http://www.nation.com.pk/daily/may-2006/16/index10.php
Country to suffer $16.5b loss in 2005-06
BY JAVED MAHMOOD
LAHORE - Pakistan is set to sustain a record high financial loss of around 16 billion dollars in the shape of trade deficit and fiscal deficit in the current financial year, it was learnt on Monday.
The country is expected to sustain about 11.50 billion dollars trade deficit while in foreign exchange the fiscal deficit is being seen in the range of five billion dollars in 2005-06.
In comparison with 2004-05, the size of trade and fiscal deficits in 2005-06 would be much greater as in last fiscal the country has sustained a total loss of 9.84 billion dollars _ 6.20 billion dollars trade deficit and 3.64 billion dollars (Rs 217 billion) fiscal deficit.
Details obtained by The Nation showed that in 10 months of the current financial year the country has already suffered a colossal loss of 9.25 billion dollars in the shape of trade deficit while another trade deficit worth 2.25 billion is being estimated in remaining two months, May and June 2006.
Similarly, in first six months of 2005-06 the fiscal deficit has been estimated at Rs 136.68 billion, equal to 2.27 billion dollars when calculated at dollar-rupee exchange rate of 60 rupees.
The fiscal deficit, which was estimated at 3.8 per cent of the GDP in the current budget, is being seen at 4 per cent of the GDP or little over it because of the devastating earthquake.
In foreign exchange, the size of fiscal deficit could be around five billion dollars, keeping in view the country’s expected GDP size of 125 billion dollars by June 2006.
The larger than expected size of trade deficit from July-April 2005-06 has consumed the entire inflow of foreign exchange _ 2.4 billion remittances, 2.63 billion dollars foreign direct investment, 1.6 billion dollars foreign economic assistance/grants and 800 million dollars raised from the sale of global bonds.
Worth noting is that despite the emphasis of the multi-lateral donor agencies and independent economists the federal government is least interested in curbing the abnormal growth of trade and fiscal deficit in 2005-06.
What can Pakistan do? Demand is soaring as growth occurs and we dont have enough exports. Remittances by overseas Pakistanis aren't going to help as well. Its going to be a tough year.
I don't think there is much in the State Bank's hand. The economy is growing too fast and so are the oil prices aka inflation. Even the developed countries are feeling the pain of higher oil prices but due to high income, people of those countries are able to absorb the shocks so far.
Other than that its like a give and take in Pakistan's situation. You implement tight monetary policy and geopardize your growth or implement a fiscal policy and help the GDP to grow. I think we have to realize that Pakistan is going through a transition phase in which the economy is in ultra mode. The demand and supply are trying to catch up constantly but the high growth is a hurdle in between them.
This is a tough phase for not only the people of Pakistan but also the govt of Pakistan. Because the GOP has to maintain a balanced approach so that it doesn't let the economy to heat up too much and GDP to slow down and at the same time don't let the inflation get out of control.
Since the Shaukat Aziz govt made the State Bank an independent body, that is outside the reach and control of any govt ministry and has its own board of governers to make and implement policies. The state bank is now incharge of taking care of the inflation. Whereas, the govt or the ministry of finance is incharge of taking care of un-employment. Unfortunately, the same pill that state bank uses to reduce inflation also is used by the govt to reduce unemployment. But the effect of one's action is inversely proportioned to the others.
So when the state bank wants to reduce the inflation, it tightens the money supply by increasing the discount rate. The side effect is the businesses hold off on expansion due to higher rates and employment opportunities are reduced. On the other hand, the govt issues currency to increase the supply of money or liquidate its foreign reserves for the same purpose and to increase the growth thus reducing un-employment but on the other hand increasing inflation.
So this cycle would last atleast until there is some sort of decrease in local demand of essential items as well as the increase in local production capacity of our economy. The good thing is the more value you add to your products, the easier it is to absorb such shocks.
So really the question is what should we do? Should we stop importing the expensive oil and then what, let the economy suffer? Or should we not import the required machinery and raw material and let the economy suffer. So eihter way somebosy has to suffer, its either the country's GDP or poor people. We can give relief to poor right now and not have any money later to provide for them. Or develop the GDP enough now so that later on we can provide them a constant source of earning and all eat the fruit.
Unfortunately, economists have no one way to counter such problems. And just when we think that we are now developed and these problems are not big issues any more. We have even bigger problems of dealing with indogenous and exogenous shocks of a developed economy. And to maintain a high GDP and per capita income in a recessionary times.
