Current account deficit increases by 100pc

[Nalini]

If oil prices again go above 80$ per barrel & stays there you will go down like a deck of cards. Very soon in coming years you can experience frequent Petrol bunks closure or banking freeze with long queues at banks & ATM's with no money. That will confirm the economy is reached the irreparable stage. If terrorism is not countered & a good image not built immediately, serious FDI is not going to come into your country.

Make peace with your neighbors, settle the Kashmir issue at the earliest which has continuously dragged your country into more & more trouble, to save your children & your country. You have no choice but to do it at any cost. At the rate your country is going down you have just 3-4 years left for anarchy to prevail.

 

[ziaulislam]

Lol. We didnt go down like cards in 2008 when it was 120+
Situation is way better than.that time

I can bring up figures to.prove it...but have done it numerous time..so dont have time to beat that bush again

First rupee was over valued by 5-15% per IMF. Its difficult to estimate rupee over valuing..the reason why its an estimate and the reason why its such a broad range
Regardless the rupee has already lost 5% since that repoet came in lol

Last please check the current account deficit of all other countries especially india..

Last incoming of 62 billion dollars is going to cushion any outflows at all...this investment would also mean huge amount of machinery imports

pressure comes from fuel import is far less in case of pakistan than india.

Our requirement is low due to better indeginous resources in gas

The only real issues we face are long term. There are NO SHORT TERM issues..

Long term issues are
1. Exports ..seemingly picking up this year

2. Lack of investment in health and education

For all my indian friends just check your deficits in 2006-10 period when you guys were picking up

 

[ziaulislam]

So if Pakistan didnt crush in 1998 nothing will do it
Keep dreaming lol

 

[Imad.Khan]

never leads to bankruptcy, will lead to devaluation first

It will lead to bankruptcy when we are unable to pay our debts off. Devaluation will not help in paying off the loans.

 

[VCheng]

A $3 billion begging bowl?

https://tribune.com.pk/story/1564936/2-amid-declining-reserves-pakistan-set-start-borrowing-journey/

THE EXPRESS TRIBUNE > BUSINESS
Amid declining reserves, Pakistan set to start borrowing journey
By Shahbaz Rana
Published: November 22, 2017

A consortium of banks have initially indicated that five-year Sukuk (Islamic bond), ten-year Eurobond and another 30-year Eurobond with combined proceeds of around $2 to $3 billion can be floated. PHOTO: FILE

ISLAMABAD: After a little over a year, Pakistan will today (Wednesday) hold road shows in the Middle East and the United States as it looks to borrow up to $3 billion by floating Islamic and conventional bonds.

The country, currently suffering from declining foreign exchange reserves, wants to finalise the bond issue on November 29 in New York.

The government is trying to tap the international debt markets at a time when there is excess liquidity and the benchmark interest rates are not too high. However, there is more domestic political uncertainty compared to September 2016, the last time Pakistan approached international markets for the bond issue. Former prime minister Nawaz Sharif was still at the helm and government continuity was not being seriously questioned. Also, instead of Finance Minister Ishaq Dar, Dr Miftah Ismail is now leading the Pakistani team.

Prime Minister Shahid Khaqan Abbasi has picked Ismail who is Special Assistant to PM on Economic Affairs. The other members of the team are Secretary Finance Shahid Mahmood and State Bank of Pakistan Governor Tariq Bajwa.

By choosing Ismail, the premier has indicated his preference amid noise to replace Dar who is facing corruption charges and a process has been initiated by an accountability court to declare him a proclaimed offender.

Pakistan is going to float the bonds in its largest transaction to take pressure off the central bank’s foreign exchange reserves that are depleting at a rapid pace. Earlier, the government borrowed $2 billion in 2014 through similar capital market transactions.

The central bank’s official foreign currency reserves have depleted to $13.6 billion due to mounting trade and debt related payments. The current account deficit widened to over $5 billion during July-October period of this fiscal year – higher by almost 122% over the same period of the last fiscal year.

Last time, Pakistan had floated Sukuk in September 2016 at the lowest interest rate of 5.5% but its September 2015 five-year Eurobond at 8.25% was the most expensive deal.

The road shows would begin from Dubai. The next stopover will be in London and after that the team will leave for the United States, said an official of the finance ministry.

Early this month, the federal cabinet had allowed borrowing of up to $3 billion from international debt markets by floating sovereign bonds and also waived off a dozen taxes to make deals attractive for investors. According to the summary approved by the cabinet, the finance ministry can float multiple bonds in the range of $2 billion to $3 billion.

