Increase in forex reserves

Pakistan’s bleak trade figures accompanied with officials still boasting of a strengthened economy is cause enough to stir a passionate debate. PML-N supporters cite improved GDP growth, increased foreign exchange reserves and a narrowing of the trade deficit as indicators of the country’s impressive economic health. Critics, however, are quick to dismiss such arguments and assert that any progress that is made is on the back of expensive borrowing and debt-ridden financing. However, one cannot discount the need for these as a bailout from the IMF was needed, especially as payments to the lender became due as soon as the PML-N came to power. Now we have the news that the SBP’s foreign exchange reserves have gone from as low as $4 billion to over $15 billion in two years.

It is difficult to calculate exactly how much of the increase has come from external borrowing as inflows and outflows occur on a daily basis. Ishaq Dar insists that the IMF loans alone have not contributed to this increase. He is right. But a general overview conveys that a not insignificant $8 billion did come from the IMF and through issuance of bonds alone. There was also the much-talked about lump sum of $1.5 billion that came from Saudi Arabia. Dissecting the data tells us that the only real investment came through the spectrum auction with a sell-off in HBL contributing the other notable inflow. Despite the increase in the foreign exchange reserves figure, the situation on the ground has remained the same. Pakistan is more debt-ridden than it was, exports are still declining — although falling imports have aided in narrowing the trade deficit — and repayments to the IMF will start in 2017-18. That is near the time when the PML-N will be packing its bags and preparing for the next general elections. The vicious debt trap will see Pakistan, once again, resort to the same tactics in the future, even if there is a different government at the helm. The only way out of this rut is for Pakistan to improve its investment climate. We need to take advantage of the spectrum auction and broaden avenues for e-commerce businesses. There is a lot more to e-commerce than mere online shopping.

Published in The Express Tribune, October 15^th, 2015.

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