Debt and Deleveraging

8/10/2019 Debt and Deleveraging

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Debt and Deleveraging

Kinza BajwaManizeh DossaUkasha IqbalAnam ZafarUmair SuhailMay 24h! 2"#2


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Research Objective


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How We Proceeded?

$o%us Area De&elo'men (ieraure )e&iew Iner&iews Mo*el Analysis

$ee*ba%k sessions


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Focus Areas


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Debt Growth

+oal *eb relai&e o ,D- inhe en maure e%onomies

in%rease* from abou 2""'er%en of ,D- in #../ oo&er 0"" 'er%en by 2""1+oal *eb in%rease* byabou 3 4" rillion

In he four emerine%onomies a&erae* #05'er%en of ,D- a he en* of2""1

(ow ineresraes

Beha&ioral)es'onses

Sub6-rimeBorrowin

Se%uriizaion

Dereulaion

,lobalize*bankin

$inan%ialSe%or

le&erae

USMorae

(en*in

,rowh ofD7B+


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(ow Ineres )aes an* 8ih 8ouse -ri%es +he %on*iions were rihfor 'eo'le o a%hie&e he 9Ameri%an Dream: In he early 2"""s! moraeineres raes were low In a**iion! home 'ri%es in%rease* *ramai%ally! sobuyin a home seeme* like a sure be (en*ers un*ersoo* ha homes makeoo* %ollaeral! so hey were willin o 'ari%i'ae

;ash ou


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Banks o offloa* risks from Balan%e Shee


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(ow ineresraes

Beha&ioral)es'onses

Sub6-rimeBorrowin

Se%uriizaion

Dereulaion,lobalize*

bankin

$inan%ialSe%or

le&erae

USMorae

(en*in

,rowh ofD7B+


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Bubble Bursts!

)eal 7sae ;rash


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Deleveraging

Mi%ro (e&elA mi%ro6e%onomi%le&el! *ele&erain refers o he re*u%ion ofhe le&erae raio! or he 'er%enae of *ebin he balan%e sheeof a sinlee%onomi% eniy! su%h as a househol* or a firm I is he o''osie of le&erae!whi%h is he 'ra%i%e of borrowin money o a%quire asses an* muli'ly ainsan* losses

Ma%ro (e&elA ma%ro6e%onomi%le&el! *ele&erain of an e%onomy referso he simulaneous re*u%ion of *eb le&els in muli'le se%ors! in%lu*in boh'ri&ae se%orsan* o&ernmen se%or I is usually measure* by he *e%line ofhe oal *eb o nominal ,D-raio in naional a%%oun

A significant episode of deleveraging in an economy as one in

which the ratio of total debt to GDP declines for at least three

consecutive years and falls by 10 percent or more
http://en.wikipedia.org/wiki/Microeconomicshttp://en.wikipedia.org/wiki/Leverage_ratiohttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Leverage_(finance)http://en.wikipedia.org/wiki/Macroeconomicshttp://en.wikipedia.org/wiki/Private_sectorshttp://en.wikipedia.org/wiki/Government_sectorhttp://en.wikipedia.org/wiki/Nominal_GDPhttp://en.wikipedia.org/wiki/National_accounthttp://en.wikipedia.org/wiki/National_accounthttp://en.wikipedia.org/wiki/Nominal_GDPhttp://en.wikipedia.org/wiki/Government_sectorhttp://en.wikipedia.org/wiki/Private_sectorshttp://en.wikipedia.org/wiki/Macroeconomicshttp://en.wikipedia.org/wiki/Leverage_(finance)http://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Leverage_ratiohttp://en.wikipedia.org/wiki/Microeconomics


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Deleveraging Phases and

Archet"es

First PhaseA 'hase for 'ri&ae *ele&erain where firs househol*s!%or'oraions! an* finan%ial insiuions re*u%e *eb sinifi%anly o&er se&eralyears! while e%onomi% rowh is neai&e or minimal an* o&ernmen *eb

rises !econd Phase In his 'hase rowh reboun*s an* o&ernmen *eb isre*u%e* ra*ually o&er many years If he 'ro%ess is sri%ly followe*! *eble&els are re*u%e* an* rowh re&i&es

