Pakistan debt, is it really grim as we think. Part-1

[RajaRawal111]

Pakistan debt, is it really grim as we think. Part-1

Yesterday there was a thread posted on increasing Pakistani debt. The discussion in that thread sidetracked a bit ended up discussing my positive posts on Pakistan economy. The end result was that I was portrayed as a Donkey. So I thought I will look into this topic in depth and try to understand myself and help all forum members to see the panoramic view of the situation.
One thing I have to admit before going ahead that I am not an economist of any level. I am sire some will have more understanding than me but the majority of us are just repeaters who listen and repeat without giving much though on the subject. So please I will request all to take it as a learning exercise and help each other understand the facts rather than bully each other.

Line of action:

I will be posting a series of the threads on this subject. I will tag a few on the members I really want to participate. I will formally invite Shahid Abbasi Sahib, who is very learned person and a professional economist. I am sure his analysis will teach us a lot. My plan is to take a holistic view of this topic and understand it from more than aspacts. I am suggesting discussing the following topics to see if we are really in the trouble or not.

1. We will look into the debts of all the countries and analyse it on the per capita basis and see where we stand compared to others.
2. We will look at the nature of debts in terms of following categories.
a. What is the part we need for defence.
b. What part of the debts is on the projects which will generate the revenue that can pay off the debts.
c. What part of the debts is needed for the human resource development?
d. What part of this debt is being used in the non-productive, ayaashi and alleuley tylaley of the govt.
3. We will look at all kind of resources we can exploit to tackle our debt in future. This will include our agricultural projections, our industrial growth projections, and our natural energy resources.
4. How the foreign experts are looking at us, what are they predicting and why are they predicting.
Please guide me and tell me if there are any more aspects which we can look into.

The end result will be the answer of following question
ARE WE GOING TO DIE OR ARE THERE ANY SOME CHANCES OF SURVIVAL

Please participate into this healthy discussion with one thing in mind

****** Do not push to win the debate ****

Because with the force of your words you many win the debate but your debate winning will not change the facts. Giving you an example that, on one of my Moodys projection thread, one of the members posted an old news of law suit on moodys. This was an argument and there was appreciation from other members but it made no sense and had no connection with Pakistan.

I will not tell anyone to change their minds, in fact I will make my Idea fly amongst Insafi critics with following interesting beginning. Let us start our thought process on following theory.

Noorey are corrupt to the core. They also have a royal line ready to rule our generations. Their sole intention is to loot this nation and its resources. So in order to keep looting they have to generate the economy of the country. They will not let is collapse to ruins so that there is nothing left to suck out of it. So they are playing with it making if juicy to keep squeezing it. In order to bring juice into it they have to nourish it.

This Part-1 thread is the beginning of series to get the suggestions. Please guide me if you think I am missing some aspects.

 

[Shahid Abassi]

Thank you Raja sahib. I like the thread and appreciate the efforts. Actually we need more of these threads instead of all the time bashing each other on party lines.

I am just like many others here on the forum who know a bit about economy and surely will contribute in the discussions. I will though propose a single amendment to the agenda.

Debt per capita should be changed to "debt to GDP" ratio. Debt per capita does not give a true picture or any considerable measurement. For example countries like Denmark with very little population can very well have a high per capita debt but their economy is so big that they easily can absorb it. And are in a position to pay the whole of their debt back within 5 years by raising the taxes only by 3%. And the same can not be said about Pakistan.

Secondly, foreign currency reserves to external debt is as important as anything else. The ratio for India is 65 but for us is 19.

Thirdly, growth in debt should be compared to growth in economy. For example, if India's debt grows rapidly but at the same time their economy grows at 10%, the future wouldn't look so bleak.

Fourthly, debt situation itself could be manageable for now but what are the projections for its growth if it goes on like it has been in last 9 years.

Finally, it could be very positive thing, if the forum had its own think tank pages where economical, social and environmental issue could be discussed by setting political affiliations aside.

 

[RajaRawal111]

Thank you Shahid sahib, you have already eased my very big shock. In fact when i was doing a bit research I saw Denmark at the highest debt per capita. Which surprised me and I asked my self "" how come with you being in Danmark""" :lol::lol:, Just a joke please.
But question here is that is debt per capita worst or debt to GDP ratio is more important. In other words is "every Pakistani being under 115000 Rs really is going to kill us".
About your think tank idea, I wish any one from Admin looks at this comment.