The government wants to close the deal by November 29.

The government will try to float the bonds at “very optimal pricing” and the volume will also be flexible, depending upon the pricing, said finance ministry sources.

A consortium of banks have initially indicated that five-year Sukuk (Islamic bond), ten-year Eurobond and another 30-year Eurobond with combined proceeds of around $2 to $3 billion can be floated, according to the finance ministry.

The exact size will, however, be determined on the basis of market appetite and pricing, according to the summary signed by the finance secretary.

The government will pitch a minimum $1-billion Sukuk bond of five-year tenor, backed by a section of M3 motorways. It will also float a ten-year Eurobond and issuance of the 30-year bond would depend upon the response of the investors.

It could be for the second time that Pakistan will float a 30-year dollar-denominated Eurobond, but the decision to sell it will depend on the interest rates investors seek. Higher maturity bonds are issued at relatively higher interest rates.
Countries having credit rating like that of Pakistan successfully execute capital market transactions at an interest rate ranging from 6.875% to 7.125%.

Pakistan on Monday signed the legal agreement with a consortium comprising Standard Chartered Bank, Industrial and Commercial Bank of China, Citibank, Deutsche Bank, Dubai Islamic Bank and Noor Bank for the Sukuk transaction.

It also signed the agreement with Standard Chartered Bank, Industrial and Commercial Bank of China, Citibank and Deutsche Bank for the Eurobond issue.

Published in The Express Tribune, November 22nd, 2017.

 

[SunilM]

Govt fails to cap circular debt

ISLAMABAD: Pakistan has breached the commitment given to IMF for scaling down the circular debt to Rs234.930 billion in the current financial year, but it has surged up to whopping Rs 421 billion.

The authorities in Islamabad dealing with power sector have also failed to honour the guarantee also given to the Fund that the loans borrowed for power sector parked in Power Holding Company Limited (PHPL) will be limited to Rs272.500 billion, but the PHPL loans and liabilities have gone up to the staggering Rs401 billion.

If the amount of Rs421 billion that Pakistan Electric Power Company (Pepco) owes to pay to IPPs, PSO (Pakistan State Oil) and other entities such as Wapda hydel is added to the loans and liabilities of worth Rs401 billion borrowed power sector, then the factual circular debt stands at Rs822 billion in to to, the top official reveals to The News.

Whoa!! 8 freaking billion dollars!! that is colossal. I somehow feel Nawaz knows he is not coming back in the next elections and is making every effort to screw up everything for the next government. Something similar to the NPA situation we face now cause of misdeeds of the congress govt.The only saving grace for us is that we have forex reserves of 400 Billion dollars. I suppose somethings never change in the sub continent.

Ps. I can't post external links as per forum policy.

Countries having credit rating like that of Pakistan successfully execute capital market transactions at an interest rate ranging from 6.875% to 7.125%

I want to see how this culminates and at what interest rate. As I have already stated in my one of my previous posts Reliance Industries ( A private Indian Company) issued bonds worth 800 million dollars for a 10 year period at the rate of 3.66 percent just last week. Somehow I feel, there is something fishy in the sale of previous bonds by the Pakistan Government with a very high markup of 5 to 8.25%. Maybe these are being sold to some known to people of the govt who buy these high interest rate bonds at expense of the ordinary Pakistani citizens who get taxed heavily in return.

 

[VCheng]

I want to see how this culminates and at what interest rate. As I have already stated in my one of my previous posts Reliance Industries ( A private Indian Company) issued bonds worth 800 million dollars for a 10 year period at the rate of 3.66 percent just last week. Somehow I feel, there is something fishy in the sale of previous bonds by the Pakistan Government with a very high markup of 5 to 8.25%. Maybe these are being sold to some known to people of the govt who buy these high interest rate bonds at expense of the ordinary Pakistani citizens who get taxed heavily in return.

May be lenders look at the risk profile to set their rates for any particular debtor? Similarly, bond rates have to be attractive enough to overcome associated risks, right?

 

[Sharpshooter12]

this investment would also mean huge amount of machinery imports

Yes that is perhaps the only bright side of this story that the biggest import of Pakistan right now is machinery, which will result in more power generation, better infrastructure and perhaps more production.

