Behold the ‘beauty’ of democracy: death by a thousand debts

[Shotgunner51]

There are many basic mistakes in the OP, I suggest clarify these before we move on with meaningful discussion:

China? Sure it has a large enough reserve to pay off our entire debt, but why would it? Or America write it off?

America write off your debt? Note America itself is a debtor nation since Ronald Reagan era, by now world's largest debtor nation. Largest creditor nations are Japan, China, Germany, Taiwan, Switzerland, Hong Kong.

Pakistan had accumulated a total external and domestic debt equivalent to US$195.647 billion. Of this $76 billion is external debt and rest is rupee debt. By now external debt is over a billion more. Our total debt stands at about 72.7 per cent of official GDP, Rs27,383.7 billion or US$269.02 billion whereas it shouldn’t be above 60 per cent under the Fiscal Responsibility Law passed during Musharraf’s time. Where is parliament?

External debt, public debt (government debt), and domestic debt (usual term "domestic credit to private sector") are three entirely different measures, they may overlap or completely unrelated. For example, out of Japan's total public debt, only 5% is external.

Saudi Arabia has worked up a fiscal deficit for the first time and at this rate its reserves will deplete in five years. So too the Gulf countries. Unless they drastically reduce expenditures they will soon go belly up.

Yes that's the trend, but note Forex is only one form of financial reserves, they do have other overseas assets not accounted as Forex, e.g. those in SWF. Check UAE, there is no need for them to keep much Forex, but has a huge SWF.

serviceability ... Japan for instance has a 200%+ public debt to GDP ratio.

When talk about serviceability of public debt, use government revenue, government expenditure as benchmark.
When talk about serviceability of external debt (foreign currency), use forex reserves (liquid) as benchmark.

$34 billion will be loans from private banks, probably Chinese, to private sector Chinese-Pakistani joint ventures

In B2B deals, the debtors are companies (JV), government provides no collateral nor act as guarantor.

Chinese-Pakistani joint ventures mostly comprising coal-fired power projects that will add to pollution and climate change. Worse, we will import the coal from China.

Coal is one of many energy sources to be build, it's cheap, reliable supply and even clean. Note China is among the world leader in CSS technology. Check post #56 on India’s huge need for electricity is a problem for the planet | Page 4

The Chinese partners will take all their profits, if any, to China

Simple non-sense

while the cost of coal from China will be paid by Pakistan.

Coal will be paid by the energy plants, it's their business decision to source coal from appropriate suppliers, China or whoever fits the purpose. Energy plants will sell electricity to users, mechanism for rate setting is the key.

 

[farhan_9909]

Tax/GDP is different from revenue/GDP which will be higher since there are non-tax revenues. The IMF projects the latter, so if Pakistan is indeed 15% in this measure, IMF also has India at around 20%.

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I go by standardized international sources. I can find local Indian and even govt sources that report higher income per capita than what the world bank and IMF report. To compare apples with apples, the source has to be the same.



Informal economies everywhere in the developing world are quite big. They can only be estimated.



Nigeria changed it from 1990 to 2010, so of course the change was huge. I doubt its going to be anywhere near that for Pakistan. We will have to wait and see.

Take this attempted rebasing exercise in Pakistan:

Calculation of economic statistics: Pakistan Bureau of Statistics okays change in base year - The Express Tribune

Double-counting: GDP overestimated, may be slashed by 10% - The Express Tribune

With episodes like this happening, I'm going to take any figure coming out of Pakistan with a major amount of salt.

Lets see if the World Bank and IMF stand by the Pakistan rebasing as they have with India's GVA reformed calculation.



Figures change by the source and exact definition:

List of countries by public debt - Wikipedia, the free encyclopedia

Will talk about the others later.

Anyway initially they had given green signal for change in base year in 2013 by the caretaker govt in april 2013 but it didn't happened and few months later dar sahab said that they will change it in near future.

Last time Pakistan base year was changed by musharaf in 2005-6 and Pakistan is still using 2000 as base year.All those resources claiming that Pakistan is using 2005-06 as base year are wrong.

