Pakistan stocks and bonds tried to shake off the third rupee devaluation since December as it touched 120/dollar for a 15% drop over the period. Foreign reserves are down to $10 billion or two months’ imports on a 5% of gross domestic product current account deficit, swelled by equipment imports under China’s Economic Corridor energy and infrastructure projects and sliding remittances.
The interim government recently borrowed more through Chinese banks and the bilateral central bank swap line to bolster the position and repay foreign debt, as the business and financial communities brace for possible reapplication of an International Monetary Fund program after July elections. Caretaker Finance Minister Dr Shamshad Akhtar urged “immediate corrective measures” to restore debt and balance of payments sustainability, as Moody’s kept the low “B” sovereign rating on both credit and political risks. The PML-N party in power under Prime Minister Nawaz Sharif had basked in the glow of IMF exit and easy global bond access before his ouster on corruption charges, but his successor faces immediate cash and economic policy credibility crises that will leave foreign investors, already net equity sellers, on edge.
Massive government borrowing lifted public debt to 80% of output, and interest payments exceed development and defense spending
The World Bank predicts a near 1% GDP growth slowdown to 5% next fiscal year, as inflation veered toward that figure in May. The budget deficit could be 6.5% of GDP when the 2017-18 year ends in June, and the World Bank expects fiscal and monetary tightening ahead. Massive government borrowing lifted public debt to 80% of output, and interest payments exceed development and defense spending. Meanwhile, tax collection remains meager, and a future IMF arrangement will insist on more progress widening the base and targeting wealthy evaders. In external accounts, even with 15% export growth in mainstay garments and other sectors, the trade deficit was $35 billion through May, while $2 billion in foreign direct investment was the same pace as the previous year. Worker remittances were up slightly to $15 billion over the past 10 months, but are projected to flag from the Gulf in particular. Higher imported oil and natural gas costs will add pressure, and gross foreign debt nearly doubled the past five years to $90 billion, over 300% of exports, according to the central bank.
After tapping Chinese sources for billions of dollars in bridging facilities, the government announced in May a $200 million syndicated loan with United Arab Emirates banks. Benchmark global bond prices have fallen to new lows with the squeeze, with the 2027 issue below 90 cents. Separate plans for an inaugural Chinese renimbi-denominated “Panda” and individual investor “diaspora” bonds are also on hold, until a new debt management team is in place and current turbulence in world financial markets subsides. After the policy rate was hiked 50 basis points in May, domestic borrowing will in turn be more expensive.
Sri Lanka, where the Morgan Stanley Capital International frontier index fell 2% through May, also experienced currency weakness, despite good marks on fiscal targets under its IMF accord and GDP growth rebound to 3.5%. The central bank, which is to gain more independence and an inflation-targeting framework under a new law, continues with coordinated depreciation to try to overcome external debt at 60% of output and a heavy 2018-19 amortization schedule. Higher oil prices will boost the current account deficit and shave reserves to around five months imports, and previously loose monetary policy will likely be reversed to damp import demand and support the rupee.
Bangladesh has 7% economic growth, lower debt and a narrower current account gap, but the IMF’s latest Article IV report warned of “slow progress” with the Rohingya influx creating the world’s largest refugee camp. An emergency international appeal of almost $1 billion is designed to obviate budget strain, as the monsoon season begins further threatening lives and shelter. Interest rates were recently cut as authorities seek to curb almost 20% annual private credit expansion through macro-prudential measures. They have also upgraded cyber-defenses after $80 million was stolen from reserves in 2016, and are considering recapitalization of state-owned commercial banks ahead of a possible partial sale. However, such long-overdue changes will have to wait until scheduled end-year elections with uncertain opposition party participation, as the subcontinent endures further depreciation of actual and political currencies.
The Kaliphate lovers weaned for 1,400 years on living off others via Tariffs have not given up the habit. But this time they will have to pay up.
They forget Maggie Thatcher’s famous dictum "the trouble with other people’s money is that comes to end sooner or later".
The problem is not borrowing money, but the unrealistic view how Pakistan should take iniatiative and progress.
Every time when China – Pak Economic Corridor – CPEC post something, never fails, some pakistanis post that CPEC does not hire enough people, or not hire enough tech people… They do not talk about the people that was hired who other wise would not have a job. They do not talk about local jobs created to services those workers and projects…
When China – Pak Economic Corridor – CPEC post about Pakistani seafood sold well in China, people talk about Chinese eat their seafood, they wish they can eat it.
It is as if those Chinese worker who produce goods for luxry stores and restruants should eat their products. But if they do, do you think Chinese can progress to today?
It is mind set that matters.
You are here bitching about Kailiphate who lived and ruled some 1300 years ago. The time of Arab was as good, if not better then one of the best dynasty of China. You only look at fault, but not his accomplishments.
From what I read, people of middest were very skilled merchants, salors, and they had better hygiene, they had very advanced society and introduced Islam to China. It is natural people look up to him. What ever you do not like about him, does not dimish his accomplishment. Why not talk about what he did well instead only what he did not? Why not look into why your people failed after him for so many years instead of belittle his accomplishment? How can you grew if you refuse to see what he had done right some 1300 years ago? What make you lose it for 1300 years?
Chinese Dynasty come and go. Every one of them has something good to learn, bad to learn as well. Blinding to either side will only stop Chinese from moving forward.
