A Question on Darnomics

[Samlee]

@Burger_King

Understand?

No. That is the source of the whole puzzle. Had you theory been correct, Pak's forex reserves would have fallen, not increased in the period 2013-18, which didn't.

Dont get me wrong. Your theory is crystal clear. It just doesnt match the facts.

Regards

Those forex reserves were built upon debt accumulated by ishaq dar which started maturing once IK came to power

 

[Ssan]

The answer is very simple: the group of chimpanzees that gets the best scraps after the gorilla is fed is different than what is preferred by most here. That is all.

There is no gorilla we prefer to be fed. But we would like that our country’s economy not be managed by a two cent hack. That is all

 

[RiazHaq]

This post has been triggered by the impending return of Ishaq Dar, fondly known as Dollar Dar, as the Pak FM. A common accusation against him has been that he kept the PKR artificially high which has been partly the cause of the current mess. However, there are a few things that don't make sense to me.

Pakistan Foreign Exchange Reserves, 1959 – 2024 | CEIC Data

Pakistan Foreign Exchange Reserves was measured at 12.0 USD bn in Oct 2023, compared with 12.4 USD bn in the previous month. Pakistan Foreign Exchange Reserves: USD mn data is updated monthly, available from Jan 1959 to Oct 2023.

www.ceicdata.com

If we see the Chart in the link above (Click on 10 years trend) we see that the forex reserves actually increased from around USD 8 bn in 2013 to around USD 15 bn in 2018. Why would forex reserves increase if the PKR was overvalued.

Pakistan External Debt, 2006 – 2024 | CEIC Data

Pakistan External Debt reached 131.2 USD bn in Dec 2023, compared with 129.7 USD bn in the previous quarter. Pakistan External Debt: USD mn data is updated quarterly, available from Jun 2006 to Dec 2023.

www.ceicdata.com

Then again if we look at the debt levels, while debt increased from USD 62 bn to USD 90 bn, a large chunk of this would be capex debt (mainly for CPEC), so it is unlikely that the reserves would be bolstered too much by working capital debt. But here again as we go forward from 2018 we see that the debt kept mounting from USD 90 bn in 2018 to around USD 110 bn plus by mid 2021 (i.e. even before the sharp upward movement of crude gained momentum).

The data appears a bit puzzling. Maybe some of the learned Maulaners here- @RiazHaq @waz @Jango @VCheng @Joe Shearer @Wood @maithil - can explain this conundrum

Regards

Overvalued PKR resulted in flat exports, artificially cheaper imports and growing trade deficits for 5 years (2013-18) under PML rule. These deficits were financed by taking on more and more debt. The damage done in these 5 years in low exports and high debts has had a cumulative negative effect on Pakistan's economy, making it unable to withstand external shocks from global inflation and high energy prices.

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[Drwho]

Let me explain this to you in terms which even simpletons on this website can understand.

Lets say you have annual aamdani of USD1,000 and expense of USD800. Your saving therefore is USD200 per year. For sake of simplicity, lets assume your expenses are on one product whose price is highly volatile.

Now assume that next year, your income stays the same but your expenses go down to USD300 because price of good you buy has crashed. Your saving therefore should be USD700 most of which you should save given that price of product you buy is highly volatile.

Now assume that instead of acting in good faith, you do what comes naturally to you and engage in rundibaazi and juwaakhori which eats up almost all of your windfall.

Now its the start of new year and the price of product you buy goes from USD300 to USD1,100.

Understand?

And to pupoo bachaas, DD kept price of USD low because that made it cheaper to send money abroad. This is common knowledge in Pakistani financial circles and among foreign investors who hold Pakistani USD bonds which have crashed today which makes it even harder for Pakistan to get out of clutches of IMF which is gora tuttoo.

I have no sympathy for Pakistani awam because qaums always get the fate that they deserve.

Love your economics terminology

 

[Burger_King]

Overvalued PKR is only half the story.

