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Pakistan Rupee sinks on concerns over balance of payments

How can you stop local population using things they are willing to pay for, without going Venezuelan way?
We imposed high duty on car. A decent 2nd hand sedan cost minimum 20 lacs to 35 lacs. People hardly buy cars here. If they still want to use it, govt will make money on it.
 
We imposed high duty on car. A decent 2nd hand sedan cost minimum 20 lacs to 35 lacs. People hardly buy cars here. If they still want to use it, govt will make money on it.

I don't think cars/ luxury items is the issue here, what about basic machinery and construction items? Cars is just 2-3% of total imports, majority is crude, iron and other essential items.
 
We imposed high duty on car. A decent 2nd hand sedan cost minimum 20 lacs to 35 lacs. People hardly buy cars here. If they still want to use it, govt will make money on it.

Pakistan's major imports are from China. Would they dare to levy high duties on Chinese products?
If that was the intention in first place, Pakistan would have insisted on using Pakistani companies as sub-contractors instead of Chinese firms with Chinese prisoners working as laborers.

There are some more places much before this post, I have mentioned what's coming, don't recall where I posted. Anyway this is exactly the words mentioned in the post way back in Sept 2017.

Soon you will have a bomb of Inflation & devaluation. Your currency will slowly go out of control without FDI coming & all the above numbers reversing fast. PKR will cross 110 at the turn of 2018 for sure according to me. If it doesn't cross 115 by the turn 2019 you will be lucky. This will have severe impact on your cost of living. Your oil prices, basic daily needs, cooking oil prices are going to sky rocket in next 2-3 years.

https://defence.pk/pdf/threads/us-weighs-dropping-pakistan-as-an-ally.518266/page-5#post-9877317

Kindly read the post no. 67 in the link above. I have taken my time & effort many times reminding them, their economy is in crisis. I had told when PKR was trading @ 104/105 levels it will touch 110 by 2018 & 115 soon.

The forex reserves is fast depleting & there will be heavy pressure on your currency when you have to repay loans or delay oil & other import payments. You will again have to pay interest & penalty. Let us see if Pakistan is able to keep the currency at 115 or I will again come right.

It's time you shed your ego & give up India hatred & Kashmir to bring some ray of hope. It's already late.

How is remittances ties up into all those economic indicators and how is it a direct or indirect function of these variables?
 
I don't think cars/ luxury items is the issue here, what about basic machinery and construction items? Cars is just 2-3% of total imports, majority is crude, iron and other essential items.
Machinery, irons should be tax free. They have big return of investment and will eventually make money on export.
Next you have to define what should be constituted essential items. PK is self sufficient in food. What are those crude used for? YOu need a thorough anatomic analysis on their external trade. It seems fked up.
 
Machinery, irons should be tax free. They have big return of investment and will eventually make money on export.
Next you have to define what should be constituted essential items. PK is self sufficient in food. What are those crude used for? YOu need a thorough anatomic analysis on their external trade. It seems fked up.
huge construction projects , CPEC related projects , machinery , steel , power plants machinery , general machinery etc has lifted the value of imports and the balance of trade is created in this process.
 
Pakistan's major imports are from China. Would they dare to levy high duties on Chinese products?
If that was the intention in first place, Pakistan would have insisted on using Pakistani companies as sub-contractors instead of Chinese firms with Chinese prisoners working as laborers.
They should not had signed FTA with China instead demanded a one way concession what we did with them. We did the same with India. But for India BD import most of the item tax free for its own need.

huge construction projects , CPEC related projects , machinery , steel , power plants machinery , general machinery etc has lifted the value of imports and the balance of trade is created in this process.
But the money is paid by the Chinese which should not affect current account balance. They are not paying it back as of now.
I have reservation on construction project as most of them seems redundant and PK were unable to exhaust its existing road infrastructure. I am not sure if those investment are of any good or not.
 
