Re: Foreign Reserves will touch $15bn by month-end
A person hired a Thug to look after his business that has $500 in account. Thug borrows $1000 from a bank on behalf of the person (his employer), stolen $900 from that borrowing (sending that to his Swiss account), then starts bragging to the person that there was $500 in account when he joined, and now account has $600 dollar, so he has done well.
I am sure that intelligent person would say that the thug is making fool of his unwary employer, and if his employer starts praising the thug saying ‘well done’, then his employer is an idiot, as it would be he (The employer of Thug) who would be paying that $900 the thug has stolen.
In Pakistan case, that thug is Thug Nawaz and employer is Pakistani nation.
Please read how this Thug Nawaz is mismanaging, looting and ruining the country … as he is borrowing (to loot) and at the same time trying to fool the people. This thug has borrowed over 12 billion dollars in 2014 alone and has made commitments to borrow over 53 billion dollars in next 4 years (that includes ~12 billion from world bank, ~33 billion from China, ~7 billion from IMF, over 1 billion in bonds, and several unknown billions from Muslim countries), that has increasing the debt burden but also brought reserves near to 2012 level.
Here is an article from ‘Pakistan Today’ … a Lahore based daily newspaper, that was founded, get published and edited by ‘Arif Nizami’ a renowned journalist from Lahore, whom most Pakistanis must have seen on TV programs and should know (as he is known journalists since years). I have written about Arif Nizami, so that no one can say that article is talking rubbish, especially the article also mentions sterling state of Pakistan economy under Musharraf.
[Anyhow, if any person disagree with what is there in the article, they have to give their view with proper references … as what is written in the article is available from various sources. And yea, Arif Nizami is not MQM wala or Karachi wala … but he is from Lahore, Punjab … a city (Lahore) that is under illegal occupation of Thug Nawaz, his Maha Gunda little Thug brother Shahbaz and Gunda elements of corrupt and killer party PMLN.
http://www.brecorder.com/images/2013/05/arif-nizami.jpg
External debt, bankruptcy and Pakistan | Pakistan Today
External debt, bankruptcy and Pakistan
MAY 17, 2014 BY OMER MAJEED
Pakistan is fast turning into a bankrupt country – that is if it has not already done so. If this trend continues then Pakistan will soon lose its economic sovereignty. Moreover, because of financial problems caused by this debt, Pakistan’s institutions will find it hard to function – including the military of Pakistan, which is essential for fighting terrorists and balancing external threats. A bankrupt Pakistan and a bankrupt military will spell nothing short of a disaster for Pakistan.
By analysing Pakistan’s macroeconomic and financial fundamentals it seems as if Pakistan is being pushed into a debt trap by the governments of PPP and PML-N. If drastic measures are not taken towards fixing the Pakistan’s economy, then Pakistan will soon end up in a financial crisis. Below I analyse some of the key economic variables for Pakistan, namely: external debt stock, total reserves as a percentage of external debt, budget deficit, exports and the exchange rate of Pakistan.
Pakistan’s external debt has increased substantially in the last seven years (Figure 1). Between 2007 and 2012, Pakistan’s external debt increased by around $20 billion to $59.6 billion, in inflation adjusted terms. This is about a 50 per cent increase in external debt. Moreover, the worrying trend has been that in recent years the rate at which external debt has been accumulated has increased substantially.
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It is evident from external debt stock, total reserves as a percentage of external debt, export growth, currency exchange rate and fiscal deficit that since 1988 the only administration that has improved Pakistan’s finances was that of President Pervez Musharraf. In contrast, various PPP and PML-N governments have taken Pakistan’s finances towards an unsustainable path of external borrowing.**
The PML-N government, which came to power in 2013, has made the external debt situation exceptionally worse. By some estimates, the PML-N government has taken on an extra $10 billion in external loans in the last 12 months. Without any resources to pay these loans back, low growth in tax revenue, a depressed economy and a depreciated currency, this external debt is likely to take Pakistan towards a financial crisis.
Figure 1
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Source: World Bank. These figures are in inflation adjust terms, with 2010 as the base year. Data is only available till 2012. Shaded area shows years of President Musharraf’s administration.
Figure 1 shows Pakistan’s external debt stock since 1988. During the governments of PPP and PML-N, external debt increased substantially. External debt increased by around** $15.4 billion between 1988 and 1999** and by around $20 billion between 2007 and 2012. These figures show that the governments of PML-N and PPP have followed an unsustainable path of borrowing both in the 1990’s and since 2007. In contrast, external debt declined during President Musharraf’s administration, declining by around $3.4 billion between 1999 and 2006.
