Pakistan's Foreign Exchange Reserves

[mujahideen]

Well foreign investors aren't investing in Pakistan, because they dont trust any of our politcians. Now since they cant invest our government cant tax them, Since they get no tax they must use their foreign reserves to cover up the money.

 

[maqsad]

Well foreign investors aren't investing in Pakistan, because they dont trust any of our politcians. Now since they cant invest our government cant tax them, Since they get no tax they must use their foreign reserves to cover up the money.

What? That made absolutely no sense. Foreign investors make profits in Ruppees. They then take those Ruppees out of Pakistan by exchanging them for dollars, Euros, Dirhams, Riyals etc. Maybe some of those Ruppees will get taxed and give GOP some revenue BASED IN RUPPEES so how on earth would that effect foreign reserves.

Almost all of the foreign investments that were attracted during the last 8 years were businesses like banks and cellphone, telecom companies that get 100% of their revenue from the pakistani market in RUPPEES and then if they are foreing owned they will pay some taxes(in ruppees not foreign currency) and take the rest of the money OUT of pakistan, bleeding the balance of payments each time that happens.

 

[mujahideen]

^^^^But all of them are leaveing Pakistan. How is our government going to tax them. If we have no one investing in our economy, where are we going to get the money we get from tax.

 

[maqsad]

I think "Shopper Aziz" has done a very good job over the last 8 years

A lot of people think the same but can you explain exactly what he did during those 8 years? Something like a top 20 list of changes or innovations on his behalf. My own feeling is that he used "banker's tricks" and sifaarish from his buddies in the world of finance. But many of these tricks may have had a short term benefit but a negative long term effect.

Quite false and ignorant. Privatizing all this stuff added to the FOREX reserves held within Pakistan through substantial investment levels never seen before in Pakistan's history. The profits from these investment, whether they state owned or owned by overseas consortiums, would not have made any difference to the FOREX reserves since the revenue was generated in Pakistan itself.

You seem to lack elementary understanding of currency exchange and balance of payments. Or maybe you don't bother reading posts properly?

Ok maybe you did not understand or even read exactly what I said. I mean for example when a Pakistani owned bank is sold to a foreigner, initially what happens is that the foreigner may pay about $1 billion or so in hard cash(non ruppee cash like dirhams, riyals, dollars or euros) for a bank which produced $100 million a year in profits. This $1 billion is going to give a temporary boost to the forex reserve obviously, I don't disagree with that. However this $1 billion dollars in this example is only a one time bonus because now the foreigner owns the bank which previously belonged to the pakistani taxpayers. Now every single year the foreign investor is going to withdraw $100 million in profits which will hurt the balance of payments and the forex reserve every single year from now on, forever.

Maqsad, at least don't post all out lies, or if you aren't sure of the facts, check them before you post. The industrial base of Pakistan has grown since he's come to control the economy, and the services sector has grown. Here is one article, for example showing the extent of industrial growth

Pakistan’s Industrial growth increases by 130%
via Pakistan Times - Pakistan's First Independent Daily E-Newspaper - www.PakistanTimes.net - Loading...
The annual growth of the manufacturing and industrial sector has significantly increased by 130 % during 2003-04 against the target of 7 % fixed for the last fiscal.Pakistan’s Industrial growth increases by 130% - PakPositive

What lies? Don't accuse me of posting lies when you don't bother to properly read a post. Here, let us analyse the facts and you tell me which one of these facts laid out in very simple style are lies:

* Is it a lie that under Aziz's watch foreign companies were allowed to set up cellphone and land line operations in pakistan? Are you telling me that Aziz never allowed any foreign investor to invest in telecommunications during his rule?

* Is it a lie that Aziz did not succeed in forcing one single investor in tellecommunications to set up a manufacturing or assembly plant in Pakistan? If it is a lie point me to one factory or assembly plant in pakistan that produces a nokia, motorolla or other cellphone product. The truth is they are all still imported and cost Pakistan billions and billions in hard foreign currency.

Where is the lie...can you point the lie out?

