STATE BANK governor Jameel Ahmad’s assertion that the country has enough dollars to meet its foreign debt obligations may be calming for the uninitiated but not for the nation’s creditors and markets. With SBP reserves below $8bn, his words hardly inspire confidence, even if the chances of Pakistan defaulting on its maturing loans are few at the moment. That Pakistan’s perceived risk of sovereign default has spiked to a multi-year high due to the worsening dollar crunch shows that the jittery creditors and markets need more than words to shed their worries. The country’s credit default swap, an indicator used to insure against debt restructuring or default, has widened to 64.2pc from 52pc at the beginning of November, reflecting dwindling investor confidence in Pakistan’s ability to pay back its bond-holders of $1bn Sukuk maturing next month.

Separately, Finance Minister Ishaq Dar, who was in Dubai to meet international bankers for securing a rollover of the commercial debt, re-emphasised his infatuation with a strong home currency as he blamed the weak rupee and external-sector troubles on the market-based exchange rate. Both the minister and SBP believe that the rupee’s real worth is below 200 a dollar. That may be so, given that September’s real effective exchange rate was computed to be 90.90. If the exchange rate continues to hover much above the rupee’s ‘actual worth’ in spite of this, it is primarily because we are almost dollar illiquid. Had the bank not imposed stringent import curbs at the expense of economic activity, delayed profit repatriation, and not restricted other legitimate dollar payments, its reserves would have dropped far below even the current level. Indeed, the rupee’s value remains range-bound in the interbank market. But the interbank rate has long been irrelevant since it is allegedly being ‘managed’ via SBP pressure on the banks as reflected by its widening gap with the kerb market rate.

Sadly, even our dire economic condition hasn’t been enough to push the government to implement serious structural reforms, and privatise state enterprises or services to revamp the economy. The IMF is not happy with the fiscal authorities for missing crucial programme targets like the primary budget surplus, and the new Extended Fund Facility performance review seems to have been delayed indefinitely. Additionally, growing political turmoil amidst a protest campaign launched by former prime minister Imran Khan is keeping friendly nations from lending a hand, despite their recent announcements of billions of dollars in assistance. Chances are that our reserves and exchange rate will remain under stress, despite the promised multilateral inflows from the ADB and World Bank, and creditors and markets will stay jittery over soaring fears of default as long as populist considerations continue to dictate the government’s economic policymaking — and, more importantly, if political uncertainty is not defused. The fault doesn’t lie in the market-determined exchange rate; it lies in our economic and political priorities.

Published in Dawn, November 16th, 2022