Where will the money go?

THE receipt of another $700m under the Coalition Support Funds comes at an important time for Pakistan. With reserves eroding, and the outlook on the external sector getting darker, any inflow at this time is helpful. But here the good news ends. After this receipt, further inflows are not visible on the horizon. The 3G auction is up in the air, efforts to cajole a balance payment out of Etisalat are under way but chances of success look slim. The rate at which the country’s reserves are falling is set to accelerate further as large debt repayments become due in the second half of the fiscal year, and where $700m is clearly helpful in meeting these obligations, the amount by itself is insufficient to strengthen the outlook. Hence, the unfortunate search for additional inflows continues.

The bigger question is what will we do with the money? The last large inflow, a $1.1bn payment in August, was used to retire money borrowed from the State Bank. It also helped bring our current account deficit into surplus briefly. Buoyed by these developments, the State Bank found comfort in the numbers and gave away a full percentage and half cut in interest rates. The beneficiary was the government, since industry has yet to use the declining interest rate environment to restart investment. So what should be spelt out in clear terms is what these inflows will be utilised for. It should also be made clear at this stage that once the funds arrive, they will produce a small and very fleeting uptick in our external sector, and in some of our fiscal indicators. That small increase must not be used to pop any corks, and there should be no haste in putting the funds to work. Let’s restrain the enthusiasm a little, and recall that the long road ahead is still there, and while foreign inflows are important it will take more than these to meet the challenge. Foreign inflows must be accompanied by restructuring of the domestic economy and tough fiscal reforms to fend off a balance-of-payment crisis.

Do you have information you wish to share with Dawn.com? You can email our News Desk to share news tips, reports and general feedback. You can also email the Blog Desk if you have an opinion or narrative to share, or reach out to the Special Projects Desk to send us your Photos, or Videos.

More From This Section

Fixing responsibility

The overriding question is whose job was it to oversee all these officials named in the report?

Forensic facilities

Punjab Forensic Science Agency has set a positive trend and is making an effort to change the culture of investigation.

Cricket woes

The team’s woes have been exacerbated by a needless central contracts row, simmering over the past few days.

Comments (1) Closed

Dec 21, 2012 03:17am
The level of corruption is so high in Pakistan that no amount of foreign exchange inflow will solve the problem. As a matter of fact, all agencies or individuals sending money to Pakistan should stop doing so, untill the situation improves. And in order for the situation to improve, the present herd of politicians must go.