Engineered economic stabilisation may fool masses not investors

[khail007]

Engineered economic stabilisation may fool masses not investors
Mansoor Ahmad
December 1, 2019

LAHORE: Macroeconomic indicators are important and genuinely trigger growth, but in engineered stabilisation one may fool masses not investors. Pakistan’s current reserves and current account surplus are artificially managed and so are ignored by investors.

Our reserves are going up at a slow pace because of two reasons; first is that the imports have been curbed to the extent that has stifled growth, the second and more worrisome reason is that foreign funds are investing in our treasury bills mostly of three months duration.

The central bank is paying 13 percent interest on these dollars coming in treasury bills. This is a very risky strategy and at one sign of panic this investment will vanish within three months.

This is not sustainable in the long run. The central bank is stubbornly keeping the interest rates high because these investments will evaporate as soon as the interest rates start coming down.

It is indeed tragic that we reduce our current account balance on the strength of workers’ remittances and reduction in imports. Exports played almost no role in this reduction.

Exports the world over determine the current account position of a country. If the exports are higher than imports then it is a matter of rejoicing for the nation. In Pakistan’s case the imports are still a billion dollar higher than exports. This government has failed to boost exports and is engineering ways to reduce current account deficit by reducing imports.

When this reduction includes raw materials used by local industry it means decline in productivity that is obvious from the 5.9 percent decline in the growth of large scale manufacturing. To put the economy on a sustainable growth path, we need to boost investment and exports. We need to eliminate corruption, nepotism and mismanagement, and ensure rule of law with speedy justice.

All these factors are plaguing our economy. The economic planners of this government used to call Ishaq Dar an accountant who was just interested in balancing the ledgers. Despite this, he managed decent growth in the economy.

Incidentally, this government too is balancing the ledgers of the economy. It asked the central bank to print tons of money in the last quarter of 2018-19 and did consume that money. Then it promised the International Monetary Fund (IMF) that it would not take money from the central bank, but would instead go for commercial loans. In the first quarter, the government collected Rs160 billion less than the targeted revenue.

Still, it achieved all IMF targets, especially that of primary fiscal deficit (that it over achieved) on the strength of notes that were printed by the central bank in the last fiscal.

Is it not an engineered achievement? The investors cannot be hoodwinked with such achievements and thus are staying away from our economy. They might come only if some unreasonable favours are granted to them.

The ground reality is that investment is elusive as entrepreneurs have lost confidence in the government. It takes U-turn on its promised policies.

Exporters were promised power tariff at US cents 7.5/unit without any add-ons. Power distributors are charging the additional government levies on this tariff.

Exporters were also assured that the 17 percent sales tax they paid at the time of purchasing input for exports goods would be refunded within 72 hours after realisation of export proceeds. Five months on, the refunds remain struck up.

The state provided sovereign guarantee to make payments to the independent power producers 45 days after submission of bill. Now, the state owes hundreds of billions of rupees to IPPs increasing the circular debt to new limits.

This government has also followed its predecessor governments in not honouring the sovereign guarantees given to the IPPs. Those IPPs are mostly on the verge of collapse, but are afraid to lodge protest.

They fear reprisals from the government on their other business interests if they lodged protests. The reputation of the government is not satisfactory as far as its conduct on dissenters is concerned.

Only recently the National Accountability Bureau was unleashed on many business houses. It was stopped on the interference of those who matter in Pakistan.

Exports are increasing at a snail’s pace, and that is not enough to even reach the 2016-17 level. Cotton, the major raw material for textiles is in short supply. There is uncertainty about the sowing area of wheat crop. Government in fact increased wheat support price twice to lure farmers to increase wheat cultivation area.

https://www.thenews.com.pk/print/57...c-stabilisation-may-fool-masses-not-investors

Anything new ... we are listening to this since when the IK 's term begins.
Previously everything was stabilised in Pakistan - thanks for sharing such critical information. Kindly, also take care for your health.

 

[TheDarkKnight]

Probably to save the economy once again and take the GDP growth rate back to 5.2% (currently at 2.5%).

