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Pakistan is in a debt (death) trap

third eye

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Once a Govt is compelled to take loans to repay previous loans, once it loses its ability to control fiscal events and activities, once a govt cannot reclaim ownership of assets it was compelled to mortgage.. its best to wipe the slate clean with declaring a state of default and start afresh.Provided of course, the courage exists to make the changes necessary to go forward.

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KARACHI:
During the last week the Pakistani Rupee achieved a historic first. It broke through the Rs300 barrier against the Dollar. Other firsts were also recorded: The price of petrol broke through the Rs300 per litre barrier. The cost of a unit of electricity rose to a historic high. More increases are forecast for the coming weeks.

Inflation is on the rampage. It is near impossible now for the poor to cover their basic living expenses. Defiant protestors are taking to the streets to burn their electric bills in public. Retailers are observing “shutter down” days to register their disapproval or disgust at the way the economy is being managed.

All this has not happened suddenly. It has been in the making for a long time. Corrupt, incompetent and in many cases illiterate politicians have been voted into power time and again. This the result of a sham democracy that has enabled feudal landlords, land grabbers and gangsters to terrify and compel a hapless nation to vote for them. And once voted into the corridors of power their main interest is to enrich themselves. The public be damned.

Can Pakistan be fixed and put back on the track? The answer is yes. But doing so will need the sort of courage and daring that has been lacking in the past. As it stands today, there is a transition government in place with a constitutional mandate to hold elections within 90 days and hand over power to an “elected” government.

This is a recipe for disaster. Elections under the present system will bring the same old crooks back to power who will, without doubt, hammer the final nail into the coffin. Saving Pakistan will involve two sets of measures – short term and long term.

Look at the short term first: Pakistan is choking on debt. Tracheostomy needs to be applied immediately. Consider that in the coming fiscal year the government’s own budget estimate puts government revenue by tax collection at Rs7 trillion. The same estimate puts expenses at Rs14.5 trillion. Of this Rs14.5 trillion, Rs7.4 trillion is for debt repayment. Consider the absurdity of this: The entirety of government revenue fails even to cover debt repayment!

We are in a debt trap, really a death trap. The only way to escape it is to place an immediate moratorium on all debt repayments – interest and principal. This should apply to all lenders – institutional and private. At the same time negotiations must begin on sensible restructuring with the expectation that all lenders should be ready to take a substantial haircut.

This is not a step for the faint hearted. And certainly not a step that the present transition government will take, especially since its finance minister is a former World Bank executive. Her and her ilk consider default, which is what a moratorium will mean, to be anathema.

To be clear, default will have unpleasant consequences. But they will be nowhere as serious, or irreversible, as death. In fact, it (default) will give us room to put our house in order. We have a steady stream of remittances which last year was of the order of $30 billion. Our exports are of the same order of magnitude. What will be needed is a drastic reduction in imports, which are out of control, and a zero-based budgeting (ZBB) approach to government expense.

Put all this together: moratorium, debt restructuring, haircut, remittances, export earnings, cut in imports and ZBB for government expenses and you have potentially a lifesaving formula.

To design and implement this, the composition of the transition government must be changed. Anyone who has anything to do with the International Monetary Fund (IMF) or World Bank must be removed. These are people whose DNA is infected with a virus that gives them resistance to any solution that does not involve taking more debt.

Once a competent transition government is in place its mandate must be changed: Elections are to be put off as long as is needed to put the economy back on track. And the primary mandate must become economic and political restructuring. Because once the economy is saved, putting it back in the hands of the people who brought us here borders on insanity.

In the longer term, the political system must be redesigned to, in effect, interdict the path of the usual crooks – feudals, land grabbers and gangsters – to parliament. And instead, open the door to people of competence, integrity and decency to play their role in running the nation. This is not impossible to do. Several measures come to mind. The simplest of these, and the easiest to achieve, is to give the right to vote only to people who have completed matriculation.

Voters who have a basic level of education will not be easily intimidated or fooled. They will be able to vote according to their conscience rather than being commanded to vote by a local landlord. They will welcome new entrants who represent a departure from the dismal past and truly promise a new beginning.

There are self-appointed guardians of democracy, especially in the West, who will protest that this is undemocratic. They need to understand that democracy does not come in one shade or colour. And that there is no manual of democracy descended from the sky which says that there must be a vote for everyone. In fact, in the Islamic tradition “democracy” involved consultation with those who were the most able to provide it.

Pakistan needs to find its own way. We can no longer afford to remain slave to those who value their own interests above ours.

The writer is Chairman of Mustaqbil Pakistan. He holds an MBA from Harvard Business School and an engineering degree from MIT

Published in The Express Tribune, September 4th, 2023.
 
