Pakistan may not get $2 bn rollover from Saudi Arabia

[Nilgiri]

Pakistan may not get $2 bn rollover from Saudi Arabia

ISLAMABAD: Saudi Arabia has indicated that it might refuse a rollover of $2 billion to Pakistan. Islamabad has already started exploring options to manage the amount from other avenues to avert the...

www.thenews.com.pk

ISLAMABAD: Saudi Arabia has indicated that it might refuse a rollover of $2 billion to Pakistan. Islamabad has already started exploring options to manage the amount from other avenues to avert the dwindling foreign currency reserves. On the issue of $2 billion loan deposits from the UAE, there is no new development so far, as its maturity will become due after a couple of months.

Official sources confirmed on Monday that Islamabad had forwarded a formal request for granting a rollover of $2 billion to the Kingdom of Saudi Arabia with the hope that this arrangement would continue for another year under the requirement of the IMF programme. The formal response is still being awaited from KSA, official sources said.

The Pakistani authorities are expecting that KSA’s top leadership would give a formal response within the next few weeks. After the recent posting of Special Secretary Finance Mohsin Chandana to the Communication Ministry, the Ministry of Finance has not yet notified the appointment of an official spokesman to talk about the issue.

When contacted, the official sources said that when Islamabad had forwarded its formal request, there was a hope that Riyadh would grant another rollover but now there were indications otherwise, so Pakistan would have to explore other options to manage $2 billion through commercial or Chinese loans to avert reduction in the foreign exchange reserves.

This scribe contacted another top official who commented briefly by stating “the matter involves bilateral confidentiality so let’s leave at that please”. Other official sources said that KSA’s top leadership kept such decision close to chest and it did not like disclosure of any such thing ahead of its due date. But through backdoor diplomatic channels, it had been conveyed to Islamabad to manage financing of $2 billion because KSA was not going to grant a rollover for another year.

When Saudi Arabia had asked Pakistan to return $1 billion prior to its due date, Islamabad had to obtain it from China. Now the Pakistani authorities have been left with two remaining options either to manage commercial loans or obtain $2 billion more from China.

Pakistan’s foreign currency reserves held with the SBP stood at $12.18 billion out of which around $10 billion were in shape of foreign loans or swaps obligations. If the IMF includes in it, the foreign exchange turns into negative so vulnerabilities on external account are increasing with every passing day.

 

[VCheng]

Pakistan’s foreign currency reserves held with the SBP stood at $12.18 billion out of which around $10 billion were in shape of foreign loans or swaps obligations. If the IMF includes in it, the foreign exchange turns into negative so vulnerabilities on external account are increasing with every passing day.

Please correct me if I am wrong, but isn't the real balance for FE reserves already MINUS 10 Billion dollars?

 

[Madokafc]

Saudi itself had experience five Times quarter strike of recession. Sure they are left in trouble too financially

 

[Nilgiri]

Please correct me if I am wrong, but isn't the real balance for FE reserves already MINUS 10 Billion dollars?

Like I guess if you subtract some kind of debt definition/combination from it....

https://www.sbp.org.pk/ecodata/forex.pdf

https://openknowledge.worldbank.org/bitstream/handle/10986/34588/9781464816109.pdf?sequence=2&isAllowed=y

As of 2019/2020:

Total forex reserve is 20 billion (12 billion SBP, 8 billion other banks in Pakistan)

Short term external debt is around 10+ billion

Long term external debt is around 85+ billion of which:
- non-guaranteed private (from external commercial banks) is 12 billion
- guaranteed (by public/institutional entity) private is 9 billion

So subtracting 3 "riskiest" + "immediate" debt types, you can reach around minus 10 billion:

20 - 10 - 12 - 9 = minus 11 billion

But I am not sure what that represents given these still have a time factor in play...and thus these are not immediately payable (that all depends on how short/likely they are to be called faster than Pakistan can earn + cycle new loans in).

 

[Saithan]

It’ll only be a problem in case of defaulting on your debt. Turkey defaulted on aprox 1,5 b usd in 2001 or so. Imagine all the problems it raised.

Thus it is never a good idea to have a debt you can’t pay off.

Danish mortgage system is like the holy grail. Scares the shit off banks. I really recommend reading about it. Interest today is below 1% for 30 year loan.

