Daily Times Editorial March 15, 2014

Economic outlook IMF sources reveal that they have been informed by the Pakistan government about the source of the $1.5 billion injected into the Pakistan Development Fund (PDF) in recent days, which the rupee’s dramatic appreciation against the dollar is being ascribed to. The source, according to these reports, is Saudi Arabia. So far, Finance Minister Ishaq Dar and officials have been extremely cagey about the source of the injection. Although it has helped the rupee exchange rate to rise to Rs 98 and less against the dollar, the Senate saw an adjournment motion moved by the PPP’s Senator Farhatullah Babar seeking details of the source and the terms on which it has been accepted, including suspicions that it may have been in return for Pakistan’s support to the Saudi policy of helping the rebels in Syria, whom the Saudis have been backing to the hilt from day one. Senator Farhatullah Babar has cautioned the government against any adventurism by plunging Pakistan into another conflict when the effects of our involvement in Afghanistan have proved so damaging. Of course the masses are still waiting for the benefits of the rupee’s appreciation to be passed on to them after imports of POL products and other imported items will decline in price. Instead, it appears it is business as usual if the NEPRA permission to eight DISCOs to raise their electricity tariff by over Rs 2 per unit under the head of fuel adjustment charges is taken into account. The increase is not applicable to KESC or lifeline consumers, but will obviously feed into inflation. Food prices continue to rise, straining poor and even middle class families’ household budget. While foreign exchange reserves have risen by $ 702 million to $ 9,375.7 million in total for the week ending March 7 ($ 4,623 million held by the State Bank of Pakistan and $ 4,753 million by the commercial banks), with expected inflows from the IMF tranche of $ 540 million, launch of a Eurobond of $ 500 million in April and other expected inflows, the real test of the government’s confidence about actually receiving the inflows and controlling inflation will be reflected in the State Bank of Pakistan’s (SBP’s) announcement of the Monetary Policy Statement (MPS) today. The SBP raised rates 50 bps in September and November 2013 on a deteriorating balance of payments position and inflationary concerns. In January 2014 the SBP held the rate unchanged on the expectation of a reduction in inflation (which has yet to come to pass) and uncertainty regarding inflows. If the SBP is consistent with its previous practice, analysts expect a significant reduction in the base rate. If it does not, the positive spin being put on the economy’s indicators will receive a cold shower. While the explanation for the dramatic rise of the rupee is to be sought in friendly countries’ contribution to the PDF and other inflows in pocket or expected, exporters, particularly textiles, are bleating about the effect on their competitiveness. They demand compensation for their ‘losses’ as a result of the rupee’s rise, which obviously makes our exports more expensive in rupee terms. Whether the habitual concession-seekers of the textile sector succeed in their plea or not, the fact remains that the only people delighted so far with the dollar’s decline vis-à-vis the rupee is the government, which is boasting of a decline in public debt overnight of Rs 800 billion. The dollar’s downward trend may be flattening out since the market players may regard purchases of the dollar at these reduced rates a worthwhile investment after being stung by its rapid decline in recent days. However, no one should be carried away by this temporary (momentary?) rise of the rupee in the light of the hard work still required to boost the economic essentials of the country that depend, not the least, on tackling terrorism, law and order, and the crippling energy crisis.