Is there a recession in Pakistan?

[Neo]

Is there a recession in Pakistan? ​

ARTICLE (December 15 2008): The global recession has not hit us exactly the same way or for the same reasons as it seems to have entangled the rest of the world, or so we are told by economic analysts. Some argue that recession has not hit Pakistan at all and the current economic impasse can be attributed entirely to mismanagement of our economic managers.

According to recently released statistics, there is ample evidence to suggest that manufacturing output is on the decline - one major indicator of recession. Pakistani manufacturing sector accounted for 25.9 percent of Gross Domestic Product in 2006-07. Or, in other words, about a quarter of our total GDP was sourced to the manufacturing sector. However, interestingly, in 2007-08 manufacturing accounted for 25.9 percent of GDP in comparison to the previous year's (2005-06) 26.1 percent.

Analysts who may allege that this decline, however insignificant, may well portend the start of a recession must note that there was a higher decline between 2004-05 and 2005-06: from 26.3 to 25.9 percent of GDP. These years were hailed by the then government of Pervez Mushrarraf as high growth years and high growth is not compatible with a recession. A closer look at the ingredients of manufacturing may provide some answers.

Manufacturing, as calculated by the Economic Advisor's Wing and contained in the annual publication titled Economic Survey, constitutes five sub-heads. First, mining and quarrying, which registered a constant contribution to GDP in 2006-07 and 2007-08: 2.5 percent. Large scale manufacturing declined from 13.4 percent to 13.3 percent of GDP between the two years, while small scale manufacturing rose from 4.3 to 4.4 percent. Construction remained constant at 1.3 percent, in spite of ongoing construction work for the quake affected families, while distribution of gas and electricity rose from 2.5 to 2.7 percent.

Considering the charges of blatant manipulation of statistics during the Shaukat Aziz era these statistics too are suspect to some extent. This is particularly relevant as government involvement in the manufacturing sector is considerable. There is evidence to suggest that public sector manufacturing - inclusive of military as well as civilian government involvement in the manufacturing sector - constitutes a significant portion of the total manufacturing sector.

In 1991 public sector accounted for about 40 percent of total manufacturing value added and absorbed around 48 percent of gross fixed investment. The total value of public sector industrial output in 1991 was 36 billion rupees (in constant 1988 fiscal year prices), but pretax profits were only 1.3 billion rupees, reflecting the inefficiencies and overstaffing prevalent in these enterprises.

To improve the efficiency and competitiveness of public sector firms and end federal subsidies for their losses, the government launched a privatisation programme in 1991. Majority control in nearly all public-sector enterprises was to be auctioned off to private investors, and foreign investors were rendered eligible buyers. In March 1992, twenty units were privatised, but by 1993 only about 30 percent of the government's target number of firms had been sold because some of the enterprises were unattractive for private investors. In 1994, the government led by Benazir Bhutto, rhetorically committed to continuing the policy of privatisation, backed down in the face of stiff resistance from the powerful public sector employee unions.

The Musharraf era was marked by privatisation of 166 units (January 1991 to February 2007). The take of the federal government from this was 475 billion rupees, a hefty 8.9 billion dollars. According to the Economic Survey between July 2007 and February 2008 - the last months of the dying Musharraf regime - UBL's divestment of 25 percent shares through a GDR fetched 650 million dollars, hailed as the biggest book builder in Pakistan's history. Thus as a result of sustained efforts to privatise large-scale parastatal units the public sector continues to account for a significant proportion of industry even today. Be that as it may it is evident that the manufacturing sector did not decline significantly as a percentage of GDP.

This situation is likely to change dramatically during the current year. The energy shortage is having major implications for industrial output; in addition the expected increase in electricity rates by April, revealed by the Special Advisor to the Prime Minister on Finance, will raise the cost of manufacturing still further and there is evidence to suggest that part of the inflationary pressures can be sourced to the inadequacy of electricity supply to the industrial sector.

This is endemic to Pakistan and therefore a decline in output raising fears of an onset of a recession cannot be attributed either to the global financial crisis or indeed the heavy subsidisation of oil and products by the previous government; but to the failure to supply electricity, a critical input, to the manufacturing and farm sector. It is precisely for this reason that the International Monetary Fund (IMF) recommends even tighter fiscal and monetary policy measures in the months to come, recommendations that are the reverse of the usual prescriptions for recession, as a means to check inflationary pressures sourced to too few goods being produced domestically chasing too much money that was generated because of a burgeoning budget deficit.

Growth rate - a measure of an economy in recession or not - declined in 2007-08, and is expected to decline further in the current fiscal year. However it is still expected to be over 3 percent - a growth rate that would be the envy of countries in the throes of the recession. All through the 1990s growth rates were very high.

The Musharraf government insisted that this was due to their investment friendly policies; however the fact that aid began to flow in the aftermath of 9/11 at unprecedented levels was perhaps a more critical ingredient of the growth rates achieved during the Musharraf era. The growth targets for the current year as well as in the following year are not high, ie under 3.5 percent, however, this growth rate is sufficiently significant to conclude that recession is unlikely in this country.

