Loud Thinking

Archive for the ‘Action Plan to Revive Pak Economy’ Category

Helen Keller said : ‘The most pathetic person in the world is some one who has sight but no vision.’

Mr. Ahsan Iqbal, if we have no home grown vision for Pakistan it means we are not only blind but nincompoop, as well.

If we can’t give future direction for Pakistan, than better outsource the country to China, rather than hiring a western firm, to provide vision 2025 for Pakistan.

Moreover, if Planning Commission of Pakistan can’t perform this basic job for the nation; and wants it done through consultants, then why not close this ministry and allocate the relevant assignments to the Finance Ministry?

This situation is a farce and looks like a joke with the nation; and is synonymous with the situation, where a husband hires another man, to perform his own responsibilities.

An Express Tribune news…

Shaky ground: Govt considers McKinsey for help with Vision 2025

By Shahbaz Rana / Creative: Jamal KhurshidPublished: October 9, 2013

The Planning Commission (PC) is considering engaging the global management consulting firm ‘McKinsey & Company’ – a company that has in the past failed to produce a quality report on Pakistan despite charging $5 million − to prepare Vision 2025 for the country.

The PC’s desire to involve McKinsey in preparation of a policy document that it believes will set the priorities of a nation of 180 million people for next 12 years, has raised questions of aligning such policy prescription with ground realities.

Mckinsey had been engaged by the previous government, and paid $5million by the Asian Development Bank on behalf of Pakistan, a huge sum for just one report of questionable quality.

“The McKinsey’s report was fancy but a terrible one in terms of content”, said former deputy chairman Planning Commission Dr Nadeem ul Haque. Haque said he had contacted the McKinsey’s partners thrice and asked them to defend their work, but no one turned up. On one occasion, he said, one of the McKinsey partners admitted the poor quality of the work and promised to revisit the report.

Dr Haque said his predecessor Salman Faruqi had sanctioned $5 million payment to McKinsey.

The timing of giving McKinsey a stake in the new ‘visionary’ document coincides with a three-year International Monetary Fund’s (IMF) programme that has already set policy directions at least for the programme period. The ministry of finance is in the driving seat at the moment and has kept the planning ministry out of the loop. It did not engage the planning ministry when it was finalising the IMF programme that carries far reaching adverse implications on economic growth.

In a conference organised by the PC recently, Salman Ahmad, a partner at McKinsey had claimed that the previous government had shelved his company’s work.

When contacted, Asif Sheikh, the spokesman for the PC, said the government has not yet decided to formally engage the McKinsey.

Federal Minister for Planning, Development and Reforms, Ahsan Iqbal, was keen on preparing a new vision for the country aimed at stabilising economy and ensuring sustainable inclusive growth. However, the biggest obstacle for the commission, according to the minister, was the PC’s capacity constraint.

He has promised to develop the vision by the end of this year but so far the blueprint of the vision is not ready. Sources close to the minister said that Iqbal was upset about the slow pace of work and wanted to hire consultants from the private sector to complete the exercise.

Despite McKinsey’s poor work, Iqbal wanted to engage the firm to overcome capacity constraints, a strategy that is not received well in the PC, according to sources. While acknowledging capacity constraints, PC officials said that the continued indifference of the policymakers towards strengthening the PC led to demise in the working of the Commission.

They said that instead of doling out millions of dollars to these international consultants the government should focus on the Commission or else it should be closed down. The previous government turned the Commission into a project processing unit while compromising on its policy role.

Ahsan Iqbal was not available for comment.

In a similar case, the PC has also engaged Dr Khalid Ikram as a consultant on Vision 2025. Dr Ikram was also involved in the preparation of the Framework for Economic Growth (FEG), prepared by the previous government.

Asif Sheikh said that the PC had requested the ADB to provide assistance in preparation of the Vision 2025 and Dr Khalid Ikram was selected by the ADB. “We have accepted the ADB’s choice”, he added.

Published in The Express Tribune, October 9th, 2013.

How to get billions of USD easily, cheaply and quickly for Pakistan?

H’able Mian Muhammad Nawaz Sharif Sahab,

AoA.

