The Crippling Economy of Pakistan

The Crippling Economy of Pakistan

Today I noticed a beautiful change in the Financial statements of State Bank of Pakistan. Till now they used to reflect the forex reserve status in USD Bn but today it is reflected in USD Mn. The Crippling economy badly needs a bailout from IMF. Though the current forex reserve in books is $9.4Bn with SBP, the effective net forex is only $1.5bn. Let me explain that- out of $9.4Bn, 1.5Bn is the loan from China which is given purely to enhance the forex value but with a condition that it cannot be spent, $2.6bn is the value of Country's Gold reserved (whatever little they have) and $2.8Bn is the value of Sukkuk and Eurobonds which Pak govt issued (we have not catered for the currency devaluation in this, it will be 15-20% higher if we take that into the consideration) and another $1Bn of govt sureties which cannot be redeemed immediately. taking in account all these factors, the net reserves with SBP stands at an alarming figure of $1.5Bn only.

Not only this, the currency available with the commercial banks but present in the country is valued at $6.6Bn but nearly all of them are with private banks and are in the form of investments. under any circumstances, these cannot be used to pay the dues.

The country has an import bill of over $6Bn per month. How will it sustain the pressure with net available reserves capable of One week’s import? this is a big question.

But the real dilemma has not started yet. The main point is that with the current position and global economic market, it is impossible for Pakistan to survive without an IMF bailout. This is the prime agenda of all the parties contesting elections in Pakistan and whomsoever wins the control, will first approach IMF for a bailout soon after the elections.

As a rule, IMF must scrutinise the country's economy, it’s all transactions done by various parties in the past and its financial system. IMF will also see the fact that Pakistan is on the grey list of FATF and will agree to a bailout only in the circumstance if all the conditions promised by Pakistan before FATF are fulfilled. This is totally impossible as Pakistan has not started working on them still.

There is another catch 22 situation here. To please China, the rulers of Pakistan made large number of agreements under the CPEC. As per most of these agreements, Pakistan is barred to disclose the financial details and lending terms with any third party and will be liable for severe implications if it does so.

Now IMF bailout is not possible without disclosing deals and China will not let Pakistan disclose these deals. This clearly means that China is totally prepared to make Pakistan its complete slave. it will lend money to Pakistan at its own terms and conditions and in the event of non-payment, will acquire strategic assets of Pakistan in the bargain.

God knows after few years, we may be forced to recognise Pakistan as Western Chinese Province of Pakistan.

https://tribune.com.pk/story/1756320/2-foreign-exchange-sbps-reserves-fall-9-5b-concerns-rise/