Pakistan Economy: News & Discussion

indiatester

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Has IMF failed Pakistan?
Mohammad Zubair Khan Published March 10, 2023 Updated about 4 hours ago
PAKISTAN stands on the brink of default even as it remains engaged with the IMF at the tail end of a three-year programme. While the country’s economic woes are rooted in its own inept policies, IMF has escaped scrutiny of its stabilisation programmes that have failed to put Pakistan on a sustainable path in 22 attempts and certainly needing another programme immediately after this one concludes.

The journey to the brink has been a long one. Throughout the development experience of Pakistan, irresponsible government expenditures led to chronic fiscal deficits, mounting debt and rising interest payments, contributing to excessive domestic demand spilling into external imbalances and loss of reserves. With scant attention to competitiveness, export performance remained weak. Hence, Pakistan experienced persistent foreign exchange crises, forcing the country to seek IMF programmes. Each time, IMF programmes built reserves with borrowed funds, paying previous debts with new loans and arranging financing for foreign exchange shortfalls from various sources. Programmes were approved if creditors could be repaid, not necessarily if Pakistan would be able to stand on its feet.

But inevitably, crises re-emerged soon after the programmes ended because the fundamental issue of increasing foreign exchange earnings for import needs remained unaddressed or aggravated. The programmes failed to recognise that competitiveness is more than the real effective exchange rate in the post-WTO trading world.

Further, in its narrow focus on reducing fiscal imbalances through revenue measures of every kind, Fund programmes paid little heed to the impact of tax measures on investment, resource allocation, economic activity, export promotion and income distribution. As a result, exports remained stagnant, investment rates low and SMEs collapsed in recent years with rampant unemployment. Increasing allocations for income support programmes is neither sustainable nor a substitute for policies to support the robust growth of SMEs and agriculture.

During the current 22nd programme, Pakistan has largely followed the IMF stabilisation programme but like many democratic governments living and spending in the present while ignoring the medium-term consequences of accumulating expensive debt, both governments during the programme period failed to contain expenditures, which exceed 20 per cent of GDP.

With a blind eye towards expenditure growth, the IMF insisted on complex tax measures, ignoring their impact on economic activity and resource allocation to the detriment of growth and competitiveness. Consequently, as governments failed to achieve revenue targets, the IMF forced further stifling tax measures. Growth has slumped below 2pc, exports are declining further from a low level, aggravating the foreign exchange crisis, and inflation has steadily increased from single digits to a historical high of 40pc.

IMF’s dogmatic reliance on higher interest rates to contain inflation and attracting capital inflows to build reserves has proved unsuccessful, because private-sector spending in Pakistan, unlike in more developed economies, isn’t driven by credit, while short-term inflows are unstable for Pakistan, with long-term external liabilities.

Also, high interest rates have crippled industry and increased the burden on the budget; claiming Rs5.2 trillion, over 60pc of all tax revenues. While globally, post-2008 financial crisis, countries have pursued financial repression, keeping interest rates low in response to debt accumulation, IMF has prescribed ever-increasing interest rates in Pakistan, which have risen from 11pc to 20pc over three years, further contributing to increased public debt to over 80pc of GDP.

Despite high interest rates, inflation has steadily risen, raising the cost of doing business, and dampened investment and exports. The IMF prescription to protect interest incomes of banks and creditors from the erosion of inflation has rewarded the rich but failed to protect the poor from the burden of inflation. The most recent increase in interest rates of 300 basis points to 20pc has drained Rs600 billion from budgetary resources that the Fund prescribes to be offset by an increase in sales tax, a burden borne by the poor.

Even if Pakistan reaches an agreement with the IMF to avoid an imminent default before June 2023, the economic crisis would have been postponed, not overcome. And this would have been achieved through severe import controls that have left thousands of containers stranded in ports, closed down industry and reduced exports, besides creating shortages of essential medicines and food items. Looking ahead, Pakistan will need another IMF programme in July, but it must be a stronger homegrown adjustment programme or restructure its debt.

The writer holds a PhD from Johns Hopkins in political economy and has been on the staff of the IMF.

Published in Dawn, March 10th, 2023
I had a sharp friend who saw me playing chess one day.

