Growth in Pakistan: A Precarious Phenomenon

uh-oh. my calculation in my post #33 point 3 was incorrect. two year growth rate in defense spending was 23% and not 11% as i had stated. apologies for the confusion caused.

dude, here is the link to the page you are referring to in your last post. once again, information indicates that you are being economical with the truth:

http://www.finance.gov.pk/survey/chapters/05-Fiscal.PDF

here are some inconvenient details that you left out:

1. in 2004-05, govt committed to spend rs. 202 bn on psdp. this represents 17% increase over 2003-04 level. there is an operational shortfall of rs. 14bn or 6% of total psdp. shortfall represent an insignificant amount.

2. psdp commitments in 2004-05 was higher than budgeted defense expenditure.

3. two year growth rate of psdp (development expenditure) was 56% VS. 11% for defense

4. difference in growth rate between defence spending and psdp is even more dramatic when 2005-06 budget is taken into account.

5. unlike what you state in #31, expenditure to gdp ratio is mentioned on page 61

your other points are completely absurd and nonsensical and not worthy of response.

dude, here is the link to the page you are referring to in your last post. once again, information indicates that you are being economical with the truth:

http://www.finance.gov.pk/survey/chapters/05-Fiscal.PDF

here are some inconvenient details that you left out:

1. in 2004-05, govt committed to spend rs. 202 bn on psdp. this represents 17% increase over 2003-04 level. there is an operational shortfall of rs. 14bn or 6% of total psdp. shortfall represent an insignificant amount.

2. psdp commitments in 2004-05 was higher than budgeted defense expenditure.

3. two year growth rate of psdp (development expenditure) was 56% VS. 11% for defense

4. difference in growth rate of defence is even more dramatic when 2005-06 budget is taken into account.

5. unlike what you state in #31, expenditure to gdp ratio is mentioned on page 61

your other points are completely absurd and nonsensical and not worthy of response.

Now lets see

Total revenue in absoluite terms increased
so does interest payments on debt increased as well as defence expenditure
Look at the page 56 of Economic survey

the dev budget increased but to a small fraction

Budget defecit witnessed an increase (can you tell me why)

Now figures are fudged like how they have been presented

However the last section of the table comprised of the same figure but as GDOP ratio
SO the govt claimed

Budget defecit, defence, interst payments all fell as a percentage of GDP, however they didnt give dev expenditure as a percentage of gdp, because it would have shown far greater decline.

There is a very interesting table at page 63 abt public debt which carries this note:
Beginning from 1999-2000, Pakistan`s GDP was rebased at 1999-2000 prices from two decades old base of 1980-81. therefore , wherever, GDP appears in denominator the number prior to 1999-2000 are not comparable.


However the table belongs to the scetion where the survey does compare debt for periods from 70s to todate. Should they have done that?

And crux of the matter is we are not running a time series regression analysis here but commenting on the performance of govt of Pakistan for the current fiscal year.
Thus absolute numbers are way more relevant than GDP ratios. Simple reason being high values of GDP witnessed this year. Only in case of a regression analysis, where we like to capture the trend it is appropriate to get GDO ratios.
With GDP ratios what at best we can conclude is Pakistan is moving towards the right direction. A guess. However unfortunately this is only one year in 57 years in the history of this country. Currently there is no trend . ANything would be an anticipation. You shouldve got my point in the finishing lines of the article. I appreciated this trend as well.

But since one should know the reality behind these figures, a neutral analysis is necessary. The reality is that debt, defence and interest payments have increased in absolute number.The dev budget has been ignored and the poor have been ignored. Inflation has been raised. Cost of borrowing raised to a much greater extent then returns on deposit. Agriculture performed largely due to good weather. Growth owe it to the financial sector more than anything else.

I think I stand quite correct on my statements.

Re: # 29

great post faisal
i guess we are in for an interesting discussion
i am quite busy couple of days so lets see if i can go in details
but ill try

dude, once again, your post is full of crappola which should not be a surprise cause you appear to have comprehension skills of a nine year old repeating doorsi jamat. consider:

1. report is by state bank of pak and not by business recorder as you state. there is big difference between the two and that should be obvious even to you.

2. base year before change was 1980-81 and not ``1990``s as you state. here is the reference for it:

http://www.jang.com.pk/thenews/may2005-daily/18-05-2005/main/main3.htm

your misstatement of the base year further reinforces the point i have been making here which is that at best, you are an ignoramus and at worst, you are a liar who has no qualms about twisting facts.

3. there was a perfectly legitimate rationale for changing base year. structure of pak economy was in 1980 was much different from what it is today. back then, agriculture sector had a much greater share of the economy relative to the industrial sector than it does today. also back then, pak had 80k phone lines and now, it has 15 mn. base year was changed to reflect these changes.

4. other countries transitioning from agrarian to industrial economies also change base years. in late 90`s india changed base year to 1993-1994 from 1980-81. indonesia has changed gdp base year even more frequently. google to get more details on this.

