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Pakistan: China-Pakistan Economic Corridor Offers Opportunities

Key Information
CapitalIslamabad
Population188.9 million
Area796,095 sq km
CurrencyPakistani rupee (1 PKR = 0.0096 USD as of 9 May 2016)
Official language(s)English, Urdu
Form of governmentParliamentary Republic

 

Major Exports (% of total, 2015)Major Imports (% of total, 2015)
Cotton cloth (10.2%)Petroleum products (14.6%)
Knitwear (9.8%)Crude petroleum (8.4%)
Rice (8.2%)Palm oil (4.0%)
Top three export countries (% of total, 2014)Top three import countries (% of total, 2014)
USA (13.5%)China (30.5%)
China (10.1%)Saudi Arabia (13.7%)
UAE (9.4%)UAE (13.6%)

Source: Economist Intelligence Unit (www.eiu.com)

 

Political Highlights

The Islamic Republic of Pakistan (“Pakistan”) adopted a parliamentary democracy system with the president as head of state and a popularly elected prime minister as head of government. In recent years, Pakistan has been suffering from political instability with high security risk, due to rising religious extremism and sectarian violence. Attacks from the Tehrik-i-Taliban Pakistan, an Islamic terrorist group, were destabilizing Pakistan. Other regional developments, such as the Kashmir dispute with India and the wars in Afghanistan, have also affected Pakistan’s internal dynamics and political stability.

Pakistan and China have close relationship, and their cooperation has increased in recent years. China is the leading economic partner for Pakistan as projects under the China-Pakistan Economic Corridor (CPEC) are underway. It is expected that the CPEC will further strengthen relations between the two countries and help to promote trade links between Gwadar port and China’s Xinjiang province.

 

Economic Trend

Economic Indicators2013201420152016*2017*
Nominal GDP (USD bn)231.1243.4270.0291.9313.5
Real GDP growth (%)4.44.75.55.14.9
GDP per capita (USD)1,2801,3201,4301,5101,590
Inflation (%)7.77.22.53.55.1
Budget balance (% of GDP)-8.2-5.5-5.3-4.9-4.9
Current account balance (% of GDP)-1.9-1.5-0.6-0.4-0.6
External debt (% of GDP)26.025.522.521.720.3

*Estimates
Fiscal years ends on 30 June
Source: Economist Intelligence Unit (www.eiu.com)

 

Agriculture and textile manufacturing were the mainstays of Pakistan’s economy, accounting for 20.9% and 8% of GDP respectively in FY2014-15. On the demand side, private consumption was the main growth driver, as Pakistan has a vast population of 188.9 million with high marginal propensity to consume.

Despite the widening trade deficit due to weak exports coupled with high energy imports, Pakistan’s foreign exchange reserve, which relied heavily on remittance from foreign workers and loans from the IMF and World Bank, stood at US$20.78 billion in May 2016, near all-time high and equivalent to over three months of import expense. Owing to its reliance on oil imports, Pakistan will remain a key beneficiary of the continued weakness in global commodity prices.

Looking ahead, Pakistan will focus on implementing the CPEC with China. Development projects under the CPEC worth US$46 billion, mostly related to energy and road infrastructure. For Pakistan, the projects represented an economic boost and a potential solution to its ongoing energy crisis. The energy projects planned under the CPEC framework have the potential to double Pakistan’s current capacity, while the infrastructure projects will span the length and breadth of Pakistan, and will eventually link the Pakistani city of Gwadar in southwestern to China’s northwestern autonomous region of Xinjiang via a vast network of highways and railways.

Chart: Hong Kong Total Exports to Pakistan
Chart: Hong Kong Total Exports to Pakistan

Hong Kong-Pakistan Trade

Total exports from Hong Kong to Pakistan decreased by 3.0% from HK$3,887 million in 2014 to HK$3,769 million in 2015. The top three export categories to Pakistan were: (1) telecommunications, audio & video equipment (-0.7%), (2) office machines & computers (+29.5%), and (3) textiles (+3.2%), which represented 67.4% of total exports to Pakistan.

ECIC Underwriting Experience

The ECIC imposes no special restrictions on covering Pakistan buyers. For 2015, the amount of credit limit applications and insured business increased by 425.2% and 67.5% respectively. Major insured products were electrical appliances (+41.0%), textiles (-13.0%) and clothing (+0.0%), which represented 49.7% of ECIC’s insured business on Pakistan. The Corporation’s underwriting experience on Pakistan has been satisfactory, with no claim payment or payment difficulty case reported from May 2015 to April 2016.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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