Current account deficit increases by 100pc

[Ryuzaki]

ISLAMABAD - The current account deficit of Pakistan has shown 100 increase during the July-October period, indicating poor financial management and lack of proper handling of the accounts of the country. According to the report of SBP released on Monday, regarding the current account status of the country, the State Bank reported that there has been 100pc increase in the current account deficit of the country in July-Oct 2017. SBP said the current account deficit has been increased from US dollars 2.25 billion to 5 billion during July-Oct 2017 as compared to same months last year.

http://nation.com.pk/21-Nov-2017/current-account-deficit-increases-by-100pc

 

[PatriotLover]

What are the consequences?

 

[Imad.Khan]

What are the consequences?

bankruptcy which will lead to the poor shouldering more burden via indirect taxes and which will also make everything so much more expensive that people will not be able to survive.

Similar situation that happened in Somalia.

 

[ziaulislam]

What are the consequences?

none in short term
most of the countries have CAD of 2-3% of GDP
e.g for india its 2.4
https://tradingeconomics.com/india/current-account

however, issue is here is the trend, if you purley count numbers our CAD was around around 2% last year(actually better than india lol) but point is the trend, trend is not good

but remeber trend is not a trend without 3-4 figures, so this value has no real menaing till we see the years end result

one will argue why is our CAD not horrible if our exports are so bad
, or i would say horrible of around just 21 billion or so!

answer is remittances, pakistan remittances are higher than its exports, per capita wise its nearly 3X higher than india(in total value ~19billion vs 65 billion)

bankruptcy which will lead to the poor shouldering more burden via indirect taxes and which will also make everything so much more expensive that people will not be able to survive.

Similar situation that happened in Somalia.

never leads to bankruptcy, will lead to devaluation first

 

[PatriotLover]

none in short term
most of the countries have CAD of 2-3% of GDP
e.g for india its 2.4
https://tradingeconomics.com/india/current-account

however, issue is here is the trend, if you purley count numbers our CAD was around around 2% last year(actually better than india lol) but point is the trend, trend is not good

but remeber trend is not a trend without 3-4 figures, so this value has no real menaing till we see the years end result

one will argue why is our CAD not horrible if our exports are so bad
, or i would say horrible of around just 21 billion or so!

answer is remittances, pakistan remittances are higher than its exports, per capita wise its nearly 3X higher than india(in total value ~19billion vs 65 billion)



never leads to bankruptcy, will lead to devaluation first

So we still have time to rectify.

 

[AyanRay]

none in short term
most of the countries have CAD of 2-3% of GDP
e.g for india its 2.4
https://tradingeconomics.com/india/current-account

however, issue is here is the trend, if you purley count numbers our CAD was around around 2% last year(actually better than india lol) but point is the trend, trend is not good

but remeber trend is not a trend without 3-4 figures, so this value has no real menaing till we see the years end result

one will argue why is our CAD not horrible if our exports are so bad
, or i would say horrible of around just 21 billion or so!

answer is remittances, pakistan remittances are higher than its exports, per capita wise its nearly 3X higher than india(in total value ~19billion vs 65 billion)



never leads to bankruptcy, will lead to devaluation first

OK, point 1- India's current account deficit was below 1% last fiscal year. The link which you have provided is only for the 1st qtr of this year, things improved after than.
Point 2- Pakistan's CAD was more than 4% last fiscal year and it will worsen this year.
Point 3- India has a 400B USD forex reserve to service its BOP/CAD situation. Pakistan doesn't have this luxury.

So, yes, its a crisis situation for Pakistan.

 

[SunilM]

Pakistan is issuing bonds worth 3 Billion dollar . Deficit financing through dollar loans is fraught with dangers. After this loan, the outstanding liability will cross 80 billion dollars. Pakistan's forex is down to 13.6 billion in this quarter and that is when it has already taken short term commercial dollar dominated loans of 703 million dollars (July-September) of the current fiscal year 2017-18 with different foreign banks.

Apart from this, SBP borrowed a whopping $3.93 billion mainly from commercial banks for up to three months to artificially sustain official foreign exchange reserves..So the actual Forex held by SBP as on date is JUST 9.6 billion dollars.

Now keeping the aforesaid facts in mind this statement by the SBP " SBP said the current account deficit has been increased from US dollars 2.25 billion to 5 billion during July-Oct 2017 as compared to same months last year." should ring alarm bells in my humble opinion.

And all this while there is political turmoil in the country and the Finance minister refuses to resign inspite of being declared an Absconder by the NAB court and the Nawaz Sharif Government looks shaky with all the dissent / defections.

I have collated all this data in one place, so that members can have a meaningful discussion on this issue. Time is of the essence for Pakistan and unfortunately it might have to revert to IMF. This will lead to a significant devaluation of the Pakistani Rupee which is going to hurt the poor the most. That I suppose is the cost of financial mismanagement which is always borne by the poor who get affected the most!.

P.s. : I cant post links to corroborate the aforesaid facts due to forum policy.

 

[Sharpshooter12]

I have collated all this data in one place, so that members can have a meaningful discussion on this issue. Time is of the essence for Pakistan and unfortunately it might have to revert to IMF. This that will lead to a significant devaluation of the Pakistani Rupee which is going to hurt the poor the most. That I suppose is the cost of financial mismanagement which is always borne by the poor who get affected the most!.

Pakistani currency is overvalued by at-least 15-20% according to IMF. The main reason is that government made exchange rate an ego issue after some opposition leaders predicted a devaluation after IMF report. This is affecting our trade balance in a very bad way. Our exports are becoming expensive and while imports are becoming cheaper, hence a trade deficit of $33 Billion. The situation is untenable and devaluation will be the right thing to do.

