Thread by @Saadkhan725

Economy since Aug 2018

Q1. Why depreciate rupee?

A. Overvalued rupee incentivized imports and undermined export competitiveness. How?
When dollar at Rs. 105 : A $100 imported watch costs me Rs 10500
When dollar at Rs. 160 : A $100 imported watch costs me Rs 16000

Deduction: Govt of Pak was subsidizing my imported shit for the sake of next elections.

Greater import -> Wider Current account deficit -> Depletion of reserves to plug deficit -> Default since no reserves left. Congrats

Q2. Why did we have inflation?
A. Due to depreciation of rupee, price of gas/electricity, oil prices, fiscal deficits and printing of currency
1. For an import driven economy, mehangai is a direct consequence once rupee is depreciated

2. Circular debt reached 1.2 Trillion which meant that prices had to be increased to bridge curtail this ballooning debt. Result: Inflation
3. Due to tensions in Gulf and Venezvela, international oil prices increased. Result : Mehanga petrol and its domino effects on economy

4. Currency worth 3 Trillion Rs was printed by state bank which led to enhanced flow of money in economy. What happens when more money is chasing few goods? INFLATION

Q3. Why hike interest rate?

A. In order to control inflation.

How? Less borrowing -> Less spending -> Less money in the economy -> Kam mehangai

Downside of this? Less borrowing -> Less spending -> Less income for others -> Less consumption -> Less growth

Q4. Why so many taxes imposed?
A. To run the bloody state

Why?

Less taxes -> Less revenue collection -> High fiscal deficit -> Debt taken to plug this deficit-> And this cycle goes on

What do you do when you are running a deficit? Yes you!

You cut your spending ( Austerity drive )
You increase your income ( Tax collection )

Q5. What led to plummeting of growth?

A. Structural Stabilization

1. Demand suppression due to high interest rate
2. Lesser spending by govt
3. High Taxes
4. Import reduction due to exchange rate depreciation