And the article about "industrial growth" you posted(probably because you didn't read my post carefully) is irrelevent since my post was simply about the disasterous telecommunications policy followed by Shopper Aziz where he just gave away everything without bargaining. He could have done so much but he did...nothing. The growth in manufacturing and industry is nothing to do with telecommunications. And btw during the 2004-2005 year the actual industrial growth was about 16% according to the article. 130% is a deceptive figure, that is just the "growth in the growth" not the actual growth in totality.

Again, you don't know what FOREX reserves are. Your statements here are wrong.

You did not answer the question. I asked, from where did this FOREX surplus account come from? Where did the surge come from...do you know? Besides the selling off of state assets and the repatriation of huge amounts of money repatriated(I heard it was about $65 billion?) after 2001, besides the issuing of Eurobonds, besides IMF loands, how on earth did Shopper Aziz get his hands on the $16 billion to construct such a big surplus balance in the FOREX fund of the Central Bank of Pakistan? Can you explain how he got the money?

This erosion of FOREX has only happened in the last months. Aziz has been in power for 8 whole years. It is not coincidence that the economy (and the FOREX is a big indicator of things to come) has started taking a turn for the worse. You'll see very slow growth from now on, as PPP and NS take control of the treasury. This has nothing to do with the previous 8 years that were governed well, and everything to do with 1) "Islamists" causing instability and 2) Corruption/bad governance of PPP/NS. Back to the 90's for Pakistan.

Oh really, nothing to do with the previous 8 years? Let us recap the previous 8 years:

* Sanctions were lifted which helped pakistan's economy recover at a much faster rate than it would have otherwise grown.

* Billions in loands were written off as a reward for WOT.

* America increased imports of textiles from Pakistan to help it out.

* Lots and lots of pakistani state owned enterprised were sold off for hard cash--now there is very little left to sell.

* Billions in remittances and repatriated funds were recieved after 2001 by expats. $65 billion?

* Shopper Aziz actually went shopping for more loans and now the debt of Pakistan is at an all time peak in history.


Now there is nothing left to sell, except PIA and Steel Mills to keep feeding this bubble..and even if those are sold what then? What else is going to be left to sell to foreigners, the coalfields? Gold mines? Copper Mines? This whole system for the last 8 years was set up on selling what belonged to Pakistan to keep things afloat. Even national pride and sovereignty was sold to the US and today the CIA is randomly firing missiles at whoever they choose to.

How can you keep an economy going which was based on selling off assetts that the country owned, to foreigners, in order to finance the survival of the economy? I mean are you going to now blame the new government because nothing is left to sell off? Also the pak economy is heavily subsidized with US help...why in these 8 years did the military govt not plan on making pakistan stand on it's own two feet, economically?

 

[mujahideen]

You can say all you want about Shakut Aziz, but let me tell you one thing, his policies will be continued.

 

[maqsad]

^^^^But all of them are leaveing Pakistan. How is our government going to tax them. If we have no one investing in our economy, where are we going to get the money we get from tax.

What kind of statement is this, do you have any facts to back up what you say or is this based on gossip you heard somewhere? You don't think the GOP taxes the rest of the economy? Show me some facts and show me some figures instead of making vague meaningless statements like this.

 

[maqsad]

You can say all you want about Shakut Aziz, but let me tell you one thing, his policies will be continued.

Ok thanks for telling me his policies will be continued. I wasn't really asking anyone if his policies would be continued or not. I just want people to dispute the facts I put out if they can do it. Either you agree with my facts or you try to destroy them. You are going off into something unrelated.

 

[mujahideen]

Ok thanks for telling me his policies will be continued. I wasn't really asking anyone if his policies would be continued or not. I just want people to dispute the facts I put out if they can do it. Either you agree with my facts or you try to destroy them. You are going off into something unrelated.

You seem to know everything. You think that you can run the economy better. You tell me to look at the facts but do you know the fact of our economy. The fact is you and I really dont know under what conditions Shakut Aziz made his policies the way he did. He only had a limited amount of resources. You work with what you have and the fact is he turned around an economy that had nothing. We needed a quick fix at that time and thats what he did.

