Is the worst behind Pakistan’s economy?

[nahtanbob]

IMF is the enemy of Pakistan's economy. Why should we allow luxurious and not needed imports? Why should we devalue our currency? The US Administration through its organs IMF and World Bank are working on destroying Pakistan's economy so that we have to follow their dictations of recognizing Israel and denuclearizing ourselves. These conditionalities are being put to move us further towards the brink of economic disaster.

Structural reforms are being done at IMF behest since the nineties and every time we are told to do more reforms.

The western capitalistic economic system cannot deliver our people or people anywhere from their poverty. They just fill the pockets of the rich and make the poor work like slaves.

Socialism has also failed because it puts too much burden on the state for meeting all the needs of the people.

Only Islamic Economic System can solve the problems of Pakistan and we need structural reforms for that. There are people who have knowledge about Islamic Economic and Political Systems who can guide the government in the right direction.

feel free to setup your economic system

 

[LeGenD]

the first two - US policies and war in Ukraine have affected everyone in the world - and I dont see too many countries doing as bad as Pakistan

IMF never said to import luxuries and not necessities. its the elites who have control of the power who decided to allow import of luxuries. IMF said - balance your exports + imports. we should have immediately stopped importing luxuries.

the structural reforms were never completed in the past 23 times with the IMF. go back and check the record. we said we will do those reforms, took the money and then went about with populist policies instead of prudent economic measures.

what we have in pakistan right now is not a capitalistic economy. we have a feudalistic economy which does exactly what you said - make the poor work like slaves.. the rich get free electricity, fuel, import luxuries at no tax.

who are these people? can you kindly name them so we can actually get them to spell out how these economic principles and restructuring can help? else this is just a tapout - by saying "someone else knows how to get out of this.. all we are doing now is wrong"

So much common sense and truth in one post - this post deserve positive rating.

 

[nahtanbob]

the first two - US policies and war in Ukraine have affected everyone in the world - and I dont see too many countries doing as bad as Pakistan

IMF never said to import luxuries and not necessities. its the elites who have control of the power who decided to allow import of luxuries. IMF said - balance your exports + imports. we should have immediately stopped importing luxuries.

the structural reforms were never completed in the past 23 times with the IMF. go back and check the record. we said we will do those reforms, took the money and then went about with populist policies instead of prudent economic measures.

what we have in pakistan right now is not a capitalistic economy. we have a feudalistic economy which does exactly what you said - make the poor work like slaves.. the rich get free electricity, fuel, import luxuries at no tax.

who are these people? can you kindly name them so we can actually get them to spell out how these economic principles and restructuring can help? else this is just a tapout - by saying "someone else knows how to get out of this.. all we are doing now is wrong"

Life is fun for the elite in Pakistan. I presume you have to be born or get married into the elite.

 

[Sliver]

Everything IMF tells you to do is good for you, but Pakistan refuses to listen and continues to borrow.

and on top, blame IMF for all the ills. blame anyone basically..

 

[hussain0216]

Life is fun for the elite in Pakistan. I presume you have to be born or get married into the elite.

Yeah, if you make enough money you can become part of it

Like many other places, if you have money in Pakistan life is a Peach, but the elite rule Pakistan and they absolutely won't let go of their power and tax themselves and unload the hardships onto the general population

 

[Dalit]

I wonder why Pakistan didn't engage in some kind economic reform as did in India and BD in the neighborhood let alone China in the past decades in order to develop its economy and country ? Besides, for the country to grow economically, you need political stability and free of terrorist attacks to attract private investments.

I will tell you why. The elites don't want to pay taxes and give up their perks.

 

[ThunderCat]

Still far better to live than Pakistan.

Tell that to all those Bangladeshi migrants living there illegally.

And Pakistan in its current state is not a shi1hole????

False equivalence fallacy. It's a far better and cleaner country compared to the dirtiest place on Earth.

 

[R2D2]

Without IMF, there won't be any petroleum products. Country will grind to a halt in two weeks. People have to start using horse and ox carts. next: food shortage, then medicines ... Pretty soon it is like Somalia or Sudan. Pakistan's politicians are not very smart, but they are not that dumb either.

We can easily get petroleum products from Iran and Russia on discount.

 

[R2D2]

Pakistan is now on the IMF chopping block. We we forced to sell munitions to Ukraine in return for the last tranche of loan from IMF. It is just a front for American Imperialism. We should stop paying the interest payments to IMF and return only the Principal amount. For the next tranche we would be forced to recognize Israel and forego our nuclear assets. It is better to get rid of these carpetbaggers and follow a Non-Aligned Strategy in international affairs.

