SBP: Lesson learnt and implemented

The present economic travails of the European Union, particularly those of Greece, are a lesson in the hazards of inadequate disclosure of key macroeconomic data such as a countrys external debt.
Troubles for the Greeks emerged back in October 2009, when that countrys newly elected government revised the countrys public debt tally to 12.7 percent of GDP, from the previously reported figure of about 6 percent of GDP.
In the mayhem that ensued, international investors questioned the Greek governments ability to repay its loans, capital flight followed and Greek economic managers appeared red-faced and helpless.
Central bankers in other economies have also been humbled by the devastation caused by the financial crisis which emerged in 2008, exposing the mounting debt which had till that time been cunningly tucked away through accounting tricks.
Thankfully, the State Bank of Pakistan has learnt lessons from the hardships faced by other economies; and has proactively initiated the adoption of international standards for reporting on macroeconomic tallies.
The recent adoption of Special Data Dissemination Standard for reporting external debt statistics by SBP is a laudable step that will enhance transparency, and help the country gain better access to international lenders in future.
The introduction of the SDDS has seemingly jacked up the countrys external debt total by $5.471 billion. The apparent increase in the countrys obligations to the world is largely attributable to enhanced reporting on three items: Special Drawings Rights with the IMF, deposits in the country by non-residents, and inter-company debt.
However, this does not mean that Pakistan has taken on more debt after the introduction of the new reporting standard. The SDDS has simply exposed certain liabilities that were not completely recorded in the external debt using the previous standard.
Although the central bank has not yet informed of the likely impact of this change on debt servicing, it is pertinent to note that since no new liabilities have been created, the cost of debt servicing should be unaffected by the adoption of SDDS.
In fact the ongoing week has seen the culmination of SBPs efforts on another important front. On Tuesday, the central bank unveiled a $1 billion, three-year currency swap deal with Turkey. The obvious benefits of this arrangement will include improved liquidity for bilateral trade and investments. But mention-worthy is SBPs decision to conduct competitive auctions for Turkish Lira loan facility.
These steps will improve transparency and hopefully, in time, bolster confidence among investors and prospective trade partners in future.