Textile5.15.35.2
Chemical and phramaceutical33.0138.937.4
Engineering55.567.4127.3
Sugar1.93.95.2
Paper and board3.46.622.1
Cement2.54.31.7
Fuel and energy8.47.511.7
Transport and communication9.812.228.2
Miscellaneous11.321.630.4
Sources: IMF; and SBP

Market capitalization weighted.

Sources: IMF; and SBP

Market capitalization weighted.

Profitability

98. Historically, Pakistan has tended to achieve high rates of return on assets and equity. For the nonfinancial sector, these returns have continued to rise in recent years, following a dip in 2000, to around 15 and 30 percent, respectively (Tables V.9a and V.10a). These returns are almost identical to those achieved in India, but significantly higher than the returns realized in the other comparator regions and countries. The high rates of return on assets suggest that in Pakistan (and in India) capital is relatively scarce. Sector-wise, the chemical and pharmaceutical, engineering, fuel and energy, transportation and communication, and paper and board sectors have enjoyed high and growing profitability in recent years, while the profitability of the sugar, cement, and even textile sectors has remained relatively low. This is a cause for concern for the textile sector given its share in Pakistan’s exports and the possibility of external shock.

99. CVU data for the financial sector show a steady recovery of the rate of return on assets in Pakistan from the low point in 1998. While the rate of return was lower in Pakistan in 1998 than in any comparator region or country, it was higher than in any comparator region or country from 2002 onward (Table V.9b). Similar trends are evident for the rate of return on equity (Table V.10b).

Table V.9a.Pakistan: Corporate Sector Profitability—Return on Assets (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Return on assets (CVU)
China7.66.68.55.95.35.1
Developed Asia4.13.95.25.73.84.6
Emerging Asia8.010.110.87.48.28.2
Global8.510.19.25.24.67.6
India12.213.214.614.914.214.5
Pakistan13.213.210.012.814.314.3
Return on assets (SBP)
Pakistan10.410.111.614.413.816.4
Textile2.03.29.05.82.24.9
Chemical and phramaceutical17.811.710.416.116.618.2
Engineering0.78.319.217.515.921.6
Sugar-2.13.25.20.36.06.1
Paper and board6.110.812.511.214.821.6
Cement-2.8-3.02.6-0.73.20.5
Fuel and energy10.59.35.713.18.712.8
Transport and communication11.412.115.020.023.026.2
Miscellaneous12.414.823.819.424.023.6
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.9b.Pakistan: Corporate Sector Profitability—Return on Assets (Financial), 1998–2004 1/(In percent)
1998199920002001200220032004
Return on assets (CVU) 1/
China3.84.14.51.51.71.8
Developed Asia2.12.13.12.41.91.5
Emerging Asia1.40.92.61.52.11.5
Global3.02.93.02.12.02.4
India3.02.12.52.53.02.8
Pakistan1.21.71.92.53.23.7
Return on assets; all banks (SBP)
Pakistan-0.30.40.30.10.91.91.8
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.10a.Pakistan: Corporate Sector Profitability—Return on Equity (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Return on equity (CVU)
China16.19.513.68.87.47.8
Developed Asia7.06.57.810.55.78.6
Emerging Asia13.016.518.413.814.614.6
Global17.621.016.711.611.816.9
India24.928.334.129.729.826.9
Pakistan32.024.516.930.728.625.8
Return on equity; all banks (SBP)
Pakistan12.421.726.734.633.935.1
Textile5.38.810.021.28.011.0
Chemical and phramaceutical29.313.216.127.032.231.9
Engineering-66.422.737.133.032.547.9
Sugar-14.55.236.04.968.0-33.6
Paper and board11.822.825.421.725.336.8
Cement-435.0-8.72.510.24.9-19.5
Fuel and energy50.828.620.834.721.527.8
Transport and communication22.522.125.332.835.640.4
Miscellaneous42.444.394.080.696.0101.8
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.10b.Pakistan: Corporate Sector Profitability—Return on Equity (Financial), 1998–2004(In percent)
1998199920002001200220032004
Return on equity (CVU) 1/
China5.24.15.910.812.811.2
Developed Asia5.37.311.98.86.05.6
Emerging Asia2.8-5.63.98.59.59.7
Global15.717.217.911.911.514.7
India22.114.619.716.823.619.0
Pakistan8.47.814.68.523.834.8
Return on equity; all banks (SBP)
Pakistan-2.7-3.9-3.5-12.63.220.519.5
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Valuation

100. Valuations on the Pakistan stock market are still quite low. The market-to-book ratio in Pakistan’s nonfinancial sector has been lower than in almost any comparator region or country, despite the increase witnessed in 2003 (Table V.11a and Figure V.3). Following a similar increase from very low levels, the market-to-book ratio for the financial sector, at 1.7 in 2003, was more in line with the comparator regions and countries, and higher than in India, though still significantly lower than in China (Table V.11b).

101. Low valuations in Pakistan are even more evident looking at the price-to-earnings ratio. The average ratio of about 8 in the nonfinancial sector was, despite a steady rise since 2001, in 2003 still less than half of that in most comparator regions and countries (Table V.12a and Chart V.3). The situation was almost the same for the financial sector, although in 2003, the price-to-earnings ratio for the financial companies in India fell below that in Pakistan (Table V.12b).

102. Low valuations may reflect risks and uncertainties. The low valuation may reflect a higher level of risk and uncertainty that the market attaches to earnings expectations in Pakistan relative to other countries. This could reflect political and security risks, but also a still imperfect governance and transparency framework and other shortcomings of the business and legal environment. Hence, the market-to-book value or the earnings ratio may not reflect so much doubts on the ability of a firm to generate strong earnings, but the risks and uncertainties about external factors affecting that firm. This perspective could help explain apparent contradictory findings: the simultaneous prevalence of low market-to-book and price-to-earnings ratios and of high rates of return on assets and equity. The latter uses only contemporaneous information and does not reflect future risks and uncertainties.33

Figure V.3.Pakistan: Valuation Indicators for Nonfinancial Corporate Sector, 1997–2003

Table V.11a.Pakistan: Corporate Sector Valuation—Market-to-Book Ratios (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Market-to-book ratio (CVU)
China2.33.25.73.92.83.1
Developed Asia2.42.86.43.12.41.9
Emerging Asia3.04.02.83.02.42.8
Global7.57.87.35.13.94.2
India3.23.34.22.74.33.2
Pakistan1.31.41.71.21.32.3
Market-to-book ratio (SBP)
Pakistan1.51.31.71.41.52.3
Textile0.70.70.50.50.60.9
Chemical and phramaceutical1.41.31.21.51.31.9
Engineering1.31.21.61.21.22.1
Sugar0.40.40.40.50.41.4
Paper and board0.80.70.90.81.11.8
Cement3.60.30.50.30.51.8
Fuel and energy0.80.81.41.11.11.9
Transport and communication0.91.01.30.80.71.2
Miscellaneous5.04.16.74.75.38.3
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.11b.Pakistan: Corporate Sector Valuation—Market-to-Book Ratios (Financial), 1998–2004(In percent)
1998199920002001200220032004
Market-to-book ratio (CVU) 1/
China1.62.48.05.54.13.4
Developed Asia1.82.02.51.91.71.5
Emerging Asia1.92.12.02.11.81.8
Global3.03.13.32.62.02.2
India1.61.11.82.01.61.4
Pakistan0.71.01.11.01.31.7
Market-to-book ratio; all banks (SBP)
Pakistan0.20.61.5
Sources: IMF; and SBP

Market capitalization weighted.

Sources: IMF; and SBP

Market capitalization weighted.