To conclude, our malaise is basic: an infrastructure base grossly inadequate to sustain even the existing output potential, a government heavily involved in manufacturing and contributing heavily to inefficiencies in the sector which, in turn, also reduces the tax revenue that can be realised from the manufacturing sector, and constant state intervention in pricing of commodities which is leading to artificial shortages and higher black market prices. At the same time the country is losing its battle with respect to providing education and health care facilities with the bulk of the annual budget allocated for servicing past debts, defence and non-development expenditure. The fault, as Caesar said to Brutus, is not in our stars or global recession but in ourselves that we remain a prisoner to underdevelopment.

 

[TopCat]

Yes it is in recession for Pakistan, as you have a population growth rate close to 2% a year and a significant amount of unemployed or underemployed people are waiting for jobs. You need at least 4% economic growth rate to stay afloat. Also on top of that you have a huge inflation going on!! Not good for ordinary people.
Like china they need at least 8% growth rate to get the economy going. Its not western country where positive growth means NO RECESSION.

 

[asaad-ul-islam]

no, there is no recession in Pakistan, and Pakistan has not been affected by the global financial crisis. Pakistan's economic collapse is solely due to the current govt. and their mismanagement and lack of attention. in the time of high oil prices, which takes up most of the "cake" of imports, and the trade deficit that we already faced, the current govt. raised the import bill by a staggering amount.

the rupee is now above 80 at a dollar, while the rupee stayed stable at 61 per dollar during Shaukat Aziz's term. this can be attributed to his better macroeconomic policies. this article above, yet again, has been written by a so-called economist who has obviously obtained his degree from a Pakistani university. all of these universities are politicised, and therefore biased.

it makes no sense how Shaukat Aziz can be accused of "blatant manipulation of statistics", this is definitely something coming out of a conspiracy theorist, or someone totally jahel. if what these conspiracy theorists are saying is true, then many of the major financial institutions and the World Bank would have made up those figures as well, while praising Shaukat Aziz and his "miracle-working" of the economy. after seeing how the media and biased pseudo economists can come on televisions and wrongfully discredit the economic success of Musharraf's era, I will make sure that I only hire economists or financial experts from abroad, and not from Pakistani universities.

simple article for anyone to read below

Foreign Reserves Phenomenon: Shaukat Aziz versus PPP


Written By: Afreen Baig

Foreign Reserves – a significant economic indicator and of vital importance to every expanding economy. Foreign Reserves is the first and basic economic indicator that transmits an air of confidence and trust, amongst the potential foreign & local investors and the nation. Foreign Reserves are held in abundance and accumulated - in order to sustain the confidence of a country’s capacity to carry out external trade confidently, to balance the momentum between demand & supply of foreign currencies, and also used as an intervention tool by the State Bank. Reserves also bail out the economy in times of financial crisis.

By October 2007, at the end of Prime Minister Shaukat Aziz’s tenure, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion. His exceptional policies kept our trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion.

Pakistan recently has seen a drastic drop in its Reserves by 50% and its currency devalued by 40%, which has left ordinary people confused and the usual cynics have started heaping the blame onto the policies of Mr. Shaukat Aziz, without even knowing the basic macro-economic indicators nor understanding the relationship b/w Foreign reserves, Trade deficit and Currency devaluation.


The Trade deficit (Exports minus Imports) is always managed in ratio to Revenue generation, Capital inflows and Reserves. Almost all developing economies face the dread of trade deficit but their abundant foreign reserves gives them the fiscal space to overcome those grievances.
Illustrating in mathematics for ordinary readers, on October 2007, when PM Shaukat Aziz left us:
Exports - $18 billion

Imports - $30.53 billion

Trade deficit - $12.53 billion

Foreign Reserves - $16.4 billion

What is to be seen above is that, Pakistan’s Foreign Reserves $16.4 bn exceeded the trade deficit $12.53 bn by a comfortable $3.87 billion and with an additional foreign investment of $8.4 billion – Pakistan’s currency stayed stable at Rs.61 per dollar.

Currency starts to devalue ONLY when the Trade deficit surpasses the Foreign Reserves. This rare phenomenon occurred in PPP’s incompetent & dense minded government, which has led to devaluation of the currency by 40%. They failed to protect our Sovereignty - our Foreign Reserves!

In PPP’s inept government of eight months,

Trade deficit - $20.74 billion

Foreign reserves - $8 billion

Under PPP, the Reserves fell from $14 billion to $8 billion and the trade deficit increased from $12.53 billion to $20.74 billion.

The moment the foreign reserves ($8 bn) fell below the trade deficit ($20.74 bn), the currency starts to devalue. Under Mr. Shaukat Aziz, Rupee stayed stable till October 2007, because our Reserves $16.4 billion EXCEEDED our Trade deficit of $12.53 billion.

In 2007, when international oil prices reached an alarming level of $140 per barrel it hurt the Imports bill of many developing countries, by increasing the trade deficit. The experienced Mr. Shaukat Aziz gauged this situation and immediately started monitoring & controlling individual sectors that were importing. He allowed imports only in sectors that were export specific. His efforts resulted in decreasing our Import bill by 6.53% by September 2007 (one month before he left).

