KARACHI: Philip Skinner, Managing Director, Global Execution Team at financial institution GuarantCo, has said the company has solutions up its sleeves to solve the problem of inaccessibility to financing for impact-creating infrastructural projects in countries such as Pakistan.
GuarantCo provides local currency guarantees to lenders investing in infrastructure projects in low income countries.
Skinner said the company’s portfolio in Pakistan has been among the top performing ones.
“Pakistan has been one of our best performing markets, against contrary belief,” Skinner told em>Business Recorder /em> in an interview.
“We have never had to pay out on a guarantee in Pakistan. Since 2013, we have not even had to restructure any loans.”
Since entering Pakistan’s market in 2013, GuarantCo has enabled six large transactions – Pakistan Mobile Communications Limited (Jazz), guaranteeing $9.3 million; Fatima Fertlizer $20.9 million; Cnergyico (formerly Byco) $30 million; K-Electric $50 million; InfraZamin $50 million; and Shams Power $9 million.
GuarantCo has also signed a seventh transaction this year, which will be announced in due course once financial close has been achieved.
GuarantCo is funded by the governments of the United Kingdom, Switzerland, Australia and Sweden through the Private Infrastructure Development Group (PIDG) Trust, the Netherlands through the FMO and PIDG Trust, France through a reserve facility and Canada through a repayable facility provided by Global Affairs Canada.
It has guaranteed bonds and loans enabling $6.2 billion of total investments and $5.2 billion of private sector investment giving 45.2 million people improved access to infrastructure and creating around 229,000 jobs in 22 countries, according to information posted on its website. It was established in 2005 to help close the infrastructure funding gap and alleviate poverty in lower income countries across Africa and Asia.
Speaking about InfraZamin – the Karachi-based guarantee company GuarantCo set up with InfraCo Asia and Karandaaz in 2021 – Skinner said that since the entity has a local team with a local presence it will amplify what a guaranteed product can do.
“But that doesn’t mean that we’re leaving Pakistan,” said Skinner.
“We still very much want to be working in Pakistan, but through InfraZamin, so we can help them do bigger deals by supporting them at the backend as well as structures which have an offshore financing component,” he said.
GuarantCo’s outlook of Pakistan
There are over 90 countries that qualify as per GuarantCo’s rulebook where it can work.
“But there are only a handful of countries which have populations of over 200 million. And so, that makes Pakistan unique in many aspects,” Skinner said.
“It gives you scale in terms of population size and a consumer base. It also means that you have a reasonably deep and sophisticated financial market, both on the banking side and the capital market side, which has a lot of potential that is yet untapped. So, whilst there are challenges, we recognize those challenges, the opportunity in Pakistan is of a scale that we don’t see in many other countries,” he explained.
“So, when we’re looking to achieve impact, and we’re an impact-driven organization – impact goals through poverty alleviation, climate, gender, health and safety etc – the scale that we can have in Pakistan is of a different magnitude.”
How GuarantCo operates to avoid currency risks
Skinner knows every outsider is wary of investing in Pakistan because of the currency risks.
However, he thinks that GuarantCo has just the right model needed to operate in a country such as Pakistan, especially enabling development of infrastructure.
“What GuarantCo does is we guarantee local currency debt. So we’re not actually putting dollars into Pakistan. What we’re doing is we are saying to local currency investors that you’re not going to lose your money.
“We’ll stand behind whatever portion of the debt that we’re guaranteeing. If things go wrong, we will fund. But as I say today, we have managed to avoid that.
“I think our business model is well suited to navigate the challenges that Pakistan brings.
“The model of GuarantCo is to guarantee financing for infrastructure development where banks don’t feel comfortable. But we hope that gradually banks would develop trust in that certain space. For instance, our guarantee for Shams Power is for financing rooftop solar plants for commercial and industrial offtakers. We hope gradually banks start developing trust in solar companies and we can move to something else, for instance, electric vehicles.”
Pakistan is better than it looks in the headlines
Skinner says that Pakistan has exceeded the company’s expectations.
“Pakistan exceeded most people’s expectations given the macroeconomic headlines that most people read internationally,” he said.
“And the point I’d be making is that it is due to the nature of our product. If we were a dollar lender and had lent dollars to Shams Power instead of mobilizing rupee debt, then we probably would find ourselves in a restructuring situation.
“Going back to my point about the scale of Pakistan, the country actually has a large capital market that can be mobilized.
“The perception, in terms of the opportunity here, I think, is quite different from the opportunity that we see having spent a significant amount of time in Pakistan.
“I am not saying that the risks aren’t real particularly if you’re investing in US dollars. But there are ways around those risks. In our opinion, it should be more actively explored and the guarantee product has proven to be resilient to the macroeconomic challenges that have been thrown at our investments.
“What we’re demonstrating is that we have shown there is a way of doing it. There is a way to use international sources of capital to promote more infrastructure investment in Pakistan. And it’s the guarantee product that allows you to do that.” Read more on Business Recoder (SOURCE) website…
Business Bee: Observations and Perspective
- Diverse Views: Public opinion can vary significantly. Some people may share the positive outlook presented in the web page context, while others might have different viewpoints based on their personal experiences, economic circumstances, and political beliefs.
- Media and Headlines: It’s essential to recognize that headlines often focus on sensational or attention-grabbing news. While they provide a snapshot, they may not capture the full complexity of a country’s markets and economy. Digging deeper into data and expert analyses can provide a more nuanced understanding.
