Pakistan to approach IMF for a bailout, Asad Umar announces

[Nilgiri]

@Nilgiri your thoughts? Whats the solution? Keeping in mind Pakistan's limitation.

Pakistan should take the IMF loan and commit to the reforms to pay it off too (its fine ...Pakistan has done this under much worse run administrations before). In the time this palliative buys, Pakistan must must must find ways to:

a) Increase tax revenue + decrease spending (either one or both) from the govt fiscal standpoint. First federally and then provincially (I'm not sure what the breakup currently is in Pakistan).

b) Promote exports and industries that Pakistan in current stage/environment can transfer capital resources (first price elastic ones, then move to inelastic ones later). It is criminal for example how things like RMG (and other labour intensive industries that earn high velocity, high liquidity forex) have been gutted and stagnated like @H!TchHiker pointed out earlier because of certain cartels operating and power/infra problems solely (i.e as bad as Pakistan has in its structural economy right now...its doing far worse even taking that into account).

c) Start long term deep set reforms based on eroding the deep set vested interests/power-cabals that favour the unsustainable (for Pakistan) status quo (very sustainable/advantageous for their personal instance though). I have talked about this a few times before, this is the most recent one here (comparing to Deng's China):

https://defence.pk/pdf/threads/for-...your-failures-pti.580636/page-3#post-10843663

a) and b) Imran khan admin can do quite comfortably in a term or two if they put their minds to it and follow merit based reform in the cabinet appointments/bureaucracy etc (i.e delivering results results results, not family name connections and excuses). Static friction is low, rolling friction is high (coefficient wise).

c) I see only a start being made (at best), it needs much more long term inertia to build up to sustain long term and pervasively. Static friction is high, rolling friction is low (given evidence of people in gut instinct level voted I.K/change in large level).

Best of luck to Pakistan.

@Chak Bamu @That Guy @Chinese-Dragon @Oscar @waz @GeraltofRivia @Cybernetics @anant_s @django @Zibago @jhungary @farhan_9909 @Horus @WebMaster

 

[AZADPAKISTAN2009]

I feel curing a debt with more debt is strange strategy. The track record of this approach is awful. IMF will set tough conditions for loans such as further depreciation of rupees, increment in taxes , increment in oil/gas spending and decline in defence spending, rise in inflation etc . Successive Pakistani governments have relied on loans and foreign money to help them ride out periodic crises while leaving fundamental issues unaddressed

The way debt works is it has

a) Principle (What you actually borrow)
b) Interest (% Amount which is additional money for bank)

Every month you can pay back full amount if you have money or you pay minimum amount
Minimum amount does not reduces your Debt very minimum impact ......


So presently Pakistan is only trying to pay the Part (b) because presently we cannot pay back the full amount


How can we get out of this Trap? Simple Taxes

• Citizens pay their Taxes
• Citizens pay Permit fees / Tolls and Any additional Tax
• Country collects money and makes Maximum payment on Loan (Pay back large amounts)

Lets view this problem with simple example

Example:
Karim , takes a loan from Bank for 1,000 Rupee it has intrest payment of 5%
Each month the bank will add a 5% add on the total amount remaining if he fails to pay back the full amount (Complete banya mentality)


Karim , uses the 900 rupee invest in business , and plans to make 20,000 rupee in 5 months but untill 5 months are reached he pays the 5% small fee on month to month basis
So he makes small payment out of remaining 100 rupee in his hand for 5 month till he makes profit from his business deal


After 5 month , his business has delay in getting money by another 2 months , so Karim goes to Bank and takes a small second loan for 300 rupee just to continue to make "minimum payment". He know in 2 month he will make 20,000 rupee and he can pay Bank 100% on 1,000 Rupee he borrowed in 1 time


After 7 months , he does gets back 20,000 Rupee from Business Profits , so he smiles goes to Bank and writes a check of 1,000 rupee to Bank and pays the full balance back and small 5% additional fee (5 extra rupee) and he is done dealing with bank ....he counts the remaining 19,000 rupee and thinks about how he can make more money

Story Ending : In Just 7 months Karim made a cool 18,000-19,000 Profit

-----------------------------------------------------------------------------------------------------
Now what Pakistan Does


What is Pakistan doing wrong?
Lets assume we take 1,000 rupee loan

We take loan , do not fix our tax system so we cannot make profit
We do not make profit we can never Pay the original balance back

After 1-3 Years we will go back to Bank take more loan to pay minimum fee
We take another 300 rupee loan, 100% is used to pay minimum payment
We take loan , do not fix our tax system, we will not make profit
We do not make profit , we can not pay the original balance back

After 3-6 Years we will go back to bank to take more loans to pay minimum fee
We take another 300 rupee loan, 100% is used to pay minimum payment
We take loan , do not fix our tax system, we will not make profit
We do not make profit , we can not pay the original balance back