Rupee stayed stable throughout Mr. Musharraf’s supported governments. Trade deficit never exceeded the foreign reserves in the last eight years. The results were as follows – a stable rupee:

2001-02: Rs. 61
2002-03: Rs. 57.7
2003-04: Rs. 57.92
2004-05: Rs. 59.66
2005-06: Rs. 60.16
2006-07: Rs. 60.5
2007 (Dec): Rs. 61

What did the inefficient PPP do in these last eight months? They failed to monitor each sector of imports to control them individually. Pakistan’s economy started destabilizing because PPP could not guard our $14 billion reserves. Nor did they utilize any effort to increase the reserves from where Mr. Shaukat Aziz left it at $16.4 billion! The easier way out for them is to beg around the world barefaced or go back to IMF disgracefully.

What did the PPP further do? They increased the import bill by 55% in the months April to June 2008 and again increased it by 52.65% in the months July to September 2008 – though world oil prices fell from $140 per barrel to $70 per barrel.

Flight of capital takes place ONLY in economies where there is lack of trust and faith! Investors and endowing Public do not trust the government of PPP and are wary of PPP’s earlier corrupt reputation.

In the first four months of PPP, around $22 billion were withdrawn from the economy and KSE’s market capitalization fell by $29 billion. The State Bank was forced to place ban on transfer of dollar outside Pakistan.

Foreign reserves get hurt twice in this depletion process. First, when the investors and public pull back their money. Second, when macro-economic indicators witness imbalance and the government is forced to pay their external liabilities through these Reserves. This second stage occurs only when the government loses other means of regular income and is unable to control their imports.

Every country in the world is forced to make Imports. Imports help boost Exports. Even the world exporter China makes an import worth around $954 billion, to further promote their exports. But, Imports should be Export specific – scrutinized and restrained monthly – which was being done under the policies implemented by Mr. Shaukat Aziz.

Let’s analyze the steady India, as an example, with GDP growth of 9%.

Indian Imports - $188 billion (compared to Pakistan’s imports of $40 billion)

Indian Trade deficit - $63 billion (compared to Pakistan’s deficit of $20 billion)

The Indian currency is not devaluing because their Foreign Reserves $308 billion exceed their trade deficit of $63 billion.

Had Mr. Shaukat Aziz continued, the Trade deficit would have been kept controlled in accordance with Pakistan’s Revenue generation, Capital inflows and Foreign Reserves – which would have kept our rupee stable and economy booming at 7% GDP growth.

This latest IMF tranche of $7.6 billion, pre-arranged for a period of two years, will not help boost an economy whose foreign investment is declining, and where the trade deficit exceeds the total foreign reserves. This economic deception is yet another soothing drug given to us, by our unpopular democratic government of PPP.

If Pakistan wishes to remain free from influence of IMF, there is no better option than to assert our economic sovereignty and accumulate Foreign Reserves, from help of over-seas Pakistani. Additionally, attract foreign direct investment (FDI) and public & private portfolio investment. Regrettably, PPP lacks the credibility and the reliability to attract back that trust and confidence!



Afreen Baig is an independent analyst majoring in International Relations and Economics. She can be reached at afreenbaig@gmail.com

 

[TopCat]

Basically you discussed about macro economic indicator which PK govt could fix within a year or two. But the discussion about whether its a recession or not!!! I think its a recession as your per capita real income will start fall as long as the economy grows less than 3% also number of people getting unemployed will increase. Your business will be getting shut down, import will be reduced, revenue will be less.. these are all micro level indicator which had a chain effect on economy.

The article mentioned trade deficit of $20 bln dollar. Which were the main problem of Pak economy. It compared with $63 bln of indian trade deficit. But did not mention the indian size of the economy. Yes trade deficit could make sense to some countries like USA as they have means to meet the deficit. But where does Pakistan will get money to meet this deficit? Pakistan only have $7.6 bln dollar in remittance earning. I dont see any other income except that you borrow money from donors or other means (not in my knowledge). The economist will always try to show you current account balance, which I will never buy, as I like to see straight math income and expenditure...

Regarding the fall of Rupee will infact benefit pakistan economy for a short term in Macro level.
Another thing about your comment on hiring people from abroad to show you way out, is not a good solution. Pakistan should find a solution on its own.

 

[asaad-ul-islam]

Basically you discussed about macro economic indicator which PK govt could fix within a year or two. But the discussion about whether its a recession or not!!! I think its a recession as your per capita real income will start fall as long as the economy grows less than 3% also number of people getting unemployed will increase. Your business will be getting shut down, import will be reduced, revenue will be less.. these are all micro level indicator which had a chain effect on economy.

The article mentioned trade deficit of $20 bln dollar. Which were the main problem of Pak economy. It compared with $63 bln of indian trade deficit. But did not mention the indian size of the economy. Yes trade deficit could make sense to some countries like USA as they have means to meet the deficit. But where does Pakistan will get money to meet this deficit? Pakistan only have $7.6 bln dollar in remittance earning. I dont see any other income except that you borrow money from donors or other means (not in my knowledge). The economist will always try to show you current account balance, which I will never buy, as I like to see straight math income and expenditure...

