Pakistan's inflation woes call for desperate measures - PakMusic - The Pure Pakistani Forums | Pakistani Music Movies Dramas Desi Forums

Saad · #1 (**permalink**) 05-09-2008, 09:19 AM

With a double digit inflation rate staring us in the face, would anyone in here want to comment on the fiscal policy of the current government, and how will that affect the situation at hand.

Quote:

Karachi - Pakistan's rising inflation rate may force the country's central bank to take strict fiscal measures, such as raising interest rates, or face the loss of its sovereign rating, analysts said on Monday.

'Of course there is no choice but to increase interest rates and to cut the government's borrowing cost and improve the macro-economic picture,' said Mohammad Sabir, a senior economist at Pakistan's premier think-tank Social Policy Development Center (SPDC) in the southern city of Karachi.

Last week's report of the Asian Development Bank (ADB) further strengthened the already widely held belief that the country is heading towards double-digit inflation. The report estimated inflation at 10.3 per cent in 2008, a sharp increase from 7.9 per cent last year.

But many economists say the real inflation rate is more than 12 per cent. They say authorities should not wait until July, when the next yearly economic review is due, to take measures such as clamping down on the government's rampant domestic borrowing.

They said the central State Bank of Pakistan (SBP) was printing too much cash to satisfy the government's appetite amid dwindling foreign exchange reserves, rising import costs due to high oil and food prices, and low tax collection internally.

All this, according to Sabir, is leading Pakistan's inflation to a point from where a jump to hyper-inflation is going to be easier.

'My gut feeling is that in order to arrest hyper-inflation they have to increase interest rates to arrest government borrowing and to bring in private savings in the banking channel,' Sabir said.

Many Pakistanis are investing their savings in real estate and in opening foreign currency accounts at home and abroad, resulting in low savings in domestic currency.

As a result, in weekly treasury tenders the central bank is frequently failing to attract bids from investors and to meet its targets as the interest rates are in negative terms compared to real inflation.

Sabir declined to say how much of an interest rate increase is required, but privately other economists suggest the need is for a minimum of 3 per cent. Currently, the benchmark interest rate is hovering at 11.5 per cent.
Bankers think the rising borrowing is also fuelling the country's current account deficit, which may hit Pakistan's already sub-investment grade sovereign rating.

The Standard & Poor's (S&P) credit rating agency in a press statement hinted in December that Pakistan's ballooning current account deficit of 4.8 per cent to gross domestic product (GDP) would make the sovereign rating 'vulnerable.'

Since then the situation has worsened as the latest ADB report did not present a rosy reading, putting a higher current account deficit at 5.5 per cent to the GDP by fiscal year-end on June 30.

Any rating cut will also severely impact upcoming offers by the country's premier private and state-owned companies.

According to market sources, three major Pakistani companies - Lucky Cement, the National Bank of Pakistan and Habib Bank - are planning to float Global Depository Receipts (GDRs) totalling around 1 billion dollars.
State-owned Oil and Gas Development Company Ltd is also planning to float its bonds to be exchangeable with its lucrative stocks.

This will put pressure on foreign exchange reserves, which are already down by 4 billion dollars in the last five-month period to 12.65 billion dollars and treasury dealers expect further dipping to 10 billion dollars by June 30.
Though the central bank increased its benchmark interest rates in two meetings in July last year and in January 2008, analysts said a further increase was on the cards as the latest Federal Bureau of Statistics figures revealed a dismal picture.

The Sensitive Price Index (SPI) reached an all-time record of 23.93 per cent in April, while the Consumer Price Index (CPI) nears the double-digit level of 9.49 per cent on the back of rising consumer food and fuel prices, which have gone up by 14.12 per cent. The biggest increase was in housing rents, going up by 10.6 per cent.

'This supply and demand push factor is increasing inflationary pressure day by day,' said Khurram Shahzad, senior research analyst at Invest Cap Securities.

Due to dwindling hard currency reserves and high import costs, the Pakistani rupee has already lost 6 per cent against the US dollar during the last five months, hitting almost 67 versus one dollar on Monday.
'We will see a further rupee downward trend and a natural inflationary stoke,' said Nabeel Iqbal, marketing manager at Khannai & Kalia, the country's largest foreign exchange firm.

Some economists are of the view the rupee's massive decline may eat up 10 per cent of the national output, creating further problems in the GDP growth rates that have already been revised down by Finance Minister Ishaq Dar to 6 per cent after a five-year consecutive growth rate of between 7-8 per cent.