I remember last year in a live tv show,one economic analyst said that Pakistan will change base year in 2015.I don't know why they have not changed it yet.

We will see what happens after change in base year.for me the worst case scenerio increase will be no less than 30% in GDP but we will only know when it happens.

Associated Press Of Pakistan ( Pakistan's Premier NEWS Agency ) - Base year for national accounts to change every 10 years: Dar

Pakistan base year

1999-2000

Source:Govt of Pakistan
What is the current base year? | Pakistan Bureau of Statistics

NOTE: Personally i believe that this govt will change the base year most likely in 2017 so that they can show high figure of growth rate and GDP.Something very similar to recent modi attempt.if you check imf 2014 april report than they had less than 7% growth rate for India projected till 2018-19 and a mere growth rate of 4.7% for 2013-14 but with the change in calculation,2013-14 jumped to 6.9%.

It is also surprising that India is using 2010-11 as Base year and recently i hear that they will change it next year again.

So many sectored are not documented properly in Pakitan GDP because we are using way too older base year.

a rare article from 2004 when Pakistan changed the base year

CHANGING THE GDP BASE YEAR

 

[Jacob Martin]

Indian GDP per capita is not much higher than Pakistan,i believe the difference is less than $200 and if Pakistan let say adjust the base year to 2010-11 next year,it might even surpass Indian GDD per capita income.

Yes, currently the GDP per capita is not much different. About the outdated base year that you mentioned, yes, Pakistan’s GDP will go up a bit. Last time it was adjusted to 2005-06 GDP went up by 7.8%

Change of base year increases GDP by Rs557bn - thenews.com.pk
Insofar as by how much it would increase once the base year is changed, World Bank GDP deflator looks promising for Pakistan.

GDP deflator (base year varies by country) | Data | Table
If the base rate was adjusted to, as you suggested, 2010-01, it might even be almost the same as India’s. But there is a vital factor that I must point out. Any increase in GDP will be greatly offset by the steady devaluation of the Pakistani rupee. In PPP terms, this will not impact the figures, but as far as nominal value of GDP is concerned, which is very relevant when we are talking about debt and capital flows, Pakistan’s figures will suffer. Because ultimately you can repay foreign debt only in hard currency, so high PPP figures are not much help there.

Much higher tax collection?Please post indian tax revenue both direct and indirect tax value.Pakistan revenue growth rate from the past 2 years is 16% and 15% respectively and this year so far 19%-20%.

Higher tax collections do not, in themselves, help in repaying foreign debt, unless a country has a hard currency. But due to the fungible nature of money, it gives the government the option of saving or earning foreign exchange, or even repay debts in certain situations like we once managed with Iran, where we paid for Iranian oil with INR during the height of the embargo.

If a country is able to meet its consumption demand domestically, then the government can use increased revenue to pay for it, without having to import goods and services and further worsening balance of payment. So far, in India’s case, the major compulsion in having a current account deficit was high oil import bill, and the cost of importing high tech capital and defence goods. With lower oil import bills, everyone including Pakistan will be better off.

If, as you seemed to suggest, India were to face a payment crisis, the Indian government has options. It can freeze or curtail import of anything apart from essentials like oil and capital goods. It can also impose capital restrictions, such as not allowing Foreign institutional investors to withdraw from the markets, not allowing repatriation of earnings outside, and so on. After the initial shock, and the resultant downturn in growth, the economy will be back on track. It might take 1 year, it might take 2, but it will be back on track.

Pakistan’s hand on this issue is forced by the fact that the domestic industry is just not capable of import-substitution in case tough measures are adopted by your government in a crisis. If, tomorrow, Pakistan government decides to impose these tough measures to handle a payment crisis, can your economy sustain it? Can your domestic companies pick up the slack in no time if tomorrow the government decides to ban imports of non-essential items?

Another challenge with Pakistan’s economy is that the capital account scenario is such that even if emergency measures like barring withdrawal of portfolio investment and repatriation of profits are imposed, there is not much to be gained. The share of portfolio and direct investment in Pakistan is so low, that it will barely make a dent in the overall payment crisis, if any.