I mean look at the chart, considering our economic condition this actual appreciation in value of PKR is ridiculous.

 

[SunilM]

You rightly state that the PKR is overvalued. Infact, market forces should determine the exchange rate and the central bank should intervene only when required and with the sole intent of maintaining stability and to ensure there are no abrupt disruptions.

DarOnomics has severely damaged your economy and its his ego and Nawaz Sharif's blind trust/incompetence in understanding even basic economic affairs which has led to such a alarming situation. The problem is the effect of devaluation as well as the extent of the devaluation on Pakistan's External Debt and inflation. An we have not even taken into account the domestic debt and circular debt which is massive and has its own effect on inflation.

An increase of 11.23 percent has been recorded in Pakistan’s public debt in August as it has increased to Rs21.770 trillion from Rs19.572 trillion in August 2016. This is massive JUST MASSIVE. "Power sector''s circular debt has reached Rs 750 billion of which Rs 421 billion falls squarely in the government''s definition of circular debt whereas Rs 327 billion is parked in the books of Power Holding (Private) Limited (PHPL), well informed sources told Business Recorder. The stock of circular debt is 20 percent higher than the maximum stock of Rs 350 billion agreed with the International Monetary Fund (IMF)." Thats around 7 Billion dollars as of now and one is not taking into account the award made against Pakistan in various International arbitrations. Also at the same time the price of oil has increased 63-64 dollars as of now which will have its own affect on CAD in the coming months and the deficit will only increase.

Keeping the aforesaid in mind, you can expect inflation to touch 10-15 % at alteast. Are the majority of the Pakistanis ready to bear such a burden? I will give you an example. In Pakistan Suzuki still manufactures Suzuki Mehran and sells it for 6-7 lakh PKR, a car which ought to be have been condemned to the pages of history. Goes on to show the value and buying power of the PKR. Inflation is a terrible thing and a sudden shock of a high inflation regime will be even more devastating for the economy.

Surely, its the economy which needs to be discussed and the effect of loans amounting to 35-40 billion dollars which have been taken in the last four years to prop up the economy and how Pakistan intends to deal with the situation now.

 

[VCheng]

........

An increase of 11.23 percent has been recorded in Pakistan’s public debt in August as it has increased to Rs21.770 trillion from Rs19.572 trillion in August 2016. This is massive JUST MASSIVE. "Power sector''s circular debt has reached Rs 750 billion of which Rs 421 billion falls squarely in the government''s definition of circular debt whereas Rs 327 billion is parked in the books of Power Holding (Private) Limited (PHPL), well informed sources told Business Recorder. The stock of circular debt is 20 percent higher than the maximum stock of Rs 350 billion agreed with the International Monetary Fund (IMF)." Thats around 7 Billion dollars as of now and one is not taking into account the award made against Pakistan in various International arbitrations. Also at the same time the price of oil has increased 63-64 dollars as of now which will have its own affect on CAD in the coming months and the deficit will only increase.

Keeping the aforesaid in mind, you can expect inflation to touch 10-15 % at alteast. Are the majority of the Pakistanis ready to bear such a burden? I will give you an example. In Pakistan Suzuki still manufactures Suzuki Mehran and sells it for 6-7 lakh PKR, a car which ought to be have been condemned to the pages of history. Goes on to show the value and buying power of the PKR. Inflation is a terrible thing and a sudden shock of a high inflation regime will be even more devastating for the economy.

Surely, its the economy which needs to be discussed and the effect of loans amounting to 35-40 billion dollars which have been taken in the last four years to prop up the economy and how Pakistan intends to deal with the situation now.

@Chak Bamu Sir, would you regard the figures and situation given in the above post as being alarmist or factual?

 

[SunilM]

@Chak Bamu Sir, would you regard the figures and situation given in the above post as being alarmist or factual?

Just to clarify, The post is based on a situation where the Pak Govt carries out 15-20% devaluation of the PKR. Also as an interesting data point, I would like to see the interest rate at which Pak Govt issues the Euro/Sukuk bond. Just last week Reliance Industries raised $800 million by selling 10-year bonds at 3.66 per cent.

 

[VCheng]

Just to clarify, The post is based on a situation where the Pak Govt carries out 15-20% devaluation of the PKR. Also as an interesting data point, I would like to see the interest rate at which Pak Govt issues the Euro/Sukuk bond. Just last week Reliance Industries raised $800 million by selling 10-year bonds at 3.66 per cent.

What happens to the value of the PKR and how rapidly would be an interesting thing to watch in the coming months, for sure. The ramifications will be widespread.

 

[Tim Archer]

When it comes to macro economic discussions, at least in this forum, I have seen pakistanis THE MOST incompetent ! PERIOD.

This is an experience from months of reading forum posts before registration of course

 

[Chhatrapati]

When it comes to macro economic discussions, at least in this forum, I have seen pakistanis THE MOST incompetent ! PERIOD.

This is an experience from months of reading forum posts before registration of course

Defence forum, don't expect everyone to start talking about credits, deficits, base borrowing rates etc... while most of the members here are not economists. They post/learn (not sure how much they do) by googling keywords.

 

[protest]

When it comes to macro economic discussions, at least in this forum, I have seen pakistanis THE MOST incompetent ! PERIOD.

This is an experience from months of reading forum posts before registration of course

I know right. I wanted to say it but you said it first. I used to wonder how anyone could tolerate such incompetent finance minister that too for so long but i guess one has to understand it themselves before they come to that conclusion.

Defence forum, don't expect everyone to start talking about credits, deficits, base borrowing rates etc... while most of the members here are not economists. They post/learn (not sure how much they do) by googling keywords.

But I have come across Pakistanis who vehemently deny the direction of the economy even after overwhelming evidence to suggest it.