Pakistan seeks rescheduling of $27 bln bilateral debt-finance minister

[FuturePAF]

Trickle down economy is a myth. Corporations should be taxed at least 40% as the owners are making billions. Zakat should be started on wealth of rich individuals so that there is movement of money in the economy out of the real estate.

40% is too much, when the global goal is set at 15%. Companies will just operate in Dubai and re-export to Pakistan.

Real estate definitely needs to be de-icentivized at the very least and preferably disincentivized. Capital needs to be moved out of unproductive local consumption and into productive export oriented production.

Pakistan is at the state that it needs an economic plan for solvency, and a five year plan to permanently get out together these issues once and for all, similar to India after the early 90’s IMF program.

Stability will bring in enough FDI to grow consumption in a sustainable manner. In the mean time, all parties should he asked to sign a pledge to agree to these needed reforms so politically no party is saddled with the blame for the painful changes that need to be implemented. Failing this, the establishment should let the elections happen, hoping that PTI gets a sizable absolute majority and the mandate that goes with it to implement the needed reforms.

Defense cuts should not be done so as not to create an security situation. Look at the ramifications of “defund the police” rhetoric in the US in 2020. It created a sense of weakness that opportunists took advantage of. It would be better to rebalance some of the spending towards dual purpose equipment, such that military equipment can help grow the economy. One example would be possible digging a second Kahchi canal in Sindh as well as drainage canals to prevent what happened this year from happening again, as well as expanding arable land to grow the tax base.

If it is perceived that PTI is making these changes after getting a mandate, they can push through tough measures and it will boost the confidence of investors. Pakistan is so relatively underdeveloped, that growth will inevitably come as Pakistan tries to catch-up with regional averages.

 

[Bilal Khan (Quwa)]

Trickle down economy is a myth. Corporations should be taxed at least 40% as the owners are making billions. Zakat should be started on wealth of rich individuals so that there is movement of money in the economy out of the real estate.

US is a success because this society reward those that use their intelligence and hard work to be successful and end up creating job for others. US tax system don’t penalize rich just because they are successful.

Let say, there are 2000 rich families in n Pakistan running some sort of business vs 200 million average people. Tax rich 40%, you may get 1/10th of one years $45 Billion budget because they are just 2000 families.

You still have to Tax the 200 million average working class to fill 9/10 of the budget.

Putting Ban on 200 luxury cars and these stupid acts are just superficial things. Ban unless import in large quantities that 90% of the people are using. Like tea, fancy food items. Cosmetic products. That’s how deficit is controlled.


Penalize rich and successful and they will leave for countries that reward hard work with fair taxation system. Leaving lazy losers out of job complaining.


Zakat is 2.5% same for everyone. Average person and the rich, same rate.

40% is too much, when the global goal is set at 15%. Companies will just operate in Dubai and re-export to Pakistan.

Real estate definitely needs to be de-icentivized at the very least and preferably disincentivized. Capital needs to be moved out of unproductive local consumption and into productive export oriented production.

Pakistan is at the state that it needs an economic plan for solvency, and a five year plan to permanently get out together these issues once and for all, similar to India after the early 90’s IMF program.

Stability will bring in enough FDI to grow consumption in a sustainable manner. In the mean time, all parties should he asked to sign a pledge to agree to these needed reforms so politically no party is saddled with the blame for the painful changes that need to be implemented. Failing this, the establishment should let the elections happen, hoping that PTI gets a sizable absolute majority and the mandate that goes with it to implement the needed reforms.

Defense cuts should not be done so as not to create an security situation. Look at the ramifications of “defund the police” rhetoric in the US in 2020. It created a sense of weakness that opportunists took advantage of. It would be better to rebalance some of the spending towards dual purpose equipment, such that military equipment can help grow the economy. One example would be possible digging a second Kahchi canal in Sindh as well as drainage canals to prevent what happened this year from happening again, as well as expanding arable land to grow the tax base.