As per latest reports of media today Pakistan’s total foreign exchange reserves have fallen below $10 billion to $9,92 billion; with SBP having only $4.6 billion and commercial banks $5.32 billion.

Considering the country’s precarious level of foreign exchange reserves, it is suggested that the MOF may be directed to adopt the following scheme (with suitable amendments as Pakistan’s requirement) launched by India, to enhance its foreign exchange reserves, basically to control the fast depreciating Indian Rupee, which has now come back from IR 68 to a dollar to IR 61.44 to a dollar.

Further, India expects gathering additional $30 billion with this scheme, detailed at below.

MUMBAI: Reserve Bank of India governor Raghuram Rajan’s doubling of borrowing limits for banks and the easier norms to tap non-resident bonds may draw as much as $30 billion in the next three months, providing a much needed breather to fix the currency.

Private banks such as ICICIBSE -0.79 %, Axis and even the State Bank of IndiaBSE -0.42 % may be among the lenders which may use the window opened by the new governor to raise US dollars by bond sales which could fetch as much as $20 billion, said analysts. No bank has declared its intention to use the window so far. Rajan’s offer to hedge foreign exchange deposits of the banks at a fixed 3.5% for three years may lure another $10 billion, estimate economists.

“An enhancement in the overseas borrowings would mean additional borrowings possible for the banking sector in foreign currency,” said Mohan Shenoi, treasury head, Kotak Mahindra BankBSE -0.72 %, who had estimated that even if a quarter of it is used about $25 billion could flow into the country. Rajan, on Wednesday, moved to shore up the rupee which was among the worst-performing currencies in the world after foreign investors began to pull out funds as tapering of the quantitative easing in the US turned imminent.

Banks can now borrow up to 100% of their Tier I capital, from 50% forex-denominated FCNR B of three years and above at a fixed hedge cost of 3.5 %. The rupee gained 1.6% to 60.01. The special swap window for the so-called FCNR (B) deposits, probably to offset the US dollar sales to oil companies under a swap agreement, could lead to substantial flows as it did during previous such moves.

This should add about $10 billion to forex reserves and rein in rein expectations around current levels,” said Indranil Sen Gupta, economist, Bank of America Merrill Lynch. “This brings to fruition our standing call that the RBI would need to mobilize forex reserves by launching a NRI deposit scheme in which the rupee risk is borne by it or the government.”

During April-June there were net outflows of $101 million compared to an outflow of $696 million in the same period last year. The outstanding FCNR B deposit in the system is $15 billion, almost one-third of the NRE deposit. According to Sengupta, the cost of FCNRB deposit mobilisation will come to 8.5%. RBI has liberalised norms on NRI deposits to get inflows.

In April, it had exempted deposits under the scheme from the requirement of cash reserve ratio and statutory liquidity ratio. If banks lend at 11%, they will likely make the entire 250 basis points spread as FCNRB deposits will not attract CRR or SLR for now. The currency is expected to gain from the inflows. Similar schemes, like the 1998 Resurgent India Bonds and the 2001 India Millennium Deposits were effective in the past. They had raised $5 billion each.”

With best wishes and kind regards.

Syed Nayyar Uddin Ahmad

Height of economic mismanagement..!

The government of Pakistan finalised a deal on Sept 23 with a consortium of banks to arrange $625 million loan at an average rate of 5.3 per cent over London Interbank Offered Rate (LIBOR).

Considering that world over, one hardly gets 1% interest, over dollar deposits in banks, if the GOP had offered even 4% profit to the expatriate Pakistanis, it would have fetched foreign exchange many times over $625 million, that too on a much cheaper rates.

I am just astonished at the way the financial affairs of Pakistan are being run by the experts of the ministry of Finance.

However, one thing is certain, the previous PPP government is now looking much better than the current PMLN’s highly experienced rulers, especially in the financial affairs.

Mr. Ishaq Dar can you answer the questions raised below, or the nation should rue that moment, when PMLN was voted by the people to govern with its team of extremely incompetent and nincompoop finance managers.

Now there is hardly any doubt that PMLN has totally messed up the country’s economy. Needs any proof, just read the letter attached below, and decide for your self, the sheer incompetence of the government’s finance team.

A letter titled “Flight of capital” published by the daily Dawn on 4 October, 2013.