 

[mujahideen]

What kind of statement is this, do you have any facts to back up what you say or is this based on gossip you heard somewhere? You don't think the GOP taxes the rest of the economy? Show me some facts and show me some figures instead of making vague meaningless statements like this.

You just dont get it. The government gets taxes of of big business, these big businesses have money invested by foreigners. And when they leave the business doesn't grow as fast and we cant get tax of of them. For example the privitization of the Steel Mills. The reason for this was we were not making any money off of it. Now when we sold it we expected to tax it, we expected it to grow so that it can provide jobs and we tax those peoples. Its a chain reaction.

 

[Neo]

The foreign exchange reserves are going down because of a trade deficit, not because Shopper Aziz has taken a vacation. Also, nobody has ripped off the pakistani people and sold any state assets off recently(to foreigners) or handed over local franchises to foreigners mainly because they have run out of things in pakistan to loot and steal and sell and rent. Everything is used up.

I still don't understand where all that foreign exchange came from in the first place. Everyone is always talking proudly of the $16 billion that came out of nowhere but I want to ask people where did it come from? Who created it? Who did it belong to? For years I have heard so much praise about this $16 billion but nobody ever explained where it appeared from!

Shaukat Aziz is not to blame of the negative trend, jittery investors pulled some money out after the assasination of Bhutto. Political instablity that followed after the assasination turned away new investments hence FDI.
Its FDI and remittance that surged Forex in the first place.

Also as reported earlier some $0.5 billion fled out of Pakistan as remittance, this comes directly from Forex.

 

[Neo]

What? That made absolutely no sense. Foreign investors make profits in Ruppees. They then take those Ruppees out of Pakistan by exchanging them for dollars, Euros, Dirhams, Riyals etc. Maybe some of those Ruppees will get taxed and give GOP some revenue BASED IN RUPPEES so how on earth would that effect foreign reserves.

Almost all of the foreign investments that were attracted during the last 8 years were businesses like banks and cellphone, telecom companies that get 100% of their revenue from the pakistani market in RUPPEES and then if they are foreing owned they will pay some taxes(in ruppees not foreign currency) and take the rest of the money OUT of pakistan, bleeding the balance of payments each time that happens.

Nope, FDI comes in $$$ not rupees, profits or returns get out of countries thru FC accounts in $$$ or Euro, not rupees.

 

[maqsad]

Nope, FDI comes in $$$ not rupees, profits or returns get out of countries thru FC accounts in $$$ or Euro, not rupees.

Everyone here is misquoting me on every point I make. I know FDI comes in $ not rupees, where did I say that the ruppee is an international currency?

But once the Investment starts making money in Pakistan, the revenue and profits are collected in Ruppees. Once the ruppees are ready to be sucked out of pakistan to the home base of the foreign investor then the ruppees are exchanged for dollars year after year, every year.

That is what the problem is. Foreign investors are coming in with their dollars and buying domestic businesses or setting up new businesses in lucrative markets. Once they own these businesses then they suck the profits out of Pakistan every year, every time they suck 60 billion ruppees out they force pakistan to buy $1 billion dollars.

Now the result of this is that every single year $1 billion is sucked out of the pakistani economy into the hands of the foreign investor---why is that so hard for people to see?

 

[Neo]

See the bigger picture in FDI instead of focussing on Forex.

Investment results into employment and local production which again adds to GDP. Before $1 billion is pulled out of the country its already added $3-4 billion to GDP.

Government received tax although there's tax exemption for few sectors but still money is made at several levels.

Some of the Forex is used to repay debts, it not unusual. Once we receive $300+ million from KSA and another $500 million from China in economic relief package (announced today) the forex will surge.

Forex surges and declines are a comon practice in small sized economies like Pakistan, after May 1998 nuclear tests our Forex plunged to marely $0.7 million!!! Look where we stand now...thanks to Shaukat Aziz and Musharraf.