 

[farhan_9909]

Yes, currently the GDP per capita is not much different. About the outdated base year that you mentioned, yes, Pakistan’s GDP will go up a bit. Last time it was adjusted to 2005-06 GDP went up by 7.8%

Change of base year increases GDP by Rs557bn - thenews.com.pk
Insofar as by how much it would increase once the base year is changed, World Bank GDP deflator looks promising for Pakistan.

GDP deflator (base year varies by country) | Data | Table
If the base rate was adjusted to, as you suggested, 2010-01, it might even be almost the same as India’s. But there is a vital factor that I must point out. Any increase in GDP will be greatly offset by the steady devaluation of the Pakistani rupee. In PPP terms, this will not impact the figures, but as far as nominal value of GDP is concerned, which is very relevant when we are talking about debt and capital flows, Pakistan’s figures will suffer. Because ultimately you can repay foreign debt only in hard currency, so high PPP figures are not much help there.



Higher tax collections do not, in themselves, help in repaying foreign debt, unless a country has a hard currency. But due to the fungible nature of money, it gives the government the option of saving or earning foreign exchange, or even repay debts in certain situations like we once managed with Iran, where we paid for Iranian oil with INR during the height of the embargo.

If a country is able to meet its consumption demand domestically, then the government can use increased revenue to pay for it, without having to import goods and services and further worsening balance of payment. So far, in India’s case, the major compulsion in having a current account deficit was high oil import bill, and the cost of importing high tech capital and defence goods. With lower oil import bills, everyone including Pakistan will be better off.

If, as you seemed to suggest, India were to face a payment crisis, the Indian government has options. It can freeze or curtail import of anything apart from essentials like oil and capital goods. It can also impose capital restrictions, such as not allowing Foreign institutional investors to withdraw from the markets, not allowing repatriation of earnings outside, and so on. After the initial shock, and the resultant downturn in growth, the economy will be back on track. It might take 1 year, it might take 2, but it will be back on track.

Pakistan’s hand on this issue is forced by the fact that the domestic industry is just not capable of import-substitution in case tough measures are adopted by your government in a crisis. If, tomorrow, Pakistan government decides to impose these tough measures to handle a payment crisis, can your economy sustain it? Can your domestic companies pick up the slack in no time if tomorrow the government decides to ban imports of non-essential items?

Another challenge with Pakistan’s economy is that the capital account scenario is such that even if emergency measures like barring withdrawal of portfolio investment and repatriation of profits are imposed, there is not much to be gained. The share of portfolio and direct investment in Pakistan is so low, that it will barely make a dent in the overall payment crisis, if any.

thanks for explaining

Sir can you tell me what does this deflator value of 237 for 2014 means for Pakistan?

 

[Jacob Martin]

thanks for explaining

Sir can you tell me what does this deflator value of 237 for 2014 means for Pakistan?

The GDP deflator is the ratio of GDP in current local currency to GDP in constant local currency. For Pakistan the base year was 2006, so if you see the figure for that year, it is 100. The formula for calculating GDP deflator is nominal GDP divided by real GDP multiplied by 100. The nominal GDP of a given year is computed using that year's prices, while the real GDP of that year is computed using the base year's prices. So basically, a value of 237 means that 2014 price adjustment for GDP would be 2.37 times that of the base year, which is 2006. So if, let's say that the base year is changed to 2014, then there will be a proportionate rise in the GDP figures.

There is another index, called the inflation GDP deflator, which is used to calculate inflation within a country.

Inflation, GDP deflator (annual %) | Data | Table

So if you want to estimate by how much Pakistan's GDP is impacted by the change in base year, you need to figure out by how much the deflator value changed between the last two base years, resulting in 7.8% adjustment in 2013. Using that figure, you can then estimate how much GDP will get adjusted by once the base year is changed.

 

[VCheng]

You may well ask how we managed to build up such a huge debt mountain?

