As economy tanks, Pak govt covets citizen’s gold to boost forex reserves. Will this keep the country afloat? – Times Now

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The Imran Khan government has a new proposal to boost the country’s foreign exchange reserves. The proposal involves more borrowing for the Pakistan economy that is already crippled under rising debts, but this time the plan is to borrow gold from its citizens.

According to a report in Pakistani daily The Express Tribune that cites sources in the Ministry of Finance, the proposal has been discussed in the Economic Executive Council (EEC) — the body which comprises all economic ministers and the State Bank of Pakistan (SBP) governor.

The government plans to borrow gold bars and biscuits from the vault of its citizens through the commercial banks against a negotiable discounted instrument to the gold owner along with an interest paid on the gold borrowed. The idea to borrow gold from citizens did not come to Imran Khan originally. This was initially floated by an expatriate — Tahir Mehmood. Khan then referred it to the EEC, which then fine-tuned it to increase reserves and bring more cash into the market against gold, which is considered to be an idle asset.

As the proposal now stands, after ‘borrowing’ gold from the citizens, the commercial bank will deposit it with the SBP — the country’s central bank. The SBP already has 2.01 million fine troy ounces of gold reserves valued at USD 3.8 billion, according to its reserves position statement as of December 31, 2021.

The borrowed gold will be then monetised by SBP to increase the foreign exchange reserves which have been built by expensive foreign loans. According to media reports, Pakistan’s foreign exchange reserves are continuously on a downfall despite loans over USD 5 billion from bilateral and multilateral creditors in the past three months. These include a loan of USD 3 billion from Saudi Arabia, USD 1 billion from the IMF, and another USD 1 billion loan through the Sukuk bond at a record 7.95 per cent interest rate — what is considered to be the most expensive debt in Pakistan’s history and is the highest cost that the cash-strapped country has ever agreed to pay in its history on an Islamic bond. Further, the Imran Khan government has also agreed to mortgage a portion of the Lahore-Islamabad Motorway in return for the loan.

However, as per SBP, the reserves continue to dwindle with lower levels of exports and higher imports along with growing foreign loans repayments. They fell by USD 398 million (1.8 per cent) in the week ending January 28 and then fell further by USD 241 million to USD 17.095 billion during the week ended on Feb 11.

According to EEC’s estimates, Pakistani people have roughly 5,000 tonnes of gold bars and biscuits. Speaking of gold and citizens, the jewellers have also been on the radar. The EEC reportedly discussed the low tax contributions from the jewellers — of about 36,000 jewellers in the country, only around 50 are registered for sales tax purposes with the FBR (Federal Board of Revenue). And just last month, the Imran Khan government slapped a 17 per cent sales tax on the sale of gold as biscuits and jewellery. Interestingly, it is now coveting the same gold from the same people to save itself.

With SBP’s 2.01 million fine troy ounces of gold reserves, if one were to assume that the government is able to ‘borrow’ even half of the 5,000 tonnes of gold bars and biscuits that it estimates its citizens to be holding, it would add another whopping 80 million troy ounces of the precious metal to its reserves and largely mitigate its financial woes. However, the question now is whether the citizens can bring themselves to trust the Imran Khan government with their hard-earned gold.

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