Shaukat Tarin says IMF programme to bring stability

Ex-minister defends decision to take recourse with international lender.

KARACHI: One clear advantage technocrats enjoy is that they get to play it straight in situations where a typical politician would rather beat around the bush.

No wonder that Shaukat Tarin, a lifelong banker who briefly led the federal finance ministry under the last PPP government, does not mince words while defending the present government’s decision to approach the International Monetary Fund (IMF) to increase the country’s foreign exchange reserves and stabilise the exchange rate of the rupee against the dollar.

“The rupee is under pressure, and the IMF programme will bring stability in the economy,” Tarin said in response to some reporters who kept insisting that the IMF bailout programme would make life miserable for ordinary Pakistanis. He was speaking to media on Monday evening on the sidelines of the launch of Islamic banking operations by Silk Bank, where he currently serves as adviser.

By the end of May, total liquid reserves, including those held with banks as well as the central bank, were $11.4 billion. Compared to September 2012, total liquid reserves in the country had declined by as much as 23% over eight months.

Explaining the reason behind the rapid decline in foreign currency reserves, Tarin said people have been ‘nervous’ over the last few months; they converted money into dollars to hedge against the expected rupee devaluation.

Currently, the dollar is trading at the rate of Rs101.35 in the open market. The rupee has depreciated 5.2% against the dollar in fiscal year 2013 alone.

“One dollar used to be around Rs80 when I was finance minister. Given the fact that the annual inflation rate has been in the double-digits since then, the value of the rupee should slide by at least 6%,” Tarin said.

According to Umair Naseer, an analyst at Global Securities, the IMF programme will provide the economy with stability and build investor confidence. “We believe that the rupee could remain under pressure in the short term due to scheduled payments of up to $425 million in July and August. However, expected inflows under the new programme in September will bring stability in the forex market,” he said.

Power tariff to go up

Although Tarin served in the last PPP government as finance minister. His relationship with the incumbent PML-N dates back to Prime Minister Nawaz Sharif’s second stint in power, when the premier tasked him with turning the state-owned Habib Bank around. Tarin is still considered to be close to the premier, as he advises him – albeit informally – on energy issues, along with the likes of Mian Mansha.

“The government is going to raise tariffs, as no country can afford to subsidise the power sector so heavily,” he said, referring to the Rs6 difference between the average cost of electricity production and the average tariff consumers pay.

“Considering that we sell up to 90 billion units a year, the government has to pay about Rs540 billion a year in power-sector subsidies, which is roughly 2% of our GDP,” Tarin said. He added that a change in the energy mix was necessary in order to make the energy sector viable.

Published in The Express Tribune, July 10^th, 2013.

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