 

[Indos]

Like I guess if you subtract some kind of debt definition/combination from it....

https://www.sbp.org.pk/ecodata/forex.pdf

https://openknowledge.worldbank.org/bitstream/handle/10986/34588/9781464816109.pdf?sequence=2&isAllowed=y

As of 2019/2020:

Total forex reserve is 20 billion (12 billion SBP, 8 billion other banks in Pakistan)

Short term external debt is around 10+ billion

Long term external debt is around 85+ billion of which:
- non-guaranteed private (from external commercial banks) is 12 billion
- guaranteed (by public/institutional entity) private is 9 billion

So subtracting 3 "riskiest" + "immediate" debt types, you can reach around minus 10 billion:

20 - 10 - 12 - 9 = minus 11 billion

But I am not sure what that represents given these still have a time factor in play...and thus these are not immediately payable (that all depends on how short/likely they are to be called faster than Pakistan can earn + cycle new loans in).

Very worrying situation, is there any potency for possible currency attack just like what Gorge Soros did in East Asian countries with the worst victim is Indonesia ?

 

[Saithan]

Very worrying situation, is there any potency for possible currency attack just like what Gorge Soros did in East Asian countries with the worst victim is Indonesia ?

Is there anything to gain from such an attack ?

 

[Indos]

Is there anything to gain from such an attack ?

I dont read much about the financial gain that they get when doing such attack, but of course there is financial benefit behind it as trading is so liberal. In currency trade we can get gain by betting the currency to fall, if I am not mistaken it is called short selling.

"A short-seller borrows a currency, sells it at the current market price, waits for the price to fall and buys the currency later at a lower price in order to return the loan. So, after you sell a currency, you'll have to buy it to close a short position"

Remember the time is 1997

Despite so I believe it is some sort of attack whose intention is to bankrupt East Asian economy since East Asian (North East and South East Asian) is seen as the next competitive rival of western world after the collapse of USSR (communism). Jews is likely behind this since Jews rely on Western world economy and military (George Soros is a Jew). They are also a big player in financial world as even they have some significant stakes on The Fed (The Fed is not entirely state owned).

Indonesia which is seen as potential Muslim country to raise in the post cold war period also needs to be destroyed economically and if possible should be broken down. Starting from separating East Timor to create a domino effect that can include Aceh and then Maluku (remember religious conflict there 1999-2004).

Indonesia economy is also relatively more benefited from their East Asian brothers like Japanese and Korean in term of industrialization where Western companies here only focus on extraction activity (nickle/gold/oil mining)

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Huntington's thesis of civilizational clash​

Huntington at the 2004 World Economic Forum

The Clash of Civilizations is a thesis that people's cultural and religious identities will be the primary source of conflict in the post-Cold War world. The American political scientist Samuel P. Huntington argued that future wars would be fought not between countries, but between cultures. It was proposed in a 1992 lecture at the American Enterprise Institute, which was then developed in a 1993 Foreign Affairs article titled "The Clash of Civilizations?"

Huntington argues that the trends of global conflict after the end of the Cold War are increasingly appearing at these civilizational divisions. Wars such as those following the break up of Yugoslavia, in Chechnya, and between India and Pakistan were cited as evidence of inter-civilizational conflict. He also argues that the widespread Western belief in the universality of the West's values and political systems is naïve and that continued insistence on democratization and such "universal" norms will only further antagonize other civilizations. Huntington sees the West as reluctant to accept this because it built the international system, wrote its laws, and gave it substance in the form of the United Nations.

Huntington identifies a major shift of economic, military, and political power from the West to the other civilizations of the world, most significantly to what he identifies as the two "challenger civilizations", Sinic and Islam.

In Huntington's view, East Asian Sinic civilization is culturally asserting itself and its values relative to the West due to its rapid economic growth. Specifically, he believes that China's goals are to reassert itself as the regional hegemon, and that other countries in the region will 'bandwagon' with China due to the history of hierarchical command structures implicit in the Confucian Sinic civilization, as opposed to the individualism and pluralism valued in the West. Regional powers such as the two Koreas and Vietnam will acquiesce to Chinese demands and become more supportive of China rather than attempting to oppose it. Huntington therefore believes that the rise of China poses one of the most significant problems and the most powerful long-term threat to the West, as Chinese cultural assertion clashes with the American desire for the lack of a regional hegemony in East Asia.[citation needed]

Huntington argues that the Islamic civilization has experienced a massive population explosion which is fueling instability both on the borders of Islam and in its interior, where fundamentalist movements are becoming increasingly popular. Manifestations of what he terms the "Islamic Resurgence" include the 1979 Iranian revolution and the first Gulf War. Perhaps the most controversial statement Huntington made in the Foreign Affairs article was that "Islam has bloody borders". Huntington believes this to be a real consequence of several factors, including the previously mentioned Muslim youth bulge and population growth and Islamic proximity to many civilizations including Sinic, Orthodox, Western, and African.

Huntington sees Islamic civilization as a potential ally to China, both having more revisionist goals and sharing common conflicts with other civilizations, especially the West. Specifically, he identifies common Chinese and Islamic interests in the areas of weapons proliferation, human rights, and democracy that conflict with those of the West, and feels that these are areas in which the two civilizations will cooperate.

