Debt trap

[Norwegian]

Debt trap

Over the past 32 months, the PTI government has spent Rs10 trillion more than the government’s income. That’s the budgetary deficit. The budgetary deficit was filled by high cost loans. That’s digging deeper into the debt trap. Over the past 32 months, the circular debt in the electricity sector has gone up from Rs1.1 trillion to Rs2.5 trillion. This Rs1.4 trillion loss has to be filled by high cost loans. That’s digging even deeper into the debt trap.
Public Sector Enterprises have taken Rs2,000 billion worth of debt. The circular debt in the gas sector now exceeds Rs350 billion. The government’s so-called ‘Commodity Operations’ have taken Rs700 billion worth of additional debt. Lo and behold, the Federal Board of Revenue (FBR) has also accumulated Rs710 billion worth of circular debt in the form of ‘tax refunds’. Ever wondered why we are in a debt trap?
Then there’s the external front. Imagine; a country of 220 million got foreign investment of $1.3 billion (Jul-Feb) down 30 percent from an already low base of last year (India attracted $72 billion during April-January up 15 percent from last year). Pakistan then went for debt-creating dollar inflows. Lo and behold, Pakistan’s gross external financing requirement this year exceeds a colossal $30 billion. That’s digging even deeper into the debt trap.
Let us all welcome the IMF, the international lender of last resort. The IMF tells us two things: increase taxation and tighten up the monetary policy (read: increase interest rates). To be certain, increased taxation and a restrictive monetary policy only means low growth. Lo and behold, low growth takes us deeper into the debt trap. That’s the classic vicious cycle – a “sequence of reciprocal cause and effect in which two or more elements intensify and aggravate each other, leading inexorably to a worsening of the situation.” Yes, low growth means digging even deeper into the debt trap.
The IMF’s prescriptions – higher taxation and a tight monetary policy – shall push us even deeper into the debt trap. The IMF’s prescriptions curtail demand. In order to grow out of the debt trap we need to increase demand. Yes, there’s only one way to get out of this debt trap: to grow out of the debt trap. And, in order to grow out of the debt trap we must do two things: fiscal consolidation and structural reforms. Fiscal consolidation is defined as “concrete policies aimed at reducing government deficits and debt accumulation.” The consequence of fiscal consolidation is growth – and growth will take us out of the debt trap we are in.
With or without the IMF, we urgently need a credible fiscal consolidation plan (which in turn will boost market confidence and lead us into the growth phase). With or without the IMF, we urgently need to undertake structural reforms. The consequence of structural reforms is growth-and growth will take us out of the debt trap we are in.
Red alert: Pakistan’s economic disequilibria is spiraling out of control. For a credible fiscal consolidation plan Pakistan needs a credible team. And that’s the most unfortunate part of the Pakistan story – 50 percent of the PTI’s time is over and the PTI is yet to put together a credible team. Remember, “Modern slaves are not in chains; they are in debt.”

The writer is a columnist based in Islamabad.

Debt trap

Over the past 32 months, the PTI government has spent Rs10 trillion more than the government’s income. That’s the budgetary deficit. The budgetary deficit was filled by high cost loans....

www.thenews.com.pk

 

[SoulSpokesman]

@Norwegian

Norwegian sb,

Its a chicken and eggs story really. Fiscal consolidation involves both higher taxation and tighter monetary policy- just the thing that the author says will result in a vicious cycle of low growth and higher indebtedness.

Pakistan should just let financial prudence take a hike for the time being. Needs to boost spending and deficit financing, even if it means a hike in inflation. Eventually growth will lead to higher revenue and there will be a resultant improvement in finances.

Pakistan should also consider leasing land and handing over Reqo Diq to Chinese in return for them taking over their debt.

Regards

 

[Nasr]

The death-trap, is more to do with two full terms of PPP & PML-N governments in power. Only difference here is that the current government is trapped set (intentionally or unintentionally) by previous governments full of thieves, liars, murderers and thugs of PPP-PML-N governments.

For Pakistan, the best way forward, is to get out of the IMF-WB, which sprung at the actual death-trap. Everything else is peripheral and of zero consequence in context with the current Govt's initiatives.

