IMF team concludes Pakistan visit without finalizing a possible bailout

[Mage]

@Nilgiri @Desert Fox .... Good heavens what am I seeing @Śakra and Mr Magoo @Mage seem to have become the best of buddies

Now I can truly say I have seen it all

This mass tagging syndrome that you, nilgiri and some others have is rather irritating.

Anything on topic, my beloved Djan?

 

[django]

This mass tagging syndrome that you, nilgiri and some others have is rather irritating.

Anything on topic, my beloved Djan?

LOL.Kudos Mr Magoo

 

[Śakra]

@Nilgiri @Desert Fox .... Good heavens what am I seeing @Śakra and Mr Magoo @Mage seem to have become the best of buddies

Now I can truly say I have seen it all

I am a secret banglerdashi






Jkjk he was nice to me so I returned the favour

 

[Nilgiri]

@Nilgiri @Desert Fox .... Good heavens what am I seeing @Śakra and Mr Magoo @Mage seem to have become the best of buddies

Now I can truly say I have seen it all

 

[django]

View attachment 521330

I am a secret banglerdashi






Jkjk he was nice to me so I returned the favour

I thought it was "benglerdeshi"

 

[BHarwana]

So are we going to IMF or not?

Lol. I told you we are not and it has been so many months now let's move on plz, can we?

 

[Śakra]

I thought it was "benglerdeshi"

Ive been banned for so long I can’t even misspell it right!!!

 

[ziaulislam]

Fact is we are in a debt trap now. In order to curtail the trade deficit we have to devalue the rupee even more and raise interest rates. IMF wants rupee at 150 and interest rates in double digits. Problem is both these things will increase the fiscal deficit. Devaluation will increase the burden of our dollar denominated external debt. Interest rate rises will hurt the largest debtor the most and that is the government. Cost of debt servicing, which is already the largest part of our budget, will rise. At the same time we have to curtail fiscal deficit. So how to do all this?

Tax reforms will take ages to take effect even if IK manages to accomplish them (which is no mean feat considering that even the dictator Musharaf had to back down from this). Probably they will have to cut defence spending. Will the army tolerate this? It is the sacred cow after all!

care to explain how rupee deval and increase interest will increase fiscal deficit

Yeah it will increase inflation and put down growth but should nt mess with fiscal deficit

Fiscal deficit is due to uncontrolled illogical spending by previous govt to stimulate growth and commissions

@Mage funny how they’re celebrating this like this an achievement when they’ve reslly just shot themselves in the foot. They approached IMF to help them from defaulting. They haven’t solved that problem. Instead, they closed the door to a solution.

Default wont happen when Pakistan has gotten its 12b bailout already from the saudis
CAD has already dropped by 50% inlast 3 months
And seems that will stay around 3-4% of GDP which is easily manageable

IMF approach is to give Pakistan more breathing space to keep GDP growth above 5%
Pakistan has never been in debt trap by any definition YET (give PMLN/PPPP 5 more years)
Gdp growth is going to drop to less than 5% with halfing development project by govt ..

Key to growth will be simple ..how much investment is coming ..

Govt has done good from going to largest bailout package to simply discussing an extension of its 6b pending IMF loan
Whether it will get that or not is yet to be seen

But as all previous packages this was artificially manufactured by poor policies by outgoing govt to stimulate an artificial growth rather than sustainable growth via over spending(fisca
deficit of 6.6%!)

So are we going to IMF or not?

Lol. I told you we are not and it has been so many months now let's move on plz, can we?

Still yes but key deadlock is in tax collection ..IMF doesnt beleive that govt can collect indirect taxation and wants sale tax to be main avenue

Second IMF wants to Clear circular debt immediately by hard measures NOW

last they want to open up some loan projects rates on private investment by Chinese investors that used that for expensive power in coal projects.

Key for sucess is simple taxation and govt enterprise loses
Key for acess fiscal deficit management will be exports driven growth as we saw in china they have huge local deficit but doesnt matter due to their strong exports

 

[ghazi52]

 

[Nilgiri]

care to explain how rupee deval and increase interest will increase fiscal deficit

Yeah it will increase inflation and put down growth but should nt mess with fiscal deficit

There will be some impact on it through loan servicing/repayment commitments (the public debt of Govt of Pakistan) which are payable in foreign currencies (and thus need more rupees than before to pay them if depreciation occurs).

Do we have a pie chart breakup of Pak budget to see how much % level these foreign servicing/repayments tend to be each year? That will show what the sensititivity is of fiscal deficit to rupee devaluation.

Interest rate effect is not that relevant to govt spending/revenue as it has access to changing CRR of public banks as needed to smoothen out any liquidity financing for public spending. I don't think after all Pakistan govt (through say public banks) takes huge long term loans (% wise of total) from domestic private banks and domestic bonds etc (I think what already it has done there is near over-leveraged to begin with given Pakistan market cap ratio)....but could be wrong. But my intuition is its not that high, because when I look at Pakistans Gross Capital formation rate, its still very low....whereas it would be lot higher (and sustained) if this route was still feasible.

 

[ziaulislam]

Yes, but revenues go up with devaluation as well
Pakistan has 29% of dgp foreign loans higher than region like india 22% and uses 30% of federal budget for servicing higher than average of around 20-25% for region like india

Most has changed in last 5 years rentless loans ..loans went up by 50% in last 5 years with gdp extended just by 35% ..