 

[SD 10]

The worst is yet to come if we dont do structural reforms of everything!

 

[nahtanbob]

Accruing more debt​

THE government has issued new debt of over Rs2.5tr during the first three months of the current financial year to finance its burgeoning fiscal deficit — the gap between its revenues and expenditures — according to new estimates of a Karachi-based brokerage firm.

The new borrowing is nearly 57pc of the total debt of Rs4.4tr it had auctioned during FY23. The issuance of additional debt underlines the government’s shrinking tax and other revenues, increased spending and growing reliance on domestic sources to fund its budgeted expenditures as external financing dries up.

External financing shrank to its seven-month low of $316m in August. Cumulatively, Islamabad secured external financing of $3.2bn in July and August, which also includes Saudi deposits of $2bn and a guaranteed loan of $508m for the PAF.

This shows that expectations that multilateral and bilateral partners would allow their coffers to flow to help Pakistan’s distressed economy, following the IMF’s nod to the Stand-by Arrangement, were very exaggerated.

The government is also facing difficulties in securing $6bn through commercial loans and has dollar bond issues. Chances of achieving the budgeted external financing target of $17.6bn for its expenditures and of meeting its foreign debt and other payments are slim.

Last year, the government was able to obtain $10.8bn in external financing and had to impose strict restrictions on imports and even on legitimate dollar outflows to avoid defaulting.

The centre has been running a large, unsustainable fiscal deficit of around 7pc of GDP for the last many years, which is the main reason for the accumulation of its huge domestic and foreign public debt, external sector fragility and inflation.

The pace of debt accumulation has picked up in recent years. This is especially true for domestic public debt, which has grown to around Rs39tr from over Rs30tr a year ago, because of reduced external inflows. Successive governments have tried to justify the worsening fiscal imbalance on the basis of economic development targets.

But these excuses are used only to mask the reality. The fact is that we are in the midst of the worst and longest economic crisis in our history because of the lavish lifestyles of powerful interests at the expense of the people and the well-being of the economy.

The World Bank’s country chief had alluded to this a few days back when he pointed fingers at the country’s military, business and political elites for the economic mess we are struggling to resolve today.

Pakistan is facing an existential crisis that has severely impacted the majority of its citizens, especially the low- and middle-income segments and small businesses.

Mounting debt and dwindling foreign exchange reserves are two of our biggest challenges, which, without immediate fiscal reform, could lead to total economic collapse.

Published in Dawn, September 28th, 2023

 

[nahtanbob]

Govt eyes $11bn aid from China, Saudi Arabia amid crunch​

Govt eyes $11bn aid from China, Saudi Arabia amid crunch

Shamshad says caretaker govt prioritises tax net expansion, targets retail and real estate sector; says economic revival plan to be unveiled soon.

www.dawn.com

• Shamshad says caretaker govt prioritises tax net expansion, targets retail and real estate sectors
• Insists subsidies not viable, urges exporters to shift business model
• Says economic revival plan to be unveiled soon
• BISP to be partially transferred to provinces

ISLAMABAD: Pakistan is seeking around $11bn in bilateral support from China and Saudi Arabia as the caretakers push for expanding the tax net effectively to retail, agricultural and real estate sectors while continuing a crackdown on illegal currency movements to fill external and domestic resource gaps so that the IMF programme remains on track to ensure economic stability until an elected government takes power.

This was part of a detailed policy statement issued by caretaker Finance Minister Dr Shamshad Akhtar before the Senate Standing Committee on Finance and Revenue, presided over by Senator Saleem Mandviwalla in Islamabad on Thursday.

Dr Akhtar also talked about partially transferring the Benazir Income Support Programme to provinces under an IMF requirement. She lamented that exporters were still seeking subsidies despite economic challenges and strongly ruled out the possibility of such freebies.

She said the government was currently working on an economic revival plan that would be presented to the caretaker prime minister shortly and shared with the Senate Standing Committee on Finance.

She said the caretaker government had a limited scope to undertake deep-rooted structural reforms but promised to deliver on reforms that were part of the IMF programme to ensure the disbursement of a $700 million loan instalment. Talks with the IMF would begin by the end of October in this regard.






The finance minister said it was the government’s priority to deliver on the Fund programme to ensure economic stability and continuity.

‘Financing needs still higher’

On the external financing gap, Dr Akhtar said the country’s financing needs were still higher, but with the joint efforts of all stakeholders, the government would be able to secure disbursements from the project pipeline and also revive some policy-based financing from multilaterals.

