Can Nawaz Sharif fix the economy?

[[Bregs]]

FDI is extremely crucial for Pakistan to come out of there economic woes and for that to happen meaningfully the atmosphere of peace and investors friendly policy needs to be in place

 

[Echo_419]

You are very right. Unfortunately low value industries like Garments can only take a country so far. It is fine if say Pakistan and Bangladesh were a nation of 50 million people. We have population above 150 million, and not all of them can be engaged in making garments.

Secondly, the place where Bangladesh is now, Pakistan has been there before. You will see there is only a certain value of garments Bangladesh can produce and export before the market saturates and settles down. However, to have a continued economic growth, you need investments in different industries at the right time to keep the economy moving.

This is where India did the right thing. If you look at the economic history of India and Pakistan, you'll see India was a much tightly controlled socialized economy, until 1990s when they enacted reforms and allowed foreign firms to come in. Then India went the way of IT. So they moved from low value goods like garments, agriculture products etc into a high-tech, fast expanding IT market.


Take the view of a developed economy. Say Germany.

Germany is an economic powerhouse of the world, not only because it is excellent in auto industry, but in literally every other major industrial output, be it IT, Electronics, Ship Building, Aerospace and what not. No single industry is enough to support an economy of that size.

Diversity is key.

What happened to the china-Pak highway from Gawadr to Xinchang
That project is very crucial for Pakistan
Like India's Dedicated Freight corridor
This project is the best bet for pakistan to get out of the Economic crisis

 

[Chak Bamu]

@niaz sb. The sky shall not fall when and if KPK stops NATO transit. We are a flexible and pragmatic people, let us see what happens afterwards. I do not think that this would be a big deal in the end. Something will be sorted out.

I expect TTP to start a wave of terrorism soon, since Mullah Radio is on now. That would be a convenient excuse for PTI to back off. But IK needs a face-saver for sure. I would not mind a little drama for him to have it. I like him.

 

[Donatello]

What happened to the china-Pak highway from Gawadr to Xinchang
That project is very crucial for Pakistan
Like India's Dedicated Freight corridor
This project is the best bet for pakistan to get out of the Economic crisis

Gwadar to Karachi road is complete, known as Makran Coastal Highway.

From Karachi all the way up to Islamabad we have the N5 highway which is pretty good. In between, from Faisalabad to Islamabad we already have the Motorway, with Multan-Faisalabad motorway coming up in a year or two's time. So road infrastructure in Punjab is pretty much sorted. However, the final leg from Islamabad to China border is a bit tricky. Some places where the terrain is flat, road is good. But some parts of the Karakoram Highway are a big mess. It is this part that needs to be built up to standard to deal with heavy trailer traffic.

 

[Echo_419]

Gwadar to Karachi road is complete, known as Makran Coastal Highway.

From Karachi all the way up to Islamabad we have the N5 highway which is pretty good. In between, from Faisalabad to Islamabad we already have the Motorway, with Multan-Faisalabad motorway coming up in a year or two's time. So road infrastructure in Punjab is pretty much sorted. However, the final leg from Islamabad to China border is a bit tricky. Some places where the terrain is flat, road is good. But some parts of the Karakoram Highway are a big mess. It is this part that needs to be built up to standard to deal with heavy trailer traffic.

Arrey sorry
I was asking about the Economic corridor
Which includes a Rail line also

 

[PakPrinciples]

It can definitely be done and the proof is in the fact that historically whenever the military has taken over from corrupt and inept civilian rule they have time and time again turned the economy around.

Ex. Gen. Ayub Khan - 1958 to 1969 (more than doubled the GDP within two terms)
Ex. Gen. Zia Ul Haq - 1978 to 1988 (doubled the GDP within two terms)
Ex. Gen. Musharraf 1999-2007 (doubled the GDP within two terms)

Pakistan's economic problems as of right now stem from the energy crisis which robs the country of approximately 3 to 4% GDP growth a year. Those companies that stay are unable to produce products for export or expand while other Pakistani companies are forced to migrate to countries like Bangladesh which support the latters economy at our expense and new companies/industries cannot start in Pakistan.

Resolve the energy crisis and you solve the countries economic problems. However, this is going to require taxes be collected (tax to GDP ratio raised to 16% just to meet the yearly budget) instead of constantly borrowing money from foreign governments at high interest rates and being forced to compromise on our strategic interests for loans.

