Governor SBP, we beg to differ with you

On Saturday, Acting Governor, State Bank of Pakistan (SBP), Dr. Murtaza Syed talked about unwarranted market concerns about Pakistan’s financial position and assured the crisis will be over in a few weeks.

This is to remind him that analysts are not concerned about Pakistan’s capacity to overcome the temporary hiccups, but have objections on the way the problems are being handled by the incumbent government. The overwhelming concern is that the decision makers are pushing the country towards default, rather than acting upon the advice of International monetary Fund (IMF) to avoid the eminent default.

To be honest, even a man on street knows that the top priority of the government should be to get the tranche released from the IMF, but the economic managers have been playing their own mantra. They not only failed in submitting a plan for increase in electrify and tariffs and petroleum prices, on top priority. On the contrary, they kept on refusing to comply with the IMF requirements, till it became unavoidable. On top of that they also kept on maligning the IMF for the miseries being faced by Pakistanis.

Now talking about the numbers upsetting Pakistanis, they are fully cognizant that the country faces adverse balance of payment crisis and the need to bridge the gap by containing imports, particularly by stopping import of the luxury goods and enhancing exports. Let me put it on record that the incumbent government has failed on both the fronts, miserably.

To establish my point allow me to refer to the decision to increase electricity and gas tariffs and also curtailing supplies to textiles and clothing industry. The industry highlighted that as a result of following this absurd policy they fear losing export orders worth millions of US dollars and even closure of production facilities, as they are losing competitiveness in the global markets.

This is also to remind Syed Sahib that the incumbent government is on borrowing spree at whatever rate the dollars are offered. However, it is not following the priority, which is causing the crunch. They have been told bluntly that unless IMF issues ‘fitness’ certificate, multi-lateral and even bilateral lending will not be possible. However, their focus remains on foreign visits for ‘borrowing’.

Go two steps forward; the incumbent government has not been able to put together: 1) moratorium request and/or 2) impose quantitative restrictions on imports under Article-6 of World Trade Organization (WTO).

This compels the experts to draw the conclusion: either the economic team is incompetent and just can’t make prudent decisions or it is adamant at pushing the country towards eminent default.  

Is Pakistan at the verge of technical default?

This mornings I was alarmed to listen to three rumours: 1) banks are unable to buy foreign exchange for their clients from the inter-bank market, 2) whatever US dollars are still held by the central bank just can’t be used and 3) most probably the PML-N will do, what it did in nineties ‑ freezing of foreign currency accounts of Pakistanis till the time forex starts flowing into Pakistan.

I had brief chat with some of the senior analysts and the conclusion was, “Pakistan is at the verge of technical default”.

The overwhelming consensus was, “It is not because of any weakness of the economy of the country, but due to the inability of the decision makers to make prudent and timely decisions”.

The consensus was, “If the casual attitude of the policy planners is not changed immediately, they will only hasten the default”.

The first and the worst habit of the incumbent government is that it spends more time on blaming the previous government, but does not take into accounts its own acts.

It talks about austerity, but indulges in extravaganzas.

It even fails in listening to what the International Monetary Fund (IMF) and friendly countries (also willing to support Pakistan) are saying.

The coalition partners were too keen to control the reigns, but neither had the plans to take the country out of the crisis.

Someone was indecent but may be right, “They wanted to take their names out of Exit Control List (ECL) as well get immunity to rule the country”.

They neither have the will nor the spine to make difficult decisions.

Raising POL prices and electricity tariffs are the easiest decisions because all their expenses are borne by the government.

Their thinking is still not synchronized with what the IMF is saying.

They have not only failed in containing the twin deficits (budget deficit and current account deficit) which is also proliferating the third deficit – confidence deficit.