Table V.12a.Pakistan: Corporate Sector Valuation—Price-to-Earnings Ratio (Nonfinancial), 1998–2003 1/
199819992000200120022003
Price-to-earnings ratio (CVU)
China20.227.055.351.135.341.9
Developed Asia30.933.447.431.520.120.4
Emerging Asia17.423.715.923.916.920.0
Global28.031.326.319.516.921.1
India19.523.420.118.718.314.3
Pakistan4.46.27.05.86.37.4
Price-to-earnings ratio (SBP)
Pakistan4.45.24.33.64.110.1
Textile5.66.45.83.46.412.3
Chemical and phramaceutical2.12.2-1.43.84.14.2
Engineering1.21.110.73.55.0-11.8
Sugar-2.37.31.5-0.43.0-2.1
Paper and board6.12.63.73.84.34.6
Cement-1.29.51.63.22.19.2
Fuel and energy3.03.43.63.52.95.5
Transport and communication5.85.66.03.02.83.9
Miscellaneous9.412.27.86.37.657.3
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.12b.Pakistan: Corporate Valuations—Price-to-Earnings Ratios (Financial), 1998–2004
1998199920002001200220032004
Price-to-earnings ratio (CVU) 1/
China31.734.539.443.537.531.8
Developed Asia24.319.424.024.116.813.2
Emerging Asia18.511.818.918.515.313.8
Global22.620.720.323.415.615.7
India8.28.612.411.19.67.0
Pakistan4.410.09.22.96.37.8
Price-to-earnings ratio (SBP)
Pakistan2.14.38.0
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

103. The apparent contradiction between the high rates of return on assets and equity and low market-to-book ratios in Pakistan is reflected in Tobin’s q values.34 Although rising significantly in recent years, and above 1 from 2002, Tobin’s q values have remained lower in Pakistan than in most comparator regions and countries (Tables V.13a and V.13b).35 This contrasts with India, which has relatively high values for Tobin’s q, at least for the nonfinancial sector, as would be expected when capital is scarce. The prevalence of both relatively high rates of return on assets and relatively high Tobin’s q values in India is consistent with the view that the scarcity of capital reflects a financing constraint. In Pakistan, given the relatively low Tobin’s q values despite relatively high rates of return, the scarcity of capital could reflect a relatively high cost to invest.

Table V.13a.Pakistan: Corporate Sector Valuation—Tobin’s q Values (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Tobin’s q (CVU)
China1.61.72.62.21.71.7
Developed Asia1.21.41.61.51.41.1
Emerging Asia1.61.61.41.61.41.5
Global2.32.52.62.31.71.9
India2.52.12.82.52.22.6
Pakistan0.81.01.00.80.81.2
Tobin’s q (SBP)
Pakistan1.11.11.21.11.11.5
Textile0.90.90.90.90.91.0
Chemical and phramaceutical1.21.21.11.21.11.5
Engineering1.11.11.31.11.11.6
Sugar0.80.80.80.90.91.1
Paper and board0.90.90.90.91.01.5
Cement0.70.70.80.80.71.1
Fuel and energy1.00.91.21.11.01.4
Transport and communication1.01.01.20.90.81.1
Miscellaneous2.02.12.52.02.23.0
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Table V.13b.Pakistan: Corporate Sector Valuation–Tobin’s q Values (Finanicial), 1998–2004(In percent)
1998199920002001200220032004
Tobin’s q (CVU) 1/
China1.11.72.60.90.70.9
Developed Asia0.60.60.60.60.60.5
Emerging Asia0.50.60.50.50.50.5
Global0.60.60.60.60.50.6
India0.40.30.40.40.40.4
Pakistan0.20.30.30.30.30.4
Tobin’s q (SBP)
Pakistan0.30.51.0
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

International exposure

104. Pakistan’s corporations have modest and declining international exposure.36 This contrasts with the growing international exposure of most other comparator regions and countries, especially Emerging Asia with the exception of India (Table V.14). Only the textile, and to a lesser extent sugar, sectors have significant international exposure.

Table V.14.Pakistan: Corporate Sector International Exposure Indicator (Nonfinancial), 1998–2003 1/
199819992000200120022003
Foreign sales/ total sales (CVU)
China0.00.20.10.72.34.4
Developed Asia22.521.924.326.727.428.5
Emerging Asia1.01.23.64.27.57.9
Global30.030.330.933.033.233.5
India0.00.00.00.02.61.9
Foreign sales/ total sales (SBP)
Pakistan4.84.74.3
Textile32.433.233.3
Chemical and phramaceutical0.40.70.7
Engineering2.52.51.5
Sugar8.911.94.6
Paper and board1.01.21.1
Cement0.00.61.6
Fuel and energy0.50.40.5
Transport and communication0.00.00.0
Miscellaneous3.02.82.6
Sources: IMF; and SBP.

Market capitalization weighted.

Sources: IMF; and SBP.

Market capitalization weighted.

Dependence on external sources of finance

105. The nonfinancial corporate sector in Pakistan relied on internal sources of financing more than in most comparator regions and countries (Table V.15).37 The CVU uses the so-called Rajan–Zingales Index to evaluate this dependence. From this index, an internal finance ratio can be derived.38, 39 An alternative internal finance ratio is available from the SBP data source and defined as the ratio of retention in business to the change in capital employed.40 This is a stricter definition, which, in contrast to Rajan–Zingales, subtracts both depreciation and dividends. Significantly lower internal finance ratios are therefore derived from this definition. The reliance on internal sources of financing is not surprising in view of the still relatively underdeveloped channels of financial intermediation in Pakistan. It also suggests that dependence on external sources of finance is not a source of corporate sector vulnerability in Pakistan (nor India).

106. However, the lower internal finance ratio derived from the SBP data source raises questions on the validity of this conclusion. The internal finance ratio calculated using SBP data is not only low, but has also fallen in recent years. In addition to depreciation, an explanation for the divergent movements of the Rajan–Zingales index and the SBP internal finance ratio is the different treatment of dividends, which are netted in the SBP’s internal finance ratio. This is important because companies in Pakistan have tended to distribute large dividends, possibly because of a reluctance to use internally generated funds to invest (Table V.16). The availability of cheap credit in recent years may have encouraged the corporate sector to favor financing investment through credit. This could make companies more vulnerable to a credit crunch. The textile sector seems to have relied least on internal finance, and relied most on bank financing, and therefore might be the most vulnerable (Figures V.4 and V.5).

Figure V.4.Pakistan: Reliance on Internal Finance of Nonfinancial Corporate Sector, 1998–2003

Figure V.5.Pakistan: Scheduled Banks’ Advances to Various Sectors

Table V.15.Pakistan: Corporate Sector Internal Finance Indicator (Nonfinancial), 1998–2003 1/(In percent)
199819992000200120022003
Internal finance ratio (CVU)
China1.41.12.12.31.71.3
Developed Asia0.91.52.32.21.62.0
Emerging Asia2.21.82.02.22.32.3
Global2.02.12.22.52.52.8
India3.02.62.72.43.93.0
Pakistan1.73.23.43.82.83.6
Internal finance ratio (SBP) 2/
Pakistan1.91.80.40.10.4-0.4
Textile0.3-1.1-1.41.3-1.8-0.1
Chemical and phramaceutical1.95.7-0.1-1.30.60.2
Engineering-2.70.71.50.81.21.2
Sugar1.11.50.20.70.5-1.1
Paper and board30.5-0.8-2.82.21.2-0.3
Cement0.5-0.81.01.1-0.5-1.0
Fuel and energy5.01.30.31.40.50.0
Transport and communication0.11.91.3-1.41.8-1.4
Miscellaneous2.10.50.00.2-0.5-1.3
Sources: IMF; and SBP

Market capitalization weighted.