If it is perceived that PTI is making these changes after getting a mandate, they can push through tough measures and it will boost the confidence of investors. Pakistan is so relatively underdeveloped, that growth will inevitably come as Pakistan tries to catch-up with regional averages.

1. Taxes aren't just a revenue collection tool, but a means to discourage economic activity in certain sectors. So, if you're going to impose a tax, you shouldn't do it across every industry. Rather, you should tax the inefficient areas that benefit the wealthy the absolute most -- i.e., land, land, land. Basically, tax the surplus wealth that belongs to society's elite. Not only that, but land taxes will also discourage private-sector investment in real estate and, instead, move it to other areas.

2. Remove all taxes on key industries, especially high-tech sectors such as gas turbines, electronics, metallurgy, plastics, composites, pharmaceuticals, biotechnology, etc. These are all capital-intensive industries, so taxing them makes zero sense as it'd totally disincentivize investment there. Rather, by taxing land and, instead, making these key industries free of any tax, you motivate private investors to focus on these industries. This will drive skills development, employment, IP generation, and -- most of all -- high-value exports (which will help balance our current account deficits and foreign-exchange issues).

3. Invest in education. You're not going to see the high-tech industries grow without a suitably skilled workforce. While the private sector can invest in upskilling people up to a point, they cannot do it alone. So, we need to use our education system to upskill the workforce along the right lines, i.e., heavy focus on math, engineering, sciences, trades, and other relevant areas.

4. We also need to properly protect the market. I'm not talking about shielding domestic producers, but our consumption power. Basically, any and all foreign companies looking to set up shop in Pakistan must localize the inputs of their goods. I'd aim for having 80% of the product's value sourced from Pakistan. So, for example, foreign car markers can invest in manufacturing engines, transmissions, etc, in Pakistan. However, for this to work effectively, you need to invest in (2) and (3) to ensure there's a domestic capacity for high-tech industries and a skilled enough workforce to absorb the ToT. This will help drive foreign investment in our economy (and to the right sectors) while also helping us attain foreign currency by reducing imports and, potentially, drive more high-tech exports.

5. The above policies will help us attract and attain foreign currency. Thus, as our foreign currency inflows (via real economic activity) increase, so will the value of the PKR. In turn, when the PKR goes up, the cost of importing starts going down. This will make defence spending more sustainable, especially if we import arms. Of course, when you invest in the right high-tech sectors, your capacity to support domestic defence development also goes up. So, that might not be an issue. That said, there will be essential imports, especially in terms of earth minerals, raw materials, etc, necessary for manufacturing.

6. We need Pakistani companies, be it private sector or state-owned, to eventually start investing in Iranian oil/gas. This can help Pakistan secure its long-term energy interests while also helping build roots in key neighbor states.

 

[FuturePAF]

1. Taxes aren't just a revenue collection tool, but a means to discourage economic activity in certain sectors. So, if you're going to impose a tax, you shouldn't do it across every industry. Rather, you should tax the inefficient areas that benefit the wealthy the absolute most -- i.e., land, land, land. Basically, tax the surplus wealth that belongs to society's elite. Not only that, but land taxes will also discourage private-sector investment in real estate and, instead, move it to other areas.

2. Remove all taxes on key industries, especially high-tech sectors such as gas turbines, electronics, metallurgy, plastics, composites, pharmaceuticals, biotechnology, etc. These are all capital-intensive industries, so taxing them makes zero sense as it'd totally disincentivize investment there. Rather, by taxing land and, instead, making these key industries free of any tax, you motivate private investors to focus on these industries. This will drive skills development, employment, IP generation, and -- most of all -- high-value exports (which will help balance our current account deficits and foreign-exchange issues).

3. Invest in education. You're not going to see the high-tech industries grow without a suitably skilled workforce. While the private sector can invest in upskilling people up to a point, they cannot do it alone. So, we need to use our education system to upskill the workforce along the right lines, i.e., heavy focus on math, engineering, sciences, trades, and other relevant areas.

