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

Good discussion guys! Cleared up a few questions in my mind. :)

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

Now we are really entering the area which have nothing to do with the Debt!!! had education been directly related to the debt cycle of the countries, Japan and USA should have suffered the most, so i don't know how you can even connect these two....

The problem for Pakistan is not education but the getting its priorities right and then be consistent with them! no govt can bring revolution in education sector in mere 4 or 5 years it is long process which takes decades before the fruit is ready!!!

Anyway, so now you agree that the Debt are never repaid by the countries?

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

Getting priorities right <===== develop human resources <===== improve education

Of course Debt is repaid. Every debt has a maturity date and if you cannot repay, you won't get more financing. Even when a debt is recycled with the same lender, you still need to show ability to repay when the new loan becomes due and when you cannot satisfactorily show that, you are charged higher interest rates. If this was not true, everybody would not be talking about austerity in Europe these days. They would simply get more loans!!!!

Regarding interest rates, it represents, among others, three things. The riskiness or loan, inflation rate and term (timing or repayment). Less risky a loan (e.g. to Japanese government) and lower inflation rate would reduce interest rates. Yes, you can manipulate interest rates, but to an extent. If it is all financial gimmickry, then at least Indian, Brazilian or Chinese economists (if not Pakistani) would have studied the stuff by now and implemented in their own countries. Let us not go into conspiracy theories and blame Western "financial wizards" for our own short-comings.

I can never understand how is it possible that people (at times public and most of times banks buy sovereign debt) would lend to governments without demanding repayment. This is an absurd idea. I can never agree to it and let us agree to disagree here.

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

There are a few things in the context of Pakistan which seem shady:

1) Depending upon the source of information the real GDP figure (using internet) varies between USD 175 to 300 billion

2) The situation of industries, inflation is in front of us. How is GDP still growing? Only because of agriculture?

Last year there were news of shortage of fertilizers and in rural areas electricity shortages range between 16-22 hours in average, that means no tube wells essentially. So how did we have bumper crops (especially in Punjab)?

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

I agree to that, but my mere agreement, liking or disliking don't change it!!!

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

Yeah Peer sahib ka faiz hay, aakhir to Ghous-e-Azam key aulaad Pakistan per hukumraaN hay!!! kuch tu miracles hooNgay! :)

On the serious note, i think the % of agriculture land using Electric Tubewell is not very big, i am not sure what the number!!! in Punjab Specially, Canals system is used for this purpose... then there are peter engine or they call it diesel engines and tractors which are used to pump water out of the ground and into the fields.... may be that is reason we have better numbers in agriculture side....

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

GDP: Total goods and services produced within country over financial year (it is good estimate of country’s economy’s worth). This figure is measured by countries own financial institutions in local currency using different estimated/real data of the country that they receive from various sources.

GDP is of two types. They are GDP at market price and GDP at constant price. GFP growth rate of a country is real percentage increase in GDP at constant price over last financial year GDP at constant price.

Anyhow, quoted GDP are GDP in current price, and they are usually quoted in dollars (One should remember that whatever currency GDP are quoted, they are always converted figure of measured GDP by local statistical department in local currency). Two types of GDP are quoted.

1: Nominal GDP
2: GDP using purchasing power parity.

Nominal GDP is GDP in current price divided by average exchange rate over the FY (financial year). Some time exchange rate is taken as average exchange rate over last 3 years (I think World Bank uses this method).

World Bank and other world institutions also work out purchasing power of American dollars in various countries. That means, what American dollars are needed to buy goods and services in other countries with respect to cost in USA. For instance, if one dollar in Pakistan can buy three dollars worth of goods and services in USA then nominal GDP is multiplied by 3 to give GDP in purchasing power parity.

Pakistan nominal GDP for various financial years of this government is:

FY 2008-09: Rs 12110 bn
FY 2009-10: Rs 14033 bn
FY 2010-11: Rs 17092 bn
FY 2011-12: Rs 19436 bn (Provincial figure)

Now it is up to institutions to divide this GDP using whatever exchange rate to get GDP in dollars.

