Is the rupee undervalued?

[Nilgiri]

Dont know the details but Pakistan is charging transit fees one way or another.

You idea is sound. But wouldnt transit fees within Pakistan for CPEC be in PKR to start with anyway?

 

[rome333]

@niaz I totally agree with you. But somewhere I saw that the net Balance of Payment for July-Jan was $0.20 billion. I wonder why $ Reserve actually have decreased during the same period!
Personally I find large scale portfolio investment from abroad to be quite risky during risky times as money could come in and leave very quickly, putting additional pressure on BOP. Since Pakistan's equity markert have a fine bull run among similar markets, assume there has been a large portfolio investment there as well. Central bank need to be cautious on outflow of these. FDIs are better than portfolio investments any given time.

 

[GumNaam]

You idea is sound. But wouldnt transit fees within Pakistan for CPEC be in PKR to start with anyway?

Maybe, don't know.

 

[BetterPakistan]

Nanha, I hardly hope you would make it, maybe like ever, to the economics school from where I have graduated. I'm comparing Foreign Exchange Regimes, not comparing economies idiot. Comprehend the first thing first.

You dirty cockroach. I know from where you graduated and your idiotic logic tells me everything about it.
Foreign exchange regime is the way an authority deals with its currency in connection to different currencies and the outside trade showcase (foreign exchange market). It is firmly identified with monetary policy and the two are by and large reliant on huge numbers of similar components.

Tujhe abhi bhi samajh nhi aye afterall tere jaisaiko aa kaisai sakti hai.. ja ja kr chawliyan kahi aur maar.. I know you since I joined here and I know who exactly you are.

and as per your logic, no country should go for appreciation. We have a recent example of Russia.
In March and April 2015, with the stabilization of oil prices, the ruble has made a surge, which Russian authorities have deemed a "miracle". Over three months, the ruble gained 20 percent against the US dollar, and 35 percent against the euro. The ruble was the best performing currency of 2015 in the forex market. Despite being far from its pre-recession levels (in January 2014, 1 USD equaled roughly 33 Russian rubles), it is currently trading at roughly 52 rubles to 1 USD (an increase in value from 80 rubles to 1 USD in December 2014).

Current Russian foreign reserves sit at $360 billion. In response to the ruble's surge, the Russian central bank lowered its key interest rate further to 14 percent in March 2015.

Zara apna dimagh khol phir soch

 

[niaz]

Effectively they will be paying themselves.



typo.

Good, common sense post saab.

Thanks you Sir. I meant to say exports failing to keep up with imports. The error has been corrected.
I apologise for the inconvenience.

 

[niaz]

@niaz I totally agree with you. But somewhere I saw that the net Balance of Payment for July-Jan was $0.20 billion. I wonder why $ Reserve actually have decreased during the same period!
Personally I find large scale portfolio investment from abroad to be quite risky during risky times as money could come in and leave very quickly, putting additional pressure on BOP. Since Pakistan's equity markert have a fine bull run among similar markets, assume there has been a large portfolio investment there as well. Central bank need to be cautious on outflow of these. FDIs are better than portfolio investments any given time.

There are so many monetary terms used these days that a man of average intelligence such as I find it difficult to comprehend the same. I admit that I have not come across a figure if $0.20-billion as balance of payment anywhere but it does not mean that the figure is wrong.

My understanding of the terms being:

Trade balance is the difference between imports and exports.

Current account balance is a measure of inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account. Receipts from income-generating assets such as stocks (in the form of dividends) as well as inward remittance and debt servicing outflow are also included.

I am not exactly sure which items are included in balance of payment. As a guess the balance of payments would include all international monetary transactions during a specific period of time. It would therefore include credit inflows such as IMF tranche to boost countries reserves & FDI.

Stock market index relates to the profitability of companies listed in the Stock Exchange and not directly related to current account deficit or balance of payment.

Would appreciate if a professional economist member would further clarify.

 

[Nilgiri]

Trade balance is the difference between imports and exports.

Current account balance is a measure of inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account. Receipts from income-generating assets such as stocks (in the form of dividends) as well as inward remittance and debt servicing outflow are also included.

This definition is pretty much spot on. Current account basically reflects the net income from abroad for a country.

I am not exactly sure which items are included in balance of payment. As a guess the balance of payments would include all international monetary transactions during a specific period of time. It would therefore include credit inflows such as IMF tranche to boost countries reserves & FDI.

Balance of payments includes the Capital account.

The capital account is net change of ownership of national assets....it includes FDI, portfolio, all other investments (incl foreign loans and IMF withdrawals/credits), reserve account of central bank etc.

