The burn of hot money

[Mav3rick]

Mr @S. Y. A, do you know why the money is needed in foreign reserves account? I understand you guys are PML_N workers or supporters, so I am willing to make it even easier to understand what's being done and why, if the above isn't sufficient enough...

I can see that you have chosen Canada as your current location. With that, you can be excused for being so naive, otherwise the word would have been much harsher.

It is simply because our Gas bill, our Electricity bill, our Grocery bill, our Taxes and everything else has gone up exponentially in the past 2 years and it does not take an accountant or economist to get this. All this while our salaries and revenues are going down. This is a situation which even the most critical opponents of PTI may not have expected and yet here we are with no sight to relief.

There is a joke going around, let me water it down for all audiences:

Teacher asks his student the definition of an idiot, student replies "someone who can see corruption in Rs. 10/unit of electricity and Rs. 2/unit of Gas but is unable to see corruption and incompetence in Rs. 21/unit of electricity and Rs. 30/unit of Gas.

Basically, I think we are all extremely fed up of corruption and so it is very easy to sell corruption as a blame and it takes precedence over everything else, even over much much better financial situation, financial stability and progress. The hate against corruption is taking away the logical reasoning of our PTI followers and hence they are still unable to see how darned expensive Naya Pakistan is and how far back it has plunged Pakistan in the name of so called 70 years of mismanagement and corruption. I have no other explanation for people who still buy into PTI narrative.

 

[FuturePAF]

Nothing Atif Mian says should be done. In fact the opposite of what he says should be done. He is after all a Qadiani. No true Muslim can do what he tells you to do.

Did he convert to being a Qadiani or was he just born into a Qadiani family? Is he spreading Qadiani belief?

His economic recommendations should be evaluated on their merits. If Pakistan takes the advise from foreign consultants that may have alternative motives, why not hear out a born and bred Pakistani, who wants the best for Pakistan.

We don’t know what is in a person’s heart. Let Allah judge and deal with him, but for now we should take his honest effort and give it a fair hearing.

 

[BringHarmony]

In the blind pursuit of hot money, Pakistan’s economic managers are foolhardily focused on generate dollar inflows by from abroad by selling short-term Treasury Bills (T-bills) and Pakistan Investment Bonds (PIBs) at higher rates.

This was an extremely stupid decision. When world over interest rates are LOW, a 14% interest rate on T-Bills have messed royally. Folks, this will bite you back in future. Really hard.

Better option would have been to buy dollars, let the currency drop to 300 PKR to USD and pay off the debt.

This circular debt would make your life really bad if economy does not zooms.

 

[ps3linux]

Hot money is the new death trap for developing economies, unfortunately, in our part of the world we have most of the times lost not due to lack of bravery but due to people within the ranks who sold rest of the nation out, some of the typical examples are Mir. Jafar, Mir.Qasim and the feudal of today whose ancestors sold the whole nation out in the war of 1857.

Our economic managers are not just agents of IMF, they are the hitmen who not only sell their nation out but put the noose around the economic neck of the country. Being in the financial sector I know how the economy and the resources of this country are being plundered due stupid/incompetent leaders and corrupt economic managers and bureaucrats.

Here is one example which will give an idea how the country is being raped.

Say I brought $100,000,000 (one hundred million) through SCRA and invested in a 6 months Government paper (Treasury bill, basically a zero coupon paper) carrying an interest rate of 13% p.a @ an exchange rate of Rs.160/dollar. I get 16 Billion PKR. Every one is happy that SBP forex reserves have increased by $100 million, thing are shown as hunky dory.

6 months down the road at maturity the 16 billion PKR is now, Rs.17.059 billion, interestingly the exchange rate is now Rs.155 to a dollar. How much dollar I am going to get at this exchange rate, lets see; $110.0623 million with no tax implications the return on investment is 20.12% p.a.

See just to give people the fallacy of having enough forex reserves with SBP we are giving only 20% return to the vultures, pun intended, this is the most expensive type of loan in the world, it practically destroys the economy inflation will not be coming down significantly anytime soon, the cost of these expensive loans will be borne by the Pakistani population in the form of raised fuel prices, utilities, down to staple food items.

Extrapolate the same figures to $1.4 billions we have right now in the form of hot money and imagine how stupid or how traitorous one has to be for doing such a terrible crime against one's own nation and country.

Despite being in the financial markets I could not make such returns either in equities or debt without significant risk, this debt is a sovereign guaranteed one.

Important questions:

Why PKR was depreciated way beyond PPP value, the PPP value can be anything between 145-152 PKR? depending upon various factors and weight

The reversal in exchange rate has benefited whom?

What is the impact of this high level of interest rate and inflation on the economy?