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They should not had signed FTA with China instead demanded a one way concession what we did with them. We did the same with India. But for India BD import most of the item tax free for its own need.


But the money is paid by the Chinese which should not affect current account balance. They are not paying it back as of now.
I have reservation on construction project as most of them seems redundant and PK were unable to exhaust its existing road infrastructure. I am not sure if those investment are of any good or not.
All CPEC is not financed , like Hazara , Lahore multan etc motorways are not financed yet pakistan has to build it .many non cpec projects like power plants , etc are adding to the curry as well.
 
All CPEC is not financed , like Hazara , Lahore multan etc motorways are not financed yet pakistan has to build it .many non cpec projects like power plants , etc are adding to the curry as well.
These kind of projects will drain your resources. You should think carefully before spending so much money on them. If you cant collect enough toll they will become white elephant. These infra project will give you immediate boost to the economy but in the long run they will become a burden if other segment of the economy dont keep up with them for instance industrialization and per capita income.

Below is the main high way of Myanmar. They are posting 8% growth rate with this kind of project which remains empty. Are they worth it? Or premature?
 
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End of the day it's their country. They can implode or explode. It's their decision. Why are we discussing this in their forum. We have enough shit to focus about back home. Let's sit back and work on our issues while watching the drama from afar.
 
GOP has intentionally devalued the rupee, I was watching a program on Geo news Naya Pakistan, one of the GOP ministers came on the program cant remember his name, was saying it was intentionally devalued to boost exports and reduce imports, I dont buy their excuses, all of PMLN are liars.
 
If pakistani rupee is devalued as much as their GDP growth % + inflation + any positive affect on import export deficit, the pakistani GDP will remain constant in US dollars for 2017-18 that means bangladesh GDP might have striking chance to knock off SAARC's 2nd biggest economy in couple of years.
 
Oil price crosses $70 amid Iran deal tensions

Oil prices rose as investors saw increasing possibility that the US could withdraw from the historic Iran nuclear deal.

Crude oil prices posted their biggest weekly gain in eight months with rising geopolitical risk in the Middle East threatening security supply once again.

International benchmark Brent crude gained 6.6 percent this week, briefly reaching $70.58 a barrel on Friday.

American benchmark West Texas Intermediate (WTI) rose 5.7 percent this week and climbed as high as $66 a barrel.

While both benchmarks reached Friday their highest level since January 29, they also posted their best weekly gains since the last week of July 2017.

https://www.aljazeera.com/news/2018/03/oil-price-crosses-70-iran-deal-tensions-180324110314540.html

Expect the current account balance to worsen even more now. PKR should trade at 125 to a dollar in the next six months. Pakistan will need to to the IMF immediately after June 2018. As i have said for the past one year now. Its time to convert Rupee to dollars.


 
Why Pakistan's rupee can depreciate further

Let's analyse the key factors that can contribute to this possible scenario

A depreciation of the Pakistani rupee is now a high-probability event. With external debt at $93 billion or 29 per cent of the national GDP, I am alarmed by the significant deterioration in the State Bank of Pakistan's hard currency reserves from $16 billion to a mere $12 billion in the past year. There is no time for Pakistan to issue another sovereign Eurobond as the PML-Nawaz government's term ends in May.

As if political risk was not bad enough, Pakistan faces a higher current account deficit due to CPEC-related outflows and the rise in Brent crude prices. A Lula win in Brazil or a López Obrador victory in Mexico could easily trigger emerging markets contagion at a time of rising Federal Reserve monetary tightening. Trump's tariffs against China could not have come at a worst time for Pakistan.

The IMF projects Pakistan's current account deficit will rise to $15.7 billion or 4.8 per cent of GDP. Pakistan also faces an external financing need of $24 billion and a debt service cost $6.3 billion or 26 per cent of exports. It is alarming that the SBP's hard currency reserve have fallen so significantly even though Islamabad has borrowed in the eurobond market only four months ago and has access to international commercial banking lines.