He goes, I can beat you in chess.... but you gotta teach me the basics.
I showed him the basics and he set a time to play a week later.

A week later he plays against me and loses.
He immediately goes... "you did not teach me well" :pound::pound:

I did not see that coming... bugger... he played hyped me up for a week...

What my friend did for fun... pakis actually believe in!
 

Bharatiya

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Any truth or usual cope?
Their national reserves are some $4.3 Billion. The rest are owned by citizens. Govt can't claim them.

Paki had some $2.5 Billion reserves, then it got a $700 M loan from China. Recently, another $1.5 loan. This pushed their reserves up. So, they're back to where they were just a few months ago but with an additional $2.2 Billion debt. Ironically, that $1.5 Billion is the loan Pakistan paid back to China just a few months ago. It's fricking funny and a recipe to disaster.

But all of this is peanuts compared to what's actually going on in Pakistan's domestic economy. They're rejoicing that their imports are falling, bringing down the trade deficit. But exports are also falling at the same time.

A lot of domestic production is being hit. Factories are firing workers, running at far below their capacities and worse, many are shutting down. In essence, Pakistan is de-industrializing and hence, committing an economic suicide. This pain might not be felt for now but in the long run, their economy or whatever is left of it, will suffer tremendously. It's only a question of when.
 

Lord Darklord

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Short-term inflation, measured by the Sensitive Price Index (SPI), is expected to intensify further as the full impact of depreciation, hike in general sales tax rate and higher energy prices has yet to reflect in official data.
 

Lord Darklord

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KARACHI: Dark clouds continued to hover over the auto sector as overall sales of cars, vans, pickups and light commercial vehicles (LCVs) posted a 73 per cent year-on-year drop in February to 5,762 units which is the lowest monthly sales number after 4,500 units in May 2020.
Indian Feb 2023 figures:
167779.jpg


20th most selling Indian car model still outsells the entire Pakistani auto sector.
 

Love Charger

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I had a sharp friend who saw me playing chess one day.

He goes, I can beat you in chess.... but you gotta teach me the basics.
I showed him the basics and he set a time to play a week later.

A week later he plays against me and loses.
He immediately goes... "you did not teach me well" :pound::pound:

I did not see that coming... bugger... he played hyped me up for a week...

What my friend did for fun... pakis actually believe in!
I didn't understand after the "you did not teach me well " Part kindly elaborate please in simple language.
 

The Juggernaut

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Dar ‘sabotaged’ deal with IMF, claims Miftah
Former finance minister says the international money lender lacks ‘interest’ in giving money to Pakistan.

Pakistan Muslim League-Nawaz (PML-N) leader Miftah Ismail has blamed Finance Minister Ishaq Dar to have “sabotaged” the deal with the International Monetary Fund (IMF).

Former finance minister Miftah Ismail made these remarks in a session titled 'Pakistan in the midst of crisis' in Karachi on Wednesday.


Raising alarm over the long-due continuation of the deal with the international money lender, Miftah claimed: “IMF lacks ‘interest’ in giving money to cash-strapped Pakistan.”

Recalling his dealing with the lender while he was heading the country’s finances, Miftah claimed to have persuaded the IMF to trust the country on fulfilling commitments until Dar was sworn in – indicating that the current finance minister did harm to the good terms with the financial institution.

He recalled that Pakistan has gone back on commitments three times.

'Petrol subsidy formula ineffective'

Reflecting on the petrol subsidy announced by the government on Sunday, Miftah said that he believed that formula would not be effective.

“We provide subsidies on petrol by taking loans,” he said.

Since the government announced the petroleum subsidy — which initially amounted to Rs50 per litre amount and was later increased to Rs100 per litre — several red flags were raised as analysts and economic experts have been criticising the move as it may jeopardise the ongoing struggle to convince the IMF board.

IMF’s resident representative for Pakistan Esther Perez Ruiz had also clarified that said the international money lender wasn’t consulted on the government’s plan to raise fuel prices for wealthier motorists to finance a subsidy for lower-income people.

“Fund staff is seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities,” she said.

This is not the first time petrol price subsidies have been a sticking point for the IMF. The previous government led by former premier Imran Khan had given out petrol subsidies, which stalled the IMF programme last year.