'The expected decrease of 33 billion rupees in tax collection will pose a challenge to the central bank,' said Shahzad.
But Sabir said the central bank had no choice but to gear up for a battle with the government in curbing its borrowing appetite and bringing fiscal discipline.

M&C

aa_man_98 · #2 (**permalink**) 05-09-2008, 02:09 PM

Quote:

Originally Posted by Saad

With a double digit inflation rate staring us in the face, would anyone in here want to comment on the fiscal policy of the current government, and how will that affect the situation at hand.
M&C

they have an easy way out. blame the previous government and they are home free. Pakistan maay too asay hee hota aaya haay 60 saal saay

Saad · #3 (**permalink**) 05-09-2008, 03:14 PM

That might work for the the first few months, but after that public memory tends to start diminishing. And if the new government didn't keep this monster in check, they'll have to face some serious repercussions.

s6demon · #4 (**permalink**) 05-09-2008, 03:41 PM

raising interest rates is a temporary solution. that is what China has been doing to combat its inflation. but ours is out of control. inflation is a normal product of a growing economy and ours right now is coupled with the food crisis, but i suspect our trade defecit is playing a part in determining our insane inflation. Our productivity isnt increasing proportional to the money we're spending. plus the new found taste for luxury brands which are prone to high depreciation, hence bleeding money. all the factors count and have added up to such a high rate.

Buck Fush · #5 (**permalink**) 05-09-2008, 04:09 PM

Updated at 1420 PST

ACHILLES · #6 (**permalink**) 05-09-2008, 06:38 PM

In the past two months we have seen a 15-20% depreciation in the value of Pakistani Rupee. Could somebody point out wtf happened there?

is it democracy at its best or something else?

And what do Imran Khan, Etizaz Ahsan and media have to say about this??

ACHILLES · #7 (**permalink**) 05-09-2008, 06:49 PM

http://thenews.jang.com.pk/updates.asp?id=45129

KARACHI: The foreign exchange reserves of the country have witnessed a slide of 355.5 million dollars and now stand at 9.92 billion dollars – lower than 10 billion.

According to the figures released by the State Bank of Pakistan (SBP), the foreign exchange reserves of Pakistan fell below 10 billion dollars for the first time after 2003.

Banking experts say the decline in reserves is being seen because the SBP has supplied large quantity of dollars in the market to stabilize the value of rupee against dollar.

ACHILLES · #8 (**permalink**) 05-09-2008, 06:49 PM

that was quick, on our road back to 200 million dollar forex reserves. Cruising on all four cylinders.

s6demon · #9 (**permalink**) 05-09-2008, 07:07 PM

i just saw the exchange rates, its freakin unbelievable.

ACHILLES · #10 (**permalink**) 05-09-2008, 07:09 PM

Quote:

Originally Posted by s6demon

i just saw the exchange rates, its freakin unbelievable.

where are those dar and nawaz lovers now???????

ACHILLES · #11 (**permalink**) 05-09-2008, 07:10 PM

and what kind of an idiot would impose bans on exports of euros, pounds and United Arab Emirate dhirams by foreign exchange companies. Next freeze foregn currency accounts, yeh dar sahib nay MBA bhai pheru say kiya tha? Does anybody know what his qualification is?

aa_man_98 · #12 (**permalink**) 05-09-2008, 07:14 PM

Quote:

Originally Posted by kilyas22

and what kind of an idiot would impose bans on exports of euros, pounds and United Arab Emirate dhirams by foreign exchange companies. Next freeze foregn currency accounts, yeh dar sahib nay MBA bhai pheru say kiya tha? Does anybody know what his qualification is?

iss ullu kaay pathay ganjay naay pichlee dafa bhee yahi keya thaa .. jahanum maay keeyon naheen jata yaay.

Jappanun · #13 (**permalink**) 05-09-2008, 07:14 PM

^

Jappanun · #14 (**permalink**) 05-09-2008, 07:21 PM

Wonder whats gonna happen now. But hope that these selfish politicians use some of their brain on some right decisions!

rabians · #15 (**permalink**) 05-09-2008, 07:25 PM

its quite dishonest to blame all our economic problems on the current govt. the new govt is likely to be inefficient but the previous one got us into this morass. im quite sick of losers like mushahid hussain coming on tv and acting as if they have been stuck by a bolt of morality (talking about how unfair it is for inocent pakistanis to suffer in gitmo) when they themselves adopted these policies in power.

pakistan was given significant debt relief in musharraf's time but our debt burden still increased. similarly the atta crisis which the chaudries are now trying to pin on the new govt has existed for several months well before the new govt was even elected.

the new govt is enjoying its honeymoon period but soon ppl will lose all patience. signs of that are already visible.