Thank you Raja sahib. I like the thread and appreciate the efforts. Actually we need more of these threads instead of all the time bashing each other on party lines.

I am just like many others here on the forum who know a bit of economy and surely will contribute in the discussions. I will though propose a single amendment to the agenda.

Debt per capita should be changed to "debt to GDP" ratio. Debt per capita does not give a true picture or any considerable measurement. For example countries like Denmark with very little population can very well have a high per capita debt but their economy is so big that they easily can absorb it. And are in a position to pay the whole of their debt back within 5 years by raising the taxes only by 3%. And the same can not be said about Pakistan.

Secondly, growth in debt should be compared to growth in economy. For example, if India's debt grows rapidly but at the same time their economy grows at 10%, the future wouldn't look so bleak.

Thirdly, debt situation itself could be manageable for now but what are the projections for its growth if it goes on like it has been in last 9 years.

Finally, it could be very positive thing, if the forum had its own think tank pages where economical, social and environmental issue could be discussed by setting political affiliations aside.

 

[Shahid Abassi]

Raja Sahib, do note that I had added a point or two to my comment too before you picked it for reply.

Debt per capita is nothing but a political measurement of it. Economists do not use it to appraise an economy.

Let me quote an example:

Family A and B have both borrowed a million rupees each.

Family A has 10 members and has a monthly income of 50.000 ...... so per capita debt is 100,000 rupees
Family B has 4 members and has a monthly income of 5 lakh ...... so per capita debt is 250,000 rupees

Now you youself can judge the two families and see if per capita debt tells you any thing.

Thank you Shahid sahib, you have already eased my very big shock. In fact when i was doing a bit research I saw Denmark at the highest debt per capita. Which surprised me and I asked my self "" how come with you being in Danmark""" :lol::lol:, Just a joke please.
But question here is that is debt per capita worst or debt to GDP ratio is more important. In other words is "every Pakistani being under 115000 Rs really is going to kill us".
About your think tank idea, I wish any one from Admin looks at this comment.

 

[Will_Bite]

A good thread. I have been looking for objective debates and reviews for a long time, but more often than not, discussions devolve into political matchups.

Because with the force of your words you many win the debate but your debate winning will not change the facts. Giving you an example that, on one of my Moody’s projection thread, one of the members posted an old news of law suit on moody’s. This was an argument and there was appreciation from other members but it made no sense and had no connection with Pakistan.

I will give my input on other factors as well, but I will just clarify the above point. The reason the lawsuit was cited was to show that ratings agencies routinely manipulate their numbers in order to present figures of scenarios that are favorable or unfavorable to certain governments/companies etc, depending on who is doing the lobbying. Once in a while, they are caught with their pants down, and are penalized. But they move on, and carry on. Little changes. So dont discount criticism just because.

In addition to the above, the current government has a long history of cooking the books as well, so we have to be careful when using any numbers floated by them. But in any case, I will try to base my input on facts to the best of my ability.

 

[SahirShah]

Good initiative Raja Ji !

I am partially agreed with the theory presented in 'Episode 1'.

I am not sure if ''keeping the ground green" for their next generations is their primary goal.

“Noorey are corrupt to the core. They also have a royal line ready to rule our generations. Their sole intention is to loot this nation and its resources. So in order to keep looting they have to generate the economy of the country. They will not let is collapse to ruins so that there is nothing left to suck out of it. So they are playing with it making if juicy to keep squeezing it. In order to bring juice into it they have to nourish it”.

 

[Shahid Abassi]

Looks as if not many are interested in this very important topic.

 

[desan]

Looks as if not many are interested in this very important topic.

No one trust the statistics, accounting jugglery, and tall claims of economic progress based on their priorities and performance on the ground.

Credibility of NS, his cronies and social media team supposr is below zero!!!

 

[desan]

You know you are in trouble when 60% of your budget goes into debt servicing!!!

 

[RajaRawal111]

A good thread. I have been looking for objective debates and reviews for a long time, but more often than not, discussions devolve into political matchups.