Does not add depreciation and amortization, and subtracts dividend payments in the numerator, and takes the overall change in capital employed (equity plus liabilities) as denominator.

Sources: IMF; and SBP

Market capitalization weighted.

Does not add depreciation and amortization, and subtracts dividend payments in the numerator, and takes the overall change in capital employed (equity plus liabilities) as denominator.

Table V.16.Pakistan: Corporate Dividend Policy, 1999–2004(In percent)
199920002001200220032004
Dividend-yield (CVU)
All emerging markets1.52.12.32.42.32.6
Emerging Asia1.01.71.71.82.02.5
Pakistan4.05.116.011.08.67.0
Dividend-payout ratio (CVU) 1/
All emerging markets41.331.032.233.933.831.7
Emerging Asia41.426.528.926.932.827.9
Pakistan70.443.072.588.474.966.5
Pakistan (SBP) 2/44.249.655.656.963.2
Textile56.028.933.635.037.6
Chemical and phramaceutical42.338.873.165.953.4
Engineering41.337.541.150.436.7
Sugar43.536.322.523.022.5
Paper and board36.735.044.654.540.0
Cement35.012.434.928.497.8
Fuel and energy15.130.450.165.075.4
Transport and communication53.974.661.463.071.1
Miscellaneous71.283.575.251.060.5
Source: IMF Global Financial Stability Report (April 2005).

Derived from multplying the average dividend yield by the average price-earnings ratio.

Average of companies; market capitalization weighted.

Source: IMF Global Financial Stability Report (April 2005).

Derived from multplying the average dividend yield by the average price-earnings ratio.

Average of companies; market capitalization weighted.

D. Conclusions

The main insights from this paper can be summarized as follows:

  • The corporate governance framework has improved significantly over the past five years. The main remaining challenges are fully enforcing the framework, strengthening the quality of financial information on corporations, and building human capacity in the corporate governance and accounting fields.

  • The concentration of corporate control within families remains a constraint to effective governance, efficiency, and the development of the equity market. But the solution to this problem largely lies with the families themselves. They must learn about the benefits to themselves, in addition to other shareholders, from practicing best corporate governance, openness, and transparency standards. But in the absence of such enlightenment, policy measures could be needed.

  • Many financial indicators point to reduced vulnerabilities in recent years, and comparisons to comparator regions and countries are favorable. In particular:

    • de-leveraging relative to the situation prevailing until 2000, although the process appears to have reversed since 2003, at least for the nonfinancial corporate sector;

    • significant reduction in the share of corporate sector debt denominated in foreign currencies;

    • relatively high and growing profitability, as measured by the rates of return on assets and equity;

    • an improvement in valuation indicators, although these remain significantly below those prevailing in comparator regions and countries. The apparent contradiction between high profitability and still relatively low valuation indicators suggests an unusually large discounting of future earnings due to higher perceived levels of risk and uncertainties; and

    • a low and even declining level of external exposure, in contrast to most comparator regions and countries.

  • A few financial indicators, however, suggest remaining vulnerabilities. In particular:

    • a re-leveraging of the nonfinancial corporate sector since 2003;

    • the share of short-term liabilities is high by international standards;

    • liquidity appears to be lower than in comparator regions and countries;

    • while some indicators (based on the Rajan-Zingales Index) show that the corporate sector in Pakistan relies more on internal finance for capital investment than elsewhere, the indicator based on retention in business suggests otherwise. This reflects the payment of large dividends in Pakistan. Indications are that, as capital employed has expanded in recent years, the practice of large dividend payments has continued, resulting in lower internal finance ratios. This might reflect the low level of interest rates.

  • The cross-sectoral analysis adds further insights on corporate vulnerability. Perhaps most striking is the relatively higher vulnerability of the textile sector, based on relatively low liquidity and profitability, and heavy dependence on external rather than internal finance (the cement and sugar sectors share similar characteristics). This outcome may be related to the ownership structure of the sector, in addition to the fierce international competition that characterizes the sector. The large exposure of the banking system to the textile sector suggests that any adverse shock to the sector could have a significant impact on the banks as well.

107. Going forward, key challenges remain for the policy makers. These include: (a) further strengthening the effective enforcement of the corporate governance framework to encourage public listing and acceptance of the role of institutional and minority shareholders. This is critical for the development of financial markets; (b) monitoring and managing any deterioration in corporate debt indicators associated with a credit-driven acceleration in economic growth. Greater reliance on fresh equity capital and long-term financing (through TFCs in particular) would reduce vulnerability and should be encouraged; and (c) addressing risks and uncertainties that result in low valuation and discourage investment. While explanatory factors may be political and security risks, measures to address remaining deterrents to doing business could produce high returns.

