Pakistanis are celebrating. The Pakistani rupee, from a low of 110 to the U.S. dollar, has appreciated to 98 to the dollar, an unprecedented rise. Prime Minister Nawaz Sharif, an industrialist who ostentatiously campaigned as a pro-business leader promising to revive Pakistan’s economy, is taking a victory lap alongside his Finance Minister. Bloomberg reports:
Pakistan’s rupee surged 5.2 percent this week, the best performance among world currencies, as the nation’s rising foreign reserves and improving economy buoyed investor confidence.The country’s currency stockpile climbed to $9.52 billion this week, Finance Minister Ishaq Dar said yesterday, from $8.3 billion at the end of 2013. The economy is on course to achieve the official target of 4.4 percent expansion in the year ending June 30, he said, after the prior period’s 3.6 percent growth. A planned global bond offering, an auction of third-generation mobile-phone licenses and an International Monetary Fund loan are set to boost fund inflows, according to the central bank.
Foreign investment is down to a trickle. The government hasn’t injected any stimulus. Industry is hardly growing. Pakistan’s macroeconomic outlook continues to be grim, actually. So how did this happen?In the words of the Finance Minister, “A friendly Muslim country has confidence in Pakistan and its leadership and deposited $1.5 billion in the PDF[Pakistan Development Fund].” While government officials have been fairly tight-lipped about which “friendly Muslim country” has deferred oil payments and put a large wad of cash into Pakistan’s coffers, we’ll hazard a guess.Saudi Arabia recently secured Pakistan’s support in its campaign to dethrone Assad in Syria. Pakistan is to provide anti-tank and anti-aircraft missiles as well as weapons training. Given the state of Pakistan’s economy, its demands have been fairly obvious: deferred payments and subsidies on oil imports, access to Saudi markets, and investment. Lo and behold, a few weeks after the joint statement between the Pakistani and Saudi Defense Ministers, a “mysterious” tranche of $1.5 billion shows up in Pakistan.Nawaz is currently reaping the short-term rewards of a policy shift that is certain to harm his country in the future. The rupee cannot be stable under the current arrangement for long. Pakistan needs painful macroeconomic reforms. But more importantly, involvement in the Syrian quagmire, no matter how large the size of the payoff, will only come back to haunt Pakistan.