DAWN is trying to prove that Deficit is not such a bad thing!!!

desan

Prime Minister (20k+ posts)
Instead of giving Credit to PTI, DAWN is trying to prove that Deficit is not such a Bad Thing!!!
Imaging how they would have maligned IK if this same Deficit would have Ballooned!!!


IN his speech before parliament on June 25, Prime Minister Imran Khan made a number of assertions that are worth reflecting on, even if somewhat belatedly, because they impact the way we think about our economy. Two things he said deserve to be reflected on seriously because they both point to persistent problems in our economy, as well as the quality of economic management we have seen over the decades.

First, he said that the presence of a current account deficit is a sign that the economy is ‘ill’. Second, he pointed to the improvement in the primary deficit of the country in the second year of his rule as evidence of sound macroeconomic management. But is he right in making these assertions? Is it true that deficits, especially the ones he pointed to, are always bad and bridging these should always be the top priority of any government?

Consider the evidence. All countries in our region — India, Bangladesh and Sri Lanka to take three examples — have run a current account deficit as well as a primary deficit on their fiscal account more or less non-stop since at least 1990. Their economic management has not been defined by frantic efforts to bridge these deficits. In fact, they have found ways to manage and finance these deficits without going bankrupt every few years like we do. For example, we have gone to the IMF for balance-of-payments support to manage the current account deficit 13 times since 1988. Sri Lanka is next, with six approaches in the same period, Bangladesh four and India one.

All three countries have demonstrated healthy growth rates over the same years. Their experience with balance-of-payments crises and the fact that they both have protracted current account deficits shows that these need not necessarily lead to ruination.
Is it true that deficits are always bad and bridging these should be the top priority of any government?
India is another example of a country with prolonged current account deficits since 1990 ranging between negative one and two per cent of GDP throughout the period except for a few years in the early 2000s.

These countries are only a few examples. One could point to countries like the UK or the US that have had persistent and uninterrupted current account deficits since 1990; however, one could easily counter that those are developed economies and their circumstances are very different from ours, which would be a fair argument. But how does one explain the persistent deficits and persistent growth rates in our region, without as frequent recourse to the IMF as Pakistan has been availing itself of since 1990?

The story is the same with the deficit on what is called the primary balance. The current account deficit measures the difference in a country’s transactions with the outside world — how much it earns from outside versus how much it spends in markets abroad. The primary balance, on the other hand, is a strict measure of a government’s ability to service its debts. It measures the difference between the amount of money a government collects in revenue and the amount it spends on everything except debt servicing. If the primary balance is negative, it means the government will have to borrow to repay its debts, which in the orthodoxy of neoliberal economists is considered to be a bad situation.

I do not recall ever seeing a sitting prime minister stand in parliament and invoke his government’s success in bringing the primary balance out of deficit like Khan did on June 25. The reason is that the primary balance has nothing to do with the people. It is an indicator watched by the country’s creditors, particularly its foreign creditors, and any government would usually invoke its success in managing this indicator when presenting its case before its creditors, for example, during the road show before floating a bond. For the people, bringing the primary balance into surplus usually means a great deal of pain, because the government has to raise taxes and cut spending for it.

Next thing to note is that every government in Pakistan has reduced the primary deficit in the first year of an IMF programme. This is pretty much the only requirement of every programme that Pakistan has signed that it has really fulfilled, and the only one that has really mattered to the IMF. Among its peer countries — India, Bangladesh and Sri Lanka — Pakistan is the only one that is constantly trying to bring its primary balance into surplus. All the other countries have run persistent primary deficits since 1990, and in India’s case, those deficits are twice as large as Pakistan’s on many occasions (when seen as a percentage of GDP). There is only one year in the past three decades when India has seen a surplus in its primary account. It’s the same with the other two countries.

The experience of Pakistan’s neighbours is living proof that deficits are not, by themselves, a bad thing. India, Bangladesh and Sri Lanka have run persistent primary deficits, and my guess is that this is how they have financed their investments that have transformed their countries in their respective ways. Bangladesh has emerged as a powerhouse in export transformation over these decades. Sri Lanka has been the poster child of human development throughout this period. India has been a powerhouse growth economy, transforming its industrial base, its export composition and multiplying the drivers of dynamism within its own economy.

