Pakistan s Economic Roadmap Summit

Transcription

1 Presentation by: Nadeem Naqvi Managing Director Karachi Stock Exchange February 16,

2 High Impact Initiative on the Road to Recovery

3 A Thought Experiment THINKING ABOUT GROWTH WHAT WHY HOW WHEN WHO What type of growth Why growth The optimal path Shortest time to impact Private Sector Public Sector 01

4 What Type of Growth Consumption driven growth? Investment driven growth? Is a combo possible? Determining the Meta Objectives Employment generation in a hurry Production ramp up from existing base Generating tax revenue Minimizing impact on external account Fostering sustainability 02

5 Why Growth: The Power of Growth - I Growth Enlarges the Economic Pie FY2011 Nominal GDP = US$210bn; Per Capital GDP = US$1,190 Population = 177million = 25million households 40% population urban = 10million households 25% of urban households have per capita disposable income of: US$? or Monthly PkR 3,500 4,500 6,000 26,250 33,750 45,000 Fast Forward 2015 US$? or Monthly PkR 4,500 5,500 7,000 43,875 53,625 68,250 03

6 Why Growth: The Power of Growth - II Rupee Devaluation SCENARIO BUILDING : Avg. Inflation 9% 2015 GDP (US$Bn) Real GDP Growth 3% 4% 5% 6% % National Per Capita Income US$1,360 Top 25% Urban Per Capita Income US$5,140 10% Population = 185 million PkR50,115 per month 04

7 Why Growth: The Power of Growth - III Rupee Devaluation SCENARIO BUILDING : Avg. Inflation 9% 2020 GDP (US$Bn) Real GDP Growth 3% 4% 5% 6% % % Population = 204 million National Per Capita Income US$1,600 Top 25% Urban Per Capita Income US$6,050 PkR86,212 per month 05

8 Optimal Growth Path (An Example) LARGE SCALE LOWER MIDDLE INCOME HOUSING PROGRAM THINKING BOTTOM UP AFFORDABILITY Single Family residential unit PkR 3,000,000 PkR 5,000,000 10% down payment at the minimum Monthly mortgage should equal monthly rent Monthly mortgage can not be more than 50% of disposable income Assume maximum monthly affordability is PkR 20,000 30,000 This is equivalent to annual mortgage servicing of PkR 240, ,000 Implies 8.8% to 8% profit/interest rate p.a. Between , the average of 10Yr PIB rate was 10% p.a. First 5-years interest only with interest rate linked to inflation 06

9 Housing Program Financing Impact - I Background Context According to SBP Data (Feb 3, 2012) Total currency & deposits of Banking system: Total Private Sector Credit (incl. PSE): PkR6,695billion PkR3,347billion Thus, the CREDIT TO DEPOSIT RATIO (CDR) Banking system is approximately 50% In , CDR was over 70% Pakistan s Banking System is now arguably one of the most under-leveraged in the world 07

10 Housing Program Financing Impact - II Direct Financing Impact Assume average housing unit cost = PkR 4,000,000 Target 100,000 housing units to be financed Maximum financing required PkR 400billion say, over a three period ending FY2015 Assume Currency and Deposit (M2) growth at 14% p.a. (last few years average) This would mean banking deposit base of PkR 9,925billion by June 2015 Assume Credit Deposit Ratio (CDR) of 55% = Credit base of PkR 5,450billion Mortgage Finance of PkR 400billion implies 7.3% of total loans spread over 100,000 borrowers 08

11 Housing Program Economic Impact - I Direct Financing Impact Assume average housing mortgage loan rate of 9% p.a. This implies potential government subsidy of 3.5% - 4.0% to banks that lend for housing purchase Meaning, in absolute terms, government support of (PkR 400bn x 0.04) = PkR 16bn p.a. Compare this cost to: Power Sector subsidies = PkR 300bn p.a. Inefficiencies in PSEs = PkR 150bn p.a. Crop Support Price Subsidies = PkR 100bn+ p.a. Broad Total Subsidization = PkR 550bn p.a. 09

12 Housing Program Economic Impact - II Key Impact Areas Immediate large scale employment generation Production ramp up for about 38 industries DIRECTLY MULTIPLIER IMPACT of Rs400bn productive investment into the economy = 1.2x; 1.3x; 1.5x? Incremental Sales Tax, Income Tax growth through out the housing related value chain Minimal negative impact on current account Sustainable financing base via REIT s & Securitization of housing mortgage 10

13 Thinking about Solar Energy Asian Development Bank (ADB) aims to develop, finance and commission 3,000MW of solar power generation capability in developing Asian nations by mid-2013 Associated Press Feb 15,

14 THANK YOU 12