Your figure of 176 billion dollars seems GDP of Pakistan for year 2008-09. For same year, it is possible that calculated dollar PPP for Pakistan was one dollar in Pakistan = 2.77 dollars in USA, that means GDP (in PPP) = 488 bn dollars (or $176 bn multiplied by 2.77). I hope you got the answer of your question, and if not, please ask.

Pakistan debt and debt to GDP ratio:

Pakistan total debt is roughly Rs 12024 billion (end of May 2012):
Domestic debt ~ Rs 7200 billion
External debt ~ Rs 4800 billion
Debt to GDP ratio = 62 percent

[Note: Pakistan external debt was ~ $61 billion at the end of Dec 2011. Thus, actual debt is much higher than above figure but since external debt is converted into rupee debt using exchange rate below $ = Rs 80, debt shows lower value (as today, $ = Rs 93). This happens when rupee is devaluing fast].

Anyhow, taking actual debt of Rs 12873 billion as debt, that comes to ~66 percent of GDP if provincial figure of GDP = Rs 19436 bn is taken.

For instance, in July 2008:
Pakistan total debt was roughly Rs 6000 billion
Domestic debt ~ Rs 3200 billion
External debt ~ Rs 2800 billion (~ $44 billion)

Effect of increase in debt … debt to GDP ratio, Interest rate and debt servicing:

Increase in debt is bad news. In Nov 2007 debt was 52 percent of GDP. Though 2012 figure is still better than 1999 when debt was over 90 percent of GDP.

In 1999 Pakistan was paying ~50 percent of revenue as interest. In 2007 Pakistan was paying below 25 percent of revenue as interest.

Increase in debt increases debt servicing cost. That means less revenue left for other expenses, subsidies, and country’s development, thus making life of ordinary citizen miserable as there would be nothing left in treasury to improve their life.

Anyhow, worse than that happens. It is obvious that once government starts borrowing more than economical growth rate, debt to GDP ratio starts increasing resulting in higher debt servicing and more misery for people.

Situation does not end there. Increasing debt means government is borrowing in big way. To borrow government has to go to public for money that increases the demand for money in the country. This increase in demand increases interest rate and that means debt servicing further increasing. Pakistan government interest rate throughout 1990s was over 15 percent, but in late 1990s it went as high as 19 percent. During Musharraf time when debt was not increasing, interest got reduced to below 10 percent. Today, interest rate has again started increasing and is near to 15 percent.

Borrowing also increases inflation and that means price of goods and services also start increasing in big way. This further makes life of people miserable. Average inflation in 1990s was 12 percent or over. It got reduced to around 5 percent on average during Musharraf period. Today, it is again above 12 percent.

Increasing inflation devalues the currency (rupee) and that devaluation means further increase in external debt as well as external debt servicing (as revenue of country is in rupee and debt servicing in dollars). This also further makes life of people miserable.

[In 1988 (when thug politicians came into power) exchange rate was ~ Rs 18 to a dollar. In following 11 years, exchange rate in open market increased to over Rs 60 to a dollar. From 1999 to 2008, exchange rate stayed around Rs 60 to a dollar and then started increasing once thug politicians came to power again. In 4 years since 2008, that is today, a dollar is worth Rs 93.]

If debt increases to level what it was in 1999 for Pakistan, than international institutions stop trusting the government and stop giving loan. Because of that Pakistan started taking high interest short term loans. In 1990s, Pakistan was paying on average over 12 percent interests on dollar debt. Actually, in 1999 Pakistan debt notes in western markets were trading at 50 percent discount yielding over 25 percent interest a year in dollars.

Result means bankruptcy. Pakistan twice defaulted on debt (gone bankrupt) during last Nawaz government. First time Pakistan gone bankrupt was at the end of 1998 and then again Pakistan went bankrupt at the beginning of 1999. USA bailed Pakistan out through IMF and other financial institutions in early 1999. Result of those bankruptcies was Pakistani rupee devaluation in big way.

A situation can come when just to fulfil expenses government further borrows more than GDP growth and thus revenue growth, resulting in higher debt servicing making life of people in the country more miserable (as there would be nothing left to improve their life or create jobs for them).

