Trade Deficit Crisis and Non-productive Expenditures

[pkuser2k12]

https://twitter.com/i/web/status/1098645010977824768

 

[ziaulislam]

Fiscal health deteriorating sharply, half-year data shows

Pakistan’s fiscal deficit crossed 2.7 per cent of gross domestic product (GDP) in the first half of this fiscal year – the highest in eight years – despite government’s claims to have put the house in order with greater fiscal discipline and austerity.

Almost all the major fiscal indicators – both on expenditure and revenue side – showed deterioration in first half of the current fiscal year when compared to same period of last year.

According to fiscal operations data released by the Ministry of Finance on Wednesday, the fiscal deficit in absolute terms amounted to Rs1.029 trillion in first half (July-December 2018) that was almost 30pc higher than same period of last year – the pre-election spending session of PML-N.

For its part, the PTI government slashed development spending and net lending by a massive 36pc to rein in runaway spending in mark up payments and defence, posting an increase of 32pc and 22pc respectively.

The country has never posted such a higher fiscal deficit since 2010-11 when the gap between the government revenues and expenditure stood at 2.9pc of GDP or Rs490 billion in absolute terms. Nevertheless, the country’s fiscal deficit had stood 2.6pc in 2012-13 and 2.5pc twice in 2011-12 and 2016-17.

While defence expenditure went up, spending on the Public Sector Development Programme was reduced by 37pc

The Ministry of Finance reported that defence expenditure and mark up payments also posted an upward journey as share of the size of the national economy (GDP), leaving little space for the government to spend on improvements in the living standards of the people in the form of infrastructure development and social sector spending.

Data showed the total mark up payments amounted to Rs877bn in first six months of the current fiscal year compared to Rs751bn of same period of last year, showing an increase of Rs126bn or 32pc. As percentage of GDP, mark up consumed 2.3pc compared to 2.1pc of GDP the same period last year.

The defence expenditure in first six months of current year stood at Rs479.6bn compared to Rs393bn of same period last year, showing a jump of 22pc or Rs87bn. Its share in GDP also inched up to 1.2pc this year against 1.1pc of GDP same period last year.

Unfortunately this led to a cut back in the Public Sector Development Programme (PSDP). The PSDP spending in first half of this year plummeted to Rs328bn compared to Rs520bn of same period last year, showing a reduction of 37pc or about Rs192bn. This is also evident from the fact that overall development spending and net lending dropped to a paltry 1pc of GDP compared to 1.6pc of GDP of last year.

The total expenditure in first half of CFY amounted to Rs3.36tr against Rs3.18tr of comparable period last year, showing an increase of 5.5pc. The trade off in spending between non-productive and productive sectors of economy helped contain FY19 total expenditure at 8.7pc of GDP compared to 8.9pc in FY18.

The current expenditure, however, remained out of control. For example, current expenditure in FY19 stood at Rs2.98tr compared to Rs2.55tr of FY18, showing an increase of Rs44bn or about 18pc. The current expenditure stood at 7.8pc of GDP during CFY, significantly higher than 7.1pc of GDP last year.

On the other hand, total revenue collection dropped to just 6.1pc of GDP in first half of current year compared to 6.6pc of GDP last fiscal. Tax revenue was also down to 5.4pc of GDP this year compared to 5.6pc of last year. The performance of non-tax revenue was no exception that stood at 0.6pc of GDP in first half of CFY compared to 1pc of GDP same period last year.

The revenue performance in absolute terms was no better either. For example, total revenue collection stood at Rs2.33tr in first half of current year compared to Rs2.38tr of last year, showing a reduction of Rs58bn or 2.43pc. This is perhaps a rare phenomenon that revenue collection has ever been lower than previous year.

Tax revenue amounted to Rs2.08tr in first half of current year compared to Rs2.03tr, showing a nominal increase of Rs55bn or 2.71pc. Normally, the tax revenue should increase every year at the cumulative rate of inflation and economic growth rate. That means the tax revenue should have automatically increased by at least 11pc (over 4pc GDP plus over 7pc inflation).

