Asad Umar’s economic shock therapy — crazy or genius?

[Respect4Respect01]

Stop importing luxuries like cars and chocolate. Also foreign baby milk powder, tissue paper and breakfast cereal should be dumped immediately and develop domestic industry as a national priority.

You are essentially a war economy but don’t get the benefit of mobilising domestic industry.

The respective ministry should have a list of non-essential item and ban these import until the deficit is halved or better.

It is a grave situation for Pakistan and tinkering little things is not enough as the interest will compound year after year very soon.

lol we are importing 900,000 tons of daals/lentils and we are a agricultural country?

 

[nahtanbob]

No form of chemotherapy is successful until the patient's body responds to the treatment.


In Pak those with university degree are aiming to join abba jaan's business, or sit in some shop in Saddar rather than use their intelligence and training to do something productive that produces new wealth. Those with money chose to buy plots in Bahria Town and Defense because their investment will double in a decade or so.



I think this is where the government needs to step in and get in the business of doing business. Remember the biggest companies in China are state owned. Obviously if the government is doing business then this gives corrupt governments the opportunity to induct their jiyalas or patwaris in the companies to give them jobs for votes. One solution might be that the government procures the land and the machinery and sets up the factory then hands it over to a private business party to run efficiently while the government keeps 10-30% stake in the business and conduct annual audits to keep check and balances.


The Pak economy needs electric shocks along with the chemo to atleast get back a stable heartbeat. Just my two cents.

state owned companies ?? Some people never learn

 

[AZADPAKISTAN2009]

Government has no Money in Pocket and Citizens are using import goods daily
is what our budget is a Mess

Pakistan Loves Imports and unfortunately we need a 100% ban on Imports

TEA itself is something we import , and we drink gallons and gallons of tea
whole nation drinks it instead of drinking water

Has anyone ever calculated the burden on economy , how much Tea is imported
because that is a billions of dollar worth of transaction due to huge amount of tea used
in Pakistan

 

[SoulSpokesman]

@AZADPAKISTAN2009

AP sb,

Also watch foreign movies and TV shows!

Regards

 

[Mangus Ortus Novem]

The current Fin. Minister is doing all the right things... save for redical cut on non-essential imports.

He is going in for deep reforms, an open heart surgery. Also, Pak is being prepared to be integerated into the Chinese economy as well.... and not just depend on western market.

POE's have been brought under a single holding company. Now he will go for legal remedies to get the political appointments out...they don't work anyway... just draw salaries.

Personally, I am against sales of Public Owned Enterprises... they should only be run by professionals and not bureaucrats.

Till now the government has managed to avoid IMF and has managed to avoid default.

Also, PKR is a bit too undervalued. This one move was bad. PKR should remain between 115 to 125 to dollar. Herein speculators and their agents in Fin Ministery are to blame as well.

Now the challenge is to stop money laundering and redically reduce imports.

Just a historic perspective: When China opened up through SEZ... its economic conditions were tough... but Chinese were not importing dogfood from abroad such as Paks are doing... everything was made in China. Everything.

Fin Ministery must invite Chinese to join his team of economic reforms. Learning from other who have been successful is sign of wisdom.

Hence, in a nutshell for now it is tough for now and next year as well.

 

[Rusty]

On the flip side, Pakistanis import because local industry has utterly failed Pakistan in just about every sector.

Just look at our cars, local industry is still selling 40 year old mehran.... Or look at the motorcycle... Ancient junk.

I think part of the rehabilitation is to make local industry compete or die.

 

[Zulfiqar]

On the flip side, Pakistanis import because local industry has utterly failed Pakistan in just about every sector.

Just look at our cars, local industry is still selling 40 year old mehran.... Or look at the motorcycle... Ancient junk.

I think part of the rehabilitation is to make local industry compete or die.

The problem is the car mafia and the government. They are not interested in localizing the complete manufacturing supply chain. They just want to do the bare minimum investment to qualify for tax free status in first few years, assemble CKDs for the next few years and in case they want to bug out, they could do so with minimum sunk costs.

