Calming words

Published July 28, 2022

AMID panic in the domestic capital markets, the acting State Bank governor has taken it upon himself to soothe nerves and calm angsty observers who feel the end may be nigh for the economy. Over the weekend, Dr Murtaza Syed forcefully dispelled some of the worst fears that have arisen about the health of the economy in similar statements made in response to questions put forth by Reuters and during a State Bank podcast.

The crux of both statements was, in Dr Syed’s own words: “Pakistan is not as vulnerable as is being assumed.” He was reacting to speculation that Pakistan may be headed towards an economic catastrophe due to runaway global inflation, which is exerting considerable pressure on the country’s external account as well as its debt profile.

The ability of Pakistan’s sputtering economy to cope with external pressures has recently been questioned, with fears multiplying in recent days due to the rupee’s nearly 8pc slide against the dollar over the last trading week and the depletion of the country’s forex reserves to below $10bn even as inflation peaks to its highest in more than a decade.

Read: The big default? Pakistan among a dozen countries in ‘danger zone’

Quite understandably, none of these are encouraging signs; especially not for an economy also roiled by political instability and that of late has witnessed one constitutional crisis after another. However, and this is what the State Bank acting governor would like us to remember, we do not seem to be in danger of an imminent default along the lines of what we’ve witnessed in our neighbourhood ie Sri Lanka.

The central bank chief has pointed out that Pakistan’s public debt is structured in a way that it is mostly dependent on local sources to meet its financing needs; its external debt is quite low as a percentage of GDP compared to economies considered close to default; and that most of its external loans are on concessionary rather than commercial terms. Additionally, the State Bank chief has underlined that none of the countries that have defaulted or that face imminent default had a programme with the IMF in place, which Pakistan does.

Dr Syed also addressed fears raised by some quarters that Pakistan may not have sufficient money to pay off its near-term debt obligations, categorically stating that this was not so and that Pakistan had more than enough financing available to meet its obligations for the ongoing fiscal year.

It is unfortunate that the State Bank chief has been forced into firefighting mode while the continuing uncertainty on the political end makes markets even more jittery. Though Dr Syed’s words themselves offer hope, they are also a recognition of the fact that any further uncertainty regarding the economy’s health may quickly turn destructive. The government’s economic managers must also step in and do their bit. They cannot remain missing in action for much longer.

Published in Dawn, July 28th, 2022

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