Regarding the fall of Rupee will infact benefit pakistan economy for a short term in Macro level.
Another thing about your comment on hiring people from abroad to show you way out, is not a good solution. Pakistan should find a solution on its own.

sir, recession is a phase every economy goes through. economies always go through that part of the cycle, the only thing the govt. can do, is control it to a degree to lessen the effects of recession on the country. aside from that, our economy totally shattered due to mismanagement for the past six months.

if you were paying attention to the health of the Pakistan economy, everyday like I did, you would know that the current govt. wasted their time in political in-fighting. basically the last six months was spent, only to prepare Zardari for his rise to the presidency. absolutely nothing was done to attract foreign investors, or at least consolidate investor confidence for those who have already brought their investments into Pakistan, leading to capital flight.

I'm sure you know plenty of countries have a trade deficit, and for a country like Pakistan, it's nothing new. the current govt., along with their jahel economists, make ridiculous statements like, "oh Musharraf made Pakistan into a consumer economy, not an export economy". we've had a trade deficit for a long time, and there is simply nothing the govt. can do about it. the current PPP govt. would know first hand about industry and exports, since their "great" leader Zulfiqar Bhutto, nationalized almost all the industry in Pakistan. this effectively destroyed Pakistan's industrial backbone, and after this point, there wasn't even a single trace left of entrepreneurship. so to make a long story short, Pakistan barely has any private industry, almost all of its industry is in govt. hands. therefore, there WILL be a lack of exports, since there are only a few large companies.

more importantly, almost all of our exports are either in textiles or agriculture. musharraf's govt. made great strides in trying to open and expand new industries in Pakistan, giving birth to our IT and Telecom industries. had the previous govt. still been in power, our IT exports would have reached $11 billion by 2011. somehow, the current govt. (still) blames the previous govt. for their mismanagement of the economy by making statements such as, "oh Musharraf totally ignored agriculture or textiles." obviously, this statement is not true, considering the fact that the previous govt. built plenty of canals, including in the neglected state of Balochistan, to increase the yield of production.

nonetheless, there is nothing we can do about the trade deficit. every economy is a "consumer" economy, including the US economy. that does not necessarily mean the economy will go into recession, simple because there is a trade deficit. the way to manage the deficit is explained in the article I posted above, through the reserves, remittances, taxes, and foreign investment(leading to the reserves). if mismanaged, you will not be able to pay off your trade deficit, and therefore, you will have a decline in the reserves. by the way, the most notable move by the current govt. which depleted our reserves, was subsidies to lower the effects of inflation. inflation which was caused by high oil prices, not Shaukat Aziz's policies, which by the way still kept Pakistan strong under high oil prices which went up to $140 dollars a barrel. the current price is about $50 dollars a barrel, give or take, that goes to show us which govt. policies are to blame for our current condition.

 

[TopCat]

Seems like this article is too harsh on this 8 mos old government and gave full credit to the previous. I have no option but to disagree with this at least want to give this govt a benefit of doubt as they just took over the power still keeping in mind about the Mr. 10%.

I believe there were some fundamental flaws on the monetary policy in Pakistan economy especially not handled properly from central bank. That is the first to start with. Then second fundamental flaws are, the economy was artificially inflated. First through capital market, which was insane. You have to look into core issues, why somebody wants to invest in a third world country when they could do that in wall street. The simple reason quick cash. They will manipulate the market, and once money inflated take it out and run away. You need strong policy there to attract only real investor who are willing to invest for long term.
About the consumer economy. Pakistan economy does not qualify for consumer economy by no means where 70-80% people still live in rural areas and their basic needs to be fulfilled. They day they become the real consumer then you could say Pakistan is a consumer economy.

This article also shows a core fundamental flaws in the economy as it show only 4% of the GDP comes from small scale manufacturing. Small scale manufacturing are the most resilient element in the economy. Also the article did not mention why Pakistan textile is not doing well when it produces its raw material in the country. Bangladesh textile industry flourishing and they dont produce a single bell of cotton in the country only import. I saw a 45% jump in textile export in first quarter as buyers are coming out of China for high prices and for recession. Pakistan should have cashed in this opportunity. You take it leave it, textile is the core sector of Pakistan and its survival will depend on that.


Anyways these are easy to say than doing it...

 

[TopCat]

Is Pakistan’s foreign debt $36bn or $72bn?
What makes this question doubly astonishing is that it stems from the government’s own figures relating to the country’s foreign
debt-to-GDP ratio, on the one hand, and
the per capita GDP on the other

By Kaleem Omar

The Economic Affairs Division is that branch of the Ministry of Finance that deals with foreign loans and foreign aid. Briefing members of the National Assembly’s Public Accounts Committee on January 18, the EAD secretary said that the ratio of foreign debt to GDP (gross domestic product) had been brought down to 57 per cent.

He said the Fiscal Responsibility and Debt Limitation Act of 2005 envisaged a debt-to-GDP ratio of 60 per cent by fiscal 2013-14. But, he added, the debt-to-GDP ratio had been brought down to below 60 per cent seven years ahead of the target date.