After 10 Years we will go back to bank to take more loans to pay minimum fee
We take another 300 rupee loan, 100% is used to pay minimum payment
We take loan , do not fix our tax system, we will not make profit
We do not make profit , we can not pay the original balance back

After 10 years we have paid bank 900 rupees in minimum payment
But our Total Balance on Loan will still show 2000 (Original Loan plus new loans we took plus some Bank fees )

BANK IS ALREADY HAPPY they go their 900 rupees back and now we are stuck with additional 2000 loan


WE ARE NOW STUCK IN BANIYA TRAP

This cycle will continue endlessly till the point Pakistan Learns to Tax correctly
and the Original Balance will slowly grow the longer it takes Pakistan to pay back the original amount. In 10 Years may be Bank has made more money then what they originally loaned
But the Total Pakistan still have to pay back is still reduced by only 4-5% Why because we did not paid LARGE sums back ....to return money to Bank .... our habbit of only paying minimum payment only reduces our Debt by very very very tiny amount

Pakistan :

Simplified example
In 10 years

Pakistan Took Original Loan 1,000 Rupee
(No tax collection took place so no profits made and issue was not fixed 10 years)
Pakistan Took 2nd Loan 300 Rupee 100% used for pay minimum payment interest
Pakistan Took 3rd Loan 300 Rupee 100% used for pay minimum payment interest
Pakistan Took 4th Loan 300 Rupee 100% used for pay minimum payment interest

Story Ending :
Pakistan , took a loan and failed to improve Tax collection failed policy meant the original loan grew
New remaining Balance 1900 Rupee , Bank collected 900 Rupee in minimum payments
Bank is happy to offer more loan !!! They know they are making Profit

Unlike Karim Story ,of making +19,000 Profit , Pakistan is now almost -3,000 down from own pocket and this money losses will continue till tax collection is 1000% fixed

And this is why Baniya are rich, Baniya being IMF here

Till Taxes are collected ..........we can't get out

By the time people of Pakistan will wakeup and say yes we will pay taxes the Baniya will try to lower the value of Currency so much that it will make it harder and harder to pay loan down

 

[MultaniGuy]

@BHarwana , your opinion. So its confirmed.

Bhai, okay so we are going to IMF, big deal. Even USA has big debt too.

 

[Indus Pakistan]

Spot on.

People assume all loans are the same thing and just vary by scale/size etc....when they don't understand the effect of time w.r.t such loans.

For example China has a large loan based investment commitment to Pakistan...but this a long term spread structure (both input and returns). China is not really in the business of doing the short term stuff because there is no real way to get quality short term return without enforcing strict requirements like what you explain with the IMF (and geopolitically China does not want to take that on....not to mention the nature of its underlying assets and collateral to back its loans such as US treasury bonds are quite long term too).

Same goes for the recent ADB loan announced (and World Bank loans follow this generally too), that one is also 3 year term and is based on funding specific infrastructure projects (rather than as a temporary CAD-induced palliative like what Pak govt needs now).

IMF is the only one that fits the bill for the acute pain with acute medicine.

The real evil is not IMF. The real problem in Pakistan is the twin evils -

• Leaders - who have used their office to gouge public finances for personal gain.
• Public - who expect everything. Cheap gas, electricty, good roads, hospitals, schools etc but refuse to pay any taxes. They expect the guy next door will pay who of course expects the guy next door will pay ending up with almost nobody paying any tax. But all expect public services for free. Then they expect public sector jobs many of which are actually welfare jobs. By that I mean jobs where the employee produces less but earns more. It's like generating £10 of job productivity bit expecting the employer to give them £30. Which means the employer is running a loss making business. This is PIA in action. This really irks me. I gave £10 to the dam fund few weeks ago. I admit it's not lot of money but the reality is all the suckers driven by patriotic fervour who donated that money will end up losing twice that much on PIA. If we did not donate a penny but they shut down PIA the government would end up with more money.

Today we have the first problem sorted out [leaders] but the public is the same. It will take some major effort to change the culture of people where they all pay taxes. Even a rickshaw driver should be a tax filer and paying some rupees. All too often the public which complains about state Pakistan is in are themselves to blame. I do think though under PM IK will will see change slowly taking place in citizens of the country. What did Kennedy say "ask not what your country can do but ask what you can do for your country".

