Though Finance Minister Muhammad Aurangzeb was the one to announce that Pakistan would try to raise $300 million in ‘Panda Bonds’, he was also careful to lay the credit at Prime Minister Shehbaz Sharif’s door, as the initiator of the proposal. Mr Sharif, a long time ago, had trained to be an economist, though circumstances did not allow, and he had to go into the family business. However, apart from the Panda bond decision, he also has acted to show that he will take all major economic decisions himself. He has decided to personally chair the Economic Committee of the National Economic Council and the Economic Committee of the Cabinet. These are tasks that previous PMs have been wont to leave to the Finance Minister, who would be a technocrat. The present Finance Minister is also a technocrat, but the PM will chair these committees himself. He had left these tasks in his previous tenure to the Finance Minister, so he clearly did not enjoy that arrangement. He is also showing his tremendous appetite for work by taking these tasks on, which involve a tremendous amount of paperwork.
At the same time, the decision to go for Panda Bonds, which are yuan-denominated, may seem a good way of bolstering foreign exchange reserves, but may run into problems with the IMF. First of all, it seems a little too much like the way Senator Ihaq Dar bolstered Pakistan’s foreign exchange reserves during his earlier tenures as Finance Minister: by borrowing. That was how he kept down the value of the dollar, by using those (borrowed) dollars. The IMF caught on, and made State Bank independence a concition, so that such tricks could be stopped. Hopefully, Mr Aurangzeb will not take this route to earning IMF ire. Another problem is that the IMF, which is after all a Bretton Woods institution, looks askance at those the USA does not like. Mr Aurangzeb should keep in mind how huffy the IMF gets about even the idea that its money could go to service Chinese debt.
The government may find that the US support it says it is getting for the new package, vanish very fast if it goes ahead with the Panda Bond issue. If Mr Sharif has his heart set on it, as well as the package, he may find that he may have to engage in some deft diplomatic footwork.