One major issue in Pakistan seems to be that too much electricity is supplied to the residential sector while not enough is supplied to industry (i.e. about 24% of electricity generated is consumed by industry in Pakistan vs. 40% in India or 77% in China). If I was Nawaz I would concentrate on raising taxes and then first concentrate on supplying electricity to industry at costs competitive with India and Bangladesh to bring back businesses that had to go abroad because of the energy crisis and further grow industry at home. If 25% of the electricity shortfall (about 49 billion KWh) is required by Industry (about 13 billion KWh) and it cost about US $0.15 per KWh to generate (assuming we imported natural gas at something like $14 per mmbtu) I would subsidize the gas for industry at US $0.05 per KWh which means Pakistan would wind up paying US $1.5 billion out of the federal budget for the gas or 0.6% of GDP which we can easily collect in the form of taxes.
http://ccap.org/assets/Pakistan.Gardezi.EE Lighting.pdf
As Pakistan's industry grows and more foreign exchange pours into the country as well as tax revenue increases (both from the growing economy and necessary tax reforms) the government can then put money towards production of electricity for residential customers.

As of right now Pakistan has an installed capacity of around 24000 MW. If these were operating like base load power plants at a 90% capacity factor (requires good maintenance and constant supply of fuel whether it be coal, natural gas or heating oil) the country would be producing 189 billion KWh of electricity a year (Pakistan used about 89 billion KWh of electricity in 2011 and our 5000 MW shortfall means we need to produce about 43 billion KWh). Thus, it appears that Pakistan has the installed capacity to meet all its energy needs so the problem isnt infrastructure it is fuel shortage though we will most likely need to convert existing power plants to run on domestic fuels which results in additional short term expenses.

What options are there when it comes to domestic sources of fuel?

Shale:
ENI Pakistan and PPL both confirmed that they can produce and sell Shale gas to Pakistan at a cost of about US $14/mmbtu. However, we need to keep in mind that we get a substantial portion of that cost back in the form of taxes and royalties (probably around half) not to mention the value obtained from energy security, job creation (which allows us to collect additional taxes) and technological advancement that come with such projects.

Tight Gas
Pakistan has already started producing tight gas at US $6/mmbtu

Shale Oil
We can start producing shale oil to meet our oil needs (particularly heating oil for power generation). In 2004 the US DoE estimated the production cost of shale oil to be $21/barrel (assuming a plant which can produce 4 million barrels a year) using ATP (Alberta Taciuk Processor) technology.
http://ds.heavyoil.utah.edu/dspace/...gnificanceofAmericasoilshaleresource_Vol2.pdf

As well as coal bed methane and UCG using Pakistan's massive lignite deposits.

If we were to produce electricity using Shale Gas at the cost offered by ENI and PPL (US $14 per mmbtu), which Nawaz termed too expensive, and going by the energy consumption of a Cummins 500 KW generator the cost of the electricity (not including O&M which is negligible) would come to about US $0.14 per KWh. Because shale gas costs about $7 per mmbtu to produce (i.e. wellhead price) we can collect about 50 to 60%of the profit (US $3.5 to 4.2/mmbtu) in the form of taxes and 10% of the wellhead prices in the form of royalties ($0.7 per mmbtu) so the actual price of the gas would be about $9.1 to 9.8/mmbtu (or about 1000 cubic feet) meaning the electricity we require to meet our shortfall would cost around $4.8 billion. From my readings a 1% increase in electricity production results in about a 1% increase in GDP. Thus, by generating that electricity (i.e. 49 billion KWh) we would effectively increase our GDP by 50% (or US $120 billion assuming a GDP of US $240 billion). We would be able to cover the cost of the gas with a tax of 1.5% of GDP (assuming a final GDP of US $360 billion). Thus, the final tax to GDP ratio needs to be 17.5% (16% to pay for the budget and 1.5% to pay for the gas - China and India have their tax to GDP ratios at 17%). However, what I believe is that an additional 2.5% of GDP should be raised in taxes and annual budget deficits of 2.5% of GDP should be accumulated yearly to specifically invest in industry which would result in $18 billion collected in the first year (assuming a GDP of $360 billion following the jump after the end of the energy crisis). After two terms we would have invested $250 billion into Pakistan's industry (assuming yearly GDP growth rates of 8% though I believe our growth would be much higher with the investments probably around the 12% mark).

Unfortunately, the problem is democracy itself. One of the few problems with democracy is that whenever you have elected politicians who need the support of other politicians to bring and then keep themselves in power they are going to wind up needing to do favors for their supporters. What this winds up doing is resulting in a government that doesn't think on a long term macroeconomic scale instead it only concentrates on the short term microeconomic projects that benefit their supporters at the cost of long term progress.

I by no means am an expert so if anyone sees something wrong with my calculations let me know.