AKD Securities Limited – Pakistan and Gulf allies: relationship going through testing times : AsiaNet-Pakistan

AKD Securities Limited – Pakistan and Gulf allies: relationship going through testing times

April 15, 2015 | Brokerage | Share:

Karachi, April 15, 2015 (PPI-OT): Following the harsh reaction from the UAE’s Foreign Minister (Anwar Mohammad Gargash) in response to Pakistan’s decision to stay neutral in the Yemen conflict, PM (Nawaz Sharif) has decided to take center stage and pacify the atmosphere by shedding further light on Pakistan’s decision.

Although things have been relatively calm ever since but AKD Securities Limited believes that if deemed necessary, both Saudi Arabia and United Arab Emirates can potentially exert economic pressure on Pakistan. In this regard, the aforementioned situation can have two fold macro-economic impact on Pakistan in form of: 1) oil import issues and 2) slowdown in remittances flow. Recall that, Saudi Arabia and UAE in the past have been prime source for crude oil supply to Pakistan (~40% of the country’s total oil import bill), while the aforementioned countries are ranked at the top in terms of workers remittances.

The Oil: Saudi Arabia and UAE both are important trade partners of Pakistan as they cumulatively make up for more than 27% (in US$7.5bn terms) of Pakistan’s total imports and 7.1% (US$1.1bn) of the country’s total exports. In connection with this, it is worth mentioning that a decent portion of Pakistani crude oil and petroleum product imports are met though floating int’l tenders barring HSD, which is imported directly from KPC (Kuwait Petroleum Corporation). In case KSA and UAE decide to halt its oil exports to Pakistan, AKD Securities Limited believes the country will still be in a position where it can meet its demand through other producers.

On the external front: Backed by different bilateral agreements, both KSA and UAE have been favoured destinations for Pakistan workforce. A move which has fared well for all parties, as Pakistan provided the aforementioned countries with relatively cost efficient skilled/unskilled labour force which in turn provided Pakistan with cash flow to support the external account in form of workers’ remittances. Currently, Pakistani labour force working in KSA and UAE remit more than 52% (US$6.9bn in 9MFY15) of the country’s total remittances of US$13.2bn in 9MFY15.

Therefore, any fallout at gov’t level between Pakistan and its mentioned Gulf allies can negatively impact this relatively growing source of foreign flow. Though AKD Securities Limited believes the dependence of KSA and UAE on cheap Pakistani labour force will remain intact, any alteration in the remittance mechanism from Gulf countries could potentially slow down the recent uptick in remittance growth (15.03% in 9MFY15 vs. 11.9%YoY in 9MFY14). AKD Securities Limited however, do not anticipate any significant impact on the FDI inflows to the country from UAE, which have already declined from 11.4% of total FDI inflows in FY13 to 7.5% in FY14 (Net FDI share down from 1.5% in FY13 to a net outflow of 4.7%).

Tags:

Category: Brokerage