9Bel6ihenin: In or*er o in%rease ne sa&ins! an e%onomy re*u%ess'en*in an* oes hrouh a 'rolone* 'erio* of auseriy

98ih inflaion: hih inflaion me%hani%ally in%reases nominal ,D- rowh!hus re*u%in he *eb o ,D- raio

9Massi&e *efaul: his usually %omes afer a nasy %urren%y %risis So%k of*eb imme*iaely *e%reases afer massi&e 'ri&ae an* 'ubli% se%or *efauls

9,rowin ou of *eb: if an e%onomy e?'erien%es ra'i* off6ren*C real ,D-rowh! hen is *eb o ,D- raio will *e%rease naurally
http://en.wikipedia.org/wiki/Austerityhttp://en.wikipedia.org/wiki/Austerityhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Currency_crisishttp://en.wikipedia.org/wiki/Real_GDPhttp://en.wikipedia.org/wiki/Real_GDPhttp://en.wikipedia.org/wiki/Currency_crisishttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Austerityhttp://en.wikipedia.org/wiki/Austerity


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Deleveraging #urrent $tatus

%$& $inan%ial6se%or *eb has *e%line* from 31 rillion o 3# rillion an* san*s a4"'er%en of ,D-US househol* *eb has fallen by 3/14 billion! US househol*swoul* %om'lee heir *ele&erain by mi*62"#0


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Deleveraging' #urrent $tatus

%(& $or UK! on he oher han* *ele&erain jus bean Briish finan%ialinsiuions also ha&e sinifi%an e?'osure o rouble* euro zone borrowers!mainly in he 'ri&ae se%or 8ousehol* *eb has also in%rease* be%ause banksha&e a*o'e* a fori&in a''roa%h owar*s *efaulers so essenially 're&ene*fore%losures


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Deleveraging )*"act


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Deleveraging ' )*"acts

$ee*ba%k loo's one wil* +he mos imme*iae risk is inensifi%aion of

he a*&erse fee*ba%k loo's beween so&erein an* bank fun*in 'ressures inhe euro area! resulin in mu%h larer an* more 'rora%e* bank *ele&erainan* sizable %onra%ions in %re*i an* ou'u Bank asse qualiy *eerioraes bymore han in he baseline! owin o hiher losses on so&erein *eb hol*insan* on loans o he 'ri&ae se%or

Eiruous %ir%les an* heir a%%om'anyin animal s'irisC i&e way o &i%ious%y%les! in whi%h lower 'ri%es bee wrie6*owns! whi%h bee lower 'ri%es An*on i oes In he 'ro%ess! ba* asses be%ome o?i%! es'e%ially for finan%ialinsiuions who! unlike oher eniies! ha&e %a'ial requiremens ha mus beme


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)*"acts o+ deleveraging

Global

GDP

Growth

Gross

Fi,ed

)nvest

*ent

%ne*"lo

*ent

#redit

$u""l

$ocial Well'

being$aving

out o+

)nco*e

Asset

Prices#onsu*

"tion


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$ocial Well Being


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$ocial Well Being


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Deleveraging

M%Kinsey 8ousehol* *eb rew faser han ,D- in #" mauree%onomies Banks@ fo%us shife* from wholesale *e'osis o len*in$i&e *imensions for analysis of he likely s'ee* an* e?en of

*ele&erain le&el of le&erae! rowh of le&erae! *eb ser&i%e%a'a%iy! &ulnerabiliy o in%ome sho%ks an* &ulnerabiliy o fun*inan* ineres rae sho%ksC Ar%hey'es of *ele&erain mos %ommone'iso*es *urin whi%h rae of *eb rowh is slower han nominal ,D-rowh! or nominal *eb so%k *e%linesF *urin hese e'iso*es of bel6ihenin! he sa&in rae in%rease* as borrowers re*u%e* heir *ebC

