Capital suggestion Currency crisis : Farrukh Saleem
The State Bank of Pakistan (SBP) claims to have total liquid foreign exchange reserves of $16 billion. Less: net reserves with banks, $4 billion. Less: Special Drawing Rights (SDR), $1 billion. Less: gold, $3 billion. Less: friendly countries parked reserves, $3 billion. SBP is left with $5 billion.
To be certain, reserves with banks belong to individuals and companies holding foreign currency accounts and this amount cannot be used by the SBP to pay off its liabilities. Next; an SDR is an artificial currency unit sometimes used as supplemental reserves.
Next; SBP is not going to give away its gold to settle its trade or other liabilities. Next; there is anecdotal evidence that back in 2008 when Pakistan really needed to show some reserves to calm financial nerves Saudi Arabia and China had each parked $1.5 billion with the SBP. That money really is not ours and thus cannot be used to pay off SBPs debt or other liabilities.
Remember; SBP is left with $5 billion. For fiscal year 2012-13, the current account is projected to be in the negative by $5 billion. As a consequence, by the end of the next fiscal, SBP will be left with next to nothing. But for FY 2012-13, a total debt of $5 billon has to be paid back.
To be sure, Pakistans gross external financing need for FY 2012-13 stands at a tall $10 billion (current account $5 billion plus debt repayment $5 billion). SBP reserves, peaking out in July 2011 at over $18 billion, have since been in a freefall and foreign direct investment is down to a trickle.
Yes, workers remittances are sharply up. Yes, oil prices are down. Yes, these two factors will delay the currency crisis but you may delay, time will not. Was Henry Kissinger talking about Pakistan when he said, There cannot be a crisis next week. My schedule is already full.
Currency crisis has a lot to do with investor sentiments and once sentiments turn negative then theres no stopping. There is pending legislation at the US Congress that would withhold all funds appropriated for Pakistan ... We Pakistanis are a sentimental people. We like a few kind words better than millions of dollars given in a humiliating way.
The question is not whether we will go to the IMF. The real question is when. Should we wait for the destructive tornado to come and destroy our rupee or try and dodge this multiple-vortex but inevitable storm?
Budget 2012-13 has projected a deficit of Rs1.1 trillion SBP will print half of that and the government will borrow the rest from banks. Yes, printing Rs300 crore a day every day of the year means higher rates of inflation.
Yes, borrowing from banks means no money left for the private sector and thus additional unemployment. Yes, a dollar may become worth a hundred rupees but we can print as many rupees as we want.
Now is the time to begin printing dollars! America is a place, said Marilyn Monroe, where theyll pay you a thousand dollars for a kiss and fifty cents for your soul.
The writer is a columnist based in Islamabad. Email: farrukh15@hotmail.com
The State Bank of Pakistan (SBP) claims to have total liquid foreign exchange reserves of $16 billion. Less: net reserves with banks, $4 billion. Less: Special Drawing Rights (SDR), $1 billion. Less: gold, $3 billion. Less: friendly countries parked reserves, $3 billion. SBP is left with $5 billion.
To be certain, reserves with banks belong to individuals and companies holding foreign currency accounts and this amount cannot be used by the SBP to pay off its liabilities. Next; an SDR is an artificial currency unit sometimes used as supplemental reserves.
Next; SBP is not going to give away its gold to settle its trade or other liabilities. Next; there is anecdotal evidence that back in 2008 when Pakistan really needed to show some reserves to calm financial nerves Saudi Arabia and China had each parked $1.5 billion with the SBP. That money really is not ours and thus cannot be used to pay off SBPs debt or other liabilities.
Remember; SBP is left with $5 billion. For fiscal year 2012-13, the current account is projected to be in the negative by $5 billion. As a consequence, by the end of the next fiscal, SBP will be left with next to nothing. But for FY 2012-13, a total debt of $5 billon has to be paid back.
To be sure, Pakistans gross external financing need for FY 2012-13 stands at a tall $10 billion (current account $5 billion plus debt repayment $5 billion). SBP reserves, peaking out in July 2011 at over $18 billion, have since been in a freefall and foreign direct investment is down to a trickle.
Yes, workers remittances are sharply up. Yes, oil prices are down. Yes, these two factors will delay the currency crisis but you may delay, time will not. Was Henry Kissinger talking about Pakistan when he said, There cannot be a crisis next week. My schedule is already full.
Currency crisis has a lot to do with investor sentiments and once sentiments turn negative then theres no stopping. There is pending legislation at the US Congress that would withhold all funds appropriated for Pakistan ... We Pakistanis are a sentimental people. We like a few kind words better than millions of dollars given in a humiliating way.
The question is not whether we will go to the IMF. The real question is when. Should we wait for the destructive tornado to come and destroy our rupee or try and dodge this multiple-vortex but inevitable storm?
Budget 2012-13 has projected a deficit of Rs1.1 trillion SBP will print half of that and the government will borrow the rest from banks. Yes, printing Rs300 crore a day every day of the year means higher rates of inflation.
Yes, borrowing from banks means no money left for the private sector and thus additional unemployment. Yes, a dollar may become worth a hundred rupees but we can print as many rupees as we want.
Now is the time to begin printing dollars! America is a place, said Marilyn Monroe, where theyll pay you a thousand dollars for a kiss and fifty cents for your soul.
The writer is a columnist based in Islamabad. Email: farrukh15@hotmail.com
