Pakistan Economy: News & Discussion

[nongaddarliberal]

Pakistan’s economic growth likely to slow down to 4.8%

Inflation may rise to 6.5%; bank urges immediate measures to take off pressure
By shahbaz rana
Sep.27,2018
ISLAMABAD: The Asian Development Bank (ADB) has cut its economic growth forecast for Pakistan to only 4.8% and increased the inflation estimate to 6.5% while urging the new government to take immediate corrective measures to take pressure off the budget and external account.

In its flagship Asian Development Outlook Update, the Manila-based lending agency also increased Pakistan’s current account deficit projection from 4.5% to 5% of gross domestic product (GDP).

The ADB’s assessment points to the emergence of stagflation that the country had left behind five years ago. The lender expected a further increase in interest rate and currency depreciation.

The ADB released its fresh assessment on the eve of a staff-level visit of the International Monetary Fund (IMF) to Islamabad. The IMF is going to recommend some harsh steps that are necessary to address macroeconomic challenges.

Pakistan in contact with ADB for technical assistance

The fate of the China-Pakistan Economic Corridor (CPEC), currency weakness, hike in interest rate and sale of loss-making public sector enterprises are expected to be on top of the to-do list of the IMF.

In a veiled reference to CPEC debt obligations, the ADB underlined that Pakistan’s macroeconomic resilience and higher growth, which is more sustainable and inclusive, critically depends on vigilance in ensuring that new external liabilities are phased in responsibly.

The bank cut its economic growth projection for Pakistan to 4.8%, suggesting a deceleration for the first time in six years. Pakistan has set the GDP growth target at 6.2%, which the new government has not yet revised downwards.

The ADB increased its inflation forecast from 4.8% to 6.5% due to adverse impact of currency depreciation and tax measures announced in the mini-budget last week.

Challenges to maintaining the growth momentum are tighter monetary and fiscal policies to contain domestic demand, currency depreciation and tension in the global trade environment, said the ADB.

It said that the newly elected government urgently needs to address the large budget and current account deficits, rising debt obligations and falling foreign exchange reserves.

It also accounted for the impact of the mini-budget and its suggestion to take more urgent measures indicate that the lender is not satisfied with the short-term measures announced by the government.

The ADB stated that even the 4.8% economic growth would hinge on mobilisation of substantial external financing for orderly reform to reduce the large external and domestic imbalances. Such resources may be acquired from bilateral and multilateral sources, the diaspora and international capital markets, it added.

ADB says ‘no need to panic’ over Pakistan’s economy

It cautioned that the key challenges are to adopt right reforms and achieve a good outcome to sustain public support.

The ADB also said the State Bank of Pakistan may further raise the interest rate as part of monetary tightening. The central bank will announce the new monetary policy on coming Saturday.

Further monetary tightening, strong fiscal discipline and decisive efforts to contain losses suffered by public sector enterprises would help address external imbalances and fiscal risks, said the ADB.

It noted that Pakistan has already increased interest rate by 1.75% to 7.5% and let the currency depreciate by 11.2% since January this year. The 1.75% increase in interest rate was the highest in Asia.

In the case of depreciation, India was the only country whose currency has lost over 12% of its valule which is more than Pakistan’s 11%.

In 2018, Pakistan’s economy will be the sixth fastest growing economy among eight South Asian peers. The ADB’s forecast shows that only Sri Lanka and Afghanistan will be growing at a pace slower than Pakistan’s in the year.

Pakistan remains undecided on cancelling $400m loan from ADB

Three regional economies – India, Bangladesh and Bhutan – are projected to grow more than 7%. Nepal and the Maldives are also expected to grow at higher than Pakistan’s growth rate.

Pakistan’s economic outlook is clouded by a large budget deficit, a deteriorating current account deficit and falling foreign exchange reserves, observed the ADB.

The ADB said water shortages in some areas are likely to restrain agricultural production in this fiscal year. Growth in manufacturing and services will likely be affected by fiscal and monetary tightening, it added.

On top of dealing with macroeconomic imbalances, the new government has to undertake tariff reforms to contain rapidly rising intercompany arrears in the energy sector, called circular debt, which exceeds Rs1.4 trillion or 5% of GDP.

The government on Tuesday deferred up to 61% increase in electricity prices. Gas prices have already risen by up to 143%.