External flows would improve with the $700m flows from the IMF. For net bilateral financing of $11bn, China and Saudi Arabia had been requested along with a request for a Saudi oil facility, she said.

“To meet the external financing requirements, we are working to secure concessional funding from multilaterals (World Bank, Asian Development Bank, Islamic Development Bank) of $6.3bn,” she said in her written statement, adding that the IMF had already approved $3bn and bilateral assistance of around $10bn was also expected.

She explained that under the current IMF loan deal, the authorities were committed to increasing State Bank’s reserves to $9bn (2.3 months of import cover) shortly and to $12bn (three months of import cover) by June 2024 based on higher official inflows and pick-up in Foreign Direct Investment (FDI) under the Special Investment Facilitation Council (SIFC).






At the same time, Dr Akhtar warned that a “key risk to external stability comes from the rise in international commodity prices”, as Brent crude oil prices have jumped to $95 per barrel in September, an increase of 27pc from $74 per barrel in June.

Pakistanis ‘living beyond means’

The caretaker minister claimed that Pakistanis had developed a habit of living beyond means and successive governments had borrowed debts without investing them in high-return projects.

The public debt rose sharply over the last two years, mainly because of devaluations and interest rate hikes. She said domestic debt had declined to 45.8pc of GDP in FY23 from 47pc in FY21 but external debt-to-GDP ratio increased to 42pc in FY23 from 34.5pc in FY21.

She deplored that even the debt relief from G20 countries for the poor nations had also been consumed without ensuring high-return investments.

She said the authorities were also working on amending laws to bring retail, agriculture and real estate into an effective tax net because no government could ever control twin deficits without doing this.

The minister said tax measures for the retail sector could be started as this sector had been very profitable since the Covid-19 days. However, she recalled that past efforts had raised hue and cry and stressed that political parties would have to play their role in this regard.

However, she said that agriculture was a provincial subject and a new government would have to fight this battle. She said the FBR had promised to modernise technology to enhance tax compliance while steps were in progress for wealth tax on movable assets and remove tax exemptions.

Dr Akhtar said the caretaker government was seeking support from courts to get the pending cases resolved to generate an additional Rs3 trillion.

She said the biggest challenges to the fiscal side included about Rs3.2tr power circular debt and an almost similar gap in the gas sector and the ever-bleeding Pakistan International Airlines.

She said Pakistan was not in a position to provide subsidies and duty drawbacks to industries and exporters, who would have to change their business models to invest in exports themselves. Only countries having $400bn in foreign exchange reserves could afford that, she said.

She said the gap between the demand and supply of dollars was reflected in the current account deficit, which declined $2.4bn (0.7pc of GDP) in FY23 from $17.5bn (4.7pc of GDP) in FY22 and further dropped by 54pc in the first two months of this fiscal year to $900m.

Last year, there was a 14pc decline in workers’ remittances, which fell to $ 27bn from $31.3bn a year ago. During the first two months of the current year, remittances have dropped by 8.5pc.

When the caretaker government took office in mid-August, the dollar was trading at 295 to the rupee in the interbank market, a decline of 45pc since June 2022. The open market rate was even higher at 304, with spreads of around 3pc to 7pc.

The rupee’s devaluation was a major driver of record-high inflation last year, Dr Akhtar said, adding the government had taken action against the speculative activity of the exchange companies, resulting in a stronger local currency.

Published in Dawn, September 29th, 2023

 

[zn426]

My understanding is that the real estate sector is worth around $400 billion. If so and if they were to tax it at a 2.5% millage rate, you'd be looking at a straightforward $10 billion a year in tax revenue. That would be 20% of the federal 23 budget.

Seeing as Pakistanis love hard assets there needs to be a lot more property taxes in Pakistan and a decrease in income tax to boost business growth.

Such a simple solution, but no way the elite will do that.

 

[Sliver]

The Finance minister Dar. He was constantly posting prayers on his Twitter awaiting intercession from God.

if you dont know how to swim, no amount of prayers will save you when drowning.
allah gives you all the means for you to learn skills and develop - not blind faith by doing ayyashi when you were supposed to work hard and improve skills.

 

[Olympus81]

Ishaq Dar is a criminal and should be treated as such. No good can come out of him.

Solutions are simple but hard to implement.

Tax on real estate
Tax on retail
Privatize PSEs
Tackle the IPP and circular debt issue
Reduce defense budget
Reduce subsidies
Enact laws so that no government can reduce the oil prices beyond global spot rates