what would Happen to a Country if its Loan is Written off ?

[big CAT]

We are not gonna pay it back,that's final!

We are not gonna pay it back,that's final!

 

[Haroon Syed]

USA can't just keep on printing dollars indefinitely. The more money they print, the more they offset the market and global demand for the dollar decreases.

Is not it happening ?

 

[Icarus]

Is not it happening ?

No, minor fluctuations are the norm in any economy, a full blown crash also happens once a couple of decades but a collapse of said magnitude has not taken place since the Great Depression where the Dollar was devalued to the point where it was used for lighting fires as buying matches was too expensive.

 

[CHD]

No, minor fluctuations are the norm in any economy, a full blown crash also happens once a couple of decades but a collapse of said magnitude has not taken place since the Great Depression where the Dollar was devalued to the point where it was used for lighting fires as buying matches was too expensive.

I heard that printing money is also related to your gold reserves, is it true?

 

[nForce]

This is a good thread. Please keep it sane.

I heard that printing money is also related to your gold reserves, is it true?

For your reference :

How Gold Affects Currencies

 

[Icarus]

I heard that printing money is also related to your gold reserves, is it true?

In order to balance currency value, countries choose to "gold back" their currency. The system serves as a means to ensure that the currency value remains stable, sort of like retaining balance on a scale. If one side is lighter, you can remove some weight from the other side to equalize the balance in simpler terms.
Just like that, you can release some of your gold into the market in order to drive down prices and increase buying if your currency is at risk of taking a dip.

 

[big CAT]

@Gamer-X currency is like cheque,you need to have some balance in account for signing a cheque,otherwise you know what happensss

@Gamer-X there are currencies without any gold backing,purely created out of thin air like Bitcoins

 

[CHD]

@Icarus @big CAT
why are the chinese keeping thier currency devalued?

 

[Faiez]

I am not that good at understanding these economic matters, So just wanted to know from guys here who understand these things.
So my question is what effect will it have on Pakistan economy if all of its debt is written off(Which i think is round about $90 billion)?

If all the lenders write off Pakistan's $90 billion debt today, Pakistan will successfully get $90 billion worth of loans the very next day

 

[NHUDA]

I am not that good at understanding these economic matters, So just wanted to know from guys here who understand these things.
So my question is what effect will it have on Pakistan economy if all of its debt is written off(Which i think is round about $90 billion)?

First & Foremost U need to Identify What is Debt & How Much Pakistan Actually Owes ... also VERY Important to Know is that Pakistan Owes More (Almost Double) of External Debt to Internal Debt.

Here U can Read All about our Existing Debt & How Much Deep we r entrenched in this Misery ..

The debt-to-gross domestic product (GDP) ratio stands at 66.4%, in which foreign debt is Rs6.4 trillion and domestic debt is Rs12 trillion.

Please Read this
Every Pakistani now owes over Rs101,338 in debt - The Express Tribune

Coming to your Question ... if by any chance (which is HIGHLY UNLIKELY) Pakistan Debt (Both External & Internal) is written off .... the First & Foremost Impact is that Pakistan Will Not have to SERVICE its Debt out of GDP, that means it won't have to keep a Chunk (in Pakistan Case a HUGE one) from its Revenues and Pay Back Matured Loan & Interest Payments on the Others.

now HOW Significant is this development .. u can Read Via Following Links (Also a little explained in the Above link)

The external debt servicing reached close to $7 billion in fiscal year 2014.

The country paid $6.820 billion in debt servicing in FY15, including $5.910 billion as principal amount and $915 million in interest payments. Worryingly, 47% of whatever the government generates in revenue is going to pay off debt.

$7bn debt servicing a challenge to economy - Pakistan - DAWN.COM
Debt servicing to eat up two-fifth of total budget - thenews.com.pk

Following is SBP Paid & Foretasted amount for 2014/2015
http://www.sbp.org.pk/ecodata/pakdebtsvr_summary.pdf

Ideally, this ratio should be less than 30% to allocate more resources to social and poverty-related expenditures.
Following is the Debt of All Countries (Internal & External) (No Apologies for Wiki the List is Referenced but Apologies for bit outdated Data) .. You can see Pakistan , India , US & any other by Amount & By Percentage ..

List of countries by public debt - Wikipedia, the free encyclopedia
List of countries by external debt - Wikipedia, the free encyclopedia

Now U May Ask that
1- Pakistan has LESS way Less Debt than Many Other Countries (Mainly USA as is Mentioned here above by Many Fellow Members & also Incorrectly Countered by Others)

2- The Percentage of Debt of Pakistan although high but other Major Economies are Higher.

