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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).

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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).

This has reference to the news item of 01 December 2012, by Mehtab Haider titled “Total debt scales Rs.14.5 trillion mark” published by the daily “The News” link :-http://www.thenews.com.pk/Todays-News-3-145837-Total-debt-scales-Rs145-trillion-mark

The gist of the above reveals the extremely precarious economic situation of Pakistan, as below.

1. Pakistan’s public debt and liabilities crossed Rs.13.5 trillion by end-September 2012, as per SBP data released on 30 November, 2012. However, a closer look reading of the data showed that the size of total debt is Rs.14.5 trillion.

2. According to SBP data total debt and liabilities at end of September 2012, touched $66.24 billion.

3. BY THE END OF JUNE 2012, PAKISTAN’S DEBT-TO-GDP RATIO STOOD AT 61.5%.

4. According to the former economic adviser Dr. Ashfaque Hassan Khan. “Even now, interest repayments are consuming 56 percent of the FBR’s revenue. And these unsustainable levels of public debt will be a burden on future generations who will service this debt through exorbitant taxation.”

5. Analysts say that irresponsible fiscal management, sharp depreciation of the Rupee (from Rs.60 to a dollar to Rs.97 to a dollar – in the last four years) and low economic growth have caused the surge in public debt.

In view of the foregoing, it is clearly evident that we have reached a stage, where even alarm bells ringing time has passed. The economy of Pakistan is not sinking, it has already sunk. Foreign exchange reserves are fast depleting.

{This piece was written in December, 2012 and now today (in the year 2013) the government has been forced to obtain loan from IMF to repay its old loan. This proves that we have no money to pay our liabilities. This situation in plain words is called bankruptcy.}

However, what is very alarming and strange that the entire government and the parliament is silent over the issue, as if, they are in collusion with each other, on (God forbid) this virtual economic demise of the country. Otherwise, at least a single person from the entire parliament would have raised his/ her voice, over violation of the binding on the government, for not exceeding the debt-to-GDP ratio over 60%. (Please refer para 3 above).

We should remember that USSR was not dis-membered, due to the violation or collapse of its geographical boundaries. Rather, it was the collapse of its economy, which destroyed a superpower overnight. The USSR broke down without firing of a single bullet, just due to its economic melt down.

If, even at this later stage, patriotic Pakistanis won’t raise their voice, over this virtual economic collapse of the country, then be ready, history will never forgive us, for our collective Harakiri.

No amount of military or nuclear power, can save a nation from its demise, due to the economic collapse. Yes, collective will power of its people, can save a nation from any crisis, but that too if, the people are not too late, as time and tide waits for none.

Although, Pakistan is in a perpetual state of war for more than a decade, yet, the government never acted in a manner, that would reflect even slight realisation on its part, to make its expenses in a more prudent manner. No austerity measures were imposed, to either reduce the size of the bloated cabinet, stop payments of foreign exchange to top government functionaries, who are entitled for such perks, or even restrict purchase of new cars etc.

This is extreme callousness with the nation. On the other side, high and mighty are enjoying benefits, which even a rich country like Switzerland, can not afford to its VIP’s; for example allowing instalment payment of power bills of their factories stretched over a period of 2000 YEARS, YES 2000 YEARS. The Pakistani VIP class is enjoying such facilities and benefits, which even the Queen of England would envy.

Now, business as usual can not be continued.

The economic treason with the state of Pakistan, by all the concerned, looks like a fit case for the patriotic people in the government, opposition (in and out of parliament) and the entire civil society, to demand the immediate formation of a very lean national government, which should impose an economic emergency; and also take necessary action on the question that “why all the concerned remained silent when the debt-to-GDP ratio exceeded 60%, that too, few months back on 30 June, 2012.” Don’t forget, when the same problem was faced by the US government, even the salaries were not paid, till such time, President Barack Obama, got approval from the law makers, for enhancing the expenditures limit.

It will not be out of place to end this note, with quote of the Midwestern tycoon Warren Buffett, who once gave an easy solution to America ’s debt problem on CNBC:

“I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than three percent of GDP all sitting members of congress are ineligible for reelection.

FRESH TAIL PEICE DATED 17 AUGUST 2013.

