ECONOMIC ANALYSIS (PAKISTAN)

A measure of macroeconomic stability achieved over the past two years has kindled a moderate
recovery in the economy, despite one of the most serious economic crises in the country’s recent
history. The economy grew by a provisional 4.1% in the outgoing year, after a modest growth of
1.2% in 2008‐09. However, the recovery is still fragile and the stabilization needs to be
consolidated so that the gains over the past two difficult years are not lost.

A combination of limited fiscal space and rising spending, debt, and inflationary pressures,
significantly reduce the government’s ability to spend in order to stimulate the economy. Under
the circumstances, the prudent course for policy in the near term remains the pursuit of greater
fiscal consolidation through domestic resource mobilization, in conjunction with reducing the
size of government, and improving the efficiency of public sector spending.

The macroeconomic context remains difficult in the near term with continuing challenges. The
global economy remains in turmoil, with uncertain prospects for demand for Pakistan’s exports.
In addition, the energy and water shortage, and the internal security situation, could constrain
growth in 2010‐11.

However, the economy could benefit from large initial productivity gains as capacity utilization
begins to increase from a low base. For the longer term, however, without a resolution of
Pakistan’s persistent structural challenges, such as raising the level of domestic resource
mobilization or promoting higher productivity in the economy, growth and investment will
continue to be constrained, and the growth prospects volatile.

The stronger pace of economic growth in 2009‐10 has occurred on the back of several favorable
developments, which have included:

 Substantial transfers to the rural sector over the past two years via the government’s
crop support price policies, which, combined with higher worker remittances, have
sustained aggregate demand in the economy;
 A larger‐than‐expected cotton output, which offset the moderately negative impact on
the wheat crop caused by a delay in seasonal rains;
 An ongoing improvement in external demand for Pakistan’s exports, mainly textiles
 OVERVIEW OF ECONOMY OF PAKISTAN1

 Gross domestic product (GDP) was at 4.1 percent as compared with 1.1 percent of the
prior economic year.
 Inflation is decreased from 22% but still in double digits i.e. 11.5%.
 Current account deficit is expected to decline during the outgoing fiscal year. Decline is
expected below 3% of Gross Domestic Product.
 External current account deficit was contained to 5.6 % of GDP (US dollars 9.3 billion)
in fiscal 2008-09, from a high of 8.3 % of GDP in 2007-08 (US dollars 13.9 billion)
 Economic growth in 2009-10 is 4.1% which is higher than the targeted growth 3.3%t.
 The fiscal deficit was slashed to 5.2 % of GDP in financial year 2008-09, from 7.6 % of
GDP in 2007-08, a fiscal adjustment of 2.4 % of GDP.
 Foreign Exchange Reserves have been rebuilt to nearly dollars 16 billion, from their low
of under dollar 6 billion in October 2008.
 Manufacturing Sector posted a positive growth of 5.2 % during the current fiscal year.
 Pakistan has become the largest user of Compressed Natural Gas (CNG) in the world,
as per the statistics issued by International Association of National Gas Vehicles on
CNG. Presently, 3105 CNG stations are operating in the country and 2.4 million vehicles
are using CNG as fuel.
 Literacy Rate has improved from 56% to 57%. Literacy rate in Punjab is (59 %), Sindh,
(59%), Khyber Pakhtunkhwa (50%) and Balochistan at (45%).

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 EQUITY MARKET OF PAKISTAN

A total of 650 companies were listed on the Karachi Stock Exchange (KSE) as of end‐March
2010, with Paid up capital of Rs. 894.2 billion. Aggregate market capitalization as at end March,
stood at Rs. 2,890 billion (US$ 35 billion). Market capitalization to GDP is currently just under
20%, which is low by comparison with many countries in Pakistan’s peer reference group.

Mainly on the back of foreign buying, the KSE‐100 index has risen 74 per cent since its trough
in January 2009. Even after the recent sell off in equities, the KSE‐100 index has gained 33%
since the start of fiscal year 2009‐10. Foreign portfolio investment (FPI) in the KSE has risen
sharply for July to March 2009‐10. The cumulative net inflow of foreign portfolio investment
increased by US$ 431 million. The other positives during 2009‐10 to which equity investors have
responded have included the restoration of macroeconomic stability following the balance of
payments crisis of 2008; the IMF program (signed in November 2008) having remained on track
for over a year; the upgrading of Pakistan’s sovereign rating by Standard and Poor’s, and the
revision, to stable, of Pakistan’s outlook by Moody’s, both in August 2009; and the semblance of
a growth recovery in the economy, for large scale manufacturing in particular, despite the
challenges. On the back of the net buying by off‐shore investors, the KSE‐100 index crossed the
10,000 mark on 12th March 2010 after a period of 18 months.
 INFLATION

After declining for much of calendar 2009, inflationary pressure has intensified of recent on
account of a number of adverse developments. From a low of 8.9 percent in October 2009,
year‐on‐year Consumer Price Index (CPI) inflation has accelerated to 13.3 percent as of April
2010. Food inflation has remained elevated in the past few months, stabilizing at around 14.5
percent (from 7.5 percent in October 2009), while the rate of change in prices of Non‐Food items
has been recorded at 12.2 percent for April (from 10 percent in October). On a period‐average
basis, overall inflation was recorded at 11.5% for July to April. For the corresponding period in
2008‐09, average inflation stood at 22.3%. The refueling of inflationary pressure is evident in all
major price indices, with the Wholesale Price Index (WPI) inflation rising steeply, from 0.3% in
August 2009 to 22% in April 2010.