@Mangus Ortus Novem , @Zulfiqar , @blueazure

 

[Kabira]

Basically in few years Pakistan will need even bigger begging bowl to repay debt.

 

[KhanBaba2]

Did he convert to being a Qadiani or was he just born into a Qadiani family? Is he spreading Qadiani belief?

His economic recommendations should be evaluated on their merits. If Pakistan takes the advise from foreign consultants that may have alternative motives, why not hear out a born and bred Pakistani, who wants the best for Pakistan.

We don’t know what is in a person’s heart. Let Allah judge and deal with him, but for now we should take his honest effort and give it a fair hearing.

Guess you took my words literally. There are a lot of Pakistani here that rejoiced when he was removed. The problem is not his removal but the feelings that led to his removal. As long as you do not reverse that, the wrong people are going to be the decision makers.

 

[bafxet]

With each passing day, its getting clearer that imran khan is incompetent, dumb and a fool. I just hope he doesnt do too much damage is these 3 or so years. I hope we find a new political party where competent people are encouraged.

Absolutely

 

[Zulfiqar]

Hot money is the new death trap for developing economies, unfortunately, in our part of the world we have most of the times lost not due to lack of bravery but due to people within the ranks who sold rest of the nation out, some of the typical examples are Mir. Jafar, Mir.Qasim and the feudal of today whose ancestors sold the whole nation out in the war of 1857.

Our economic managers are not just agents of IMF, they are the hitmen who not only sell their nation out but put the noose around the economic neck of the country. Being in the financial sector I know how the economy and the resources of this country are being plundered due stupid/incompetent leaders and corrupt economic managers and bureaucrats.

Here is one example which will give an idea how the country is being raped.

Say I brought $100,000,000 (one hundred million) through SCRA and invested in a 6 months Government paper (Treasury bill, basically a zero coupon paper) carrying an interest rate of 13% p.a @ an exchange rate of Rs.160/dollar. I get 16 Billion PKR. Every one is happy that SBP forex reserves have increased by $100 million, thing are shown as hunky dory.

6 months down the road at maturity the 16 billion PKR is now, Rs.17.059 billion, interestingly the exchange rate is now Rs.155 to a dollar. How much dollar I am going to get at this exchange rate, lets see; $110.0623 million with no tax implications the return on investment is 20.12% p.a.

See just to give people the fallacy of having enough forex reserves with SBP we are giving only 20% return to the vultures, pun intended, this is the most expensive type of loan in the world, it practically destroys the economy inflation will not be coming down significantly anytime soon, the cost of these expensive loans will be borne by the Pakistani population in the form of raised fuel prices, utilities, down to staple food items.

Extrapolate the same figures to $1.4 billions we have right now in the form of hot money and imagine how stupid or how traitorous one has to be for doing such a terrible crime against one's own nation and country.

Despite being in the financial markets I could not make such returns either in equities or debt without significant risk, this debt is a sovereign guaranteed one.

Important questions:

Why PKR was depreciated way beyond PPP value, the PPP value can be anything between 145-152 PKR? depending upon various factors and weight

The reversal in exchange rate has benefited whom?

What is the impact of this high level of interest rate and inflation on the economy?

@Mangus Ortus Novem , @Zulfiqar , @blueazure

You are right, this is basically a form of carry trade that also leverages upon the bet that flow of capital into the country will appreciate the currency.

SBP should not have opted for this just to maintain reserves. We need structural changes.

Those hedge funders would be laughing at us. Who knows how many pakistani investors of shady nature would be part of this racket.

 

[Clutch]

I can see that you have chosen Canada as your current location. With that, you can be excused for being so naive, otherwise the word would have been much harsher.

It is simply because our Gas bill, our Electricity bill, our Grocery bill, our Taxes and everything else has gone up exponentially in the past 2 years and it does not take an accountant or economist to get this. All this while our salaries and revenues are going down. This is a situation which even the most critical opponents of PTI may not have expected and yet here we are with no sight to relief.

There is a joke going around, let me water it down for all audiences:

Teacher asks his student the definition of an idiot, student replies "someone who can see corruption in Rs. 10/unit of electricity and Rs. 2/unit of Gas but is unable to see corruption and incompetence in Rs. 21/unit of electricity and Rs. 30/unit of Gas.

Basically, I think we are all extremely fed up of corruption and so it is very easy to sell corruption as a blame and it takes precedence over everything else, even over much much better financial situation, financial stability and progress. The hate against corruption is taking away the logical reasoning of our PTI followers and hence they are still unable to see how darned expensive Naya Pakistan is and how far back it has plunged Pakistan in the name of so called 70 years of mismanagement and corruption. I have no other explanation for people who still buy into PTI narrative.