5. gdp numbers for the last five years used in sbp report are based on the new base year. therefore your point about recent comparison being invalid is incorrect. verify this from spb`s website

6. in your article above, you yourself are using numbers computed using the new base year. why did you use the data if you claim that numbers are fudged? in fact in the article you clearly state that ``fastest growing economy of the South Asian region``. what led you this conclusion?

7. government revenue number is a flow number and not based on gdp base year calculation. the part you yourself have posted indicates that public debt as percentage of revenue is declining.

waisay, i have often wondered what happens to matric section types in pak who pass exams through cheating? some of them it seems end up writing crappy articles on chowk.

Re: # 27
This is what business recorder says.
Now it is debt over gdp ratio rather than debt, it is talking about. Secondly the base year has been changed to 2000 from 1990s when GDP growth was minmul. This is a cooked figure my friend. Lets talk about absolute figures and also the ratios if they are comparable.

````Public debt burden continues to decline rather sharply over the last five years with significant improvement in fiscal situation. The public debt to GDP ratio, which stood at 85 percent in 1999-2000, has declined sharply to 59.4 percent in 2004-05 - almost 26 percentage points reduction in debt burden in just five years is one of the significant achievements of the government. And DAWn BR has roudly published all these fudged figures. What a take dude :P

During the year, public debt as percentage of GDP declined from 67.7 percent to 59.4 percent - an 8.3 percentage decline in one year is other stellar occurrences of the current year. Since public debt is a charge on the budget, its burden must be viewed in relation to government revenue. Public debt was 473.4 percent of total revenue last year but declined to 457 percent this year - a decline of 16 percentage points is not a mean achievement.````

dude, once again, your comments have no basis in reality. report is not silent on the domestic debt situation in pak. instead, report very clearly states that pak`s domestic debt burden has been declining while external debt actually went up slightly last year. this is exactly the opposite of what you claim in your post #26.

http://www.brecorder.com/index.php?id=271071&currPageNo=1&query=&search=&term=&supDate=

``...Public debt burden continues to decline rather sharply over the last five years with significant improvement in fiscal situation. The public debt to GDP ratio, which stood at 85 percent in 1999-2000, has declined sharply to 59.4 percent in 2004-05 - almost 26 percentage points reduction in debt burden in just five years is one of the significant achievements of the government...``

also interest rates rose because of policy decision on the part of sbp to tighten monetary policy. please explain why asset prices did not fall with rising interest rates if there was a financial bubble in pak as you claim. please also explain the rise in borrowing by non-financial sector despite the steep rise in interest rates.

i am also still waiting to get a response to the factual mistakes i have pointed out. your failure to respond leads me to conclude that your article is based on outright lies, which would not be a surprise considering where this article is published.

Re: # 23

I accept the article doesnt not really cover issues in detail as I have touched upon several of them since I was briefly commenting on growth performance which is an outcome of myriad of variables.

There are many points which i have coverred in one sentence or so. e.g. i have claimed that debt is increasing. As the links provided by faisal, indeed debt is decreasing but it is foreign debt which has shown a decreasing trend. My take is domestic debt is increasing as the interest rates (lending rates) have witnessed a sharp increase. :)...However, strangely enough or coincidently enough the economic survey 2004-05 which has a chapetr about debt is silent about debt and overall debt situation of Pakistan. If I am wrong please correct me.

I didnt reply to faisal as it seems he has already made up his mind and seemingly his knowledge about economic and finacial issues are far deeper than mine (as what he claims) and thus not ready to give any weight to my arguments.

Anyway in this post ill like to bring the issue of debt as above and wanna have some discussion.

Ill cover the financial sector in much detail.:)

Agriculture sector and its productivity.

Manufacturing sector and role of skill bias tech boom.

then PRSP and SAPs.

and then education policies.


then defence and role of one man rule and institutional building.

(or simple might write another piece based on a discussion here :)...)

P.S. My statements would only make some sense or more sense if the other person takes into account the plight of poor of our country.

here are the views of s&p on pak completely contradicting claims made here. also pakistan`s liquidity position is better than most countries in the region. i will see if i can find comparitive data:

Summary: Pakistan (Islamic Republic of)

Publication date: 06-Feb-2005
Primary Credit Analyst(s): Agost Benard, Singapore (65) 6239-6347; agost_benard@standardandpoors.com
Secondary Credit Analyst(s): Takahira Ogawa, Singapore (65) 6239-6342; takahira_ogawa@standardandpoors.com


Credit Rating: BB/Stable/B B+/Stable/B


Rationale