Warning of the risks, Miftah mentioned that if Pakistan defaults, it would be a grave situation for the country as people belonging to the rich segment will bear the brunt but the poor people won’t be able to make ends meet.
 

The Juggernaut

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February me news thi.


Pakistan: Oil industry on verge of collapse, largest refinery shuts for a week amid severe economic crisis

Pakistan is facing unprecedented economic crisis with people running riots over shortage of basic necessities like flour.

On January 31, the largest Pakistani refinery wrote a letter to the Ministry of Energy (Petroleum Division) informing them that from February 2, 2023, to February 10, 2023, the refinery would remain shut due to a shortage of crude oil. Cnergyico PK Head of Consumer Sales Syed Adeel Azam said in the letter that the shutdown was in line with the ‘crude oil vessel arrival timeline’. The refinery has a processing capacity of 1,56,000 barrels per day.

A week before, Oil Companies Advisory Council (OCAC) had written a letter to the Oil and Gas Regulatory Authority (OGRA) informing the body about the crisis the industry was facing. OCAC said in the letter that the industry was on the brink of collapse and immediate steps were needed to be taken to “arrange financing to ensure imports”.

Pointing out the depreciation of the Pakistani rupee and its effect on imports, OCAC said, “Due to the increase in oil prices and successive depreciation of Pakistani rupee over the last 18 months, the trade finance limits available from the banking sector have become inadequate. As a result of the recent devaluation alone, the LC (letter of credit/ import) limits have shrunk overnight by 15-20%.”

It added, “It is requested that the banking sector be immediately requested through the State Bank of Pakistan to enhance the limit of our member companies (including Cnergyico).”

Not only had the economic condition of the country but the floods in 2022 hindered the transport of crude oil to the refinery as the roads and bridges were washed away. Though alternate routes were adopted the losses continued to rise.

As per the Geo News report, cash-strapped Pakistan’s government removed the dollar cap to the conditions laid down by the International Monetary Fund. It resulted in the historic fall of Pakistani currency in the interbank market. Currently, it is trading at 277.81 Pakistani rupees per US Dollar. Removing the dollar cap was one of the conditions to resume the bailout. Other conditions included easing fuel subsidies and more.

As per reports, the letters of credit (LCs) were also restricted by the government amidst the falling foreign exchange reserves. As of January 27, Pakistan’s USD reserve was as low as 3,086.2 million which could only be enough for 18 days’ worth of imports.

Energy imports comprise a major share of the country’s import bills. Over one-third of the annual power, demand is met by imported natural gas. Since the Russia-Ukraine war started, its price has skyrocketed in the international market creating a dominos effect in the cash-strapped neighbouring country.

Notably, Pakistan is using frequent blackouts leaving millions of people in dark to save fuel. Furthermore, in a recent order, the government of Pakistan ordered businesses, restaurants, malls and marriage palaces to shut down early to save electricity. Amidst the crisis, the country’s luxury car imports continued to make a dent in the foreign reserves.

5 February, 2023
 

Tshering22

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How the hell are they getting their oil financed? Russia doesn't accept dollars and PKR means nothing to the Russians. Putin is in no position to give credit lines to failed states. Look at this:

Pakistan just became the latest country to snap up cheap Russian oil

1682034956063.png


Is it possible that the bloody Rothschilds are funding this separately from their IMF and WB finances?

They after all, are rumoured to own all the western banks.
 

NutCracker

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How the hell are they getting their oil financed? Russia doesn't accept dollars and PKR means nothing to the Russians. Putin is in no position to give credit lines to failed states. Look at this:

Pakistan just became the latest country to snap up cheap Russian oil

View attachment 201221

Is it possible that the bloody Rothschilds are funding this separately from their IMF and WB finances?

They after all, are rumoured to own all the western banks.
Yuan.. Porkies tying themselves deeper into Chinese trap
 

Blademaster

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How the hell are they getting their oil financed? Russia doesn't accept dollars and PKR means nothing to the Russians. Putin is in no position to give credit lines to failed states. Look at this:

Pakistan just became the latest country to snap up cheap Russian oil

View attachment 201221

Is it possible that the bloody Rothschilds are funding this separately from their IMF and WB finances?

They after all, are rumoured to own all the western banks.
It’s not even confirmed by the Russians!!!
 

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