Will Pakistan default in 2012?


I see food inflation, economic repression and social unrest in the next six months – This is an easy question to pose, but a hard question to answer as a financial economist/banker. In my humble opinion, there are too many players (USA, Russia, Saudi Arabia, UAE, China) involved in this region who don’t want Pakistan to go down economically. The recent monetary statement of the SBP indicates, that targeting inflation is high on the Central banks agenda. I see food inflation, economic repression and social unrest in Pakistan in the next 6-months. Depreciating currency will lead to inflation which is happening again at the moment when Pak Rupee is trading at Rs90 against the US Dollar (losing 3.4 per cent against the Dollar in a week’s time). I don’t see any political maturity in the leadership with neither a farsighted approach nor brinkmanship to deal with international players tactfully. However at this crucial juncture, hats off to our military leadership led by Gen Ashfaq Pervez Kayani and his men who have again displayed strategic leadership, integrity and foresight to deal with the imbroglio we found ourselves stuck in.
Pakistan will be making payments to IMF in 2012. 25th January is an important date when the government will make $800 million as the first payment. The Pak rupee will continue to bleed going forward. Those present government had not really given the strategic focus to the economy that was required when they took power in March 2008. It was very disappointing to see that they had considered the wrong strategy from the start. GoP adopted an expansionary fiscal policy which did not increase the GDP size, increased budget deficit, increased poverty levels, depreciated currency, unabated printing of money/QE, facilitated corruption, lowered purchasing power, projected negative real interest rates, lowered confidence in the economy, debilitated the living standards of the people and above all tarnished the image of the country.
Capitalism is like a bicycle. Any child can easily ride a bicycle forward. No one has ever ridden a bicycle backwards. Capitalism only works well in a growth government. It does not know how to cope with an economic environment of low or negative growth.
If we analyse the economic situation of Pakistan in the last 5-years, World Bank, and SBP reports indicate that GDP growth rate decreased from 5.7 per cent in 2005 to 2.3 per cent in 2011, and inflation climbed from 11 per cent to 27 per cent. During the same time, the external debt witnessed a gargantuan increase of 24 billion dollars and poverty levels deteriorated from 35 per cent to 60 per cent. This situation is alarming to say the least.
The above figures clearly illustrates that Gilani and Zardari government have added misery to the woes of the people. Poverty levels are rising (increase of 71 per cent). Government debt has risen (rise of 63 per cent) considerably. The question is what is the marginal productivity of debt to GDP growth in the last 3-years? Negligible. Government has wasted its resources on valueless projects, with rampant corruption amounting to Rs1.7 trillion per annum and above all have actively taken steps to destroy state institutions like PIA, Railways & WAPDA. So the billion dollar question is can we turn the tables in our favour? We can follow two strategies for the next 18 months.
Government should adopt McKinsey style spending which is valuable for the economy. Canadian government adopted similar strategy from 1994 -1996. We can look up to them for economic guidance if we are missing out on the strategy paper at hand. Pakistan’s government should not waste funds on expenditure where employment generation, productivity enhancement and GDP growth are not happening. GoP should strategise its policies on value addition projects going forward to boost economic productivity and to enhance living standard of the masses.
In an economy where government is monetising its budget deficit by printing money, poisoning the financial system, tax increase like VAT or RGST is not the answer. Economic success stories of Late Milton Friedman — Nobel Laureate from Chicago School and Adviser to President Reagan, USA, advocated tax cut and sustainable government spending that pulled the US economy out of recession. We need to study those successful models. Prudent economic policies, educating females, cutting down on spending and effective monetary policy can provide Pakistan an impetus to revive the ailing economy. We are at that juncture in economic history, where international economics and political relations are an important new way to integrate globally in a positive way.

Shan Saeed is a financial market economist and commodity expert with 12 years of financial market experience. He is a graduate of University of Chicago and IBA. He can be reached at [email protected] and blogs at www.economistshan.blogspot.com


  1. Hmmm. Pakistan’s GDP in 2008 was 1.8%. In 2011 it is 4.4%. Dubai’s current GDP is 4.2%. After looking at those stats, I don’t feel defaulting is as big of an issue for Pakistan’s economy as it was a few years back.

  2. Our policy makers have not vision or strategic insight about the economy. Shan, thanks for bringing this up.

    Faisal Khan

  3. Shan
    Canada government did exactly what you wrote. Learned few points about pakistan. Doing my research.

    Vikram Lal
    Toronto, Canada

  4. Shan, I like this statement which is so true
    "Capitalism is like a bicycle. Any child can easily ride a bicycle forward. No one has ever ridden a bicycle backwards. Capitalism only works well in a growth government. It does not know how to cope with an economic environment of low or negative growth. "

    Judith Karvala
    New York, USA

  5. We have devastated the economy in the last 4-years. Starting from March-2007 to date, we have ruined the living standard of the common man in pakistan.
    Shan, you have raised good points.