In this Response U need to take into account Multiple Items ... Like NET Creditor / Debtor .. & Composition of Debt etc. ...
USA may Have Trillions of Dollars in Debt (with a Significant Amount from China / Japan) but still;
1- She is NET Creditor .. - means they have GIVEN More Loan thn Borrowed Across the Globe ...
2- Regardless of Media Hype it is US itself (Social Security etc.) who holds MOST of US Debt ..
3- The Debt Servicing is CHEAP from them as Lenders give her loan for 0.1% instead of countries like Pakistan (1-10%) or Greece (Upto 30%)

Now that U (Hopefully) MAY BE understand that what is Debt, How Much we Owe & how much we spend in Servicing EVERY YEAR & you cannot compare One COutnry Debt Amount (Even Percentage) to another country ... I will try to respond to your Question .

1- As i said if our debt got written off (which it wouldn't be, see Greece for Example) ... we will be saving Billions of Dollars we will be Paying every year in Debt Servicing (Returning Loans & Paying Interest on Existing)

2- Pakistan has a Dilemma where due to Various economic constraints it has to BORROW Loan to PAY OFF Loan which is Not cheap & doesn't add a single value to our Economy .. We would not be required to do that either !

3- Pakistan will have MORE money to invest into development projects & we will be Surely Buying SU-35 too :p

4- although the above benefits will look awesome but the biggest of all we would (technically) get free from IMF & World Bank Claws .... thr loans although much needed come with significant Strings .. (increase Taxation, Removing Subsidies, Invest in Health & Education sector rather than Energy & Infrastructure) & u know ... in Our Country Heath & Education means Ghost Schools & Hospitals ... Hence technically we do not develop what IMF asks as to do & neither we are able to develop what we wanted. So we will be able to do as we like (Not a Fair Picture Either given the corruption) but at-least thr will be significant decline in Taxes & no reductions in Subsidies.

5- But contrary to above comment we may still would want to go Back to Those Lending Agencies , this time we will have the leverage that we don't owe them anything, we will have Other options than IMF / World Bank .. (thr is Asia Bank, Chinese Lenders) .. and our Credit Rating would shoot Up to AAA, hence we will get super Cheap Loan ... So in addition to excess money every year .. we can do our own Mega Projects related to Infrastructure, Energy Generation etc. as running a Budget Deficit is Good Thing if it is well Planned, executed and within controllable limits.!

So All this is Very good to Talk about ... but again this isn't happening unless tomorrow Swiss Banks says they are giving back all the illegal Corrupt money they have from Pakistanis. OR USA & West Offer to Buy out our loan against Surrendering our Nuclear Capability.


Also please I would Suggest U to Please be Simple with Your Thread Opening Titles ... I saw the thread and as i m no expert didn't even looked into the thread .. Might Want to Change it to something Like what would Happens to a Country if its Loan is Write off ?

 

[CHD]

First & Foremost U need to Identify What is Debt & How Much Pakistan Actually Owes ... also VERY Important to Know is that Pakistan Owes More (Almost Double) of External Debt to Internal Debt.

Here U can Read All about our Existing Debt & How Much Deep we r entrenched in this Misery ..

The debt-to-gross domestic product (GDP) ratio stands at 66.4%, in which foreign debt is Rs6.4 trillion and domestic debt is Rs12 trillion.

Please Read this
Every Pakistani now owes over Rs101,338 in debt - The Express Tribune

Coming to your Question ... if by any chance (which is HIGHLY UNLIKELY) Pakistan Debt (Both External & Internal) is written off .... the First & Foremost Impact is that Pakistan Will Not have to SERVICE its Debt out of GDP, that means it won't have to keep a Chunk (in Pakistan Case a HUGE one) from its Revenues and Pay Back Matured Loan & Interest Payments on the Others.

now HOW Significant is this development .. u can Read Via Following Links (Also a little explained in the Above link)

The external debt servicing reached close to $7 billion in fiscal year 2014.

The country paid $6.820 billion in debt servicing in FY15, including $5.910 billion as principal amount and $915 million in interest payments. Worryingly, 47% of whatever the government generates in revenue is going to pay off debt.

$7bn debt servicing a challenge to economy - Pakistan - DAWN.COM
Debt servicing to eat up two-fifth of total budget - thenews.com.pk

Following is SBP Paid & Foretasted amount for 2014/2015
http://www.sbp.org.pk/ecodata/pakdebtsvr_summary.pdf

Ideally, this ratio should be less than 30% to allocate more resources to social and poverty-related expenditures.
Following is the Debt of All Countries (Internal & External) (No Apologies for Wiki the List is Referenced but Apologies for bit outdated Data) .. You can see Pakistan , India , US & any other by Amount & By Percentage ..