The ratings on Pakistan reflect its sustained economic progress, declining debt and debt-servicing burdens, and moderate external liquidity position. Responsible economic management and gradual structural reforms have allowed its economy to expand at the fastest rate in over a decade in fiscal 2004. Real GDP growth was 6.4% in the fiscal year ended June 30, 2004, reflecting both cyclical factors and increasing domestic confidence. The outlook for GDP growth remains encouraging, thanks to recovery in the industrial sector and returning investment. Wide-ranging structural reforms implemented over the past few years have helped the economy to regain its footing, and made it much less vulnerable to shocks.

The government has remained steadfast in prudent fiscal management, thereby raising investor confidence. Pakistan`s general government deficits are likely to remain at moderate levels, despite an expected widening in the deficit (excluding grants) in fiscal 2005 to 3.8%, from 3.2% in fiscal 2004. This will preserve the government`s primary surpluses, which combined with privatization proceeds, will lower the debt burden as a ratio of GDP further in the medium term.

dude,

here is the link to the state bank report which completely contradicts your statement that there is no growth in real economic activity in pak. also please note the corresponding rise in interest rate in the same period:

http://www.brecorder.com/index.php?id=271071&currPageNo=1&query=&search=&term=&supDate=

...After four years of weak and fragile growth, this year has seen agriculture staging a smart recovery by posting a growth of 7.5 percent on the back of an unprecedented rise in the production of cotton (14.6 million bales) and wheat (21.1 million tons) crops. These two crops account for over 24 percent of the value added in agriculture.


...Manufacturing sector in general and large scale manufacturing in particular, continued to maintain their impressive performance for the second year in a row. Overall manufacturing, accounting for 18.3 percent of GDP, registered an impressive growth of 12.5 percent against the target of 10.2 percent and last year`s achievement of 14.1 percent.

...Construction sector has been one of the star performers of the fiscal year 2004-05. As against a sharp down turn of 6.9 percent last year, this sector has recorded equally sharp upturn of 6.2 percent this year.

...Investment is a key determinant of growth. During the fiscal year 2004-05, gross fixed capital formation or domestic fixed investment grew by 15.6 percent as against a sharp rise of 17.4 percent last year. Private sector investment grew by 19.3 percent this year as against a growth of 9.6 percent last year.

...The benchmark 6-months T-bill rate was hiked by 500 basis points since June 2004 to 7.08 percent by April 2005. Of late, the State Bank of Pakistan raised the discount rate by 150 basis points (bps) to 9.0 percent in April 2005 from 7.5 percent in November 2002, strongly signaling the increase in the lending rates....``

here is how international bond markets have reacted to the news coming out of pak. graph is for pak`s 5 sovereign launched last year;




we can discuss other issues once you provide an explanation of why reality is so different from the picture you paint.

Re: # 6 faisaluno

Faisal sahib

I think you are a bit too harsh and emotive in your condemnation of the author. You may not like the content of the article, but your reaction is more from the heart then the head.

Many of the arguments you give to refute him are themself based on precarious premises. Unfortunately, the author has not been able to argue some of his points too well, so they appear to lack substance. But in gist much of what he writes has a grain of truth to it.

The fundamental difficulty I see in this whole debate (from both sides) is a lack of distinction between the statistics that describe the real economic achievements as opposed to financial economic development.

Unfortunately, I wasn`t around Chowk much for the past several weeks and didn`t see this article until just now. But its late and I have a long day ahead. If the piece survives for another day or two I`d love to elaborate more. There are some very critical questions here that need to be looked at deeper.

Pakistan is now in the hands of the bankers and brokers. The paper shufflers, in other words. Those that don`t get their finger nails dirty and live high on the hog. Whenever a depressed cash economy is inflated and leveraged an apparent boom comes about. That is what is happening in Pakistan under that Citibank bagman, Shaukat Aziz. This is what happened in France under the economic stuartship of John Law. Look it up. You`ll see the unmistakable parallels.

And yes, please don`t go around quoting brokerage house reports as impartial and authentic sources. Anyone who has a financial incintive will loudly appreciate the emperors new clothes and will not dare call him naked. The brokers and bankers are having a field day in Pakistan, and I dare say they will continue to do so for some time.

Got to go now... maybe later,

best regards

...SR

Re: # 20
:) sorry faithless
earlier post was written without going to the blog. I thought it would be some hate propaganda. Well perceptions are indeed most of the times deceptive. I just visited your blog and yeah it turned out that you have some honest judgements and analysis to put forward on Pakistan.
It was nice to read your posts. Keep it up. We can only change our destinies by being honest and objective. I hope we would change this hopeless situation prevailing in the country esspecially for the masses someday soon.

Cheers

So, as an indian , as an american i have learnt after reading this article that the pak economy is precarious indeed!!!.Abdul Kalam and Manmohan Singh i`m sure will be having a good laugh when the subject of the pak economy comes up at their nest meeting , if at all it does.

>BTW whats with your blog man. Dont be so faithless!

Just telling it like it is Mamoon - and pulling no punches - much the same way you`ve so excellently done here by the way.

Faithless-Pakistani,
http://pakistan-sucks.blogspot.com

Re: # 14
BTW whats with your blog man. Dont be so faithless!