Pakistan People's Party trapped Pakistan in a ten-year IMF debt trap

[Cyberian]

July to April of FY 2012-13
Balance of payments falls 58% to $1.4bn
Saturday, May 18, 2013

By Arshad Hussain

KARACHI: The country’s balance of payments went down by 57.72 percent to $1.418 billion in first 10 months of the current fiscal year 2012-13 as compared to $3.354 billion in the same period last year.

However, it’s slightly up by 13 percent as compared to $1.251 billion in July-March 2012-13, data released by State Bank of Pakistan (SBP) said here on Friday.

The trade balance remained negative in this period and touched $12.541 billion. The country’s exports stood at $20.501 billion against its total 10 months import of $33.042 billion, the SBP data said. “The country’s trade deficit is declining slowly and the inflow is thin,” an analyst of a brokerage house said. Except for machinery and petroleum groups, imports of all other major groups recorded a fall, he added.

The exports in July to April increased by $31 million, while the imports declined by $295 million in the said period.

According to the data, the country has received workers’ remittances of $11.570 billion in the said period.

The election period is over and now it is clear that Nawaz Sharif of Pakistan Muslim League-Nawaz will make the new government in the capital, Punjab and Balochistan. It’s being hoped that the new government of Nawaz would approach the International Monetary Fund (IMF) to overcome the critical balance of payments situation.

The SBP foreign exchange reserves have declined to $6.525 billion as against $8.7 billion at the end of January 2013, mainly due to debt payments. The SBP had highlighted two main challenges for monetary policy - to manage the balance of payments position and to contain the possible increase in inflation. However, the analyst said the SBP did not mention in its report how it will manage the balance of payments.

“The country has total import payments of two to three months and if the incoming government does not make a proper decision, the country might face big global trade challenges,” the analyst said.

Pakistan will have to repay around $530 million before June 30, 2013. It will repay $390 million to IMF under Stand-by Arrangement (SBA) loan facility by May 28, 2013. Another repayment of $140 million to IMF under SBA has to be made by June 28, 2013.

Because of these payments, the forex reserves of the country are under pressure and dollar is not available in the open currency market. It’s the 14th instalment in a row as Pakistan has already paid around $3.43 billion against the total fund of $7.80 billion.

Pakistan got a loan of $7.80 billion in March 2008 when the dollar-rupee value was around Rs 64 in open market.

The government should bring under control the continuous borrowing from SBP, and make efforts to raise foreign direct investment in the next six months besides controlling poor law and order situation, the analyst said.

The new government would have to take tougher steps to bring the economic conditions of the country in shape. According to media news, the caretaker government had reached a three-point understanding with the IMF for $5 billion Extended Finance Facility programme to ease up balance of payments difficulties that the new elected government might face in its honeymoon period.

Daily Times - Leading News Resource of Pakistan

 

[arushbhai]

Noob here. What happens if Pakistan doesn't pay? I am sure the assets that we have are not worth as much as the loan we have taken. So if IMF decides to take our assets, they still lose money. I have no idea how IMF functions. Someone please aware me.

 

[punit]

^ its not b'out assets but credit rating and image in international arena. If u default in payment of loans ur credit rating will be tanked and u will be declared a rogue nation. Result no inflow of investment and economic stagnation.

 

[muse]

July to April of FY 2012-13
Balance of payments falls 58% to $1.4bn
Saturday, May 18, 2013

By Arshad Hussain

KARACHI: The country’s balance of payments went down by 57.72 percent to $1.418 billion in first 10 months of the current fiscal year 2012-13 as compared to $3.354 billion in the same period last year.

However, it’s slightly up by 13 percent as compared to $1.251 billion in July-March 2012-13, data released by State Bank of Pakistan (SBP) said here on Friday.

The trade balance remained negative in this period and touched $12.541 billion. The country’s exports stood at $20.501 billion against its total 10 months import of $33.042 billion, the SBP data said. “The country’s trade deficit is declining slowly and the inflow is thin,” an analyst of a brokerage house said. Except for machinery and petroleum groups, imports of all other major groups recorded a fall, he added.

The exports in July to April increased by $31 million, while the imports declined by $295 million in the said period.

According to the data, the country has received workers’ remittances of $11.570 billion in the said period.

The election period is over and now it is clear that Nawaz Sharif of Pakistan Muslim League-Nawaz will make the new government in the capital, Punjab and Balochistan. It’s being hoped that the new government of Nawaz would approach the International Monetary Fund (IMF) to overcome the critical balance of payments situation.

The SBP foreign exchange reserves have declined to $6.525 billion as against $8.7 billion at the end of January 2013, mainly due to debt payments. The SBP had highlighted two main challenges for monetary policy - to manage the balance of payments position and to contain the possible increase in inflation. However, the analyst said the SBP did not mention in its report how it will manage the balance of payments.

