Aid packages

January 20,2019

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In November, Saudi Arabia sent in a billion dollars. The State Bank of Pakistan’s liquid foreign exchange reserves went up by a billion. Within a couple of weeks, the SBP’s liquid foreign exchange reserves went back to what they were before the Saudi loan.

In December, Saudi Arabia sent in an additional billion dollars. The SBP’s liquid foreign exchange reserves went up by a billion. Within a couple of weeks, the SBP’s liquid foreign exchange reserves went back to what they were before the second Saudi loan.

This policy of so-called aid packages is not working. We are only suppressing symptoms and not trying to treat the disease. The real disease is the bloated budget deficit while we are spending all our time on aid packages to suppress the depleting dollar reserves.

An emergency is a “serious, unexpected, and often dangerous situation requiring immediate action”. On January 4, the SBP reported that its liquid foreign exchange reserves stood at $7,048 million (http://www.sbp.org.pk/ecodata/forex.pdf). Is the situation serious, requiring immediate action? Judge for yourself.

Commercial bank methodology: most commercial banks take the SBP’s gross reserves of $7 billion and deduct domestic SWAPs worth $4.4 billion (read: borrowings from commercial banks), Chinese SWAPs worth $3 billion (read: loans from China) and $2 billion in Saudi loans to arrive at net reserves of negative $2.4 billion. Is the situation serious, requiring immediate action?

IMF methodology: The IMF uses a slightly different methodology. The IMF takes the SBP’s gross reserves of $7 billion and deducts IMF liabilities of around $6 billion, SWAPs worth $4.4 billion (read: borrowings from commercial banks), Chinese SWAPs worth $3 billion and $2 billion in Saudi loans to arrive at net reserves of negative $8.4 billion. Is the situation serious, requiring immediate action?

Brokerage firm methodology: the research arms of various brokerage houses are using the following methodology. They take the SBP’s gross reserves of $7 billion and deduct short-term drains of $11 billion (the SBP’s committed outflows within the next 12 months), SWAPs worth $4.4 billion (read: borrowings from commercial banks), Chinese SWAPs worth $3 billion and $2 billion in Saudi loans to arrive at net reserves of negative $13.4 billion. Is the situation serious, requiring immediate action?

Are the Saudi loans free lunches? According to Wikipedia, a “‘free lunch’ refers to the once-common tradition of saloons in the US providing a ‘free lunch’ to patrons who had purchased at least one drink. Many foods on offer were high in salt (eg, ham, cheese, and salted crackers), so those who ate them ended up buying a lot of beer”.

The policy of the so-called aid packages is not working. Meanwhile, the battlefield is expanding. We are in a war that is beyond rules. The battlespace is undefined. There’s a fusion of the regular and the irregular. Multiple instruments of power – economic, political and informational – are being used to target specific vulnerabilities to paralyse our critical societal functions. Do we have a battle plan?

We are in a world of weaponised lending instruments. We are in a world of weaponised information. We need to map our internal faultlines – particularly the economic ones. We need to formally assess our non-military vulnerabilities – particularly the economic ones. The ultimate objective here is to weaken Pakistan’s war-waging capability. Do we have a battle plan?

The writer is a columnist based in Islamabad.

Email: farrukh15hotmail.com Twitter: saleemfarrukh


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