In theory Current account + Capital account = Balance of payments = 0 given any change in net income has to be balanced by change in asset ownership (i.e if you have a net deficit in income from abroad, this has to be financed through more ownership of your national assets by foreigners whether through net forex change, investments, loans etc).

When someone says the "Balance of Payments" is imbalanced, it refers to the current account (being in large deficit) generally given this has the most (esp short term) exposure to the average person on the street. Of course that also means the capital account would be in large surplus too conversely.

Balance of payments crisis happens when something happens so quickly (like exchange rate plummeting or massive capital outflows) well within the system lag time that a country is unable to finance its short term needs (from abroad) in the short term and even sometimes the long term (if situation persists). This is when hard assets (like gold) have to be sold by the country or massive foreign loans have to be injected (from say IMF). Hence why many countries prefer to maintain large foreign reserves to mitigate this risk.

 

[SBD-3]

You dirty cockroach. I know from where you graduated and your idiotic logic tells me everything about it.
Foreign exchange regime is the way an authority deals with its currency in connection to different currencies and the outside trade showcase (foreign exchange market). It is firmly identified with monetary policy and the two are by and large reliant on huge numbers of similar components.

Tujhe abhi bhi samajh nhi aye afterall tere jaisaiko aa kaisai sakti hai.. ja ja kr chawliyan kahi aur maar.. I know you since I joined here and I know who exactly you are.

. We have a recent example of Russia.
In March and April 2015, with the stabilization of oil prices, the ruble has made a surge, which Russian authorities have deemed a "miracle". Over three months, the ruble gained 20 percent against the US dollar, and 35 percent against the euro. The ruble was the best performing currency of 2015 in the forex market. Despite being far from its pre-recession levels (in January 2014, 1 USD equaled roughly 33 Russian rubles), it is currently trading at roughly 52 rubles to 1 USD (an increase in value from 80 rubles to 1 USD in December 2014).

Current Russian foreign reserves sit at $360 billion. In response to the ruble's surge, the Russian central bank lowered its key interest rate further to 14 percent in March 2015.

Zara apna dimagh khol phir soch

and as per your logic, no country should go for appreciation

That actually shows your understanding of thing you're trying to call economics. So here's the simple thing for you
1-The countries like Russia, Venezuela, Saudia, Iraq,Iran,Norwegian Krone etc's exports and fiscal account are behave as a function of International Oil Prices
2-If these countries decide to leave their currencies on floating regime, their currency would behave in a similar way as the oil price. Just like South African Rand tracks gold price.
3-In such a scenario, if the currency like Russia, Australia, New Zealand, Canada or South Africa follows a floating regime, their currencies track commodities that drive their exports and are called Commodity Currencies. The prices, the currency's value is valnurable to shocks in commodity prices and hence the domestic economy and the central bank loses a fair amount of control over the foreign exchange.
What you're referring to as a "Miracle happened exactly after the oil prices slumped.

And that's what the miracle really was, the oil prices stabilized

In March and April 2015, with the stabilization of oil prices

Nothing to do with the Russians on their own. Take a look at how slump in oil prices wrecked havoc on Venezuelan economy.
4-If the country decides to stay immune to the volatility in commodity prices, they fix their currencies against an anchor like USD (KSA,AED,IQD etc). Their currency remains stable but then the cost is total loss of foreign exchange to Federal Reserve's actions and a sharp depletion in foreign exchange reserves which the country exhausts in defending the peg. Not to mention the hurt cause by the two opposing forces working against you simultaneously the ME currencies effectively appreciating with an strengthening USD and shrinking Fiscal balance and Exports due to fall in oil prices.
http://www.businessinsider.com/saud...rves-slide-to-lowest-levels-since-2012-2016-3
http://www.forbes.com/sites/timdais...gn-reserves-as-oil-prices-slide/#551d8c083ba9
http://marketrealist.com/2016/02/saudi-arabia-depleting-forex-reserves-tide-situation/
I hope next time you would come with a complete understanding of what you're trying to say rather than posting stuff you wouldn't comprehend

 

[rome333]

@SBD-3 Hugh fund outflow from Russia also took place from early-mid 2014 due to Annexation of Crimea, until rest of the world took it for granted when Russia officially declared Crimea as an integral part of Russia on mid 2015.

 

[SBD-3]

@SBD-3 Hugh fund outflow from Russia also took place from early-mid 2014 due to Annexation of Crimea, until rest of the world took it for granted when Russia officially declared Crimea as an integral part of Russia on mid 2015.