CAD happen at end of 5 years terms due to govt mismanagement of fiscal deficit in bid of overspending to get more votes and over valuing the rupee for keeping inflation low rather than keeping the bank independent

 

[Nilgiri]

Yes, but revenues go up with devaluation as well

If so (because of Pakistans internal economic setup) in the end it depends on their relative price elasticities (i.e comparing the rates of change between these two components - foreign and local - to a perturbation in say devaluation).

Pakistan has 29% of dgp foreign loans higher than region like india 22% and uses 30% of federal budget for servicing higher than average of around 20-25% for region like india

Ok got it!

Most has changed in last 5 years rentless loans ..loans went up by 50% in last 5 years with gdp extended just by 35% ..

CAD happen at end of 5 years terms due to govt mismanagement of fiscal deficit in bid of overspending to get more votes and over valuing the rupee for keeping inflation low rather than keeping the bank independent

Yep you have validly said this quite a few times now on this forum I remember. I just have not looked into Pakistan situation too closely like you have.

 

[Abdussamad]

@ziaulislam

The latest is that rupee devaluation and rising interest rates are having a negative impact on the budget deficit:

The budget deficit in first quarter of the current fiscal year widened to Rs541.7 billion in the wake of loose control over debt and defence spending, suggesting things may get out of the control of Pakistan Tehreek-e-Insaf (PTI) government.
The Rs541.7-billion deficit was equal to 1.4% of the gross domestic product

Debt servicing becomes more expensive:

Total debt servicing in the first quarter stood at Rs507 billion, higher by Rs90 billion or 20.2%, according to the summary. Defence spending amounted to Rs219.4 billion, up Rs37 billion or 20.3%.

Tax revenue is not keeping pace:

The Federal Board of Revenue’s (FBR) tax collection remained at Rs832.2 billion in July-September 2018, growing only 8.7% compared to the same period of last year. The FBR’s growth rate was even lower than the nominal GDP growth.

Source

 

[ziaulislam]

@ziaulislam

The latest is that rupee devaluation and rising interest rates are having a negative impact on the budget deficit:



Debt servicing becomes more expensive:



Tax revenue is not keeping pace:



Source

Correct but do you a choice,?

Right approach is to do measures as they are needed now the govt has to do 3 years of meaures in 3 months..result high inflation, very low spending resulting in low gdp growth

Its like you take 3 months pay in advance and party and than you die of hunger as you have nothing for next 3 months

To avoid such behaviors there is independent state bank (or is suppose to exist )

So i expect GDP to remain around 4% if they perform good and 3% if they dont inflation will be in double digits(like PPPP and PMLN had) it will be a miracle if it doesn't happen

While spending will drop rapidly as govt has to do a 3 trillion fiscal adjustment (10% of GDP )
This is equal to five years of deficit.

PPPP performance was twice better than PMLN they never printed notes and messed up center bank

But why i am suprised much of 1990s disaster was due to PMLN screwing Pakistan half the time and rest of time screwing PPPP/benazir..this ended in default and for the first time in decades confiscation of public money since 1970 disaster

So expecting a different result was naive of me
I was satisfied in first 3months in power sector and first 3 years in macroeconomic under IMF BUT THEY ROYALLY SCREWED AFTERWARDS..they fell to oil and gas mafia for commission and power sector problem was never solved

_-----
Key challenge is fiscal deficit ..can the govt keep it under 5% while keeping the PSDP above 600 billion rupees..(budget is 725b)
If yes the govt will achieve 5% growth and stability if no..we will see more decrease on growth i doubt i will see instability as asad umar is a rational person..in that case he might be fired(honestly i have more hopes on asad umar rather than IK)

This hinges upon two things
FBR target of 43t will be achieved ?
Govt ineffectiveness in keeping to its budget with respect tp current spending essentially we are talking about provinces here

Govt is making another holding company to adjust power debts but ultimately this has to be settled
_-------

Currently FBR isnt working ..govt is thinking to dissolve it..as reforms are a slow process

First quarter results hold no meaning as essentially the first quarter july to august were PMLN policies
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Remember had PMLN accepted their wrong doing and allowed resonable devaluation, import duties we would have not needed IMF but growth would have fallen to around 4~ rather than fake Aristotle harmkhoor ahsan vision of 6%(as he is knowingly screwing the country) ..but to make an artificial growth they shock the whole foundation

 

[Abdussamad]

PPPP performance was twice better than PMLN they never printed notes and messed up center bank

PPP basically printed money freely and borrowed freely from the local market as well. That led to insane interest rates and complete shut down of credit to private companies. The economy suffered from both high inflation and low growth.

The PML-N continued the borrowing but instead of doing it locally they took advantage of low interest rates globally to borrow from foreigners. They increased our external debt by 50% in their 5 years. On the back of all that foreign borrowing we got the highest growth rate in their 5 years of just 5.8%. 7% is required just to absorb all the new entrants in the labour market but we couldn't even achieve that. Global interest rates are rising, the rupee is falling and now we will have to pay back all that we have borrowed in dollars. No way to do this without borrowing even more dollars. PTI will replicate what the PML-N did. Another 50% increase in external debt!