The ADB underlined that the new government has presented supplementary budget proposals with the objective of reducing development expenditure, introducing regulatory duties on selected luxury items to generate additional revenue and reversing earlier tax cut.

But it said the focus over the medium-term must be to further enhance the revenue base to enable durable expansion in funding for social welfare and infrastructure that is necessary to lift growth.

Published in The Express Tribune, September 27th, 2018.

 

[Flame Thrower]

Why does Pakistan need forex to build dam? Govt can simply print money and build dams. Who is stopping govt from printing money?

Then the currency will collapse for good. Once it collapses there is little or no chance from recovering it. Pak will definitely not recover.

I think the dam is only a cover to improve the inflow of $$ to improve the deficit. The money pak govt gets (I highly doubt that) will be exchanged to PKR and used for 'dam'ned construction.

Note: This is a very simplified explanation and lot of factors are ignored.

 

[Mikesingh]

Why does Pakistan need forex to build dam? Govt can simply print money and build dams. Who is stopping govt from printing money?

Printing more money would cause unbearable inflation which means:

1. Fall in value of savings. If people have cash savings, then inflation will erode the value of your savings. In a couple f years, savings would have become worthless. High inflation can also reduce the incentive to save.
2. Menu costs. If inflation is very high, then it becomes harder to make transactions. Prices frequently change. Firms have to spend more on changing price lists. In the hyperinflation of Germany, prices rose so rapidly; people used to get paid twice a day. If you didn’t buy bread straight away, it would become too expensive, and this is destabilising for the economy. Take Venezuela for example where runaway inflation has resulted in the cost of a bread loaf being the same as buying a one room apartment!! Eggs now cost $500 a dozen.
3. Uncertainty and confusion. High inflation creates uncertainty. Periods of high inflation discourage firms from investing and can lead to lower economic growth.
4. Wages. In periods of nominal wage restraint, even a small increase in inflation can lead to a fall in real wages.
   
5. Hyperinflation. Inflation can lead to hyperinflation. In countries with hyperinflation, like in Venezuela I just mentioned, we often see a ‘barter economy’ emerge with consumers exchanging goods for services – as money becomes worthless.

The printed money should be produced in perfect balance with the value of goods and services. A country can produce more currency or money only if and when its economy is succeeding. But Pak is going in the opposite direction and thus printing more money is not an option unless they want to be the next Venezuela.

 

[HariPrasad-1]

China to take over Zambia’s international Airport for debt repayment Fruits of #CPEC, if we failed to pay back our Loans. #CPEC from Game Changer to debt maker: :/

China has build a huge debt burden on pakistan by building asset at a price much higher than the actual price. For many years, idiot Pakistanis thought that it is an investment but later they realized that it is loan which Pakistan will have to repay and china will use them in preferential right. It is very easy to do such thing with Pakistan as you just have to bribe few military generals and make their bank balance fat.

 

[Advaidhya Tiwari]

Printing more money would cause unbearable inflation which means:

1. Fall in value of savings. If people have cash savings, then inflation will erode the value of your savings. In a couple f years, savings would have become worthless. High inflation can also reduce the incentive to save.
2. Menu costs. If inflation is very high, then it becomes harder to make transactions. Prices frequently change. Firms have to spend more on changing price lists. In the hyperinflation of Germany, prices rose so rapidly; people used to get paid twice a day. If you didn’t buy bread straight away, it would become too expensive, and this is destabilising for the economy. Take Venezuela for example where runaway inflation has resulted in the cost of a bread loaf being the same as buying a one room apartment!! Eggs now cost $500 a dozen.
3. Uncertainty and confusion. High inflation creates uncertainty. Periods of high inflation discourage firms from investing and can lead to lower economic growth.
4. Wages. In periods of nominal wage restraint, even a small increase in inflation can lead to a fall in real wages.
   
5. Hyperinflation. Inflation can lead to hyperinflation. In countries with hyperinflation, like in Venezuela I just mentioned, we often see a ‘barter economy’ emerge with consumers exchanging goods for services – as money becomes worthless.

The printed money should be produced in perfect balance with the value of goods and services. A country can produce more currency or money only if and when its economy is succeeding. But Pak is going in the opposite direction and thus printing more money is not an option unless they want to be the next Venezuela.

