Money Matters

Missing in action

November 13, 2017
By Mehtab Haider

Insight

Pakistan’s economic managers have got some sort of relief in the aftermath of the much-awaited Standard & Poor’s ranking maintaining the country at ‘B’ level on long term and short term sovereign credit, delayed decision making process in the absence of finance minister Ishaq Dar due to his illness was playing havoc with the country’s economy.

Even top economic managers are completely clueless about his future plan whether he would come back or would stay outside on long term basis after his recovery, as Hudaibiya Paper Mills case also re-opened and no one exactly knows what Mr Dar intended to do in the near future.

Such confusing signals are not a good omen for the country’s economy, which is already facing an acute crisis like situation on its external fronts.

Ishaq Dar’s efforts of putting the economy on the right track in the first three years have been appreciated by many, including this scribe, but during the last one and a half year period, in the aftermath of the Panama scandal, all gains made have been lost. Who is responsible for this mess is another question which can be debated at some other stage.

Ishaq Dar has played his innings and he should quit without wasting any time, because the country’s economy cannot afford lacklustre attitude anymore. The next one month is very important for the country’s economy, because any further delay in taking corrective measures for boosting foreign reserves would simply mean the sliding of the country into the lap of the International Monetary Fund (IMF) for getting another bailout package like the Extended Fund Facility.

One top economic manager of the country said in background discussions that all negative sentiments about the national economy have evaporated with the positive report released by the S&P; as they affirmed Pakistan’s ‘B’ long-term and short-term sovereign credit ratings and termed the outlook of the country as stable. “We also affirmed the 'B' long-term issue ratings on senior unsecured debt and Sukuk trust certificates.”

The global credit rating agency predicted that the stabile outlook reflected their expectations that Pakistan's external and fiscal metrics would not worsen materially from the current levels.

“We believe the country's economic prospects remain favourable. We may raise our ratings on Pakistan if the country's security environment settles to an extent that economic growth continues to trend higher, strengthening the country's fiscal and external positions,” it further added.

Amid looming crisis on the external front, this positive report of S&P was just like a breathing space and it could be used for generating desired dollar inflows to avert impression that the country was sliding towards another balance of payment of crisis at supersonic speed.

It was pre-requisite for launching Sukuk and Eurobonds simultaneously because all other reports of International Financial Institutions (IFIs) were quite damaging for Pakistan and top economic wizards were waiting for issuance of this S&P report so they could build Pakistan’s case and lure the interest of international investors.

Earlier, it was the plan of the Finance Ministry to accomplish transactions of Sukuk and Eurobond by November 15, 2017 to generate $2 to $3 billion for building up the foreign currency reserves of the country in a big way. It seems that this plan of launching these two bonds simultaneously was missed out, and now efforts were underway to ensure smooth launching before the start of December because then holiday spree would kick-start in United States and European markets.

When asked about this delay, one top official made efforts to justify it by saying that they were not publicly announcing the country’s plan to launch bonds because they had not still notified the concerned international stock exchange. He said earlier this international stock exchange was infuriated when finance minister Ishaq Dar publicly announced Pakistan’s intention to launch international bonds prior to getting approval from the concerned authority.

“We will move ahead with our plan very soon,” said the official, and added that all procedural requirements were in place and there would be no delay on their part.

No satisfactory reply was received from these top officials about the reasons for delaying these transactions, especially at a time when the country received a favourable rating from the S&P. Since the time was wasted, another report released by the World Bank has once again raised questions on the strength of the country’s economy.

The World Bank in its latest report on Pakistan’s economy has again presented a dismal picture by stating that the country’s macroeconomic imbalances have significantly worsened over the last 12 months. The widening macroeconomic imbalances could increase the country’s vulnerability to external and domestic shocks, said the Washington-based Bank.

According to the World Bank, Pakistan will miss all key macroeconomic envisaged targets for this fiscal year, including fiscal deficit, current account deficit, and the gross domestic product growth (GDP) rate.

Against the government’s desire of curbing budget deficit at Rs1.5 trillion or 4.1 percent of the GDP, the World Bank projected roughly 6.1 percent of the GDP or Rs2.2 trillion deficits for this fiscal year.

Against the official target of six percent annual GDP growth rate, the economy is expected to grow at a pace of 5.5 percent this year. It has projected a four percent current account deficit against the official target of 2.6 percent of the GDP.

The situation is quite alarming because on one side the debt burden is increasing, leaving the managers with no choice other than going to international lending agencies and getting loans to narrow down the external gap, and on the other it is also slashing down the foreign currency reserves of the country. This lethal combination requires immediate corrective measures in shape of boosting the reserves position by ensuring dollar inflows of at least $2 billion to $3 billion.

If this one month is lost, Christmas and New Year holidays will commence, and then there will be no other choice but to knock at the door of the IMF anytime in the first half of 2018.

The writer is a staff member