I hope your people find your way soon, instead of simplly complaint.
It is mind set that matters.
You are here bitching about Kailiphate who lived and ruled some 1300 years ago. The time of Arab was as good, if not better then one of the best dynasty of China. You only look at fault, but not his accomplishments.
From what I read, people of middest were very skilled merchants, salors, and they had better hygiene, they had very advanced society and introduced Islam to China. It is natural people look up to him. What ever you do not like about him, does not dimish his accomplishment. Why not talk about what he did well instead only what he did not? Why not look into why your people failed after him for so many years instead of belittle his accomplishment? How can you grew if you refuse to see what he had done right some 1300 years ago? What make you lose it for 1300 years?
Chinese Dynasty come and go. Every one of them has something good to learn, bad to learn as well. Blinding to either side will only stop Chinese from moving forward.
I hope your people find your way soon, instead of simplly complaint.
Jo Snow
CPEC does not, and will not hire Pakistanis because the foundation of Pak education is Western, and that is pretty much useless in Asia who have a different paradigm. Science and technology is not objective.
All innovations in past 50 years (TQC, JIT, FMS, Robotics, Kanban, Keizan, even AI) are Asian. These innovations are culture specific, and West’s inability to implement them led to their industrial decline and trade deficit. Pakistan is in Western camp, and will suffer the same dilemma.
As you said well, it is mind set that matters.
Mohammed’s fight in Mecca was for free trade. He trounced trade monopolizing Big Business Umayyads and Bankers Banu Abbas to set us a free-entreprise free-trading state. After he died so did his Medinan Republic with rights for all. It was replaced by the Sunni Kaliphate where power was spread only in the Tribe.
The 632 AD anti-Mohammedan anti-Koranic Kaliphate – a neocon Sunni-Jewish cartel for gore, glory, conquest, and colonialism for pleasure for few at the top. It was bad news for world – Muslims, Asia, and Europe alike.
Sitting smack in middle of Silk Road, the Sunni Kaliphate milked trade with oppressive Tariffs (Arabic word). Crusades to free trade failed. 100 Famines in Europe around 1300AD – Sunnis starved Christians to half their population. Finally, Christians expelled Sunnis and Jews from Spain and were free to find new routes to Asia, and new lands too.
Europe, Asia will never allow Sunnis to control world trade ever again. The success of CPEC is not guaranteed as long as Pakistan has majority Sunnis who are Kaliphate lovers.
Syed Abbas Isn’t 70% of workers on CPEC are Pakistanis? I can imagining the skilled workers will mostly Chinese, but there are trade shool seat up and youth are also going to Chinese to learn the skills from what I read. Am I wrong?
You know Chinese demise over 100 years ago at end of Qing(a minority) was rooted in more than 400 years ago at time of Ming (a Han dynasty). Qing actully has longest dynasty and most Quing of emperors are hard working and wise. However, Qing was also barbraic, and cruel before they took upon Confucious.
I am saying this is because you are stress the divid Sunnis and Shias. There are people, especially the west, does not like Shi Iran at all, and their view are pretty much yours of Sunnis. Maybe the people you talk about need to learn more from history, or different perspective… But what you are doing will not help. Sunnis are not inherit bad. Libya was a sunnis majority states.
Many times people think what theywant to think, and there is no way around. But in reality, that is mostly not the case. Chinese has a expression that step back a step, the world opens up.
I am worry about Pakistan, I feel Pakistan has a bit Indian disease of demanding, but not want to work hard on long term plans. Maybe to much Indian disinformation. Of course your politicans are helpless, but I think it has a lot to do with the sysytem that English left. With Pakistan open up to the world, and competetion, I doubt people want to purposely go back to old failed way.
Jo Snow
The West does not like Shia because the West is anti-trade, and Shia are pro-trade.
The West likes the Sunnis because the Sunni are Kaliphate lovers that killed Silk Road and world trade with Tariffs (Arabic word of Kaliphate origin).
But China is winning and West is on the run. The future is Europe, Asia, Africa as one land trade based block, with Americas et al as distant unconnected islands. That is why America will lose. But Europe will survive if it abandons its Western ways.
Pakistan has no future unless its people abandon their dreams of the Kaliphate.
Syed Abbas The west does not like Iran, it is not because it is Shia, but because it does not follow the West.
The Pakistani’s problem are more because the Indian’s involvement. Saudi is just as keen on BRI as Iran. Iran has more its Perisan than only Mulim Shia. (Many say Iran should go back to its pre-islam cuture.) rom what I know, Iran is very hush religious wise, and Iranians want everything from the West. They are no less ricist, and they dealing a lot with China because they had no choice. These are what I read from traveler to Iran.
I would not blanketly state or assume Shia is better than Snnis. I used to follow some Syrians. They call them Sushi, they do not pat attention to Sunni and Shia divide. Syrians will have a great future. They are well educated, and secular. So was old Iraq and Lybia.
Pakistan’s problem is too much religion. It devides people, instead of forcus on the problems at hands and find a way to solve them together.
Syed Abbas If you read Iranian’s comments, you can feel their arrogance. If you see how they treat and talk to Pakistan, you can feel and see their arrogance. Pretty much like you are here looking down on every one else because some one 1300 years ago. I wonder if he was so good, why no one emulated him for 1300 years.