Increasing government debt pushes the interest rate in country up (due to increase demand of money die to government borrowing), that create increase in money in economy, and that causes high inflation especially when those borrowing is used unproductively. This is what happening in Pakistan.

Anyhow, in such situation, people who have means (and all who are rich have means), they move their liquid cash abroad so that their money can keep its value. This flight of capital means no or very little investment in the country, means no development and no job creation. All this hurts the country, makes the country poorer, and makes people in the country suffer and become more miserable.

GDP to tax ratio:

Pakistan GDP to tax ratio is ~10 percent but it is very unlikely to increase. Pakistan has plenty of loopholes in tax system as well as large population not paying tax. There is no income-tax on agriculture (one of the biggest economical sector in Pakistan) and that means ~60 percent of the population whose income is from agriculture do not pay tax legally.

As for industrialists, many are feudal landlords too, so they have legal loopholes of not paying tax, as they decide to show all their income from agriculture and no income from industry (even when they are having huge industrial income).

In my opinion, anyone who can avoid tax should not pay tax in Pakistan. When Pakistanis who rule the country do not pay tax then why those who get ruled pay tax?

Here is way to not pay tax. If any Pakistani is earning less than Rs 400000 a year (Rs33333 a month) they are not liable for tax anyhow. If they are earning higher than Rs 400000 a year then they should buy couple of acres agricultural land and declare that all their income above Rs 400000 a year is coming from agriculture (regardless they earn from agriculture or not), and in this way they would not need to pay any tax.

I know that not paying tax would be destructive for country, but then, nothing is more destructive than to get ruled by non-tax paying parasites, so it is better to enjoy what one earns in whatever way then to pay tax so that these parasites can rule the country and live in luxury.

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

If a person spends more than what he earns and compensate that by taking loan, than the life of that person could never improve. Rather, it is most likely that his standard of living would deteriorate. A time could come when lenders would come to his house and would take away whatever he has, even his house, and throw the person on road to rot.

Same is true about countries, with little difference. If a country spends more than what country earns and compensate that by taking loan, than the life of people living in that country could never improve. Rather, as the loan and consequently debt-servicing increases in comparison to GDP of the country, standard of living of people in that country would deteriorate. A time could come that no lenders would give loan to that country and on the strength of past loans would also start controlling assets of that country within country. If lenders are other countries and international institutions, then due to their given loan, they would dictate the country whatever they want, and that means, in effect country loses its sovereignty to these lenders.

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

Thanks for your input, and your post was really informative! I have two questions from this post:

1) First of all while calculating nominal GDP why would we use the values of USD different in Pakistan and US, is that due to the different purchasing power parities?

2) If we use nominal GDP for calculating different ratios like tax/GDP and loan/GDP ratios. Since GDP would be the price of goods and services produced over the year, so wouldnt increase in inflation would increase its value? Maybe the produce has decreased year to year but the inflation would be portraying as if the country is going strong.

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

As far as Pakistan's nominal GDP is concerned (I'll be taking Saleem's figures above).

FY 2008-09: Rs 12110 bn (USD 201 billion) 1 USD= 60 PKR
FY 2011-12: Rs 19436 bn (USD 215 billion) 1 USD= 90 PKR

About 7 % increase in GDP during the past 4 years, considering the following:

1) Worst load shedding (16-22 hours in rural areas and industrial hubs) and gas shortages
2) Terrorism (2008 to 2010 especially)
3) Fertilizer crisis
4) Worst floods during the last 2 years

And if still the GDP is growing, what does that tell us?

1) Pakistani economy is resilient?
2) Good governance?

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

You are welcome.

[quote]
1) First of all while calculating nominal GDP why would we use the values of USD different in Pakistan and US, is that due to the different purchasing power parities?

[/quote]

Actual quoted currency of nominal GDP is rupee. But, internationally GDP are quoted in dollars (it is just a standard to have one currency for comparison of GDP between different countries). Traditionally, conversion of GDP was done using average value of dollar during that financial year. For instance, for GDP figure of FY 2010-11, the value of dollar would have been average value of dollar during FY 2010-11.