How has Pakistan emerged in the same period of time? Aside from cultivating our nuisance value in the region, there is no meaningful transformation for which Pakistan can be invoked as the example in this period of time. One reason is that we have never been able to focus on economic transformation internally, and so have always been forced to see deficits as a bad thing. But if done right, today’s deficits are an investment in tomorrow’s prosperity.

 
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

Qudsi

Senator (1k+ posts)
Instead of giving Credit to PTI, DAWN is trying to prove that Deficit is not such a Bad Thing!!!
Imaging how they would have maligned IK if this same Deficit would have Ballooned!!!


IN his speech before parliament on June 25, Prime Minister Imran Khan made a number of assertions that are worth reflecting on, even if somewhat belatedly, because they impact the way we think about our economy. Two things he said deserve to be reflected on seriously because they both point to persistent problems in our economy, as well as the quality of economic management we have seen over the decades.

First, he said that the presence of a current account deficit is a sign that the economy is ‘ill’. Second, he pointed to the improvement in the primary deficit of the country in the second year of his rule as evidence of sound macroeconomic management. But is he right in making these assertions? Is it true that deficits, especially the ones he pointed to, are always bad and bridging these should always be the top priority of any government?

Consider the evidence. All countries in our region — India, Bangladesh and Sri Lanka to take three examples — have run a current account deficit as well as a primary deficit on their fiscal account more or less non-stop since at least 1990. Their economic management has not been defined by frantic efforts to bridge these deficits. In fact, they have found ways to manage and finance these deficits without going bankrupt every few years like we do. For example, we have gone to the IMF for balance-of-payments support to manage the current account deficit 13 times since 1988. Sri Lanka is next, with six approaches in the same period, Bangladesh four and India one.

All three countries have demonstrated healthy growth rates over the same years. Their experience with balance-of-payments crises and the fact that they both have protracted current account deficits shows that these need not necessarily lead to ruination.

India is another example of a country with prolonged current account deficits since 1990 ranging between negative one and two per cent of GDP throughout the period except for a few years in the early 2000s.

These countries are only a few examples. One could point to countries like the UK or the US that have had persistent and uninterrupted current account deficits since 1990; however, one could easily counter that those are developed economies and their circumstances are very different from ours, which would be a fair argument. But how does one explain the persistent deficits and persistent growth rates in our region, without as frequent recourse to the IMF as Pakistan has been availing itself of since 1990?

The story is the same with the deficit on what is called the primary balance. The current account deficit measures the difference in a country’s transactions with the outside world — how much it earns from outside versus how much it spends in markets abroad. The primary balance, on the other hand, is a strict measure of a government’s ability to service its debts. It measures the difference between the amount of money a government collects in revenue and the amount it spends on everything except debt servicing. If the primary balance is negative, it means the government will have to borrow to repay its debts, which in the orthodoxy of neoliberal economists is considered to be a bad situation.

I do not recall ever seeing a sitting prime minister stand in parliament and invoke his government’s success in bringing the primary balance out of deficit like Khan did on June 25. The reason is that the primary balance has nothing to do with the people. It is an indicator watched by the country’s creditors, particularly its foreign creditors, and any government would usually invoke its success in managing this indicator when presenting its case before its creditors, for example, during the road show before floating a bond. For the people, bringing the primary balance into surplus usually means a great deal of pain, because the government has to raise taxes and cut spending for it.

Next thing to note is that every government in Pakistan has reduced the primary deficit in the first year of an IMF programme. This is pretty much the only requirement of every programme that Pakistan has signed that it has really fulfilled, and the only one that has really mattered to the IMF. Among its peer countries — India, Bangladesh and Sri Lanka — Pakistan is the only one that is constantly trying to bring its primary balance into surplus. All the other countries have run persistent primary deficits since 1990, and in India’s case, those deficits are twice as large as Pakistan’s on many occasions (when seen as a percentage of GDP). There is only one year in the past three decades when India has seen a surplus in its primary account. It’s the same with the other two countries.

