Loud Thinking

Mr. Ishaq Dar can you answer the questions raised below, or the nation should rue that moment, when PMLN was voted by the people to govern with its team of extremely incompetent and nincompoop finance managers.

Now there is hardly any doubt that PMLN has totally messed up the country’s economy. Needs any proof, just read the letter attached below, and decide for your self, the sheer incompetence of the government’s finance team.

A letter titled “Flight of capital” published by the daily Dawn on 4 October, 2013.

PAKISTAN’s rupee was at 100 to one US dollar on June 1 and today’s rate is hovering around Rs110 to one US dollar. This means we have a devaluation of 10 per cent in less than three months since this government came into power.

The unabated beating of our currency in the exchange market has very serious consequences. It is sharply resulting in hyper inflation, mainly because we are consuming imported goods worth around $4 billion a month, and the depreciating currency directly increases the cost of imports.

The daily increasing inflation is making lives of the people miserable. In a desperate effort to increase forex reserves and stop the currency falling over the cliff, the government finalised a deal on Sept 23 with a consortium of banks to arrange $625 million loan at an average rate of 5.3 per cent over London Interbank Offered Rate (LIBOR).

Instead of stabilising Pakistan’s rupee, this reported deal backfired and has spurred currency devaluation because clearly this deal has sent wrong message to forex market.

Even the stock market reacted very negatively, and the Karachi Stock Exchange lost more than 500 points on Sept 24. I think many economy watchers in and outside the country would be wondering why the government should show such an immense desperation to market by entering into such a forex loan at such a high interest rate as 5.3 per cent above LIBOR.

This government-bank consortium deal of $625 million loan appears to have been done in unnecessary desperation and haste without much economic homework.

I do not know if the following points were debated at length before making such a deal. What is the surety that such a deal will not lead to cannibalisation of dollar deposits?

How will such a deal increase reserves if banks of consortium transfer foreign holdings of residents to the SBP and earn higher profit of 5.3 per cent above LIBOR?

Will it not lead to more dollarisation of the economy when market senses so much desperation of the government that it enters into such a deal? Instead of making such deals, the government should take bold steps and make necessary structural reforms because the country’s economy is completely fractured.

EJAZ AHMAD MAGOON
Lahore