Direct taxes also dropped to 1.8pc of GDP during CFY against 1.9pc of same time last year. Taxes on goods and properties also declined to 2.1pc of GDP compared to 2.2pc. The share of sales tax also dropped to 1.8pc of GDP from 1.9pc last year.

Non-tax revenue also dropped to Rs245bn in first six months compared to Rs358bn of same period last year, down by a massive Rs113bn or 32pc. Both the federal and provincial revenues contributed to poor tax revenue performance. Provincial revenue slightly increased in absolute terms to Rs188bn this year against Rs176bn of last year while federal revenue inched up to Rs1.89tr compared to Rs1.85tr of same period last year.


https://www.dawn.com/news/1465070

Its called falsw reporting tribune i no longer take serious

Bittom line is things looks better as prpjected target of 4.9 is achievable given if same pace is kept we will hit 5.4

Most of time Pakistan outpaces spending during second half though but i doubt it will happen this year
Rest meausres dont mean much..its pretty expected that direct tax to gdp is either going to be flat or should drop from last year given no amnesty scheme this year.

Tax revenues didnt show growth because of tax relief given during first 2 months and mobile tax being suspended ..these will resume/,have been resumed

Overall if Pakistan achieves 4.9, it will be a miracle and great fiscal adjustment (from 6.6) and so far its on target/barely behind (2.7% in first 6months)

 

[FuturePAF]

Its called falsw reporting tribune i no longer take serious

Bittom line is things looks better as prpjected target of 4.9 is achievable given if same pace is kept we will hit 5.4

Most of time Pakistan outpaces spending during second half though but i doubt it will happen this year
Rest meausres dont mean much..its pretty expected that direct tax to gdp is either going to be flat or should drop from last year given no amnesty scheme this year.

Tax revenues didnt show growth because of tax relief given during first 2 months and mobile tax being suspended ..these will resume/,have been resumed

Overall if Pakistan achieves 4.9, it will be a miracle and great fiscal adjustment (from 6.6) and so far its on target/barely behind (2.7% in first 6months)

Do you think Land reforms akin to those carried out by India in 1951 will drive considerable growth? Also with the visits of the leaders of Malaysia and Turkey due in March, could they say something that would motivate the Pakistani people; particularly the political elites to embrace the needed reforms you have mentioned in the posts on this thread? What needs to be done to reform the ruling classes of Pakistan and focus them on sacrificing for the nation, so that Pakistan and they will be able to enjoy long term stable growth?

 

[ziaulislam]

Do you think Land reforms akin to those carried out by India in 1951 will drive considerable growth? Also with the visits of the leaders of Malaysia and Turkey due in March, could they say something that would motivate the Pakistani people; particularly the political elites to embrace the needed reforms you have mentioned in the posts on this thread? What needs to be done to reform the ruling classes of Pakistan and focus them on sacrificing for the nation, so that Pakistan and they will be able to enjoy long term stable growth?

Whole nation mind set needs to change..IK mentions this in every speech of his..this will take time..
I think Pakistan needs to develop new cities with cheap EPZs for SMEs to boom
Sindh needs land reforms as most of the land is not regularized

 

[GeraltofRivia]

Why is our industry uncompetitive
1. We need to understand that our labour/manpower is unskilled . so we can only develop SMEs or textiles ...skilled labour tajes decades of training and R&D Built upon revenues (textile)
2. Textiles is cut throat competition
3. Where countries offer free land for industrial complex (i mean duh? Do you thunk we dont have land..literally all Baluchistan coast is empty) but in Pakistan no province wants to do that. A land whose value is less than a rupee(barren land) is being given to industry on millions. This is how china developed new cities cheap land all the coastal power houses were nacent cities like gawadar today ecah of these cities have bigger GDP than combined india
4. Lower taxes. Our tax rate is 30% bank tax is 40% this is two times of developing countries and 50% higher than developed countries (rectified to somw degree now)
5. Liquidity ..govt borrows all the money at cheaper artificial interest rate....>>>>ishaq dar mentality ...> result..lowest liquidity /saving just 10% of GDP(people don't put money in banks) and lack of any mlney for private sector(rectified govt borrowing down And interest increased but will takw years to work)
6۔ ease of doing businesses ..it takes omni group to get utilities and minting zardari for even a gas connection !
7. High cost of power...world devleops power via coal but Pakistan is environmental friendly thats we burn furnace oil which probably as dirty as coal
9. Many other things...!!