I will give my input on other factors as well, but I will just clarify the above point. The reason the lawsuit was cited was to show that ratings agencies routinely manipulate their numbers in order to present figures of scenarios that are favorable or unfavorable to certain governments/companies etc, depending on who is doing the lobbying. Once in a while, they are caught with their pants down, and are penalized. But they move on, and carry on. Little changes. So dont discount criticism just because.

In addition to the above, the current government has a long history of cooking the books as well, so we have to be careful when using any numbers floated by them. But in any case, I will try to base my input on facts to the best of my ability.[/COLOR]

Really appriciate your positive participation will bit. We are all learning.

 

[RajaRawal111]

Good initiative Raja Ji !

I am partially agreed with the theory presented in 'Episode 1'.

I am not sure if ''keeping the ground green" for their next generations is their primary goal.

Shah jee I want you to start thinking in such a way that noorey will definitly do some gimmics and show offs to survive. And in these gimmics there will be some good deeds too. They will never just loot and do nothing like zardari and get washed off.
In fact this was the miscalculation of IK that we will have another copy of zardari govt and will sail easy in next elections.
What i want to say in that starter theory is that insafis should start this acceptance in your mind that some thing really are moving ahead which may hurt PTI in next election So better be ready.

 

[RajaRawal111]

[/COLOR]i;4379401]Looks as if not many are interested in this very important topic.

That was quite expected Shahid Sahib I knew very few will join us in this learning excersise.
As you once said You agree that IK just points out the problems but gives no solution. So is the situation with average PTI supporter here on this forum. Very few Assad Umars and very few Mehmood Khans. But foj zaffar moj of Muraad saeeds and Fiyaz chohaans.

 

[RajaRawal111]

You know you are in trouble when 60% of your budget goes into debt servicing!!!

That is a very important point and i will definitely add it into one of our discussion episodes. We will try looking into how damaging it is going to be for us.

 

[RajaRawal111]

No one trust the statistics, accounting jugglery, and tall claims of economic progress based on their priorities and performance on the ground.

Credibility of NS, his cronies and social media team supposr is below zero!!!

Beleive me behen jee this book cooking is one of the "truck ki bati" behind which your leadership and TV experts and aqal-e-qul like Raoof Klasra and Dr qiyaamti are making you run.
If you give it a slightest thought the international monitory bodies are not that stupid. They have data and stats to look into and they are much more learned than our Munshi Ishaq Daar.

 

[RajaRawal111]

Raja Sahib, do note that I had added a point or two to my comment too before you picked it for reply.

Debt per capita is nothing but a political measurement of it. Economists do not use it to appraise an economy.

Let me quote an example:

Family A and B have both borrowed a million rupees each.

Family A has 10 members and has a monthly income of 50.000 ...... so per capita debt is 100,000 rupees
Family B has 4 members and has a monthly income of 5 lakh ...... so per capita debt is 250,000 rupees

Now you youself can judge the two families and see if per capita debt tells you any thing.

Good point Shahid Sahib atleast you have pointed out to one ray of light at the end of tunnel. Let us hope this turns out day light ------ not the train comming towards us.
I will add this point in our later discussion to sale my chooran of hope and optimism ;).

 

[Shahid Abassi]

There is no doubt in the fact that Zardari would only cheat and eat as much as he could while Sharifs cheat eat and spend on the country some. They were a bit luckier too as oil prices fell from 104 to just 42, and that China, who wanted to start investments in 2009 but was not comfortable with Zardari, came up with CPEC investment plan. Despite all this, Sharif's could not reach good deals with the Chinese and offered up to 34% profit on equity which made electricity prices as mentioned in this article:

[h=2]Pakistan coal-based dirty electricity rate=Pakistani Rs 8.90/unit. India solar clean energy: Pakistani Rs 5.33/unit[/h]

​

February 10, 2017: The Rewa Solar Park, a joint venture of the Solar Energy Corporation of India (SECI) and Madhya Pradesh Urja Vikas Ltd, invited international bids for a 750MW solar park. Solenergi Power of Sweden bid an equivalent of PKR5.19 per kWh. The capital cost of the Rewa Solar Park hovers around $690,000 per MW.


March 19, 2015: the National Electric Power Regulatory Authority (Nepra), Islamic Republic of Pakistan, approved a levelised tariff of PKR14.85 per kWh for Quaid-e-Azam Solar Power (Private) Limited. The capital cost of the Quaid-e-Azam Solar Power Project stands at around $1.5 million per MW.