Magar wo to bemaar hain? Yaan mulk ki “khidmat” ka jab time aye ga wo sehat ki qurbani de kar wazeer ban jain ga.
By the way you forgot to mention the 20Bln+ deficit and the exports decline over 5 year term i.e. exports were 30Bln in 2013 when PMLN took over, then reduced to around 25bln in 2018.

 

[American Pakistani]

u work at friday times ??? or PML.N or any other anti PTI Social media team ??? because in a one day u are sharing all negative n criticizing articals . I think avoid it if possible PPP , PML.N did 5,5 years term give this govt atleast 2.5 years , i will insists on 3 budgets as he is new never did govt in 90s as well. Take care .

The author and op maybe could not get import favorite car from their daddy money, hence the but hurt.

Imports such as gasoline, cars, etc should be cut even further. Also the residential consumers of gasoline should be charged the most money. No need to give them any subsidy or relief from hard earned forex. This will help reduce import bill and save reserves, and excellent to protect environment.

 

[Pakistan Space Agency]

...
By the way you forgot to mention the 20Bln+ deficit and the exports decline over 5 year term i.e. exports were 30Bln in 2013 when PMLN took over, then reduced to around 25bln in 2018.

My friend, PML-N tenure increased Pakistan's debt by $42.7 billion over five-years which is an average of $8.54 billion a year. Exports didn't rise for various reasons but all other indicators were positive such as GDP Growth Rate at 5.2% despite the high deficit.

Now, PTI has increased Pakistan's debt by $10.8 in just one year which is higher than the average of the PML-N tenure, yet the economy has either decreased, stagnant and is mainly negative. Despite lower deficit, the GDP Growth is at 2.5%. Why?

PTI can borrow even more if it likes, but can it perform better? That is yet to be seen but it's not looking promising.

 

[TheDarkKnight]

My friend, PML-N tenure increased Pakistan's debt by $42.7 billion over five-years which is an average of $8.54 billion a year. Exports didn't rise for various reasons but all other indicators were positive such as GDP Growth Rate at 5.2% despite the high deficit.

Now, PTI has increased Pakistan's debt by $10.8 in just one year which is higher than the average of the PML-N tenure, yet the economy has either decreased, stagnant and is mainly negative. Despite lower deficit, the GDP Growth is at 2.5%. Why?

PTI can borrow even more if it likes, but can it perform better? That is yet to be seen but it's not looking promising.

So why did PTI need to borrow so much in their first year? Does that mean PMLN didn't leave Pakistani economy on a better foundation after inheriting it from PPP? The answer to that question you know already, but your political affiliations wont let you see it. The borrowing was done to plug the huge deficits! There were massive challenges left by PMLN in the end, but I would agree PTI could have handled the crisis better. Also the GDP growth rate was not consistently above 5% - it peaked 5.2 in the last fiscal year.
Agree on PTIs performance, they will have to show progress at the end of 5 year term if allowed to complete.

 

[Pakistan Space Agency]

So why did PTI need to borrow so much in their first year? Does that mean PMLN didn't leave Pakistani economy on a better foundation after inheriting it from PPP? The answer to that question you know already, but your political affiliations wont let you see it. The borrowing was done to plug the huge deficits! There were massive challenges left by PMLN in the end, but I would agree PTI could have handled the crisis better. Also the GDP growth rate was not consistently above 5% - it peaked 5.2 in the last fiscal year.
Agree on PTIs performance, they will have to show progress at the end of 5 year term if allowed to complete.

Each Government that comes in will simply have to borrow, that's the way it is but how well it performs on all that borrowing is what we ahould be looking at.

With $42.7 billion debt increase, PML-N managed to raise the stock market to 50,000 points, kept rupee low, Growth Rate climbed to 5.2%, ended the debilitating load shedding, won war on terror, huge increase in military acquisitions and not yo mention gifted the country with $61 billion CPEC.

Now, PTI can borrow as much as it likes but it needs to perform better than PML-N because it's not facing a 126-day long dharna, doesnt need to spend Rs 25 million on operation Zarb-e-Azab, doesnt need to import extortionist amount of oil to end load-shedding, etc., etc.

Also, I am a British citizen and I don't have political affiliation with a Pakistani political party. I did join PTI briefly until it did the dharna.