Agriculture ..lack of R&D countirs have tripled their production since 1990 . well u gyessed it rigjr Pakistan has seen no change
Reasons
1. Lack if lending because ishaq dar dried up liquididy to fund metros
2. Lack of fertilizer ..getting opium is much eaier than fertilizer these days..rectified gas being guven to fertilizer sector
Gas imports ..well we made a gas terminal but forget to laydown a 20km gas pipeline to connect the terminal ..result..we are paying capacity charges without usibg the terminal..one of the most weirdest things i have seen..?!!!
3. New seed. E.g in sindh new rice seed vas led to double rice production despite all issue in three years
4. New R&D for disease since mushaiddullah took over the faislaabad university is growing vegetables for professors rather than doing cotton research

The facts is problems are so huge that even if IK fixes them in 3-4 years which is difficult as people in IK party are resisting chnage(e.g propoganda against Asad umar) zardari/sharif/marium/bilawal will come by to screw things again.

Mindset change is needed which is next to impossible ..people of Pakistan loves democracy ..there is no concept of capitalism and work.
capitalism was buried when bhutto came in 1970s and since than we are just helping fuedal lords

Very good summary of the issues. I think the best way to get things moving in Pakistan is to build new SEZ on barren land. basically start something from the stretch in order to get things started and try out new stuff. improving the current system can always happen in parallel and can learn from the experience of new zone. Naturally it is a lot more expensive as all the services have to be built from nothing but it has less resistance which basically from the rocks.

A lot of the issues you have mentioned are interconnected and cannot be changed without a major social and economical reform. Do you see much consensus in the society (both elite class and commoner) to have a major reform?

 

[Nilgiri]

Its called falsw reporting tribune i no longer take serious

Bittom line is things looks better as prpjected target of 4.9 is achievable given if same pace is kept we will hit 5.4

Most of time Pakistan outpaces spending during second half though but i doubt it will happen this year
Rest meausres dont mean much..its pretty expected that direct tax to gdp is either going to be flat or should drop from last year given no amnesty scheme this year.

Tax revenues didnt show growth because of tax relief given during first 2 months and mobile tax being suspended ..these will resume/,have been resumed

Overall if Pakistan achieves 4.9, it will be a miracle and great fiscal adjustment (from 6.6) and so far its on target/barely behind (2.7% in first 6months)

Is spending on 2nd half generally lower than 1st half in Pakistan when it comes to the fiscal history?

 

[maithil]

Fiscal blowout in the making


THE numbers are getting a little crazy now. Data released by the finance ministry on the state of revenues and expenditures for the first half of the fiscal year show that the budget deficit is spiralling on faster than ever.

Here is what the data shows. The deficit has grown by 29 per cent in the first six months of the fiscal year, a much faster rate of growth than in recent years. Revenue growth was identified by the State Bank as one of the prime drivers of the deficit in quarter one, when the pace of revenue collection grew by a paltry 7.5pc year on year. But in the second quarter revenue collection actually fell by 9.9pc, coming in at Rs2.33 trillion from Rs2.39tr last year. This is disturbing, to say the least.

Commenting on why revenues were slow in the first quarter, the State Bank attributed it to reduction in the rate of sales tax on major petroleum products and reduction in corporate and income tax rates announced in the budget by the outgoing government, as well as a sharp fall in development spending and an overall slowdown in the economy.
Since then, all these factors have been aggravated. The projected growth rate for the remainder of the fiscal year has been downgraded, the sales tax reduction on petroleum products has not been increased, development spending has been slashed further (it was down 42.5pc in the first quarter, and another 32.5pc in the second quarter). So it is hard to see where the driver for revenues in the remainder of the fiscal year is. It was supposed to be the ‘mini budget’ announced by the government earlier this year, but given they have only just begun debating that finance bill more than a month after it was tabled, and that it contains no significant revenue measures (only further tax breaks), it is hard to imagine how it will spur revenue growth till year end.

Compared to the first half period last year, this year we have what is known as a primary deficit.