The State Bank of Pakistan’s annual report for fiscal 2005-6 says: “This is for the first time in more than two decades that the ratio has fallen below 60 per cent.”

The EAD secretary attributed this achievement to the fact that Pakistan was now borrowing concessionary foreign loans and seeking significant concessions from its creditors. Moreover, he added, Pakistan had retired expensive loans from multilateral institutions, thereby further reducing the country’s foreign-debt burden.

So far so good. The problem, however, arises when one looks at the government’s claim of having reduced the debt-to-GDP ratio to 57 per cent against the backdrop of the government’s oft-repeated contention that Pakistan’s per capita GDP has doubled over the last seven years to $ 750 as a result of the government’s sound economic policies.

This claim that the per capita GDP has risen to $ 750 has been made on many occasions in recent months by the highest officials in the land, including President Pervez Musharraf and Prime Minister Shaukat Aziz in press conferences, television interviews and speeches.

Given its provenance, let us take this per capita GDP figure of $ 750 at face value. Multiplying the per capita GDP figure of $ 750 by the country’s current estimated population of 160 million gives us a national GDP of $ 120 billion.

Based on this national GDP figure of $ 120 billion, let us now work out the quantum of Pakistan’s foreign debt using the 57 per cent debt-to-GDP ratio mentioned by the EAD secretary in his briefing to the Public Accounts Committee. What we then arrive at is a foreign debt figure of $ 72 billion (57 per cent of $ 120 billion).

According to numerous government documents, reports and official statements, however, Pakistan’s foreign debt currently stands at about $ 36 billion. It stands to reason that these two sets of foreign debt figures - $ 72 billion and $ 36 billion - cannot both be correct.

In fact, the latter figure is the correct one, with the actual quantum of foreign debt currently standing at about $ 36 billion. But, then, how does one explain the foreign debt figure of $ 72 billion arrived at by using the foreign debt-to-GDP ratio figure of 57 per cent, the per capita GDP figure of $ 750 and applying them to country’s current estimated population of 160 million?

What is going on here? The inescapable inference is that what is going on, in effect, is that the government’s per capita GDP figure of $ 750 is wildly off the mark. Based on a foreign-debt-to-GDP ratio of 57 per cent, the only way one can arrive at the correct foreign debt figure of $ 36 billion is by using a per capita GDP figure of $ 375 - that is to say, half of the government’s claimed per capita GDP figure of $ 750.

This, in turn, suggests that, contrary to the government’s claim, Pakistan’s per capita GDP figure has not doubled over the last seven years and still stands at the $ 375 level of seven years ago.

The only other way that this equation could come out right would be if Pakistan’s current estimated population were not 160 million but only 80 million. But since the country’s population is in fact around 160 million, and since the actual foreign debt figure is about $ 36 billion, and since the debt-to-GDP ratio is now in fact 57 per cent, the only variable that can be questioned is the government’s per capita GDP figure of $ 750.

What makes all this even more astonishing is that it apparently did not occur to any member of the National Assembly’s Public Accounts Committee to question the government’s figures at the briefing given by the EAD secretary on January 18.

None of the foregoing involves higher mathematics, being only a matter of simple arithmetic of the kind taught in schools.

Since all the members of the National Assembly are college graduates or hold equivalent academic qualifications, the question then arises that what sort of colleges or other equivalent academic institutions did the members of the Public Accounts Committee attend? Are we to take it that those institutions were of the sort where even elementary arithmetic was not taught?

Another question that emerges from all this is: what sort of academic institutions did the EAD officials attend? Were those institutions, too, places where elementary arithmetic was not taught? The mind boggles at the thought.

The broader issue, however, is one that has to do with the unfortunate tendency in this country for governments to play fast and loose with figures. This is something that has been going on for decades, with successive governments repeatedly indulging in what can only be described as numerical legerdemain.

Wags say that, in government circles, “2 plus 2 sometimes equals 22”! That’s why, got example, the revenue side of government budgets is always overestimated at the time of the presentation of the annual federal budget, leading to massive shortfalls in revenue by the time it actually gets to be collected. Such shortfalls then force the government of the day to resort to enhancing utility charges and other increased levies in order to make up the deficit.

This same kind of numerical legerdemain seems to be at work when government budget documents describe foreign loans as “external resources”. Foreign Loans are not external resources. What they are, in fact, of course, is money that the country has borrowed from foreign lenders and has to pay back. Money owed to other countries and multilateral financial institutions is not a resource; it is a liability.

Talking of numerical legerdemain reminds one of a news item that appeared in the national press back in the 1980s. The news item quoted the then-Sindh education minister as having said at a news conference that the provincial government had allocated ‘X’ amount of money in that year’s provincial budget to build ‘Y’ number of primary schools that year. But when one divided the allocated amount by the number of schools that were to be built, it worked out to Rs 1,432 per school. For that kind of money, the provincial government couldn’t even have built a wall, let alone a whole primary school

It is high time that governments in this country stopped resorting to such legerdemain and started calling a spade a spade.

Perhaps they need to take a lesson from the inhabitants of Britain’s Yorkshire County. People in Yorkshire have a reputation for being much more outspoken than people in other parts of Britain. In Yorkshire, people don’t call a spade a spade; they call it a “bloody shovel”!