Other than that its like a give and take in Pakistan's situation. You implement tight monetary policy and geopardize your growth or implement a fiscal policy and help the GDP to grow. I think we have to realize that Pakistan is going through a transition phase in which the economy is in ultra mode. The demand and supply are trying to catch up constantly but the high growth is a hurdle in between them.
This is a tough phase for not only the people of Pakistan but also the govt of Pakistan. Because the GOP has to maintain a balanced approach so that it doesn't let the economy to heat up too much and GDP to slow down and at the same time don't let the inflation get out of control.
Since the Shaukat Aziz govt made the State Bank an independent body, that is outside the reach and control of any govt ministry and has its own board of governers to make and implement policies. The state bank is now incharge of taking care of the inflation. Whereas, the govt or the ministry of finance is incharge of taking care of un-employment. Unfortunately, the same pill that state bank uses to reduce inflation also is used by the govt to reduce unemployment. But the effect of one's action is inversely proportioned to the others.
So when the state bank wants to reduce the inflation, it tightens the money supply by increasing the discount rate. The side effect is the businesses hold off on expansion due to higher rates and employment opportunities are reduced. On the other hand, the govt issues currency to increase the supply of money or liquidate its foreign reserves for the same purpose and to increase the growth thus reducing un-employment but on the other hand increasing inflation.
So this cycle would last atleast until there is some sort of decrease in local demand of essential items as well as the increase in local production capacity of our economy. The good thing is the more value you add to your products, the easier it is to absorb such shocks.
So really the question is what should we do? Should we stop importing the expensive oil and then what, let the economy suffer? Or should we not import the required machinery and raw material and let the economy suffer. So eihter way somebosy has to suffer, its either the country's GDP or poor people. We can give relief to poor right now and not have any money later to provide for them. Or develop the GDP enough now so that later on we can provide them a constant source of earning and all eat the fruit.
Unfortunately, economists have no one way to counter such problems. And just when we think that we are now developed and these problems are not big issues any more. We have even bigger problems of dealing with indogenous and exogenous shocks of a developed economy. And to maintain a high GDP and per capita income in a recessionary times.
QUOTE
I don't think there is much in the State Bank's hand. The economy is growing too fast and so are the oil prices aka inflation. Even the developed countries are feeling the pain of higher oil prices but due to high income, people of those countries are able to absorb the shocks so far.
Other than that its like a give and take in Pakistan's situation. You implement tight monetary policy and geopardize your growth or implement a fiscal policy and help the GDP to grow. I think we have to realize that Pakistan is going through a transition phase in which the economy is in ultra mode. The demand and supply are trying to catch up constantly but the high growth is a hurdle in between them.
This is a tough phase for not only the people of Pakistan but also the govt of Pakistan. Because the GOP has to maintain a balanced approach so that it doesn't let the economy to heat up too much and GDP to slow down and at the same time don't let the inflation get out of control.
Since the Shaukat Aziz govt made the State Bank an independent body, that is outside the reach and control of any govt ministry and has its own board of governers to make and implement policies. The state bank is now incharge of taking care of the inflation. Whereas, the govt or the ministry of finance is incharge of taking care of un-employment. Unfortunately, the same pill that state bank uses to reduce inflation also is used by the govt to reduce unemployment. But the effect of one's action is inversely proportioned to the others.
So when the state bank wants to reduce the inflation, it tightens the money supply by increasing the discount rate. The side effect is the businesses hold off on expansion due to higher rates and employment opportunities are reduced. On the other hand, the govt issues currency to increase the supply of money or liquidate its foreign reserves for the same purpose and to increase the growth thus reducing un-employment but on the other hand increasing inflation.
So this cycle would last atleast until there is some sort of decrease in local demand of essential items as well as the increase in local production capacity of our economy. The good thing is the more value you add to your products, the easier it is to absorb such shocks.
So really the question is what should we do? Should we stop importing the expensive oil and then what, let the economy suffer? Or should we not import the required machinery and raw material and let the economy suffer. So eihter way somebosy has to suffer, its either the country's GDP or poor people. We can give relief to poor right now and not have any money later to provide for them. Or develop the GDP enough now so that later on we can provide them a constant source of earning and all eat the fruit.
Unfortunately, economists have no one way to counter such problems. And just when we think that we are now developed and these problems are not big issues any more. We have even bigger problems of dealing with indogenous and exogenous shocks of a developed economy. And to maintain a high GDP and per capita income in a recessionary times.
Other than that its like a give and take in Pakistan's situation. You implement tight monetary policy and geopardize your growth or implement a fiscal policy and help the GDP to grow. I think we have to realize that Pakistan is going through a transition phase in which the economy is in ultra mode. The demand and supply are trying to catch up constantly but the high growth is a hurdle in between them.