One of the reasons is that the car market is quite small for these companies and unless they can export the vehicles from Pakistan, they don't see a justification for such heavy investment. The markets of other countries are already being catered by bigger countries.

The only way we could remedy this is by setting up a JV with another country that has the exact problem and work on creating synergy and economies of scale.

With respect to imports, the problem is that our seths want to avoid taxes as much as possible and do not want to declare profits and hide as much of their revenues as possible. This is why they incorporate/register business as PVT LTD CO, Partnerships, sole prop businesses due to lower tax bracket (I have personally seen sole prop businesses with sales well over 90 Mill USD).

What they don't realize is that they limit the access to capital markets by not getting listed on PSX. They could easily increase their sales turnover ( as seen by listing of several steel mills) and then diversify and create conglomerates.

Instead they take the easy way out and dump their profits in properties resulting in unnecessary over valuation of properties. Their family owned businesses die in the third family generation because of low corporate governance (Having also seen the decline first hand).

We need one look at any mega store and what we realize is that more than half of the products are from abroad. We are importing tins of pineapple,papaya and cheap drinks from Thailand for crying out loud. What an overpriced load of crap, we can only judge its cost from the fact a tin of pineapple costs less than a dollar even after traveling all the way from Thailand after being canned.

We need to encourage industries that encourage value addition instead of being just a commodity exporter.

Plus all the SOE need to be parked in a sovereign wealth fund and managed like a proper business.

The department of a financial institution that I work for has more than 30 B PKR stuck in circular debt and some SOEs because of mismanagement of these government entities.

This money would have created greater value if loaned to SMEs/corporates rather than the inefficient government that has resulted in crowding out of capital.

 

[S.Y.A]

I don't get your post. I don't see any neccessety in buying imported cars, food, clothing, grocery stuff and vegetables. Especially when Pakistan has capacity and cheap labor both inside Pakistan.

Should buy the cars locally assembled or manufactured, buying clothes made in Bangladesh, China, Vietnam, Thailand, etc is squeezing the blood out of Pakistani textile industry, why need to import milk powders/purified water/cookies/candies/etc from Europe or any other such stuff from anywhere else for a poor country like Pakistan? Vegetables - I thought we were an agriculture base country and here we are dependent on india for vegetables...?

local vehicles are crap compared to the ones being imported in similar price range, until the automotive industry is regulated and audited, they will continue to rip off the people.
Another major import is the electronics, everyone wants a cell phone, laptop, etc. but no one is willing to even assemble these things in Pakistan, again the govt must change its policies so that huawei etc. may at least set up assembling plants with SMT, and pcb fabrication facilities.
agree with other stuff about textiles, dairy and agricultural produce though.

@AZADPAKISTAN2009

AP sb,

Also watch foreign movies and TV shows!

Regards

peer to peer downloads cost no money.

 

[Sabretooth]

Wealth creation is something many business degree holders in Pakistan, are lacking in.
Entrepreneurship and the will and courage to invest in start-ups is going to give the needed jump start to the economy of Pakistan otherwise it is a losing fight.

 

[MT Ali]

Government has no Money in Pocket and Citizens are using import goods daily
is what our budget is a Mess

Pakistan Loves Imports and unfortunately we need a 100% ban on Imports
View attachment 551892


TEA itself is something we import , and we drink gallons and gallons of tea
whole nation drinks it instead of drinking water

Has anyone ever calculated the burden on economy , how much Tea is imported
because that is a billions of dollar worth of transaction due to huge amount of tea used
in Pakistan

Shouldn’t we be looking into growing tea rather than curbing on consumption. Only if the plant cannot be farmed and harvested in Pakistan should the govt increase taxes on imported tea by 500% or so

 

[AdeelMian]

You will be surprised to know that most of what we import is also produced domestically. Obviously there are exceptions to certain cars, machinery and petroleum, but most consumables like chocolates, toilet paper, baby powder etc etc are all produced in Pak.


