What are the current economic challenges for Pakistan?

1. Introduction.
Making the case
a. Record low trade balance of 37.6 Billion Dollars
b. Total Foreign reserves are $14 Billion.
c. Currency devalued by 34% in a couple of month to Rs138.
d. Stock exchange lost more than 2000 points.
e. Foreign investors offloaded $500 million this year.
f. Share Prices of different companies declined more than Rs700 million.
g. IMF GDP projection 4% by IMF.
h. In August Import bill left for less than two months.

GDP Chart:

2. Foreign Debt.
Last 10 year data:
a. Total foreign debt by country.
i. Pakistan’s total external debt servicing was $7.73 Billion
ii. Total Debt Rs29946 Billion or $210 billion (76.5 % of GDP).
iii. Total foreign debt $96.7 Billion (more than 30% of GDP).
 b. Interest paid on this debt.

c. Compare interest paid with GDP.

i. Debt Servicing is going to consume 46.4% of current expenditure
of 2018-19, while will leave a share of 23% for defense, 2.8% for
public order and safety, 1.6% for economic affairs, 2% for
education, and 0.3% for health.
d. Compare interest paid with other categories of Budget.
i. 0.93% of GDP in interest payment.
ii. 39% of total revenue will be consumed debt interest and
principle amount repayment.
e. Projection for the current year.
i. Projected $12.7 Billion as external debt servicing for the
current year with total external debt rising to $103 billion.

3. Downfall of Public Institutions.

a. Failure of Bhutto’s Nationalization.
i. Was done in 1970’s.
ii. Industrial, Banking, Education, Insurance, and Shipping sector
was nationalized.
iii. K.E, Steel Corporation of Pakistan, Ittefaq foundry.
iv. Habib Bank, United, and MCB.
v. Adamjee insurance, New Jubilee and Pan Islamic shipping.

b. PIA
I. Losses of PIA accumulated of Rs356 Billion till 2017, its total
liabilities amounted to Rs406 Billion against assets of Rs111
billion.
II. Recently a bailout package of Rs17 Billion.
c. Railway
i. Losses were Rs60 Billion, revenue Rs50 Billion.
ii. Grant of Rs40 Billion, allocation of Rs125.5 Billion.
 d. Steel Mill
I. It is facing the deficit of Rs370 Billion.
II. Government Injected Rs85 Billion, to increase operating
capacity form 30-50 to 80%.

e. % of Govt. Revenue spent in supporting these institutions.

i. Afflicting huge losses of Rs700-750 Billion to National Exchequer.
ii. Public Enterprises loss are 1.7% of GDP.
iii. Daily losses of Rs150 million to National Exchequer.
f. Inability to privatize them.
i. Multiple efforts failed to privatize them.
ii. Political point scoring and vested interests of political parties.
PPP has inducted a large number of employees on the basis of
political affiliations.
4. Subsidies and Circular Debt.
a. Places where subsidy is given.
i. Mainly for power and agriculture.
b. % of subsidy as compared to Govt. Revenue
i. A subsidy of Rs174.74 million in 2018-19 year budget.
ii. Subsidy amount to 0.5% of GDP.
c. Alternative uses of subsidy money.
i. This precious 0.5% of GDP amount can be spent on relatively low
allocated sectors in Budget such as Education or Health.
d. Reasons for giving subsidy
i. Government provide the subsidies to public for its welfare and
reduce economic burden on them.
ii. Also it helps indirectly to boost export sectors since
government cannot provide it direct subsidy due regulations of
WTO.
e. Reasons of circular debt.
i. High Transmission losses.
ii. Low rate of recovery from consumers.
iii. KE and other IDP lost more than Rs110 billion during year of
2016-17.
f. Current figure in power sector.
i. Total of Rs1.4 Trillion
ii. An increase of whopping Rs200 Billion in 4 months.
g. Linked to power tariffs.
Mostly, government buys power from Independent power producers
and distributes throughout the country, but when government
couldn’t recover the cost of the electricity and couldn’t pay back to
IDP’s, they in turn fail to clear out the bills of fuel supplier companies.
Hence this vicious circle of debt continues, known as, circular debt.
h. Reasons for its increase.
To recover the maximum amount of electricity cost government
increases power tariffs on those who already pay the bill, rather than
bringing in, the nonpayers into the billing system.
i. High Energy Costs.
High transmission losses and chronic inability of country’s system to
recover the bills puts extra burden on others who pay their bills
sincerely.
It also affects country’s export sector, as high energy raise cost of
products manufactured in the country and country’s product find it
difficult to compete with other countries.
j. Comparison of cost electricity with India +US
Please if dig out if you can find Pakistan’s electricity price for
commercial and industrial sector.
5. Trade imbalance.
a. Pakistan’s trade balance.
i. Highest trade deficit in history $37.6 Billion on 2017-18.
b. Percentage of GDP.
i. 12% of GDP.
c. Total export.
i. Export $23.228 Billion (7.5% of GDP).
d. Total Import.
i. Import Highest ever $60.89 Billion (19% of GDP).
e. Comparison with other countries.
a. India’s trade deficit only 6%.
b. Bangladesh’s trade deficit 3.5%.

6. Low Tax to GDP ratio.

i. Pakistan’s failure to mobilize large revenue collections is also one
of the underlying problems for country’s financial crisis.
 a. Pakistan’s ratio.
ii. Only 13% in Pakistan.
b. Comparison with other countries.
i. More than 16-17% in India.
ii. More than Nepal 18-19%.
c. Direct taxes ratio.
i. Pakistan in lower bottom countries of that list.
ii. Direct taxes around 1% in Pakistan.
iii. In India it is 5-6%.

7. High Energy Costs.

a. Compare cost electricity with India +US
b. Conclusion
8. Lack of political/Financial Stability and investment in country.
a. List of events causing turmoil.
 Wave of terrorism.
 Wave of terrorism. According to finance ministry it costed around $123
Billion to economy in last 16 years. More than 75000 thousands lives
including 3000 security forces.
 40% of GDP.
 Conviction of former PM, Narrow margin majority government
etc.
 Causes of lack of political stability
i. Low foreign investment
ii. In Pakistan FDI 0.9% of GDP, in India 1.2%, in Bangladesh 1% of
GDP. Total investment of GDP: Pakistan 16%, India 30%, Bangladesh 31%.