This is a tough phase for not only the people of Pakistan but also the govt of Pakistan. Because the GOP has to maintain a balanced approach so that it doesn't let the economy to heat up too much and GDP to slow down and at the same time don't let the inflation get out of control.
Since the Shaukat Aziz govt made the State Bank an independent body, that is outside the reach and control of any govt ministry and has its own board of governers to make and implement policies. The state bank is now incharge of taking care of the inflation. Whereas, the govt or the ministry of finance is incharge of taking care of un-employment. Unfortunately, the same pill that state bank uses to reduce inflation also is used by the govt to reduce unemployment. But the effect of one's action is inversely proportioned to the others.
So when the state bank wants to reduce the inflation, it tightens the money supply by increasing the discount rate. The side effect is the businesses hold off on expansion due to higher rates and employment opportunities are reduced. On the other hand, the govt issues currency to increase the supply of money or liquidate its foreign reserves for the same purpose and to increase the growth thus reducing un-employment but on the other hand increasing inflation.
So this cycle would last atleast until there is some sort of decrease in local demand of essential items as well as the increase in local production capacity of our economy. The good thing is the more value you add to your products, the easier it is to absorb such shocks.
So really the question is what should we do? Should we stop importing the expensive oil and then what, let the economy suffer? Or should we not import the required machinery and raw material and let the economy suffer. So eihter way somebosy has to suffer, its either the country's GDP or poor people. We can give relief to poor right now and not have any money later to provide for them. Or develop the GDP enough now so that later on we can provide them a constant source of earning and all eat the fruit.
Unfortunately, economists have no one way to counter such problems. And just when we think that we are now developed and these problems are not big issues any more. We have even bigger problems of dealing with indogenous and exogenous shocks of a developed economy. And to maintain a high GDP and per capita income in a recessionary times.
i agree with you to some extent but a deficit of such a magnitude is unsustainable in the medium term. can we afford this year after year for the next 5 years lets say?
to bring down the deficit we will need to use tighter fiscal and monetary policy. maybe higher interest rates, higher taxes on imports and a tighter public spending policy/ otherwise we will devalue our currency, raise our debt burden to finance the deficit and create more inflationary pressures. this kind of a deficit is madness.
Yes. The govt will have to do something in the next year's budget. I know their targets of earnings are higher in the next FY but probably so will be the spendings. Well lets see what are the sources of earnings for the govt in broader term.
1. Export earnings.
2. Overseas Pakistanis remittances.
3. Taxes on imports and in general.
I am hoping that the exports will increase next year per target with all the capital expenses this year. The remittances probably won't have a significant growth. The least we can hope is that they stay the same. Now the tax reform should have some effect in the next FY and some jump with introduction and simplification of tax regime.
On expense side, the single biggest item responsible for this mess is oil. Maybe the govt will be able to save some money on operational expenses by implementing the 3rd generation of reforms. I think the govt is looking to sign some fixed price contract with Saudia and Kuwait to import oil for the next 5 years or so. So that might help.
But Shaukat Aziz is a banker. And they run businesses on loans so he might have already set a forecast of what revenues and expenses would look like for the next 5 years and what his plan of action would be. The rest is all in Allah's hands.
1. Export earnings.
2. Overseas Pakistanis remittances.
3. Taxes on imports and in general.
I am hoping that the exports will increase next year per target with all the capital expenses this year. The remittances probably won't have a significant growth. The least we can hope is that they stay the same. Now the tax reform should have some effect in the next FY and some jump with introduction and simplification of tax regime.
On expense side, the single biggest item responsible for this mess is oil. Maybe the govt will be able to save some money on operational expenses by implementing the 3rd generation of reforms. I think the govt is looking to sign some fixed price contract with Saudia and Kuwait to import oil for the next 5 years or so. So that might help.
But Shaukat Aziz is a banker. And they run businesses on loans so he might have already set a forecast of what revenues and expenses would look like for the next 5 years and what his plan of action would be. The rest is all in Allah's hands.
QUOTE
But Shaukat Aziz is a banker
a banker yes, but an economist?
Shaukat Aziz has done a fine job so far, but this deficit could threaten whatever gains we have made. He really needs to constitute a team of economists who can deal with this rather than take it upon himself to sort this out. I am sure the government have done their calculations and either it doesn't bother them or they are doing a good job of hiding their nervousness. I can't believe that any government which is about to implement 2nd generation economic reforms invloving greater liberalisation of the economy will ignore that this deficit could sky rocket with a more liberal economy. what do you think double digit inflation with an exchange rate halve of what it is now against the dollar and a public debt greater than what we have will do to our long term economic forecast?