The experience of Pakistan’s neighbours is living proof that deficits are not, by themselves, a bad thing. India, Bangladesh and Sri Lanka have run persistent primary deficits, and my guess is that this is how they have financed their investments that have transformed their countries in their respective ways. Bangladesh has emerged as a powerhouse in export transformation over these decades. Sri Lanka has been the poster child of human development throughout this period. India has been a powerhouse growth economy, transforming its industrial base, its export composition and multiplying the drivers of dynamism within its own economy.

How has Pakistan emerged in the same period of time? Aside from cultivating our nuisance value in the region, there is no meaningful transformation for which Pakistan can be invoked as the example in this period of time. One reason is that we have never been able to focus on economic transformation internally, and so have always been forced to see deficits as a bad thing. But if done right, today’s deficits are an investment in tomorrow’s prosperity.

And even they are blocking critical comments. on their website
 

ranaji

Prime Minister (20k+ posts)
ڈان کے ما لک کے بارے میں جب سے عوام کو معلوم ہوا کہ یہ بابا گے ہے اور پکا ممیسیا بھی یہ بابا بھی ممسیا اس بیعزتی کا ذمّ دار بھی شاید موجودہ حکومت کو سمجھتا ہے
 

Hate_Nooras

Chief Minister (5k+ posts)
This is not just dawn. Deficit money if used to uplift people is not a bad thing. Trudeau ran his campaign that deficits would rise under his government. [email protected] need education. If deficits are bad, why is P0T! begging all the time.
What if no one wants to give you the money to fund the deficit? And even if they do, they impose strict conditions and higher interest rates which lead to higher prices. That organisation is called the IMF and thats the reason to avoid them if you can. Your lack of understanding like the mafia tosser from Dawn shows that you need to read up on the consequences.
 

Sonya Khan

Minister (2k+ posts)
They do that all the time and still talk about freedom of press!

I guess freedom of press is good but freedom of readers is not.
Worst still they allow endians to comment freely even in our religious matters ..... Mine are also blocked consistently since last 5 years ..... as if they have marked my ID that gets blocked automatically....
 

stoic

Minister (2k+ posts)
This is him in 2017 about the impact of deficits

Deficits and reserves
THIS week, the trade deficit crossed $30 billion, probably the most meaningful milestone crossed recently. Certainly more so than any ‘historic high’ hit by the stock market of the foreign exchange reserves.

For now, the government is in denial mode over this development, thinking that a few incentive packages should be enough to turn the tide, and given that this is an election year, the room for it to awaken to the dangers that this development poses is limited.

Adding to the complication on the trade front is the growing gap between import data as reported by the State Bank and the Pakistan Bureau of Statistics (PBS). The problem came to light when people began to notice the discrepancies late in 2016, and then the State Bank flagged the problem in its last quarterly report. The discrepancy was due to imports from China, said the State Bank.

Apparently, money borrowed from Chinese banks to pay for machinery imports was not coming to Pakistan; it was being used directly in China to make payments, so when the machinery landed at the port and went through customs valuation, it showed up in PBS data but the State Bank could not see any outgoing payment for it.

In the latest data series, the discrepancy has climbed to almost $6bn in the July to April figures.

Some hardened souls tried to suggest that this is normal because the equipment is being purchased on supplier credit. Not so. Supplier credit is reported to the State Bank where it is booked as an outflow because the central bank needs a complete picture of all outflows, whether being booked as a payment or as a future payment. A large sprawling exercise to reconcile the figures from data provided by banks was launched around that time, but that exercise is proving to be more complicated than at first imagined. It has yet to be completed.

The real trade deficit is likely to be higher than what is currently being reported
So the real trade deficit is likely to be higher than what is currently being reported, and if you include under-invoicing of imports, the figure will be higher still.

