CAD to swell further by 2022

[Pak Nationalist]

“Where will the exchange rate go if it’s left completely independent? What’s the point in building foreign exchange reserves if they are not stabilizing the exchange rate?” he said while noting that the rate is at an all-time high of almost Rs170 although the reserves have increased to $20bn from $15bn in May when the parity was around Rs152. “I don’t get it. What kind of economics is it?”

He called the external sector Pakistan’s main problem and blamed the recurring economic crises on the 1991 decision by the Nawaz Sharif government to dismantle financial controls. “Its disastrous impact is still unfolding,” he said, adding that liberalizing the economy turned it into a shutur-e-be-mahaar or a camel without a harness.

“Private capital has taken over the world. You have to make policies that are conducive to private capital in order to attract it,” he said.

He criticized the export-oriented sectors for continuously demanding incentives and privileges. “All exporters are rent-seekers,” he said, adding that the country has no exportable surplus.

He supported Monsanto, a controversial American company known for producing genetically modified seeds, saying that its entry to Pakistan was blocked by vested interests that sold poor-quality Bt cotton seeds.//

Axed aide to PM sees current account deficit surging in FY22

"You have to make policies that are conducive to private capital in order to attract it," says Dr Waqar Masood Khan.

www.dawn.com

Despite all the freebies being extended to the exports sector, what is the total size of the increase in exports proceeds they have given us? Comparing that with the quantum of raw material imports might also be a good idea.

 

[Pak Nationalist]

PKR's devaluation in 2018 began from 105 to a dollar, and now it stands at the cusp of breaching the 170 mark. Some of this was the delayed effect of devaluing the domestic tender, which was artificially supported by burning reserves by PML N. Each bout of devaluation increases external debt and shrinks the size of our GDP.

 

[ziaulislam]

PKR's devaluation in 2018 began from 105 to a dollar, and now it stands at the cusp of breaching the 170 mark. Some of this was the delayed effect of devaluing the domestic tender, which was artificially supported by burning reserves by PML N. Each bout of devaluation increases external debt and shrinks the size of our GDP.

Rupee was suppose to be at 200 in 2018 but due to better perfoemancr it never happened

CAD is okay as long as it stays at 2% or 6b$ per year
In 2018 it was 24b$(2+b$ for 4 months)

“Where will the exchange rate go if it’s left completely independent? What’s the point in building foreign exchange reserves if they are not stabilizing the exchange rate?” he said while noting that the rate is at an all-time high of almost Rs170 although the reserves have increased to $20bn from $15bn in May when the parity was around Rs152. “I don’t get it. What kind of economics is it?”

He called the external sector Pakistan’s main problem and blamed the recurring economic crises on the 1991 decision by the Nawaz Sharif government to dismantle financial controls. “Its disastrous impact is still unfolding,” he said, adding that liberalizing the economy turned it into a shutur-e-be-mahaar or a camel without a harness.

“Private capital has taken over the world. You have to make policies that are conducive to private capital in order to attract it,” he said.

He criticized the export-oriented sectors for continuously demanding incentives and privileges. “All exporters are rent-seekers,” he said, adding that the country has no exportable surplus.

He supported Monsanto, a controversial American company known for producing genetically modified seeds, saying that its entry to Pakistan was blocked by vested interests that sold poor-quality Bt cotton seeds.//

Axed aide to PM sees current account deficit surging in FY22

"You have to make policies that are conducive to private capital in order to attract it," says Dr Waqar Masood Khan.

www.dawn.com

Despite all the freebies being extended to the exports sector, what is the total size of the increase in exports proceeds they have given us? Comparing that with the quantum of raw material imports might also be a good idea.