My praise for PML-N over PTI for now is mainly due to it's performance and nothing else. Can PTI perform better and break new records? Let's see and all the best.

 

[PakSword]

Stagnant exports in N League area. IK inherited a bitch of an economy.

Post imports as well to give a shut up call to N league media cell workers.

Some people think import based economy, and keeping dollar value stable by throwing loan proceeds into the open market is the best economic management..

Each Government that comes in will simply have to borrow, that's the way it is but how well it performs on all that borrowing is what we ahould be looking at.

Nopes.. PMLN was handed over the government by PPP in much better shape.. There was no immediate crisis to begin with.... The government didn't have to pay 27 billion dollars to lenders in immediate 2 years.. despite that, they mismanaged so much that Pakistan's industry was destroyed and Pakistan became a market for the world.. a kind of market where shopkeepers take loans to purchase goods.

Below if my comment I posted in December 2016:

Had the oil prices not decreased, Pakistan would have entered the danger zone by now.. i.e. last quarter of 2016.. With the current oil prices, Pakistan can survive 2017.

The real problems Pakistan will face in 2018 when Paris debt relief comes to an end, balloon repayments of Euro bonds start and the debt servicing grace period of the IMF loan ends.

With current revenues and trade deficit, it will be very difficult for Pakistan.. 2018 is the year of elections as well. It seems government's strategy is to survive exactly till 2018 and then after winning the next elections, increase the taxes so much that will take the remaining oxygen out of the public. But who cares after that? NS will have another 5 years to survive.

Now I know why almost all the family owned businesses of noora sharif ran into problems. They are defaulters, they have a nasty habit to default on loans, close the business and establish another one on another loan. Take the example of Dubai steel mill, Hudaiybia etc etc..

 

[crankthatskunk]

So, these tweets prove PM Nawaz Sharif, Shehbaz Sharif and Ishaq Dar are recognised as convicted criminals and money launderers in the UK? Any reason why David Rose has not reported his findings to the relevant money laundering agencies?

I tell you why, because they are not resident or national of the UK. They are not registered in the UK for tax purposes either. Their jurisdiction is Pakistan from where they keep running.
Why they are not suing him, if he had lied and sullied their names!!
I tell you why. Because the criminals cannot last 5 minutes in front of a judge in the UK.
They don't listen to fairy tales, which Butts are used and found of telling.
They look at the facts in cold light of the day. Answer how you accumulated the wealth, provide proofs, or you rest forever. Period.

 

[maithil]

Pakistan can afford to inflate Forex reserve by inviting hot money. Current interest rate must not be tinkered with.

 

[Syed1.]

Pakistan can afford to inflate Forex reserve by inviting hot money. Current interest rate must not be tinkered with.

None of India's concern.

 

[jupiter2007]

Engineered economic stabilisation may fool masses not investors
Mansoor Ahmad
December 1, 2019

LAHORE: Macroeconomic indicators are important and genuinely trigger growth, but in engineered stabilisation one may fool masses not investors. Pakistan’s current reserves and current account surplus are artificially managed and so are ignored by investors.

Our reserves are going up at a slow pace because of two reasons; first is that the imports have been curbed to the extent that has stifled growth, the second and more worrisome reason is that foreign funds are investing in our treasury bills mostly of three months duration.

The central bank is paying 13 percent interest on these dollars coming in treasury bills. This is a very risky strategy and at one sign of panic this investment will vanish within three months.

This is not sustainable in the long run. The central bank is stubbornly keeping the interest rates high because these investments will evaporate as soon as the interest rates start coming down.

It is indeed tragic that we reduce our current account balance on the strength of workers’ remittances and reduction in imports. Exports played almost no role in this reduction.

Exports the world over determine the current account position of a country. If the exports are higher than imports then it is a matter of rejoicing for the nation. In Pakistan’s case the imports are still a billion dollar higher than exports. This government has failed to boost exports and is engineering ways to reduce current account deficit by reducing imports.

When this reduction includes raw materials used by local industry it means decline in productivity that is obvious from the 5.9 percent decline in the growth of large scale manufacturing. To put the economy on a sustainable growth path, we need to boost investment and exports. We need to eliminate corruption, nepotism and mismanagement, and ensure rule of law with speedy justice.