Strangely, all elites of Pakistan knows they are sitting on a ticking debt death trap but no one seems to bothered about it, anyone knows why ?
 
Once a Govt is compelled to take loans to repay previous loans, once it loses its ability to control fiscal events and activities, once a govt cannot reclaim ownership of assets it was compelled to mortgage.. its best to wipe the slate clean with declaring a state of default and start afresh.Provided of course, the courage exists to make the changes necessary to go forward.

View attachment 950905

KARACHI:
During the last week the Pakistani Rupee achieved a historic first. It broke through the Rs300 barrier against the Dollar. Other firsts were also recorded: The price of petrol broke through the Rs300 per litre barrier. The cost of a unit of electricity rose to a historic high. More increases are forecast for the coming weeks.

Inflation is on the rampage. It is near impossible now for the poor to cover their basic living expenses. Defiant protestors are taking to the streets to burn their electric bills in public. Retailers are observing “shutter down” days to register their disapproval or disgust at the way the economy is being managed.

All this has not happened suddenly. It has been in the making for a long time. Corrupt, incompetent and in many cases illiterate politicians have been voted into power time and again. This the result of a sham democracy that has enabled feudal landlords, land grabbers and gangsters to terrify and compel a hapless nation to vote for them. And once voted into the corridors of power their main interest is to enrich themselves. The public be damned.

Can Pakistan be fixed and put back on the track? The answer is yes. But doing so will need the sort of courage and daring that has been lacking in the past. As it stands today, there is a transition government in place with a constitutional mandate to hold elections within 90 days and hand over power to an “elected” government.

This is a recipe for disaster. Elections under the present system will bring the same old crooks back to power who will, without doubt, hammer the final nail into the coffin. Saving Pakistan will involve two sets of measures – short term and long term.

Look at the short term first: Pakistan is choking on debt. Tracheostomy needs to be applied immediately. Consider that in the coming fiscal year the government’s own budget estimate puts government revenue by tax collection at Rs7 trillion. The same estimate puts expenses at Rs14.5 trillion. Of this Rs14.5 trillion, Rs7.4 trillion is for debt repayment. Consider the absurdity of this: The entirety of government revenue fails even to cover debt repayment!

We are in a debt trap, really a death trap. The only way to escape it is to place an immediate moratorium on all debt repayments – interest and principal. This should apply to all lenders – institutional and private. At the same time negotiations must begin on sensible restructuring with the expectation that all lenders should be ready to take a substantial haircut.

This is not a step for the faint hearted. And certainly not a step that the present transition government will take, especially since its finance minister is a former World Bank executive. Her and her ilk consider default, which is what a moratorium will mean, to be anathema.

To be clear, default will have unpleasant consequences. But they will be nowhere as serious, or irreversible, as death. In fact, it (default) will give us room to put our house in order. We have a steady stream of remittances which last year was of the order of $30 billion. Our exports are of the same order of magnitude. What will be needed is a drastic reduction in imports, which are out of control, and a zero-based budgeting (ZBB) approach to government expense.

Put all this together: moratorium, debt restructuring, haircut, remittances, export earnings, cut in imports and ZBB for government expenses and you have potentially a lifesaving formula.

To design and implement this, the composition of the transition government must be changed. Anyone who has anything to do with the International Monetary Fund (IMF) or World Bank must be removed. These are people whose DNA is infected with a virus that gives them resistance to any solution that does not involve taking more debt.

Once a competent transition government is in place its mandate must be changed: Elections are to be put off as long as is needed to put the economy back on track. And the primary mandate must become economic and political restructuring. Because once the economy is saved, putting it back in the hands of the people who brought us here borders on insanity.

In the longer term, the political system must be redesigned to, in effect, interdict the path of the usual crooks – feudals, land grabbers and gangsters – to parliament. And instead, open the door to people of competence, integrity and decency to play their role in running the nation. This is not impossible to do. Several measures come to mind. The simplest of these, and the easiest to achieve, is to give the right to vote only to people who have completed matriculation.

Voters who have a basic level of education will not be easily intimidated or fooled. They will be able to vote according to their conscience rather than being commanded to vote by a local landlord. They will welcome new entrants who represent a departure from the dismal past and truly promise a new beginning.

There are self-appointed guardians of democracy, especially in the West, who will protest that this is undemocratic. They need to understand that democracy does not come in one shade or colour. And that there is no manual of democracy descended from the sky which says that there must be a vote for everyone. In fact, in the Islamic tradition “democracy” involved consultation with those who were the most able to provide it.

Pakistan needs to find its own way. We can no longer afford to remain slave to those who value their own interests above ours.

