SPY EYES

Capital suggestion Fact 1: We need $12 billion to survive the following 12 months; $5 billion to finance the current account deficit and $7 billion to repay out debts (principal and interest). Fact 2: We need $24 billion to survive the following 24 months; $10 billion to finance the current account deficit and $14 billion to repay out debts (principal and interest). Fact 3: As of October 12, net foreign exchange reserves at the State Bank of Pakistan (SBP) stood at $9.8 billion. Fact 4: The SBP’s net reserves include a billion dollars worth of Special Drawing Rights (SDRs), a couple of billion dollars of gold reserves and an additional billion or two of ‘parked reserves’ belonging to a few friendly countries. In all probability, SDRs, gold and ‘parked reserves’ can be used neither to pay for imports nor for the repayment of non-IMF debt. Probable scenario: Within a month of the caretaker government’s tenure, Pakistan will be in a state of ‘financial emergency’. By Election Day, the SBP’s foreign exchange reserves will be just about enough to cover a mere two months’ imports. Worst-case scenario: By the third quarter of next year, the SBP will be unable to pay our $12 billion oil import bill. Probable impact: Capital flight and a ‘run on the banks’. Pakistanis, fearing a rapid devaluation in the value of the rupee, will rush to convert their rupees into dollars in addition to withdrawing their dollars from Pakistani banks and sending the same to foreign destinations. Probable SBP action: The SBP will be forced to come out and save the rupee from a free fall. It will be left with no option but to hike the rate of interest in order to support the falling rupee. A double-digit rate of interest would further slow down the economy leading to additional unemployment, a further decrease in tax collection, a double-digit budgetary deficit and a much higher incidence of frustration all through Pakistan (the countrywide individual frustration may turn into collective aggression right after the election). Probable American game plan: Keep the Asian Development Bank (ADB), Pakistan’s largest source of loan funding, away from Pakistan. Keep the World Bank, Pakistan’s second-largest source of loan funding, away from Pakistan. Keep the International Monetary Fund (IMF) from bridging our current account deficit. In the meanwhile, on September 13, US Secretary of State Hillary Clinton rather quietly issued a ‘national security’ waiver on conditions imposed by the United States Congress that may have blocked $2 billion worth of American aid to Pakistan. Lo and behold, the only lap left for us to find any comfort will be Uncle Sam’s. Possible saviours: Coalition Support Funds (CSF), the auction of 3G licenses and long overdue payment from Etisalat. To be certain, the government has been trying to auction off 3G licenses for the past couple of years, expecting that the auction will bring in $800 million. A similar amount of $800 million has been appearing in the budget documents as an expected payment from Etisalat. Other than the three saviours, there is absolutely no will to undertake deep, surgical reforms without which we’ll continue our decent into the abyss. Someone intelligent once said, “Don’t worry about the world coming to an end today. It’s already tomorrow in Australia.” Dr Farrukh Saleem SPEARHEAD RESEARCH