All these factors are plaguing our economy. The economic planners of this government used to call Ishaq Dar an accountant who was just interested in balancing the ledgers. Despite this, he managed decent growth in the economy.

Incidentally, this government too is balancing the ledgers of the economy. It asked the central bank to print tons of money in the last quarter of 2018-19 and did consume that money. Then it promised the International Monetary Fund (IMF) that it would not take money from the central bank, but would instead go for commercial loans. In the first quarter, the government collected Rs160 billion less than the targeted revenue.

Still, it achieved all IMF targets, especially that of primary fiscal deficit (that it over achieved) on the strength of notes that were printed by the central bank in the last fiscal.

Is it not an engineered achievement? The investors cannot be hoodwinked with such achievements and thus are staying away from our economy. They might come only if some unreasonable favours are granted to them.

The ground reality is that investment is elusive as entrepreneurs have lost confidence in the government. It takes U-turn on its promised policies.

Exporters were promised power tariff at US cents 7.5/unit without any add-ons. Power distributors are charging the additional government levies on this tariff.

Exporters were also assured that the 17 percent sales tax they paid at the time of purchasing input for exports goods would be refunded within 72 hours after realisation of export proceeds. Five months on, the refunds remain struck up.

The state provided sovereign guarantee to make payments to the independent power producers 45 days after submission of bill. Now, the state owes hundreds of billions of rupees to IPPs increasing the circular debt to new limits.

This government has also followed its predecessor governments in not honouring the sovereign guarantees given to the IPPs. Those IPPs are mostly on the verge of collapse, but are afraid to lodge protest.

They fear reprisals from the government on their other business interests if they lodged protests. The reputation of the government is not satisfactory as far as its conduct on dissenters is concerned.

Only recently the National Accountability Bureau was unleashed on many business houses. It was stopped on the interference of those who matter in Pakistan.

Exports are increasing at a snail’s pace, and that is not enough to even reach the 2016-17 level. Cotton, the major raw material for textiles is in short supply. There is uncertainty about the sowing area of wheat crop. Government in fact increased wheat support price twice to lure farmers to increase wheat cultivation area.

https://www.thenews.com.pk/print/57...c-stabilisation-may-fool-masses-not-investors

First of all, you need to stop fooling yourself.

While economy might be out of coma and ICU and showing signs of stabilization, it’s still not completely out of danger. There are people sitting at the wrong places can damage Pakistani economy. 30 years of bad polices/decisions and lack of planning can’t be fixed in months or years. Looking at the current financial situation, first 18 to 24 months are critical for Pakistan. It’s going to be long road of recovery before we see any major growth. I would say 5 to 10 years if IK government make the right decisions and the next governments follow same path of recovery to create sustainable economy with mix of Agriculture, small to medium Industries, Technology/IT, Tourism and services.

 

[BATMAN]

The central bank is paying 13 percent interest on these dollars coming in treasury bills. This is a very risky strategy and at one sign of panic this investment will vanish within three months.

This is madness.... it seems there's no sane person in Pakistan.
Why media is not educating the uneducated nation?
Govt. is funding this 13% using remittances from gulf, there's no other way.

 

[jupiter2007]

This is madness.... it seems there's no sane person in Pakistan.
Why media is not educating the uneducated nation?
Govt. is funding this 13% using remittances from gulf, there's no other way.

Short term and long term goals. Government already working on Agriculture products, new technology is being introduced to increase production. We are doing olive and palm trees farming.
Current government is working to increase tourism in the country which will directly support 10 other industries.
Russia, China, Saudi Arabia and UAE are willing to invest in Pakistan. It’s a positive sign. What more do you want?
International Cricket is coming back to Pakistan.

 

[BATMAN]

Short term and long term goals.
Russia, China, Saudi Arabia and UAE are willing to invest in Pakistan. It’s a positive sign. What more do you want?

I wasn't talking about investment, i was talking about 13% interest being offered by govt. of Pakpatan.

 

[jupiter2007]

I wasn't talking about investment, i was talking about 13% interest being offered by govt. of Pakpatan.

It’s a short term goal to sell those.
We are going through stabilization process. We have not reach recovery. once we stabilized the economy, then recovery will start and then growth.