    Usman Shahid

  6. This is absolutely ruthless analysis. Great article
    I agree with you shan, our strategic leadership rests with Gen Ashfaq Kiyani who are trying to save this country. Hats off to our military bosses. God bless pakistan

    Mrs.Abeera Kamran

  7. Our economy needs attention at this point. Mr. Shan Saeed, your justification of arguments are good.

    Hina Gul

  8. Indian Rupee has depreciated by over 20% in last year. We have to depreciate Pak rupee vis a vi our competitors so that our exports remain competitive. Current account was positive in last fiscal year. Yes the situation is bad , there is no analysis is needed but it is not a situation of a default in repayments on debt to happen. We have seen Pakistan's economy had gone even bad situation like after the nuclear tests of Nawaz Sharif and also went through imposition of sanctions thereafter. There had never been a default and likelyhood of it is still very low. Therefore, writing such article may be good but I have seen such articles in the past but they were never proved correct. Yes the present Govt has not been able to manage the economy but the reason is a politically weak Govt which is the result of divided mandate and hence so many compromises. Hope , a politically powerful Govt comes in order for a stable economy as weak politics leads to weaker economy.

  9. Excellent analysis shan. This is not the matter of slow decision making it’s the matter of willingness

  10. Good article. I like the capitalism part. Shan, your insight is fabulous for your country

    Laura Strong
    Chicago, USA

  11. Shan, enjoyed reading your article. More is needed from you. You should join imran khan's party for economic policy making

    Kashif Shafiq
    Yale graduate, Lahore

  12. Great article! Concludes our economys curent situation we should read these kind of articles to know where we stand, where we are going and where we will be?
    A very good research work!

  13. "However at this crucial juncture, hats off to our military leadership led by Gen Ashfaq Pervez Kayani and his men who have again displayed strategic leadership, integrity and foresight to deal with the imbroglio we found ourselves stuck in". Lol commendation to the military for an economic problem. This can happen only in Pakistan. Hahahaha. You towel head lots are so upside down with everything. NATO is treating you guys as door mats and our military have got you by the balls. You don't have an economy to speak of and your country is breeding ground of degenarates. How wonderful. Terradise on Earth Indeed!

    • Thanks for your comments. Pakistan is supporting lot of countries in war against terror. This was has been imposed upon us. It is the military leadership who is running a fine line to handle many stuff. Very few people like yourself who dont understand the ground realities of pakistan , have not idea. You are passing comments on the basis of the newspapers in the west who project negatively about pakistan or people who form their opinion while sitting in their couch somewhere in geneva or paris or new york or Brussels the NATO HQ.

      Pakistan economy is resilient and has taken many shock absorbers in the past. Please read the read first and then write my friend Anthony Carter

      Strategically analyze the situation before making comments. It clearly demonstrates your zilch knowledge about Pakistan

      Shan Saeed
      Asia Pacific

  14. rightly analysed by shan the prevailing economic situation of pakistan. it seem this so alarming economic situation has deliberately been created by the rulers and also through their indifferent attitude towards mending the things. it seem that if AKBAR THE GREAT, emperor of Great India come to this world and see the way of governance of Pakistan, he will be stunned to death, implying that if this is the way of governance with ocean of knowlege and education, then his rule by an illiterate ruler was far far better. it is shameful for the rulers of pakistan. i agree with mr kashif shafiq perception that mr shan should join PTI, the only hope as savior of pakistan..

    • Thanks for your comments. Akbar will be resting in the hospital after analysing the economic situation of the country. It needs a serious turnaround.

      Shan Saeed

  15. Writer did not talk about Military expenses. Writer's suggestions about Economy basis should also apply to Military budgets.

    • It is true. Military budget should be focused as well in future

      Shan Saeed

  16. "However at this crucial juncture, hats off to our military leadership led by Gen Ashfaq Pervez Kayani and his men who have again displayed strategic leadership, integrity and foresight to deal with the imbroglio we found ourselves stuck in"

    Can you please explain what strategic leadership, integrity and foresight has General Kayani displayed other than getting a job extension.

    • 1. Judges restoration/ Long march, who intervened. You know it on 16th March 2009
      2. Taking stand on KL bill that was against PAKISTAN
      3. Geo-political situation handling with Afpak doctrine being applied in the region. Why waziration operation was not launched? Army would have become weak. Then USA would have asked for operations in South Punjab, Quetta, karachi. Your army would have been engaged on all fronts.
      4. Keeping India at a distance otherwise we have been smashed and would have become a sandwiched between Afghanization and India
      5. Think more and you will get the answer

      Shan Saeed
      Asia Pacific

  17. Pakistan has state with in state. Pakistan has a larger underground economy. Pakistan has weak political system. Pakistan is a security state supporting a million armed forces. Pakistan has a very narrow tax base. Pakistan has corrupt government and military. Keep going and there is no end of negatives. Pakistan has survived in the past and would survive in future because Pakistan is a very flexible country.

  18. Pakistan is doing good compared to Greece, some other countries in the region. We should just focus on energy crises, people would get much relief…thanks

  19. I would make another point. Pls its been history repeating itself once more…each time we vote, select a govt n then start blaming..Whoever wrote this is just having a time pass, copy n paste thing…B4 blaming this govt or any other or even military, do know, that the govt or the army would either fight extremism in the country in all four corners or would focus on the economy, one thing at the time.
    secondly people of Pakistan claim big but contributing not even two cents to the country. This country survived and will survive Inshallah

  20. Your analysis on current economic situations facing our homeland is thinkable. No doubt, poverty, inflation or depreciation of our currency or likewise other government policies are the main causes of our economy….BUT.. in my humble opinion, best of all is that, until and unless, the ruling class do not want to change, change can not come in Pakistan….and everybody knows that, the ruling class never change the fate of masses…….

    • Ruling class will change very soon when they will witness that people want change and end of all the bad habits of the elites.

Comments are closed.