Let us not forget that the decision to take on loans is always voluntary. Nobody forced Pakistan to get more loans. To be deeper in debt was, and is, a voluntary choice made by a nuclear armed sovereign nation.

 

[Jacob Martin]

Let us not forget that the decision to take on loans is always voluntary. Nobody forced Pakistan to get more loans. To be deeper in debt was, and is, a voluntary choice made by a nuclear armed sovereign nation.

There were two epochal moments in Indian economic history post-independence that made us look within. The first was the US assistance provided under the PL-480 food programme, when India was suffering from a major food shortage. The country felt humiliated, and every effort was made to ensure that a repeat never happened. Then came the economic crisis of 1991, when the government had to pledge gold reserves to get an IMF bailout. Regardless of whether we do well as an economy, the will to never have a repeat of these two events is universal. Pakistanis don't seem to mind such things - the last Pakistani plea for PL-480 assistance came as late ias 2008, and it has just secured a $500 million tranche of IMF bailout. What is considered an epochal disaster for one country is treated as a victory in another.

 

[VCheng]

There were two epochal moments in Indian economic history post-independence that made us look within. The first was the US assistance provided under the PL-480 food programme, when India was suffering from a major food shortage. The country felt humiliated, and every effort was made to ensure that a repeat never happened. Then came the economic crisis of 1991, when the government had to pledge gold reserves to get an IMF bailout. Regardless of whether we do well as an economy, the will to never have a repeat of these two events is universal. Pakistanis don't seem to mind such things - the last Pakistani plea for PL-480 assistance came as late ias 2008, and it has just secured a $500 million tranche of IMF bailout. What is considered an epochal disaster for one country is treated as a victory in another.

Indeed, each country makes the choices it deems best for itself, and reaps the rewards and suffers the consequences of each such choice made.

 

[farhan_9909]

The GDP deflator is the ratio of GDP in current local currency to GDP in constant local currency. For Pakistan the base year was 2006, so if you see the figure for that year, it is 100. The formula for calculating GDP deflator is nominal GDP divided by real GDP multiplied by 100. The nominal GDP of a given year is computed using that year's prices, while the real GDP of that year is computed using the base year's prices. So basically, a value of 237 means that 2014 price adjustment for GDP would be 2.37 times that of the base year, which is 2006. So if, let's say that the base year is changed to 2014, then there will be a proportionate rise in the GDP figures.

There is another index, called the inflation GDP deflator, which is used to calculate inflation within a country.

Inflation, GDP deflator (annual %) | Data | Table

So if you want to estimate by how much Pakistan's GDP is impacted by the change in base year, you need to figure out by how much the deflator value changed between the last two base years, resulting in 7.8% adjustment in 2013. Using that figure, you can then estimate how much GDP will get adjusted by once the base year is changed.

Thanks

The PBS site mention that Pakistan Base year is 1999-2000 not 2006.

What is the current base year? | Pakistan Bureau of Statistics

So how much increase can we expect in Pakistani Nominal GDP if we change the base year from 1999-2000 to 2010-11?in gross numbers

 

[Nilgiri]

I remember last year in a live tv show,one economic analyst said that Pakistan will change base year in 2015.I don't know why they have not changed it yet.

Pakistan may also be reluctant to change base year because if it increases the economic size by say more than 5%, that may bring in substantial IMF penalties (by the calculation for loan repayments etc) and may add to the margin squeeze in Pakistan fiscal/debt situation. These penalties I've heard can also potentially be backtracked to previous years and aggregated amounts may be demanded in the immediate short term itself.

Its a bit of catch 22 situation. Nigeria was able to get away with its massive change because it has lots of oil funds it can tap into.

It maybe explains why Pakistan keeps putting off this revision....and was tippy toed about it last time (for the 2006 base year proposed change) and ultimately got cold feet about it.

Do you have a source for your 2017 prediction as far as year the base change will probably be introduced?