STATISTICAL APPENDIX
Table 1.Pakistan: Sectoral Origin of Gross Domestic Product at Constant Prices, 1999/2000–2004/05
1999/20002000/012001/022002/032003/042004/05
(In millions of Pakistani rupees at constant 1999/2000 prices)
Agriculture923,609903,499904,433941,942962,5271,034,292
Crops467,879430,147418,128440,951450,046510,582
Major crops342,200308,474300,911321,505327,463384,216
Minor crops125,679121,673117,217119,446122,583126,366
Livestock417,120433,066448,968460,495473,202484,034
Fishing15,16314,71512,90113,34613,61113,898
Forestry23,44725,57124,43627,15025,66825,778
Industry798,190827,229849,139889,031995,4531,097,198
Mining and quarrying48,37747,56151,03159,26661,50964,609
Manufacturing522,801571,357596,841638,044727,733818,448
Large scale338,602375,687388,859416,955492,937568,987
Small scale132,369142,310152,997164,487176,589190,090
Slaughtering51,83053,36054,98556,60258,20759,371
Construction87,38687,84689,24192,78986,40291,783
Utilities139,626120,465112,02698,932119,809122,358
Services1,807,5461,863,3961,952,1462,053,9792,176,5642,348,360
Transport, storage, and communication400,983422,195427,296445,552470,015496,171
Commerce621,842649,564667,615707,665764,688856,531
Finance and insurance132,454112,455131,761130,081135,972165,553
Ownership of dwellings110,425114,593118,604122,466126,764131,214
Public administration and defense220,291225,152240,585259,148269,959267,750
Other services321,551339,437366,285389,067409,166431,141
GDP at factor costs3,529,3453,594,1243,705,7183,884,9524,134,5444,479,850
Indirect taxes295,815301,920312,886355,323372,029383,827
Subsidies31,72432,05030,22754,45153,48863,954
GDP at market prices3,793,4363,863,9943,988,3774,185,8244,453,0854,799,723
Per capita GDP at factor cost25,66225,60625,88326,47327,62829,370
Per capita GDP at market prices27,58327,52927,85828,52429,75731,467
(Annual changes in percent)
Memorandum items:
Agriculture-2.20.14.12.27.5
Crops-8.1-2.85.52.113.5
Livestock3.83.72.62.82.3
Industry3.62.64.712.010.2
Mining and quarrying-1.77.316.13.85.0
Manufacturing9.34.56.914.112.5
Large scale11.03.57.218.215.4
Construction0.51.64.0-6.96.2
Utilities-13.7-7.0-11.721.12.1
Services3.14.85.26.07.9
Transport, storage, and communication5.31.24.35.55.6
Commerce4.52.86.08.112.0
Finance and insurance-15.117.2-1.34.521.8
Ownership of dwellings3.83.53.33.53.5
Public administration and defense2.26.97.74.2-0.8
Other services5.67.96.25.25.4
GDP at factor costs1.83.14.86.48.4
Indirect taxes2.13.613.64.73.2
Subsidies1.0-5.780.1-1.819.6
GDP at market prices1.93.25.06.47.8
Source: Pakistani authorities.
Source: Pakistani authorities.
Table 2.Pakistan: Sectoral Origin of Gross Domestic Product at Current Prices, 1999/2000–2004/05
1999/20002000/012001/022002/032003/042004/05
(In millions of Pakistani rupees at current prices)
Agriculture923,609945,301968,2911,059,3161,149,1291,322,641
Crops467,879456,258449,993500,567559,313641,495
Major crops342,200325,579316,857370,117427,837496,105
Minor crops125,679130,679133,136130,450131,476145,390
Livestock417,120446,058476,310512,976542,242628,305
Fishing15,16316,54616,37716,62516,72817,490
Forestry23,44726,43925,61129,14830,84635,351
Industry798,190895,044938,3941,031,1081,282,0541,540,444
Mining and quarrying48,37759,15165,99784,238107,990121,836
Manufacturing522,801608,132642,850725,434902,8701,118,391
Large scale338,602410,879424,089481,374622,283790,152
Small scale132,369143,463161,734179,266195,782229,865
Slaughtering51,83053,79057,02764,79484,80598,374
Construction87,38694,67095,197100,880120,487143,916
Utilities139,626133,091134,350120,556150,707156,301
Services1,807,5462,035,6802,188,5272,390,9882,711,4273,266,591
Transport, storage, and communication400,983512,997542,828609,929699,782902,247
Commerce621,842691,854720,812785,776922,6671,107,296
Finance and Insurance132,454116,997142,424144,989158,476210,683
Ownership of dwellings110,425124,359126,454135,139146,293165,456
Public administration and defense220,291235,039260,042285,854312,105337,560
Other services321,551354,434395,967429,301472,104543,349
GDP at factor costs3,529,3453,876,0254,095,2124,481,4125,142,6106,129,676
Indirect taxes295,815320,669339,262403,221455,549501,470
Subsidies31,72434,04032,77561,79165,49683,556
GDP at market prices3,793,4364,162,6544,401,6994,822,8425,532,6636,547,590
(In percent of GDP at factor cost)
Memorandum items:
Agriculture26.224.423.623.622.321.6
Crops13.311.811.011.210.910.5
Livestock11.811.511.611.410.510.3
Industry22.623.122.923.024.925.1
Mining and quarrying1.41.51.61.92.12.0
Manufacturing14.815.715.716.217.618.2
Large scale9.610.610.410.712.112.9
Construction2.52.42.32.32.32.3
Utilities4.03.43.32.72.92.5
Services51.252.553.453.452.753.3
Transport, storage, and communication11.413.213.313.613.614.7
Commerce17.617.817.617.517.918.1
Finance and insurance3.83.03.53.23.13.4
Ownership of dwellings3.13.23.13.02.82.7
Public administration and defense6.26.16.36.46.15.5
Other services9.19.19.79.69.28.9
Total100.0100.0100.0100.0100.0100.0
Source: Pakistani authorities.
Source: Pakistani authorities.
Table 3.Pakistan: Gross Domestic Product—Expenditure Side, 1999/2000–2004/05
1999/20002000/012001/022002/032003/042004/05
(In millions of Pakistani rupees at constant 1999/2000 prices)
Private consumption2,791,3462,856,5562,900,9872,915,4363,153,9033,684,438
Government consumption390,691312,070358,968384,825392,957401,864
Gross fixed capital formation607,410634,423632,134658,070628,796638,537
Change in inventories51,70058,13853,49171,05177,00679,065
Domestic demand3,841,1473,861,1873,945,5804,029,3824,252,6624,803,904
Export of goods and nonfactor services514,280576,936634,399814,425801,982862,717
Imports of goods and nonfactor services561,990574,130591,602657,983601,559866,898
Gross domestic product at market prices3,793,4373,863,9933,988,3774,185,8244,453,0854,799,723
Percentage change1.93.25.06.47.8
Less indirect taxes295,815301,920312,886355,323372,029383,827
Plus subsidies31,72432,05030,22754,45153,48863,954
Gross domestic product at factor cost3,529,3463,594,1233,705,7183,884,9524,134,5444,479,850
Percentage change1.83.14.86.48.4
Net factor income from abroad-47,957-47,28422,594127,05090,72186,135
Gross national product (market prices)3,745,4803,816,7094,010,9714,312,8744,543,8064,885,858
Percentage change1.95.17.55.47.5
(In millions of Pakistani rupees at current prices)
Private consumption2,851,3463,163,8743,278,9053,548,1574,052,9015,235,382
Government consumption330,691327,562388,446428,689462,462512,926
Gross fixed capital formation607,410659,325680,373736,433864,701999,306
Change in inventories51,70056,20058,00080,62994,294103,299
Domestic demand3,841,1474,206,9614,405,7244,793,9085,474,3586,850,913
Export of goods and nonfactor services514,280617,148677,855815,158883,7041,001,011
Imports of goods and nonfactor services561,990661,455681,880786,224825,3991,304,334
Gross domestic product at market prices3,793,4374,162,6544,401,6994,822,8425,532,6636,547,590
Less indirect taxes295,815320,669339,262403,221455,549501,470
Plus subsidies31,72434,04032,77561,79165,49683,556
Gross domestic product at factor cost3,529,3463,876,0254,095,2124,481,4125,142,6106,129,676
Net factor income from abroad-47,957-54,48223,665151,812124,478125,224
Gross national product (market prices)3,745,4804,108,1724,425,3644,974,6545,657,1416,672,814
Source: Pakistani authorities.
Source: Pakistani authorities.
Table 4.Pakistan: Consumer and Wholesale Price Indices, 1997/98–2004/05(2000/01=100)
Index (12-Month Average)Annual Average Percent ChangeTwelve-Month Percent Change 1/
CPIWPICPIWPICPIWPI
(Fiscal year data)
1997/9888.387.77.86.66.55.3
1998/9993.493.35.76.33.74.6
1999/200096.795.03.61.85.13.4
2000/01101.0100.94.46.22.54.6
2001/02103.5102.12.51.23.41.9
2002/03106.7107.83.15.61.94.1
2003/04111.6116.34.67.98.512.8
2004/05122.0124.19.36.88.76.2
(Monthly data)
Jul-02103.9102.22.60.84.01.4
Aug-02104.2102.42.70.63.72.7
Sep-02104.5102.72.80.53.73.4
Oct-02104.8103.22.90.83.55.0
Nov-02105.1103.63.01.33.15.2
Dec-02105.4104.13.22.03.36.3
Jan-03105.7104.73.32.73.47.0
Feb-03106.0105.53.43.63.59.8
Mar-03106.2106.33.34.42.39.1
Apr-03106.4106.93.25.12.27.2
May-03106.6107.43.25.42.66.0
Jun-03106.7107.83.15.61.94.1
Jul-03106.9108.12.95.81.44.2
Aug-03107.0108.52.75.91.83.8
Sep-03107.2108.82.65.92.23.7
Oct-03107.5109.32.66.03.56.1
Nov-03107.9110.12.76.34.28.2
Dec-03108.4110.92.96.55.49.6
Jan-04108.8111.83.06.85.29.5
Feb-04109.2112.43.16.54.36.9
Mar-04109.7113.23.36.55.38.2
Apr-04110.2114.13.76.76.010.3
May-04110.9115.14.07.27.111.5
Jun-04111.6116.34.67.98.512.8
Jul-04112.5117.25.28.49.310.2
Aug-04113.3118.05.98.79.27.9
Sep-04114.1118.76.49.19.08.0
Oct-04114.9119.36.99.18.76.6
Nov-04115.8119.97.38.99.35.9
Dec-04116.5120.37.48.57.44.2
Jan-05117.3120.87.78.18.55.6
Feb-05118.2121.58.28.19.96.7
Mar-05119.1122.18.67.910.26.3
Apr-05120.2122.99.07.711.17.7
May-05121.1123.59.27.39.86.0
Jun-05122.0124.19.36.88.76.2
Jul-05122.9125.19.26.79.09.4
Aug-05123.7126.39.27.08.411.7
Sources: Federal Bureau of Statistics; and Fund staff calculations.

