Addressing the award ceremony on Karachi Stock Exchange, federal finance minister Ishaq Dar claimed that the Pakistan economy has achieved stability while Prime Minister Nawaz Sharif, the chief guest at the ceremony, praised his finance minister's achievements. The same day Moody's upgraded Pakistan's dollar rating bonds from stable to positive; however, Moody's website indicates that our country rating remained Caa1 defined as substantial risks. A lower rating is Caa2 which is defined as extremely speculative and given that Pakistan has never ever reneged on its loans this rating was untenable and neither were Caa3 and Ca defined as default with little prospect of recovery and default, respectively. It is relevant to note that our country rating is the same as Greece's even though Greek debt is over four times that of Pakistan.
Be that as it may, there is evidence to suggest that the economy is not in a free fall particularly with respect to the net international reserve position and credit for that has to be given to the finance minister. Moreover, the rate of inflation is down irrespective of claims that a decline in inflation has been witnessed in most oil importing countries, like Pakistan, that decided to partly pass on the more than 60 percent decline in the international oil price to consumers.
However, Dar's critics do not tire of pointing out that the 2008 Stand-By Arrangement (SBA) with the International Monetary Fund (IMF) of 7.2 billion dollars has been largely paid off and the current 6.64 billion dollar Extended Fund Facility (EFF) has yet to be fully disbursed before repayments can begin. In addition, by intervening in the market the rupee remains strong which accounts for lower annual interest payments on foreign debt though this policy is negatively impacting on our exports. The conservative estimate of 5 percent rupee depreciation per annum is therefore artificially in check but once allowed would make foreign debt repayments a challenge in years to come. Critics argue that the rise in NIRs is attributable to borrowing from abroad, including through issuance of 2 billion dollar Eurobonds (at rates of 8.5 and 7.5 percent with 10 and five-year maturity, respectively, well above Greece's offer of 5.5 percent) which would create serious issues in years to come once the principal loans and bonds become due and the rupee allowed to freely float.
Dar has also noted as his ministry's accomplishment that Pakistan is now eligible for concessional funding from the World Bank's IDA - which is performance-based and includes four equally weighted clusters namely (i) economic management; (ii) structural policies; (iii) policies for social inclusion; and (iv) public-sector management and institutions. The PPP-led coalition government, it maybe recalled, suspended the reforms agreed with the IMF under the SBA leading to programme suspension as well as IDA suspension in 2010 while the incumbent government by virtue of being on an IMF programme has had the IDA restored. However, the finance minister would do well to acknowledge that restoration of IDA not only reflects the fact that Pakistan is on an IMF programme but IDA support first and foremost depends on a country's relative poverty. India, for example, graduated from eligibility in 2014; however, Pakistan is a blend country that implies we are eligible for IDA support but also qualify for borrowing from IBRD (non-concessional). Be that as it may, it is likely that as a blend country our potential access to IDA will be capped due to our broader financing options that have been and continue to be in evidence.
So what are the government's real achievements with respect to achieving stability? Dar inexplicably claimed that the target growth rate of 5.1 percent would be achieved this year though in a recent meeting of the Monetary and Fiscal Policies Consolidation Board under his chairmanship he reportedly downgraded the rate to 4.5 percent. In addition, the fiscal deficit has been contained though not by as much as budgeted. Unfortunately, though structural and governance reforms remain a challenge and the Finance Minister has been unable to compel those institutions working under his ministry, including the Federal Board of Revenue, to improve performance though in all fairness he, like his predecessors, was prevented from undertaking structural reforms by influential groups. Dar has also been unable to compel other ministries, including power as well as industries, to improve governance and thereby diminish the need for bailout packages. The result: the country's large-scale manufacturing growth remains stalled and remittances continue to be the major source - the only source for strengthening the net international reserves that do not need to be repaid with interest.
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