THE NATION DEMANDS THAT THE PREVIOUS RULERS BE IMMEDIATELY ARRESTED AND TRIED FOR PUSHING PAKISTAN TO THE STATE OF BANKRUPTCY.

THE NATION ALSO DEMANDS THAT ALL THE ASSETS INSIDE PAKISTAN AND ABROAD OF THE ENTIRE LOT OF THE PREVIOUS GOVERNMENT’S TOP FUNCTIONARIES BE CONFISCATED AND THESE PEOPLE SHOULD ONLY BE ALLOWED TO COME OUT OF THE JAIL IF THEY AGREE TO REPAY THE PREVIOUS IMF LOAN OF $11.3 BILLION.

THE QUESTION IS SIMPLE WHY THE PEOPLE OF PAKISTAN SHOULD REPAY THE ODIOUS IMF LOAN OBTAINED AND UTILISED BY THE PREVIOUS RULES FOR THEIR OWN BENEFITS?

THE NATION ALSO DEMANDS AN IMPARTIAL JUDICIAL INQUIRY INTO THE ECONOMIC MURDER OF THE NATION WHEREIN WHEN GENERAL MUSHARRAF’s GOVERNMENT HANDED POWER TO THE PPP GOVERNMENT OUR LOAN LIABILITY IN THE YEAR 2008 STOOD AT $40 BILLION (PPP GOVT GOT SANCTIONED A LOAN FROM IMF WORTH USD 11.3 BILLION AND RECEIVED $7.6 BILLION SO AT THE END OF PPP GOVT THIS FIGURE SHOULD NOT HAVE GONE UP MORE THAN USD 48 BILLION) AND ONE USD WAS EQUAL TO PKR 60. WHAT HAPPENED TO PAKISTAN’S ECONOMY WHEN THE PMLN GOVERNMENT TOOK OVER IN JUNE 2013 ONE USD WAS SELLING FOR 100 PKR AND NATIONAL LOANS SHOT UP TO USD 67 BILLIONS?

A BILLION DOLLAR QUESTION:

WHAT IS THE SECRET OF UNACCOUNTED FOR INCREASE OF ABOUT 20 BILLION USD IN LOAN LIABILITIES OF PAKISTAN DURING THE FIVE YEARS (2008-13) OF PPP RULE?

A must read for the PM Pakistan, Prof. Ahsan Iqbal and the entire cabinet of wise men and women

“Power policy”

By Dr Farrukh Saleem
Sunday, July 28, 2013
From Print Edition of the daily “The News”.

Capital suggestion

Thirty percent of the new power policy makes sense. Seventy percent of the new power policy is poppycock. The PML-N wants to deliver. Delivery has three pre-requisites: intention, planning and capacity to implement. The PML-N seems well intentioned and is engaged in some sort of planning as well. In my analysis, capacity is the missing link.

Here’s the sensible part of the policy: smart feeders, re-prioritisation of gas allocation, furnace oil priority for efficient plants and performance contracts with Discos. Furthermore, holding the board of directors responsible, energy-saving bulbs and decentralisation are all steps in the right direction. Other sensible elements include a federal adjuster, external collection agencies, prepaid meters, key client managers and time-of-day metering.

Now the poppycock. We will convert to coal. Imagine: we would need 100,000 tons of coal a day while our current production is 8,000 tons. Realistically, Thar coal will need five to eight years plus a few billion dollars. Time we don’t have, billions we don’t have.

Lo and behold, the power policy does not talk about the two elephants in our power sector. First, our IPPs are running some of the most inefficient power plants on the face of the planet. Second, the government has already resolved to jack up the tariff. The truth is that Pakistan’s IPPs have no incentive to become efficient and Pakistan’s IPPs are massively over billing – and still getting paid.

More poppycock. We will import coal. Imagine: we need to import 100,000 tons a day while our ports are currently handling 6,000 tons a day. Plus, a multibillion dollar logistical and supply-chain infrastructure to transport all that imported coal to the power plants day-in-day-out. Time we don’t have, billions we don’t have.

Even more poppycock: the China connection. The truth is that China is converting its own coal plants to LNG and the truth is that the world outside China is no longer willing to finance coal plants.

