Pakistan can afford to run a deficit due to simpler external account, says Citibank EMEA head

[Morpheus]

Pakistan can afford to run a deficit due to simpler external account, says Citibank EMEA head
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Staff Report
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July 3, 2020
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KARACHI: Pakistan can afford to run a deficit as it has a ‘simple’ external account when compared to other emerging market countries, and is not reliant on inflows, according to Atiq Rehman, the head of EMEA (Europe, Middle East, and Africa) Emerging markets at Citibank.

The comments were made by Rehman during a webinar titled ‘Emerging Markets Outlook: Challenge and Opportunity”, as part of Citibank’s Virtual Media Summit 2020, to be held on July 2 and 3.

Joining Rehman in the webinar was Grant Carson, head of TRUK (Turkey, Russia, Ukraine and Kazakhstan) and Non-presence countries, as well as Akin Dawodu, head of Sub-Saharan Africa.

In response to a question about whether Pakistan could afford to run a deficit, Rehman said that Pakistan has a ‘simple’ external account when one looks at foreign investors whether in the capital markets or as FDI.


Unlike other countries which have substantial inflows coming in, the outflow of funds has a ‘limited impact’ on Pakistan. This makes it very different from other countries in its peer groups. Pakistan therefore has a lot of flexibility, because the inflows coming in were not that substantial.

As for what foriegn investor appetite for Pakistan might look like in a post-Covid world, Rehman said that foriegn investment could be divided in two: FDI, and portfolio investments. While FDI is much more medium and long-term and based on a lot of factors, portfolio demand for emerging markets is still intact.

“We have started to see an improvement in what is happening in the Covid situation around the world – investor appetite is returning,” said Rehman.

Rehman also talked about central bank in the Gulf and the Middle East, saying that loan growth was not happening as much as there is a current environment of conserving cash.

Elsewhere during the webinar Dawodu said that sub-saharan Africa had weathered the Covid pandemic a little better, saying the continent had more experience dealing with outbreaks. This means that emerging markets in Africa are not as economically impacted as perhaps the rest of the world.

Carson said that economies that are diversified will be suited to do better. As for capital flows to emerging markets in the future, Carson said that the truism for emerging markets still held: clarity, rule of law, and stability.

The summit also featured another webinar, this time with the CEO of Citigroup, Michael Corbat. In that interview, Crobat said this crisis was a health crisis and not a financial one like in 2008, and so had different ramifications.

He also said it was too early to pass judgement on whether working from home improved productivity. “Our ambition is to be able to bring everyone back,” he clarified.

https://profit.pakistantoday.com.pk...ler-external-account-says-citibank-emea-head/

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[Yaseen1]

if govt also controls deficit in budget like they are doing for foreign trade then our economy will become strong otherwise we will remain stranded in such situation

 

[ziaulislam]

if govt also controls deficit in budget like they are doing for foreign trade then our economy will become strong otherwise we will remain stranded in such situation

keey issues is poltical elite knowing forces the economy in short term boom that will without any doubt leads to a burst..this hapens knowingly in the election year..it happens because state bank is not independent

in addition some key refoms are needed
more importantly govt has to mobilize its revenues and plug in wastes

running a deficit is not an issue as along as CAD and the growths are healthy

running a 5-6% deficit in infaltion of 3-4% and growth of 4-5% is pretty okay and will lead to decrease in debt

the problem is when inflation is decreased to almost zero artificially in election year and deficit runs up to 7%..this leads to crash of the economy next year

 

[Syed1.]

keey issues is poltical elite knowing forces the economy in short term boom that will without any doubt leads to a burst..this hapens knowingly in the election year..it happens because state bank is not independent

in addition some key refoms are needed
more importantly govt has to mobilize its revenues and plug in wastes

running a deficit is not an issue as along as CAD and the growths are healthy

running a 5-6% deficit in infaltion of 3-4% and growth of 4-5% is pretty okay and will lead to decrease in debt

the problem is when inflation is decreased to almost zero artificially in election year and deficit runs up to 7%..this leads to crash of the economy next year

Economic "fundamentals" won't improve till tax-to-GDP is above 15% preferably at 20% and investment-to-GDP and savings-to-GDP also substantially rise. All of these are signs of a manufacturing and export led economy rather than a consumption lead economy fostered since the 1970s.

 

[ziaulislam]

Economic "fundamentals" won't improve till tax-to-GDP is above 15% preferably at 20% and investment-to-GDP and savings-to-GDP also substantially rise. All of these are signs of a manufacturing and export led economy rather than a consumption lead economy fostered since the 1970s.

these wont happen over night and reason hwy they dont imporve is beacuase of consumption led boom that every govt since 1998 has offered to public and opening up imports, decreaseing infaltion to zero with massve govt spending during final year of election

 

[Bilal.]

Economic "fundamentals" won't improve till tax-to-GDP is above 15% preferably at 20% and investment-to-GDP and savings-to-GDP also substantially rise. All of these are signs of a manufacturing and export led economy rather than a consumption lead economy fostered since the 1970s.

And bring down Debt to GDP ratio substantially. Say below 50%.

 

[Dr-who]

Economic "fundamentals" won't improve till tax-to-GDP is above 15% preferably at 20% and investment-to-GDP and savings-to-GDP also substantially rise. All of these are signs of a manufacturing and export led economy rather than a consumption lead economy fostered since the 1970s.

Have you seen any improvement in 3-4 ratios in this govt term?

 

[Syed1.]

Have you seen any improvement in 3-4 ratios in this govt term?

If I'm not mistaken Debt to GDP ratio fell last time figure was reported obviously with the covid recession and more debt taken to finance relief efforts it would have increased.

Tax to GDP ratio would have increased primarily because FY20 saw highest tax collection and also slight decrease in GDP size. If FY21 tax target is met then Tax to GDP will further increase.

Marked improvement in Current account deficit to GDP


Exports to GDP are miserable and have been for quite a while. Don't see this improving any time soon.