When PML-N govt took power in 2013, oil was trading around USD110/bbl. By the middle of their tenure i.e. by mid 2016, oil prices had crashed to around USD30/bbl.

Why is this important?

Because solve energy problems and you get Pak out of clutches of IMF/CIA backed mafias.

Pakistan's export plus remittance = imports minus energy imports i.e. energy accounts for the biggest component of Pak foreign exchange spending. So in effect, PML-N government was beneficiary of probably the biggest financial windfall in the history of Pakistan much more so than aid provided by Americans to Musharraf - aid which was utilised to clean up mess left by Dollar Dar in 1999.

So what did DD do with the windfall? He made sure that rent seeking elite of Pakistan were the biggest beneficiary of improvement in Pakistan's external position. By fixing the dollar at artificially cheap levels he made it much more attractive for elites to take money out of Pakistan which they do so to buy foreign properties etc. Consequence of this policy was also that exports as well as FDI became unattractive. This is one reason why DD is favourite of mafias like press barons, judiciary and army generals. Because they make sure everyone gets a piece of the pie.

Instead what DD should have done is to let market determine exchange rate while using the improvement in Terms-of-trade to build exchange rate buffers which could be used to provide macro economic stability when oil prices rose which they did after 2016. By the end of PML-N's tenure, Pak was running the largest C/A deficit in history of Pak (outside of global financial crises) which meant country was back in the clutches of CIA backed mafia which used its power to first hinder and then remove IK's government.

Watching DD back to do the dirty work is like observing Bhutto rising from dead and implementing nationalisation policy once again. It will be a complete disaster for Pakistan but as Quran shows in many places, qaums get the fate they deserve.

 

[Burger_King]

The graph below tells the story of Pak economy over the last 20 years.

Orange line shows price of oil (left axis)

White line shows Pak's foreign currency needs or its current account position (right axis).

For comparison I have also added India's current account in the chart as well.

As chart shows, in early 2000's when oil prices were low, Pak's current account was positive and reserves went up from around USD1.5bn to nearly USD20bn in a relatively short time span. But as chart shows, when oil prices crashed in 2016, Pak still continued to run C/A deficit which ballooned to dangerous levels in 2018 when oil prices rebounded. This large deficit is the reason for current economic instability in Pak because please note that IK govt got C/A to manageable levels despite jump in oil prices in 2021.

Anyone who therefore equates performance of two governments is in effect a snake oil salesman.

 

[PakFactor]

Let me explain this to you in terms which even simpletons on this website can understand.

Lets say you have annual aamdani of USD1,000 and expense of USD800. Your saving therefore is USD200 per year. For sake of simplicity, lets assume your expenses are on one product whose price is highly volatile.

Now assume that next year, your income stays the same but your expenses go down to USD300 because price of good you buy has crashed. Your saving therefore should be USD700 most of which you should save given that price of product you buy is highly volatile.

Now assume that instead of acting in good faith, you do what comes naturally to you and engage in rundibaazi and juwaakhori which eats up almost all of your windfall.

Now its the start of new year and the price of product you buy goes from USD300 to USD1,100.

Understand?

And to pupoo bachaas, DD kept price of USD low because that made it cheaper to send money abroad. This is common knowledge in Pakistani financial circles and among foreign investors who hold Pakistani USD bonds which have crashed today which makes it even harder for Pakistan to get out of clutches of IMF which is gora tuttoo.

I have no sympathy for Pakistani awam because qaums always get the fate that they deserve.

Those forex reserves were built upon debt accumulated by ishaq dar which started maturing once IK came to power

You guys are teaching people with no insight into economics to understand how Dar screwed it up. Let the nation suffer; these aren't people worth saving.

 

[ziaulislam]

You guys are teaching people with no insight into economics to understand how Dar screwed it up. Let the nation suffer; these aren't people worth saving.