The Achilles heel of Pakistan, as ever, is the luxury import appetite of its elite (no shortage of Beamers and Benzis in Clifton/Defence!), its Rs90 billion circular debt, its poor tax collection/GDP ratio, its inability to accelerate export growth, its disproportionate, Prussian scale, military budget and the weakness (both real and induced by the deep state) of its democratic institutions.

The prospect of Imran Khan's PTI in coalition with Asif Zardari's PPP and smaller parties, as happened in the senate, winning the July 2018 general election is a nightmare for any international investor, the reason offshore money has been selling Pakistani equities. I was stunned to see the turnover on the Karachi stock exchange on a day I was in town last week was a mere $27 million, less than the notional size of an average day on my trading desk. Pakistan is thus very vulnerable to both domestic and external financial shock in the summer and autumn of 2018. I do not remotely expect a sovereign debt crisis. The IMF's implied risk neutral sovereign probability of default is a mere 6.5 per cent and the credit default spread is high (but not draconian) at 342 basis points. Yet I cannot see how Pakistan can escape a depreciation of the rupee under its central bank's managed exchange rate regime and would not be surprised to see the Pakistani rupee fall to 120 against the US dollar by year end 2018.

This conviction has profound implications for any strategic view on Pakistani equities. The Karachi index trades at 9.4 times earnings, far below the MSCI Asia ex-Japan valuation multiple of 13.6 times earnings. Pakistani equities also offer a dividend yield of 5.3 and 3-year rupee bonds auctioned by the central bank yield 6.8 per cent. Yet my rupee view wants me to position money into OGDC and Pakistan Petroleum, who benefit from a rise in US dollar revenues if the rupee tanks while local operating cost decline.

Fears of a rise in the debt receivables could pressure Hub Power down to its 52-week low at 89, where I find it irresistible. Lucky Cement and United Bank are my other favourite blue-chips, though not at current prices.

The 1,400-point fall in the Dow Jones demonstrates Wall Street's horror at the prospect of a US/China trade war. Banks, technology and industrial shares led the 6 per cent decline in US stock market indices last week. Of course, Boeing and Caterpillar are natural targets of Chinese retaliation, as our US tech and agri business shares. This is not a systematic global financial panic yet. The Volatility Index has only risen to 25 and not 50. Gold has not risen $100 an ounce. Credit spreads have only widened a bit. There is no safe haven panic bid in US Treasury bonds. Yet it is undeniable that the global macro storm clouds have darkened for emerging markets as an asset class.

https://www.khaleejtimes.com/business/markets/why-pakistans-rupee-can-depreciate-further

 
How is remittances ties up into all those economic indicators and how is it a direct or indirect function of these variables?

Strange 1st time somebody asking me a economic question here.

You have a current account deficit when you are spending more of your currency (forex) on importing goods than earning from exports. This leads to depreciation. So Balance of payments fluctuates exchange rate of a country’s domestic currency. So you have to go take loan to sustain the household expenses.

For countries of any developing or poor country where poverty & unemployment is high, remittances make up a sizable portion of GDP. Remittances from citizens working abroad provide an import source of much-needed funds.

Many developing countries have difficulty borrowing money, just as a first-time home buyer might have difficulty obtaining a mortgage. So such countries are most likely to rely on remittances. If your country has a deficit or weak economy you tend to have less stable governments and are less likely to repay the debt meaning possibility of default. While organizations such as the World Bank can provide funding, these funds often come with strings attached. Remittances give countries the ability to fund development their own way. It can also be used to make loans to local businesses.

The funds immigrants send home keep wire transfer companies in business and allow the home country to purchase imports. Your banks can establish branches abroad to make the transfer of remittances easier, in turn growth of your banks.