Anyhow, as currency movements could be abrupt in one year but stable during others, some world institutions have decided to take average value of last 3 years instead of 1 year.

So, value of dollar is taken same what it is in market. For Pakistan, this value would be average exchange value of dollar during last one financial year or last 3 financial years (whichever is preferred by one quoting GDP figure).

As for Purchasing power parity value, that is different matter. In past there was no GDP figure in PPP. Such figure without taking into account PPP was very misleading, as we know that $1000 (Rs 93000) in Pakistan has much more purchasing power than $1000 in USA. So, a method was devised so that GDP in purchasing power can be worked out and for that, GDP was normalised to purchasing power of US Dollar in USA.

[quote]
2) If we use nominal GDP for calculating different ratios like tax/GDP and loan/GDP ratios. Since GDP would be the price of goods and services produced over the year, so wouldnt increase in inflation would increase its value? Maybe the produce has decreased year to year but the inflation would be portraying as if the country is going strong.
[/quote]

Not really. Actually, real GDP for the year is only used to calculate GDP growth rate compare to real GDP of previous year, nothing else. Inflation indirectly gets linked to real GDP and nominal GDP, both.

As you can realise that tax and debt are measured in current currency value so their value is linked with current value of GDP or nominal GDP.

Example:

Let say, I earn $15000 last year
and I earned $20000 this year

That means my income increased 33 percent (nominally)

Anyhow, let say inflation was 10 percent and that means my last year income in today’s value was $16500 (this year $16500 buys same amount of goods and services what $15000 could have bought last year).

So, to find real rise in my income I have to use $16500 for last years income and that means instead of 33 percent, my income increased ($20000 divided by 16500 =) 21 percent. That is real growth in my income, as after increase I can buy 21 percent more goods and services.

On the other hand, same can be done by reducing this year income to take into account inflation. That can be done by dividing $20000 by 1.10 = $ 18180.

Thus in real terms, my income increased to $18180 last year dollar (that is GDP value in last year dollars).

As for debt, if my debt today is $2000 then I would have to pay that using my income $20000, not $18180 ... thus my debt to income ratio would be 2000:20000 ... or 10 percent.

Same is about tax. Let say I pay 2000 dollar tax than it would be 10 percent of my income of $20000 and not income $18180 (where $18180 is my income value in last year dollar)

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

The figure I have given is not mine. It is Pakistan official figure. Now, if you understand GDP measurement, everything would get cleared.

Nominal value of GDP growth tells nothing. What tells something is real economical growth (real growth in GDP). Pakistan economy is growing no doubt and it is growing better than 1990s, but if we compare the growth with growth during 2000s (until 2008), then we can say that Pakistan economy is going down badly.

Here is how to understand things:

GDP = Total goods and services produced in the country (its value in current rupee).

So, as rupee value of goods and services increases due to inflation, nominal value of GDP also increases without any extra production of goods and services rather production of goods and services staying same as last year (or could be even less than last year).

It is just like:

‘A’ was earning Rs 10000 last year and with that money he could have bought 1000 roti.

This year ‘A’ started earning Rs 12000 and with that money he could only buy 800 roti because price of roti increased to 150.

Obviously, salary increased but person gone poor (or his economical situation gone worse).

Anyhow, if last year country produced 1000 roties and sold it for Rs 10 each than GDP value due to roti would be Rs 10,000. On the other hand, if this year country produced 1000 roties as last year and sold those roties at Rs 15 each than GDP value due to roti would be Rs 15000, thus giving 50 percent increase in nominal GDP, even though there was no increase in real GDP.

As for GDP in dollars, that is also immaterial since exchange rate can go down and up in short term without regard to real growth or deterioration in GDP. For instance, if Pakistani rupee devalue or revalue on any day, that does not mean price in country increases or decrease, or salary increases or decreases, that day due to new value of dollar. Thus, only true measurement is real GDP growth rate. Values of other things effect real GDP growth rate, but they do not determine anything on their own.