)einhar an* )ooff 2"#"C 8isori%ally! 'erio* of *ele&erain follows

major finan%ial %risis Mo*el su*ies beha&ior of ,D- raes an* ,D-rowh! inflaion! unem'loymen! bank %re*i a&ailabiliy an* real6esae'ri%es *urin %ounry6s'e%ifi% sho%ks an* a*&erse lobal e&ens$in*ins in he *e%a*e followin a finan%ial %risis! real ,D- 'er %a'iais %onsi*erably lower (e&erae in he 'ri&ae se%or *e%reases afer afinan%ial %risis! resulin in lowere* em'loymen raes


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-iterature Review

,ol*ber 2"##C Dynami% mo*el of he 'ersisen effe%s of a 'ermanen*e%line in firms@ abiliy o borrow on he labor marke an* %onsum'ion inhe %one? of he im'oran%e of a eneral equilibrium framework for

analyzin he e%onomy@s res'onse o *eerioraion in he qualiy of hefinan%ial sysem $in*ins ;hanes in %ollaeral requiremens! whi%hresul as a shorae of %re*i su''ly 're&ails followin a finan%ial %risis!im'a% he labor marke )e*u%in he sea*y sae &alue %ollaeral &alueof %a'ial in%reases he e?en o whi%h firms *e%rease job %reaionfollowin a neai&e %re*i sho%k! an* in%reases he 'ersisen%e ofunem'loymen

De&ereu? an* Geman 2"".C +heorei%al mo*el of a balan%e shee

%hannel for he inernaional ransmission of sho%ks $in*ins finan%ial*ele&erain! enerae* by a *ownurn in one %ounry! is s'rea* aroun*he lobe hrouh iner%onne%e* 'orfolios rear*less of ra*e linkaes


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-iterature Review

8azius 2""1C Im'a% of in%reasin morae %re*i losses asa resul of *e%linin home 'ri%es an* he resulan re*u%ion in

%re*i su''ly on real ,D- rowh $in*ins an o&erall*e%rease in ,D- an* %onsum'ion resuls from *e%rease*%onsru%ion a%i&iy! lai*6off %onsru%ion workers! lowere*home 'ri%es lea*in o a morae liqui*iy effe% an* *e'leionof equiy %a'ial of le&erae* finan%ial insiuions from losseson morae %re*i! re*u%in he su''ly of %re*i o househol*s

for %onsum'ion $o%uses on he a&ailabiliy of %re*i o 'ri&aenonfinan%ial borrowers! asserin ha i is likely o ha&e hemos *ire% effe% on o&erall e%onomi% a%i&iy $rom a 'oli%y'ers'e%i&e! measures o boos he su''ly of %re*i are'romisin ools for sofenin he e%onomi% *ownurn


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.odel Objective and .ethodolog

+wo6fol* eneral equilibrium

mo*el o su*y relaionshi'beween

$irm@s %re*i a&ailabiliyan* ma%ro6&ariables

in&esmen *isorions!%onsum'ion!unem'loymenC

;re*i a&ailabiliy an* job

%reaion


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Research Findings ' /

;re*i %onra%ion a*&ersely affe%s

in&esmen measure* by oal fa%or'ro*u%i&iyC an* smoohness of %onsum'ionH "#odel of Deleveraging$! ,ol*ber 2"##C


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0he .odel1

Fig a ne 'er%enae ofsur&eye* *omesi% banksha re'ore* ha&inihene* he san*ar*s for

loans o boh small an*lar e firms

Fig b&ne 'er%enae ofres'on*ens who! %on*iional onseekin %re*i in he 're&ioushree monhs! re'ore* more

*iffi%uly in obainin %re*i


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0he .odel $tudies2

Deleveraging

Credit Contraction

Consumption1.Investment Distortion

2.Unemployment


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#redit #ontraction3s 4++ect on

)nvest*ent and #onsu*"tion&

In&esmen Disorion is measure* by +oal$a%or -ro*u%i&iy *ifferen%e beweena%ual +$- an* +$- assumin no borrowin%onsrainsC

In&esmen *isorion is also refle%e* in hea' beween he marinal 'ro*u% of %a'ialan* he ineres raeF he a' is *efine* ashe finan%e 'remium firms are willin o 'ayfor an a**iional uni of borrowin


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GDPAs he followin fiure

shows! ,D- is a fun%ionof In&esmen!

