Pakistan’s foreign reserves have been on a sharp ascent and are often quoted by the ruling party as a manifestation of sound economic policy work. The total foreign exchange reserves of the country have climbed to 19.828 billion dollars according to the State Bank of Pakistan.

According to an article published in Bloomberg, “at least half of the country’s $20 billion stockpile comprises debt and grants, almost all of which have flowed in since Prime Minister Nawaz Sharif took office in May 2013. That money could leave quickly as Pakistan begins repaying the IMF in 2016 or if oil prices surge, leading to another balance-of-payments crisis”.

Reality bites

The article further states, “Looming debt repayments in 2016 prompted Pakistan to go ahead with a $500 million overseas bond sale in September amid rising borrowing costs even as Turkey, Iraq and Abu Dhabi pulled back. It needs to gradually start paying back the IMF, with repayments rising to $639 million in 2019.”

To those observing Pakistan’s economic scene from a non-partisan position, these are not startling revelations. In fact, there has been sufficient debate on the nature of economic progress in Pakistan. While those who applaud the incumbent government on its decision making within the realm of economic policy constantly assert the fact that Pakistan has become a favorable investment destination and with the CPEC project in the pipeline, there is a great deal to be hopeful for; those at the other end of the debate raise valid concerns of sustainability and longevity.

Costly foreign loans are being taken to boost foreign exchange reserves to meet the IMF target for Net International Reserves. Parliamentary Secretary for Finance Rana Muhammad Afzal Khan informed the NA during question hour on November 27, 2015 that during the tenure of present government, loans taken by Pakistan amounted to over 9.7 billion dollars excluding bonds and IMF loan while reiterating the fact that the IMF loan was exclusively to build foreign exchange reserves. Why the country’s export sector has been completely sidelined and is not looked at as a source of revenue is anyone’s guess – that is, if at all, there is a desire to not lose momentum.

The government had borrowed $250 million from consortium of commercial banks in the first quarter against the budgeted $200 million for the ongoing financial year while it had borrowed $322.5 million during last fiscal year. Economic expert, Dr. Ashfaq Hassan Khan has often pointed out that the government’s dependence on expensive borrowing will prove to be harmful in the long run. While talking about the borrowing from commercial banks to build foreign reserves, he has again warned that it would prove to be a heavy cost to bear when the time for repayment comes. As it is, a recent report published by the SBP stated that banks’ profits have increased by 28pc in the last 9 months not because of the sector’s performance but mainly due to lending loans to the federal government. The SBP had decided to keep its policy rate fixed at 6 pc. It seems that even the banking sector that was being hailed as one of Pakistan’s best performing ones, is merely managing to keep appearances.

It is believed that the circular debt is back again and in worse form than when it was handed to the incumbent government as baggage standing at an intimidating Rs600bn level. It may not be impractical to believe that this time around as well the beast may be reined in using the same formula as the first time. Robbing Peter to pay Paul except the government will be borrowing which is worse perhaps – given that it is doing so at exorbitantly high mark-up rates. Just close to Black Friday, the ADB agreed to disburse $800 million (in two equal tranches) to Pakistan to help the country improve the efficiency of its power sector.

The statement by the ADB said, “This will allow Pakistan to introduce for the first time an advanced metering infrastructure system for power distribution companies across the country to improve load management and strengthen the financial viability of the sector by reducing electricity losses and increasing revenue collection.”

And, “The state-of-the-art new metering system will minimise losses and allow effective load management and transparency, thus ensuring a robust and sustainable power supply needed to lift growth and job creation.”

Tariq Bajwa, Secretary Economic Affairs Division, and Werner E Liepach, ADB’s Country Director for Pakistan signed loan agreements for the two programs, said an ADB statement.

Finance Minister Ishaq Dar witnessed the signing.

Business as usual.