List of countries by public debt - Wikipedia, the free encyclopedia
List of countries by external debt - Wikipedia, the free encyclopedia

Now U May Ask that
1- Pakistan has LESS way Less Debt than Many Other COuntries (Mainly USA as is Mentioned here above by Many Fellow Members & also Incorrectly Countered by Others)

2- The Percentage of Debt of Pakistan although high but other Major Economies are Higher.

In this Response U need to take into account Multiple Items ... Like NET Creditor / Debtor .. & Composition of Debt etc. ...
USA may Have Trillions of Dollars in Debt (with a Significant Amount from China / Japan) but still;
1- She is NET Creditor .. - means they have GIVEN More Loan thn Borrowed Acroos the Globe ...
2- Regardless of Media Hype it is US itself (Social Security etc.) who holds MOST of US Debt ..
3- The Debt Servicing is CHEP from them as Lenders give her loan for 0.1% instead of coiuntries like Pakistan (1-10%) or Greece (Upto 30%)

Now that U (Hopefully) MAY BE understand that what is Debt, How Much we Owe & how much we spend in Servicing EVERY YEAR & you cannot compare One COutnry Debt Amount (Even Percentage) to another country ... I will try to respond to your Question .

1- As i said if our debt got written off (which it wouldn't be, see Greece for Example) ... we will be saving Billions of Dollars we will be Paying every year in Debt Servicing (Returning Loans & Paying Interest on Existing)

2- Pakistan has a Dilemma where due to Various economic constraints it has to BORROW Loan to PAY OFF Loan which is Not cheap & doesn't add a single value to our Economy .. We would not be required to do that either !

3- Pakistan will have MORE money to invest into development projects & we will be Surely Buying SU-35 too :p

4- although the above benefits will look awesome but the biggest of all we would (technically) get free from IMF & World Bank Claws .... thr loans although much needed come with significant Strings .. (increase Taxation, Removing Subsidies, Invest in Health & Education sector rather than Energy & Infrastructure) & u know ... in Our Country Heath & Education means Ghost Schools & Hospitals ... Hence technically we do not develop what IMF asks as to do & neither we are able to develop what we wanted. So we will be able to do as we like (Not a Fair Picture Either given the corruption) but atleast thr will be significant decline in Taxes & no reductions in Subsidies.

5- But contrary to above comment we may still would want to go Back to Those Lending Agencies , this time we will have the leverage that we don't owe tham anything, we will have Other options than IMF / World Bank .. (thr is Asia Bank, Chinese Lenders) .. and our Credit Rating would shoot Up to AAA, hence we will get super Cheap Loan ... So in addition to excess money every year .. we can do our own Mega Projects related to Infrastructure, Energy Generation etc. as running a Budget Deficit is Good Thing if it is well Planned, executed and within controllable limits.!

So All this is Very good to Talk about ... but again this isn't happening unless tommorrow Swiss Banks says they are giving back all the illegal Corrupt money they have from Pakistanis. OR USA & West Offer to Buy out our loan against Surrendering our Nuclear Capability.


I would Suggest U to Please be Simple with Your Thread Opening Titles ... I saw the thread and as i m no expert didn't even looked into the thread .. Might Want to Change it to something Like what would Happens to a Country if its Loan is Write off ?

So instead of building Foriegn reserves($20 billion), why dont we pay our debt with that?

 

[NHUDA]

So instead of building Foriegn reserves($20 billion), why dont we pay our debt with that?

We DO Pay our Debt (& Foreign Reserves are Used for the very same reason).... Foreign Reserves are a Combination of Our Own Funds, & Transitioning Money We receive from Loans, & the Amount Hold by Private Independent commercial Banks ..

For example first read this as How Foreign Reserves stand today

quick look at the timeline and accompanying notes reinforces the popular view that the increase in SBP-held foreign exchange reserves is mostly on the back of money that the government has either raised from global investors or borrowed from international financial institutions.

In addition to total disbursements amounting to $4.5 billion from the IMF since 2013, Pakistan has also raised at least $3.5 billion from the international bond market by floating Sukuks and Eurobonds.
Pakistan’s journey from $6b to over $15b - The Express Tribune

In Short 4.5+3.5 = 8 Billion (Almost Half of the Foreign Reserve as of Now) are the Loans which we recive from lending agencies & opne market. Which will be Used to Service Our Debt ... (as mentioned above is almost touching 7 Billion $ per year) ...

Means IDEALLY unless we have 100 Billion $ as Foreign Reserve we can not pay Back our debt (& even thn it would not work like that ..
1- the Debt is a Fixed Term Loan based on Fixed Interest for a certain amount of time) .. why would a lender wants its Capital Amount NOW, when he can have it safe & keep earning Interest Money on it ..

