Economic survey: no economic target achieved in 2011-12

Society Pakistan & World Affairs
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Re: Economic survey: no economic target achieved in 2011-12

Talat hussains column

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

Hmm interesting :hmmm:

Read the highlighted part, what’s the credibility of the facts and figures our ministers come each year and present to us?

Cost of war: Chapter on war on terror losses jettisoned – The Express Tribune

Cost of war: Chapter on war on terror losses jettisoned

http://i1.tribune.com.pk/wp-content/uploads/2012/06/387208-image-1338522382-167-640x480.jpg

Finance minister says claim hurt investor sentiment, brought no benefit. PHOTO: AFP/FILE

**ISLAMABAD: ****Pakistan has formally abandoned the claim of suffering immensely from the ongoing war on terror, saying that this in fact “hurt the economy, rather than bringing about any benefit.” And therefore a section carrying details of losses the country has suffered due to the war on terror has been dropped from the latest edition of the Economic Survey of Pakistan.

**

“For how long will we highlight the impact of the war on terrorism on the country,” argued finance minister Dr Abdul Hafeez Shaikh while justifying the decision to drop the special section, “Cost of War on Terror for Pakistan Economy”. The repeated emphasis has hurt investor sentiments, he added.

Investment in the country in 2011-12 fell to 12.5% of Gross Domestic Product, the lowest in the country’s history, while foreign direct investment stood at $666 million, almost half of what it was in corresponding period the preceding year.

Independent experts, however, say the biggest reason for falling investment is the chronic and worsening energy crisis that kept foreign investors at bay. Moreover, half of the country’s existing industrial capacity remains idle due to energy shortages, according to the survey.

Shaikh also shifted the responsibility on the Foreign Office, saying it calculates the losses and did not provide fresh details this year.

**
According to last year’s economic survey, Pakistan has suffered almost $68 billion in cumulative losses over the past decade due to the ongoing war on terrorism.
Finance ministry officials, however, said the $68 billion figure proved to be wrong during this year’s initial assessments.

“We did not want to drastically revise this figure downward, as it might have raised the issue of the credibility of the country’s statistics”, official said.

The figures had been compiled by an inter-ministerial committee of the ministries of foreign affairs, finance, interior, commerce and representatives of Balochistan and Khyber-Pakhtunkhwa – the worst hit federating units.

The incumbent government had added the special chapter in the economic survey hoping it would help convince international players to pour more aid. Aid, however, was not forthcoming, primarily due to strained ties between Pakistan and the United States.
Published in The Express Tribune, June 1[SUP]st[/SUP], 2012.**
Read more: budget2012

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

Welcome brother..

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

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.

  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.

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.

A recent study did highlight it, saying,

…It showed that domestic credit to private sector (DCPS) has no relationship with economic growth in Pakistan so far. Consequently, in Pakistan the development of financial sector is not making any contribution to the economic development. Further government borrowings for non development expenditures is making the lending actions of the banks oligopolistic, which is hindering the conventional flow of financing to private sector for economic development. Therefore, the monetary authority in Pakistan should adopt steeper target oriented policies for financial sector to extend credit for economic development…

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.

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

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..

[quote]
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.
[/quote]

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..

[quote]
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.
[/QUOTE]

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..**

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

What is Pakistan's real GDP?

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

Real GDP is US$ 185 Billions..
Consumer Parity adjusted GDP is about US$500 billions..
Depends on your perception..
An egg in Pakistan contributes 5 cents towards GDP calculation.. in Japan it contributes probably a dollar.. but an egg is an egg..!!!!

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

^ So shouldn't the loan to GDP ratio be calculated using 185 billion? I don't know how they calculate the GDP but the purchasing parity of the general public is reducing with each passing day, middle class is dying and poverty increasing. No new investment in industry and the old one being shifted else where and the GDP is still growing?

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It is calculated on US$ 185 billion.. you have to take the total debt.. minus the receivables/reserves/other financial assets.. and divide it with the real GDP..

This is the way to calculate the net public debt.. The way of calculating this is same for every country..

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[quote=“yazdi, post:6138, topic:223641”]

The total public debt in partly owed in Dollars and mostly owed in Rupee..

And earns revenue in Rupees, therefore exchange ratio to dollar is irrelevant here. The government’s debt has increased substantially in rupees, it has to be repaid in rupees from revenue generated in rupees.

what is more relevant is the total percentage of debt to GDP..

Most relevant is tax-GDP ratio which is pathetic in Pakistan. The government has to repay debt from taxation, not GDP. Dabt as a percentage of GDP is not a good measure of a state’s ability to repay its obligations.

Now the question is about repayment of this public debt..**

.**

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^^^
you have over simplistic views on sovereign economies.. Not a single world economy runs like you are suggesting..

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Sorry, My bad. I might have been reading wrong macro texts.

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Brother..
Finical wizards handling a sovereign economy are never trying to solve a mathematical equation.. They are mostly playing a chess game..

Believe me.. Public debts are never repaid.. They keep on increasing.. Every government in the world is a monster.. And they have a lot of hidden resources.. We all work partly to finance our government.. They are taxing you all the time.. They are even taxing your unborn children.. And most of these taxes you are not even aware of..