PAKISTAN’s rupee was at 100 to one US dollar on June 1 and today’s rate is hovering around Rs110 to one US dollar. This means we have a devaluation of 10 per cent in less than three months since this government came into power.

The unabated beating of our currency in the exchange market has very serious consequences. It is sharply resulting in hyper inflation, mainly because we are consuming imported goods worth around $4 billion a month, and the depreciating currency directly increases the cost of imports.

The daily increasing inflation is making lives of the people miserable. In a desperate effort to increase forex reserves and stop the currency falling over the cliff, the government finalised a deal on Sept 23 with a consortium of banks to arrange $625 million loan at an average rate of 5.3 per cent over London Interbank Offered Rate (LIBOR).

Instead of stabilising Pakistan’s rupee, this reported deal backfired and has spurred currency devaluation because clearly this deal has sent wrong message to forex market.

Even the stock market reacted very negatively, and the Karachi Stock Exchange lost more than 500 points on Sept 24. I think many economy watchers in and outside the country would be wondering why the government should show such an immense desperation to market by entering into such a forex loan at such a high interest rate as 5.3 per cent above LIBOR.

This government-bank consortium deal of $625 million loan appears to have been done in unnecessary desperation and haste without much economic homework.

I do not know if the following points were debated at length before making such a deal. What is the surety that such a deal will not lead to cannibalisation of dollar deposits?

How will such a deal increase reserves if banks of consortium transfer foreign holdings of residents to the SBP and earn higher profit of 5.3 per cent above LIBOR?

Will it not lead to more dollarisation of the economy when market senses so much desperation of the government that it enters into such a deal? Instead of making such deals, the government should take bold steps and make necessary structural reforms because the country’s economy is completely fractured.

EJAZ AHMAD MAGOON
Lahore

نہ سمجھو گے تو مٹ جاوگے اے حکمرانوں تمھاری داستان تک نہ ھوگی داستانوں میں

Dooms day for the honest people of Pakistan.

What is happening in Pakistan. Are the rulers so naive that they are being misled by their core team, to commit absolutely stupid mistakes? Are the rulers so ignorant that they are not aware about the fact that they can not extract any further juice from the public, after it has been put through the juice extraction machine, many times over, since the take over of the PMLN government?

In India, Petrol price cut (due to the reduction of international oil prices from $117 to $113) by IndiaRs 3.05 per litre (A Times of India news published on 30 Sept. 2013).

Now, look how exactly on the same day, PMLN’s government has treated the Pakistani nation, by increasing the electricity rates for the domestic consumers by 40-80%, and instead of reducing the petrol prices, it has been further enhanced by PKR. 4.12/L.

The only argument with the PMLN’s government, for increasing the power rates is that how can expensive electricity be supplied, at a less rate and as such, general public can not be given subsidy on electricity? This argument does not hold water, in view of the fact that; instead of recovering electricity bills from those people, who are involved in power theft, at an ultra massive level (above 40% line losses as per NEPRA), the government has adopted the easy way of recovering the enhanced bill, by punishing those 60% honest bill payers, who have never been involved in the power theft.

Everybody, even the layman knows in our country that our electricity is costing very high, just due to the world’s highest ratio of theft or line losses.

As far as, the matter of subsidy is concerned, our rulers are enjoying all types of subsidies for the officially allowed luxuries even to their families, as well. Moreover, poor masses are going hungry, as they can not buy ROTI being sold in the market at Rs.8-12; but our parliamentarians are getting 5 star quality food, at highly subsidised rates, where they are charged just Re.1 (Rupee one only) for a Roti.

What a system, where a poor citizen (Mr. Ishaq Dar himself admitted when he spoke in a seminar on 9 September, 2013 that more than 60 percent Pakistani population or 110 million people were living below the poverty line, which was One Dollar a day) is sleeping hungry with his entire family, where people are committing suicides on daily basis, due to the extremely harsh economic hardships; but these poor people are being made to pay for the free rides of the public representatives?

Today is a dooms day for the honest people, who in fact, deserved a reduction in the petrol prices, have been punished by the government, with a historic rise in the power and petrol rates.

Isn’t it a fit case for a Suo Moto action, as was done in the case of high sugar and petrol prices, in the last PPP era?