 

[Pakstallion]

Fiscal consolidation is key. Expenditures are pretty much fixed with not much room to cut. Stick with primary surplus for few years and hope for growth to pull us out. The circular debt issue is literally a nightmare. I can’t believe anyone who loves Pakistan would do such a thing to it. The capacity payments are debilitating - equal to our defense budget next year. They will need to renogotiate it immediately while also not losing all confidence of investors like Nawaz Sharif did in the 90s. Don’t need a restrictive monetary policy unless mandated by high demand pull inflation. I trust Reza Baqir on that front. Him, Sani Nishtar and Mooeed Yusuf are the best picks by IK.

 

[SoulSpokesman]

@blueazure

hey indian stay away from our affairs your'e not welcome

This sort of behaviour doesnt behove you, sir! Yes, an Indian who is here to troll and abuse is certainly not welcome, but someone who bonafide wishes to contribute should be.

@Pakstallion

They will need to renogotiate it immediately while also not losing all confidence of investors like Nawaz Sharif did in the 90s.

This is the conundrum, sir. Capacity payments is a crippling burden- at the same time renegotiating or cancelling the contracts risks damaging investor confidence.

Regards

 

[ziaulislam]

Fiscal consolidation is key. Expenditures are pretty much fixed with not much room to cut. Stick with primary surplus for few years and hope for growth to pull us out. The circular debt issue is literally a nightmare. I can’t believe anyone who loves Pakistan would do such a thing to it. The capacity payments are debilitating - equal to our defense budget next year. They will need to renogotiate it immediately while also not losing all confidence of investors like Nawaz Sharif did in the 90s. Don’t need a restrictive monetary policy unless mandated by high demand pull inflation. I trust Reza Baqir on that front. Him, Sani Nishtar and Mooeed Yusuf are the best picks by IK.

Are you going to say millions of educated middle class people from central punjab dont love pakistan?

@blueazure

hey indian stay away from our affairs your'e not welcome

This sort of behaviour doesnt behove you, sir! Yes, an Indian who is here to troll and abuse is certainly not welcome, but someone who bonafide wishes to contribute should be.

@Pakstallion

They will need to renogotiate it immediately while also not losing all confidence of investors like Nawaz Sharif did in the 90s.

This is the conundrum, sir. Capacity payments is a crippling burden- at the same time renegotiating or cancelling the contracts risks damaging investor confidence.

Regards

Mother of all problems but a middle ground will probabaly be achieved

circular debt is not unique to pakistan, india and other devekoping countries have this issuw too
But in our case its worse simply due to Previous govt hastiness and poorly negoitated power deals

Regardless in 7-10 yrs this problem will probably go away on its own once older plants retire and new demand picks up(with cheaper solar/hydro mega projcts coming in too)

The death-trap, is more to do with two full terms of PPP & PML-N governments in power. Only difference here is that the current government is trapped set (intentionally or unintentionally) by previous governments full of thieves, liars, murderers and thugs of PPP-PML-N governments.

For Pakistan, the best way forward, is to get out of the IMF-WB, which sprung at the actual death-trap. Everything else is peripheral and of zero consequence in context with the current Govt's initiatives.

Easy to blame IMF/WB
IMF WB is bailig out govt not the other way around

The culprit here is the educated middle class of central punjab which forces PMLN govt to do populist moves that destroys productivity and exports
I wont be surpised if PTI ends up doing the same to appease this central punjab population group

 

[Mentee]

The culprit here is the educated middle class of central punjab which forces PMLN govt to do populist moves that destroys productivity and exports

the same people are to be held liable for keeping the foreign reserves stable despite an incompetent fool ruining every thing he could get his hands on . Btw who's benfitting from the circular debt?

 

[blueazure]

@blueazure

hey indian stay away from our affairs your'e not welcome

This sort of behaviour doesnt behove you, sir! Yes, an Indian who is here to troll and abuse is certainly not welcome, but someone who bonafide wishes to contribute should be.

@Pakstallion

They will need to renogotiate it immediately while also not losing all confidence of investors like Nawaz Sharif did in the 90s.

This is the conundrum, sir. Capacity payments is a crippling burden- at the same time renegotiating or cancelling the contracts risks damaging investor confidence.

Regards

look at this indian troll

so concerned about our economy !