Perhaps the lopsided economics and increased prices are due to Pakistanis living beyond their means through cheap credit, tax evasion, IMF loans and circular debt. Over the decades of incompetence and Corruption ... Imran Khan isn't going to become an overnight miracle for all you woes ....

Now it's time to pay the piper in the form of higer prices and inflation... Which is a form of indirect taxation on labor.

You can't have you corruption-cake and eat it too... If you aren't a productive economy and just a consumer based economy you don't deserve a higher standard of life. Period.

Sorry... Truth hurts.

Hot money is the new death trap for developing economies, unfortunately, in our part of the world we have most of the times lost not due to lack of bravery but due to people within the ranks who sold rest of the nation out, some of the typical examples are Mir. Jafar, Mir.Qasim and the feudal of today whose ancestors sold the whole nation out in the war of 1857.

Our economic managers are not just agents of IMF, they are the hitmen who not only sell their nation out but put the noose around the economic neck of the country. Being in the financial sector I know how the economy and the resources of this country are being plundered due stupid/incompetent leaders and corrupt economic managers and bureaucrats.

Here is one example which will give an idea how the country is being raped.

Say I brought $100,000,000 (one hundred million) through SCRA and invested in a 6 months Government paper (Treasury bill, basically a zero coupon paper) carrying an interest rate of 13% p.a @ an exchange rate of Rs.160/dollar. I get 16 Billion PKR. Every one is happy that SBP forex reserves have increased by $100 million, thing are shown as hunky dory.

6 months down the road at maturity the 16 billion PKR is now, Rs.17.059 billion, interestingly the exchange rate is now Rs.155 to a dollar. How much dollar I am going to get at this exchange rate, lets see; $110.0623 million with no tax implications the return on investment is 20.12% p.a.

See just to give people the fallacy of having enough forex reserves with SBP we are giving only 20% return to the vultures, pun intended, this is the most expensive type of loan in the world, it practically destroys the economy inflation will not be coming down significantly anytime soon, the cost of these expensive loans will be borne by the Pakistani population in the form of raised fuel prices, utilities, down to staple food items.

Extrapolate the same figures to $1.4 billions we have right now in the form of hot money and imagine how stupid or how traitorous one has to be for doing such a terrible crime against one's own nation and country.

Despite being in the financial markets I could not make such returns either in equities or debt without significant risk, this debt is a sovereign guaranteed one.

Important questions:

Why PKR was depreciated way beyond PPP value, the PPP value can be anything between 145-152 PKR? depending upon various factors and weight

The reversal in exchange rate has benefited whom?

What is the impact of this high level of interest rate and inflation on the economy?

@Mangus Ortus Novem , @Zulfiqar , @blueazure

Thanks. That was a very informative post. Enjoyed reading it.

Perhaps the current government was between a rock and a hard place and took the risk to pursue "hot money" to improve the reserves and account deficits... As a short term (desperate) strategy. ?

The thinking being the gamble of taking on "hot money" as a short term measure to bring some stability to the PKR and in then increase exports... So if and when there is an exodus of this "hot money" the productivity and GDP of Pakistan by then has improved???

Just a thought.

 

[Sine Nomine]

The Central Bank of Egypt slashed again its key overnight deposit rate by 100 bps to 12.25% during its November meeting, as widely expected. This is the third consecutive rate cut, bringing the borrowing cost to its lowest since 2016. Policymakers said the decision provides appropriate support to economic activity, while remaining consistent with achieving the inflation target of 9% (±3%) in 2020 Q4 and price stability over the medium-term, despite the expected impact of unfavorable base effects in the near-term. The annual inflation rate fell sharply to a near 14-year low of 3.1% in October 2019, pushed down by lower prices of food, namely vegetables, as well as the statistical effect of a high base last year. Policymakers also noted that economic growth stabilized to a preliminary 5.6% in Q3 2019, the highest in eleven years. The overnight lending rate and the discount rate were also cut by 100 bps to 13.25% and 12.75%, respectively. Interest Rate in Egypt averaged 11.93 percent from 1991 until 2019, reaching an all time high of 21.40 percent in October of 1991 and a record low of 8.25 percent in September of 2009. source: Central Bank of Egypt


Mr @S. Y. A, do you know why the money is needed in foreign reserves account? I understand you guys are PML_N workers or supporters, so I am willing to make it even easier to understand what's being done and why, if the above isn't sufficient enough...

Before posting this kindly have an idea about massive backing KSA and UAE have granted to Egypt.That such massive that EAF fighter purchase is being paid by them.

 

[S.Y.A]

Mr @S. Y. A, do you know why the money is needed in foreign reserves account? I understand you guys are PML_N workers or supporters, so I am willing to make it even easier to understand what's being done and why, if the above isn't sufficient enough...

anyone who disagrees with pti is not a pmln supporter. if you are too blind to see or too dumb to understand that. then it is not my problem. my only issue is that pti used to bash pmln for doing the things that pti is doing right now. this is what pmln did to fill the foreign reserves, what makes them bad, and what makes pti good?