Since, this democratically elected parliament, has again failed to shield the masses from the tyranny and excesses of the government, the people are fully justified in looking towards the others, to come to their rescue.

For the general public, it matters the least that who rules them, but what matters them the most, is how they are ruled.

In view of the foregoing, I forewarn the Pakistani ruling elite and all the public representatives, to beware of the day, when people will welcome any other system with open hands, which will not be so cruel and tyrannical, like the current decadent system of governance.

Moreover, the Honourable Prime Minister of Pakistan, Mian Muhammad Nawaz Sharif Sahab (Hope you remember the solemn commitment of your government on the floor of the house that no mini budget will be coming during the year) is again reminded that, as forewarned earlier, your honour should immediately shunt out those advisors, who are hell bent to ensure that Mian Nawaz Sharif be remembered in the history of the country, as the most hated, cruel and tyrannical ruler of Pakistan, who snatched even the last piece of the dry bread from not one or two persons, but crores (minimum 11 crores) of poor masses.

Honourable Prime Minister Mian Muhammad Nawaz Sharif Sahab,

Salaam.

While your government is increasing the size of the begging bowl, look what India is doing…!

A TOI eye opening news..!

Govt launches austerity drive, bans meetings in 5-star hotels
PTI | Sep 18, 2013, 08.37 PM IST

Chidambaram earlier met financial advisors of various ministries to impress upon them the need for austerity.

NEW DELHI: Government departments have been banned from holding meetings in 5-star hotels and officials barred from executive class air travel as part of a slew of austerity measures announced on Wednesday to cut non-plan expenditure by 10 per cent.

Aiming to restrict the fiscal deficit to 4.8 per cent of GDP in 2013-14, the Finance Ministry has ordered all ministries and departments not to buy new vehicles, create new jobs or fill posts lying vacant for over one year.

It has also directed that the size of delegations going abroad should be kept at the “absolute minimum.”

The government has been introducing austerity measures since 2008-09, most recently in November 2012.

“Such measures are intended at promoting fiscal discipline, without restricting the operational efficiency of the government. In the context of the current fiscal situation, there is a need to continue to rationalise expenditure and optimise available resources,” the finance ministry said.

Finance minister P Chidambaram earlier said he had drawn a red line and would not allow the fiscal deficit to breach the target of 4.8 per cent of GDP in 2013-14.

The various austerity measures helped the government to contain the fiscal deficit at 4.9 per cent of GDP in the previous financial year, against the budgeted target of 5.1 per cent.

The circular came a day after Chidambaram met financial advisors of various ministries to impress upon them the need for austerity. ———————————————————–

Mr. Prime Minister, one thing must be made clear to all your advisors that only foreign loans will not and never cure the ills of the Pakistan’s economy, for which we will also have to reduce our expenditures in a big way and not just in a cosmetic manner.

Wishing you all the best in your untiring efforts to put Pakistan back on the rails of recovery.

Syed Nayyar Uddin Ahmad

Lahore.

Sent from my iPad3 4G LTE

Honourable Prime Minister of Pakistan

AoA.

There is a strong feeling that government is mortgaging the future of the country with the foreign donor agencies, by taking so much huge amount of loans (that too just for the repayment of the old loans), which this poor country may never be able to repay. This means that in every terms, we have gone bankrupt; and can’t even breathe, without the debt life line.

The gravity of the loan repayment situation can be gauged that during the FY 2102-13 Pakistan spent about 1 trillion PKR out of the FBR’s revenue earnings of less than 2 trillion PKR.

Today, Pakistan is not under huge debt, rather, it is completely buried under the debt. The government has borrowed Rs.611 billion in just 40 days from the state bank of Pakistan, as against Rs.507 billion in full year (2012-13). In other words, the PMLN’s government has borrowed Rs.15.3 billion per day in 40 days, as against Rs.1.4 billion per day by the previous regime in 2012-13.

The 6% depreciation of Rupee vs the USD in the last 80 days, has cost Pakistan Rs.3.5 billion per day and has added additional Rs.276 billion in public debt in the last 80 days. (Figures quoted in this para and its preceding para were reported by Dr. Ashfaque H Khan, in his article, titled “A nation’s debt” published by the daily “The News” dated 27 August, 2013).

