THE recent issuance of the $500m Eurobond on the international markets has garnered criticism from many quarters on the ground that issuance of the Eurobond is part of a flawed strategy under the IMF’s Extended Fund Facility (EFF) programme that will have negative consequences for the overall debt situation of the country.

I would like to point out that our foreign exchange reserves have increased from a low $ 3.95bn in September 2013 to over $ 15bn at present.

While a large part of this increase has come on account of privatisation proceeds, spot purchases from the interbank market, the Coalition Support Fund and grants from bilateral and multilateral sources, it is true that some part of the increase also comes on account of external borrowing.

However, it should be recognised that the agenda of the IMF’s EFF programme is not debt management but the provision of assistance to countries experiencing balance-of-payments difficulties and to support programmes that correct structural imbalances in these countries.

In this regard, the IMF’s programme has supported implementation of several key reforms in Pakistan, as well as it has advised a build-up of foreign exchange reserves that are crucial in providing a buffer against shocks in the external sector.

This is important in the present context of a slowdown in the global economy with emerging markets bearing the brunt on account of external pressures. The lessons from the Asian financial crisis of 1998 have already led many emerging economies to increase their foreign currency reserves so as to be better prepared against another crisis on the external front.

As Pakistan is just as susceptible as other emerging countries to a worsening situation in the global economy, it should also be prepared.

Therefore, constrained by the stagnation in export and vulnerabilities attached to foreign remittances amid rising budget deficits of oil-exporting gulf countries, the SBP should avail itself of all opportunities it could get regarding accumulation of the country’s foreign exchange reserves.

Also with some improvements on the macroeconomic front, Pakistan’s credit ratings have also been upgraded by the major ratings agencies. In this regard, continued presence in the international financial market is also important as it would boost investor confidence, reduce risk premium and lead to improvement in investment overtime.

Dr Waqas Ahmed
Karachi

Published in Dawn, November 29th, 2015