Not only has Pakistan’s external debt increased, but at the same time Pakistan’s ability to pay back this debt has decreased significantly. A good indicator of a country’s ability to pay back external debt is total reserves as a percentage of external debt. Between 2006 and 2012, total reserves as a percentage of external debt decreased by 12.5 percentage points (Figure 2). With the recent increase in debt obligations and reduction in foreign reserves, this ratio is likely to have further deteriorated. In comparison, during the administration of President Musharraf, total reserves as a percentage of external debt increased by 28.4 percentage points.
In addition, Pakistan’s export growth has also slowed. Exports are a major instrument for a country to gain access to foreign currency, which can be vital for paying back external debt. Between 2007 and 2012, average annual export growth has been ‑0.6 per cent,as opposed to a staggering 10.2 per cent average annual growth achieved under President Musharraf’s administration.
Figure 2
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Figure 3
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Source:* World Bank. Data is only available till 2012 for total reserves as per cent of external debt and till 2013 for exchange rate. Shaded area shows years of President Musharraf’s administration.
Moreover, Pakistan’s ability to pay back external debt has been further eroded by the devaluation of Pakistan’s Rupee, which depreciated by around 67 per cent between 2007 and 2013 (Figure 3). The Pakistani Rupee has depreciated mostly because of macroeconomic mismanagement, lack of growth in exports and reduction in foreign direct investment. Such a significant devaluation of the Pakistani Rupee means that Pakistan’s ability to pay back external debt from domestic resources and domestic revenue has been considerably reduced. Since 1988, the only period in which the Rupee stabilized was between 2001 and 2007. This was achieved by increasing foreign cash inflow into Pakistan by increasing exports, foreign direct investment and remittances during the administration of President Musharraf.
Figure 4
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Source:* World Bank. Data is only available till 2012. Cash surplus or deficit is revenue (including grants) minus expense, minus net acquisition of non financial assets.
Pakistan’s budget deficit as a percentage of gross domestic product (GDP) has also deteriorated since 2006, decreasing by 4.06 percentage points. Figure 4 shows the deteriorating budget deficit for Pakistan under the PPP and PML-N governments. This budget deficit is likely to force Pakistan to depend more on both foreign and domestic borrowing, pushing Pakistan further into a potential debt trap.
Furthermore, it seems as if the governments of PPP and PML-N have no incentive to be concerned about paying back the external debt that their respective governments have borrowed. According to the World Bank data, average grace period of new external debt commitments since 2007 is 6.6 years. As the election cycle in Pakistan is five years, less than the average grace period for new debt, the subsequent governments of PPP and PML-N have not had to be concerned about paying back this debt during their respective tenures. Instead this new external debt is only going to be a problem for future governments and Pakistani citizens. This is a clear example of moral hazard. In economics, moral hazard is where an economic agent does not enter into a transaction in good faith, partly because he does not have to face the full cost of his decisions. Since the governments of PPP and PML-N don’t have to worry about paying back the debt they borrowed during their respective tenures, they have borrowed excessively – causing a moral hazard problem.
Pakistan’s external debt has increased substantially in the last seven years (Figure 1). Between 2007 and 2012, Pakistan’s external debt increased by around $20 billion to $59.6 billion, in inflation adjusted terms. This is about a 50 per cent increase in external debt. Moreover, the worrying trend has been that in recent years the rate at which external debt has been accumulated has increased substantially.
It is evident from external debt stock, total reserves as a percentage of external debt, export growth, currency exchange rate and fiscal deficit that since 1988 the only administration that has improved Pakistan’s finances was that of President Pervez Musharraf. In contrast, various PPP and PML-N governments have taken Pakistan’s finances towards an unsustainable path of external borrowing.
In summary, Pakistan’s macroeconomic fundamentals have weakened substantially since 2007. Reductions in Pakistan’s export growth and foreign direct investment have further diminished Pakistan’s ability to generate forex reserves to pay back external debt. Meanwhile, Pakistan’s high budget deficit continues to be a drain on its economy. Given the state of the economy, it seems as if Pakistan is surviving on a borrowed economy.
If Pakistan’s finances are not managed properly, then Pakistan will soon become an economic failed state and dependent on international donors. Such an outcome is likely to cost Pakistan its sovereignty and financial independence!
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The writer is pursuing PhD in economics at the Australian National University. He can be reached at [EMAIL=“[email protected]”][email protected].*