For fiscal year data, refers to the change in indices at the end of the year.

Sources: Federal Bureau of Statistics; and Fund staff calculations.

For fiscal year data, refers to the change in indices at the end of the year.

Table 5.Pakistan: Domestic Retail Prices of Selected Petroleum Products, 1997/98–2004/05
1997/981998/991999/20002000/012001/022002/032003/042004/05
(In Pakistan rupees per litre unless otherwise indicated) 1/
Regular petrol 2/17.6022.2425.9825.7531.4833.0133.7841.19
High-octane petrol20.4725.8930.5833.5735.7937.1437.8045.67
Kerosene9.449.5610.9114.3215.7419.6021.7626.08
High speed diesel9.669.7811.4915.5816.5121.0522.6127.02
Light diesel7.797.879.2813.5714.3017.2718.6623.61
Fuel oil (Pakistani rupees per metric ton.) 3/6,2515,5677,17011,17610,59412,71411,515n.a.
Sources: Ministry of Petroleum and Natural Resources; and Federal Bureau of Statistics.

Annual averages.

MS 87-RON.

Fuel oil prices were deregulated with effect from July 1, 2000.

Sources: Ministry of Petroleum and Natural Resources; and Federal Bureau of Statistics.

Annual averages.

MS 87-RON.

Fuel oil prices were deregulated with effect from July 1, 2000.

Table 6.Pakistan: Natural Gas Prices, 1997–2004 1/
Jan-97Aug-98Jan-00Mar-01Mar-02Jul-02Aug-02Oct-02Jan-03Jul-04Dec-04
(In Pakistan rupees per thousand cubic feet)
Fertilizer industry34.0134.0135.8035.8036.7736.7736.7736.7736.7736.7736.77
Other industries102.46120.00145.26166.18166.18166.18166.18166.88172.26182.09182.09
Household
Up to 3.55 mef/month49.0955.2366.8566.8566.8666.8666.8667.9569.3173.9573.95
From 3.55 to 7.1 mef/month50.7565.5879.5193.39100.73100.73100.73102.37104.42111.42111.42
From 7.1 to 10.64 mef/month69.3089.66108.54138.93161.16161.16161.16163.78167.06178.25178.25
From 10.64 to 14.20 mcf/month83.16107.58130.23168.09201.45201.45201.45213.06217.32231.88231.88
Above 14.20 mef/month181.54217.85217.85217.85213.06217.32231.88231.88
Commercial115.28135.02155.27163.44186.98186.98186.98190.02193.82204.88204.88
Memorandum item:
Weighted price index 2/86.3101.2121.3140.6145.0145.0145.0146.0150.1158.7n.a.
Sources: Ministry of Petroleum and Natural Resources; and Fund staff estimates.

Columns indicate date of price adjustments.

The weights used, based on the 1984/85 consumption pattern, are as follows: fertilizer industry, 0.148; other industries, 0.644; household use, 0.165 (with equal shares for all classes of users); and commercial, 0.043.

Sources: Ministry of Petroleum and Natural Resources; and Fund staff estimates.

Columns indicate date of price adjustments.

The weights used, based on the 1984/85 consumption pattern, are as follows: fertilizer industry, 0.148; other industries, 0.644; household use, 0.165 (with equal shares for all classes of users); and commercial, 0.043.

Table 7.Pakistan: Federal Government Fiscal Operations, 1997/98–2004/05
1997/981998/991999/20002000/012001/022002/032003/042004/05
(In millions of Pakistan rupees)
Total revenue (incl. grants)310,978368,432396,133420,799525,115622,988600,021629,939
Tax revenue (net)220,975257,721243,604259,414287,786336,285382,736359,839
Transfers to provincial tax pool114,078115,573143,231163,131171,466195,950200,633257,356
Tax revenue (gross)335,053373,294386,835422,545459,252532,235583,369617,195
Income and profit taxes91,49994,649108,011124,566142,589151,976164,497176,930
Wealth and capital taxes7,7238,8124,59700000
Federal excise duty58,79560,57255,63049,01846,92044,00245,82358,670
Sales tax49,04668,680116,697153,474166,316195,138220,607235,533
Customs duties81,64478,65461,63865,01348,07268,83590,940117,243
Surcharges46,34661,92738,91230,29054,25868,23061,38126,769
Gas (net)9,8009,85513,50912,34817,69421,35816,77016,165
Petroleum36,54652,07225,40317,94236,56446,87244,61110,604
Foreign travel tax001,3501841,0974,0541212,050
Nontax revenue90,00397,008119,086120,843154,182167,748186,757250,743
Interest receipts (provinces)26,01025,46928,27029,36829,52827,99626,12624,557
Interest receipts (other)16,55616,20525,07021,88523,82124,98839,30833,761
Dividend7,7669,55314,14516,33426,60726,56736,14456,791
SBP profit18,0008,00030,00020,00026,0006,000010,000
Sales proceeds and royalty12,64414,10419,535
Postoffice profit/PTA17,739
Other civil administration7,7676,2263,1863,38722,18654,68350,23257,095
Other federal miscellaneous13,70631,22118,41529,87026,04014,87020,84331,265
Capital revenue198334000000
Grants 1/013,70333,44340,54283,147118,95530,52819,357
Expenditure and net lending501,321520,006569,182554,201694,889696,745705,091872,502
Current expenditures411,980444,603501,281495,826561,037632,961587,867719,402
Interest payments 2/196,251213,259245,078234,470245,263207,069196,261210,196
Domestic167,513175,273198,417183,450184,632166,873154,817170,466
Foreign28,73837,98646,66151,02060,63140,19641,44439,730
Defense 3/136,164143,471150,390130,819149,029159,925180,361211,717
General administration47,53946,90747,52575,42483,482108,029108,028114,114
Grants16,17516,32433,61735,62259,36149,99464,841125,318
Of which: to provinces10,88112,08421,00217,52016,51826,52130,56930,627
Other5,2944,24012,61518,10242,84323,47334,27294,691
Subsidies6,2679,53314,74819,85023,74251,46340,46257,800
Railway account2,3685,4212,657666-2,295-1,744-2,476-260
Food account-2,5654,532-208-1,1852,213341437
Fertilizer and other accounts1,174-1,171-44-163-56-12-26110
Other8,6076,3277,51832329857,896608500
Development expenditure and net lending89,34175,40367,90158,375133,85263,784117,224153,100
Public Sector Development Program 4/81,00085,41959,33666,90898,37790,835102,316135254
Net lending8,341-10,0168,565-8,53335,475-27,05114,90817,846
Of which: to provinces8,06311,29621,4579,1073,70514,416-5,513-6,917
Other278-21,312-12,892-17,64031,770-41,46720,42124,763
Statistical discrepancy13,81918,9414,60630,47613,9477,2548,521-24,143
Overall balance-204,162-170,515-177,655-163,878-183,721-81,011-113,591-218,420
Financing204,162170,515177,655163,878183,72181,011113,591218,420
External38,839133,29936,32880,21251,678-23,874-37,053113,075
Of which: privatization reciepts000007,576012,000
Domestic165,32337,216141,32783,666132,043104,885150,644105,345
Bank47,194-67,05244,713-8,34938,724-40,48078,38880,961
Nonbank118,129104,26896,61492,01584,967141,60961,0448,057
Privatization proceeds00008,3523,75611,21216,327
(In percent of GDP, unless otherwise indicated)
Memorandum items:
Revenue9.610.410.410.111.912.910.89.6
Expenditure15.514.715.013.315.814.412.713.3
Balance-6.3-4.8-4.7-3.9-4.2-1.7-2.1-3.3
GDP (in millions of Pakistani rupees)3,227,5113,541,7733,793,4364,162,6544,401,6994,822,8425,532,6636,547,590
Source: Ministry of Finance and Economic Affairs.