The writer is Chairman of Mustaqbil Pakistan. He holds an MBA from Harvard Business School and an engineering degree from MIT

Published in The Express Tribune, September 4th, 2023.
there is a way to escape it

reduce govt and regulations and taxes 90%

open up markets/economy completely to every corporation and currency out there

basically grow out of it
 
Strangely, all elites of Pakistan knows they are sitting on a ticking debt death trap but no one seems to bothered about it, anyone knows why ?

I am hearing about it for a while now but I wonder why Pakistan hasn't defaulted so far. Not that I want it, but if their debt issue was as described then why haven't they declared bankruptcy till now? That ticking time bomb has been ticking so too long and hasn't exploded yet. Maybe, these are doomsday predictions and Pakistan's debt issue is not as bad as it is described and actually manageable ?
 
I am hearing about it for a while now but I wonder why Pakistan hasn't defaulted so far. Not that I want it, but if their debt issue was as described then why haven't they declared bankruptcy till now? That ticking time bomb has been ticking so too long and hasn't exploded yet. Maybe, these are doomsday predictions and Pakistan's debt issue is not as bad as it is described and actually manageable ?
Well they have been to IMF 22 to 23 time by now, which kind of explains why the default hasn't happened.

In addition to IMF, friendly countries like Saudi and UAE offer financial relief as well.

However all these can only delay the inevitable, unless structural reforms aren't carried out.
 
Well they have been to IMF 22 to 23 time by now, which kind of explains why the default hasn't happened.

In addition to IMF, friendly countries like Saudi and UAE offer financial relief as well.

However all these can only delay the inevitable, unless structural reforms aren't carried out.

Well, IMF hasn't given them the money they have been asking for as far as I know. The Saudis and UAE are also not helping unless I missed some news. Makes me feel Pakistan's situation is likely manageable and won't default. I believe Pakistan is and will continue to stay afloat because of the remittances they receive from Pakistani expats in middle east and rest of the world.
 
Well, IMF hasn't given them the money they have been asking for as far as I know. The Saudis and UAE are also not helping unless I missed some news. Makes me feel Pakistan's situation is likely manageable and won't default. I believe Pakistan is and will continue to stay afloat because of the remittances they receive from Pakistani expats in middle east and rest of the world.
https://www.imf.org/en/News/Articles/2023/07/12/pr23261-pakistan-imf-exec-board-approves-us3bil-sba#:~:text=Washington%2C%20DC%3A%20Today%2C%20the,the%20authorities'%20economic%20stabilization%20program.

IMF approved a 3 Billion$ loan as per above , in July 2023

https://www.reuters.com/world/saudi...y 11 (Reuters),much-needed $3 billion bailout.

One day before that, about 2 Billion$ were given by the Saudis.

Remittances do help, but the debt repayment can't be covered by just these.
 
there is a way to escape it

reduce govt and regulations and taxes 90%

open up markets/economy completely to every corporation and currency out there

basically grow out of it
They need a Manmohan Singh, but public isn’t ready for that yet.
 

Well then, that's that. However, as I understand most of this IMF money is going to be used to pay interest of the exisiting debt? If that's the case then it's a circular debt problem which is very difficult to get out of. But I think just like Pakistan managed it this time by borrowing from IMF, it may be able to do that in the future too until it's no longer possible. If that's the case it may not happen as soon we are thinking.
 
Pakistan has to reduce it expenditure and learn to live within its means.. and of course, actually get the middle class and wealthy to pay taxes !!! ( novel concept for pakistan )..

reduction of the defence spending, increase spending in education to stimulate growth would be good ideas too...
 
Well then, that's that. However, as I understand most of this IMF money is going to be used to pay interest of the exisiting debt? If that's the case then it's a circular debt problem which is very difficult to get out of. But I think just like Pakistan managed it this time by borrowing from IMF, it may be able to do that in the future too until it's no longer possible. If that's the case it may not happen as soon we are thinking.
Yes it has become a sort of circular debt since these will go for interest payments, but they can get out of it by carrying out necessary economic reforms.

Depends on how they manage economy mostly
 
They need a Manmohan Singh, but public isn’t ready for that yet.

It was PVN who guarded MMS. If he was not there then MMS wouldn't even not able to present budget.

MMS did a commendable job of presenting budget by riding back of PVN support. So, I rate PVN as father of India's economic revival policy rather than MMS, he not only showed most remarkable will power for allowing MMS to present the budget but also stood on ground when his own party INC opposed it and because of it he remined sidelined by INC for his entire life and until recent INC refused to recognise his contribution toward India economic revival.

Pakistan have MMS but they are lacking PM of PVN caliber :-) when IK became PM I thought he will turnaround Pakistan economy but he found out more novice than NS.

They have citizenship of other countries. :lol:

I forgot that point
 
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