Exports dont go up in a day
It takes decades of work

Yet surprisngly exports are growing at healthy pace of 5-6%

 

[Pak Nationalist]

A consumption-led economy CANNOT grow sustainably, and sustainable growth comes from manufacturing-led growth, as seen in China and BD. In the case of India, it was services-led growth (the IT sector fuelled the engine of growth). In our case, even domestic manufacturing requires imported inputs to produce goods for domestic and export customers. Consider the automobile industry, for example. Another major rent seeker demands concessions but has been singularly unable to develop downstream industries/domestic vendors as part of its supply chain to produce automobiles. Instead, it relies on imports of completely knocked down and semi-knocked down kits that are mated/assembled in Pakistan. The economic geniuses advising PTI take inspiration from Musharraf economics. The banks are rolling out historic credit financing car loans. This availability of cheap credit is, in fact, financing imports growth. The freaking cheap credit that should be readily available to small and medium enterprises, which become the conduits for import substitution and unlock greater opportunities to achieve scale when cheap credit becomes available to them, is instead being used to finance imports so the automobile industry could import most car parts and assemble cars domestically and the incumbent political party could get to show shiny LSM growth numbers.

 

[HammerHead081]

Its simple that we won't show a 4%+ GDP growth unless we let imports up. That is what is currently happening, if we restrict imports then GDP growth rate will stay at 1-2.5% which is abysmal. The only solution to all of this is to keep on taking loans and invest into sectors which will increase large scale manufacturing. Rupee will keep on sliding but we have to let it slide and not use our forex reserves. There is no other option left, this is the only way.

PMLN fastened up the depreciation in rupees in later years because PTI were literally left with no forex reserves since PMLN used it all up to keep rupee stable which was honestly financial terrorism.

 

[Pak Nationalist]

Rupee was suppose to be at 200 in 2018 but due to better perfoemancr it never happened

CAD is okay as long as it stays at 2% or 6b$ per year
In 2018 it was 24b$(2+b$ for 4 months)

Exports dont go up in a day
It takes decades of work

Yet surprisngly exports are growing at healthy pace of 5-6%

5-6% is healthy? The benefits extended to the export sector are not free. We are basically subsidizing exports through our budget and from the revenue side. Is the growth in exports comparable to the growth in imports? What is the quantum of raw material import and its growth compared? CAD of 6 billion USD is highly optimistic considering the pace of growth in imports. Please save this thread; we would have way higher CAD by the end of this FY. All incumbents, their finance ministries, and the state bank make similar projections when the economy begins overheating. Their forecasts are always wrong and only meant to soothe the nerves of the business community. Don't buy these, be critical and look at the figures yourself.

 

[Pak Nationalist]

Its simple that we won't show a 4%+ GDP growth unless we let imports up. That is what is currently happening, if we restrict imports then GDP growth rate will stay at 1-2.5% which is abysmal. The only solution to all of this is to keep on taking loans and invest into sectors which will increase large scale manufacturing. Rupee will keep on sliding but we have to let it slide and not use our forex reserves. There is no other option left, this is the only way.

Increasing the supply of CHEAP credit to SMEs and forcing banks to lend to them is the answer. Banks do not lend to SMEs, fearing defaults, and defaults would always take place, and loans would go bad. Banks want to make easy money just like everyone else in this country by investing in govt papers (debt), extending cheap car financing loans to the middle class (swelling the import bill), etc. Risk is part and parcel of the game. However, there would also be SMEs that would be able to achieve scale when cheap credit is available to them, create exportable surpluses, increase economic productive capacity and employment. SMEs could also go about the task of import substitution, which is our Achilles heel. Secondly, you have to clamp down on the locking of capital in the speculative sectors. Real estate is the foremost one. Anyone with some capital in this country considers it the safest investment. That is where capital goes to die. Once you make SMEs lucrative and speculation expensive, private capital will begin flowing towards risky but dividend-yielding manufacturing investments. The investor would see where the demand is. Demand exists for raw products for upstream industries that otherwise have to source expensive inputs from abroad; the investor will set up their business to meet that demand. This is how you organically unleash the potential productive capacity of your economy, substitute imports, grow exports, grow the economy sustainably, create wealth and prosperity.

 

[The Accountant]

China started economic reforms in 1979 and they were not even in top 10 exporters in 2000. It took 2t years of reforms to give them benfits.