Clash of Civilizations - Wikipedia

en.wikipedia.org

 

[Nilgiri]

Very worrying situation, is there any potency for possible currency attack just like what Gorge Soros did in East Asian countries with the worst victim is Indonesia ?

The chances of that are low as Pakistan capital+stock market seems to have stabilised last few years (at around 50billion market cap) rather than (use external funds + bonds) to support the earlier peak (90 billion market cap under Nawaz Sharif admin)....i.e currency devaluation was done pre-emptively rather than driven by a capital flight like in Indonesia case in the 98 crisis.

Most of the bonds being raised + loans taken is being used to support govt spending+infra spending (given immediate urgency there and precarious govt finances) rather than any kind of bubble in capital market (unless there are bubbles within the 50 billion level now, but that remains to be seen).

The issue is the buffet available to Pakistan is also far smaller....new loans come mostly from China (CPEC)....as institutional loans (from WB, IMF) are affected by Pakistan being on FATF greylist.

The big issue with Pakistan in general is it does not get a good savings rate to invest into industry and services sector. This is very key in any developing country at this stage to get chunk of 10 - 20 years base of that to launch from to propel itself to get to 5k and then 10k USD per capita GDP.

When Pakistan does liberalise/reform things, it doesn't go deep enough (especially to important institutional, investment, policy reform etc) and little benefit is achieved:

http://www.gids.org.pk/wp-content/uploads/2019/10/MS_2019.pdf

Snippets in conclusion:

Results of the paper conclude no significant contribution of capital account liberalization on the economic growth and development of the country, regardless of the indicator type.

Pakistan’s sequencing of the reforms was rather less coherent and not carefully designed; it embarked on the road of capital account convertibility prior to fully liberalizing its current account, while other necessary preconditions had not been fully met.

The quality of institutions has also been identified in literature as a requisite to positive significant contribution of capital account liberalization towards growth. Mahmood (2013) raises the point that given Pakistan’s fully liberalized current account, absence of strong institutions accommodates illegal capital flows.

A more worrisome aspect is that governments have utilized these funds to sustain liquidity in the foreign exchange market rather than diverting them towards productive investment opportunities.

The country needs to rigorously pursue financial sector reforms with a view to strengthening the banking system, making it more transparent and market forces driven, all of these under the umbrella of a well-defined regulatory framework and effective supervision.

 

[Madokafc]

if we read conspiration theorize

The chances of that are low as Pakistan capital+stock market seems to have stabilised last few years (at around 50billion market cap) rather than (use external funds + bonds) to support the earlier peak (90 billion market cap under Nawaz Sharif admin)....i.e currency devaluation was done pre-emptively rather than driven by a capital flight like in Indonesia case in the 98 crisis.

Most of the bonds being raised + loans taken is being used to support govt spending+infra spending (given immediate urgency there and precarious govt finances) rather than any kind of bubble in capital market (unless there are bubbles within the 50 billion level now, but that remains to be seen).

The issue is the buffet available to Pakistan is also far smaller....new loans come mostly from China (CPEC)....as institutional loans (from WB, IMF) are affected by Pakistan being on FATF greylist.

The big issue with Pakistan in general is it does not get a good savings rate to invest into industry and services sector. This is very key in any developing country at this stage to get chunk of 10 - 20 years base of that to launch from to propel itself to get to 5k and then 10k USD per capita GDP.

When Pakistan does liberalise/reform things, it doesn't go deep enough (especially to important institutional, investment, policy reform etc) and little benefit is achieved:

http://www.gids.org.pk/wp-content/uploads/2019/10/MS_2019.pdf

Snippets in conclusion:

Results of the paper conclude no significant contribution of capital account liberalization on the economic growth and development of the country, regardless of the indicator type.

Pakistan’s sequencing of the reforms was rather less coherent and not carefully designed; it embarked on the road of capital account convertibility prior to fully liberalizing its current account, while other necessary preconditions had not been fully met.

The quality of institutions has also been identified in literature as a requisite to positive significant contribution of capital account liberalization towards growth. Mahmood (2013) raises the point that given Pakistan’s fully liberalized current account, absence of strong institutions accommodates illegal capital flows.

A more worrisome aspect is that governments have utilized these funds to sustain liquidity in the foreign exchange market rather than diverting them towards productive investment opportunities.

The country needs to rigorously pursue financial sector reforms with a view to strengthening the banking system, making it more transparent and market forces driven, all of these under the umbrella of a well-defined regulatory framework and effective supervision.