Money can be printed for internal consumption, not imports. Decreasing value of PKR is not a problem as some depreciation will only help bring equity. Nowadays, very few in Pakistan pay taxes. So, devaluing currency is a good way of devaluing the illicit savings and hence get indirect tax amount. Most poor don't have savings anyways. So, only the dishonest will be taxed indirectly

 

[Mikesingh]

Pakistan cuts Chinese 'Silk Road' CPEC rail project by $2 billion due to debt concerns

LAHORE: Islamabad has cut the size of the biggest Chinese "Silk Road" project in Pakistan by $2 billion, railway minister Sheikh Rasheed said on Monday, citing government concerns about the country's debt levels.

The mega project to revamp the colonial-era line stretching 1,872 km (1,163 miles) from Karachi to the northwestern city of Peshawar was initially priced at $8.2 billion, but wrangling over costs has led to delays.

The changes are part of Islamabad's efforts to rethink key Belt and Road Initiative (BRI) projects in Pakistan, where Beijing has pledged about $60 billion in financing but the new government of populist Prime Minister Imran Khan appears to be more cautious about the Chinese investment.

"Pakistan is a poor country that cannot afford huge burden of the loans," Rasheed told a news conference in the city of Lahore. "Therefore, we have reduced the loan from China under CPEC for rail projects from $8.2 billion to $6.2 billion," he added, referring to the China-Pakistan Economic Corridor (CPEC).

https://timesofindia.indiatimes.com...due-to-debt-concerns/articleshow/66031620.cms

They seem to have realized pretty late in the day that Pak is a poor country!! They have allowed the Chinese to milk them dry.

The Pakis once said that the CPEC is a 'game changer' that will bring 'rivers of gold' flowing into Pak!! Lol! It's turning out to be a mega flop show and sounds the death knell to the Paki economy.

Are we seeing the next Venezuela in the making?

 

[Mikesingh]

Money can be printed for internal consumption, not imports. Decreasing value of PKR is not a problem as some depreciation will only help bring equity. Nowadays, very few in Pakistan pay taxes. So, devaluing currency is a good way of devaluing the illicit savings and hence get indirect tax amount. Most poor don't have savings anyways. So, only the dishonest will be taxed indirectly

Pak has already devalued devalued its currency several times since last year It is now touching Rs130 PKR per dollar!

And there's more bad news for it in the next qtr. However, in spite of the devaluation, Pak's imports have risen to unmanageable levels whereas exports have dropped considerably! And now the rise in oil prices will do them in! The death knell has been sounded! :biggrin2:

 

[Jackd]

Pak has already devalued devalued its currency several times since last year It is now touching Rs130 PKR per dollar!

And there's more bad news for it in the next qtr. However, in spite of the devaluation, Pak's imports have risen to unmanageable levels whereas exports have dropped considerably! And now the rise in oil prices will do them in! The death knell has been sounded! :biggrin2:

The thing is Saudis are also getting involved in CPEC and thereby bringing in funds. We will have to wait till pakistan approaches IMF for a bailout.

 

[Kshatriya87]

The thing is Saudis are also getting involved in CPEC and thereby bringing in funds. We will have to wait till pakistan approaches IMF for a bailout.

Those funds are not going to paki banks. They are going into funding projects related CPEC. Pakis can't use this money to repay debts, take care of economy, replenish reserves etc.

 

[Advaidhya Tiwari]

Those funds are not going to paki banks. They are going into funding projects related CPEC. Pakis can't use this money to repay debts, take care of economy, replenish reserves etc.

The forex is converted into reserves of central bank while the investment is done in PKR. So, Pakistan indeed gets the forex for usage

 

[Flame Thrower]

The forex is converted into reserves of central bank while the investment is done in PKR. So, Pakistan indeed gets the forex for usage

I would agree if it was only Paki project.

Since it is Chinese project and we don't know where or how KSA is investing $10B, I'd say only partial of it is going to help Paki Forex issue. I am sure that number is not enough to improve Forex situation even for end of 2018.

I'd rather see it as Pak playing double game with China to improve their cut or get them started on the stalled projects. If China tries to pressure Pak by any means, then Pak will simply declare bankruptcy and put all the Chinese loans and details. Pak will play it's cards in such a way that US bats to advantage of Pak(of course to hurt China) and gets wavier of loan.