 

[TopCat]

I just came across with that article.. and just for a fun of it... in this hard days..

Take it easy.....

 

[Zovc]

No. Pakistan is not in a state of a recession. We are witnessing a economic slowdown like most other developing countries.

 

[roadrunner]

no, there is no recession in Pakistan, and Pakistan has not been affected by the global financial crisis. Pakistan's economic collapse is solely due to the current govt. and their mismanagement and lack of attention. in the time of high oil prices, which takes up most of the "cake" of imports, and the trade deficit that we already faced, the current govt. raised the import bill by a staggering amount.

the rupee is now above 80 at a dollar, while the rupee stayed stable at 61 per dollar during Shaukat Aziz's term. this can be attributed to his better macroeconomic policies. this article above, yet again, has been written by a so-called economist who has obviously obtained his degree from a Pakistani university. all of these universities are politicised, and therefore biased.

it makes no sense how Shaukat Aziz can be accused of "blatant manipulation of statistics", this is definitely something coming out of a conspiracy theorist, or someone totally jahel. if what these conspiracy theorists are saying is true, then many of the major financial institutions and the World Bank would have made up those figures as well, while praising Shaukat Aziz and his "miracle-working" of the economy. after seeing how the media and biased pseudo economists can come on televisions and wrongfully discredit the economic success of Musharraf's era, I will make sure that I only hire economists or financial experts from abroad, and not from Pakistani universities.

simple article for anyone to read below

Foreign Reserves Phenomenon: Shaukat Aziz versus PPP


Written By: Afreen Baig

Foreign Reserves – a significant economic indicator and of vital importance to every expanding economy. Foreign Reserves is the first and basic economic indicator that transmits an air of confidence and trust, amongst the potential foreign & local investors and the nation. Foreign Reserves are held in abundance and accumulated - in order to sustain the confidence of a country’s capacity to carry out external trade confidently, to balance the momentum between demand & supply of foreign currencies, and also used as an intervention tool by the State Bank. Reserves also bail out the economy in times of financial crisis.

By October 2007, at the end of Prime Minister Shaukat Aziz’s tenure, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion. His exceptional policies kept our trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion.

Pakistan recently has seen a drastic drop in its Reserves by 50% and its currency devalued by 40%, which has left ordinary people confused and the usual cynics have started heaping the blame onto the policies of Mr. Shaukat Aziz, without even knowing the basic macro-economic indicators nor understanding the relationship b/w Foreign reserves, Trade deficit and Currency devaluation.


The Trade deficit (Exports minus Imports) is always managed in ratio to Revenue generation, Capital inflows and Reserves. Almost all developing economies face the dread of trade deficit but their abundant foreign reserves gives them the fiscal space to overcome those grievances.
Illustrating in mathematics for ordinary readers, on October 2007, when PM Shaukat Aziz left us:
Exports - $18 billion

Imports - $30.53 billion

Trade deficit - $12.53 billion

Foreign Reserves - $16.4 billion

What is to be seen above is that, Pakistan’s Foreign Reserves $16.4 bn exceeded the trade deficit $12.53 bn by a comfortable $3.87 billion and with an additional foreign investment of $8.4 billion – Pakistan’s currency stayed stable at Rs.61 per dollar.

Currency starts to devalue ONLY when the Trade deficit surpasses the Foreign Reserves. This rare phenomenon occurred in PPP’s incompetent & dense minded government, which has led to devaluation of the currency by 40%. They failed to protect our Sovereignty - our Foreign Reserves!

In PPP’s inept government of eight months,

Trade deficit - $20.74 billion

Foreign reserves - $8 billion

Under PPP, the Reserves fell from $14 billion to $8 billion and the trade deficit increased from $12.53 billion to $20.74 billion.

The moment the foreign reserves ($8 bn) fell below the trade deficit ($20.74 bn), the currency starts to devalue. Under Mr. Shaukat Aziz, Rupee stayed stable till October 2007, because our Reserves $16.4 billion EXCEEDED our Trade deficit of $12.53 billion.

In 2007, when international oil prices reached an alarming level of $140 per barrel it hurt the Imports bill of many developing countries, by increasing the trade deficit. The experienced Mr. Shaukat Aziz gauged this situation and immediately started monitoring & controlling individual sectors that were importing. He allowed imports only in sectors that were export specific. His efforts resulted in decreasing our Import bill by 6.53% by September 2007 (one month before he left).

Rupee stayed stable throughout Mr. Musharraf’s supported governments. Trade deficit never exceeded the foreign reserves in the last eight years. The results were as follows – a stable rupee:

2001-02: Rs. 61
2002-03: Rs. 57.7
2003-04: Rs. 57.92
2004-05: Rs. 59.66
2005-06: Rs. 60.16
2006-07: Rs. 60.5
2007 (Dec): Rs. 61

What did the inefficient PPP do in these last eight months? They failed to monitor each sector of imports to control them individually. Pakistan’s economy started destabilizing because PPP could not guard our $14 billion reserves. Nor did they utilize any effort to increase the reserves from where Mr. Shaukat Aziz left it at $16.4 billion! The easier way out for them is to beg around the world barefaced or go back to IMF disgracefully.