January 18, 2017: Nepra adjusted the tariff for Quaid-e-Azam Solar Power (Private) Limited on account of US CPI, local CPI, KIBOR and exchange rate variations. For the record, Nepra raised the tariff for the January-March 2017 quarter to PKR19.33 per kWh.


Something must be terribly wrong here: A Swedish company is willing to sell solar energy to Indians at an equivalent of PKR5.19 per kWh while a Chinese company is selling the same to Pakistanis for PKR14.85 per kWh.


Something must be terribly wrong here: The capital cost at the Rewa Solar Park in Madhya Pradesh is around $690,000 per MW while the same for Quaid-e-Azam Solar in Bahawalpur is $1.5 million per MW.


August 10, 2015: Nepra’s decision on Hawa Energy (Private) Limited’s wind power project was a levelised tariff of PKR10.60 per kWh. Amazingly, for years 1-10, Hawa Energy will be paid PKR12.47 per kWh.


March 4, 2016: The Maharashtra Electricity Regulatory Commission fixed the levelised tariff for new wind energy projects from April 1, 2016 to March 31, 2017. For the record, the net levelised tariff was fixed at an equivalent of PKR5.33 per kWh (Zone 4).


March 31, 2016: The Tamil Nadu Electricity Regulatory Commission determined that the “wind mills commissioned from September 19, 2008 to July 31, 2012 shall be eligible for a tariff of IRS3.39 per unit” or an equivalent of PKR5.33 per unit.


Something must be terribly wrong here: Pakistan is willing to pay Hawa Energy PKR10.60 per kWh while the Maharashtra Electricity Regulatory Commission has fixed a levelised tariff of an equivalent of PKR5.33 per kWh.


February 13, 2017: The Hindu, the Chennai-based English-language Indian daily newspaper, reported: “In another barrier-breaking development, the auctioned price of solar photovoltaic (SPV) power per kilowatt hour has dropped below IRS3 to IRS2.97 in Madhya Pradesh, providing a clear pointer to the future course of renewable energy”.


February 23, 2017: The Times of India, the Mumbai-based third-largest newspaper in India, reported: “After a sharp drop in solar tariff to IRS2.97 per unit, the wind power rates may also touch a new low and fall below the IRS4 per unit mark in an ongoing auction for 1,000 MW capacity”.


February 26, 2017: On 30 May 2014, PM Nawaz Sharif laid the foundation stone for a coal-based power project in Sahiwal. The plant will burn around 12,000 tonnes of coal per day and emit around 6 million tonnes of carbon dioxide per year plus “60 different hazardous air pollutants … a variety of toxic metals, organic compounds, acid gases, sulphur, nitrogen and particulate matter”.


Imagine, acid rain will soon be raining down from the skies on Sahiwal’s Niliravi buffalos and fertile fields of grain and sugar cane. And Sahiwal’s human residents will face elevated death rates from cancer of the colon, breast and ovaries as well as lung diseases.


Lo and behold, we shall be buying coal-based electricity from China’s state-owned Huaneng Shandong at the rate of PKR8.90 per unit. Remember, Indians will be buying clean solar power from a Swedish company at the equivalent of PKR5.19 per unit. Remember, Indians will be buying clean wind power at the equivalent of PKR5.33 per unit.


The writer is a columnist based in Islamabad. Email: [email protected] Twitter: @saleemfarrukh

Source​

Shah jee I want you to start thinking in such a way that noorey will definitly do some gimmics and show offs to survive. And in these gimmics there will be some good deeds too. They will never just loot and do nothing like zardari and get washed off.
In fact this was the miscalculation of IK that we will have another copy of zardari govt and will sail easy in next elections.
What i want to say in that starter theory is that insafis should start this acceptance in your mind that some thing really are moving ahead which may hurt PTI in next election So better be ready.

 

[Will_Bite]

Veracity of data is extremely important in making judgment calls on both the present and the future. I think we all are aware of the shady tactics Ishaq Dar and his finance team have used both in the present and in the past to create scenarios that would be favorable for drawing more loans and showing bloated returns.

I disagree in that PTI expected PMLN to commit corruption in the same way as PPP did, and do nothing. We have always known that PMLN likes big ticket items for show and tell. So that was a given. ANd the same will be true in 2018 as well. The moment of truth would be to see whether the number of people who fall for big ticket items has fallen or not.