India was about to bankrupt in 1991 and was in worst condition then we r today. They started reaping benefit in 2007 i e. After 16 years they were able to cross gdp per capita of Pakistan.

All in all its a long haul. We need to build our production capacity.

We need to make our business profitable. These structural changes of adjusting the exchange rate as per market, increase in commodity prices will make the business and farmers profitable.

We will be able to feel the benefits in 10 years time.

U have to invest on a child by sending him school college and university. U dont expect him to earn for u or deliver after 3rd class. Do u? U have to bear the fees for 16 to 18 years only then he will be able to earn for 40 years.

Same is case with Pakistan. We have to work hard for somtime to get the benefits in future.

Dont we remember our market filled with cheap chinese products? We destroyed our production base. Now with increase in dollar they r back in business but it need time to establish production capability.

 

[HammerHead081]

Increasing the supply of CHEAP credit to SMEs and forcing banks to lend to them is the answer. Banks do not lend to SMEs, fearing defaults, and defaults would always take place, and loans would go bad. Banks want to make easy money just like everyone else in this country by investing in govt papers (debt), extending cheap car financing loans to the middle class (swelling the import bill), etc. Risk is part and parcel of the game. However, there would also be SMEs that would be able to achieve scale when cheap credit is available to them, create exportable surpluses, increase economic productive capacity and employment. SMEs could also go about the task of import substitution, which is our Achilles heel. Secondly, you have to clamp down on the locking of capital in the speculative sectors. Real estate is the foremost one. Anyone with some capital in this country considers it the safest investment. That is where capital goes to die. Once you make SMEs lucrative and speculation expensive, private capital will begin flowing towards risky but dividend-yielding manufacturing investments. The investor would see where the demand is. Demand exists for raw products for upstream industries that otherwise have to source expensive inputs from abroad; the investor will set up their business to meet that demand. This is how you organically unleash the potential productive capacity of your economy, substitute imports, grow exports, grow the economy sustainably, create wealth and prosperity.

Yes those would be the right steps to do but at the moment government isn't doing anything wrong either. But we demand more for them, to make these changes. BTW the biggest hurdle the banks have in lending out loans to SMEs is our police. The police is corrupt and not strong enough to make sure agreements/contracts are completed as promised. The court system is extremely slow and corrupt as well to make sure that contracts aren't breached, if they are breached then the preparators are punished. I remember hearing how a new company started manufacturing in Balochistan province where the local militia blackmailed them to give them money (like a mafia) or else they will be attacked, the owner refused and next day he was attacked (I tried to find this news but couldn't). Our police is not strong and there are big security issues in the country.

 

[Pak Nationalist]

Rupee was suppose to be at 200 in 2018 but due to better perfoemancr it never happened

CAD is okay as long as it stays at 2% or 6b$ per year
In 2018 it was 24b$(2+b$ for 4 months)

Exports dont go up in a day
It takes decades of work

Yet surprisngly exports are growing at healthy pace of 5-6%

BTW, 1.2 billion USD have already been burned by the SBP in the past few months (Dar economics) to stem further devaluation of PKR.

 

[HammerHead081]

BTW, 1.2 billion USD have already been burned by the SBP in the past few months (Dar economics) to stem further devaluation of PKR.

Use of forex reserves by SBP at peak time of rupee depreciation/speculation isn't necessarily always a bad thing as long as your reserves are still healthy which they are atm at $24B.

 

[Pak Nationalist]

Rupee was suppose to be at 200 in 2018 but due to better perfoemancr it never happened

CAD is okay as long as it stays at 2% or 6b$ per year
In 2018 it was 24b$(2+b$ for 4 months)

Exports dont go up in a day
It takes decades of work

Yet surprisngly exports are growing at healthy pace of 5-6%

Taking loans from friendly states after being sworn into power and then going to IMF is what selvedged the situation. It is fairly easy to apply brakes on CAD in Pakistan at the cost of growth, all previous governments achieved that in the macroeconomic stabilization phase. What follows is where the actual challenge is when the economy begins growing again once some pressures are removed. That is where the structural imbalances in the economy rear their head again because no one embarks on the journey to fix them in the first place. Everyone just does firefighting (macroeconomic stabilization in 2-3 years) and then spends their way to win the election (in the process taking everything back to square one).