 

[Nilgiri]

The real evil is not IMF. The real problem in Pakistan is the twin evils -

• Leaders - who have used their office to gouge public finances for personal gain.
• Public - who expect everything. Cheap gas, electricty, good roads, hospitals, schools etc but refuse to pay any taxes. They expect the guy next door will pay who of course expects the guy next door will pay ending up with almost nobody paying any tax. But all expect public services for free. Then they expect public sector jobs many of which are actually welfare jobs. By that I mean jobs where the employee produces less but earns more. It's like generating £10 of job productivity bit expecting the employer to give them £30. Which means the employer is running a loss making business. This is PIA in action. This really irks me. I gave £10 to the dam fund few weeks ago. I admit it's not lot of money but the reality is all the suckers driven by patriotic fervour who donated that money will end up losing twice that much on PIA. If we did not donate a penny but they shut down PIA the government would end up with more money.

Today we have the first problem sorted out [leaders] but the public is the same. It will take some major effort to change the culture of people where they all pay taxes. Even a rickshaw driver should be a tax filer and paying some rupees. All too often the public which complains about state Pakistan is in are themselves to blame. I do think though under PM IK will will see change slowly taking place in citizens of the country. What did Kennedy say "ask not what your country can do but ask what you can do for your country".

Yep this lends itself to the two different kind of frictions I mention in my last post given what is more short term (and more sensitive to leadership of a country) compared to what is more long term (and more sensitive to the broader populace sentiments/wisdom).

 

[Indus Pakistan]

fundamental issues unaddressed

These issues will take time [years] to address but the government needs money today. That is where the rub is. Do you know anybody with $10 billion spare and will to give Pakistan a 'bridging loan'? I don't.

 

[waz]

Pakistan should take the IMF loan and commit to the reforms to pay it off too (its fine ...Pakistan has done this under much worse run administrations before). In the time this palliative buys, Pakistan must must must find ways to:

a) Increase tax revenue + decrease spending (either one or both) from the govt fiscal standpoint. First federally and then provincially (I'm not sure what the breakup currently is in Pakistan).

b) Promote exports and industries that Pakistan in current stage/environment can transfer capital resources (first price elastic ones, then move to inelastic ones later). It is criminal for example how things like RMG (and other labour intensive industries that earn high velocity, high liquidity forex) have been gutted and stagnated like @H!TchHiker pointed out earlier because of certain cartels operating and power/infra problems solely (i.e as bad as Pakistan has in its structural economy right now...its doing far worse even taking that into account).

c) Start long term deep set reforms based on eroding the deep set vested interests/power-cabals that favour the unsustainable (for Pakistan) status quo (very sustainable/advantageous for their personal instance though). I have talked about this a few times before, this is the most recent one here (comparing to Deng's China):

https://defence.pk/pdf/threads/for-...your-failures-pti.580636/page-3#post-10843663

a) and b) Imran khan admin can do quite comfortably in a term or two if they put their minds to it and follow merit based reform in the cabinet appointments/bureaucracy etc (i.e delivering results results results, not family name connections and excuses). Static friction is low, rolling friction is high (coefficient wise).

c) I see only a start being made (at best), it needs much more long term inertia to build up to sustain long term and pervasively. Static friction is high, rolling friction is low (given evidence of people in gut instinct level voted I.K/change in large level).

Best of luck to Pakistan.

@Chak Bamu @That Guy @Chinese-Dragon @Oscar @waz @GeraltofRivia @Cybernetics @anant_s @django @Zibago @jhungary @farhan_9909 @Horus @WebMaster

Great post bro.

 

[Hiraa]

This is from the local money exchanger that my family uses in lahore. This is from their website at midnight.

 

[BHarwana]

@BHarwana , so its true we are going to go to IMF.

Your opinions?

Whatever, it may not be bad as some people make it out to be.

There are some elements who want IMF path to make governing easy and others who want to avoid it. You will know the exact situation in few weeks but in my understanding we will not be going to IMF and we will avoid a bailout.
The current dollar price to pkr is indicating we might not be going to IMF because it is against IMF policy.

https://www.xe.com/currencycharts/?from=USD&to=PKR

 

[MultaniGuy]

There are some elements who want IMF path to make governing easy and others who want to avoid it. You will know the exact situation in few weeks but in my understanding we will not be going to IMF and we will avoid a bailout.
The current dollar price to pkr is indicating we might not be going to IMF because it is against IMF policy.

https://www.xe.com/currencycharts/?from=USD&to=PKR

Bhai, we will see. I hope the best for Pakistan.

 

[BHarwana]

Bhai, we will see. I hope the best for Pakistan.

This is the current rate on western union website at the moment for PKR and according to that rate PKR is strengthening.

http://onlinefx.westernunion.com/

I saw the rate of 128 in the morning but after a while it switched back. Also today gold price went up for some time in Pakistan and for sometime new price was not being issued.

 

[Proudpakistaniguy]

These issues will take time [years] to address but the government needs money today. That is where the rub is. Do you know anybody with $10 billion spare and will to give Pakistan a 'bridging loan'? I don't.