The culprit here is the educated middle class of central punjab which forces PMLN govt to do populist moves that destroys productivity and exports

with every passing day, your posts are getting erratic and senseless

i have no idea what your beef with central punjab is !

such racist and foolish statements against a certain group should NOT be allowed on this forum


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Debt trap

Over the past 32 months, the PTI government has spent Rs10 trillion more than the government’s income. That’s the budgetary deficit. The budgetary deficit was filled by high cost loans. That’s digging deeper into the debt trap. Over the past 32 months, the circular debt in the electricity sector has gone up from Rs1.1 trillion to Rs2.5 trillion. This Rs1.4 trillion loss has to be filled by high cost loans. That’s digging even deeper into the debt trap.
[/URL]

what ive been saying from day 1 and infact every other sensible economic expert


1. PTI is using not one but THREE credit cards to pay off the last ones

2. The govt has no Fiscal strategy but only fire fighting ( not helpling)

3. three debt are piling - cicular, local and foreign .. how they will be paid off?

 

[That Guy]

Question, how is increasing government revenue, and decreasing spending making the debt worse?

And no, a low growth rate doesn't mean an automatic increase in debt. Nor does higher growth mean a decrease in debt.

This article is stupid.

I don't know who this columnist is, but they clearly have no clue what they're talking about.

 

[AZ1]

the same people are to be held liable for keeping the foreign reserves stable despite an incompetent fool ruining every thing he could get his hands on . Btw who's benfitting from the circular debt?

yes thats why $93 billion of debt left in total by nawaz. One day or another this was supposed to fall on public and now the responsible is enjoying in london just like in 2000. 3 times prime minister 2 times NRO seeking.

Wait till 2023 when we have nothing left in our hands due to capacity payment.

 

[Norwegian]

3. three debt are piling - cicular, local and foreign .. how they will be paid off?

By bringing your favorite PMLN or PPP back in power of course

 

[ziaulislam]

look at this indian troll

so concerned about our economy !



with every passing day, your posts are getting erratic and senseless

i have no idea what your beef with central punjab is !

such racist and foolish statements against a certain group should NOT be allowed on this forum


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what ive been saying from day 1 and infact every other sensible economic expert


1. PTI is using not one but THREE credit cards to pay off the last ones

2. The govt has no Fiscal strategy but only fire fighting ( not helpling)

3. three debt are piling - cicular, local and foreign .. how they will be paid off?

Yes critizing people to support central bank populist measures is eratic

Yes by this defination I, bengaldeshi, vietnamese, and previosuly koreans are all erractic

Once inflation falls to 5% (pretty average for region) u will still see educated middle class of punjab complaining of inflation

Govt will then move to stop any support meausres (e.g in wheat production) and artifixally prop the rupee(dar economics) both kiling productivity but fueling consumption leading to bust

As this concept of killing productivity is easily understood by 10 yrs old child i concur that either u guys are under 10 or intentionaly happy with current affair of perpetual boom & burst

I am inclined to believe the second

the same people are to be held liable for keeping the foreign reserves stable despite an incompetent fool ruining every thing he could get his hands on . Btw who's benfitting from the circular debt?

PMLN was tricked by IK to deal expensive capacity payment
Damn you IK
====
Pakistani moto is punish the productivity class of rest of pakistan and reward the consumption middle class of central punjab...once productivity is gone burst happens..
I would say it has worked for last 30+ years so i believe that PTI will end up doing the same in last 2yrs or atleast will be highly tempted to do it

yes thats why $93 billion of debt left in total by nawaz. One day or another this was supposed to fall on public and now the responsible is enjoying in london just like in 2000. 3 times prime minister 2 times NRO seeking.

Wait till 2023 when we have nothing left in our hands due to capacity payment.

Its people money and its the right of eduxated middle class of central punjab and lahore high court to give him NRO
I honestly will be happy if PMLN comes
My pay is in $$$ not rupees if pakistan bankrupts again i will be in better position
I am going to hold $$$ like rest of pakistani till 2028 collapse

 

[ziaulislam]

Logic vs patwari
Logic ..

govt reserves dropping fast in PMLN dropping to more then 50% by may(despite 4b$ chinese bailout with negtaive effect reservs taking out swaps & short term reserves)
Now resevers are not solid but have doubled with positive CAD and fast growing gdp hitting 4% nextyr despite global situation

Patwari..
But but forget about bankrupcy we were spending more and had GDP growth 5.2