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Opinion

Dr Farrukh Saleem
October 1, 2017

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The IMF

The IMF

Capital suggestion

In October 2016, the State Bank of Pakistan (SBP) had net foreign exchange reserves worth nearly $19 billion. As of September 15, 2017, the net reserves with SBP stood at $14 billion – a drop of nearly $5 billion in just 11 months and a drop of more than 25 percent in just eleven months.

Never in Pakistan’s history have we imported goods worth $55 billion in just one year. Never in Pakistan’s history have we had a trade deficit of $32 billion in just one year. Never in Pakistan’s history have we had a current account deficit of over $12 billion in just one year. Never in Pakistan’s history have we had a five-year period of consistently declining exports (from $25 billion in 2012 to $20 billion).

Red alert: our external account is deteriorating faster than a speeding Kalashnikov bullet. In the first two months (July and August) of fiscal year 2017-18, our current account deficit widened by a whopping 102 percent to $2.6 billion (as compared to $1.29 billion in the same period last year). In the first two months (July and August) of fiscal year 2017-18, our imports jumped to $8.98 billion.

Here’s what the official figure means: the $14 billion net reserves with the SBP provide an import cover of just three months. Here’s what the real situation is: the SBP has borrowed around $4 billion primarily from commercial banks in a three-month forward deal to artificially bolster its official foreign exchange reserves. Here’s what that means: the SBP’s foreign exchange reserves actually provide an import cover of just two months. That indeed is scary.

Fact 1: In the first two months (July and August) of fiscal year 2017-18, our current account deficit stood at $2.6 billion. Fact 2: the SBP has borrowed around $4 billion from commercial banks to artificially bolster its official foreign exchange reserves. Red alert: The SBP’s treasury will be empty by April 2018. That is even scarier.

Who is minding the financial affairs of 210 million Pakistanis? On the budgetary front, the difference between the government’s income and expenditures is close to Rs2 trillion. On the external front, the annual current account deficit based on the current pace could exceed $15 billion. Add the two and the 210 million Pakistanis will need to borrow close to $40 billion to plug the two holes that their government will create.

Here’s what the IMF is all about: the IMF is not just a financial institution. The IMF is also a political tool, with financial power projection by its owners. Here’s a look at the IMF Members’ Quotas and Voting Power. Pakistan’s number of votes is 21,775. America’s number of votes is 831,407. Imagine: Andrew Baukol, America’s representative to the IMF, raises just one hand and 831,407 votes are up.

Our external account moving at the current pace and in the current direction will take us right into the IMF’s lap within the next few months. Back into the IMF’s lap and back to the IMF’s dreaded conditionalities. Yes, the US has veto privileges and a blocking minority. Yes, the US has “near-absolute control of the IMF’s activities”. And yes, the US “has used the IMF to peddle its own agenda”.

Wait, the story of our problems does not end there. Lo and behold, many argue that “receiving a loan from the IMF is when a country’s problems really begin”.

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh

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