Amazingly, the power policy does not talk about the two elephants in the room. One, Nepra the abettor not the regulator, and our oil-guzzling, hugely inefficient IPPs. The truth is that our power plants are gulping down anywhere from 24 kg to 46 kg of furnace oil to produce 100 kWh whereby the world outside Pakistan produces 100kWh with 14 kg of oil. Shockingly, the power policy does not talk about the two elephants in the room. One, our IPPs raking in annual returns of 35 percent to 45 percent. Two, the PPP government also jacked up the tariff that sunk the industrial sector, increased the incentive to steal and doubled the circular debt.

The truly sad truth is that the government of Pakistan (GoP) has signed contracts with the IPPs on behalf of the poor residents of Pakistan. And those contracts have produced only two losers – Pakistan and its even poorer residents. Call it incompetence, another case of public money private greed or a little of both.

Why don’t we accept that the GoP and the IPPs are united in an unholy matrimony? Wedded till 2025 (read: sovereign guarantees). And, regardless of what we put in – oil, gas or coal – our IPPs in their current state of affairs are bound to produce expensive electricity.

We need a Nepra on steroids. We need Nepra to hold IPPs by their necks to improve their efficiency and produce cheaper power.

PS: Who has really formulated this policy? The GoP or the IPP lobby? Elite capture of policy is “where resources transferred designated for the benefit of the poor population are usurped by a few individuals of superior status”.

The writer is a columnist based in Islamabad. Email: farrukh15@hotmail.com

Twitter: @saleemfarrukh

Dear Mr. Ishaq Dar,

Your kind attention is invited towards the following news item titled “IMF extends zero interest rates on poorer country loans” published by the daily “Pakistan Today” on 23 December, 2012 detailed news available at the link :- http://www.pakistantoday.com.pk/2012/12/23/news/profit/imf-extends-zero-interest-rates-on-poorer-country-loans-2/

In this regard, as per my many earlier submissions to the PM and the entire nation, I am fully convinced, without an iota of doubt that it is sheer disaster recipe for the Pakistan’s economy, to seek loan (that too on an exorbitantly high rate of 3%) from IMF, to repay their old loan. Moreover, your argument that this was the only option to avoid a default, also do not hold water, as firstly, I have explained not one but many viable options in my earlier communications and secondly, default is better than the destruction of the very foundations of the nation’s economy. Hope you know very well that in the recent past, many countries have bravely negotiated with the international lending agencies and succeeded in getting reduction of up to 60% of their loans.

However, in Pakistan’s case our loan amount is increasing with an unbelievable speed. It was recently reported that when PPP government took over in 2008, our debt liability was $40 billions and now it has increased to much more than $60 billion.

The nations fails to understand that why you remained silent as PMLN’s financial expert and also as a senator, during the PPP tenure, when it crossed the LEGAL and constitutional limit of 6% debt to GDP ratio. This was such a grave violation of the law that had PMLN taken up this issue with the Supreme Court, the PPP government would have been immediately dismissed.

So how can you now absolve yourself from this financial mess, by just saying that you took over the government with nation’s economy in very bad shape?

Also, how can the history exonerate the PMLN in general and Mr. Ishaq Dar in particular, for not playing a pro Pakistan role when the PPP government was playing havoc, with the country’s economy?

As such, Mr. Ishaq Dar, there is only one way of atonement of our past acts of commissions and omissions, by not to further burden the nation’s economy with extremely and unprecedentedly expensive loans of IMF, lest the future generations may not have to say that “لمحوں نے خطا کی تھی صد یوں نے سزا پائ”

Kindly still there is time to explore other options to avoid IMF loan. Nothing is impossible. Where there is a will there is a way.

With best regards,

Syed Nayyar Uddin Ahmad
0321-9402157
Lahore.

Sent from my iPad3 4G LTE

This is a wrong perception that ONLY youth of Pakistan, wants change and is with Imran Khan.

The fact and ground reality is, that Pakistanis in all age group are fed up with the status quo and wants a change; and for that matter, they are whole heartedly supporting PTI candidates, to win the elections, in a landslide victory.

We may not be against PPP, PMLN, MQM, ANP, JUI and JI etc., but we are in favour of PTI and PTI only.

The entire nation also thanks the PPP for accepting this reality; and for announcing PPP’s support for Imran Khan as future PM Pakistan.

Thank you the wise leadership of PPP, for reading and feeling the pulse of the nation, at the right time. In politics, timing is every thing.