H’able Prime Minister Mian Nawaz Sharif Sahab, you always spoke against the debt burden through out the last 5 years tenure of the PPP.

However, now your government has broken the entire 365 days record of the PPP government in just first 40 days, as per the details explained above.

As such, kindly take it as very serious matter (of the economic life and death of Pakistan) because, all the world knows that the USSR, the strongest nuclear power of the world, was broken, not because of any enemy action, but by its own economic melt down.

Sir, unfortunately, all financial indicators points that your era is moving the country fast towards economic melt down.

You may remember, I requested you to to take the personal charge of the affairs of the country, lest the situation may not come to a pass, where even you may not become helpless, to stem the rot.

In this regard, after declaring an economic emergency, the following economy and austerity measures are suggested for adoption, to at least put up an impression to the masses, that government is seriously contemplating to improve the economic resurgence of Pakistan. And also to dispel the impression that your economic policy is not to just blindly run the country on domestic and foreign loans and to merely pass your tenure of the government, without bothering about the repercussions of the future inability of the country, to pay back these loans.

SUGGESTIONS

1. Immediate 50% reduction of all the pay and perks of the entire government servants/employees (except all the security personnel who are shedding their blood for our safe and better tomorrow) from president to the peon. This should include all government employees, employees of the government semi-government/autonomous corporations/ banks, PIA, Railways, Steel Mills etc.
However, upon improvement of the economic situation the unpaid 50% salary amount should be gradually given back to the employees.
Moreover, for all these government employees, there should be a 50% rebate in payment of all utility bills and educational fees of their children during this period of economic emergency.

2. 50% expenditure reduction in the entire PSDP.

3. Absolute ban on the foreign trips of the government officials. All international meetings to be attended by the respective envoy’s of Pakistan, in that country.

4. Absolute ban on the foreign medical treatment on government expenditure, right from the top to the bottom.

5. Cessation of the entire subsidy on the food items available to the Senators, MNA’s and MPA’s at the Parliament’s cafeteria, where Roti is served almost free; and even in Peshawar, it is selling at Rs.15/- for the general Public.

6. Complete ban (in real sense) on the official entertainments at all levels.

7. NAB may be directed to take very immediate steps (absolutely ruthlessly) to recover (from within and outside Pakistan) all the looted national money, on a fast track basis.

8. Immediate nationalisation (without giving any time to the ultra rich people to move their precious jewellery out of Pakistan) of the GOLD, DIAMONDS, GEMS and precious metal in Pakistan.

9. Reduce taxation rate of all types of taxes, GST, levies, excise etc. to a maximum of 10%.

10. During the currency of this economic emergency period, there should be a ban on increase in the prices and rates of POL, utilities and all essential items.

With warm regards and best wishes.

Sincerely Yours,

Syed Nayyar Uddin Ahmad

Pakistan Submerged in the Debt Trap..!

There is a feeling that government is mortgaging the future of the country with the foreign donor agencies, by taking so much huge amount of loans (that too just for the repayment of the old loans), which this poor country may never be able to repay. This means that in every terms, we have gone bankrupt; and can’t even breathe, without the debt life line.

Today, Pakistan is not under huge debt, rather, it is completely buried under the debt. The government has borrowed Rs.611 billion in just 40 days from the state bank of Pakistan, as against Rs.507 billion in full year (2012-13). In other words, the PMLN’s government has borrowed Rs.15.3 billion per day in 40 days as against Rs.1.4 billion per day by the previous regime in 2012-13.

The 6% depreciation of Rupee vs the USD in the last 80 days, has cost Pakistan Rs.3.5 billion per day and has added additional Rs.276 billion in public debt in the last 80 days. (Figures quoted in this para and its preceding para were reported by Dr. Ashfaque H Khan, in his article, reproduced below, titled “A nation’s debt” published by the daily “The News” dated 27 August, 2013).

————————————————————-

H’able Prime Minister Mian Nawaz Sharif Sahab, you always spoke against the debt burden through out the last 5 years tenure of the PPP.

However, now your government has broken the entire 365 days record of the PPP government in just first 40 days, as per the details explained above.