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

Some info about GDP Growth rate:

According to this while calculating the GDP growth rate the biggest factor is personal consumption, e.g if I am spending $1000 every month on groceries but the next year since there is 10 % inflation now I’ll be spending $1100 for the same products. Will that put a positive impact on the calculation of GDP growth rate?

As far as the remaining parts of this definition are concerned investment (stalled and in some cases moving out of the country), government spending which could have increased a bit, but the deficit is increasing between imports and exports.

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

What’s the Difference Between Nominal and Real?

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

^ thanks for sharing the article.

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

Bad economy: not my fault – The Express Tribune

Bad economy: not my fault

http://i1.tribune.com.pk/wp-content/uploads/2012/06/387812-DrPervezTahir-1338657018-935-640x480.jpg

The writer, a former chief economist of the Planning Commission, is at present based at Cambridge in the UK
[EMAIL=“[email protected]”][email protected]

Anticipating the destabilising tactics of the Opposition at the budget session of parliament, Finance Minister Hafeez Shaikh attempted to make the best of his opening remarks at the launch of the Pakistan Economic Survey 2011-12 on May 31. As for the ‘Ladies and Gentlemen of the press’, they were less noisy than last year, when they had to fight over the limited copies of the document.**

The minister began with an assurance of a plentiful supply. This was all there was plenty of, given a low GDP growth of 3.7 per cent, a full percentage point of which resulted from twisting the arms of the ‘autonomous’ Pakistan Bureau of Statistics. It would have been higher, he lamented, had last year’s growth not been revised upwards to three per cent. **

Agricultural growth would be higher, had there been no floods. But for the misbehaving oil prices and energy demand, industrial growth would have brought overall growth into the desired range of 5-6 per cent. Had there been no National Finance Commission award, the federal government would have had enough resources to augment energy supply and keep it affordable. And if only the government departments were not stealing electricity and paid their bills!

Inflation, the minister said triumphantly, was on the decline: tight monetary policy and a 10 per cent reduction in civilian government expenditure had done it. The fact is that the non-debt and non-military current expenditure of the federal government is the smallest part of the pie. Government borrowing was twice the size compared to the previous year and the State Bank of Pakistan has been on the path of monetary easing. At 11.1 per cent, food inflation is higher than non-food inflation. A 25 per cent increase in tax collection was attributed to the great efforts made by the Federal Board of Revenue. Double-digit inflation, high prices of oil and the depreciation of the rupee to the extent of 3.2 per cent made no mean contribution to it. At any rate, the tax-to-GDP ratio remains stagnant. The minister blames it on the rich and the powerful refusing to pay their share of the tax.

He is no more talking about reforming the failing collectors or expanding the tax net.

It was amusing to see the re-elected senator, Minister Sheikh, maintain that the economy is a source of worry to all; and that this is not a political issue. He seems to have understood that political power will never be deployed to implement economic reform. The word ‘reform’ was uttered not even once. The new growth strategy of the Planning Commission downplays the role of investment and capital accumulation in achieving high growth. Its emphasis is on what it calls the ‘software’ of economic growth — issues of economic governance, institutions, incentives and human resources.

By giving up on reform, the finance minister has served a deathblow to the Planning Commission’s software of growth. On the other hand, the Commission has achieved the objective of dethroning investment. Fixed investment has made a negative contribution to growth since 2008-09. Not only is GDP growth low, its composition is worrisome too. In the overall growth of 3.7 per cent, 2.2 percentage points is contributed by the services sector. Within the services sector, the fastest-growing subsectors are finance, insurance and social and community services. In other words, growth is being driven by consumption. Investment is dead.

Long live the Planning Commission.

Published in The Express Tribune, June 3[SUP]rd[/SUP], 2012.
Read more: budget 2012

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Why our economic performance has suffered – The Express Tribune

Why our economic performance has suffered

http://i1.tribune.com.pk/wp-content/uploads/2012/05/386875-ZubairFaisalAbbasiNew-1338482245-370-640x480.jpg

The writer is CEO/principal consultant at Impact Consulting in Islamabad

Recently, the prime minister claimed that the government could steer the economic engine in such a way so as to obtain a growth rate of 3.4 per cent for the last two years. While the crafty rebasing of the GDP is a moot point, ours is still the lowest GDP growth rate in South Asia and is even lower than the 5.5 per cent GDP of sub-Saharan Africa.