Government always need money but you will get this money at the expense of poor people because these dollars come with strict and rigid conditions that will lead to higher inflation and more unemployment because the country is heading towards an economic slowdown. Borrowing money from IMF has impacted Pakistan macroeconomic policies in many ways especially in the last two decades. Also if you had no other option then why expert economic team of PTI took such long time to decide of going to IMF

https://twitter.com/x/status/1049375297223753728

https://twitter.com/x/status/1049237131632287744

 

[Cybernetics]

a) Principle (What you actually borrow)
b) Interest (% Amount which increases if you fail to pay full amount)


So presently Pakistan is only trying to pay the Part (b) because presently we cannot pay back the full amount

The dynamics of domestically funded debt and foreign funded debt are different.

Domestically funded debt is funded through the country's own financial institutions and is denominated in the local currency while externally funded debt is funded through an external financial institution and denominated in a foreign currency often USD.

What this comes down to are the conditions of domestic financial institutions and domestic currency exchange rate relative to external debt currency.

A country can be compelled to take on external debt if domestic debt is not available or doesn't have ideal rates. This can be caused by the lack of capital in the domestic banking system caused by lack of savings. Lack of savings can be caused by lack of trust within the system or the public is not familiar and doesn't need the banking system to be an economic participant. Banking reforms, incentives, and laws are needed to fund domestic financial institutions.

Often external debt is denominated in USD because it is an easily accessible and highly liquid currency due to its reserve currency status. Your trade doesn't have to balance bilaterally to acquire USD, you can earn it from another country that has USD. The amount you pay back is denominated USD, not your local currency. If the local currency depreciates significantly relative to USD, the burden upon the local economy to repay external debt goes up significantly, causing deleveraging and an economic slow down. If the local currency appreciates significantly then external debt becomes cheaper, this appreciation is often not sustained due the lack of diversification and general weakness of developing economies.

What external debt is used for is important. External debt can be sustainable if the economy can earn enough foreign currency. If foreign debt is used on a project to earn local currency, there is less certainty of earning enough foreign currency for the nation as compared to using foreign debt to fund a project that earns the external debt denominated currency. For projects that can be used to export goods and earn USD, it won't be as bad to borrow in USD to grow the business.

• We can only target the (a) if we use more Coal

• Import less Oil / Gas

• Sell more Agricultural Products

• Collect Tax in range of 70% population paying Taxes This is at 0.14% only not even 1 % forget about 70%

I agree, Pakistan needs to tap into its massive coal reserves and increase its proportion of coal in its energy portfolio. It should be utilized to earn foreign currency and invest in coal to liquid plants as well. Pakistan's usage of coal in electricity generation is very low compared to a developed country such as Germany which has about half of its electricity generation coming from coal. Most major industrial nations are still coal heavy, France is an outlier with 70% coming from nuclear but that jump would take decades to make if desired.

Domestically powered energy, would lessen imports, fund local industries, and add to the strength of the local currency.

Another big area as you mentioned is tax collection. It is one of the most vital issues to resolve. Once better tax collection is achieved, indirectly it empowers other institutions like the financial sector. More people would put their money in banks and use financial services, increasing the capacity for domestically funded debt.

 

[AZADPAKISTAN2009]

Tax collection model needs to change in Pakistan immediately on Emergency basis

Average Pakistani will not fill out a Accounting form in Pakistan and pay 100% tax honestly
Tax collection from Shop to Shop can be done by Local Police /Rangers Force on emergency basis @ Neighborhood to Neighborhood level and deposited directly into State Bank

Take one of these shop to shop

Collect the funds from neighborhood shops and deposit in bank any shopkeeper who does not pays , put a Lock on that shop

• Check Shop permits open in Pakistan they paid online got permit move to next shop
• Make Collection Teams who do rounds on monthly basis to enforce Acceptance

Put Units at Qurbani Gah Entrance

Similarly Put these Units on Qurbani Gah and only allow folks to enter who have Qurbani Animal Permit bought from bank branch

They have the Permit Go ahead , buy animal , if you have not got Permit Sorry go back home

I find the fastest means to get cash from Pakistanis is by

a) Cell Phone recharge Tax (100 Rupee charged every time you refill you balance)
b) Small Shop permit (1000 rupee per shop)
c) Road Tolls on Busy Motorways (Simple 100 rupee monthly Pass)
d) Qurbani (10,000 rupee Sacrificial animal permit)
e) Tackling the Water distribution channel by Water Tanks

You can't use excuses to get away from these taxes

If people don't understand nobility of Taxation then enforce it by Force if needed
Enough is enough

We need to Stop with this Loan habbit

 

[Imad.Khan]

Atleast one thing has cleared after reading the posts in this thread, only Indians and Noothiyas are happy that PTI has gone to IMF.

Indians + Noothiyas vs PTI