As such, kindly take it as very serious matter (of the economic life and death of the Pakistan) because, all the world knows that the USSR, the strongest nuclear power of the world, was broken, not because of any enemy action, but by its own economic melt down.

Sir, unfortunately, all financial indicators points that your era is moving the country fast towards economic melt down.

You may remember, I requested you to to take the personal charge of the affairs of the country, lest the situation may not come to a pass, where even you may not become helpless, to stem the rot.

In this regard, after declaring an economic emergency, the following economy and austerity measures are suggested for adoption, to at least put up an impression to the masses, that government is seriously contemplating to improve the economic resurgence of Pakistan. And also to dispel the impression that your economic policy is not to just blindly run the country on domestic and foreign loans and to merely pass your tenure of the government, without bothering about the repercussions of the future inability of the country, to pay back these loans.

SUGGESTIONS

1. Immediate 50% reduction of all the pay and perks of the entire government servants/employees (except all the security personnel who are shedding their blood for our safe and better tomorrow) from president to the peon. This should include all government employees, employees of the government semi-government/autonomous corporations/ banks, PIA, Railways, Steel Mills etc.

However, upon improvement of the economic situation the unpaid 50% salary amount should be gradually given back to the employees.

Moreover, for all these government employees, there should be a 50% rebate in payment of all utility bills and educational fees of their children during this period of economic emergency.

2. 50% expenditure reduction in the entire PSDP.

3. Absolute ban on the foreign trips of the government officials. All international meetings to be attended by the respective envoy’s of Pakistan, in that country.

4. Absolute ban on the foreign medical treatment on government expenditure, right from the top to the bottom.

5. Cessation of the entire subsidy on the food items available to the Senators, MNA’s and MPA’s at the Parliament’s cafeteria, where Roti is served almost free; and even in Peshawar, it is selling at Rs.15/- for the general Public.

6. Complete ban (in real sense) on the official entertainments at all levels.

7. NAB may be directed to take very immediate steps (absolutely ruthlessly) to recover (from within and outside Pakistan) all the looted national money, on a fast track basis.

8. Immediate nationalisation (without giving any time to the ultra rich people to move their precious jewellery out of Pakistan) of the GOLD, DIAMONDS, GEMS and precious metal in Pakistan.

9. Reduce taxation rate of all types of taxes, GST, levies, excise etc. to a maximum of 10%.

10. During the currency of this economic emergency period, there should be a ban on increase in the prices and rates of POL, utilities and all essential items.

With warm regards and best wishes.

Sincerely yours,

Syed Nayyar Uddin Ahmad

Lahore – Pakistan

Sent from my iPad3 4G LTE

Article of Dr. A.H. Khan published in the daily “The News” dated 27 August, 2013.

A nation’s debt

Dr Ashfaque H Khan
Tuesday, August 27, 2013
From Print Edition

The prime minister, in his address to the nation, expressed his concern about the rising debt of the country. His concern was right because high and rising debt constitutes a serious threat to economic prosperity. It acts as a major impediment to growth and hence to employment generation and poverty alleviation. It also discourages both foreign and domestic investment and puts pressure on the exchange rate thereby causing sharp depreciation of the exchange rate and the attendant rise in public debt.

Managing the country’s debt is an art as well as a science. It requires proper institution to manage the debt. Successful debt reduction would require fiscal consolidation and a policy mix that supports growth. Key elements of this policy mix and measures include addressing structural weaknesses in the economy, domestic resource mobilisation and supportive monetary policy.

Fiscal consolidation must emphasise persistent structural reforms for resource mobilisation and expenditure rationalisation over temporary fiscal measures such as increasing tax rates and reducing expenditure across the board. Fiscal institutions including the country’s debt office can play an important role in locking any gains. Reducing public debt takes time; therefore, fiscal consolidation must focus on enduring structural change.

Pakistan’s public debt has grown over the last five years at a pace never witnessed in the country’s history. Public debt (both rupee and dollar components) has grown at an average rate of 21.5 percent per annum in the last five years (2008-12) as against an average rate of 6.6 percent per annum during the first seven years (2000-07) of the previous decade. In absolute terms, public debt rose from Rs6040 billion in 2007-08 to Rs14255 billion by the end of June 2013; that is, an addition of Rs8215 billion in five years.

