I typed this post on my phone as I am away from my computer so please excuse typos and grammatical mistakes.
In my earlier post about SBP’s fifth generation warfare, I mentioned that SBP is on a PR blitz based on SBP Governor’s media appearances following the monetary policy announcement.
Nov 19: RB interview to Kamran Khan
Nov 20: RB interview to The Profit
Nov 23: RB interview to FT
Nov 23: RB pens Op Ed for Dawn
Nov 24: RB interview to CNBC
I guess the above scorched-earth campaign didn’t have any effect. So
Nov 29: SBP now issues another clarification.
However, it seems that Nov 29 Seems clarification, where SBP blamed the Op Ed writers for not suggesting alternatives didn’t do the trick.
Dec 6: Deputy Governor Murtaza Syed pens an Op Ed for Business Recorder
Next, I expect Seema Kamil’s op-ed will be appearing in Express Tribune. If that doesn’t work, we can also have SBP directors penning op-eds though I think they prefer to wield influence BTS. IYKYK.
The bottom line of the Op Ed is that “this time is different” in the sense that the current boom will not be followed by a bust unlike the past. The concluding paragraph of the Op Ed is
The policy response to arrest the deterioration in the current account deficit has been considerably more timely than in the past. In addition, exogenous factors propping up the current account deficit, notably high global commodity prices and temporary food imports, should also diminish through the rest of the year. Finally, the external position is fully financed, such that Pakistan will be able to comfortably meet its external financing needs and foreign exchange reserves will continue to rise.
Three reasons have been identified in the conclusion (and the op-ed) for avoiding the bust
Timely policy response (referring to policy rate rise, cash margin on imports, macro prudential steps to reduce consumer financing).
Effect of exogenous factors diminishing. Basically “hope” as a strategy.
The good news is that based on previous oil price cycles and futures prices, these are likely to start coming down over the rest of the fiscal year. As in past cycles, this is likely to happen due to both a supply and demand response. Supply chain constraints should ease as disruptions associated with Covid normalize, while demand is likely to moderate as central banks around the world tighten monetary policy somewhat faster than expected in response to higher inflation out-turns. A sustained $5 per barrel decline in oil prices reduces Pakistan’s import bill by around $1 billion in a year.
Indeed, global commodity prices, including oil, have already seen a marked decline in recent days amid concerns that global demand could be affected by the new Coronavirus variant, Omicron, as well as signals of faster monetary policy normalization from the Federal Reserve.
The below tweet summarizes the above argument.
What I find amusing in the above paragraphs is that in first paragraph, SBP is expecting the supply chain disruptions to normalize as Covid is waning and in the second paragraph, SBP expect the demand to decline due to arrival of Omicron variant. 🤷♂️
The external position is fully financed.
It may be true. But the Deputy Governor MS uses the following chart.
The KSA deposit in black is shown as part of “Available Financing”. The terms of the agreement haven’t been shared as it is “confidential” between two “brotherly” countries but from the leaks that have made it to us and haven’t been denied, we know that the KSA funds are deposits that “you can look (at) but can’t touch” and have such terms as
To be kept as a deposit and not to be utilized (thus this is not available for financing though it will help improve our fx reserve position).
Incur a 4% interest rate.
To be returned on 72 hours notice or in case of non-compliance.
In case of dispute, arbitration under Saudi laws.
Considering that previous such deposit was called by Saudis half-way through its term and Pakistan had to scramble to the Chinese to it the money to make the Saudis whole,
it doesn’t behoove the Deputy Governor of the
last credible institutioncentral bank to try to calm to market with a chart that doesn’t depict a true picture.
Occasionally I get asked by newspapers if I would write for them. I am exaggerating. I was asked only twice, that too some months ago, and both times I respectfully declined. I don’t think any paper would allow me to have as much fun as I am having at this substack.