Please read carefully and try to understand the situation Pakistan is today compared to last year: Some uneducated and illiterate Pakistanis (including many Journalists and TV anchors) last year used to criticise Shaukat Aziz government that Pakistan has $15.6 billion reserves, rupee is strong, GDP is increasing, per capita income and tax collection is increasing, still country has many poor, why? Well, they use to argue without understanding, even when they were told that dollar reserves does not directly belong to government as it belongs to State Bank, and government cannot distribute it to people. Dollar Reserves are tool that gives confidence to investors and attracts capital to the country at low interest (or return). Reserves helps the currency hold its value and also gives boost to economy, that in turn gives poor opportunity to come out of poverty.
http://www.statpak.gov.pk/depts/fbs/statistics/national_accounts/table2.pdf
Anyhow, many did not like what was happening, so here is news for them. We saw good economic growth during last 8 years that increased Pakistan GNP from $62 billion in 1999 to over $175 billion in 2008. Per capita income also increased from around $468 in 1999 to $1085 in 2008. Anyhow, Shaukat Aziz government has gone, and with it Pakistan economical strength also started deteriorating. The situation today is, Pakistan reserve has decreased to around $8 billion and in turn rupee got devalued to Rs 78.5 per dollar. Here is the effect of such changes:
Pakistan stock market capitalisation decreased from around $78 billion on April 2008 to $36 billion on 6 Oct 2008.
Pakistan GNP for financial year 2007-08 was $175 billion (as average dollar rate for the year was Rs 61.35 and GNP was Rs 10712 billion), that gave per capita income of $1085 (that was Rs 66548).
But new reality at current exchange rate is: Pakistan GNP gone down from $175 billion to $136.5 billion (at $= Rs 78.5) and per capita income that reached $1085 dollars gone down to $848 … that is below $1000.
Things do not end there, as Pakistan dollar debt at end of June 2007 was $40 billion or Rs 2400 billion. This debt increased to $45 billion at the end of June 2008, but in reality, equivalent rupee debt increased to Rs 3532 billion (that means, increase of Rs 1132 billion or 50 percent from last year).
Pakistan internal debt increased from Rs 2601 billion at the end of June 2007 to Rs 3264 billion at the end of June 2008, or an increase of 663 billion.
So, we can see that Pakistan reserve did not only decrease from around $16 billion to $8 billion but since April 2008 due to devaluation and capital flight:
Pakistan stock market lost $42 billion in capitalisation.
Pakistan GNP lost $38.5 billion.
Pakistan per capita income lost $237 per head.
Pakistan total debt gone up from Rs 5000 billion in 1999 to Rs 6785 billion in 2008 (after effect of devaluation), that is an increased of Rs 1795 billion in one year (increase of Rs 1132 billion foreign debt plus 663 billion internal debt).
It is estimated that people living below poverty line, that was reduced to around 20 percent at the beginning of 2008 from 34 percent in 1999 has taken huge leap during last few months and could be above 30 percent again.
Here is an article from Jang (The News) on the issue, though some figures given in the article are wrong, as it seems he took some last year figures and used it as this year figures. Anyhow, what writer wrote is same as what I have mentioned above.
Foreign debt soars after rupee’s plunge
Foreign debt soars after rupee’s plunge
http://thenews.jang.com.pk/images/shim.gif
http://thenews.jang.com.pk/images/shim.gif
http://thenews.jang.com.pk/images/shim.gif
Tuesday, October 07, 2008
By Mansoor Ahmad
LAHORE: A sharp fall of the rupee has played havoc with the economy, with foreign debt rising from Rs2,759 billion to Rs3,493 billion, size of the economy dropping below $150 billion and per capita income slipping to $780.
Economists have urged the government to realise the urgent need of addressing the factors that are putting pressure on the rupee and damaging the economy. They say Pakistan’s foreign debt at the end of the last fiscal year in June stood at $44.5 billion, which has increased in rupee terms by Rs743.25 billion as the currency plunged after July from Rs62 to a dollar to Rs78.50. The decline is still on and the government has not taken any concrete steps to stem the rot.
Gross domestic product, which was $160 billion on the basis of the rupee value of Rs62, has slipped below $150 billion. Earlier, Pakistan was moving steadily to join the club of Middle Income Group countries as its per capita income increased to $990 at the end of the last fiscal in June. However, the per capita income has now declined to a little over $780 after the sharp fall in rupee’s value.
The country is likely to remain among ‘low income’ states for a long time. This, the economists say, is in line with the purchasing power of the rupee which has declined considerably during the past six months.
They say the government would have to revisit the poverty profile, which has deteriorated in line with the decline in the purchasing power of the country. Some economists state that poverty must have increased by 10 per cent to above 30 per cent based on the soaring inflation.
They say Pakistan had a better Gini Coefficient than India till the 1990s. Now Pakistan is classified among countries with Gini Coefficient ranging from 0.30 to 0.34 depicting huge inequality in society. India’s Gini Coefficient ranges from 0.35 to 0.39. (Gini Coefficient of zero indicates complete inequality and one depicts complete equality).
Constant increase in imports after over 20 per cent decline in the rupee is a dilemma which has surprised most economists who say Pakistan is perhaps the second country after the US which has seen its trade deficit widen irrespective of the value of the currency at that time. The US, however, bears a huge trade deficit because its foreign exchange inflows are three times its trade gap and it ends up with a huge current account balance.
Pakistan’s foreign exchange reserves are depleting and except for workers’ remittances from abroad other inflows are too low to cover its huge trade deficit.
Economic experts point out that every country in the world devises a trade policy which benefits the local industry. The US has average import tariff of less than five per cent but its import duties on textile products from Asian economies range from 11 to 25 per cent. This has been done to protect the labour-intensive clothing industry.
The economists say import duties on textile products from high-cost Western European countries are either zero or a little higher according to the prices of apparel which does not hurt their high value-added clothing industry.
The trade regime in Pakistan is operated in such a way which encourages imports and discourages local industry. Pakistan is the only major cotton-producing and textile-based economy in Asia where imported clothing and fabrics dominate local markets because of a flawed import regime. They point out that smuggling is another major menace which could only be controlled if those monitoring border checkposts are made fully accountable.