It is interesting that successive governments over the last 60 years accumulated Rs6040 billion public debt while the previous regime alone added Rs8215 in just five years. Put differently, every child born in 2007-08 carried a debt burden of Rs36606. A child born in 2012-13 carried a debt of Rs77896 – an increase of 112 percent in just five years.

Within the public debt, it is domestic debt that has grown at a pace (23.4 percent per annum) faster than external debt, which stood at $46.2 billion in end June-2008 and rose to $66.4 billion by end-June 2011. But it declined to almost $60 billion in end-June 2013. The decline in external debt owes to the suspension of the IMF programme in May 2010 which dried up most of the external flows from the International Financial Institutions. Meantime, Pakistan continued to service its external debt obligations out of its foreign exchange reserves. It appears that the suspension of the IMF programme was a blessing in disguise as it prevented Pakistan from further accumulating external debt to the extent of approximately $10 billion by now.

Within the domestic debt, the composition of debt has witnessed considerable changes in the last five years. Medium-to-long term debt has been converted into short-term debt with serious consequences for government’s debt management. Today, over 55 percent of domestic debt (Rs5.2 trillion) is of short maturity, which must be rolled over at least once a year. Even more worrisome is the fact that the bulk of short-term debt is shifted to the shortest end of the maturity (three and six months).

Factors responsible for the unprecedented surge in debt include the persistence of large fiscal deficit (on average over 7 percent of GDP), sharp depreciation of exchange rate (over 40 percent) and slower growth in economy (on average, 3 percent per annum). The persistence of large fiscal deficit represents government’s inability to collect more revenues on the one hand and reckless spending on the other, resulting in an extraordinary surge in public debt. Higher public debt has caused interest payment to more than double, crowded out private investment and reduced fiscal space to undertake much needed public investment in infrastructure.

The prime minister’s concern is genuine. He has inherited a severely damaged economy. What is required on his part is not to repeat the same mistakes. Fiscal consolidation should therefore be the topmost priority of his government. In his frequent speeches, he loves to mention various developmental projects of national and regional importance that he intends to launch. All these projects would require resources to complete them. He has seldom talked about domestic resource mobilisation with same zeal and fervour. It is suggested that domestic resource mobilisation should be an integral part of his government’s fiscal consolidation.

Secondly, fiscal consolidation efforts need to be complimented by measures that support growth: structural issues need to be addressed and monetary conditions need to be as supportive as possible. The beginning is not up to the mark. The government has borrowed Rs611 billion in just 40 days from the State Bank of Pakistan as against Rs507 billion in full year (2012-13). In other words, it has borrowed Rs15.3 billion per day in 40 days as against Rs1.4 billion per day by the previous regime in 2012-13.

Thirdly, exchange rate stability is also vital for preventing public debt accumulation. The performance in this regard is equally poor. The exchange rate has already depreciated by 6 percent in just 80 days. Accordingly, without borrowing a single dollar, Pakistan has added Rs276 billion in public debt in just 80 days – Rs3.5 billion per day.

Nothing is lost thus far on economic front for this government. These are minor damages and can be cured. What is required from the government is a serious effort to consolidate the debt situation through fiscal discipline, productive use of fiscal deficit, improving the quality of expenditure, exchange rate stability, structural reforms, a vibrant debt office, good communication strategy, and a strong and coherent economic team.

The writer is the principal and dean of NUST Business School, Islamabad.

Email: ahkhan@nbs.edu.pk

Pakistan submerged in the debt trap..!

There is a feeling that government is mortgaging the future of the country with the foreign donor agencies, by taking so much huge amount of loans (that too just for the repayment of the old loans), which this poor country may never be able to repay. This means that in every terms, we have gone bankrupt; and can’t even breathe without the debt life line.

Today, Pakistan is not under huge debt, rather, it is completely buried under the debt. The government has borrowed Rs.611 billion in just 40 days from the state bank of Pakistan, as against Rs.507 billion in full year (2012-13). In other words, the PMLN’s government has borrowed Rs.15.3 billion per day in 40 days as against Rs.1.4 billion per day by the previous regime in 2012-13.