Yes those would be the right steps to do but at the moment government isn't doing anything wrong either. But we demand more for them, to make these changes. BTW the biggest hurdle the banks have in lending out loans to SMEs is our police. The police is corrupt and not strong enough to make sure agreements/contracts are completed as promised. The court system is extremely slow and corrupt as well to make sure that contracts aren't breached, if they are breached then the preparators are punished. I remember hearing how a new company started manufacturing in Balochistan province where the local militia blackmailed them to give them money (like a mafia) or else they will be attacked, the owner refused and next day he was attacked (I tried to find this news but couldn't). Our police is not strong and there are big security issues in the country.

The rule of law is a problem, but as I said, loans would always go bad; that's just the nature of the job. The job of banks in an economy is to arrange cheap credit for businesses to expand. Banks have grown fat for decades relying on easy investments. Without access to cheap credit, SMEs cannot achieve scale.

 

[Maula Jatt]

China started economic reforms in 1979 and they were not even in top 10 exporters in 2000. It took 2t years of reforms to give them benfits.

India was about to bankrupt in 1991 and was in worst condition then we r today. They started reaping benefit in 2007 i e. After 16 years they were able to cross gdp per capita of Pakistan.

All in all its a long haul. We need to build our production capacity.

We need to make our business profitable. These structural changes of adjusting the exchange rate as per market, increase in commodity prices will make the business and farmers profitable.

We will be able to feel the benefits in 10 years time.

U have to invest on a child by sending him school college and university. U dont expect him to earn for u or deliver after 3rd class. Do u? U have to bear the fees for 16 to 18 years only then he will be able to earn for 40 years.

Same is case with Pakistan. We have to work hard for somtime to get the benefits in future.

Dont we remember our market filled with cheap chinese products? We destroyed our production base. Now with increase in dollar they r back in business but it need time to establish production capability.

Lol we'll need to rig elections cause PMLN never believed in exports in the first place

And as of now if we don't rig elections, they'll win

 

[Pak Nationalist]

Use of forex reserves by SBP at peak time of rupee depreciation/speculation isn't necessarily always a bad thing as long as your reserves are still healthy which they are atm at $24B.

These were healthy back in PML N's time as well. Built back then on borrowed money, same as now. The point I was making was that Dar economics that was criticized by the incumbents is back well and truly.

China started economic reforms in 1979 and they were not even in top 10 exporters in 2000. It took 2t years of reforms to give them benfits.

India was about to bankrupt in 1991 and was in worst condition then we r today. They started reaping benefit in 2007 i e. After 16 years they were able to cross gdp per capita of Pakistan.

All in all its a long haul. We need to build our production capacity.

We need to make our business profitable. These structural changes of adjusting the exchange rate as per market, increase in commodity prices will make the business and farmers profitable.

We will be able to feel the benefits in 10 years time.

U have to invest on a child by sending him school college and university. U dont expect him to earn for u or deliver after 3rd class. Do u? U have to bear the fees for 16 to 18 years only then he will be able to earn for 40 years.

Same is case with Pakistan. We have to work hard for somtime to get the benefits in future.

Dont we remember our market filled with cheap chinese products? We destroyed our production base. Now with increase in dollar they r back in business but it need time to establish production capability.

What gives you cause for optimism that we are on the right track? I would share your optimism if our exports were growing briskly and we had begun elevated levels of FDI. None of that is happening. In fact, we are projected to have our highest ever import bill this year. PKR is the worst-performing currency in Asia.

 

[HammerHead081]

These were healthy back in PML N's time as well. Built back then on borrowed money, same as now. The point I was making was that Dar economics that was criticized by the incumbents is back well and truly.

The issue is that he used up all reserves to stable rupee and not let it depreciate. Our reserves literally depleted from $25B to $9B. How is this comparable when even after SBP used up money, they are still at $24B...