Begging and borrowing with greater creativity
Old habits die hard. In the case of our economy they never seem to die at all. One short description for our financial condition: heavily indebted and cash-strapped. Perpetually. Very occasionally the coffers may have looked better, but it was artificial and only because one superpower or the other is bent upon making a fool of itself in the quagmire called Afghanistan and needs our services, which we tend to offer with indecent haste. But this mode of financing is accompanied by its own evils in the social, political and cultural spheres. Continuing on the patterns of the past, the pro-business PML-N has reverted to the old familiar refrain: beg and borrow, but with greater creativity, and the consequences be damned. Soon after coming to power, with an air of inevitability it again went to the IMF for a measly sum and a multitude of conditions mostly, as is the wont of the hated Fund, impacting the common man.
This was not all. In order to shore up support for the 2013 budget, the cash starved government literally went on a borrowing spree from the commercial banks. On July 10, the federal government borrowed an astronomical Rs226 billion from the private sector in the shape of auction of SBP treasury bills at high interest just to tide over its everyday functioning. The SBP surprisingly fell quickly in line with the government’s unquenchable thirst for funds though it was earlier disinclined to favour such risk-free investment to the commercial banks. The real sufferers in such cases of safe lending to the government are the private borrowers who are shut out of the picture by the private banks, the latter’s primary function.
Come September, and another crisis is suddenly brewed up, exposing the total lack of any coherent financial policy or vision on the government’s part. The rupee started behaving erratically like the man on the flying trapeze against the US dollar and went into a freefall. In panic, the government made a hasty deal with a consortium of seven local and international banks on Sept 23, under which they would remit a total of US $625 million to Pakistan from abroad to shore up its meager foreign exchange reserves of $10.3 billion at an interest rate of 5.3 per cent over Libor (London inter-Bank Offered Rate) for one year – the lion’s share of $150 million contributed by the Bank of Tokyo. Again it was one IMF condition for raising $125 million from the market between July 1 and August 31 for its $6.64 billion extended fund facility that broke the rupees’ back. Although the Indian rupee too is under tremendous pressure from the US currency due to similar structural fault-lines (such as a huge current account deficit), yet their immense foreign exchange reserves provide it breathing space, which is not the case here. So as always, financial wizards are aplenty, but solid long-term solutions remain elusive.