Then Pak will take help of KSA to finish what China has started, may end up investing 10's of billion $$.

Even after all this Pak would give China what they wanted i.e. Gwadar port (this deal would only benefit Pak).

I'd say that Chinese might have tasted what they're dealing with (after KSA jumping the CPEC's bandwagon). Interesting times ahead with China and it's CPEC/OBOR.

I really appreciate the way Pak 's ability to play double games with America, China and KSA. I truly do...

Thus I rest my case

 

[Advaidhya Tiwari]

I would agree if it was only Paki project.

Since it is Chinese project and we don't know where or how KSA is investing $10B, I'd say only partial of it is going. I am sure that number is not enough to improve Forex situation even for end of 2018.

The number is enough to maintain forex reserves at $10 billion by financing extra forex needs. The reserves will not go up but will stay the same. Without the $10 billion, Pakistan will have to default and face balance of Payment crisis

 

[Flame Thrower]

The number is enough to maintain forex reserves at $10 billion by financing extra forex needs. The reserves will not go up but will stay the same. Without the $10 billion, Pakistan will have to default and face balance of Payment crisis

Ok, let's assume so.

If Pak defaults, then it will declare bankruptcy and will have to show all documents related to payments and balance (including CPEC) to IMF. US (especially under Trump) will definitely wants to take a hit at China(Trump will spare no expenses if it was to kill Xi's brain child, after all he is businessman and knows the impact of it) and thus IMF will give loan wavier to all investment including CPEC. IMF will also warn all countries taking Chinese loans, thus OBOR will be blown away. US-1; China-0.

So it is very much in the Chinese interest, that Pak doesn't declare bankruptcy.

But where does KSA comes to Picture. If you notice, some of the CPEC projects came to grinding hault. Chinese hope was that if they could apply pressure not to declare bankruptcy and get things rolling (of course China has to pay up to keep Pak afloat). KSA is wild card of Pak to play if Chinese doesn't invest or stall any of the projects. This is the main goal. Next time China stalls, Pak will declare Bankruptcy.

Now coming to Forex, yes this is urgent but without knowing where this $10B is being put. It could be in stalled projects, it could be in taking share of existing projects, without knowing the accurate destination of investment we don't know how much of this $10B will come into Pak kitty. China will definitely not accept PKR due its frequent devaluation. In less than a year it lost more than 20% of it's value and may go down from 130 PKR to 150PKR(per 1$) by end of the year.

There is lot more than what meets the eye (#KSAInvestments)

 

[Advaidhya Tiwari]

Ok, let's assume so.

If Pak defaults, then it will declare bankruptcy and will have to show all documents related to payments and balance (including CPEC) to IMF. US (especially under Trump) will definitely wants to take a hit at China(Trump will spare no expenses if it was to kill Xi's brain child, after all he is businessman and knows the impact of it) and thus IMF will give loan wavier to all investment including CPEC. IMF will also warn all countries taking Chinese loans, thus OBOR will be blown away. US-1; China-0.

So it is very much in the Chinese interest, that Pak doesn't declare bankruptcy.

But where does KSA comes to Picture. If you notice, some of the CPEC projects came to grinding hault. Chinese hope was that if they could apply pressure not to declare bankruptcy and get things rolling (of course China has to pay up to keep Pak afloat). KSA is wild card of Pak to play if Chinese doesn't invest or stall any of the projects. This is the main goal. Next time China stalls, Pak will declare Bankruptcy.

Now coming to Forex, yes this is urgent but without knowing where this $10B is being put. It could be in stalled projects, it could be in taking share of existing projects, without knowing the accurate destination of investment we don't know how much of this $10B will come into Pak kitty. China will definitely not accept PKR due its frequent devaluation. In less than a year it lost more than 20% of it's value and may go down from 130 PKR to 150PKR(per 1$) by end of the year.

There is lot more than what meets the eye (#KSAInvestments)

China is not a retard to accept CPEC funding without having any returns. China and Pakistan had arrangement from beginning to get KSA involved. How do you think Pakistan funded last years current account deficit of $15 billion? Or the deficit of further past? KSA always helped Pakistan by acting as shadow funder.