The only relief in sight for the government is if oil prices fall, which is a possibility but unlikely to compensate for the growing deficit. Only a portion of the increase in imports can be explained as one-off machinery imports, as the government is trying to do. Oil accounts for a substantial amount of the increase, even though its price has not increased by that much since July, meaning quantities are increasing.

Reserves have declined by $3bn since last July, a decline of 13pc, with almost all of that decline coming from State Bank reserves (as opposed to reserves held by commercial banks). As debt servicing is set to mount in the years ahead, this decline could accelerate.

The government has budgeted external borrowing of almost $8bn for next year, with the bulk of that coming from China, followed by the Islamic Development Bank, the World Bank and a billion dollars each from Sukkuk bonds and commercial bank borrowing.

Last year, they had set a similar target, but overshot it by almost $2bn, and borrowing from commercial banks accounted for all of this.

The country’s external sector is softening, its debt profile is weakening while the exchange rate is steady and the government’s entire focus is now on surviving the immediate political challenges to its rule, followed up by the approaching election.

This means whatever forceful measures might be required to arrest this deterioration are unlikely to be taken at this point, the matter being left to the next government, by when the deterioration will be far more advanced.

It doesn’t take a lot to see where this is going: back to the IMF, but not for another few years. It is difficult to say how long this moment of comfort can last with the ground shifting from beneath it all. But by the end of 2018, we should be getting there if something drastic has not happened in the meantime, such as an unusual spike in remittances or an unusual fall in oil prices, or a dramatic plunge in total imports as CPEC machinery is installed and commissioned.

We shouldn’t rule any of those out, but we shouldn’t peg the fortunes of our external sector on hopes of this sort either.

So the question to ask is what happens when we get to that moment again? Historically, that moment or depleted reserves has taken us back to the IMF, and for the past 10 years our relationship with America has served as a bit of a lever with which to extract advantageous terms without having to come through on the reforms that usually accompany these programmes.

There was a short interruption in this pattern in 2011, when our relationship with America was in the doldrums, resulting in a rupture with the IMF as well. But that moment was short-lived.

The only way to avoid going back to the IMF would be if the Chinese were willing to bail us out, but thus far the Chinese have made clear that they are not in the business of bailing anyone out. This will not be a request for more project financing. It will be a request for balance-of-payments support, which may or may not be forthcoming.

But on the flip side, the Chinese will need to weigh what it will mean for their investments in Pakistan if the country were to go on a Fund programme, with all its attendant slashing of government expenditures, and serious reductions in the growth rate of the economy as stabilisation measures kick in.

It’s possible they could seek ways to insulate their own enterprises from the impact of the stabilisation, or they could discover that seasons change fast in this country. It could be an interesting, and revealing, moment that this deterioration in our external position is carrying us towards.
 

Vertex

Councller (250+ posts)
Worst still they allow endians to comment freely even in our religious matters ..... Mine are also blocked consistently since last 5 years ..... as if they have marked my ID that gets blocked automatically....
Exactly the same with me.
 

Pathfinder

Chief Minister (5k+ posts)
This is him in 2017 about the impact of deficits

Deficits and reserves
THIS week, the trade deficit crossed $30 billion, probably the most meaningful milestone crossed recently. Certainly more so than any ‘historic high’ hit by the stock market of the foreign exchange reserves.

For now, the government is in denial mode over this development, thinking that a few incentive packages should be enough to turn the tide, and given that this is an election year, the room for it to awaken to the dangers that this development poses is limited.

Adding to the complication on the trade front is the growing gap between import data as reported by the State Bank and the Pakistan Bureau of Statistics (PBS). The problem came to light when people began to notice the discrepancies late in 2016, and then the State Bank flagged the problem in its last quarterly report. The discrepancy was due to imports from China, said the State Bank.

Apparently, money borrowed from Chinese banks to pay for machinery imports was not coming to Pakistan; it was being used directly in China to make payments, so when the machinery landed at the port and went through customs valuation, it showed up in PBS data but the State Bank could not see any outgoing payment for it.

In the latest data series, the discrepancy has climbed to almost $6bn in the July to April figures.