;onsum'ion an*7?'ors ,i&en ,D-@s

&ulnerabiliy o*ele&erain an* he

em'hasis of 'oli%ymakers on manain

rowh! i is im'oran osee how %onra%ion in

%re*i su''ly affe%sin&esmen an*

%onsum'ion an*

herefore ,ross Domesi%-ro*u% a a ma%ro le&el


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Research .ethodolog

+o %om'are he sea*y6saes of wo e%onomies ha ha&e *ifferen le&els

of moral hazar* bu oherwise i*eni%al 'arameers! we %om'are sae'ro'eries of a bench*ar5 econo* o ha of an e%onomy where +ir*s3abilit to borrow is lower than in the bench*ar5 In he ben%hmarke%onomy! he 'le*eabiliy 'arameer is # J "2F he new &alue of isaken o be as 2 J "4.! refle%in a /6 "ercentage "oint decrease in+ir*3s abilit to borrow 0his lower value +or 7 corres"onds to

greater *oral ha8ard and lower abilit to co**it to re"a*ent9


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+he +irst row shows losses in measure* total +actor "roductivit:0FP; ;onsi*erin a decrease in the +ir*3s abilit to borrow< i+ the

interest rates were held constan! +$- losses woul* in%rease by"00 'er%enae 'oins -arial 7quilibriumC 8owe&er! in or*er oobtain stead'state e=uilibriu*< the interest rate *ust +allf %ourse! he e=uilibriu* counter"art o+ a reduction inthe +inancial assets su""lied b +ir*s is a reduction in

the assets held b wor5ers


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+he decrease in +ir*s borrowing abilit resuls in an in%rease in he sea*y6sae liqui* wealh of firms! as firms

require *ore li=uid wealth to "ursue invest*ento""ortunities 8owe&er< the increase in li=uid wealth is less than it would

have been i+ the interest rate were unchanged

+his! aain! refle%s he endogenous decrease in the interest

rate


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Research .ethodolog

+he general'e=uilibriu* a*"li+ication o+ invest*entdistortions%an be furher un*ersoo* by %onsi*erin how*isorions &ary wih he ineres rae $or a i&en ineresrae! he stead'state invest*ent distortions are%om'ue* in $iure abo&e +he sea*y6sae *isorions are

decreasing in the interest rate


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%ne*"lo*ent

Data and .ethodolog&

Daa use* has been e?ra%e* from I-A ables from he B7A!from he e -er%enae of Domesi% )es'on*ens +iheninSan*ar*s for ;ommer%ial an* In*usrial (oans an* from heSenior (oan >ffi%er >'inion Sur&ey on Bank (en*in -ra%i%esfrom he Federal Reserve Board and the ational Federation o+

)nde"endent Business9

+he econo*icgrowth or GD- an*hereforeunem'loymen@sCaffe% on Hu*an

Develo"*ent )nde,in he followinfiure shows how adecreased

econo*ic activit

and une*"lo*ent

due todeleveraging %anaffe% he eneraldevelo"*ent o+ an

econo*as well


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Research Findings

+here is a 'osii&e relaionshi' beween%re*i %onra%ion an* *e%rease in job%reaion

6 "%orrowing &onstraints' &ollateralFunctions' and the (abor #ar)et$! Nulio

2"##C


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0he .odel1

>bje%i&e is o analyze he e++ect o+ credit contraction onune*"lo*entwhi%h 'ro'oses o e?'lain the i*"lications

o+ a sudden increase on +rictions associated with hiringwor5ers ie he abilit o+ +ir*s to create jobs an* headverse a++ect triggered in hu*an develo"*ent and

social indicator +ront

+he mo*el has two t"es o+ agents Households'ro&i*elabor an* fun*s! #a"italistsown he %a'ial so%k

In he mo*el! +ir*s can +inance their o"erations throughthe use o+ debt or e=uit


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+o co*bat against the "ossibilit o+ de+ault loans aresubje% o he collateral re=uire*ents

A negative credit shoc5H tightening o+ credit conditionsH re*u%es he amoun he firm %an borrow aains is%ollaeral

