That federal Finance Minister Ishaq Dar felt the need to hold a press conference to announce that Pakistan would meet its payment on the Eurobond sukuk issued a few years ago, was in itself not a good sign, and sent the money market its firmest signal yet that Pakistan was on the brink of a precipice, and could welsh on this payment, which would leave it in default. While Mr Dar may bravely insist that Pakistan will make the $1 billion payment due on December 5, he might want to ponder two things. First, where is the money going to come from? Issuing a new sukuk or other instrument; in other words, by rolling over the loan? In other words, keeping the country’s debt stock at a higher level than before. Perhaps the only reason Pakistan can still approach the financial markets is because it is back on an IMF programme, and off the FATF grey list. Senator Dar must also ponder how long the country must carry on like this, from crisis to crisis, more worried about where the next payment is going to come from, than about ensuring growth in the economy.
Senator Dar was remembered as, and indeed brought back, as a clever financial manager, not as a root-and-branch reformer. The problem is, the economy has not really responded to his brand of management. Inflation remains high, and while there is a little good news about the current account deficit, it is not good enough to counteract the negative outlook that afflicts the rest of the economy. One troubling sign is that the latest IMF programme review is being delayed yet again. This reflects the fact that the purpose of all that borrowing has not been met. The idea was that the borrowing would lead to more production, higher state revenues, and an increased ability to pay.
A key problem was political stability.Senator Dar is merely trying the same solutions as were tried by his PTI predecessors, which in turn were much the same as he himself tried before, and which have left the country where it is: one payment away from default. Even if the sukuk is honoured on December 5, what happens the next time? Pakistan is in the unenviable position of having to borrow on increasingly onerous terms in order to make the next payment on previous loans. Senator Dar was brought in to revive the economy and thus restore the sagging fortunes of the PML(N);; but instead he is forced to run furiously to stay in the same debt-ridden spot.