What did the PPP further do? They increased the import bill by 55% in the months April to June 2008 and again increased it by 52.65% in the months July to September 2008 – though world oil prices fell from $140 per barrel to $70 per barrel.

Flight of capital takes place ONLY in economies where there is lack of trust and faith! Investors and endowing Public do not trust the government of PPP and are wary of PPP’s earlier corrupt reputation.

In the first four months of PPP, around $22 billion were withdrawn from the economy and KSE’s market capitalization fell by $29 billion. The State Bank was forced to place ban on transfer of dollar outside Pakistan.

Foreign reserves get hurt twice in this depletion process. First, when the investors and public pull back their money. Second, when macro-economic indicators witness imbalance and the government is forced to pay their external liabilities through these Reserves. This second stage occurs only when the government loses other means of regular income and is unable to control their imports.

Every country in the world is forced to make Imports. Imports help boost Exports. Even the world exporter China makes an import worth around $954 billion, to further promote their exports. But, Imports should be Export specific – scrutinized and restrained monthly – which was being done under the policies implemented by Mr. Shaukat Aziz.

Let’s analyze the steady India, as an example, with GDP growth of 9%.

Indian Imports - $188 billion (compared to Pakistan’s imports of $40 billion)

Indian Trade deficit - $63 billion (compared to Pakistan’s deficit of $20 billion)

The Indian currency is not devaluing because their Foreign Reserves $308 billion exceed their trade deficit of $63 billion.

Had Mr. Shaukat Aziz continued, the Trade deficit would have been kept controlled in accordance with Pakistan’s Revenue generation, Capital inflows and Foreign Reserves – which would have kept our rupee stable and economy booming at 7% GDP growth.

This latest IMF tranche of $7.6 billion, pre-arranged for a period of two years, will not help boost an economy whose foreign investment is declining, and where the trade deficit exceeds the total foreign reserves. This economic deception is yet another soothing drug given to us, by our unpopular democratic government of PPP.

If Pakistan wishes to remain free from influence of IMF, there is no better option than to assert our economic sovereignty and accumulate Foreign Reserves, from help of over-seas Pakistani. Additionally, attract foreign direct investment (FDI) and public & private portfolio investment. Regrettably, PPP lacks the credibility and the reliability to attract back that trust and confidence!



Afreen Baig is an independent analyst majoring in International Relations and Economics. She can be reached at afreenbaig@gmail.com

Good article that one, AuI. One that noone can refute, shame Interceptor isn't here. Some of us were telling him this would happen even before the moron took power.

Musharraf at least did not need to beg the IMF for preposterous loans that ordinary Pakistanis will need to pay back with very high interest for years to come. Zardari can claim this feat.

Flight of capital takes place ONLY in economies where there is lack of trust and faith! Investors and endowing Public do not trust the government of PPP and are wary of PPP’s earlier corrupt reputation.

Something I said before they'd taken power also.

If Pakistanis want to get richer, they're going to have to move away from these traditionalist parties like PPP and PML-N, who are simply going to make the ordinary Pakistani suffer for years after they've disintegrated, due to their IMF loan agreements.

 

[s90]

Not recession but slow down - 3% growth rate of GDP

 

[RabzonKhan]

In 2007, when international oil prices reached an alarming level of $140 per barrel it hurt the Imports bill of many developing countries, by increasing the trade deficit. The experienced Mr. Shaukat Aziz gauged this situation and immediately started monitoring & controlling individual sectors that were importing. He allowed imports only in sectors that were export specific. His efforts resulted in decreasing our Import bill by 6.53% by September 2007 (one month before he left).

That is a blatant lie with its only purpose to deceive the public, oil prices never reached $140 level in 2007, in fact it did not even go above $95. The fact is that $140 level was touched on July 2008.

I’m not going to waste my time checking other figures she has given.


Brent Crude Oil Futures Trading - Chart With Historical Prices

Here is another web site:
Weekly All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel)

it makes no sense how Shaukat Aziz can be accused of "blatant manipulation of statistics", this is definitely something coming out of a conspiracy theorist, or someone totally jahel. if what these conspiracy theorists are saying is true, then many of the major financial institutions and the World Bank would have made up those figures as well, while praising Shaukat Aziz and his "miracle-working" of the economy. after seeing how the media and biased pseudo economists can come on televisions and wrongfully discredit the economic success of Musharraf's era, I will make sure that I only hire economists or financial experts from abroad, and not from Pakistani universities.

inflation which was caused by high oil prices, not Shaukat Aziz's policies, which by the way still kept Pakistan strong under high oil prices which went up to $140 dollars a barrel. the current price is about $50 dollars a barrel, give or take, that goes to show us which govt. policies are to blame for our current condition.

So this is your so-called financial experts from abroad . Aren’t you the same guy who never gets tired calling Pakistanis “jahel”?!

 

[roadrunner]

Rabzon, any way you want to look at things, Aziz did a very good job.

The charges people like you, and Maqsad, and the rest of the agendized brigade hurl at him, is that that economic boom was achieved by huge borrowing and that in fact there was no economic boom! This is a pathetic argument.