ECONOMIC INDICATORS FOR PAKISTAN 20103

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http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=PKR
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http://www.geotauaisay.com/2010/06/download-economic-survey-of-pakistan-2009-2010/
 GDP (Constant Prices, National Currency) for Pakistan in year 2010 is PKR
6,019.77 Billion. Real GDP is expressed in billions of national currency units; the base
year is country-specific.
 GDP Growth (Constant Prices, National Currency) for Pakistan in year 2010 is
4.792 %. Annual percentages of constant price GDP are year-on-year changes; the base
year is country-specific.
 GDP (Current Prices, National Currency) for Pakistan in year 2010 is PKR
14,668.43 Billion. GDP is expressed in billions of national currency units.
 GDP Deflator for Pakistan in year 2010 is 243.671. The GDP deflator is derived by
dividing current price GDP by constant price GDP and is considered to be an alternate
measure of inflation. Please note: Data are expressed in the base year of each country's
national accounts.
 Inflation, Average Consumer Prices (Indexed to Year 2000) for Pakistan in year
2010 is 261.709 (Index, Base Year 2000 = 100). Data for inflation are averages for the
year, not end-of-period data. The index is based on 2000=100.
 Inflation (Average Consumer Price Change %) for Pakistan in year 2010 is 11.73 %.
Data for inflation are averages for the year, not end-of-period data.
 Unemployment Rate (% of Labour Force) for Pakistan in year 2010 is 6.195 %.
 Population for Pakistan in year 2010 is 166.578 Million
 General government revenue (% of GDP) for Pakistan in year 2010 is 14.521 %.
Revenue consists of taxes, social contributions, grants receivable, and other revenue.
General government total expenditure (% of GDP) for Pakistan in year 2010 is
20.728 %. Total expenditure consists of total expense and the net acquisition of
nonfinancial assets. Note: Apart from being on an accrual basis, total expenditure differs
from the GFSM 1986 definition of total expenditure in the sense that it also takes the
disposals of nonfinancial assets into account.

 Total Government Net Lending/ Borrowing (% of GDP) for Pakistan in year 2010 is
-6.207 %.
 Total Government Gross Debt (% of GDP) for Pakistan in year 2010 is 58.678 %.
Gross debt comprises the stock (at year-end) of all government gross liabilities (both to
residents and nonresidents).
 Fiscal Year Gross Domestic Product, Current Prices for Pakistan in year 2010 is
PKR 14,668.43 Billions. Gross domestic product corresponding to fiscal year is the
country's GDP based on the same period during the year as their fiscal data.
 Current Account Balance (% GDP) for Pakistan in year 2010 is -2 %. Current
account is all transactions other than those in financial and capital items. The major
classifications are goods and services, income and current transfers. The focus of the
BOP is on transactions (between an economy and the rest of the world) in goods,
services, and income.

FUTURE OUTLOOK AND CHALLENGES

They have made good progress in sales performance, actively focusing on developing the new
product pipeline and at the same time maintaining growth of mature brands to create value for
our shareholders and to provide new and affordable healthcare solutions to patients. A number of
new products in the area of oncology, respiratory and anti-bacterial are under registration and
launch. Their operating results remain under pressure due to volatility in the rupee currency and
inflation. The industry is heavily price controlled and the last across the board price increase was
given in 2001. This lack of a general price increase poses a greater risk on the future profitability
of the business allowing no room to counterbalance rising costs. They have requested the
Government to take immediate steps to improve the pricing policy and to allow price increase
across the board to support the industry. The Company's commitment towards improving
healthcare in Pakistan particularly, in the area of preventive healthcare & vaccines remains
integral and explicit. GSK is the world's leading developer and manufacturer of vaccines, and
hopes to partner with the Government in protecting people against preventable diseases.
The pharmaceutical industry in Pakistan has great potential for growth. However, its sustained
success depends on a regulatory environment which is able to balance the interests of this
research based industry, with the need for affordable healthcare.
The company has gained progress in sales performance by developing new products and
maintained growth of the business. The operating results of GSK remains under pressure due to
vitality in the rupee currency and inflation. The lack of general increase in prices possesses a
greater risk on future profitability of GSK. In case of no increase in the general prices of
medicines will be a negative impact of the industry and GSK as well.

Management decisions:

 Control increasing cost of sales as in last 6 years the cost of sales is constantly increasing
 Control excessive admin, and marketing costs
 The business can be expanded and can easily afford more R&D expenses as reserves are
sufficient
 Must request Government to take immediate steps to improve the pricing policy and to
allow increase in prices across the board to support the industry
 Liquidity position is strong but the firm shall invest the excessive working capital to get
maximum outputs
 MARKET SHARE OF THE COMPANY & COMPETITORS4

 GSK Share: 12.9%

 GSK Rank: 1
 Leading competitors: Abbott; Novartis; Sanofi
 GSK leading brands: Augmentin; Seretide; Avandia; Seroxat; Velosef
 GSK share of vaccine market:
 Private: 55%
 Tender: 51%

SWOT ANALYSIS

Strengths
 GSK has global pharmaceutical sales of over $22bn and also the largest share in several
therapeutic areas, including the vaccine and over-the-counter products
 R&D innovation with a broad beneficial coverage
 Marketing strength in major geographical and therapeutic areas
 Existing Patent protection for a number of years on key products

Opportunities
 Decreasing development time through favorable R&D collaborations and internal efforts
 Emergence of integrated global markets and globalization for new products

Weaknesses
Discontinuation of products in the latter stages of development

Threats

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http://www.gsk.com/investors/presentations/2009/emerging-markets-dec09/Fouad-Benghalem-
MENA.pdf
 Increased competition for core products
 A major issue facing the industry is the intense competition and the changing face the
pharmaceutical market.
 The industry has seen a legion of new market entrants, increased competition among key
players and industry consolidation.
 A host of large-scale mergers and acquisitions have taken place over the last two decades.

TECHNICAL ANALYSIS