China will never accept PKR and taht is exactly why KSA is involved. KSA will give the dollar to Pakistan and act as indirect aid. KSA may get some institutions like Madrassas, offices, real estate etc in Pakistan where it will get to spread its influence on people. Pakistan will get 0 forex for itself. All the forex from KSA will be used up in current account deficit management itself and no extra will remain. The only thing is that Pakista will not enter bankruptcy

Also, if IMF involves itself, the details of the project will come out. Nevertheless, OBOR will not collapse. The details don't involve things like nuclear bomb sale to scare away everyone!! Chinese have no interest in avoiding Pakistani bankruptcy. China will not keep funding Pakistan till infinity just to ensure the details of the project don't come out.

Pakistan will lose a lot as IMF first asks countries to cut down on military expenditures. The main point o concern for Pakistan is not just the cost of CPEC funding but also about loans taken from Chinese for things like submarines order, ship/corvette/frigate purchase, HQ9 SAM etc

 

[Kshatriya87]

The forex is converted into reserves of central bank while the investment is done in PKR. So, Pakistan indeed gets the forex for usage

Still. Can't use that money to repay debts right? They have to be used in the specific projects KSA is investing in.

 

[Advaidhya Tiwari]

Still. Can't use that money to repay debts right? They have to be used in the specific projects KSA is investing in.

KSA gets the assets in Pakistan valued in PKR whereas Pakistan gets foreign exchange which it can use as it wants.

For example, KSA may get 5000 hectare os Pakistan land where it builds a number of buildings, mosques, madrassas and transfers 1000 Saudi Arab maulvis at high pay along with power plants. The entire area will be owned by Saudi Arabia. In return for giving Saudis this land, Pakistan will get $10 billion for itself in forex reserves.

Pakistan can use the forex however it wants, even repaying debt. But the property which Saudi purchased will belong to Saudis only. It is an exchange of asset for forex

 

[sorcerer]

Still. Can't use that money to repay debts right? They have to be used in the specific projects KSA is investing in.

KSA pulled back from the investment commitment on CPEC.
It could be another fake news from pakistan.

china knows that if KSA is allowed to invest in the CPEC project that ensures "ENERGY SECURITY" to china, then KSA and its sponsored terrorists can gain an upper hand on china via the UIGHUR TERRITORY thus dislodging chinese efforts in suppression of practice of islam in East Turkestan.
pak will be able to control the energy security of china.
well!! that must be the reason why the chinese must have opposed the KSA plans to invest in CPEC.

CPEC is never for pakistani interests but only and only for the interest of china.

 

[Kshatriya87]

KSA pulled back from the investment commitment on CPEC.
It could be another fake news from pakistan.

china knows that if KSA is allowed to invest in the CPEC project that ensures "ENERGY SECURITY" to china, then KSA and its sponsored terrorists can gain an upper hand on china via the UIGHUR TERRITORY thus dislodging chinese efforts in suppression of practice of islam in East Turkestan.
pak will be able to control the energy security of china.
well!! that must be the reason why the chinese must have opposed the KSA plans to invest in CPEC.

CPEC is never for pakistani interests but only and only for the interest of china.

This is what surprises me. How did China even allow the porkis to talk to KSA about joining CPEC. Porkis can't decide alone who joins. China is the daddy who makes calls on who gets to join.

 

[NeXoft007]

We could see a repeat of 1963 China-Pak Land Swap in case Pakistan fails to repay debts.

 

[Flame Thrower]

We could see a repeat of 1963 China-Pak Land Swap in case Pakistan fails to repay debts.

If the swap in Gilgit, then we'll definitely see some sort of clashes, maybe minor ones. But we'll surely see.

China is already taking lot of heat on trade war. They'd definitely don't want to fight a real war especially when winter and elections are upon us.

If there is Indo China conflict, and if we could get back all the parts of lost Kashmir, that would be.......well I am dreaming a lot.

Land swap would most likely Gwadar port. But is China ready to fight BLF (obviously armed by CIA). Pak Army and soon Iran might support (mostly indirectly). If China takes land swap i.e Gwadar Port, then it will be a cluster fuck. China might get it's own Vietnam. US, definitely makes sure of it.

I think land swap is out of question, at least not when Modi is around. Plus China knows about Paki terror institutions and their ability to attack Chinese.