New agreement, same expectations

The stroke of the pen delivered by Rear Admiral Farrukh Ahmed may have done to improve the countrys chances of evading another balance of payments crisis for the time being more than the efforts of the entire Finance Ministry combined. The memorandum of understanding signed by the senior officer on behalf of Pakistan was the prelude to the release of much-awaited Coalition Support Fund proceeds to the tune of $1.1 billion from Washington. Although no official press release briefing media on the contents of the agreement was immediately available, it has been widely reported that the agreement shall be effective till the end of 2015 with an additional caveat for a years extension from that point. The closure of NATO supply routes brought the countrys government under extreme international pressure. Now, since the routes were reopened on July 3, relations with the United States have improved rapidly. Economic managers and just about everyone with a stake in the local economy is hopeful that the Americans will come through on the pledged support soon. That could help bolster up the foreign exchange reserves held by SBP which have slipped steadily from $14.7 billion on July 1, 2011, to $10.7 billion on June 30, 2012. Even with the fulfillment of this promise, the GoP may be pushed to the lender of the last resort, especially if the specter of international oil prices raises its head again. In that case too, it would probably help the countrys economic managers to have the blessing of their American counterparts. "Our reserves are already under pressure and not entering into the IMF programme will confront us with a nasty crisis", renowned economist Saqib Sherani told BR Research in a recent interview. "They will require you to enact and enforce VAT and push for power sector reforms, autonomy of the central bank; the terms dictated by the Fund will be much more stringent this time around," he added. If the gloom predicted by economic gurus is truly around the corner, a billion dollars will really hit the spot around here.