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FILE:-CITY\HUSSAIN\DEBT
DATED:-26-11-2015
WORDS: 600
LETTER
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Pakistans dept dynamics
The recent issuance of the $ 500 million Eurobond on
the international markets has garnered criticism from
many quarters on the ground that issuance of the
Eurobond is part of a flawed strategy under the IMFs
Extended Fund Facility (EFF) programme that will have
negative consequences for overall debt situation of the
country.
I would like to point out that on foreign change reserves
have increased from a low $ 3.95 billion in September
2013 to over $ 15 billion at present. While a large part
of this increase has come on account of privatisation
proceeds, spot purchases from the interbank market
the Coalition Support Fund, and grants from bilateral
and multilateral sources, it is true that some part of the
increase also comes on account of external borrowing.
However, it should be recognised that the agenda of
the IMFs EFF program is not debt management but the
provision of assistance to countries experiencing
balance of payment difficulties and to support
programmes that correct structural imbalances in these
countries. In this regard, the IMFs programme has
supported implementation of several key reforms in
Pakistan as well as it has advised build up of foreign
exchange reserves that are crucial in providing a buffer
against shocks in the external sector.

This is especially important in the present context of a

slowdown in the global economy with emerging
markets bearing the burnt on account of external
pressures. The lessons from the Asian financial crisis of
1998 have already led many emerging economies to
increase their foreign currency reserves so as to be
better prepared against another crisis on the external
front.
As Pakistan is just as susceptible as other emerging
countries to a worsening situation in the global
economy, it should also be prepared.
The substantial build up of series in last two years has
already been instrumental in shielding against nay
massive depreciation in response to devaluation of the
Chinese Yuan in August 2015. Subsequently, in a
broader perspective the vulnerabilities change rate and
the level of this reserves affect the SBPs objectives of
price stability and financial stability.
It is important for any economic analyst to be aware
that exercising the option of borrowing externally is
necessitated by the long-term trend of the balance of
payments position of Pakistan. Over the curse of much
of it is history, Pakistan has run persistent trade
deficits, whereas, the accumulation of foreign exchange
reserves requires persistent trade surpluses. For this
kind of export growth to take place, a number of
structural issues need to be addressed on priority.
These include lack of diversity in export products and
markets, low value addition, low agricultural yields, lack
of investment in R&D, and broader issues such as the
energy shortfall, law and order, low quality of human
capital owing to low literacy levels and low foreign
direct investment. Considerable time and commitment

is required both by the government and by the people

of Pakistan in order to deal with these issues
meaningfully.
Therefore, constrained by the stagnation in export and
vulnerabilities attached to foreign remittances amid
rising budget deficits of oil exporting gulf countries, the
SBP should avail all the opportunities it could get
regarding accumulation of the countrys foreign
exchange reserves. Also with some improvements on
the macroeconomic front, Pakistans credit ratings have
also been upgraded by the major ratings agencies. In
this regard, continued presence in the international
financial a market is also important as it would boost
investor confidence, reduce risk premium and lead to
improvement in investment over time.

AHMED

DR WAQAS
KARACHI