If US treasury leaves interest rates on market forces.. The country will be bankrupt in few hours.. They do all kind of manipulations/regulations..

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

Could you yell this to the Spanish government please. They seem to be in a bit of a bother asking big brothers Germany and France for help.

BTW, I would love to know a moneylender who keeps lending me money without ever asking for repayment. Yumm yummmmm!!!!!

P.S. Taxes are supposed to be the principal source of income of a government, collection of which is a little bit of problem for Pakistani government. That's all I wanted to say I guess :D

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

GDP it seems to be a superficial term, having high GDP might land a country more loans but what would be the situation if the GDP is high but due to low tax to GDP ratio and higher budget deficit the government is not able to meet its financial obligations?

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

this is what happens… http://www.reuters.com/article/2011/05/09/us-greece-economy-timeline-idUSTRE74844O2011050

“May 18 - Greece receives a 14.5 billion euro ($18.7 billion) loan from the EU and can now repay its immediate debt.”

Ireland and Portugal went later… Spain and Italy are in danger.

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^^^

Ali
You have precisely nailed it.. This is the reason all these developed economies have to keep interest rates artificially low.. If they have to pay 13/14 percent interest rate on their public debt.. They won't have spare money to pay government emplyees after that.. Leave alone any other kind of expenditure..

Can you imagine US with a bankrupt financial sector (where most of the funds have been placed in non returnable consumer avenues where they are already spent).. Has less than 2 percent interest rate..

When I say our economy is strong in the long run.. The reason is we have lived more or less within our means in the past..

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And our present interest rates are not at artificial level contraing our government not to over spend.. Our present is harsh but our future is bright unlike these developed economies..

One day the money will drain out just like it has drained out in Spain.. And they will have to increase the interest rates to attract fresh avenues..

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

Hey don't worry Greeks do not have to pay their loans back and they knew it, the problem is not the re-payment of the loans, had it been the problem, EU and other bodies to whom Greece owe all these debts might have strangled Greeks to get their past penny out!!! but the scenario is different here, Greeks are going to the polls, the new govt is going to be elected and then that Govt will get into discussion regarding loan-repayment and please don't be fooled by loan re-payment it is mainly interest repayment.. and that is what worries the countries more... and for this interest to be paid and for a moment let us assume that they are going to pay some amount of the principal back.... how they are going to do that... yes they will either issue bonds or some wordly financial body is going to lend some good amount to Greeks, part of this amount will be used to pay the interest, some part will be used to pay the principal and remaining part will be consumed by the country for its operational or development work...

e.g.

Greek have to pay a loan installment of USD 1 Billion
The accumalated interest on the loan amonnt is USD 200 Million
That brings a total cash out flow to USD 1.2 Billion,

Now Greeks do not have this amount with them to pay, so now what?

1) The Loan amount and interest will be reschdeuled, that is the principal from now will be 1.2 billion payable in some future time.. and Greeks will provide a soverign garrantee to the Spainsh banks for this re-payment and because they have no other immediate financial obligation on their head, they are entitled to get a fresh loan, and Spainsh banks using the SG will get more money from some other source and in long run, Greek Govt will issue bonds and public will pay off the interest on this loan...

2) The loan amount and interest cannot be reschdeuled, so now what? the financial bodies will issue a loan od USD 1.6 Billion to Greece, from where the amount of 1.2 billion will be paid and remaining will be used by the Greece Govt and now the Debt of Greece is not 1.2 it is 1.6 Billion, debt amount has been increase and the interest to be paid on this amount has increased as well...

It is vicious cycle which will only end with a war, a war like 2nd world war... then many of the countries get wiped out, remaining the in the name of peace will forget the debts other owe them and it will be fresh beginning all together...

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We're going into fantasies now. I was just responding to Yazdi's comment that countries don't need to pay back their loans.

What happened to Greece is what happens in corporate bankruptcy proceedings too. Some of the loan is written-off, some rescheduled. EU helped because there is contagion effect of sovereign default, meaning if Greece went bankrupt, other countries in the region would be badly effected and whole of EU would suffer. The primary reason was that Greece was spending too much on social welfare while the income from taxation was dwindling. Ripple effects from financial crises worsened the situation.

There is a cost involved with it though. The Greek debt is now rated lower and hence they need to pay higher rates of interest. If this cycle continues, then at one point nobody would be willing to buy Greek debt.

Debt is integral to a capitalistic economy. It creates multiplier effect where a manufacturer/business borrows to make things/provide service and consumers borrow to buy those things and more the manufacturer is able to borrow and manufacture AND sell, more jobs are created which enables more people to buy and borrow and cycle continues. Governments borrow to finance their expenditure, and more 'developmental' expenditure leads to more projects leading to more jobs, more taxes and more people spending on goods and services creating even more jobs.

Debt is not bad. Being not able to generate enough resources to repay is bad. If you don't like the idea, better embrace communism.

For Pakistan, what we badly lack is a decent education system to develop indigenous technologies. Food for thought: Toyota's total sales are almost same as Pakistan's GDP. Please don't blame 0 interest rate in Japan for that.