- Watch the reserves!
While the equity market celebrates the MSCI breather – very likely very temporary – it’s as if nobody in government noticed the warning issued by Moody’s ‘Global Emerging Markets: Outlook’ report. Not only have Pakistan’s reserves fallen to a four-year low, providing less than two months of import cover, but Pakistan’s reserves adequacy is now among the lowest among rated sovereigns. And the only clarity that has come from the government is a sudden assurance that all is well. Yet there’s still no final word on the bailout, or just who will throw in how much to keep us solvent, or whether we will still go to the IMF or not.
Just the other day the State Bank announced a 55pc FDI dip, year-on-year, in October – which shows that foreign investors, at least, are no longer taking the prime minister for his word. Meanwhile, inflation has crept up to almost seven percent, the highest number in a number of years, and annual growth too is expected to slow down to pre-PML-N government levels. How, then, the government can claim overcoming the economic crisis is difficult to understand, to say the least.
It is important for everybody celebrating these bailouts to remember that this is just money, which we are borrowing, to pay back old debt whose interest payments are now due. Before long, most likely, a similar situation will present itself. And since there are no signs of a structural turnaround in the economy, one that would turbo charge tax and export earnings, it is more than likely that the prime minister will have to go begging all over again. There is an urgent need to bring clarity to the economic front or the investor exodus, which has accelerated since the new government took over, will become too strong to be reversed.