The rupee is depreciating far too much for comfort, and the reserves, at $4.1 billion, are at dangerously low levels, all because the government decided to enter into an International Monetary Fund programme without having a clear agenda. PHOTO: CREATIVE COMMONS
The real culprit in this whole mess is the finance ministry bureaucracy, which has a habit of taking powers away from institutions that speak uncomfortable truths to them. The Planning Commission was the first to get the boot. The State Bank of Pakistan held its own for quite some time but was ultimately tamed by the State Bank Act of 2010. As several economists have pointed out, it is astonishing to find foreign exchange reserves dwindling at a time when the government has agreed to an IMF bailout. Was it not the whole point of getting the bailout to shore up the reserves? If the government is feckless enough not to even secure the release of the first tranche before matters got this bad, then is it even reasonable to hope that it will be able to undertake the many other tough but necessary reforms that it has agreed to implement?
The previous government left Pakistan’s financial credibility in tatters and it was always going to be an uphill task to repair it. When it came in, the Nawaz Administration should have come in with a clearer idea of what was realistically achievable within a short time frame. The drawdown on reserves is not a mystery: it happens at a predictable rate. The government should have known how much time it had before they would need the first tranche. That lack of foresight is now going to cost the economy.
Published in The Express Tribune, October 27th, 2013.
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