1. Exports ..seemingly picking up this year

Yes a 10 percent increase in exports in the first 4 months of this fiscal year starting from July, but a 22 percent increase in imports in the same period, resulting in $12.4 Billion deficit, so if the trend continues we will be looking at $37-$38 Billion deficit this fiscal year as compared $33 Billion last year. With depleting foreign reserves this is not maintainable.

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.

Rightly said. I am sick of government apologists who try to defend this massive borrowing by comparing Pakistan's foreign debt as compared to its GDP with states like India etc. Yes it is comparable, ours is about 25 percent of the GDP and India's external debt is about 20 percent of their GDP. But thing to keep in mind is that external debt needs to be paid in USD and to earn that you require exports. Indian exports are 14 percent of their GDP, while ours are 7 percent of our GDP. So the result is a mere $13.7 Billion foreign reserve as compared to India's $400 Billion. If the size of the GDP is the only parameter to consider for external loans then our foreign reserves should have been at-least $40-50 Billion considering our economy's size vis a vis India.

The only thing that is keeping this economy afloat are the remittances sent by overseas Pakistanis, $19.8 Billion last year. This is again 7% of our GDP, while India's $62 Billion are only 2.7 percent of theirs.

 

[xyxmt]

Lets come back here in one year and discuss this issue

 

[SunilM]

May be lenders look at the risk profile to set their rates for any particular debtor? Similarly, bond rates have to be attractive enough to overcome associated risks, right?

True that. And Pakistan has made significant progress in curbing terror incident since about an year. However this is offset to some extent by the bunglings of the current government due to which there is political turmoil in the country. Ask yourself this. After all Pakistan has achieved in curbing terrorist incidents in the country, it still has a finance minister who is a proclaimed offender!. I mean, those interest rates are governed by perceptions and the finance minister being a proclaimed offender does not help the cause. Why should the general citizens be made to suffer like this?

Also in August this year Iraq ( a country ravaged by War) issued its first Independent bonds worth 1 billion dollars maturing in 2023 ( 7 years) at the rate of 6.75%. I want to see what the Pakistan Government Manages now. It should be Interesting. Pakistan I feel is way better off than Iraq, so lets see. Hopefully Mifta Ismail will do a better job than DAR.

 

[VCheng]

True that. And Pakistan has made significant progress in curbing terror incident since about an year. However this is offset to some extent by the bunglings of the current government due to which there is political turmoil in the country. Ask yourself this. After all Pakistan has achieved in curbing terrorist incidents in the country, it still has a finance minister who is a proclaimed offender!. I mean, those interest rates are governed by perceptions and the finance minister being a proclaimed offender does not help the cause. Why should the general citizens be made to suffer like this?

Also in August this year Iraq ( a country ravaged by War) issued its first Independent bonds worth 1 billion dollars maturing in 2023 ( 7 years) at the rate of 6.75%. I want to see what the Pakistan Government Manages now. It should be Interesting. Pakistan I feel is way better off than Iraq, so lets see. Hopefully Mifta Ismail will do a better job than DAR.

Perceptions matter a lot in setting such rates. Iraq is not a good comparison since it has oil to back up its borrowing whereas Pakistan does not not have any such resource, except to put up infrastructure as collateral (such as a section of the M3 motorway in the story above).

 

[SunilM]

Bonds: getting the price right

Few independent economists will have a beef with these bonds’ issuance, given no other immediate forex-buildup option to boost the deteriorating import cover. But can Pakistan get the pricing right this time? While the 2016 Sukuk issue – $1 billion, five-year bond at 5.5 percent – looked like a good sell, the 2015 Eurobond issue – $500 million, ten-year bond at 8.25 percent – was an expensive deal.

Let’s have a look at both internal and external factors that can impact demand for and hence pricing of Pakistan’s upcoming sovereign bond issues.



Internally, the macroeconomic situation is becoming precarious by the day, despite exports and FDI showing some rhythm this fiscal. The current account deficit had ballooned to $5 billion in 4MFY18, after clocking $12.2 billion in FY17 (FY16: $2.6 bn).

Then, there is the uncertain political situation in the wake of Nawaz Sharif’s ouster. It’s unclear who is calling the shots anymore, with a question mark over national elections that are officially less than a year away.
The political theater is made worse by government’s decision to keep a struggling finance minister. Wanted by Pakistani courts in an accountability trial, the current finance minister is portraying a man on the run. Will that kind of perception sell during all those road shows soon taking place in fancy financial districts of the world?