2- The Foreign Reserves are All not held By State Bank a Significant amount is with the Commercial Banks, who Use it to Pay for thr Imports ... (Like Suzuki When it Needs Engine from Japan, it gives Rupees to Commercial Bank who Give them Dollar to Pay to Suzuki in Japan or convert Dollar it have to Yen ) ... Plus govt needs to keep a significant amount as a cushion in case of War or Tragedy to Pay for, also As Pakistan have a Negative Trade Balance the govt Needs to have amount to pay the Surplus (like Pakistan Bring 1 bIllion $ in Exports but Pay 2 Billion $ in Imports) so it is the Country who have to make sure we have that Extra Billion $ ready ((e.g Take Add into it the Fuel imports, Petrol, LNG etc) (Of course it is not as Simple, i m just explaining it) ...

In short Despite Foreign Reserve Touching 20 Billion $ .. it is not simply all with State Bank, Nor it is at the Disposal of the govt. to spend it all & it would Naive nay Stupid to Use it all at once to pay back the loans .. as We still need operational Amount (Cash flow) to cater for our routine transactions.

If you read the above Post & the Links in Detail ... u will realize that we already Paid 5 Billion $ last year .. but coz of not great economy we just Borrowed it & Paid them back while we not have to Pay interest on it with No Monetary Benfit to economy .

Also a Good Read
Foreign exchange reserves near all-time high - Pakistan - DAWN.COM

Pakistan’s foreign exchange reserves hit a four-year high of $18.20 billion on Thursday after the State Bank of Pakistan (SBP) received $706 million from the World Bank, said a spokesman for the central bank.

The country’s forex reserves touched an all-time high of $18.24bn in 2010-11 which fell to $11bn in 2012-13. The State Bank’s reserves dropped to as low as $6bn the same year. They have now crawled up to $12.5bn.

The PML-N government, which came to power in 2013, borrowed from lending agencies and sold Eurobonds and sukuk (Islamic bonds) which helped the central bank to improve its reserves despite large repayments made during these two years to the donor agencies.

With the increase of reserves mostly through borrowed money, the debt servicing has been alarmingly rising as it reflected from the payment of about $7bn in FY14.

And One more link to Go with Original Thread ..
The Express Tribune Explains Pakistan's Foreign Debt

 

[Hyde]

Pakistan will have about 1/4th of extra budget for development which goes away for debt servicing

Pakistan will be seeking another loan of 60 billion dollars saying they have no debts and can afford to pay back... Lol

 

[Faiez]

2- The Foreign Reserves are All not held By State Bank a Significant amount is with the Commercial Banks, who Use it to Pay for thr Imports ... (Like Suzuki When it Needs Engine from Japan, it gives Rupees to Commercial Bank who Give them Dollar to Pay to Suzuki in Japan or convert Dollar it have to Yen ) ... Plus govt needs to keep a significant amount as a cushion in case of War or Tragedy to Pay for, also As Pakistan have a Negative Trade Balance the govt Needs to have amount to pay the Surplus (like Pakistan Bring 1 bIllion $ in Exports but Pay 2 Billion $ in Imports) so it is the Country who have to make sure we have that Extra Billion $ ready ((e.g Take Add into it the Fuel imports, Petrol, LNG etc) (Of course it is not as Simple, i m just explaining it) ...

In short Despite Foreign Reserve Touching 20 Billion $ .. it is not simply all with State Bank, Nor it is at the Disposal of the govt. to spend it all & it would Naive nay Stupid to Use it all at once to pay back the loans .. as We still need operational Amount (Cash flow) to cater for our routine transactions.

You can check the latest stats from SBP. The state bank has the vast majority of the reserves. Commercial banks usually only have 1/4 of the total reserves or even less. Last time I checked commercial banks had like 3-4 Billion or so...

Gov. has setup policy to keep high reserves so it can borrow more and more from IMF. And these borrowings are being spent on questionable projects.

You say that major economies have large debts, but the thing is, what ever they borrow they spend wisely. Pakistan does not spend wisely.

We are a charsi economy (for lack of better word). We have spent all of our own money on chars, have run out of money and now borrow money to buy more useless chars. We don't like to work, we are lazy and we just like to sit there and consume chars all day (all those questionable "chars projects").

It's only by chance that remittances have shot up recently and oil prices plunged that we are now able to afford more loans than ever before.

 

[nForce]

If loan is written off then someone, somewhere looses money. He will not like loosing money. So, he will complain and then do something about it. The tenacity in his reaction will depend upon how much money he is loosing and his capabilities.