|CSF payment will give economy longer rope to hang itself with|
09 July 2012
ISLAMABAD: Pakistan’s economy is to get breathing space for a short period if the United States releases $1.18 billion as part of the Coalition Support Fund (CSF) this month, The News has learnt.
“We expect the US will reimburse $1.18 billion within this month (July 2012)”, a top economic official confided to The News in background discussions here on Sunday.
Federal Minister for Finance Dr Abdul Hafeez Shaikh, who is currently abroad, has played a crucial role in narrowing down the differences between Pakistan and the US that resulted in the reopening of the Nato routes.
But critics say this relief is temporary, as it would stop the free fall of the rupee against the dollar in the context of improved foreign currency reserves. The CSF, which is meant for non-tax revenues, will help reduce the budget deficit in the current fiscal year.
The sources wondered why the government took six months to reopen the Nato supply routes if all it wanted was reimbursement of CSF dues. Noted economist and former IMF executive director representing Pakistan, Dr Meekal Ahmed, has stated that obviously this inflow, amounting to billion of rupees, would have a huge positive impact on the economy with no credit to the government’s economic managers.
It will be treated as “non-tax” revenue, which is conceptually correct (for a change), he said, adding it is a recurring inflow. It will dramatically reduce the fiscal deficit, borrowing, debt, and interest rates somewhere down the line as aggregate demand pressures are reduced (but inflation could still go up or stay in double digits for other reasons).
It will also boost foreign exchange reserves and may lead to nominal appreciation of the exchange rate. “I always like that because speculators have taken forward positions and they will be wiped out” Dr Meekal added.
The boost in reserves, he said, would obviously help stave off the dreadful day when we will have to return to the IMF, cap in hand. “I have seen that many, many, painful times in my life here,” he maintained.
Referring to Dr Yaqub, former Governor SBP who stated that this was a temporary palliative for a dying patient that will only prolong the agony of a dying economy he said: “I agree. I have written that it will only give the economy a longer rope to hang itself with.”
He said with the CSF inflows now assured (and more to come) and the expected income from 3-G licences and the remaining payment from PTCL privatisation, coupled with a euro bond, and perhaps some fresh privatisation receipts/inflows, might enable the current rulers to prolong their rule for five more years.
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