 

[Sine Nomine]

Perhaps the lopsided economics and increased prices are due to Pakistanis living beyond their means through cheap credit, tax evasion, IMF loans and circular debt. Over the decades of incompetence and Corruption ... Imran Khan isn't going to become an overnight miracle for all you woes ....

Now it's time to pay the piper in the form of higer prices and inflation... Which is a form of indirect taxation on labor.

You can't have you corruption-cake and eat it too... If you aren't a productive economy and just a consumer based economy you don't deserve a higher standard of life. Period.

Sorry... Truth hurts.

@ps3linux Bahi aik thread bana jis mai wo sarey heerey,jawaharat aur cutting edge tech equipment list kar jo Pakistan banata hai aur jis par HARAM KHOR Pakistani(According to political nut jobs)tax nahi detey.
Mere taraf sai Thanks in advance.

 

[S.Y.A]

tax evasion, IMF loans and circular debt

who is responsible for setting those things right? last I checked PTI was in govt since 2018.

 

[Sine Nomine]

anyone who disagrees with pti is not a pmln supporter. if you are too blind to see or too dumb to understand that. then it is not my problem. my only issue is that pti used to bash pmln for doing the things that pti is doing right now. this is what pmln did to fill the foreign reserves, what makes them bad, and what makes pti good?

You are wasting time bro,for them cause of inflation is Pakistanis not paying taxes and awam living beyond their means a life of luxury.
P.S:-None of them knows that during last 10 days price of basic grocery items have gone up almost 50%.
Now a 20kg sack of wheat stands at around 2000 and vegies are all time high.

who is responsible for setting those things right? last I checked PTI was in govt since 2018.

First it was Nawaz and Zardari,than it went back to 70 years and now when these things don't make sense at all,it has been dumped on Awam who according to them are not paying taxes and are living beyond their means a life of luxury.

 

[ps3linux]

You are right, this is basically a form of carry trade that also leverages upon the bet that flow of capital into the country will appreciate the currency.

SBP should not have opted for this just to maintain reserves. We need structural changes.

Those hedge funders would be laughing at us. Who knows how many pakistani investors of shady nature would be part of this racket.

Sir shouldn't they? I mean how much stupid one has to be to call oneself a stupid, imagine 20% return on a sovereign paper with "no tax implications" and "no lock in period", same with stock markets.

In many countries once the FIPI wants to withdraw money their money goes for 45 days to 90 day in Govt treasury with zero returns.

Thanks. That was a very informative post. Enjoyed reading it.

Perhaps the current government was between a rock and a hard place and took the risk to pursue "hot money" to improve the reserves and account deficits... As a short term (desperate) strategy. ?

The thinking being the gamble of taking on "hot money" as a short term measure to bring some stability to the PKR and in then increase exports... So if and when there is an exodus of this "hot money" the productivity and GDP of Pakistan by then has improved???

Just a thought.

No doubt about it that they were in a precarious position, as head of state it is his responsibility to have multiple options at hand deliberate on pros/cons of each option and then choose the best course of action.

Unfortunately, we had corrupt rulers, incompetent rulers and now stupids at helm of affairs, they surround themselves with cronies; cronies who inform all good only and the ruler they are not even bothered to check facts, have no propensity to read or learn. Exports is not something which could be increased overnight or even in 5 years time, it requires market study, education/vocational infrastructure, industrial base, Govt policies, interest rates and lot of other factors. Frankly while I am hopelessly optimistic about Pakistan, I have no qualms about competence of our bureaucracy/fauji/politicians and businessmen.

This is something which worries me deeply, IK doesn't have much time may be months powers be will change the face but the policies will remain the same "qoum ko kurbani deni paray gi" old song will be parroted again. The resentment and frustration is increasing and this is a dangerous situation.

@ps3linux Bahi aik thread bana jis mai wo sarey heerey,jawaharat aur cutting edge tech equipment list kar jo Pakistan banata hai aur jis par HARAM KHOR Pakistani(According to political nut jobs)tax nahi detey.
Mere taraf sai Thanks in advance.

O yaar why do you want me to start profanity, all the major tax evaders were with Musharraf, with Ghaddari, With Noora and they are now with IK. Abdul Razzq Dawood is one of the biggest tax evader he has a huge construction business, met the finance people and they told me that they pay fixed tax per year (mean pure tax evasion), each and every member assembly becomes a billionaire despite coming from shi*tty backgrounds, general populace is being screwed through indirect taxes. Pakistan is among those few countries where food items are taxed with VAT like luxury items, in many countries VAT on food items is less than half of other items.