STARVED of positive economic signals, investors in the capital and currency markets pounced on the news of the $6 billion Saudi package and entered the trading rings with renewed vigour. The capital index surged and the rupee gained marginally.
The Saudi pledge is being projected by official circles as a sign of strength of the current economic strategy.
The stated strategy is to explore bilateral options of budgetary support from friendly countries before sitting across the table with the International Monetary Fund (IMF), a more stringent multilateral donor for a bailout. It is argued that a replenished foreign exchange reserve position will supplement the country’s bargaining position.
Pakistan’s foreign exchange reserves have persistently been depleting for the past several months, touching $7.825 billion last week, barely enough to cover the import bill and external liability settlements for seven weeks.
With markets in a downward spin the corporate sector has been nervously waiting for the restoration of economic stability crucial for business decision making.
Finance Minister Asad Umar categorically dispelled the perception of any change in Pakistan’s foreign policy stance in the Middle East in exchange for Saudi Arabia’s generous support. He asserted that the deal did not involve any political bargaining
Without presenting an explanation, most economists on the official Economic Advisory Committee chose not to offer their opinion on the said deal and its possible tangible and intangible ramifications for the country and its future.
Finance Minister Asad Umar, when reached over phone by Dawn, categorically dispelled the perception of any change in Pakistan’s foreign policy stance in the Middle East in exchange for Saudi Arabia’s generous support. He asserted that the deal did not involve any political bargaining. On a question regarding material support to the Kingdom in conflicts within the troubled region Mr Umar said: “They actually did not even ask for anything”.
“We wish to be an agent of reconciliation not division in the Muslim world,” the minister commented in response to a question on the prospect of Pakistan’s diplomatic relation to other key economic partners in the region that may not have a perfectly cordial relationship with Saudi Arabia; such as Iran, Qatar and Turkey.
“Yes we are engaged with them as well. The deputy prime minister of Qatar was with us a few days back. Engagement with all three will increase in the near future,” he said.
On the high-level participation in the investment conference at the current juncture when many countries abstained and big brands distanced or scaled down their level of involvement owing to the controversy around the murder of a journalist, Mr Umar was not very explicit.
To avoid misinterpretation, his response on whether the move was justified is reproduced: “As long as you are sure where you stand on principles [I see no harm in striking a deal].”
Commenting on the doubts surrounding the Saudi pledge the finance minister blamed the past governments who have not been open and transparent in their dealings: “That’s because people are used to seeing governments say one thing in public and do another.”
Strong support for the $6bn deal came from unexpected quarters. Dr Shamshad Akhtar, the former interim finance minister and State Bank governor, was highly optimistic. She wrote: “It’s great news and hopefully now others may step in as I see.”
Former central bank governor Salim Raza acknowledged the sensitivity of the economic situation and growing nervousness in the investors’ community and saw the Saudi support in a positive light.
“It gives us time to pace out the required economic adjustments. We needed to tackle immediate budgetary pressures”. He warned against complacency and reminded that: “There is a pressing need to tackle revenue shortage against the necessary economic and social expenditures.”
Former deputy chairman of the Planning Commission Dr Nadeem ul Haque considers the pledged Saudi inflows as a measure of temporary relief. “It will ease immediate pressure on economic stability but this is not a solution to our persistent economic woes.
“There is not a single economist in the economic team of the ruling party,” he lamented. “The country has already lost valuable time. The rulers need to get serious, identify solutions and make required policy changes to provide impetus to agents of growth and development.”
He expressed disgust over demonising the IMF that he said bail out countries in trouble at favourable terms. “What they ask in return for the loan package is not something sinister. I see no reason to detest the agency for insisting to reduce fiscal or current account deficit and scaling down unnecessary intervention in the market.
“One can disagree with their strategy. I have my reservations as well as I think instead of increasing taxes in Pakistan, the focus currently should be on trimming government expenditure for improving the balance of accounts.”
“Market anxiety over external sector weakness was perfectly justified. The players dreaded the consequences of a looming crisis that could have rattled the economy at its rickety base. As for politics in the Middle East, suffice it to say that the situation does not permit the government the luxury of declining an attractive offer of financial support even if the offer is being made by an imperfect nation,” said a trend watcher who did not want to be identified.
Published in Dawn, The Business and Finance Weekly, October 29th, 2018