“The country has total import payments of two to three months and if the incoming government does not make a proper decision, the country might face big global trade challenges,” the analyst said.

Pakistan will have to repay around $530 million before June 30, 2013. It will repay $390 million to IMF under Stand-by Arrangement (SBA) loan facility by May 28, 2013. Another repayment of $140 million to IMF under SBA has to be made by June 28, 2013.

Because of these payments, the forex reserves of the country are under pressure and dollar is not available in the open currency market. It’s the 14th instalment in a row as Pakistan has already paid around $3.43 billion against the total fund of $7.80 billion.

Pakistan got a loan of $7.80 billion in March 2008 when the dollar-rupee value was around Rs 64 in open market.

The government should bring under control the continuous borrowing from SBP, and make efforts to raise foreign direct investment in the next six months besides controlling poor law and order situation, the analyst said.

The new government would have to take tougher steps to bring the economic conditions of the country in shape. According to media news, the caretaker government had reached a three-point understanding with the IMF for $5 billion Extended Finance Facility programme to ease up balance of payments difficulties that the new elected government might face in its honeymoon period.

Daily Times - Leading News Resource of Pakistan

Interested readers will note that nowhere is there any discussion raising and paying of taxes - more begging bowl, it's very "Islamic" to beg, and even more "Islamic" to not pay taxes

 

[EagleEyes]

It will be interesting to see if Nawaz goes to beg the same way.

Or this time it will be aid from the house of Saud?

 

[Wright]

^ its not b'out assets but credit rating and image in international arena. If u default in payment of loans ur credit rating will be tanked and u will be declared a rogue nation. Result no inflow of investment and economic stagnation.

I doubt they get much capita investment anyway due to all the energy shortages. I think the poster raised a valid point, its easier to default on the debt and start over.

 

[muse]

It will be interesting to see if Nawaz goes to beg the same way.
Or this time it will be aid from the house of Saud?

BoP woes: Do home remittances offer solution? (Buyer Beware)
May 18, 2013
RECORDER REPORT

Creation of Pakistan Remittance Initiative (PRI) by the then Finance Minister, Shaukat Tarin, and the then Federal Minister of Overseas Pakistanis, Dr Farooq Sattar, was the best initiative of the last government in the realm of foreign exchange. Housing it in the State Bank of Pakistan instead of Islamabad was also the right step. It helped in keeping the current account deficit in check.

They rose from $6.4 (in 2007-08) to $12 billion (July-April, 2013) as home remittances doubled and started matching the trade deficit. Raising exports and substituting imports is only possible in medium- to long-term; while raising home remittances can give you instant results. At the present run rate, home remittances would aggregate $13.8 billion against the year's target of $14 billion. This shortfall is largely due to non-payment by the Ministry of Finance of the twenty-five Saudi riyals per thousand dollars in equivalent rupee to banks on time. Only under the caretaker government did the then Finance Secretary, Nasir Khosa, release three billion rupees to remunerate banks which are actively participating in PRI scheme. The payment was made after a delay of 13 months while 5.5 billion rupees are still outstanding.

The new government needs to focus on non-debt creating flows and home remittances are one of them. They constitute more than 50 percent of our yearly export earnings. According to the World Bank, last year, migrants sent 401 billion dollars to their families in developing countries. Home remittances not only act as a bulwark against rise in poverty and rightly or wrongly it is the best thing Pakistani expatriates can do for their country.

Pakistan's brawn or its manpower is one of its biggest exports. A significant dip in home remittances can have very negative repercussions on our current account deficit. For the last five years, home remittances' contribution in easing of pressure on our balance of payment (BoP) has been unbelievable. At present, Pakistan somehow needs to overcome the hump in its forex outflow on account of 3.3 billion dollars to be repaid to the International Monetary Fund by end December 2013. This money has to be somehow arranged by the new government either from friends or the Fund itself. The additional inflow of home remittances in Ramazan from expatriates to their families or floating of a dollar-based Sukuk in the Middle East could help. A listed bond would require more time than an unlisted one but the quantum of floatation of a listed Sukuk can be higher. Perhaps the National Saving Centre could float a dollar denominated instrument for individuals of various tenors on Libor + 300 bps (equivalent to around five percent) return to tap savings of our countrymen who get anywhere from half to two percent return depending on the currency being saved by them abroad. All this forex inflow would be a slow and gradual process. Pakistan requires $3 billion plus before September 2013. A possible solution is to pledge home remittances against a loan from Saudi Arabia. An offer to this effect was made to the kingdom by the last PPP government. But it received no response. Perhaps, PM-elect Nawaz Sharif may be better placed to clinch a similar deal. An arrangement of this kind would give Pakistan the freedom and time to set its fiscal side in order. Going to the Fund will place this country into a straight jacket. However, the new government needs to be clear that sustainable growth of six percent and above is only possible if we address the structural issues hampering our growth potential. PML (N) leadership's approach to push for high profile projects like the bullet-train may be desirable but establishing them with fresh loans is not the answer. Development cannot be transaction-based; it is a process that needs setting up a system with a continuum of things working in tandem. It is a continuous event or a sustained effort aimed at generating employment as well as spurring growth. Investment in education, health, training skills and infrastructure is much more beneficial in medium to long-term than squandering bank loans on yellow cabs or green tractors. Voters have delivered a government with reasonable chance of tackling country's economic imbalances, including a looming balance of payments (BoP) crisis. The incoming government would not only be in a good position to stabilise external finances but also provide a proper policy framework for necessary fiscal and energy sector reforms. It is also expected to have a better chance to reconcile with militants to end militancy in the country. Overseas Pakistanis appear to be very optimistic about the intentions of the new government to rehabilitate economy and would like to support its efforts. The task of the government would become much easier if the rate of increase in remittances could be pushed up sharply by enticing expatriates further. This, with the expected growth of the economy and exports, would enable the nation to breathe more easily and the government to deal with confidence with the outside agencies including the IMF. The inflow of about $14 billion of unrequited transfers a year is no small amount. We must not criticise or feel doubt about something good that has been offered to us in the shape of home remittances. We know the yearly amount of remittances cannot be a complete solution to our BoP and other woes, but we shouldn't look a gift horse in the mouth.


