Thread by @ShahidMohmand79

Thread- WILL PAKISTAN DEFAULT OR NOT? Apparently, the biggest topic in Pakistan’s economy, to which everyone seems to have taken a liking, is the specter of Pakistan’s economic default. To be honest, it’s getting a bit boring by now, especially given that this issue has been 1/n

relentlessly dragged since PDM Govt. took over last year.The chances of a default last year, around this same time,were quiet high given the external and internal conditions. But Pakistan staved that off. Suddenly,out of nowhere,the issue has again gained substantial traction 2/n

, mainly due to commentary on it from some ‘well-known experts’.The publication of Khurram Hussain’s hard-to-comprehend article in DAWN dawn.com/news/1759654/s… a few days ago (link) got the tongues wagging full-time, profusely praised by none other than Atif Mian, arguably 3/n

Pakistan’s most well-known foreign presence as far as Pakistan’s economy is concerned.Before that article, a certain ‘presentation’ by Saqib Sherani (ex-economic advisor to PPP and PTI, ex- ABN Amro) made the rounds on social media.I just looked at its first screenshot, which 4/n

mentioned a ‘banking crisis’ in Pakistan..and ignored it immediately (what ‘banking crisis’? Banks in Pakistan never had it so good!).Unfortunately, majority of those who comment on this issue (even the supposedly ‘experienced’ analysts) tend to present only cherry-picked 5/n

observations,data and heresy,and at times appear childishly naïve. For those with interest, I explained this issue in detail last year in my vlog. Here, I’ll just quickly go through some points of importance that one should keep in mind while discussing or contemplating6/n

upon this issue. To begin with, what the reader needs to keep in mind is that economics and economic policy does not operate in vacuum! It’s not a simple game of cost-benefit calculations, whereby a creditor takes out a calculator to calculate how much interest they’d earn on 7/n

loans!Political, foreign policy and geopolitical considerations, etc.,play an equally important role. So let’s begin with the fact that challenges faced by Pakistan last year,especially at the external front, have subsided substantially.The first challenge was the sharp rise 8/n

in commodity prices as Russo-Ukraine war began.All the external payment calculations/estimates that are done at the time of budget making went South (not just for Pakistan but for every developing country that had $ debt to pay), which is what created the extreme difficulties 9/n

for Pakistan in the first place. By now, the commodity prices are down to their pre-war levels as the necessary adjustments on global level have taken place (they may even fall further if recession were to hit EU, North America and the Chinese demand remains subdued).Second, 10/n

the antagonism/ill-will faced by Pakistan from its friendly countries like China,UAE and Saudis is mostly gone..because the person that caused that antagonism,Imran Khan, is also gone.Under SS, relations have normalized a bit,reflected in the rollover of loans and provision 11/n

of additional $s.There is a good chance that more rollovers and more bilateral loans are in the offing. Third, in case ‘experts’ and other people missed it, Pakistan is already moving towards de-dollarization of sorts. Three indications- reported barter agreements with Iran, 12/n

Afghanistan and China,using Chinese currency to buy oil from Russia, and LNG+LPG arrangements with Uzbekistan+Turkamenistan (why not Qatar or other such sources?Because they demand payments in dollars, while Central Asian countries fall in Russo-Chinese sphere,more amenable 13/n

to accepting Chinese currency as payment).Fourth, certain external conditions at global level make it a bit easier for us.I’ll mention two-China’s internal debt stock is now becoming a huge problem.Estimates suggest that China’s outstanding Govt.debt passed $18 trillion last 14/n

year +$10 trillion in ‘hidden’ local Govt. debt.The aggregate demand there is subdued. In such an environment, Chinese commercial banks would be more amenable to lend to outsiders (like Pakistan) rather than risking lending at domestic level (we got a new loan from Chinese 15/n

commercial banks a few months ago, and likely to receive more). As I explained in my vlog, foreign relations compel Govt. to extend economic favors, especially in lieu of bilateral and commercial loans (from that country’s banks) that may normally not be available. These two 16/n

kinds of loans constitute a huge portion of Pakistan’s external loans. Also, the recent drama surrounding US debt level sent a scare throughout world’s debt markets, and might even work in Pakistan’s favor as its issued debt(like Euro bonds)may see more demand. Last, but not 17/n

the least,Pakistan’s $ inflows haven’t died down! They might be not as per our needs, but $s are still coming in. They haven’t ceased. We might even see an uptick as political situation has returned to a bit of normalcy now that PTI has been taken care of by its creators! 18/n

Also,Pakistani Govt. has more than one way of limiting outflows and never underestimate this ability of theirs.We have witnessed that countless number of times. There’s a huge price to pay(low GDP growth), but strict measures(tariffs, quotas, limiting LC openings, etc.) tend 19/n

to bring CAD down. Due to very strict measures since last year, we saw a huge $1.8 billion CAD surplus in March 23 (and a smaller one in the following month). 20/n

So, folks, these were a few quick points to help you cut through the clutter and distinguish b/w needless howlers and facts. Does all the above mean that default won’t happen? NO, it certainly doesn’t mean that..b/c nobody what’ll happen tomorrow, a month after or later. But 21/n

if things remain as they are, Pakistani economy will trudge along, albeit at a low GDP growth rate. Hope you enjoyed the thread. Looking forward to your feedback #Pakistan #PakistanEconomicCrisis @PIDEpk @nadeemhaque @durre_nayab_ @UzairYounus @samirahmed14 @2paisay 22/n

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