True, most analys given conclusion fundamentally Pakistan makro economy and financial policy at government level is quite okay. But at micro level given their low penetration of banking sector, along with issue at high borrowing cost for micro financier lending institution their economy is quite stagnate and very difficult to be developed further. This exercebated by high iliteracy at financial term for the mass population in Pakistan (the roots come from their high iliteracy Rates afterall).

 

[Saithan]

if we read conspiration theorize


True, most analys given conclusion fundamentally Pakistan makro economy and financial policy at government level is quite okay. But at micro level given their low penetration of banking sector, along with issue at high borrowing cost for micro financier lending institution their economy is quite stagnate and very difficult to be developed further. This exercebated by high iliteracy at financial term for the mass population in Pakistan (the roots come from their high iliteracy Rates afterall).

Surely that is the consequences of the fiscal policies. Pakistan chose to have control over the economy to a certain extent in return for less FDI.

I've cited danish mortgate system because it's actually a closed system, and only applicable in Denmark, Mexico is another country I know of who has this system because they asked Denmark to implement it.

During economic crises from 2008 Denmark experience massive FDI because of this particular mortgage system. Which resulted in the interest rates going from 6% down to below 1% today. Because of Denmarks stability and solid financial systems ppl were willing to place all their money here.

I don't see why this system shouldn't be applicable anywhere else. You need to start off small maybe with 1B USD and only in bigger cities and see where it leads.

Btw this system is based on Bonds, so it's pretty important that your currency is stable as hell to ensure investors get's at least what they put into the system.

Personally if I had a guarentee that I could lend 1 mio USD to the state and get it back in 5 years without loss, then I wouldn't care about interest. Imagine the financing the state could get if they were managing the economy responsibly.

 

[Nilgiri]

if we read conspiration theorize


True, most analys given conclusion fundamentally Pakistan makro economy and financial policy at government level is quite okay. But at micro level given their low penetration of banking sector, along with issue at high borrowing cost for micro financier lending institution their economy is quite stagnate and very difficult to be developed further. This exercebated by high iliteracy at financial term for the mass population in Pakistan (the roots come from their high iliteracy Rates afterall).

Yes, after all the economy (GDP is just estimate of it) is basically reflection of knowledge, competence and relevance of the population's activities.....we all have the same amount of time bequeathed to us each day.

The problem in Pakistan compared to major developing countries as a group is if you scratch past the govt policy (like the author describes in the paper I posted), you hit against certain institutional issues peculiar to Pakistan. In most countries this is a thick layer of bureaucrats...and over time others can work out system of checks and balances to squeeze and get results out of them....i.e some recourse finds its way over time to bring some modicum of accountability so you can even potentially create enough room between them to shine some light on even deeper issues needing solid implementation and feedback.

Problem in Pakistan is the accountability is not there in this layer (that too compared to already bad level in most developing countries)...the people are totally entrenched and camo'ed and shielded...and they are completely stuck together (forget peeking past them) impervious to the process other developing countries find and expand upon eventually..... and that is largely by design that @VCheng can tell you about.

Surely that is the consequences of the fiscal policies. Pakistan chose to have control over the economy to a certain extent in return for less FDI.

I've cited danish mortgate system because it's actually a closed system, and only applicable in Denmark, Mexico is another country I know of who has this system because they asked Denmark to implement it.

During economic crises from 2008 Denmark experience massive FDI because of this particular mortgage system. Which resulted in the interest rates going from 6% down to below 1% today. Because of Denmarks stability and solid financial systems ppl were willing to place all their money here.

I don't see why this system shouldn't be applicable anywhere else. You need to start off small maybe with 1B USD and only in bigger cities and see where it leads.

Btw this system is based on Bonds, so it's pretty important that your currency is stable as hell to ensure investors get's at least what they put into the system.

Personally if I had a guarentee that I could lend 1 mio USD to the state and get it back in 5 years without loss, then I wouldn't care about interest. Imagine the financing the state could get if they were managing the economy responsibly.

Yes again this needs enough people (and well designed process by such people) in the system to put the public interest first.

Developed countries the rock has largely surfaced out of the water, everything stands exposed and can be transparently discussed and surveyed to large degree. If you put your mind to it, you can scale a good portion of it, make a good living somewhere up it and even get to the top if fortune, grit and decisions go well.

But in developing countries, the rock stays near fully submerged and by design...so it protects and enriches all those that have made its little above-surface crop a fun picnic spot for them....and stop any subsurface lifeforms from having any say or change on it...because that would just upset too many things for the happy-campers....who would rather gaslight the sub-surface lifeforms with other narratives as to why things are the way they are.

This is relative....Pakistan has an extra bad case of it.

 

[VCheng]

This is relative....Pakistan has an extra bad case of it.

No. The Pakistani system is close to perfection in the service of its defined goals.