- Economic Indicators: To form a comprehensive opinion, consider looking at various economic indicators such as GDP growth, inflation rates, employment figures, and foreign investment. These metrics can provide insights into the overall health of an economy.
- Local and Global Context: Opinions can also be influenced by local context and global events. Factors like political stability, trade relations, and technological advancements play a role in shaping perceptions.
- Informed Discussions: Engaging in informed discussions with experts, policymakers, and fellow citizens can help you gain a broader perspective. Listening to diverse viewpoints allows for a more holistic understanding. Remember that opinions are subjective, and it’s essential to critically evaluate information from multiple sources before taking financial decision
Key Economic Indicators for Pakistan:
- Gross Domestic Product (GDP): Pakistan’s GDP reflects the total value of goods and services produced within the country. It’s a crucial measure of economic activity. The Pakistan Economic Survey 2021-22 highlights growth and investment trends, including the performance of various sectors like agriculture, manufacturing, and mining1.
- Inflation: Inflation rates indicate the general increase in prices over time. High inflation can erode purchasing power and impact living standards. Monitoring inflation is essential for economic stability.
- Fiscal Development: This includes government revenue, expenditure, and budget deficits. A sustainable fiscal policy is crucial for managing public finances.
- Money and Credit: The availability of credit affects investment, consumption, and overall economic growth. Central banks monitor money supply and credit expansion.
- Capital Markets & Corporate Sector: The health of stock markets and corporate profitability reflects investor confidence and business performance.
- Trade and Payments: Exports, imports, and balance of payments influence foreign exchange reserves and economic stability.
- Public Debt: Managing debt levels is critical to avoid financial crises.
- Social Indicators: Education, health, and population data provide insights into human development.
- Infrastructure and Energy: Investment in infrastructure and energy impacts economic growth and productivity.
- Climate Change: Environmental factors affect long-term sustainability.
- Remember that economic indicators are interconnected, and their interpretation requires context. For more detailed data, you can refer to official reports from the Ministry of Finance and other reliable sources12.
The informal economy in Pakistan is a significant aspect that often goes beyond official reports and headlines:
- Large Informal Sector: Pakistan’s informal economy comprises nearly 80% of its employment. This sector includes small-scale agriculture, retail shops, street vendors, domestic workers, and various small enterprises1. The Labour Force Survey 2017-18 indicates that the informal sector accounts for 71.7% of employment in main jobs outside agriculture, with a higher prevalence in rural areas (75.6%) than in urban areas (68.1%)2.
- Challenges and Opportunities:
- Decent Work Deficits: The informal economy faces several challenges, including rights at work, child and bonded labor, social protection gaps, lack of sustainable employment, working poverty, and gender-based discrimination.
- Rural Economy Focus: The Decent Work Country Program (DWCP) aims to promote decent work in the rural economy, which constitutes a large segment of the informal economy. Rural areas often grapple with low productivity, informality, and weak enforcement of labor laws2.
- Undocumented Economy: The informal economy is also known as the undocumented economy or shadow economy. In Pakistan, it significantly contributes to economic activity, with an estimated 70% of the country’s GDP generated by the informal sector3.
- Complementing the Formal Sector: Interestingly, the informal economy increasingly complements the formal sector. However, persistent obstacles such as lack of capital and expertise need attention. Addressing these anomalies is crucial for sustainable economic growth4.
In summary, while official reports provide valuable insights, understanding the informal economy requires acknowledging its nuances, challenges, and impact on livelihoods.
13. Pakistan Stock Exchange (PSX):
- Recent Trends:
- Remarkable Weeks:
- Long-Term Perspective:
- The PSX’s performance is a crucial indicator, but it’s essential to consider other factors:
- Economic Policies: Government policies, reforms, and stability play a significant role.
- Global Context: International economic conditions impact investor sentiment.
- Sectoral Performance: Different sectors contribute differently to overall market health.
- Investor Confidence: Trust in the market affects investment decisions.
- The PSX’s performance is a crucial indicator, but it’s essential to consider other factors:
- Caveats:
- Stock market performance doesn’t always directly correlate with the broader economy. It can be influenced by short-term factors, speculation, and liquidity.
- Informal Economy: As you rightly pointed out, the informal economy, which constitutes a substantial part of Pakistan’s economic activity, may not be fully reflected in stock market indices.
Refrences: – Pakistan Economic Survey 2021-22 – Labour Force Survey 2017-18 – World Bank: Informal Economy in Pakistan – Business Recorder – Latest News – Pakistan Stock Exchange – Decent Work Country Program (DWCP) – Currency Smuggling and Its Impact – Pakistan’s Shadow Economy – Pakistan’s Credit Ratings – Pakistan Economic Indicators – Pakistan Informal Economy – Pakistan Stock Market Performance – Pakistan’s Economic Outlook – Pakistan’s Social Impact Initiatives – Pakistan’s Exchange Rate Stability – Pakistan’s Business Environment – Pakistan’s Rural Economy – Pakistan’s Sustainable Growth – Pakistan’s Economic Challenges – Pakistan’s Economic Opportunities – Pakistan’s Economic Reforms – Pakistan’s Economic Policies – Pakistan’s Economic Growth – Pakistan’s Economic Stability – Pakistan’s Economic Impact – Pakistan’s Economic Challenges – Pakistan’s Economic Outlook – Pakistan’s Economic Stability – Pakistan’s Economic Challenges – Pakistan’s Economic Opportunities
Source: Business Recorder – Latest News
BUSINESS GDP MARKETS PSX PAKISTAN ECONOMY GuarantCo’s outlook of Pakistan
