War on Gold: Pakistan Temporarily Bans Gold Imports

Intervention begets intervention.

Such ratchet effect or mission creep applies not only within a state defined national boundary but could diffuse into the neighbors or the region as well.

The Indian government’s war on gold is an example. Such anti-tradition policies has incited massive smuggling across her borders. Pakistan responds by mimicking the Indian government albeit temporarily.

From Mineweb.com:

India's neighbour Pakistan has decided to temporarily ban the import of gold for one month, to save its foreign currency reserves and to curtail the rampant smuggling going on in the nation.

On Wednesday, July 31, Pakistan imposed a temporary ban on the import of gold.

Following the Indian government’s decision to discourage gold import by imposing 8% duties, buyers have reportedly shifted to Pakistan where the precious metal is allowed to be imported duty free since 2001.

(below charts from tradingeconomics.com)

Pakistan’s government passes the blame on her faltering currency, the rupee, on gold imports. USD-Rupee has been on an uptrend since 2008.

But the reality is that, gold imports has hardly been responsible for Pakistan’s predicaments.

Pakistan’s government continues to run a deficit. (I don’t know why a vacuum exist in the graph above)

Never the less, Pakistan’s government spending has been growing at a rate of 18.33% in 10 years, even when the GDP annual growth rate averaged of 4.73% over the same period. Since 1952, Pakistan’s annual gdp growth rate has been 4.94% according to Trading Economics

Pakistan have also been posting negative balance of trade since 2003 which has prompted for serial current account deficits over the same period

These twin deficits have been financed partly by external debt. 

Pakistan’s external debt nearly doubled since 2008, but has marginal declined in 2012

A big portion of the twin deficits have been financed via monetary inflation where M3 has grown by CAGR of 14.74% which is nearly double the average annual rate of growth her statistical economy. 

This has essentially been responsible for the weakness in her currency which her government scapegoats on gold.

Nonetheless Pakistan’s perfervid monetary activities has pumped up her stock markets.

The Karachi 100 has been one of the best performers in 2013 up by 36.29% in nominal currency terms. Chart from Bloomberg.

The Karachi appears to have hardly been jolted by Bernanke’s “taper” as frontier markets have been in vogue.

If the attack against tradition reach a critical point in a society’s tolerance level, the current passive resistance expressed via smuggling, may transform into social unrest, again Egypt, Brazil, and Turkey are du jour examples.

All these concerted anti-tradition policies are bound for failure.