Praise all around
Praise from the Fitches and PWCs (Pricewaterhouse Coopers) of the finance world quickly, and rightly, fades away when headlines turn to more quantifiable ground realities. Would the government really need a sudden $600m injection from China if all was rosy on the reserve front? This is the second time in this cycle that Dar sb’s ministry has resorted to unorthodox exogenous support to help with the deficit and reserves. Remember the mysterious $1.5b from Saudi Arabia that was parked in the state bank to prop up the rupee artificially? Did anybody ask, or explain, what became of them, especially since there was considerable friction with the Saudis at the time of their Yemen war.
Understandably, not many people in Islamabad — who celebrated winding up the IMF program last year — can still hold their smiles. $1.7b of reserves has simply gone to money heaven since then. And Dar sb won’t willingly point this out in his press conferences, but these reserves were built by accumulating expensive foreign loans over the near term in the first place. Now a lot of borrowed money has disappeared into thin air. And since nothing concrete has been done to expand exports or taxes, the government will need more borrowed money to function.
Add to that the international oil price reversal, the Coalition Support Fund (CSF) freeze from Washington and unsteady remittances, and there’s no telling how far the deficit can fall into red before this fiscal runs its course. The loan from China will give Islamabad some elbow room; but there’s an argument to be made for putting too many eggs in the China basket, especially in the wake of CPEC. But there’s only so many places Islamabad can go begging for money. It’s already fetching loans aplenty from banks in friendly Gulf countries. Hopefully the government itself will not take some of the flattery coming its way too seriously. Much of it is misplaced euphoria stemming from the phenomenal stock market frenzy. It might be a good idea to use this noise to sell the economy ahead of the election, but it will not do the real economy much good.
