Economy goes rudderless as helmsmen jump the ship

ISLAMABAD: Pakistan’s economy’s rudderless ship that can run aground anytime soon is not blipping on anyone’s radar anymore as a federal government is nonexistent in the country for all practical purposes.

According to the apex court’s definition, a federal government is composed of the Prime Minister and a federal cabinet. Currently none of these exist. Thus there is no functioning government in the federal capital.

The latest numbers that will be released today (on Thursday) would show State Bank of Pakistan’s (SBP) forex reserves had dipped further to around $11 billion.

The official data shows that in August 2021, the foreign exchange reserves held by the SBP stood at $20.073 billion, but declined to $12.04 billion on March 25, 2022, indicating an $8 billion fall only in nine months.

If the IMF’s $6 billion loan programme remains stalled, Pakistan requires mustering up dollar inflows of at least $5 billion on immediate basis in order to avoid a fully-blown balance of payment (BoP) crisis till June 30, 2022.

A top official, privy to the economic matters, commented that Pakistan’s economy was deteriorating on Sri Lanka’s pattern with depletion of foreign exchange reserves and depreciation of local currency at an unprecedented rate.

“If the economy does not return to the radars of those who are at the helm of affairs then a full-fledged crisis will strike around July-August period of next fiscal year,” the official said.

There is bad news on every economic front. On the external front, China had agreed to grant a rollover of $2.5 billion commercial loans, but now it seems Beijing is reluctant to keep its promise as there is no practical government in Islamabad. However, the Ministry of Finance is making last ditch efforts to convince the Chinese side.

When contacted, finance ministry officials said they fulfilled all procedural requirements and now the Chinese side had to make clear when they were going to roll over $2.5 billion commercial loans.

The official data shows monthly sales of high-speed diesel (HSD) and motor spirit (petrol) were on a higher side in March 2022. HSD’s sales stood at less than 700,000 tonnes in March 2022, while petrol’s were around 750,000 tonnes.

In the wake of reduced prices of petroleum products, the sales of these two major products did not decrease but they actually increased. There was no decrease in consumption when international prices were skyrocketing, whiched fattened the import bill further. The federal government on Wednesday raised Rs645 billion through Market Treasury Bills (MTBs). It raised Rs373 billion through 3-month MTB at the rate of 12.8 percent, Rs148 billion through 6-months paper at the rate of 13.25 percent, and Rs123 billion from one-year MTB at the rate of 13.3 percent.

It indicates the market is expecting a hike in policy rate in months ahead.

However, the exchange rate has been declining on a persistent basis in the last few weeks, but the rupee took a massive beating from the US dollar last week when the political uncertainty touched new heights.

Another bad development is the current account deficit might hover around $1 billion for March 2022 against $545 million in February 2022 mainly because of increased trade deficit.