Well mate, running a country in some ways is no different than running a large business. You make budgets establish forecasts and plan of actions. I don't know if the govt had a bad budget, a bad forecast or a bad plan of action or perhaps a bad implementation of the plan.
Maybe the govt should have better forecast the increase in oil prices and consumtion in the country. Maybe they should have forecast the surge in economic activity better. Or maybe they realized halfway through they year and they decided to let the imports continue and not effect the growth of the economy.
Only the govt knows now what's it going to do. But the nest budget would show a better picture of what the new plan of action would be. I just hope that beginning of the next year we start seeing the results of the second generation reforms so that more tax revenues and more businesses can enter the picture.
The govt probably has the best economic team right now than ever before. The rest as I said is in Allah's hands.
Maybe the govt should have better forecast the increase in oil prices and consumtion in the country. Maybe they should have forecast the surge in economic activity better. Or maybe they realized halfway through they year and they decided to let the imports continue and not effect the growth of the economy.
Only the govt knows now what's it going to do. But the nest budget would show a better picture of what the new plan of action would be. I just hope that beginning of the next year we start seeing the results of the second generation reforms so that more tax revenues and more businesses can enter the picture.
The govt probably has the best economic team right now than ever before. The rest as I said is in Allah's hands.
the next budget too will be a deficit budget.
How come out exports are only at $13bn compared to the $18bn target?? Thats $5bn shortfall in exports, no wonder the deficit is so high! We must ensure that buyer buy our products if we buy thier products. Even countries like ethiopia have a trade surplus of a few million with pakistan! this is unacceptable as pakistan must aim to have a trade surplus with every country, if we must buy anything we should ensure that these people buy some of out produce aswell.
i have a few problems with some of shaukat aziz deals.
the copper mining operation by canadian co. is allowed to take the copper for practically free. They have been given the profit cut even more than south americans companies. (toronto star)
it had no practical benefit to pakistan except short term gains. which is practically rape of pakistani resources.
the real deals like engineering industry or other kind of industries that will provide knowlege. and some real export and import potential.
if we have to allow 70% of profit away then why not give it to gmc, ford, AMD or intel. hell give them 90% profit and all u get is win win situatution. your engineers get jobs. your country gets cheaper processors and you will get some good money from export of it.
============================
by the way deficit is also because of quick increase in developing expenditure. we gonna have to control the investment or its gonna come crushing down on its own growth.
the increased export is also result of intentional inflation. so the deficit will be seen.
the copper mining operation by canadian co. is allowed to take the copper for practically free. They have been given the profit cut even more than south americans companies. (toronto star)
it had no practical benefit to pakistan except short term gains. which is practically rape of pakistani resources.
the real deals like engineering industry or other kind of industries that will provide knowlege. and some real export and import potential.
if we have to allow 70% of profit away then why not give it to gmc, ford, AMD or intel. hell give them 90% profit and all u get is win win situatution. your engineers get jobs. your country gets cheaper processors and you will get some good money from export of it.
============================
by the way deficit is also because of quick increase in developing expenditure. we gonna have to control the investment or its gonna come crushing down on its own growth.
the increased export is also result of intentional inflation. so the deficit will be seen.
QUOTE(akimatsuri @ May 16 2006, 07:18 PM) [snapback]763474[/snapback]
How come out exports are only at $13bn compared to the $18bn target?? Thats $5bn shortfall in exports, no wonder the deficit is so high! We must ensure that buyer buy our products if we buy thier products. Even countries like ethiopia have a trade surplus of a few million with pakistan! this is unacceptable as pakistan must aim to have a trade surplus with every country, if we must buy anything we should ensure that these people buy some of out produce aswell.
there is no shortfall in the export target. where did you read that the exports would come out to $13 billion? a trade surplus and a trade deficit have different advantages and disadvantages. a trade deficit is not ALL bad. i've argued this at length before as well. pakistan can manage the trade deficit for atleast a few more years. trust me. we'll start seeing more balanced growth in exports and imports probably after 2008-9. at that point, pakistan will have concluded FTAs with some of its largest trading partners, thereby boosting exports. as for this year, the export target was $17 billion, and gov't is saying that it will easily be reached, getting to close to $18 billion. so rather than a shortfall, there will be a small increase in the targetted growth. the imports will be very high. thats another issue.