Some hardened souls tried to suggest that this is normal because the equipment is being purchased on supplier credit. Not so. Supplier credit is reported to the State Bank where it is booked as an outflow because the central bank needs a complete picture of all outflows, whether being booked as a payment or as a future payment. A large sprawling exercise to reconcile the figures from data provided by banks was launched around that time, but that exercise is proving to be more complicated than at first imagined. It has yet to be completed.



So the real trade deficit is likely to be higher than what is currently being reported, and if you include under-invoicing of imports, the figure will be higher still.

The only relief in sight for the government is if oil prices fall, which is a possibility but unlikely to compensate for the growing deficit. Only a portion of the increase in imports can be explained as one-off machinery imports, as the government is trying to do. Oil accounts for a substantial amount of the increase, even though its price has not increased by that much since July, meaning quantities are increasing.

Reserves have declined by $3bn since last July, a decline of 13pc, with almost all of that decline coming from State Bank reserves (as opposed to reserves held by commercial banks). As debt servicing is set to mount in the years ahead, this decline could accelerate.

The government has budgeted external borrowing of almost $8bn for next year, with the bulk of that coming from China, followed by the Islamic Development Bank, the World Bank and a billion dollars each from Sukkuk bonds and commercial bank borrowing.

Last year, they had set a similar target, but overshot it by almost $2bn, and borrowing from commercial banks accounted for all of this.

The country’s external sector is softening, its debt profile is weakening while the exchange rate is steady and the government’s entire focus is now on surviving the immediate political challenges to its rule, followed up by the approaching election.

This means whatever forceful measures might be required to arrest this deterioration are unlikely to be taken at this point, the matter being left to the next government, by when the deterioration will be far more advanced.

It doesn’t take a lot to see where this is going: back to the IMF, but not for another few years. It is difficult to say how long this moment of comfort can last with the ground shifting from beneath it all. But by the end of 2018, we should be getting there if something drastic has not happened in the meantime, such as an unusual spike in remittances or an unusual fall in oil prices, or a dramatic plunge in total imports as CPEC machinery is installed and commissioned.

We shouldn’t rule any of those out, but we shouldn’t peg the fortunes of our external sector on hopes of this sort either.

So the question to ask is what happens when we get to that moment again? Historically, that moment or depleted reserves has taken us back to the IMF, and for the past 10 years our relationship with America has served as a bit of a lever with which to extract advantageous terms without having to come through on the reforms that usually accompany these programmes.

There was a short interruption in this pattern in 2011, when our relationship with America was in the doldrums, resulting in a rupture with the IMF as well. But that moment was short-lived.

The only way to avoid going back to the IMF would be if the Chinese were willing to bail us out, but thus far the Chinese have made clear that they are not in the business of bailing anyone out. This will not be a request for more project financing. It will be a request for balance-of-payments support, which may or may not be forthcoming.

But on the flip side, the Chinese will need to weigh what it will mean for their investments in Pakistan if the country were to go on a Fund programme, with all its attendant slashing of government expenditures, and serious reductions in the growth rate of the economy as stabilisation measures kick in.

It’s possible they could seek ways to insulate their own enterprises from the impact of the stabilisation, or they could discover that seasons change fast in this country. It could be an interesting, and revealing, moment that this deterioration in our external position is carrying us towards.
what a hypocrite both dawn and its little minion is.
 

4PeaceAndJustice

Councller (250+ posts)
And even they are blocking critical comments. on their website
Just see dawn comments section. It is mostly filled with Indian comments with very few Pakistani comments since last few years. I have stopped commenting because they never publish my comments now.
 

Sheerheartattack

MPA (400+ posts)
Dawn and Geo is the biggest obstacle for proper freedom of journalism in Pakistan as they beak the laws and put the country at security risk after being backed by a corrupt regime for propaganda against the institutions. Regulators need to be better educated and have autonomous power, but at the end of the day their sales , audience, customers and livelihood suffers ,that's when to throw in the towel. Despite injection from DW they cant survive as a media outlet for much longer , good riddance...
There are some good journalists in Dawn hopefully they will jump the sinking ship for better waters. Dawn should have closed years back.
 
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