The 6% depreciation of Rupee vs the USD in the last 80 days, has cost Pakistan Rs.3.5 billion per day and has added additional Rs.276 billion in public debt in the last 80 days. (Figures quoted in this para and its preceding para were reported by Dr. Ashfaque H Khan, in his article titled “A nation’s debt” published by the daily “The News” dated 27 August, 2013).

The H’able Prime Minister of Pakistan,

AOA.

Your honour seems to be absolutely oblivious of the living conditions of the poorest of the poor in Pakistan. Otherwise, how it was possible that again very cruelly, your government has announced the increase in the price of the poor man’s fuel i. e., KEROSINE OIL, which after an increase of Rs.4.71 per litre, will now cost Rs.105.99 (virtually Rs.106) per litre.

Perhaps, your honour may be aware that kerosene – which is mostly used in cooking stoves in remote areas where Liquefied Petroleum Gas (LPG) is not readily available – and LPG too is so expensive that poorest of the poor cant even think of using this fuel.

Sir, it looks your advisors have forced you to govern Pakistan like a cruel king, by squeezing the poor and honest people, with every now and then increase of prices of essential commodities, e.g., fuel, gas, electricity plus simply enhancing taxation rates, which impacts each and every item, in the use of the common man.

Your honour may or may not be aware of the fact, that the impact of your government’s policies has also started affecting the middle class society of the country; and people have started withdrawing their children from good public schools. This situation is a real cause of alarm for your government, which claims to have been formed, with the votes of the masses.

It looks your government is absolutely gone out of sync with the ground realities being faced by the teeming millions; and your advisors have totally shut their eyes to seek any out of the box solutions, for ameliorating the sufferings of the masses, in non traditional and revolutionary manners. The main reason for this approach of your advisors is that they don’t belong to the masses cadre (no doubt some of them are ultra rich) and thus, they are the forces, who support the status quo.

Anyway, I would like to invite your kind attention towards the below mentioned news item; in which case, if you pursue it with missionary zeal (this was your election promise as well), Pakistan’s all economic woes will end, like the movement of a magic wand.

Mr. Prime Minister, whether you want to be remembered as a run of the mill ordinary ruler, or as a cut above the rest, who changed the fate of the nation, the choice is in your hands. However, it must be remembered again, that with the current direction and outdated strategy of your government, the posterity will surely remember you, standing in line with rulers like Syed Yousaf Raza Gilani etc.

So, Sir, if you want to create a name for yourself in the realms of the history, just break the status quo; and surround your honour with the advisors, who have a connect with the masses and have the guts to call a spade a spade, in your presence.

Pakistan has 97 billion dollars in Swiss Banks: Director Swiss Bank

A news published on 18 September, 2011, by the daily “Pakistan Today”

BERN – Director Swiss Bank said that Pakistan has 97 billion dollars in Swiss Banks. Director Swiss Bank said ‘Pakistanis are poor but Pakistan isn’t a poor country.’

He added that 97 billion dollars of Pakistan is deposited in respective bank and if this money would be utilized for the welfare of Pakistan and its people then Pakistan can make tax less budget for 30 years, can create 60 million jobs, can carpet four lanes road from any village to Islamabad, endless power supply to five hundred social projects, every citizen can get 20000 rupees salary for the next 60 years and there is no need to see IMF and any World Bank for loans.

My comments posted subsequently on the above news.

“Syed Nayyar Uddin Ahmad · 101 weeks ago
The news reported in Pakistan Today that Swiss banks have 97 billion dollars is a smoke screen to mislead the general public. By no means this figure can be less than 200 billion dollars i.e. more than three times the existing foreign debt of Pakistan. Leaving aside the exact amount of Pakistan in the Swiss banks, our civilian government & parliament, military establisment, bench and bar & the media must devise some mechanism (following the US government initiative with the Swiss government) to very strongly take up the issue with Swiss government to return back our money deposited in Swiss banks. This is all the more necessary to stabilize the country to successfully fight the war on terror for the entire world.”

Wishing you godspeed and all the success in your endeavours, to serve the country in the best possible manner.

Sincerely yours,

Syed Nayyar Uddin Ahmad