What has caused this dip in Pakistan’s economic performance? Reasons can be attributed to the poor way in which the economic relations amongst the country’s citizens have been governed to the breakdown of the law and order situation and the decay of institutions. The cause of this poor performance can also be credited to the unique geopolitics of the region, with the much-empowered Deep State only adding to the complexities that Pakistan’s economy faces.

The low growth that our economy has faced can also be linked to the lack of availability of credit for the private sector, which is instead gobbled up by the government to meet its non-developmental expenditures. Some analysts have attributed the staggeringly low growth rate to the inability of the ruling party to plan and execute reforms in state-owned enterprises such as the PIA and the Pakistan Steel Mills.

At the same time, the low growth performance also shows that the Planning Commission’s growth strategy has failed to deliver anything substantial. Any crafty economist can say that the strategy was not ‘fully’ implemented. However, the fact remains that the Planning Commission did not have a sound strategy to begin with and relied only on rehashing old ideas based on neoliberal economics.
**Looking at the components of whatever little growth we have achieved in the past, it seems that the agriculture sector and more specifically the livestock and fishery sub-sectors, have actually been performing well for the last many years. However, the crop sector has consistently been shrinking despite an increase in support prices which has been associated with inflationary pressure on the food basket of the urban poor.

**
**A two to three per cent growth rate is termed as the ‘natural rate of growth’, which can take place without any growth-inducing interventions by the state. So any pride that the government may express over the controversial 3.4 per cent GDP growth will be more for the purpose of meeting political goals, rather than it being a statement of economic progress.

**
It was argued in a recent seminar on the budget that the Public Sector Development Programme (PSDP), which forms the core of government expenditure, has become extremely politicised. Amongst the different criteria for selection of development schemes, one criterion for release of funds has turned out to be the location of the cities of Multan and Larkana. This is a blatant disregard of the rights of people of other cities while the real growth results of the expenditures meant for Multan and Larkana are yet to be seen.

Dr Kaiser Bengali, a renowned economist, argues that Pakistan should spend at least 10 per cent of its GDP on infrastructure development for the next 10 years. It should be spent on improving the country’s railways, ports and shipping, energy sector and the communication system. This will improve the business environment in the country. While research is needed in this area, a major reason for the higher GDP growth in Punjab compared with other provinces can be attributed to the emphasis that the Punjab government has put on spending on public infrastructure, ranging from transportation to education and health services.

The upcoming federal and provincial budgets and annual development plans need to spend money on physical asset-building and refurbishing of decaying infrastructure. Efforts also need to be made to facilitate the manufacturing sector, which can help eradicate poverty while creating jobs and generating positive externalities for the service sector as well.

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

If your expenditure gone up from $1000 to $1100 due to 10 percent inflation then its effect would be zero on GDP growth rate.

I have gone through that with example in post 51. Anyhow, let me show you how growth rate would be zero in what you mentioned.

Expenditure (last year) = $1000
Expenditure (this year) = $1100
Inflation = 10 percent.

Now calculation for growth would be either by using this year dollar or last year dollar. Let use last year dollar

That means … this year expenditure in last year dollar would be $1100 divided by 1.10 = $1000.

That means this year expenditure is $1000 same as large year expenditure. Hence growth would be 0.

[Countries use base year currency value for calculation. Pakistan uses 1999-2000 as base year. Making any year as base year does not change growth rate. It is only for comparison as one can see in above example, that one can even use previous year figure for calculation. Result would be same.]

Nominal GDP takes into account everything. For instance one factor that adds up in nominal GDP is export minus import.
For instance:

GDP = private consumption + government consumption (spending) + investment + Trade balance (Export – Import)

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

Thanks saleem and others for the inputs, much appreciated. :slight_smile:

Lingering economic woes | Business Recorder

Lingering economic woesYaseen Anwar, Governor of State Bank of Pakistan, in an interview to the Wall Street Journal revealed that although the government can meet its debt obligations for now, 4 billion dollars of repayments to the International Monetary Fund (IMF) due in 2012-13 would make it extremely difficult to meet the repayment schedule.