The more a country depends on inflows of funds from remittances, the more that it will be dependent on the global economy staying healthy. Workers employed abroad may lose their job if there is slow down in global economy. This has a triple-pronged effect. First, the home country may see a significant portion of its income dry up, and thus not be able to fund projects or continue development. These funds are also used for paying for imports & your oil bills. Second, you are dependent on foreign jobs for your fast growing population, because there is no proportionate job growth in relation to population growth. Meaning if you have 1 million unemployed & next year if it has become 1.1 million then there is a problem. Your population is increasing faster than your job creation. Third, not only you are unable to give employment for the local population - workers who are working abroad move back home, exacerbating the problem by increasing the demand for services on an already strapped economy.

Thus, immigrants who seek to send back remittances have become an integrated part of the economy. Remittances are $ earned outside which you re-spend it outside. Export is also $ earned from outside. Tourism is $ coming in from outside. Outsourced jobs brings in $ for your inside service. The problem is when you spend your money earned from inside (i.e Rs) to spend for outside purchases.

Where ever there is a hit in growth in any sector, (can be export, tourism, remittances, outsourcing, FDI, Consultancy Services, etc) it has a chain reaction to all other sectors or industries. Local businesses have to give salary hike to employees, rent hikes, increase of raw materials & product prices every year. So if money flow reduces in the system, people don’t spend & local businesses indirectly see slow down. So when more unemployment, less spending which affects all sectors. Eg: I am a Non Resident - I have saved up for past 5-6 years to buy a house - When I buy a house, the builder has spare money to buy a Car from the profit - The Car dealer has spare money to go buy a TV - The TV guy go buys a computer - The computer guy will go buy a mobile & so on. So money is in circulation which fuels the businesses & inturn economy. So one source stops then one person's transaction is gone, in turn reducing circulation & others income. So more & more spending has to happen for economy to propel.

The bottom line is that remittances are an important factor in the global economy, and help drive growth both at home and abroad especially for poor & developing countries.

A weaker domestic currency makes cross-border shopping and overseas travel more expensive. It’s bad for an import oriented country. If your exports are far higher, then yes it’s good.

For eg: If 1$ = 100 PKR – To Buy a 1000$ ticket you pay 100,000 Rs.
Today’ 1$ = 115 PKR So to Buy same 1000$ ticket you pay 115,000 Rs.

So a job seeker now has to arrange more money to buy the same ticket, which was 15000 Rs less just few months ago.

A devalued currency can result in “imported” inflation for countries that are substantial importers. A sudden decline of 20% in the domestic currency may result in imported products costing 25% more since, a 20% decline means a 25% increase to get back to the original price point.

A nation needs to have a relatively stable currency to attract investment capital from foreign investors. Otherwise, the prospect of exchange losses inflicted by currency depreciation may deter overseas investors.

So in nutshell, we should not be over dependent on other countries. You have to build your economy faster than the population growth, reducing the unemployed population year on year by providing local jobs. It not only reduces your dependency, it grows your economy & strengthens it, so you are not at the mercy of other countries. Only when you have employed your entire population, you will be developed & safer in this cut throat world. So where does the key lie to achieve this.

Population control. Countries in the sub-continent should impose 1 child policy, if not everybody will be doomed. China is very good in economic planning. They think & implement policies for 20-30 years ahead. That’s reason they implemented 1 child policy decades ago which is bearing fruit today. It’s a burden on your economic growth when you have more unemployed than your existing jobs. You can see the result in where China is now with its forward thinking & planning. I again emphasize, your job creation & economy has to grow faster than the population for a country to succeed. If not it’s a never ending, negative struggle, till the day you lose the will & strength to hold this burden anymore. Then you sink with it. There are many other factors, population being one of them.
 
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The most funny part of this news : Nawaz said , all happened because of my removal , Ismail Muftah said: it was long due and Govt did this correction ....................... Hello Mr Ex Pm.. what you been doing ... Some govt official said : It will eventually stop at 150.
 

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