The issue is the mentality of the people, they will even prefer to buy an inferior quality imported product over a local product.

well! being a patriot i tried for long long time to stick to Made In Pakistan as much as possible during my grocery shopping but a time came when i had to believe that if its written " Made In Pakistan" plz dont buy it and rest assured that it is severely harmful for you and your children (scientific and observatory factual based conclusion)
but still i dont want to spend our precious reserves on these petty thing my plea is that we should work on our in house quality before taking such steps.

 

[maithil]

Genius ofcourse.

 

[AdeelMian]

On the flip side, Pakistanis import because local industry has utterly failed Pakistan in just about every sector.

Just look at our cars, local industry is still selling 40 year old mehran.... Or look at the motorcycle... Ancient junk.

I think part of the rehabilitation is to make local industry compete or die.

well this actually my field being a auto part manufacturer for almost 22 years and working with Honda i have a little insight here,
truly speaking oem's did try very hard to improve the products and introduced new models every now and then but utterly failed because of non interest by the customers, even recently Honda launched 3 new models in the motorbike industry but same results. its not that the RND was not good or there was no innovation every thing was perfect technological and aesthetically but market response was poor, i mean the production is just 600 units against the demand of 400 unit from all over Pakistan, and its developed locally there is a common miss conception about local development bieng in the industry i know for sure that every model has to be localized 80% within 6 months of launch and we as an industry work our *** of to meet this target a lot of investment involved on both oem's and vendor's end but the end result is that customer wants the old model our local market does not accept any innovation.
do you that one manufacturer even launched electric bike investing millions on that project it was really good product could travel 50 km on a single charge carrying 120 load at speed of 60 km per hours (tested and proven)
but our market responded so poorly that they had to shut down the project altogether.

please do tell us what more can we do here................

 

[Paul2]

Why did this happen? Much has been said about Ishaq Dar’s fetish for keeping the dollar-rupee rate stable but the real game was subsidising elite and non-elite consumption. Here’s how this works: suppose we imported a chocolate for $1. This was sold in stores for 100 rupees last year, versus the 140 rupees at real exchange rate. The difference was subsidised by our foreign exchange reserves being used to keep the rupee artificially high, which we now have to borrow more dollars to repay. Essentially, the previous government was subsidising private consumption, with money they didn’t have!

The first sour medicine Asad Umar administered was devaluing the rupee — or bringing it closer to its real price. This helps eliminate subsidies on elite consumption like the import of cars, Swiss chocolate and pet food (yes, the PML-N government was indirectly subsidising these!). This hurts all of us because some of the goods we need like food and medicine are also imported. But the medication is working. We are learning to live within our means and imports are beginning to come down sharply (current account deficit was down to 72% in February).

That!

In a few African countries I was in the line of business, they all had the same issue. Their own "lakeer fakeers" were buying votes of the rich (who all want to buy new Land Cruisers) with subsidised currency, and making poor feel somewhat less miserable with "at least I can buy this tiny imported TV" (while at the same time being the very reason for their economy underperforming.)

 

[VCheng]

Here’s how this works: suppose we imported a chocolate for $1. This was sold in stores for 100 rupees last year, versus the 140 rupees at real exchange rate. The difference was subsidised by our foreign exchange reserves being used to keep the rupee artificially high, which we now have to borrow more dollars to repay. Essentially, the previous government was subsidising private consumption, with money they didn’t have!

The first sour medicine Asad Umar administered was devaluing the rupee — or bringing it closer to its real price. This helps eliminate subsidies on elite consumption like the import of cars, Swiss chocolate and pet food (yes, the PML-N government was indirectly subsidising these!). This hurts all of us because some of the goods we need like food and medicine are also imported. But the medication is working. We are learning to live within our means and imports are beginning to come down sharply (current account deficit was down to 72% in February).

This is an incomplete look at the picture.

Pakistan receives about $22 billion in remittances, which are sent to families. All this money is immune from the devaluation, since the families get more rupees for the same amount of dollars, so to them, the 140 rupees prices for the chocolate is still the same. Hence their demand for imported goods remains unaffected. It is only the local earners who bear the impact of the devaluation.