 

[farhan_9909]

Pakistan may also be reluctant to change base year because if it increases the economic size by say more than 5%, that may bring in substantial IMF penalties (by the calculation for loan repayments etc) and may add to the margin squeeze in Pakistan fiscal/debt situation. These penalties I've heard can also potentially be backtracked to previous years and aggregated amounts may be demanded in the immediate short term itself.

Its a bit of catch 22 situation. Nigeria was able to get away with its massive change because it has lots of oil funds it can tap into.

It maybe explains why Pakistan keeps putting off this revision....and was tippy toed about it last time (for the 2006 base year proposed change) and ultimately got cold feet about it.

Do you have a source for your 2017 prediction as far as year the base change will probably be introduced?

Maybe.I have only heard on a live tv show that they wanted to change it in 2015.I still don't know why they haven't done it.

I said 2017 on my own because i thought the govt will change it so that they can show higher numbers before 2018 election

 

[Jacob Martin]

Thanks

The PBS site mention that Pakistan Base year is 1999-2000 not 2006.

What is the current base year? | Pakistan Bureau of Statistics

So how much increase can we expect in Pakistani Nominal GDP if we change the base year from 1999-2000 to 2010-11?in gross numbers

Let me figure this one out. I first need to understand:

A. Why the World Bank Data has updated to 2006, while PBS continues to use 2000.
B. The difference that it creates in official figure and WB estimates.

I will have to ask someone who knows more about these things than I do.

 

[Nilgiri]

I said 2017 on my own because i thought the govt will change it so that they can show higher numbers before 2018 election

Thats a cheap tactic that may backfire since people may feel why havent they seen/perceived this increase on the ground....like the Shining India debacle that BJP did in 2004.

Pakistan must put in a professional standard to regularly revise the base year every X number of years. It cannot be politically motivated/influenced stuff. Many for example believe Modi brought in the new GDP calculation for India overnight, not realising it was in the works by the Ministry of Statistics for many years independent of the political scenario...run in a way like the Election commission. It was this ministry, under the previous regime, that took on board the IMF suggestions made way back in 2008 and revamped the calculation methods after first accumulating the data for enough years to gain enough confidence limit for the various coefficients. Thats precisely why the last administrations growth figures now look much better, even though they are not in power, and the BJP has no issue with this at all (they certainly didnt suppress it to make themselves look better)....the purpose should always be to improve the country, not the story of one political party.


Does Pakistan use the GVA -based calculation like India rather than factory output sampling? If not, Pakistan should change over, that is the international standard these days, and the sample rate is much higher (since a sample unit compromises of a company rather than a factory and thus captures more of the economy - some of it the informal economy even given the multiplier effect of even informal spending registering to some degree).

 

[Jacob Martin]

Pakistan may also be reluctant to change base year because if it increases the economic size by say more than 5%, that may bring in substantial IMF penalties (by the calculation for loan repayments etc) and may add to the margin squeeze in Pakistan fiscal/debt situation. These penalties I've heard can also potentially be backtracked to previous years and aggregated amounts may be demanded in the immediate short term itself.

Its a bit of catch 22 situation. Nigeria was able to get away with its massive change because it has lots of oil funds it can tap into.

It maybe explains why Pakistan keeps putting off this revision....and was tippy toed about it last time (for the 2006 base year proposed change) and ultimately got cold feet about it.

Do you have a source for your 2017 prediction as far as year the base change will probably be introduced?

Yes but it has created a discrepancy in the data. World Bank is using 2006 as base year so their estimates for Pakistan are higher than that of IMF, which is still based on the old base year.

 

[Nilgiri]

Yes but it has created a discrepancy in the data. World Bank is using 2006 as base year so their estimates for Pakistan are higher than that of IMF, which is still based on the old base year.

I understand that. Hence it will be even more jarring of a change for the IMF loan repayments. I guess the exact impact would depend on how much the Pakistan debt is from the IMF w.r.t World Bank and other lenders that use GDP figures to base their loan repayment calculations. I've definitely read the impression that the World Bank is more forgiving and open to restructuring loan repayments in general....whereas the IMF is more the harsh taskmaster. A bit of the US vs EU mentality I guess.