That's a geopolitical risk which can technically occur as well but given that Russia has been very keen on projecting her soft economic power due to resurgence in Foreign Exchange Reserves (thanks to Oil Exports) the is a strong case of interaction between political and economic risks. As oil slumped along with the domestic economy, Putin administration saw Crimea crisis as an opportunity to regain that poster. So all the risks keep on interacting with each other and not independent of each other. Had Russia been in a very good shape at home, Putin might not have gotten down the route of annexing Crimea.

 

[rome333]

@SBD-3 Thats why there is an infamous saying that "A wounded tiger is much more lethal and dangerous".

 

[Bouncer]

I know its an old story but whenever I do comparison, I feel PKR is undervalued. Even Bangladesh currency is stronger than Pakistan currency.

No. PKR is overvalued. It should be around PKR115 to USD.

And having a "better" exchange rate doesn't mean that your economy is stronger than the other one.

 

[MULUBJA]

Simple way to analyze the same is that take a GDP in PPP/GDP nominal ratio. suppose the ratio is 2, currency is undervalued by 2 times.

 

[BetterPakistan]

That actually shows your understanding of thing you're trying to call economics. So here's the simple thing for you
1-The countries like Russia, Venezuela, Saudia, Iraq,Iran,Norwegian Krone etc's exports and fiscal account are behave as a function of International Oil Prices
2-If these countries decide to leave their currencies on floating regime, their currency would behave in a similar way as the oil price. Just like South African Rand tracks gold price.
3-In such a scenario, if the currency like Russia, Australia, New Zealand, Canada or South Africa follows a floating regime, their currencies track commodities that drive their exports and are called Commodity Currencies. The prices, the currency's value is valnurable to shocks in commodity prices and hence the domestic economy and the central bank loses a fair amount of control over the foreign exchange.
What you're referring to as a "Miracle happened exactly after the oil prices slumped.
View attachment 379293

And that's what the miracle really was, the oil prices stabilized

Nothing to do with the Russians on their own. Take a look at how slump in oil prices wrecked havoc on Venezuelan economy.
4-If the country decides to stay immune to the volatility in commodity prices, they fix their currencies against an anchor like USD (KSA,AED,IQD etc). Their currency remains stable but then the cost is total loss of foreign exchange to Federal Reserve's actions and a sharp depletion in foreign exchange reserves which the country exhausts in defending the peg. Not to mention the hurt cause by the two opposing forces working against you simultaneously the ME currencies effectively appreciating with an strengthening USD and shrinking Fiscal balance and Exports due to fall in oil prices.
http://www.businessinsider.com/saud...rves-slide-to-lowest-levels-since-2012-2016-3
http://www.forbes.com/sites/timdais...gn-reserves-as-oil-prices-slide/#551d8c083ba9
http://marketrealist.com/2016/02/saudi-arabia-depleting-forex-reserves-tide-situation/
I hope next time you would come with a complete understanding of what you're trying to say rather than posting stuff you wouldn't comprehend

As per your logic, you says that if local currency appreciates than exports decreases Okay than answer me one simple question.

Since 2013 when present government took over they depreciated PKR to even 108 against USD then recover it to 104 but since 2013 our exports has decreased from $25 bn to $20 bn in three years. Why? Why hasn't our exports increased despite the fact that present government depreciated PKR.

Don't you dare to say that our exports declined because of reduction in oil prices because oil prices decreased in 2014 and its 2017 and we haven't saw any increase in exports yet. Our exports has decreased by 20% since 2013. Reduction in exports in 2015 could be justifiable but after 2015 its completely not.

Now I want straight answer in black and white not grey.

One more thing is that when local currency appreciates than it leads to reduction in inflation which I guess you don't know yet.

The other day I saw your comment on Peshawar Rapid Bus system in which you was criticizing KPK govt because they won't be running their rapid bus on loss like your ones. You was saying that they should give subsidy on it. A wise economist never talks about subsidies/losses but I know you, you're more a political stunt man.

No. PKR is overvalued. It should be around PKR115 to USD.

And having a "better" exchange rate doesn't mean that your economy is stronger than the other one.

And having an undervalued exchange rate leads to increase in external debt, external debt servicing, higher inflation rate, hampering GDP growth, collapsing investment-to-gdp ratio like it happened from 2008-13.

 

[SBD-3]

As per your logic, you says that if local currency appreciates than exports decreases Okay than answer me one simple question.

Pakistan's export problem is multifaceted marred by a host of issues. An appreciating PKR only adds to those vows.
https://defence.pk/pdf/threads/half...s-hits-pakistans-economy.450577/#post-8715768
https://tribune.com.pk/story/820203/trade-map-why-are-pakistans-exports-declining/