Fiscal year 2003/03 includes $1 billion (PRs 58 billion) U.S. special grants for debt retirement and also increase in project/other grants.

Accrued payments. Excludes interest expenditure by the military which is included in the defense allocation.

Includes interest and principal payments on military debt; excludes military imports financed by external grants and disbursements.

Includes certain current outlays under the public sector development program.

Source: Ministry of Finance and Economic Affairs.

Fiscal year 2003/03 includes $1 billion (PRs 58 billion) U.S. special grants for debt retirement and also increase in project/other grants.

Accrued payments. Excludes interest expenditure by the military which is included in the defense allocation.

Includes interest and principal payments on military debt; excludes military imports financed by external grants and disbursements.

Includes certain current outlays under the public sector development program.

Table 8.Pakistan: Provincial Government Fiscal Operations, 1997/98–2004/05
1997/981998/991999/20002000/012001/022002/032003/042004/05
(In millions of Pakistan rupees)
Total revenue156,983169,021220,608228,577231,764284,206275,812339,870
Provincial share in fed. revenue114,078115,573143,231163,131171,466195,950200,633257,355
Provincial taxes13,90815,49418,77418,98118,79321,94028,08736,252
Property taxes4,1944,1613,8765,9123,4465,9736,6919,543
Excise duties9111,2641,3341,2951,3661,4141,7152,136
Stamp duties4,8145,2676,3985,0985,7296,95810,32910,571
Motor vehicles tax2,1132,3622,8033,1003,2033,6344,7225,745
Other1,8762,4404,3633,5765,0493,9614,6308,257
Provincial nontax10,05314,57416,14419,83821,28225,37922,03722,553
Interest1,5342438131,4801,2511,3521,218541
Profits from hydro electricity5,4426,0006,0005,2446,0004,9195,5816,000
Irrigation00000002,653
Other3,0778,3319,33113,11414,03119,10815,23813,359
Federal loans and transfers18,94423,38042,45926,62720,22340,93725,05523,710
Loans (net)8,06311,29621,4579,1073,70514,416-5,514-6,917
Grants10,88112,08421,00217,52016,51826,52130,56930,627
Total expenditure173,008171,437213,028218,962233,006261,580302,759371,803
Current expenditure148,798147,862176,775196,066205,133222,420244,529279,024
Interest to federal government26,01025,46928,27029,36929,52827,99626,12624,557
Errors and omissions
Other122,788122,393148,505166,697175,605194,424218,403254,467
Development expenditure24,21023,57536,25322,89627,87339,16058,23092,779
Statistical discrepancy-15,191-10,3502,830-15,133-27,0127,238-41,636-52,705
Overall balance-8347,9344,75024,74825,77015,38814,68920,772
Financing834-7,934-4,750-24,748-25,770-15,388-14,689-20,772
External00000000
Domestic834-7,934-4,750-24,748-25,770-15,388-14,689-20,772
Bank834-7,934-4,750-24,748-25,770-15,388-14,689-20,772
Nonbank0000000
(In percent of GDP unless otherwise indicated)
Memorandum items:
Total revenue4.94.85.85.55.35.95.05.2
Total expenditure5.44.85.65.35.35.45.55.7
Overall balance0.00.20.10.60.60.30.30.3
GDP (in millions of Pakistani rupees)3,227,5113,541,7733,793,4364,162,6544,401,6994,822,8425,532,6636,547,590
Sources: Ministry of Finance and Economic Affairs; and Fund staff calculations.
Sources: Ministry of Finance and Economic Affairs; and Fund staff calculations.
Table 9.Pakistan: Government Debt, 1997/98–2004/05(In billions of Pakistani rupees, unless otherwise indicated)
1997/981998/991999/20002000/012001/022002/032003/042004/05 1/
Total debt2,479.22,894.63,175.43,695.43,528.23,583.63,754.74,000.0
Domestic debt1,202.81,453.21,644.81,799.21,777.31,896.42,012.02,154.9
Short-term debt (treasury bills)473.8561.6647.4737.8557.7516.3542.9778.2
Medium- and long-term debt290.0317.5325.6349.1427.5470.6570.1526.7
Government securities277.5253.8256.9278.2368.0427.9536.8500.9
Market loans17.512.912.24.05.64.73.03.0
Government bonds10.310.313.69.99.69.69.69.5
State Life Insurance bonds10.311.013.913.714.39.56.23.6
Bearer National Funds Pakistan21.70.00.00.00.00.00.00.0
Federal investment bonds (FIB)146.6138.4136.0113.081.545.533.514.6
Pakistan investment bonds (PIB)0.00.00.046.1153.9228.7331.6307.6
Prize bonds71.181.281.291.5103.1130.0152.8162.6
Foreign currency instruments12.563.768.770.959.542.733.325.8
National saving schemes and others439.0574.1671.8712.3792.1909.5898.9850.0
Defense saving certificates168.8207.2248.4265.0287.0309.0312.2303.5
National deposit certificates0.10.10.10.00.00.00.00.0
Khas deposit certificates0.80.80.70.70.60.60.30.6
Special saving certificates148.1178.1202.4215.7256.2346.2335.9251.1
Regular income schemes85.0144.1170.2178.9189.9175.0125.985.4
Mahana Amdani account1.91.91.92.02.12.22.32.4
Saving accounts8.010.310.18.07.79.38.68.1
Pensioners’ benefit account10.223.441.1
Bahbood Savings Certificates22.783.3
Postal life insurance12.415.019.123.529.937.346.054.1
GP fund13.916.618.918.518.719.721.620.3
External debt1,276.41,441.41,530.61,896.21,750.91,687.31,742.71,845.1
Memorandum items:
Total public debt (in percent of GDP)76.881.783.788.880.274.367.961.1
Domestic debt37.341.043.443.240.439.336.432.9
External debt39.540.740.345.639.835.031.528.2
Nominal GDP3,2283,5423,7934,1634,4024,8235,5336,548
Sources: Pakistani authorities; and Fund staff calculations.

Provisional

Sources: Pakistani authorities; and Fund staff calculations.