A few points that Pakistan is being misled on to an extreme level.

1. Forex reserves.
Im surprised that economists in Pakistan dont make a louder noise about this issue. Yes, our forex situation is better than what it was in 2013. But lets not forget the fact that what we have are not 'reserves'. These dollars are in our kitty on loan, either from IMF and other lenders, or expat remittances. None of these dollars are the govt's to own. The only genuine source of forex reserves is a trade surplus, and Pakistan is far from that.

Our exports are not more than $25 billion, and for such a small export size, a $20 billion trade deficit is alarming. Comparatively, Bangladesh has a trade deficit of around $6 billion, and India, despite its huge size, has a deficit of just $9 billion or so. It may 'feel' good to cite monthly numbers, comparing them to last years numbers, and claiming victory, but lets not forget the fact that the only meaningful FDI that came into the country over the past 3 years is courtesy of the all-eggs-in-one-basket CPEC.


2. Stock Exchange
Again, a huge farce which is being sold to people who are absolutely unaware of how the stock market works, and what it means, if anything to the economy. Over the past 10 years, the index has gone from 6000 to 52000, and that means nothing to the man on the street. Our index relies on 5 or 6 big ticket items, which are generally out of the reach of the common man. Whether its DG Khan cement at Rs 300 per share, or Lucky Cement at 880 per share, MCB at 235, or PSO at 450, these shares are out of the range of the common investor, who has an average of Rs. 1 million in his trading account. The big ticket items are traded by the brokers, the handful of FDIs, and the mafias, who can plough the market with a single tranche of 50 crores, or 100 crores. A 5 rupee spike in the price of Lucky cement can increase the index by more than 50 points.


3. Loans
Have we borrowed more than we can manage? I dont know. We have CPEC on the ground, and that is promising, only because I know that China will not back out of CPEC on any account. So CPEC is here to stay, which is good. But do we have the capacity to pay the highly bloated, long term returns that the govt has promised China? The biggest blow to Pakistan's integrity is China's refusal to accept Pakistan govt's sovereign guarantee in most of the loans that they have signed. In most cases, the Chinese have either demanded huge escrow payments, or have forced the govt to write over decent chunk of the ownership of the projects in question.

The recent sale of stake and control of the stock market is so shady that it puts Zardari to shame. A controlling stake to a minority shareholder? This is similar to what they did with the privatization of PTCL, when the UAE firm, Etisalat, was given a controlling stake in the company in return for just a 25% share. Years have passed, and even though the deal was done prior to PMLN, Etisalat still owes Pak govt almost $1 billion, and in return, they have been given PTCL stake and properties worth far more. Hard to see where we are headed with this line of action.

There are a few other points, which would probably take focus away from the financial aspect of things..so I will avoid those..besides, the post is getting too long and I may be losing the plot.

 

[Shahid Abassi]

Correction: Exports are not 25 bn but the correct figure is 21bn. Our exports in the Zardari's last year were 25bn but since then have fallen yaer on year to 21bn.

Veracity of data is extremely important in making judgment calls on both the present and the future. I think we all are aware of the shady tactics Ishaq Dar and his finance team have used both in the present and in the past to create scenarios that would be favorable for drawing more loans and showing bloated returns.

There are a few other points, which would probably take focus away from the financial aspect of things..so I will avoid those..besides, the post is getting too long and I may be losing the plot.

 

[RajaRawal111]

To every one who has received my replies on your quotes on different threads. Somehow due to the limitations on the private messages I was not able to send you messages to invite so I used your quotes.
Hope we will have more participation. I will wait for a day or two to get more suggestions than we will go ahead in ""trying to see where we stand in our economy"" .

 

[RajaRawal111]

Shahid sahib you once told me that that the drop in exports is actually due to Govts push to keep Rs artificially stronger against dollar (compared to its natural value). My point was that it could be an honest step by Govt to keep the exports and our depts at the optimized state. Let the sale of Jurrab and Bunyan drop a bit and keep the inflation in control so that Awam in Pakistan does not get hurt. What is your opinion on this ?

Correction: Exports are not 25 bn but the correct figure is 21bn. Our exports in the Zardari's last year were 25bn but since then have fallen yaer on year to 21bn.