A contraction in credit will howe&er! i*"rove thebargaining "osition o+ +ir*s by in%reasin he sensii&iy of

he firm=s sur'lus o %hanes in waes +herefore! s*all changes in wages will likely enerae

larger *ove*ents in labor *ar5et variables! in 'ari%ularem'loymen an* job6%reaion


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%ne*"lo*ent& Euantitative Analsis

+he +unctional +or*s +or "re+erences! adjust*entcosts! an* vacanc costs are 'resene* in +ablefollowin -erri an* Oua*rini 2"##C an* ;huh

2"".C +he &alues of he "ara*eters o+ the baseline case

%an be seen in +ables 2 an* 0


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)*"ulse Res"onse& 0otal Factor

Productivit :0FP; shoc5s$iure 0 shows he res"onseo+ so*e o+ the variablesofhe mo*el o a one san*ar**e&iaion 'osii&e sho%k oareae 'ro*u%i&iy$ollowin a "ositivetechnolog shoc5 +ir*s

increase their hiring! wih&a%an%ies in%reasin on

im'a% almos by 0P A hesame ime! une*"lo*entdecreases< causing an even

larger increase in labor

*ar5et tightness9


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Result

;re*i sho%ks affe% flu%uaions of 5e labor *ar5et variables li5eune*"lo*ent< vacanc "osting< and labor *ar5et tightness +his

resuls from he fa% ha while wages are ver sensitive to "roductivitshoc5s< credit shoc5s are not Be%ause changes in collateral

re=uire*ents do not translate into large changes in wages< these

disturbances have large e++ects on the abilit o+ +ir*s to create jobs Ina**iion o his! if firms fa%e! on a&erae! tighter collateral constraints! hen

he res"onse o+ labor *ar5et variables to +inancial shoc5s is greaterIn oher wor*s! reducing the stead state value collateral value o+ ca"ital

increases the e,tent to which +ir*s decrease job creation +ollowing anegative credit shoc5< and increases the "ersistence o+ une*"lo*ent9


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Pa5istan and Global Deleveraging

Pa5istan Debt'to'GDP Ratio @.ature 4cono*ies Debt'to'GDP Ratio

to 6


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Pa5istan3s Debt

-akisan >usan*in-ubli% Deb Nune 2"#"C

USD#"15 More han half is forein

*eb +his is aroun* 5"P of ,D-!

%omin *own from morehan ./ 'er%en of he ,D-in 2"""Q"#

$orein an* *omesi% *ebea%h %onsiue abou a hir*of he annual ,D-

Deb has in%rease*%oninuously in absolue *ollarerms o&er he las # years +he rae of in%rease was

quie shar' o&er he years of

he finan%ial %risis! ie2""5Q"1 o 2"".Q#"

Sin%e he rae of inflaion in-akisan has been mu%hhiher han he rae of*e're%iaion of he -akisanru'ee aains he US *ollar!

he rae of rowh in nominal,D- has e?%ee*e* he rae


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Wh Pa5istan3s Debt is a Proble*2

-akisan *oes no'ossesses suffi%ienforein %urren%yreser&es o ser&i%eIM$ an* oher forein*eb

-akisani )u'ee is noa *esirable %urren%y'eo'le wish o hol*

,o&ernmen raisesinflaion o ser&i%e *eb

minin moneyC)u'ee6Dollare?%hane rae risesfurher! im'a%infuure abiliy o ser&i%e*eb! effe%i&e rae of

ineres balloons


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)*"act o+ 4uro"ean

Deleveraging


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4cono*ic Activit in Pa5istan

Mos of he rowh ha *i* o%%ur %an be aribue* o he ser&i%es se%or!while he 'ro*u%ion se%or! im'e*e* by &arious fa%ors! %oul* no make asinifi%an %onribuion! an* owin o &arious e?ien%ies su%h as eneryshoraes in he in*usrial se%or! floo* effe%e* %ro' loss in he ari%uluralse%or! lower %ommo*iy 'ri%es in he lobal markes an* lowere* e?'ors*eman* from ;hina an* 7uro'e! e%onomi% a%i&iy has been affe%e* more

in real erms han hrouh finan%ial linkaes wih maure e%onomies


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)nterest Rate

Business se%ors suffer hih finan%in %oss whi%h %onribue o heirhih %oss of 'ro*u%ion! makin %om'ein in he lobal arena wihlow6%os 'ro*u%ers su%h as Banla*esh in e?ile for e?am'le

