Worsening economy

This refers to the news item ‘SBP’s reserves rise to $12.591bn’ (Feb 28). But this includes $3.2 billion of ‘hot money’ flowing into government domestic debt. It is a risky and non-dependable source of securing dollars/building up reserves as it can disappear in no time. Further, the nation is burdened with a high interest rate to attract such investment. Excluding the ‘hot money’, the reserves stand at a mere $9.4 billion as compared with $10 billion in June 2018. Thus, the reserves have actually declined during the last 18 months, notwithstanding huge borrowings from the IMF, multilateral institutions, bilateral loans and commercial borrowings. The viable route for increase in reserves is higher exports of commodities and services which are flat.

Pakistan’s external and fiscal position has worsened over time as the aggregate domestic and foreign debt has shot up significantly while the ratio of external debt to GDP has broken the previous record. The prime minister, it seems, has woken up to the unfolding economic crises and directed a freeze on the tariffs of electricity and gas, and measures to control the prices of essential food items. Still, it’s better late than never. The massive shortfall in FBR collection and rising circular debt is expected to bring a new wave of inflation, contrary to what the governor of the State Bank may think.

Shoaib A Majeed

Karachi