4. We also need to properly protect the market. I'm not talking about shielding domestic producers, but our consumption power. Basically, any and all foreign companies looking to set up shop in Pakistan must localize the inputs of their goods. I'd aim for having 80% of the product's value sourced from Pakistan. So, for example, foreign car markers can invest in manufacturing engines, transmissions, etc, in Pakistan. However, for this to work effectively, you need to invest in (2) and (3) to ensure there's a domestic capacity for high-tech industries and a skilled enough workforce to absorb the ToT. This will help drive foreign investment in our economy (and to the right sectors) while also helping us attain foreign currency by reducing imports and, potentially, drive more high-tech exports.

5. The above policies will help us attract and attain foreign currency. Thus, as our foreign currency inflows (via real economic activity) increase, so will the value of the PKR. In turn, when the PKR goes up, the cost of importing starts going down. This will make defence spending more sustainable, especially if we import arms. Of course, when you invest in the right high-tech sectors, your capacity to support domestic defence development also goes up. So, that might not be an issue. That said, there will be essential imports, especially in terms of earth minerals, raw materials, etc, necessary for manufacturing.

6. We need Pakistani companies, be it private sector or state-owned, to eventually start investing in Iranian oil/gas. This can help Pakistan secure its long-term energy interests while also helping build roots in key neighbor states.

Great post. I would like to add that we need to make most large infrastructure projects from now on focused on generating revenue so they are capable of generating foreign revenue or operated with a focus on supporting the export market or lower the local cost of living/need to import raw materials. As you said in point number 4, if we do a mega project a large part has to be real ToT, so that next time we don’t need to go back and reimport even the most simplest parts.

Politics and timing are also key factors that need to be acted upon when the opportunity presents itself. I would hope the establishment works on getting the trans-Afghan railway build ASAP, so that cheaper raw materials can be shipping in from that source, to give our industry as much of a competitive advantage as possible, and incentivize FDI.

With China planning on investing hundreds of Billions into Iran, perhaps Pakistan should prepare and build its SEZs along the coast, rather then in cities deep in the interior, and along a new rail route from Karachi to Gwadar and up to Dalbaddin (where freight traffic could go to and from Iran). It would also be the shortest route to extract Reko-diq gold to global markets and make Gwadar economically viable. Further the Gwadar -Dalbaddin corridor is a major potential solar corridor, so setting up SEZs along the coast would be efficient in transportation, electricity, and raw material costs. Populating the coast would also be a better use of funding to set up new cities then take more agricultural land in the interior, as well as a way to man the coast for coastal defense. Populating the Iranian border would also be good for defense as well as cutting down on smuggling.

 

[American Pakistani]

If you see https://en.wikipedia.org/wiki/Agriculture_in_Pakistan#Production
All those crops are unknown in Pakistan. You can't expect people to change their food preferences easily.

As for Electric vehicles, capital cost is high. There is no charging infrastructure. The best move to forestall default in the short run is to greatly cutdown petroleum consumption by private vehicles and improve public transport and encourage bicycles and walking.

That's one of the biggest reason why pakistan is suffering so much. People want change but not ready to change themselves.

Similarly, people want change but not ready to use bicycle and other means to curb the petroleum imports.

 

[FuturePAF]

That's one of the biggest reason why pakistan is suffering so much. People want change but not ready to change themselves.

Similarly, people want change but not ready to use bicycle and other means to curb the petroleum imports.

Using a regular bicycle is a bit extreme as productivity is lost when time is lost. Best to focus on mass transportation, particularly the use of buses outside of the core of cities, and the use of “metro trains” on the current rail route as commuter transportation.

A lot of it comes down to how current infrastructure is used and what is prioritized.

But I agree with your general sentiment that consumption of expensive imports like petroleum needs to be cut back. Pakistan should look to more electric powered vehicles, so that when demand is lowest in the day, people can be told to charge their vehicles at a lower price.

 

[epebble]

WHERE DOES PAKISTAN’S ECONOMY GO FROM HERE?​

With global markets in turmoil and the prospect looming of worldwide recession, Pakistan faces a perfect storm.