These repayments are due under the Stand-By Arrangement (SBA) suspended last year with two tranches remaining undisbursed due to the government’s failure to implement the agreed power sector and tax reforms. Anwar also acknowledged an aggressive downward spiral of foreign exchange reserves and a tax to Gross Domestic Product ratio of less than 9 percent (the lowest in the world) resulting in an unsustainable budget and trade deficit.

He further revealed that the government has already borrowed 442 billion rupees (4.8 billion dollars) from the SBP so far in the current fiscal year and his admission that “I still have autonomy but not enough to bounce a cheque” from the government is an explosive admission that would have serious repercussions on the economy by making it ever more difficult for the government to seek loans from the market. However, if the government does seek another loan from the IMF then this is the first area that the Fund team would focus on: to end borrowing from the SBP as was agreed in the SBA in 2008 and implemented by the government for two years.

The Governor pointed out six trends in the economy today. First, a serious lack of confidence in the market which led the SBP Governor to promise in the interview that the government will not repay IMF loan by buying US dollars, a fear that has led to a massive decline in the rupee value. Second, Anwar forecast a halving of reserves to around 8 billion dollars (enough for only two months of imports) in the next fiscal year due to a rise in the international oil price coupled with a nosedive trend in cotton prices. Third, the SBP has worked out a currency swap arrangement with China and Turkey, the outcome of diplomacy by the President, which would ensure currency liquidity. Fourth, local banks’ requests to purchase HSBC Pakistan have been turned down and instead foreign bidders have been invited. The reason, Anwar explained was to attract foreign investment. However, Pakistan today is grappling with serious law and order problems, including in its financial capital Karachi, which would make it difficult to attract foreign investment at this time. Fifth, the rise in remittance income (up by 20 percent) to nearly 13 billion dollars this year - a rise attributed to some of the measures taken by the SBP to ensure inflow of remittances through banks as opposed to hundi/hawala system. Sixth, Anwar stated that the SBP would be unable to cut its lending rate below 12 percent and noted that private sector borrowing is being crowded out by government borrowing.

No one doubts the veracity of the statements made by the Governor except his claim that local banks have been precluded from buying HSBC’s operations in Pakistan is not strictly correct as one local bank namely KASB Finance has been allowed by the SBP to conduct due diligence. There is evidence to suggest even to an uneducated person on the street that the country is going through a massive economic mayhem with severe electricity shortages fourth year running giving a new meaning to the concept of idle capacity defined as failure to operate at capacity either in the energy sector or in the manufacturing/agricultural sector or in the services/financial sector. This in turn is exacerbating inflationary pressures and an increasing number of unemployed.

The solutions have been repeatedly identified by multilaterals/bilaterals as well as government officials. The IMF and foreign leaders, including US Secretary of State Hillary Clinton, have time and again publicly accused Pakistan’s parliament of not taxing its rich citizens, including politicians, which has implied a failure to spend appropriate amounts on education and on creation of employment opportunities ‘in areas where Islamist militancy is rampant’. Subsidies on the energy sector are economically inefficient as they are focused on eliminating the inter-disco tariff differential, which effectively implies subsidising the poorly performing discos.

So what would going to the IMF for assistance entail? Critics argue that the IMF is unlikely to extend assistance until the US indicates its support which, given the serious deterioration in Pakistan-US relationship, is not likely till a deal on resumption of Nato supply routes is struck. Others argue that the IMF package would consist of even more stringent conditions, may be even pre-loan conditions, than the two conditions with respect to power and tax reforms that the government failed to implement under the SBA. Still others argue that if a fresh loan is agreed with the IMF then the release of the first tranche of the new package would give the country a window of opportunity for a few months with respect to access to funds to meet payments without implementing the reforms. It would be disastrous in the long run if the government does not implement the reform packages it agrees to as it would simply push the country further into the mire of debts that it cannot repay. Hopefully, this time around, better sense will prevail.