Overvalued PKR resulted in flat exports, artificially cheaper imports and growing trade deficits for 5 years (2013-18) under PML rule. These deficits were financed by taking on more and more debt. The damage done in these 5 years in low exports and high debts has had a cumulative negative effect on Pakistan's economy, making it unable to withstand external shocks from global inflation and high energy prices.

Musharraf Era Textile Boom Returning to Pakistan?

News, analysis and opinions about India, Pakistan, US, Canada, Europe, Mid East, South Asia, Silicon Valley, High Technology, Economy, Politics, World

www.riazhaq.com

Need an update graphics
With nice inverted V

 

[SoulSpokesman]

@Burger_King

BK sb,

Because solve energy problems and you get Pak out of clutches of IMF/CIA backed mafias.

But isnt that what MNS and PMLN govt tried to do with the CPEC thermal power projects and the Thar Coal mines?

Regards

PS: I will try to go through your posts with a toothcomb. Irrespective of whether I end up agreeing with you or not, I must thank you for the painstaking research and data that you have shared with me.

 

[WarKa DaNG]

The graph below tells the story of Pak economy over the last 20 years.

Orange line shows price of oil (left axis)

White line shows Pak's foreign currency needs or its current account position (right axis).

For comparison I have also added India's current account in the chart as well.

As chart shows, in early 2000's when oil prices were low, Pak's current account was positive and reserves went up from around USD1.5bn to nearly USD20bn in a relatively short time span. But as chart shows, when oil prices crashed in 2016, Pak still continued to run C/A deficit which ballooned to dangerous levels in 2018 when oil prices rebounded. This large deficit is the reason for current economic instability in Pak because please note that IK govt got C/A to manageable levels despite jump in oil prices in 2021.

Anyone who therefore equates performance of two governments is in effect a snake oil salesman.
View attachment 882738

What does the blue line shows?

 

[SoulSpokesman]

@WarKa DaNG

The blue line would seem to be the Indian CAD line perhaps?

@Burger_King

But as chart shows, when oil prices crashed in 2016, Pak still continued to run C/A deficit which ballooned to dangerous levels in 2018

Wasnt the high CAD in 2014-18 a consequence of CPEC Capex which was largely based on imported Chinese equipment and services?

Regards

 

[VCheng]

But as chart shows, when oil prices crashed in 2016, Pak still continued to run C/A deficit which ballooned to dangerous levels in 2018

Wasnt the high CAD in 2014-18 a consequence of CPEC Capex which was largely based on imported Chinese equipment and services?

Please keep in mind that much of the oil Pakistan gets from certain countries is quite often under specific terms that are not well known.

 

[nahtanbob]

Overvalued PKR resulted in flat exports, artificially cheaper imports and growing trade deficits for 5 years (2013-18) under PML rule. These deficits were financed by taking on more and more debt. The damage done in these 5 years in low exports and high debts has had a cumulative negative effect on Pakistan's economy, making it unable to withstand external shocks from global inflation and high energy prices.

Musharraf Era Textile Boom Returning to Pakistan?

News, analysis and opinions about India, Pakistan, US, Canada, Europe, Mid East, South Asia, Silicon Valley, High Technology, Economy, Politics, World

www.riazhaq.com

If your last graph is true why is Pakistan even in a financial crisis or balance of payment crisis ? Something does not add up

 

[Ssan]

@WarKa DaNG

The blue line would seem to be the Indian CAD line perhaps?

@Burger_King

But as chart shows, when oil prices crashed in 2016, Pak still continued to run C/A deficit which ballooned to dangerous levels in 2018

Wasnt the high CAD in 2014-18 a consequence of CPEC Capex which was largely based on imported Chinese equipment and services?

Regards

Short answer- no

 

[Signalian]

Pakistan has inherited the sikh timings of business to run its economy, not Islamic timings.

Muslims offer fajr, recite koran, listen to hamd or naat and go start the day BUT muslims in Pakistan sleep at 1 am, 2 am and are sleeping at fajr time while shops and business start at noon, mid day, 12 pm.