*iffi%ul +his furher %lam's *own ,D- rowh

8ih Ineres )aeen%ouraeshousehol* sa&in

an* *e%reases%onsum'ion!im'a%in o&eralle%onomi% a%i&iy


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4cono*ic Activit in Pa5istan

8ih-ro*u%ion

;oss

Businesses

Un'rofiable

on6-erformin

Bank (oans

;re*i;onra%ion


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Sae of In&esmen in -akisan

-(@s;re*i

;onra%ion

Share -ri%es $all>her in&esmen

e ol*

(ow In&esor;onfi*en%e

UnhealhyBank

Balan%eSheesF

$orein In&esmen-ulls ou


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4,"orts

Due o lobal *ele&erain! here is *e%rease* lobal *eman* 7%onomies like;hina an* 7uro'e 'ro*u%e less *eman* for -akisani e?'ors As a resul! we seea ren* of *iminishin e?'or a%i&iy 'os %risis


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$ocial )ndicators


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Polic Res"onse Focus& Global

+he *ele&erain 'ro%ess ha bean in 2""1 is 'ro&in o belon an* 'ainful

+o o&er%ome his e%onomi% malfun%ion! 'roress has o bema*e on &arious frons in%lu*in rowh ! resru%urin ! *ebre*u%ion ! banks an* reulaions! inflaion! auseriy amonoher

$or business lea*ers ryin o na&iae he new worl* of *eb

re*u%ion! un*ersan*in he %ourse of *ele&erain is of%rii%al im'oran%e Alhouh rowh in he ime of *ele&erainmay be slower an* more &olaile in some %ounries! here arealso %lear o''oruniies o in&es ahea* of *eman* an* e?'loi'o%kes of rowh e&en wihin slowly e?'an*in e%onomies HM%Kinsey ,lobal Insiue


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+he e%onomies of $weden and Finland ha&e e?'erien%e* aurnaroun* in rowh! by *e%isi&ely resol&in he finan%ial %risis

arisin from se&ere re%essions s'urre* by *e%line in 'ri&aese%or *eb whils a shar' in%rease in 'ubli% se%or *eb +he

L*ele&erain e'iso*es@ of boh Swe*en an* $inlan* are

hihlihe* in he +able below


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I+o*ay! he %nited $tates is +ollowing the $wedish and Finnish e?am'lesmos %losely an* may be wo years or so away from %om'lein 'ri&ae6se%or*ele&erain +he %nited (ingdo* and $"ain have *ade less "rogressand could be a decade awa +ro* reducing their "rivate'sector debt to

the "re'bubble trend: H M%Kinsey ,lobal Insiue


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$i, #ritical .ar5ers )denti+ied b

.c(inse )nstitute

$tabilit o+ the ban5ing sste* :Basel )));

-ong ter* +iscal sustainabilit $tructural re+or*s

Rising e,"orts

Rising "rivate invest*ent

$tabili8ation o+ the housing *ar5et


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Polic Res"onse Focus& Pa5istan

,i&en he s%enario in -akisan! where househol* %onsum'ionis low an* business a%i&iy is im'e*e* by a myria* of fa%orsin%lu*in low %re*i su''ly! a su*y by he M%Kinsey ,lobalInsiue %lassifies his as a Cbelt'tightening3 archet"e o+deleveraging

9;om'are* o oher reions of he worl*! -akisan is sill well'la%e* o res'on* o sho%ks wih %ouner%y%li%al fis%al 'oli%y!bu many e%onomies ha&e hiher 'ubli% *eb le&els han hey*i* a he en* of 2""5 An* as real 'oli%y raes are%onsi*erably below hisori%al a&eraes in all e%onomies in hereion in Mar%h 2"#2! he room o ease moneary 'oli%y is alsoless han before he lobal finan%ial %risis: 6 *orld +conomic!ituation and Prospects ,011