According to daily times Mushraf has decided to cut food prices by half very soon by government having to pay for it and some other actions so you can expect deficit to reach new height soon. Unless CBR and NAB launch massive operation to recover taxes atleast from 2 to 2.5 Million people.
In the short term,
1. Privatization
2. Increased investment
3. Remittances
4. Increase in tax revenue
5. Increase in import duty revenue
These 5 things will be financing our trade deficit (indirectly). I dont think Pakistan can afford it for more than 2-3 years.
As for GoP, once its resources (coal in Thar, new gas discoveries, IP pipeline) could be utilized, we have to go with the present status quo. Try to control money supply, and if need be, increase interest rates a little bit. Inflation is a direct result of oil prices, and as/when we substitute our energy needs with gas/nuclear/hydro/coal/wind/solar we will continue to be at the mercy of oil prices.
Solution: Invest in alternative energy NOW!
1. Privatization
2. Increased investment
3. Remittances
4. Increase in tax revenue
5. Increase in import duty revenue
These 5 things will be financing our trade deficit (indirectly). I dont think Pakistan can afford it for more than 2-3 years.
As for GoP, once its resources (coal in Thar, new gas discoveries, IP pipeline) could be utilized, we have to go with the present status quo. Try to control money supply, and if need be, increase interest rates a little bit. Inflation is a direct result of oil prices, and as/when we substitute our energy needs with gas/nuclear/hydro/coal/wind/solar we will continue to be at the mercy of oil prices.
Solution: Invest in alternative energy NOW!
woshh.... 
..if trade deficit is due to machinery import than it would have possitive outcomes but one of the major reason of this huge import export difference is due to high oil prices and spare parts imports for Automobile sector...which if not halted in this budet will eat-up the whole economy as such imports don't have any possitive outcomes
..if trade deficit is due to machinery import than it would have possitive outcomes but one of the major reason of this huge import export difference is due to high oil prices and spare parts imports for Automobile sector...which if not halted in this budet will eat-up the whole economy as such imports don't have any possitive outcomes
Woa, it's on fire. Theres no doubt that they will find a few brains to to think of and implement the relevant policies needed to cool it. I agree with PakiPatriot that the next budget will again be in deficit. But i have read around that there were alot of imports of machinery for industry etc. I hope to see them investments bare fruit in the year to come. But with these crazy oil prices i doubt it will make any significant difference. We need that gas pipeline.
QUOTE(Hellraiser006 @ May 17 2006, 12:04 AM) [snapback]763354[/snapback]
http://www.nation.com.pk/daily/may-2006/16/index10.php
Country to suffer $16.5b loss in 2005-06
BY JAVED MAHMOOD
LAHORE - Pakistan is set to sustain a record high financial loss of around 16 billion dollars in the shape of trade deficit and fiscal deficit in the current financial year, it was learnt on Monday.
The country is expected to sustain about 11.50 billion dollars trade deficit while in foreign exchange the fiscal deficit is being seen in the range of five billion dollars in 2005-06.
In comparison with 2004-05, the size of trade and fiscal deficits in 2005-06 would be much greater as in last fiscal the country has sustained a total loss of 9.84 billion dollars _ 6.20 billion dollars trade deficit and 3.64 billion dollars (Rs 217 billion) fiscal deficit.
Details obtained by The Nation showed that in 10 months of the current financial year the country has already suffered a colossal loss of 9.25 billion dollars in the shape of trade deficit while another trade deficit worth 2.25 billion is being estimated in remaining two months, May and June 2006.
Similarly, in first six months of 2005-06 the fiscal deficit has been estimated at Rs 136.68 billion, equal to 2.27 billion dollars when calculated at dollar-rupee exchange rate of 60 rupees.
The fiscal deficit, which was estimated at 3.8 per cent of the GDP in the current budget, is being seen at 4 per cent of the GDP or little over it because of the devastating earthquake.
In foreign exchange, the size of fiscal deficit could be around five billion dollars, keeping in view the country’s expected GDP size of 125 billion dollars by June 2006.
The larger than expected size of trade deficit from July-April 2005-06 has consumed the entire inflow of foreign exchange _ 2.4 billion remittances, 2.63 billion dollars foreign direct investment, 1.6 billion dollars foreign economic assistance/grants and 800 million dollars raised from the sale of global bonds.
Worth noting is that despite the emphasis of the multi-lateral donor agencies and independent economists the federal government is least interested in curbing the abnormal growth of trade and fiscal deficit in 2005-06.
EARTH QUAKE...OIL PRICES AT 75 A BARREL...RING ANY BELLS
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