Mir Mohammad Ali Khan |
I have never written an article so quickly after a deal has taken place. The only reason I am forced to write this article is that I do not want people to get carried away with unrealistic expectations. Hamid Mir Tweeted, and to which I replied immediately, that the oil prices in Pakistan should not be increased after this deal, he said. One thing has nothing to do with the other. There is no correlation. At all. Oil prices are set internationally. Not in Saudi Arabia to benefit Pakistan.
What is Saudi giving us?
Well partly it’s a deposit and partly it’s an oil program for which we will pay later. KSA will deposit $3 billion for a year in our national coiffures to stable our currency and take the pressure of Balance Of Payments. It’s simply a deposit that we have to return.
As I understand the deal and what some friends in the government have informed me of, is that, after the first year when the payment comes due, we have an option, mutually agreed upon to further defer the payment for another year and for a total of 3 years. I believe that it’s an interest-free deposit. Haven’t read the covenants of the agreement yet but that is what I believe.
Nations with egos are destroyed. Nations with pride last. And pride is not ego nor vice Versa. Pride to fix our situation is the foundation of our cure. Cure of our financial ills.
What else is KSA giving us?
KSA is going to give us another $3 billion worth of oil for which we will pay at some point in future. Our biggest pressure on Current Account Deficit comes from oil imports. For us to get the oil on deferred payment is a good thing given the ground realities that we are facing.
How all this will Benefit Pakistan?
We are at a point in time financially that any good measure will help. This will only give us some grounds to negotiate better terms with The IMF but it will also help us buy some peace of mind for at least 3 to 5 months. Now what we do in this “Bought Time Period” is what matters. Our problems are far from over. Not even close to it. This deal is like oxygen to a patient gasping for air. It is not tacure.
But until you stabilise the patient you can’t treat him either. So this is our stabilisation initiative. We still need fiscal discipline. We still need to lower our CAD. We still need to curtail our imports. We still need to increase our remittances. We still need to increase our exports. We still need Foreign Direct Investment. We still need to stabilise ours out of control stock markets. We still need to do a billon things. And Insha Allah we will.
One thing has nothing to do with the other. There is no correlation. At all. Oil prices are set internationally. Not in Saudi Arabia to benefit Pakistan.
Slowly and steadily we will get our country back on track. But we need to curtail our expectations. Because expecting to be cured miraculously of all the financial ills through one visit of Imran Khan to KSA is nothing but silliness. Going forward we need to curtail our unnecessary and out of control expectations. We are facing extreme financial hardships.
A common man in Pakistan does not understand economics and neither do the majority of the people in developing countries. And to be fair, one can not expect them to understand these complex financial matters either. And this is what astute and seasoned politicians sitting on the opposition benches take advantage of. This is the moment when blames get shifted and credit is owned for things not accomplished by them.
If there was just one thing wrong with our economy then we could have had our expectations raised. But what we are facing is unprecedented in our entire history of existence. Argentina, Venezuela, Greece, and Portugal, just to name a few countries, started to see their financial problems exactly the same place we are at. They went into a denial because their pride was too much for them to admit publicly that having the size of economies that they had, they could be at the verge of a collapse.
And that verge of a collapse was materialised sooner than they had expected it. Greece needed a multi-hundred billion dollar bail out package. Argentina went into an IMF program for an umpteenth time recently for $50 billion dollars. Venezuela is absolutely in shambles when it comes to their economy. One of the newest entrants to financial crisis recently was Jordan. Yes Jordan. Why? Because all of these above nations were in a denial that they needed help.
Now what we do in this “Bought Time Period” is what matters. Our problems are far from over. Not even close to it. This deal is like oxygen to a patient gasping for air. It is not tacure.
That they needed to fix their economies. That they were overconfident for decades when it came to fiscal discipline. We are nowhere close to that point of no return. We are looking at the danger zone. We are not in it yet. So the best thing to do is to put our national egos aside and seek help. Nations with egos are destroyed. Nations with pride last. And pride is not ego nor vice Versa. Pride to fix our situation is the foundation of our cure. Cure of our financial ills.
Going to the IMF is not a problem. IMF is nothing but a lender. Tough lender with strict conditions, yes, albeit a lender. And lenders are always tough. Why shouldn’t they be ? It’s their money and they did not cause the fiscal disaster in the countries that they are lending to. We did. We caused what we are facing today. So going to the IMF after having some breathing room in form of KSA assistance is a very good sign.
Because when we go to any lender and the lender thinks and knows that we are coming from a weak position, we will get harder terms for the loans. So put it simply, we need to be patient. We need to be resilient. And we need to be realistic. Politics is great but not at the cost of our economic future.
And at times we Pakistanis are so overly optimistic that we cross the border over from optimism into the silliness territory and then we refuse to cross back into reality again and die defending our stance on the other side of the border, this side being optimism and the other side being silliness.
Mir Muhammad Ali Khan is the first Muslim founder of an Investment Bank on Wall Street. He is the author of 4 books and has published over 800 articles. The views expressed in this article are author’s own and do not necessarily reflect the editorial policy of Global Village Space.