 

[mujahideen]

Because of the declining dollar I think we should switch our currency from dollars to Euros.

 

[Neo]

Maqsad, maybe you missed this article I posted earlier in some other thread:

Wall Street Journal calls Pakistan a cash magnet​

NEW DELHI, April 3: Wall Street Journal has called Pakistan a cash magnet.

The paper, in an article posted on Wednesday, says the Pakistani stock market continues to be a profitable index to invest in. Those missing the boat on profits do it at their own discretion. The Pakistani market has a strong record of growth for 33 per cent in the past decade. Foreign investors are eager to invest in Pakistan.

The Wall Street Journal article is mainly discussing American investment. Arab and Asian investment in Pakistan is continuing at a rapid pace.

Many in Pakistan want to peacefully end the aid relationship with the USA, so that investment worth $10 billion a year can come into a stable economy, saiid the paper. Emaar International is investing more than $28 billion in the housing sector and there have been huge investment in the telcom sector.

“Pakistan Could Become Cash Magnet If New Government Passes Some Tests,” said the paper.

Pakistan’s largely peaceful elections and swearing-in of a new prime minister have brought it some stability. But foreign capital — which stopped coming in because of the nation’s political turmoil — is still sitting on the sidelines, it added.

Investors say they are eager to start putting money back into the country, one of the few emerging markets performing well this year. (The Karachi 100 Stock Exchange 100 Index is up about 8 per cent in 2008.)

However, they are waiting to see whether the new government will restart privatization moves halted last year and take other measures to repair an economy plagued by a budget sh For years prior to 2007, foreign investment in Pakistan rose steadily.

For the fiscal year that ended in June, the country received $5.2 billion in foreign direct investment and $1.8 billion in portfolio investment.

But that was a high-water mark, followed by a temporary state of emergency, riots and the killing of opposition leader Benazir Bhutto. Investors turned sour; in the eight months that ended in February, foreign investment was just two-thirds what it was in the same period one year earlier.

At Pakistan’s stock market, the numbers look surprisingly good. Even with the turbulence of 2007’s last months, the Karachi 100 index was still up 40 per cent for the year. And its performance so far in 2008 compares favorably not just with Western markets, but with the Bombay Stock Exchange’s Sensex index, which has dropped 23 per cent.

Still, the Pakistani market’s performance hasn’t been enough to tempt people to invest further. “We’re not ready yet to put in a lot more,” says Slim Feriani of Progressive Asset Management, a London-based emerging markets fund that has invested $3.2 million in Pakistan. “We just want to let the dust settle a bit.”

The new government’s first test is coming up. Last year, Pakistan announced plans to sell stakes in the National Bank of Pakistan and Habib Bank through global depositary receipts, or GDRs, on the London Stock Exchange. As political storm clouds gathered, the sales — expected to be for a 23 per cent stake in NBP and a 7.5 per cent stake in Habib Bank — didn’t materialise.

Investors say they would also like to see more privatization in the oil sector, which also draws a large share of foreign capital. But unlike in banking, the Musharraf-led government made no promises to open up oil exploration to further private investment.

A bigger, potentially thornier task for policy makers still lies ahead. Pakistan is facing a large budget shortfall and a current-account deficit equivalent to 5.3 per cent of its gross domestic product.

Investors are asking if the new government, formed by parties that have promoted populist policies, can take the measures needed to avert an economic crisis. “Let’s not skirt around the issue that these guys have been in power in the past and they’ve had a pretty bad track record in governance and also dealing with foreign investors,” says Sakib Sherani, an economist with ABN Amro Bank in Pakistan.

In spite of the economic woes, some observers expect the Karachi market to gain 20 per cent to 25 per cent in 2008, in line with growth in corporate earnings. The expectations are based on the idea that some sectors of the economy, such as real estate, are undervalued, and on the continuing attractive valuation of Pakistani stocks. By some estimates, stocks in Pakistan have a historic average price-earnings ratio of 11.

Wall Street Journal calls Pakistan a cash magnet -DAWN - Business; April 04, 2008