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   How about a Plan ‘D’

February 9, 2014


(November 01, 2008) : In wake of financial crisis all over the globe Governments, Central Banks, Financial experts, Economist, Planners, Think tanks and Strategist are busy and struggling to find out ways on how to overcome the debacle, but we have more gloomier faces than ever. To offset the impact of global slowdown, the authorities around the world are taking drastic measures to boost domestic growth, avoid inflation, strengthen the equity market and avoid sharp fall of currency.
The issues are numerous. After sub-prime, banks bail out is a big headache. Despite aggressive global rate cut and liquidity injection, quality lending is the only consideration, as confidence crisis prevails and therefore, even good names are unable to get credit.

Foreclosures and delinquencies are a pain in the neck and extra funding will be required for another bailout package. Drastic measures have been taken by Fed and European Central Bank to halt emerging market crisis by providing USD 5 billion to 30 billion swap facilities. Next problematic issue that is queuing up is the consumer business ie, credit cards and auto loans.

Pakistan is luckily miles away from all such jumbled up issues. But we certainly have our own home-grown problem, which needs to be cleared up. Earlier, we missed out the opportunity badly, as after nine-eleven, we were blessed with overseas remittance, which poured through official channel, as overseas Pakistani started sending more money through banks instead of sending money through unofficial channel. Prior to nine-eleven official remittance would hover around USD 1.2 billion? It was only once during General Zia era that our workers’ remittances surpassed USD 2 billion mark.

Today, despite a record USD 7 billion remittances number, we are, financially a most disorganised lot. We wasted our money in cultivating a consumer culture. We managed to survive on asset sales and FDIs, until the oil prices started climbing.

We paid no heed despite our oil bill surpassing our textile exports, and today we are madly knocking at each door in search of donors. So far, no one has shown keenness to listen to our plea, probably because our appeal lacks conviction or we are unable to make an acceptable presentation. It seems IMF is the lone choice that can provide temporary relief, but only with some very bitter pills.

As the saying goes “it is never too late”. Why don’t we ask Fed, ECB, BOE and Friends to Pakistan to consider our proposal, which offers better return to them? This would be quite a professional approach. And we are not begging either. Why can’t we work on pland” and insist for this option. It is a much better option and serves our need.

We have to make a strong argument based on recent global developments in which effort was made to rescue the world’s emerging markets. Pakistan requires similar consideration. They have to consider our case seriously as we are part of the emerging market. We should also counter their double standard approach when dealing with Pakistan.

Our argument should be based on the recent Fed decision to provide US Dollar swap opportunity against emerging market’s domestic currency to rescue their market from collapse. This is swapping of US dollars for the domestic currency of each country, which was important because many them were short of US dollars, causing their local currency to weaken, which was also causing inflation. The Dollar liquidity shortage could have stifled international trade as a high percentage of international trade contracts are denominated in US dollars.

Pakistan is currently facing an identical problem and our foreign exchange reserves are depleting so sharply that we cannot to survive after next 30 days. Hence, we should either be provided with a similar dollar swap facility against Pakistani rupee, or provided help under pland“. Why not invest in our 3 years, 5 years and 10 years Pakistan Investment Bonds (PIBs)? All they have to do is purchase rupee against foreign currency and they get lucrative return.

The question arises as to who bears the exchange risk? This would be a direct GOP deal and therefore, exchange rate risk and PIB Yield can be worked out between two Central Banks. Borrowing loan either from IMF or Friend of Pakistan would ultimately inflate our external borrowing head, which will certainly impact exchange rate at the time of maturity. So, from Pakistan’s point of view, both the deals have same impact. But, pland” perfectly suits our requirement.

Imagine, our government borrowing issue will be settled. Inflation caused thorough government will be zero. Exchange rate will become stable. Foreign Exchange Reserves would get the boost. Fiscal deficit target of 4 pct will be easy to attain. The economy will get the much-required breathing space. Revenue could also get the required kick off. No big slash would be required on government spending. Meanwhile, the country will have enough time to plan its next strategy until the deal matures. The only things we need to do are make a serious effort, make strong argument and present our case with firm determination.

(The writer is a former treasurer of a bank)

Copyright Business Recorder, 2008

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