Wth borrowing comes debt.

In 1999 Pakistan’s total debt as a percentage of GDP - 99.3 percent of its GDP
Sri Lanka (91.1% in 1998)
India (47.2% & in 1998).

These are the facts.

In 2007, Pakistan's total debt stood at 56% of GDP (much lower than the 99% of GDP in 1999.
Sri Lanka's debt:GDP ratio : 85% in 2007.
India's dbt:GDP ratio : 59%

These are the facts.

From being the highest debtor nation in South Asia, Pakistan has, in fact, become the lowest debtor nation in its region. Take a close look at those figures, Rabzon. The Sri Lankan debt only slightly improved, the Indian debt got worse, but the Pakistani debt was markedly reduced.

Let us assume that there was huge government borrowing. The actual figure of the debt is not important. China could pay back Pakistan's entire debt in a day. What is important is how big the debt is as a percentage of the GDP. This is why Pakistan was able to borrow more, and still be in a better position than it was in 1999. Compare to now.

An IMF loan of 7.2 billion. This is a high interest loan that Pakistani civilians (not the PPP government) will need to payback for many years to come. Under Musharraf/Aziz, not one significant IMF loan was taken out. What a difference a cabinet makes.

Here is a link to all those figures. You can confirm that Pakistan's debt in 2007 was 50% of GDP, India's was worse, and Sri Lanka's was much worse.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html

For the 1999 figures, use ADB (unless you believe them to be part of a Shaukat Aziz conspiracy)

"Pakistan entered the 21 Century with serious financial problems. Public debt exceeded 90%of its GDP, over 600% of its annual revenues, and debt servicing accounted for over half of current revenues. In 2001, Pakistan was the only country in South Asia to be classified as a severely indebted country by the World Bank."

http://www.adb.org/Documents/Reports/PRM-Policy-Notes/Pakistan-Public-Debt.pdf

Debt had decreased by nearly 50% thanks to Shaukat Aziz. The fact you, Maqsad, and dabong1 find this so hard to admit, and in fact dispute the figures from such sources is proof you're not interested in fact.

 

[TopCat]

Rabzon, any way you want to look at things, Aziz did a very good job.

The charges people like you, and Maqsad, and the rest of the agendized brigade hurl at him, is that that economic boom was achieved by huge borrowing and that in fact there was no economic boom! This is a pathetic argument.

Wth borrowing comes debt.

In 1999 Pakistan’s total debt as a percentage of GDP - 99.3 percent of its GDP
Sri Lanka (91.1% in 1998)
India (47.2% & in 1998).

These are the facts.

In 2007, Pakistan's total debt stood at 56% of GDP (much lower than the 99% of GDP in 1999.
Sri Lanka's debt:GDP ratio : 85% in 2007.
India's dbt:GDP ratio : 59%

These are the facts.

From being the highest debtor nation in South Asia, Pakistan has, in fact, become the lowest debtor nation in its region. Take a close look at those figures, Rabzon. The Sri Lankan debt only slightly improved, the Indian debt got worse, but the Pakistani debt was markedly reduced.

Let us assume that there was huge government borrowing. The actual figure of the debt is not important. China could pay back Pakistan's entire debt in a day. What is important is how big the debt is as a percentage of the GDP. This is why Pakistan was able to borrow more, and still be in a better position than it was in 1999. Compare to now.

An IMF loan of 7.2 billion. This is a high interest loan that Pakistani civilians (not the PPP government) will need to payback for many years to come. Under Musharraf/Aziz, not one significant IMF loan was taken out. What a difference a cabinet makes.

Here is a link to all those figures. You can confirm that Pakistan's debt in 2007 was 50% of GDP, India's was worse, and Sri Lanka's was much worse.

https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html

For the 1999 figures, use ADB (unless you believe them to be part of a Shaukat Aziz conspiracy)


http://www.adb.org/Documents/Reports/PRM-Policy-Notes/Pakistan-Public-Debt.pdf

Debt had decreased by nearly 50% thanks to Shaukat Aziz. The fact you, Maqsad, and dabong1 find this so hard to admit, and in fact dispute the figures from such sources is proof you're not interested in fact.

correct me if i were wrong.. Isnt the case that significant debt were relieved or rescheduled after 9/11. It was not the pak economy but the external help made that possible to come down to that figure that u mentioned. Basically nothing extra ordinary really happend within the economy at that time..

 

[roadrunner]

correct me if i were wrong.. Isnt the case that significant debt were relieved or rescheduled after 9/11. It was not the pak economy but the external help made that possible to come down to that figure that u mentioned. Basically nothing extra ordinary really happend within the economy at that time..

Even if there was debt relief, the reason for this debt relief was shrewd negotiations and diplomacy on the part of Musharraf.

In actual fact, it was the size of the economy that reduced the public debt by GDP so much.

In 1999, the economy size was 60 billion, by 2007, it was 160 billion. Total debt did not increase. That was why the credit rating of Pakistan increased to a B+ in this time, under Aziz's guidance.

Have you got a figure for how much debt relief was provided in total?