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)*"roving Budget Allocations

+he bur*en of *eb ser&i%in is borne by he a? 'ayers of he %ounry +heables below! e?ra%e* from he Bu*e )e'ors 2"##62"#2 of he,o&ernmen of -akisan! $inan%e Di&ision! i&e a fair a''ro?imaion as ohe 'ro'orion of bu*e 6 4"P 6 /"P 6 allo%ae* owar*s *eb ser&in

+he *eb siuaion mus be %onrolle* in -akisan oherwise i %an lea* o

worsenin of inflaion raes +his is be%ause 'ubli% *eb se&erely %row*sou 'ri&ae *ebF an* he o&ernmen in or*er o re'ay inernal an*e?ernal loans mus resor o 'rinin ru'ees if he *eb ser&i%in amoun%anno be %om'leely raise* hrouh a?aion

+his 'ra%i%e has resule* in inflaion raes skyro%kein in *e&elo'in

%ounries like ieria an* Arenina


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#urbing 0a, 4vasion

+he aforemenione* 'roblems *ire%ly link o a? e&asion as majoriy of-akisan@s a? re&enue arises from in*ire% a?es an* a?es on%or'oraions In*ire% a?es are reressi&e in naure an* hen%e a bur*enon he lower an* mi**le in%ome rou's of he 'o'ulaion

In or*er o ser&i%e an* re'ay e?ernal an* inernal *eb he o&ernmen

in%reases he rae of a?es le&ie* raher han e?'an* he a?'ayers@ base

9-akisan=s a?6o6,D- raio *e%line* from .# 'er%en in 2""16".reiserin he same raio in 2"".6#"C o 1 'er%en in 2"#"6## whilere&enue %olle%ion! he -resi*en 'rou*ly announ%e* in his s'ee%h o he

join siin of 'arliamen! *ouble* from )s #""" billion o abou )s 2"""

billion sin%e 2""1: 6 Business )e%or*er 2"#2C


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$tructural adjust*ents

+he *eb6o6,D- raio of -akisan is ho&erin %lose o 5"P +his is amaer of %on%ern be%ause of he im'en*in neai&e e?%hane raeim'li%aions whi%h may resul from an in%reasin *eb6o6equiy raio

-olii%al insabiliy an* he %a'ial flih of $orein Dire% In&esmen Hfollowin he so%k marke %rash from a''ro?imaely #/!""" o /""

basis 'oins H in 2""1 ha* sho%ke* -akisan=s e%onomy +he abo&e%ou'le* wih hih inflaion resule* in a %rash in he &alue of he)u'ee! whi%h fell from "H# USD o o&er 1"6# USD in a few monhs in2""1 I was s'e%ulae* hen ha! for he firs ime in years! -akisanmay ha&e o seek e?ernal fun*in as Balan%e of -aymens su''or


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9;onsequenly! SR- lowere* -akisan@s forein %urren%y *eb rain o

;;;6'lus from B! jus se&eral no%hes abo&e a le&el ha woul* in*i%ae*efaul -akisan@s lo%al %urren%y *eb rain was lowere* o B6minus from

BB6minus ;re*i aen%y Moo*y@s In&esors Ser&i%e %u is oulook on-akisan@s *eb o neai&e from sable *ue o 'olii%al un%erainy! houhi mainaine* he %ounry@s rain a B2: H 7%onomy of -akisan 2""1C!


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+he followin +able %om'ares he *eb6o6,D- raios of he*e&elo'in e%onomies of he 7as Asia reion wih -akisanAlhouh he *eb6o6,D- raio of some maure e%onomies!

in%lu*in he US! is aroun* 2"" P i is no an a''ro'riaeben%hmark be%ause of sron %urren%y rains of he *ollar

Alhouh he *eb6o6,D- raio of some maure e%onomies!in%lu*in he US! is aroun* 2"" P i is no an a''ro'riae

ben%hmark be%ause of sron %urren%y rains of he *ollar


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Debt and Deleveraging

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