Provisional

Table 10.Pakistan: External Debt 1997/98–2004/05
1997/981998/991999/20002000/012001/022002/032003/042004/05
(In million of U.S. dollars)
Total external debt36,07239,69637,75937,18336,54135,57235,32135,882
Total public and publicly guaranteed external debt excluding external SBP liabilities27,90431,79431,04031,37932,36132,23732,36433,260
Medium and long-term25,98729,75029,86830,25931,09631,57031,96332,657
Project and nonproject aid22,84425,42325,30125,60627,27628,06928,62729177
Commercial Banks and IDB1,1007301,1001,103314231198182
Euro bonds6286086206456434828241266
Special dollar bonds01,1641,2971,376924696552421
Fund credits1,4151,8251,5501,5291,9392,0921,7621611
Military debt1,0061,004653554819263204188
Foreign currency bonds (NHA/NC)285263241219197175153131
Public sector short-term62677727834724922944284
Commercial banks and IDB29858213025718318722271
FEBCs, DBCs, and FCBCs3281951489066422213
Deposit liabilities of the banking system3,4253,5783,3502,9581,8611,3011,2861,280
State Bank of Pakistan (excluding IMF)8861,4731,7371,6701,030745745745
Of which: depoits of foreign banks450700700700700700700700
Deposit money banks2,5392,1051,6131,288831556541535
Liabilities to foreign banks1,2721,4531,2841,071713500500500
Other liabilities1,267652329217118564135
Deposit liabilities of nonbank financial institutions1,61688952739693610
Private debt3,1273,4352,8422,4502,2262,0281,6701,342
(In percent of GDP)
Total public debt47.956.251.452.050.943.136.732.5
Medium and long-term public and publically guaranteed34.542.140.742.343.338.233.229.6
Military debt1.31.40.90.81.10.30.20.2
Foreign currency bonds (NHA/NC)0.40.40.30.30.30.20.20.1
Public sector short-term0.81.10.40.50.30.30.00.3
Deposit liabilities of the banking system4.55.14.64.12.61.61.31.2
State Bank of Pakistan (excluding IMF)1.22.12.42.31.40.90.80.7
Deposit money banks3.43.02.21.81.20.70.60.5
Deposit liabilities of the nonbank financial institutions2.11.30.70.60.10.00.00.0
Private debt4.24.93.93.43.12.51.71.2
Memorandum items:
GDP in millions of U.S. dollars75,31870,64073,44871,45771,85482,59296,217110,405
Sources: Pakistani authorities; and Fund staff calculations
Sources: Pakistani authorities; and Fund staff calculations
Table 11.Pakistan: Direction of Trade, 1997/98–Jul.-Sep. 2004(In Percent)
1997/981998/991999/20002000/012001/022002/032003/04Jul.-Sep. 04
Exports100.0100.0100.0100.0100.0100.0100.0100.0
European Union1/29.228.727.325.327.728.130.230.0
United Kingdom6.96.66.86.37.27.17.67.2
Others22.422.020.619.020.521.022.522.8
United States of America20.521.824.824.424.723.423.927.1
Japan4.23.53.12.11.81.31.11.5
Hong Kong7.17.16.15.54.84.64.74.0
Singapore0.50.50.60.50.50.81.00.2
China1.91.92.13.32.52.22.32.0
CIS Countries 2/1.40.50.30.40.30.30.40.5
Oil Producing Trading Partners 3/4.84.63.85.25.46.14.54.4
Others30.431.431.933.332.233.131.830.3
Imports100.0100.0100.0100.0100.0100.0100.0100.0
European Union17.317.415.114.116.317.615.313.1
United Kingdom4.14.43.53.33.52.92.82.4
Others13.213.011.710.812.814.712.510.8
United States of America11.27.76.35.36.76.08.58.2
Japan7.88.36.35.45.06.66.06.8
Hong Kong0.40.60.50.60.71.30.90.4
Singapore2.13.52.53.03.13.53.21.6
China5.14.24.64.95.66.97.410.2
CIS Countries0.51.31.20.60.80.71.32.0
Oil Producing Trading Partners15.815.823.925.322.621.821.921.5
Others39.741.239.640.739.335.635.536.2
Source: Federal Bureau of Statistics

Estonia, Lativia, Lithuania are now included in European Union, previously they were know as Baltic States.

CIS countries includes Russia, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

Oil Producing Trading Partners includes indonesia, Iran, Kuwait, and Saudia Arabia.

Source: Federal Bureau of Statistics

Estonia, Lativia, Lithuania are now included in European Union, previously they were know as Baltic States.

CIS countries includes Russia, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

Oil Producing Trading Partners includes indonesia, Iran, Kuwait, and Saudia Arabia.

Table 12.Pakistan: Monetary Developments, 2000/01–2004/05(At current exchange rates)
2000/012001/022002/032003/042004/05
(In billions of Pakistani rupees)
Banking system
Net foreign assets26231540583637
Net domestic assets1,5001,5311,5391,9032,329
Net claims on government564639561619711
Of which: budget support500567511575643
Credit to nongovernment9029221,0691,3641,773
Private sector8028411,0001,2981,720
Public sector enterprises10081696653
Privatization account-3-3-3-3-3
Other items, net36-27-88-77-153
Broad money1,5261,7612,0792,4872,966
Currency375434495578666
Rupee deposits9961,1701,4581,7632,119
Foreign currency deposits154157126146180
State Bank of Pakistan
Net foreign assets-19133462512504
Net domestic assets552451208261405
Net claims on government3302742991249
Of which: budget support36130353113268
Claims on nongovernment4023111-7
Clains on scheduled banks198196181196210
Privatization account-3-3-3-3-3
Other items, net-13-38-10-25-44
Reserve money533585669773909
Of which: banks’ reserves127111141156196
Of which: currency395460525615709
(12-month change in percent)
Broad money9.015.418.019.619.3
Private credit6.54.918.929.832.6
Currency5.615.514.016.915.2
Reserve money34.09.614.515.417.6
(In units as indicated)
Memorandum items:
Overall NDA to SBP NDA ratio2.73.47.47.35.7
Money multiplier2.93.03.13.23.3
Currency to broad money ratio (percent)24.624.623.823.222.5
Currency to deposit ratio (percent)32.632.731.230.329.0
Reserves to deposit ratio (percent)11.18.38.98.28.5
Budget bank financing (billions of Pakistani rupees)-32.367.3-56.063.768.0
Excess reserves in percent of broad money0.80.60.90.81.3
Sources: Pakistani authorities; and Fund staff calculations.
Sources: Pakistani authorities; and Fund staff calculations.
Table 13.Pakistan: Major Interest Rates, 1996/97–2004/05
Treasury Bill

Rate 1/
SBP Discount

Rate 2/
Call Money

Rate 3/
Lending

Rate 4/
Lending

Rate 5/
Deposit

Rate 6/
(Annual averages in percent)
1996/9715.619.213.017.114.39.6
1997/9815.118.112.216.515.29.8
1998/9912.515.67.815.415.19.3
1999/20008.812.08.514.014.07.5
2000/0110.412.79.013.813.66.6
2001/028.110.16.713.113.55.6
2002/034.18.04.29.812.84.6
2003/041.47.51.95.28.41.8
2004/054.77.94.36.17.31.4
(Monthly averages in percent)
2001/02
July11.613.06.914.413.66.6
August10.512.08.314.113.66.6
September10.512.09.213.813.66.6
October10.310.010.414.213.66.6
November8.310.09.414.113.66.6
December7.910.06.113.413.55.6
January6.49.03.613.113.55.6
February6.49.05.512.013.55.6
March6.49.04.811.913.55.6
April6.59.05.712.213.55.6
May6.49.06.312.213.55.6
June6.39.04.812.013.55.6
2002/03
July6.49.05.612.113.55.6
August6.49.05.311.513.55.6
September6.49.07.311.913.55.6
October6.39.08.011.513.55.6
November4.87.54.910.713.55.6
December4.37.54.610.312.94.2
January3.87.54.110.012.94.2
February3.27.52.49.412.94.2
March2.17.51.18.312.94.2
April1.67.52.77.812.94.2
May1.87.53.87.112.94.2
June1.77.50.97.69.42.1
2003/04
July1.27.50.75.19.42.1
August1.27.51.45.09.42.1
September1.67.51.05.29.42.1
October0.07.52.35.39.42.1
November1.77.52.75.59.42.1
December1.67.52.45.77.81.6
January1.67.51.75.07.81.6
February1.77.52.65.37.81.6
March1.77.51.04.77.81.6
April1.87.53.45.17.81.6
May2.17.51.75.47.81.6
June0.07.51.55.17.81.6
2004/05
July2.57.51.94.67.81.6
August2.67.53.05.17.81.6
September3.07.55.55.87.81.6
October3.27.53.46.07.81.6
November3.77.54.05.97.81.6
December3.87.52.85.97.01.3
January4.27.56.56.77.01.3
February4.87.52.76.27.01.3
March5.57.55.06.67.01.3
April7.19.04.06.87.01.3
May7.89.06.47.77.01.3
June8.09.06.97.01.3
2005/06
July8.09.08.59.17.01.3
August8.19.0
Source: State Bank of Pakistan.

