The drop in rupee and foreign exchange reserves is happening in spite of the fact that remittances from overseas Pakistanis are setting new record highs and IMF bailout funds are also being disbursed.
Overseas Pakistanis Remittances:
Overseas Pakistanis have sent home over $55 billion since 2008-9. Last fiscal year alone, expatriates remitted about $14 billion. Additional $ 5.3 billion in remittances have flowed in the first four months (July-October) of the current fiscal year 2013-14, a increase of 6.27 percent over the same period last year.
Foreign Direct Investment:
Net foreign direct investment (FDI) has surged 13.3 percent to $424.9 million in the first four months (July- October) of the fiscal year 2013-14 versus $375.1 million received in the same period of last fiscal year, according to the State Bank of Pakistan as reported in the media.
Pakistan has received $550 million from $6.6 billion bailout package agreed in September this year.
|Tweet From Geoffrey Langlands,|
teacher of the ruling Lahore Elite at Aitchison
Economist Sayem Ali was quoted as saying by Pakistani newspaper Express Tribune that sharp decline in foreign exchange reserves resulted from large oil import payments and external debt repayments. “Aggressive monetary tightening, higher import duties and cash margins on imports would have eased the pressure on foreign exchange reserves. However, the government has so far not shown any urgency to arrest the decline in reserves,” he said.
Another Lost Decade?
Economic mismanagement by Nawaz Sharif's economic team brings back memories of the lost decade of 1990s when economic growth plummeted to between 3% and 4%, poverty rose to 33%, inflation was in double digits and the foreign debt mounted to nearly the entire GDP of Pakistan as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML) played musical chairs. Before Sharif was ousted in 1999, the two parties had presided over a decade of corruption and mismanagement. In 1999 Pakistan’s total public debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% and 264.8% respectively in 1998) and India (44.0% and 358.4% respectively in 1998).
After a relatively peaceful but economically stagnant decade of the 1990s, the year 1999 brought a bloodless coup led by General Pervez Musharraf, ushering in an era of accelerated economic growth that led to more than doubling of the national GDP, and dramatic expansion in Pakistan's urban middle class. Pakistan's savings rate reached historic high of 17.6% of GDP in 2004 and remained above 15% during Musharraf years. It has now plummeted to a new low of just 4.36%.
|Pakistan Savings Rate as Percentage of GDP Source: World Bank|
The best one can hope for is that Nawaz Sharif and his finance minister Ishaq Dar have learned from their past mistakes and they will try and do better this time around. I expect it'll be a lot tougher now because of other major issues such as terrorism and energy which also require a lot more attention.
Here's a video discussion of Pakistan's economy and other current affairs, including Indian elections:
Pakistani Economy under Nawaz Sharif; PTI Dharna; Indian Elections from WBT TV on Vimeo.
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Finance Minister Ishaq Dar's Budget 2013-14 Speech