ECom Oct 10 1 Presentation)

8/8/2019 ECom Oct 10 1 Presentation)

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Economic Update

October 6, 2010

Haider Hussain(+92-21) 5361215-19 (Ext. 141)

[email protected]
mailto:[email protected]:[email protected]


2/10

2

Flood impact is visible in projections

Projections depicting tougher economic scenario compared to the government targets

Key Economic Projections

FY10

FY11

GoP TargetsSBP

ProjectionsPBIC

Research

GDP growth 4.1% 4.5% 2.0% - 3.0% 1.5% - 2.0%

Headline Inflation 11.7% 9.5% 13.5% - 14.5% 14.3%

Workers' Remittances (USD Billion) 8.9 9.0 9.5 - 10.5 11.0

Exports (USD Billion) 19.6 20.0 20.0 - 21.0 21.0

Imports (USD Billion) 31.0 31.7 34.0 - 35.0 35.5

Trade Deficit (USD Billion) -11.4 -11.7 -14.0 -14.5

Fiscal Deficit (% of GDP) 6.3% 4.0% 5.0% - 6.0% 5.5% - 6.0%

Current Account Deficit (% of GDP) 2.0% 3.4% 3.0% - 4.0% 3.9% - 4.3%

Source: SBP


3/10

3

Fiscal deficit showing alarming increase (Pace in FY10 higher than in FY09)

Seems unlikely to shrink due to flood (decline in revenue, increase in spending)

We expect deficit to cross PKR 1,100 billion in FY11

Source: SBP, PBIC Research

138

112

156

275

224

180

223

303

0

50

100

150

200

250

300

350

1Q-09 2Q-09 3Q-09 4Q-09 1Q-10 2Q-10 3Q-10 4Q-10

Quarterly Fiscal DefictPKR Billion

FY09Cumulative defic it PKR 680 billion

FY10Cumulative deficit PKR 929 billion


4/10

4

Government borrowing from SBP has been increasing, even before floods

So far, Government has borrowed PKR 216 billion from SBP between July-Sept 2010,compared to PKR 88 billionsame period last year

Going forward, Higher spending most likely be financed through SBP borrowing


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1-Jul-09

1-Sep-09

1-Nov-09

1-Jan-10

1-Mar-10

1-May-10

1-Jul-10

1-Sep-10

1-Nov-10

1-Jan-11

1-Mar-11

1-May-11

GoP borrowing from SBP (YoY Growth)

Deficit Monetization: Re-emerging Pressures

Likely trendgoing forward


5/10

5

Headline inflation hovering around 13% since Dec-09

Even a mild increase in headline inflation shows continuous increase in Moving Average.

Moving average would be 14% by June-10, significantly higher than last years average inflation(11.7%)


5%

7%

9%

11%

13%

15%

17%

19%

21%

23%

25%

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Headline Food Core

Inflation has become sticky in 2010

5%

10%

15%

20%

25%

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Headline 12month Moving Avg.

Pressure will persist ahead...

Forecast


6/10

6

LSM growth has been slowing down

Trade-off in making!

Higher interest rates higher cost of production lower manufacturing growth.


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

Ma

-10

Jul-10

Growth in Large Scale Manufacturing (YoY)

Manufacturing Growth: End of Optimism?


7/107


9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

Jan-08

Mar-08

May-08

Jul-08

Se

-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Se

-09

Nov-09

Jan-10

Mar-10

Ma

-10

Jul-10

Se

-10

Discount Rate 6M T-BillDR and response of Secondary Market Rates

40-60 bps gap between DRand 6m T-Bill Rate


8/108


We are expecting 50 to 100 bps further upside in Discount Rate

13.15%

13.66% 13.65% 13.66% 13.65%

14.16%

13.09%

13.60% 13.59% 13.60% 13.59%

14.10%

13.00%

13.20%

13.40%

13.60%

13.80%

14.00%

14.20%

Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11

Likely Course of Interest Rates ahead (6M T-Bill)Monte Carlo Simulations

DR @13.50%

DR @ 14.00%

DR @ 14.50%


9/109

Inverse relationship between interest rates and stock market

Index level is hard to predict, but broadly follow the same link going forward


5,000

7,000

9,000

11,000

13,000

15,000

17,000

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

DR (LHS) KSE-100 (RHS)

Interest Rates and Stock Market - I

0E+00

2E-05

4E-05

6E-05

8E-05

1E-04

1E-041E-04

2E-04

2E-04

2E-04

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

DR (LHS) Inverse of KSE-100 (RHS)

Interest Rates and Stock Market - II


10/1010

Additional Loan losses are expected to be higher than the existing ones

Estimated Loan Losses: Sector-wise Estimated Loan Losses: Group-wise

Outstandi

ng

Existing

NPLs

Additional

Loan

Losses

Total

NPLs

Outstan

ding

Existing

NPLs

Additiona

l Loan

Losses

Total

NPLs

Agriculture 89.8 15.3 28.3 43.7 Public 44.1 5.6 6.3 11.9

SME 37.1 9.7 5.8 15.5 Specialized 61.5 11.9 20.2 32.1

Housing 7.0 2.8 0.6 3.4 Domestic 99.8 12.4 13.9 26.3Others 115.1 9.2 7.6 16.7 Foreign 26.6 4.8 0.0 4.8

Total 249.0 37.0 42.3 79.3 Islamic 1.3 0.0 0.1 0.1

DFI 7.2 2.0 - 2.0

Micro Fin. 5.5 0.3 1.8 2.0

Estimated Loan Losses: Province-wise Total 246.0 37.0 42.3 79.3

Outstandi

ng

Existing

NPLs

Additional

Loan

Losses

Total

NPLs

Punjab 159.2 24.7 24.9 49.6

Sind 46.9 7.3 7.8 15.1

KP 21.7 3.1 6.8 9.9

Balochistan 3.0 0.4 2.3 2.7

GB 2.0 1.3 0.4 1.7

Isb, FATA, AJK 16.3 0.3 0.1 0.3

Total 249.0 37.0 42.3 79.3

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ECom Oct 10 1 Presentation)