Primary auction rate on six-month treasury bills.

SBP discount rate for its three-day repo facility.

Defined as the monthly average of daily minimum and maximum rates.

Weighted average lending rates for all commercial banks based on gross disbursement.

Weighted average lending rates for all commercial banks based on stock data.

Average rate of return on deposits under the profit and loss sharing system determined on a six-month basis.

Source: State Bank of Pakistan.

Primary auction rate on six-month treasury bills.

SBP discount rate for its three-day repo facility.

Defined as the monthly average of daily minimum and maximum rates.

Weighted average lending rates for all commercial banks based on gross disbursement.

Weighted average lending rates for all commercial banks based on stock data.

Average rate of return on deposits under the profit and loss sharing system determined on a six-month basis.

Table 14.Pakistan: Foreign Currency Deposits, 1997/98–2004/05(End-of-period stocks, in millions of U.S. dollars, unless otherwise specified)
1997/981998/991999/20002000/012001/022002/032003/042004/05
Total foreign currency deposits9,6795,4653,9213,7963,2912,5902,8783,436
Residents’ deposits6,0242,9092,1822.4192,6252,1862,5053,021
Of which:
Frozen accounts6,0242,3541,3031,069770232165119
New accounts5558791,3501,8551,9542,3402,902
Nonresidents’ deposits3,6552,5561,7391,377666404373415
Of which:
Frozen accounts3,6552,4941,6411,184423614235
With domestic banks2,0391,6051,114788331564135
Institutional deposits772953784570213000
Individual accounts1,267652330218118564135
With domestic nonbank financial institutions1,61688952739692511
New accounts6298193243343331380
Memorandum items:
Share of resident FCDs in M2 deposits (percent)29.615.110.913.411.88.07.67.6
Share of resident FCDs in M2 (percent)22.911.78.110.18.96.15.95.8
Sources: State Bank of Pakistan; and Fund staff calculations.
Sources: State Bank of Pakistan; and Fund staff calculations.
Table 15.Pakistan: Market Share of Banks, 1997/98–2004/05 1/(In percent)
1997/981998/991999/20002000/012001/022002/032003/042004/05
Deposit market share 2/
Nationalized commercial banks 3/18.618.519.018.219.017.718.415.8
National Bank of Pakistan18.318.318.817.818.617.318.015.4
First Women Bank0.30.20.20.40.40.40.40.4
Privatized banks 4/45.448.448.847.246.845.741.539.9
Muslim Commercial Bank11.911.711.612.312.012.310.89.8
Allied Bank Limited6.29.18.48.07.46.76.35.8
Habib Bank Limited 5/18.618.518.918.618.417.816.114.8
United Bank Limited 5/8.79.19.98.39.08.98.39.5
Specialized banks1.01.41.40.00.01.00.81.0
Domestic private banks12.614.314.717.320.324.329.133.6
Branches of foreign banks22.417.516.017.213.911.210.29.8
Loan market share 6/
Nationalized commercial banks16.916.717.217.518.815.215.914.7
National Bank of Pakistan16.816.617.117.418.715.015.714.5
First Women Bank0.10.10.10.10.10.20.20.2
Privatized banks 4/40.741.442.241.037.035.934.937.8
Muslim Commercial Bank9.98.48.78.87.77.57.68.8
Allied Bank Limited5.37.37.86.76.14.74.05.4
Habib Bank Limited 5/17.319.118.517.816.715.714.714.4
United Bank Limited 5/8.26.67.27.76.58.08.69.2
Specialized banks14.213.813.012.312.611.47.05.4
Domestic private banks11.113.313.615.318.725.732.433.8
Branches of foreign banks17.114.814.013.912.811.99.88.5
Source: State Bank of Pakistan.

Based on end-June data.

Deposits include banks’ liabilities to nongovernment sector and deposits of federal and provincial governments.

These do not include UBL and HBL from FY 2004.

Privatized Banks also include UBL and HBL from FY 2004.

Privatised as of 2003/04.

Includes lending to the private sector, public enterprises, and autonomous bodies.

Source: State Bank of Pakistan.

Based on end-June data.

Deposits include banks’ liabilities to nongovernment sector and deposits of federal and provincial governments.

These do not include UBL and HBL from FY 2004.

Privatized Banks also include UBL and HBL from FY 2004.

Privatised as of 2003/04.

Includes lending to the private sector, public enterprises, and autonomous bodies.

References

Prepared by Henri Lorie and Zafar Iqbal. They thank, in particular, the State Bank of Pakistan (SBP) staff for making available their database on the nonfinancial corporate sector and useful comments.

In terms of market capitalization, the shares are 53, 30, and 17 percent, respectively, reflecting the large market capitalization of a few state-owned companies.

The code defines, in particular, the respective roles and responsibilities of directors and managers (including of the Chief Economic Officer, Company Secretary, and Chief Financial Officer), the importance of internal control systems, and the reporting requirements.

See Lorie and Iqbal (2005), which drew on the World Bank’s “Doing Business” and “Investment Climate Surveys”.

Draft ROSC, Accounting and Auditing (2005), World Bank.

Lack of full data for some of the smaller companies has necessitated covering only 446 out of 504 listed companies for the analysis below.

This is the relevant number for assessing the contribution of the equity market towards raising funds for capital investment.

Note that the liquid liabilities of banks include all the deposits and liabilities rather than the short-term deposits and borrowings due to data constraints.

A similar interpretation, of course, is to say that the applicable discount rate is higher for Pakistan.

Empirically, Tobin’s q is estimated as the ratio of market value of equity plus debt/book value of assets. But since the book value of assets is also the sum of book value of equity plus liabilities, Tobin’s q should follow the behavior of the market-to-book ratio.

Except for the banking sector in most recent years.

As measured by the share of foreign sales in total sales of the nonfinancial sector. The CVU does not include data on the international exposure of Pakistan’s corporate sector, although it provides data for the comparator regions/countries. This discussion draws only on the SBP data source for the nonfinancial sector of Pakistan.

There can be several broad reasons for this: a relatively low investment demand can easily be met by the cashflow; a “constraint” on external sources of financing forces the firm to undertake only investment which can be internally financed; or the relatively higher cost of external finance encourages the firm to rely on internal sources of finance.

The Rajan-Zingales index measures the amount of capital expenditures (excluding amounts associated with acquisitions) not covered by the operating cashflow, in percent. The cashflow consists of income plus depreciation/amortization; plus the decrease in inventories; plus the decrease in receivables; plus the increase in payables. The lower the index (including in negative territory), the less is the dependence on external sources of financing. Note that this concept of cashflow includes the change in the nonfinancial components of net working capital as a source of funds.

The internal finance ratio is simply 1 minus the Rajan-Zingales Index/100.

Retention of business consists in net profits after tax (which treats depreciation as a cost) minus dividends paid. Capital employed consists of shareholder equity plus total liabilities. Change in capital employed thus coincides to the resources available for investment.

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