Rarely have things been as messy as they are today.

Political and economic crises are not unusual in Pakistan’s history. But, in previous episodes, it was actually possible to see one or two points of origin from where the troubles were emanating, a relatively clear path out of the crisis was usually visible, and somebody — whether civilian or military — was ready and willing to undertake the task of walking the country down that path. None of that holds true this time.

At a time when global markets — and geopolitics — are wracked by instability, Pakistan is facing a deflating economy, spiralling inflation, the rising arc of terrorism and a political system near paralysis. To this list we can add the aftermath of the most catastrophic flooding the country has ever seen.

WHERE DOES PAKISTAN’S ECONOMY GO FROM HERE?

With global markets in turmoil and the prospect looming of worldwide recession, Pakistan faces a perfect storm.

www.dawn.com

 

[S.Y.A]

PTI opposed mass transit (Orange Line)

it didnt oppose mass transit, as opposed the expensive as hell mass transit, which has to be heavily subsidized. could have just purchased hybrid busses and used them. I agree with the rest.

US is a success because this society reward those that use their intelligence and hard work to be successful and end up creating job for others. US tax system don’t penalize rich just because they are successful.

Let say, there are 2000 rich families in n Pakistan running some sort of business vs 200 million average people. Tax rich 40%, you may get 1/10th of one years $45 Billion budget because they are just 2000 families.

You still have to Tax the 200 million average working class to fill 9/10 of the budget.

Putting Ban on 200 luxury cars and these stupid acts are just superficial things. Ban unless import in large quantities that 90% of the people are using. Like tea, fancy food items. Cosmetic products. That’s how deficit is controlled.


Penalize rich and successful and they will leave for countries that reward hard work with fair taxation system. Leaving lazy losers out of job complaining.

one: you are heavily inspired by republican and capitalist ideologies prevalent in the US.
two: the system is like this because those rich guys too hide their actual income and are rent-seekers, hence "lazy losers" for the most part. they didnt do anything when they were getting subsidized access to resources, or tax-cuts, they wont do anything when tax rates are high.
three: fbr is actually lazy or corrupt or both. it does nothing to document the economy. entire markets, and entire factories dont show up on radar because they deal in cash only, or use chit system for cash transfer. its the job of FBR intelligence unit to uncover these evaders.

 

[zn426]

1. Taxes aren't just a revenue collection tool, but a means to discourage economic activity in certain sectors. So, if you're going to impose a tax, you shouldn't do it across every industry. Rather, you should tax the inefficient areas that benefit the wealthy the absolute most -- i.e., land, land, land. Basically, tax the surplus wealth that belongs to society's elite. Not only that, but land taxes will also discourage private-sector investment in real estate and, instead, move it to other areas.

2. Remove all taxes on key industries, especially high-tech sectors such as gas turbines, electronics, metallurgy, plastics, composites, pharmaceuticals, biotechnology, etc. These are all capital-intensive industries, so taxing them makes zero sense as it'd totally disincentivize investment there. Rather, by taxing land and, instead, making these key industries free of any tax, you motivate private investors to focus on these industries. This will drive skills development, employment, IP generation, and -- most of all -- high-value exports (which will help balance our current account deficits and foreign-exchange issues).

3. Invest in education. You're not going to see the high-tech industries grow without a suitably skilled workforce. While the private sector can invest in upskilling people up to a point, they cannot do it alone. So, we need to use our education system to upskill the workforce along the right lines, i.e., heavy focus on math, engineering, sciences, trades, and other relevant areas.

4. We also need to properly protect the market. I'm not talking about shielding domestic producers, but our consumption power. Basically, any and all foreign companies looking to set up shop in Pakistan must localize the inputs of their goods. I'd aim for having 80% of the product's value sourced from Pakistan. So, for example, foreign car markers can invest in manufacturing engines, transmissions, etc, in Pakistan. However, for this to work effectively, you need to invest in (2) and (3) to ensure there's a domestic capacity for high-tech industries and a skilled enough workforce to absorb the ToT. This will help drive foreign investment in our economy (and to the right sectors) while also helping us attain foreign currency by reducing imports and, potentially, drive more high-tech exports.

