Enough self-praise
So Dar sb has put another feather in his own cap, and patted himself on the back also just for good measure. With the All Shares Islamic Index, we will now be able to ensure Shari’a compliance in the banking sector and capital markets. But that was not what the finance minister talked at length about during the inauguration in Karachi. It was the economy all over again. Once more Dar sb was waxing eloquent about foreign exchange reserves, inflation, discount rate and budget deficit, and how these indicators have impressed international rating agencies and foreign investors alike.
Yet for bolstering forex reserves, and the rupee, Dar sb has been known to turn not to international financial markets but friends with deep pockets and petro dollars. Inflation is low – even though wages are also low and stagnant – but the government has done little except enjoy the low Brent environment. The discount rate is at a historic low; granted, but cheap money achieves little if the government keeps borrowing and crowds out the private sector, which is precisely what has happened. And the only achievement with regard to the budget deficit has been getting the IMF to agree to revised targets for every tranche. The revenue problem has grown so chronic, in fact, that Rs40b in additional taxes now need to be raised – which will come with a political backlash.
Interestingly, the finance minister also treated the nation to good news about imminent Saudi investment. The on-ground trend, though, suggests a different story. The Saudis have been unhappy since the Yemen request, and Saudi investors have pulled out approximately $42.5b from the local economy in the last four months alone. The government is, if anything, in a precarious position. It has failed on taxes and exports, which means earning will remain compromised. And there are doubts about another IMF program when this one runs out next year. How foreign investors might find such an environment enticing, perhaps only Dar sb would know.
