And truth to hide
The road shows – final one in New York spearheaded by the finance minister himself – sold the economic turnaround narrative well enough to bag $500m, at an 8.25 percent coupon rate, from foreign investors, but it is important to understand some of the more structural facts the exercise was meant to hide. One, for example, that it comes just when the government needs to meet IMF conditions for the Jul-Sept window. These relate, among other things, to net foreign assets, borrowing and reserves. And, two, that if the government had implemented necessary energy sector reforms, it could have raised the same amount from World Bank and ADB at two percent interest.
True, the finance ministry has received a fair share of praise – mainly from outside Pakistan – for its recent handling of the economy. But interestingly it marketed the turnaround just when some rating agencies were beginning to question its sustainability. Once again there are worries about the narrow revenue base, and the inability of the economy to sustain without multilateral and bilateral funds. The IMF program will end next year, and given how major successes this time amounted to getting the Fund, repeatedly, to agree to lower estimates, what might follow is not very clear.
At the end of the day, the government will have to improve its ability to raise revenue. It made loud noise about broadening the tax base at the time of the election campaign, and ended up losing a lot of credibility. The other main arm of revenue collection, exports, is a long sad story in itself. Pakistan is still struggling with adding value to the export mix, while losing traditional cotton produce markets to regional rivals. Little surprise, then, that the government makes such a big issue out of Eurobonds. The longer it shrugs off vital reforms, the more the economy will suffer; and even taking bonds to investors will not work out so nicely soon enough.