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

Ali_Syed: Brother, you asked about GDP but most important figure is per capita GNP. That is, GNP divided by total population (every man, women, and children in the country). Since population of Pakistan is increasing, GNP has to increase at least equal to population increase to stay constant, and obviously for improvement in standard of living per capita income has to increase. Most important measurement of per capita income is measurement in dollars. It is dollar increase in per capita income that makes a country richer or poorer. Figures would also show how country’s economy per capita grew over years.

Pakistan current dollar per capita income at various juncture ... I am also including history of dollar to rupee exchange rate for ease of understanding per capita income conversion from rupee to dollars. All figures are official Pakistan statistical department figures including $ exchange rate used for conversion.

FY 1960-61: $ 91

FY 1971-72: $ 184 (where $ = Rs 4.76)
Increased 102 percent @ **6.6 percent**** on average per year** in 11 years of Ayub and Yahya

[Dollar per capita income increased 102 percent 11 years of Ayub Khan and Yahya Khan from 1961 to 1972. Rupee value was fixed since 1950s to Rs 4.76 until Bhutto increased exchange rate in 1972 after abolishing bonus voucher scheme on foreign exchange remittance to Pakistan]

FY 1976-77: $ 213 (where $ = Rs 9.91)
Increased 15.7 percent @ **3 percent**** on average per year** in 5 years of Bhutto rule

[Bhutto ended Bonus Voucher on dollar and devalued rupee from Rs 4.76 to Rs 11.00 a dollar in 1972 but then dollar in international market got devalued by 10 percent and thus Pakistan revalue rupee by 10 percent from Rs 11 to Rs 9.91 ... that official value of rupee stayed until 1982 when Zia partially floated rupee and rupee devalued to over Rs 12 ... and then kept devaluing in market every year since 1982 until Musharraf came to power and stabilised rupee in 2000. Rupee stayed stabilised from 2000 to 2008].

FY 1987-88: $ 395 (where $ = Rs 17.6)
Increased 84.5 percent @ **5.7 percent**** on average per year** in 11 years of Zia rule

FY 1998-99: $ 468 (where $ = Rs 46.71)
Increased 18.5 percent @ **1.15 percent**** on average per year** in 11 years of Thug Nawaz and Thuggan BeNazir rule

[Until 2000, rupee was partly floating. Above rate is government exchange rate that was much lower than market rate. At one time in 1998 and 1999, market rate was over Rs 80 to a dollar, when government rate was Rs 46. After government frozen foreign exchange account in 1998, government was still letting people take their dollars out in rupees, giving them Rs 46 to a dollar.

In 2000, Musharraf government completely floated rupee and thus official rate and market rate became one ... thus from then onward we have true dollar rate of exchange, that is market rate].

FY 2007-08: $ 1038 (where $ = Rs 62.55)
Increased 122 percent @ **9.3 percent**** on average per year** in 9 years of Musharraf rule

FY 2011-12: $ 1372 (where $ = Rs 88.31)
Increased 32 percent @ **7.2 percent**** on average per yea**r in 4 years of Zardari rule

Above figures shows that Zardari period is not that bad as it seems. Anyhow, rosy picture in figures has a drawback. The way economy is going, rupee would have got devalued much more than it has, and that means much lower per capita income. But since debt to GDP ratio decreased to ~50 percent during Musharraf period, it has to increase substantially for rupee to start devaluing fast. Until then, dollar GDP and dollar per capita income would look reasonably good (not due to increase in real income but increase in dollar income due to rupee resilient in getting devalued.

Another thing to remember about Zardari period is that, Pakistan remittances and foreign grants in rupee has increased substantially during his period. This remittances and grants get added to GDP of the country after taking out whatever leave Pakistan (as net income from abroad) and that pushes the GDP as well as per capita income of the country substantially too. For instance, in 2007-08 net factor income from abroad was Rs 209 billion (~ 2 percent of GDP) that increased to Rs 1025 billion in 2011-12 (~5 percent of GDP).

Note: From FY 1960-61 to 1970-71 ... and in later period from FY 1995-96 to FY 2000-01 Pakistan net income from abroad was in negative.