Look for PML- types to take huge loans from Banks, but prior to a devaluation -- this will mean that something akin to an arbitrage deal - but don't take my word for it - I am often wrong, very often.

 

[farhan_9909]

NAWAZ should some how get a few billions from saudi so that we pay the imf remaining and dont go for yet another bailout.

i am sure he can if he tries the best

 

[AZADPAKISTAN2009]

Overseas Pakistani , needed in time of money , and forgotten tomatoes when it comes to votes ... I would not send a dim back home for 1 year and see what happens

 

[Cyberian]

Pakistan repays $386 million to IMF
Sunday May 26, 2013

ISLAMABAD - Pakistan has repaid an installment of USD 386 million in debt to International Monetary Fund (IMF) on Sunday.

Media reports said that the payment would decrease the foreign exchange reserves of the country even further and after payment of this installment, Pakistan had paid one USD billion and 230 million to the IMF.

In the past, Pakistan had taken USD 7 billion and 800 million loan from the IMF in November, 2008 under standby programme that was being returned now and the country would have to pay 140 million up to the June 28, 2013, the reports added.

It was very much possible that the foreign exchange reserves may decrease from 11 billion and 430 million to 11 billion and 40 million after the payment of this installment.

Pakistan repays $386 million to IMF | Pakistan Today

 

[Splurgenxs]

I doubt they get much capita investment anyway due to all the energy shortages. I think the poster raised a valid point, its easier to default on the debt and start over.

Default on the debt?! and alls hunky dory?

A debt is a debt, u get stuck with the ranking till debt is paid off.

Who would want to invest in a state tht doesn't pay its dues? Lol the world, imo is wiser to not invest in one gigantic country size ponzy scheme.


Pakistan can always sell its land ,or mortgage fixed assets, Or rely on thr goodwill of others.

 

[Thəorətic Muslim]

Overseas Pakistani , needed in time of money , and forgotten tomatoes when it comes to votes ... I would not send a dim back home for 1 year and see what happens

The Streets in foreign countries are not paved with Gold, nor do dollars fall from trees.

Everyone is ready to beg in Pakistan but no one is willing to work.

Default on the debt?! and alls hunky dory?

A debt is a debt, u get stuck with the ranking till debt is paid off.
Who would want to invest in a state tht doesn't pay its dues? Lol the world, imo is wiser to not invest in one gigantic country size ponzy scheme.
Pakistan can always sell its land ,or mortgage fixed assets, Or rely on thr goodwill of others.

Or it can change its attitude and start to fix the roots of the problems.

 

[Splurgenxs]

The Streets in foreign countries are not paved with Gold, nor do dollars fall from trees.

Everyone is ready to beg in Pakistan but no one is willing to work.



Or it can change its attitude and start to fix the roots of the problems.

apart frm the sarcasm ,even if Pakistan still manged to get its act together, its still has to pay its debt..Not even China will help Pak against IMF.

But on the bright side , If the economy starts growing and stability is maintained ,then IMF will com back to ur aid, cus they still would want there money back ,cutting Pakistan off will be stupid then.

 

[tarrar]

So who loves Democrazy?

If PPP members are caught & I mean all of them from the bastard Mr.100% Gadari all the way till the toe, trillion will be recoverd from them but spineless PML-N will not do anything because now it is there turn to rob Pakistan once again.

 

[AZADPAKISTAN2009]

Democracy does not works for Pakistan because the uneducated and vote riggers are greater and in influential positions in election , government and offices.

We need a revolution at the stage our country is at behind every country that is developed they had a solid REVOLUTION where the corrupt were forcefully removed from positions of power