Economic survey: no economic target achieved in 2011-12

[yazdi]

Re: Economic survey: no economic target achieved in 2011-12

@kakaballi

A couple of issues here.

1. This analysis would be correct if the government’s revenue was in US dollars and could repay the loans using that revenue. Unfortunately, that is not true.

The total public debt in partly owed in Dollars and mostly owed in Rupee.. what is more relevant is the total percentage of debt to GDP..
Just quoting the figure of debt without relating it to the growing GDP is not fair. The point I am making is Pakistan’s public debt at 60% of the GDP is not something unusual.. in fact it is on the lower side compared to most of the world economies.

Now the question is about repayment of this public debt..**
2. In economic terms, rupee depreciation is because of increased Government borrowing. Governments normally have two options to fill the gap between income and expenditure. One, borrow, two, print more money and both of which generally cause inflation and devaluation of currency. We need to be clear about cause and effect direction here.
[/quote]

No..
Ideally the value of a currency should depend on demand and supply of that currency.. nothing to do with government borrowing..
As I have shown you with numbers that Pakistani Rupee is in high demand with strong fundamentals.. (Hundi+cash+banking channels+export proceeds)..

Then why does Pakistan Rupee devalues.. ???
It’s mostly a strategic decision of Pakistan government to give a competitive edge to manufacturing sector to compete globally.. Most of the under developed countries try to keep their currencies weak to facilitate their aspiring exporters.. and overseas work force..

At best what you can do is to see the inflation rate and adjust nominal borrowing to bring it to real increase in borrowings over the years. I suspect that increased borrowing would still be substantial.

As far as financial system in Pakistan is concerned, it is relatively been stable vis-a-vis many countries in recent years exactly because of the fact that private sector has not been borrowing for investments from the system as much as other countries. Unstable political situation and very high interest rates have deterred capital flow to private sector, resulting in limited growth in many industries. High interest rates because of inflation, instability and government borrowing makes financing new private projects through borrowing very expensive.

Pakistani financial sector is robust because it has not channelized resources in to non-productive consumptions. They have not financed credit cards, home loans, automobile loans..

The placement of funds by Pakistani financial sector are very secured.. unlike Western Financial sector.. most of the consumer/junk loans placed by western financial sector can never be repaid.

We are a poor nation.. but our consumers have mostly lived within their means..

True that our financial sector has not channelized enough liquidity towards productive channels.. but the reason is not entirely high cost of borrowing. Our State Bank prudential regulations are very strict.. and requirement of collaterals to borrow are very stringent compared to most of the world economies.. More or less.. specially after deregulation of Banking Sector our State Bank regulation of financial sector has been excellent..

Drying up of Foreign Direct Investment in India has not relation to health of Pakistani economy since we had very little of that in the first place. You cannot really be hurt by reduction in something that you don’t already have! FDI in Pakistan has been primarily in Energy and Telecom sectors. Energy, because of obvious reasons and Telecom because of Mush government’s very liberal policies in terms of importing telecom equipment, regulation, taxation and repatriation of profits to home countries.

Not trying to dampen the enthusiasm, but just saying that we need to be careful comparing Pakistan with other countries.

Brother..
Why I highlighted the importance of Foreign Direct Investment in India is to highlight their dependence on this resource . This year the portfolio foreign investment in Indian equities has come down from US$32 billion to US$16 billion. India is presently in a severe pressure to balance their current account which has eroded the value of their rupee by 33%..

Pakistan on the other hand was never a recipient of any major foreign direct investment.. and has a large surplus on this front even without this resource due to high availability of foreign exchange available in our economy and strong demand for Pakistani rupee..

I am not saying we don’t have economic problems.. but these problems are not related with current account deficit.. they are mostly management/governance related.

In any case our economic situation presently is not so grave as sky has fallen over our heads.. Yes, we do have challenges to face the future.. we must create jobs for ever increasing population.. we must provide basic livable conditions to our population.. but these factors can be achieved with proper utilization of available resources.. and a better management/governance.

Our economy has a great potential for next 25 years to come.. in fact it is one of the most potentially viable economies for the next couple of decades with a potential of big business increase. We have the basic ingredients with strong numbers to exploit this potential..

Bottom line is we are not an artificial economy like most of the Western developed economies..**