If the prediction made by the Finance Minister comes true, that foreign exchange reserves will reach $ 9 billion to $10 billion by the end of June, comes true, it means that the current mode of crisis management, where what should be a given (avoiding default) is deemed an achievement, is probably over, and the light at the end of the tunnel becomes visible, albeit faintly. However, the all-time high of $27 billion in August 2021 shows that reserves can be built up, but they are subject to depletion, particularly as debt servicing payments fall due. The present reserves target pales in comparison to India’s existing reserves, which are at $643 billion, while Bangladesh’s are $25.2 billion.
The real source of foreign exchange can only be exports. Pakistan has apparently given up any hope of achieving a surplus on the balance of trade, and prefers to rely on workers’ remittances, which is a sort of export of labour. However, it is only by an export of goods that Pakistan can hope to pay for the imports of fuel, edible oil and medicines that it has to import. Mr Aurangzeb is placing reliance on the final tranche of the Stand-By Arrangement just concluded, and presumably has hopes that the IMF will grant another programme. However, the forex reserves themselves are lower than they appear to be. No less than $3 billion, and due to go up to $5 billion, consists of a Saudi deposit, which has been made on the express provision that it is not to be used for making payments.
The IMF programmes are essentially loans meant to repay earlier loans. Initially, the loans had been made by other lenders, but now IMF loans are falling due, and have to be repaid by new loans. Previously, when forex reserves were built up, it was on the basis of loans, which was not really a sensible policy, as we are now finding out as the loans start falling due. Mr Aurangzeb shows symptoms of the disease that has afflicted so many of his predecessors, of paying our way though the world by borrowing rather than earning. Perhaps most worrisome is that Mr Aurangzeb has not come up with a definite strategy for increasing exports. Talk of software export, the latest mantra, is airy fairy. In fact, the only solid part of the programme is the one about borrowing more.
