Who’s to blame?

Spearhead Analysis – 13.12.2013

By Enum Naseer
Research Analyst, Spearhead Research

Finance Minister Ishaq DarAt the helm of affairs is a team that was able to garner popular support for its focus on bringing about a dramatic economic turnaround. Yet, in an anti-climatic twist, it is during this period in time that the foreign exchange reserves of Pakistan have dipped to the lowest levels in 12 years and the national currency has been orphaned. The government seems to be in a flustered rush to replenish foreign reserves that have now plunged to $2.9bn and will barely cover 3 weeks of import bill payments according to the SBP’s data released on Dec 6.  The nervousness is understandable, as the country is days away from paying off the IMF installment worth $155m.

The government’s optimism in such dark times is palpable. In his attempt to restore people’s faith in the falling rupee, the Finance Minister re-assures that those who speculate will find themselves on the losing side. However we need to put Dar’s ambitious targets into context. Pakistan desperately awaits the release of the second IMF tranche of $550m later this month to alleviate the situation, it is also seeks $500m trade financing facility from the International Finance Corporation and $137m short-term loan from the Islamic Development Bank.

This economic turmoil has not come unaccompanied- the political undertones are becoming more obvious with the passage of time. It took 9 drone strikes for the political right to realize that Pakistan’s sovereignty was being violated and it was time to react. Instead of taking this discussion to the floor of the parliament, it was taken to the streets. Armed with fervor to protest the breach, NATO supply lines were blocked. Surely, intentions were bona fide- patriotism comes first as a rule of thumb. Lessons were to be taught to the US, even at the cost of $1m a day. The greater costs, of course, went uncalculated- the cost of not being able to take cue from Iran: a country that went from isolation to signing a landmark pact with the US, appeared to be irrelevant. Hagel’s threat to stop CSF disbursements if NATO supplies remained blocked also fell on deaf ears with the government insisting that it had within itself to ensure recovery of ’every dollar’ of CSF.

Vows were renewed amidst turbulent conditions: the exchange rate would be down to less than Rs.100 to a dollar and foreign exchange reserves would be built up to $20bn in the next 3 years. The allegation that the government has been using the money deposited in commercial banks to finance external payments since net borrowing of the SBP from banks stood equal to the reserves held by the SBP was rendered baseless by the government’s clarification that the data was from last Friday and as of now, reserves stood at a more robust $3.4 billion.

Dar’s big finish at the press conference where the loan agreement was struck is still ringing in the nation’s ears: “We are not begging. We are members of IMF.” No magic wand can fix all of Pakistan’s problems with one swish, but calling a spade a spade will certainly alleviate the pressure that is straining the government to live up to warped ideals fed to the public in the election days. One wonders how a country where a province holds foreign policy hostage and the centre finds itself paralyzed by its own inaction and lack of strategic planning can negotiate to begin with—whether it is with lending agencies or with other countries. Sovereignty in a deeper sense implies having the right to exercise independent authority and it is confusing how when there is talk of violation of borders, little is said about the threat from within that makes Pakistan more susceptible to bullying in the international arena.