On expenditures the fastest growing item was defence, followed closely by debt service. The latter grew by 13.9pc in quarter one, which jumped to 20.8pc by second quarter (all figures are year on year). Defence grew at 20.1pc in first quarter, and climbed to 23pc in second quarter. In the budget presented by the outgoing government last April, all expenditures were frozen except for defence which was hiked by 18pc. The actual spending on this head is coming in even higher, and the pace is accelerating from first quarter to second.


This means compared to the first half period last year, this year we have what is known as a primary deficit. A quick (though simplified) way to calculate the primary deficit would be to take total expenditures, subtract debt service payments from it and subtract this number from total revenue collection. If the number you get is negative, the primary balance is in deficit, which means you are now borrowing to pay for interest on loans. Last year, the primary balance was negative (by about Rs35bn as per this calculation, which admittedly is a back-of-the-envelope way of going about it).

This year’s numbers give us a primary deficit of around Rs153bn in the first half of the fiscal year. In order to rectify this, the government has to immediately cut current expenditures outside of debt service by this amount, or raise taxes by an equivalent amount while arresting further increase in all current expenditures.

This will be a challenge for a couple of reasons, one being that going forward the government is rolling over domestic debt onto very high interest rates. On Wednesday a Pakistan Investment Bond (PIB) auction fetched a decent response from the market after a long time. But compare the yields and you’ll see what is happening. From earlier in 2018, the yields have risen from between 7pc and 8pc to between 12pc and 13pc today. This means as the rollovers continue, domestic debt service payments will rise even more, unless the government wants to continue printing money.

The other reason why bringing the primary balance under control will be difficult is because this government appears to be in no position to tell the military that defence spending needs to be restrained, especially not in the current environment.

This leaves revenue generation as the main source of stabilising the primary balance, particularly tax collection. But on that front the government seems more interested in pleasing the business community in the hopes that such acts of kindness will bring forth higher export earnings and propel growth in the immediate term. It is walking towards disappointment on both these expectations. The business community is very skilled at presenting its case, and equally skilled at explaining why its end of the bargain failed to materialise.

So far the picture that is shaping up does not look very good. The external sector has started seeing some improvement, but mostly because imports have fallen in significant measure due to a continuing fall in oil prices. Exports are not picking up as fast as they should considering the massive devaluations we have seen recently. This is an untenable situation, and should there be a revival in growth, as the government is eagerly hoping for, it will easily reverse this trend.

One ends up sounding like a broken record when commenting on the direction of the economy in this country. It would be lovely to have the opportunity to point to all the wonderful, positive work that is being done in many places. But that would be like the grin on a dog’s face, given the fact that our very own prime minister has sat with the managing director of the IMF recently and asked for financial assistance, and promised “deep structural reform” in return.

Countries whose prospects are brightening, that have cleared the storms of uncertainty, are usually not found on the doorstep of the IMF, unless they are on the way out.

https://www.dawn.com/news/1465106/fiscal-blowout-in-the-making

 

[Nilgiri]

Fiscal blowout in the making


THE numbers are getting a little crazy now. Data released by the finance ministry on the state of revenues and expenditures for the first half of the fiscal year show that the budget deficit is spiralling on faster than ever.

Here is what the data shows. The deficit has grown by 29 per cent in the first six months of the fiscal year, a much faster rate of growth than in recent years. Revenue growth was identified by the State Bank as one of the prime drivers of the deficit in quarter one, when the pace of revenue collection grew by a paltry 7.5pc year on year. But in the second quarter revenue collection actually fell by 9.9pc, coming in at Rs2.33 trillion from Rs2.39tr last year. This is disturbing, to say the least.

Commenting on why revenues were slow in the first quarter, the State Bank attributed it to reduction in the rate of sales tax on major petroleum products and reduction in corporate and income tax rates announced in the budget by the outgoing government, as well as a sharp fall in development spending and an overall slowdown in the economy.
Since then, all these factors have been aggravated. The projected growth rate for the remainder of the fiscal year has been downgraded, the sales tax reduction on petroleum products has not been increased, development spending has been slashed further (it was down 42.5pc in the first quarter, and another 32.5pc in the second quarter). So it is hard to see where the driver for revenues in the remainder of the fiscal year is. It was supposed to be the ‘mini budget’ announced by the government earlier this year, but given they have only just begun debating that finance bill more than a month after it was tabled, and that it contains no significant revenue measures (only further tax breaks), it is hard to imagine how it will spur revenue growth till year end.