Overseas, market appetite for emerging-market (EM) sovereign bonds will likely remain strong. The yield-hunting investors continue to fish for riskier sovereign issues as cheap capital is abundantly available in low interest-rate environment backstopped by the FED and the ECB. That augurs well for Pakistan’s issue, just as other EMs. But analysts continue to cite recent issues of Iraq and Argentina to argue that Pakistan will also do well, even though Pakistan’s is a retail-led economy and theirs is mineral fueled.

Iraq, a country wracked by civil war which was recently able to raise $1 billion through a ten-year Eurobond at 6.75 percent, holds fifth-largest oil reserves and its debt have previously been backed by the United States. As for Argentina, the serial defaulter’s 100-year Eurobond issue last June proves the point that hungry investors will lap-up juicy yields despite clear risks. At nearly 8 percent, that bond repays the holder in full in about 12 years!
For a comparison, Pakistan will likely be competing with itself. Recall that the Sep-2015 Eurobond was issued in political and economic situation that was much better than today. Would investors be okay paying less than 8.25 percent in these circumstances?

It appears that Pakistan can get a better bond price this time around. Looking at the credit default swap (CDS) – which is effectively an insurance against default on a bond – Pakistan ranks fourth amongst EMs most exposed to default risk (barring the outlier/defaulter Venezuela) after Lebanon, Ukraine, and Egypt. But the good thing is that all the political uncertainty and economic wobbles in 2017 haven’t really bumped Pakistan’s CDS spread to the north. The latest price of a five-year CDS for Pakistan’s sovereign bonds was 331 basis points (bps) (Nov. 20, Bloomberg). (That means, to insure against default of $100 of Pakistan debt, an investor will have to pay $3.31 per year).

Pakistan’s current CDS spread is roughly ten percent down from exactly a year ago. In the year-to-date period, the CDS hit a low of 258bps on August 28, 2017. Since then, it has gradually risen, but has consistently remained below 400bps. In any case, the CDS is way lower than the high of over 600bps seen in early 2016.

Also note that current yields on Pakistan’s previous Eurobond issues range from 4.5 percent to 7.5 percent for maturities from 2019 to 2036, as per Topline Research. The Brokerage House expects Pakistan to raise $2 billion to $3 billion with a coupon in the range of 5.5 percent to 7.0 percent for 5 to 10 years.

This time around, the finance ministry needs to better assess the market’s mood after the road shows and then tighten its bond pricing accordingly, just as other EMs routinely do when they sense high demand. Pakistan may be needy at the moment, but the overseas investors may turn out to be needier.

Source : Business Recorder. Published on 22/11/2017

At any rate we don't have to wait long now. Things should be clear in the first week of December. Come to think of it this could be one reason the Govt would not want to have any incident taking place vis-a-vis the Islamabad Dharna. Interesting times ahead!!

 

[SunilM]

The National Electric Power Regulatory Authority (Nepra) allowed on Wednesday an increase of Rs3.40 per unit (about 83 per cent) in bulk hydropower tariff for Water and Power Development Authority (Wapda) to generate additional revenue of Rs119 billion.

An official, however, explained that the existing overall Wapda tariff of about Rs4.05 would go up to about Rs7.45 per unit, showing an increase of almost 83pc. He said the annual hydropower production had been estimated at about 33,600 gigawatt hours (GWh) that would generate Rs119bn in additional revenue.



The major increase in the tariff had been necessitated because of the federal government’s agreements with the provinces for the guaranteed payment of net hydropower profit on account of cost plus hydel levies margin, commonly known as net hydel profit (NHP).


Source : Dawn Published on 23/11/2017

This is the result of 8 billion dollars of Circular Debt. This will increase input cost immeasurably and affect exports. And how do consumers in Pakistan keep accepting such increases without even a murmur. Thats literally a 80 % increase in tariff in one go. Should this not be the Headline news?

 

[VCheng]

This is the result of 8 billion dollars of Circular Debt. This will increase input cost immeasurably and affect exports. And how do consumers in Pakistan keep accepting such increases without even a murmur. Thats literally a 80 % increase in tariff in one go. Should this not be the Headline news?

Look at it this way: increasing the tariff so steeply shows that the Government is serious in reducing the circular debt, so that it can negotiate better terms for more borrowing in the coming months. So it might be a good thing overall.

 

[tarrar]

Even after all this corrupt ganja continues to say “Mujhay kio nikala”.