5. The above policies will help us attract and attain foreign currency. Thus, as our foreign currency inflows (via real economic activity) increase, so will the value of the PKR. In turn, when the PKR goes up, the cost of importing starts going down. This will make defence spending more sustainable, especially if we import arms. Of course, when you invest in the right high-tech sectors, your capacity to support domestic defence development also goes up. So, that might not be an issue. That said, there will be essential imports, especially in terms of earth minerals, raw materials, etc, necessary for manufacturing.

6. We need Pakistani companies, be it private sector or state-owned, to eventually start investing in Iranian oil/gas. This can help Pakistan secure its long-term energy interests while also helping build roots in key neighbor states.

Regarding point 2, Pakistan would likely be better served utilizing a bonus depreciation scheme instead of pure tax exemptions. It's likely the first couple of years will be loss making any way so it will help produce higher tax revenues down the road. A tax exemption once given is hard to get rid of. Pakistan also needs a unified tax rate code because different industries have different tax brackets.

 

[Bilal Khan (Quwa)]

Regarding point 2, Pakistan would likely be better served utilizing a bonus depreciation scheme instead of pure tax exemptions. It's likely the first couple of years will be loss making any way so it will help produce higher tax revenues down the road. A tax exemption once given is hard to get rid of. Pakistan also needs a unified tax rate code because different industries have different tax brackets.

Agreed. The challenge is balancing the tax exemption rule with, ultimately, corporate requests for public support. The latter will inevitably happen. It occurs all the time in other parts of the world. Maybe figure out a way to tax only at the point of breaking even with any public subsidy or grant to the private sector. In a way, it'd be like a government loan to the private sector. The latter needs $1BN today, but the gov't will get it back via taxes later.

 

[Abdul Rehman Majeed]

The minister may rule out the possibility of default on Pakistan's debt, but rescheduling is soft default. A non-default would be paying off followed by thank you and goodbye.

Rescheduling debt is not same as defaulting on the debt. Rescheduling will re-assure the lenders and will improve investment sentiment.

 

[epebble]

Rescheduling debt is not same as defaulting on the debt. Rescheduling will re-assure the lenders and will improve investment sentiment.

Rescheduling is cooperative default whereas a hard default is an adversarial default. The difference is one of attitude and sentiment. Economics are same.

 

[Wood]

Rescheduling is cooperative default whereas a hard default is an adversarial default. The difference is one of attitude and sentiment. Economics are same.

Please note that Pakistan's cost of borrowing is already very high because of lowered credit rating. Pre-emptive negotiation of debt terms is a prudent idea under such specific circumstances. Sri Lanka for example should have renegotiated some of its debt much sooner.

Of course, Mr. Dar will negotiate on terms that are favorable for Pakistan.

 

[epebble]

Pre-emptive negotiation of debt terms is a prudent idea under such specific circumstances. Sri Lanka for example should have renegotiated some of its debt much sooner.

If some random guys like you and me know the story, won't IMF know the full picture? Sooner or later is no different to them. They have the full before and after picture.

 

[nahtanbob]

I think numbers won't work with petroleum imports. With $100+ oil, there is nothing Pakistan can do with just remittances and exports. Only way out is cut down on petroleum import and go for conservation and public transport. If not, Sri Lanka is certain. And there is no way food import can be avoided with a third of cultivable land underwater.

your foreign minister expresses solidarity with those countries who want higher oil prices

Get smuggled petrol from Iran, make agreement with Russia for cheap oil & gas

How do you propose to pay the smugglers for petrol from Iran ?

 

[kingQamaR]

I'm thinking what happens if we just say let's f it
Default and start a fresh?

It depends on the country.
The debtors are not going to come in and demand assets... unless you are a really small country.
But when you hint at default people stop buying your debt or only by it at a high interest rate. The higher rates make it harder to borrow and pay the loans back