‘Monetary transparency must to allay default fears’

KARACHI: Pakistan's credit default swap (CDS) has significantly increased, but to clear the situation and reduce default fears, the government should show a balance of inflows and outflows, former finance minister Shaukat Tarin said on Tuesday.

Tarin’s statement came after Pakistan’s five-year CDS – insurance-like contracts that protect against default and restructuring—soared to 123 percent. In March, the CDS was 5 percent.

“The markets want to know how the government's cash flows are actually doing. How the government plans to balance inflows and outflows,” Tarin said at a seminar titled ‘Economic Performance and Challenges Ahead’.

“The markets will stabilise if the government gives the markets cause for confidence by disclosing its cash flow status. This will help in easing the country’s default concerns among Pakistan’s sovereign dollar bonds holders.”

The damage from the catastrophic flooding in Pakistan is estimated at $40 billion, a blow to the cash-strapped country. The country needs about $36 billion in financing for this fiscal year.

Tarin said political uncertainty brought about by the regime change in April derailed the economy. Markets, investors, and friendly countries are not willing to bet on the present government, which has lost 75 percent of the elections since April. They think the present government would not sustain, so the friendly nations were unwilling to provide Pakistan with financial support.

Train said the resulting economic chaos was crippling Pakistan’s economy.

There would not be any economic stability in the country until a strong government was in place, he said, adding that going towards election was the only way.

“Pakistan needs a stable government, which is only possible through fresh, free, and fair elections. Thereafter, we will have to restart the process of undertaking inclusive and sustainable economic growth,” he added.

He said PTI inherited a broken economy in 2018 with a $20 billion current account deficit (CAD), high fiscal deficit (7 percent), stagnant exports, and falling agriculture. It was forced to go to the International Monetary Fund (IMF), which slowed down growth and increased inflation and debt.

Then came Covid, which was very well managed by former Prime Minister Imran Khan and his team and was ranked amongst the 3 best in the world, according to Tarin.

The last two years of the PTI government saw the best performance in 17 years interms of GDP, exports, remittances, tax collection, and employment, Tarin said.

Growth fundamentals have been destroyed by higher interest rates, the highest since 1998, he noted.

Electricity and energy prices have doubled from March 2022. The exchange rate has depreciated by 43 rupees or 25 percent in five months, he added.

“It will be a miracle to produce even 2 percent growth. Post floods the economy is already showing signs of contraction. Food security, inflation, and unemployment will hit the masses,” Tarin said.

He said there was record inflation since 1974; if we ignore 1974 the inflation was the highest in 75 years.

The sensitive price indicator (SPI) inflation touched 30 percent and the consumer price index (CPI) inflation reached 27.3 percent in October. However, the SPI stood at 13 percent and CPI at 12.7 percent in March, he said.

Record debt was taken in the first four months of the PDM government of Rs6,500 billion versus the combined Rs18,500 billion in 45 months of PTI ruling, he said.

Salim Raza, a former governor of the State Bank of Pakistan said digitalisation of payments and other regular and fiscal initiatives should be used to eliminate outsized currency in circulation.

He said taxes and duties on digital payment devices should be eliminated. Additionally, he advocated for the digitisation of government payments and receipts as well as the elimination of all advance taxes.

He claimed that more advanced, high-income Asian nations significantly relied on development financing.

“The focus of the development banks should be on SMEs, agriculture, (for advisory services, supporting machinery and infrastructure, and supply chain development), and infrastructure, Raza said. There was a need to determine the appropriate development financing structure. “Groundwork by development banks will crowd in private commercial banks,” Raza added.