Compared to the first half period last year, this year we have what is known as a primary deficit.

On expenditures the fastest growing item was defence, followed closely by debt service. The latter grew by 13.9pc in quarter one, which jumped to 20.8pc by second quarter (all figures are year on year). Defence grew at 20.1pc in first quarter, and climbed to 23pc in second quarter. In the budget presented by the outgoing government last April, all expenditures were frozen except for defence which was hiked by 18pc. The actual spending on this head is coming in even higher, and the pace is accelerating from first quarter to second.


This means compared to the first half period last year, this year we have what is known as a primary deficit. A quick (though simplified) way to calculate the primary deficit would be to take total expenditures, subtract debt service payments from it and subtract this number from total revenue collection. If the number you get is negative, the primary balance is in deficit, which means you are now borrowing to pay for interest on loans. Last year, the primary balance was negative (by about Rs35bn as per this calculation, which admittedly is a back-of-the-envelope way of going about it).

This year’s numbers give us a primary deficit of around Rs153bn in the first half of the fiscal year. In order to rectify this, the government has to immediately cut current expenditures outside of debt service by this amount, or raise taxes by an equivalent amount while arresting further increase in all current expenditures.

This will be a challenge for a couple of reasons, one being that going forward the government is rolling over domestic debt onto very high interest rates. On Wednesday a Pakistan Investment Bond (PIB) auction fetched a decent response from the market after a long time. But compare the yields and you’ll see what is happening. From earlier in 2018, the yields have risen from between 7pc and 8pc to between 12pc and 13pc today. This means as the rollovers continue, domestic debt service payments will rise even more, unless the government wants to continue printing money.

The other reason why bringing the primary balance under control will be difficult is because this government appears to be in no position to tell the military that defence spending needs to be restrained, especially not in the current environment.

This leaves revenue generation as the main source of stabilising the primary balance, particularly tax collection. But on that front the government seems more interested in pleasing the business community in the hopes that such acts of kindness will bring forth higher export earnings and propel growth in the immediate term. It is walking towards disappointment on both these expectations. The business community is very skilled at presenting its case, and equally skilled at explaining why its end of the bargain failed to materialise.

So far the picture that is shaping up does not look very good. The external sector has started seeing some improvement, but mostly because imports have fallen in significant measure due to a continuing fall in oil prices. Exports are not picking up as fast as they should considering the massive devaluations we have seen recently. This is an untenable situation, and should there be a revival in growth, as the government is eagerly hoping for, it will easily reverse this trend.

One ends up sounding like a broken record when commenting on the direction of the economy in this country. It would be lovely to have the opportunity to point to all the wonderful, positive work that is being done in many places. But that would be like the grin on a dog’s face, given the fact that our very own prime minister has sat with the managing director of the IMF recently and asked for financial assistance, and promised “deep structural reform” in return.

Countries whose prospects are brightening, that have cleared the storms of uncertainty, are usually not found on the doorstep of the IMF, unless they are on the way out.

https://www.dawn.com/news/1465106/fiscal-blowout-in-the-making

I guess we will see for sure after one year is over. Cannot disguise it at the end.

 

[ziaulislam]

Basically THE ARTIFICIALLY CREATED crisis is over the CAD will end up same level as 2017 about 50% less than 2019 projection before corrective measures..by 2020 if oil prices stay where they are it will be completely resolved as remittances are showing double digit growths even exports are showing double digits growth on month to month showing pick up is starting which will really pick up by june july ..

CAD for January was just 800million..this will mean even if no improvement it will end up at 9b$ or 3% GDP which easily sustainable

However the bigger issue rolling over the loans with poor credit rating as result of this stupidity by PMLN govt

The fact that it took nothing to correct and that true effects of PTI polcies of dec 2018 are yet ti fully come in effect shows how one can easily create crisis by manipulating currency levels...
The very reason when required india devalued its currency more than Pakistan in 2015-16