Financial expert debunks Dar, Dagha allegations against SBP

[Morpheus]

Financial expert debunks Dar, Dagha allegations against SBP

• “Rs7 trillion bonds were sold a day before rate cuts.. on fixed rates! The way they are doing this debt profiling is the biggest scam in our country’s history,” alleged Dagha.
  
  
• “This decision was based on the consideration that unrestrained borrowing from central bank is globally recognized as a bad practice which encourages fiscal indiscipline," says the expert.
  

Ali Ahmed July 02, 2020
Former Federal Secretary Younus Dagha has leveled serious allegations on the State Bank of Pakistan (SBP), calling the central bank’s recent decision regarding bonds auction and debt profiling as ‘the biggest scam’ in our country’s history.

“Rs7 trillion bonds were sold a day before rate cuts.. on fixed rates! The way they are doing this debt profiling is the biggest scam in our country’s history,” alleged Dagha in a series of tweets on social media.

The former secretary commerce said that if you study the day of last auction and rate changes and the amount of money involved i.e Rs7tr, “this is an unbelievable and horrendous white-collar crime enough to sink the economy.”

“Floating of PIBs at fixed rate when interest rates were high was a crime. In the last auction government issued floating rate bonds, whereas under the low rate regime, fixed rate would have been beneficial for government,” said Dagha.

However, a financial expert has dismissed these allegations. The expert, who heads a prestigious research institute elaborated that at the end of FY19, the total debt of Rs7.6 trillion owed to SBP in the form of 6-month T-bills was converted into long-term debt consisting of a small proportion of T-bills (Rs 0.6 trillion) maturing during FY20, relatively larger proportion of fixed-rate PIBs (Rs 1.8 trillion) maturing over the next four financial years i.e. FY21 to FY24 and a much larger proportion of floating-rate PIBs (Rs 5.2 trillion) maturing after ten years in FY29. By the end of FY20, GOP will have retired Rs 0.6 trillion to SBP and the outstanding debt from SBP will decrease to Rs 7.0 trillion.

The expert added that towards the end of FY19, the government decided that the short-term debt obtained from SBP over the years shall be converted into long-term debt and retired over the next ten financial years.

“This decision was based on the consideration that unrestrained borrowing from central bank is globally recognized as a bad practice which encourages fiscal indiscipline; leads to wider macroeconomic problems such as inflation (by increasing money supply), disintermediation in domestic financial markets (as government avoids borrowing in the financial markets), distortion of yield curve (government’s borrowing rates in various tenors do not reflect market realities) etc.; and prevents development of capital markets by constraining the growth of the market and adversely impacting the confidence of market participants,” said the expert.

The expert was of the view that instead of commending the government for following the international best practices, which was appreciated by international credit rating agencies; multilateral institutions such as IMF, World Bank, ADB etc, certain individuals, are trying to interpret these decisions in a negative light and mislead the public.

“It is indeed deplorable and shows their poor understanding of the subject matter.”

In another tweet, which was posted by both Dagha and Former Finance Minister Ishaq Dar called for investigation to be made into SBPs debt management since May 2019, after SBP's MPC reduced policy rate to 7pc, a day after PIB



“After hot money, now debt reprofiling of Rs7tr debt of GoP being shifted from SBP to commercial banks, another load on the budget. Long term bonds sold by SBP on 24 June: 5 yrs @8.44% and10 yrs @8.95%. The next day, 25 June SBP's MPC reduced policy rate to 7%. If an honest investigation is made into the debt management since May 2019, people will forget about any past scandal, the numbers of losses to the exchequer are so huge.”



The expert also dismissed these allegations regarding the PIB auction and SBPs decision to lower the policy rate a day after the auction, saying that it needs to be understood that borrowing is a function of Ministry of Finance (MOF) whereas setting the monetary policy and the Policy Rate is the function of SBP.

“International best practices require the two agencies to act independently and professionally based on their own plans and considerations so that neither of these agencies is able to influence the decisions of the other,” the expert said.

The fact that MOF was unaware of any imminent reduction in Policy Rate illustrates that MOF and SBP are acting independently in exercise of their respective functions, pointed the expert.

This independence is essential for the country’s economic and financial stability, opined the expert.

“A few analysts and journalists have appreciated the independent decisions of MOF and SBP as a healthy trend which is good for efficient functioning of financial markets. However, the same disgruntled individuals, who are against GOP’s decision to stop unrestrained borrowing from SBP and to gradually retire the debt owed to SBP, are criticizing SBP’s recent decision to reduce the Policy Rate by suggesting that if the decision was announced two days earlier, the borrowing costs of PIBs issued by GOP through public auction on 23 June 2020 could be somewhat lower and that this decision was made after the PIB auction in order to benefit certain investors.

“Their criticism once again indicates that they are acting either out of ignorance or malice,” the expert highlighted.

https://www.brecorder.com/news/40002195/financial-expert-debunks-dar-dagha-allegations-against-sbp

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[blueazure]

the way interest rates were jacked up to 13 percent ( all the while PKR was devalued) and t bills sold worth billions, all is very suspicious .

 

[volatile]

Very simple solution .Mr Hafeez Sheikh , Mr Raza Baqir should voluntarily put there names in ECL as there tenure ends and we will see who was right ,the so called analysts are IMF paid

 

[blueazure]

Very simple solution .Mr Hafeez Sheikh , Mr Raza Baqir should voluntarily put there names in ECL as there tenure ends and we will see who was right ,the so called analysts are IMF paid

politicans, even generals are tried in courts and publicly named, yet no one can touch bankers

bankers loot and destroy whole nations and quietly slip away ,


they are literally scum of this earth /

 

[The Accountant]

It is highly unlikely that MoF had no information about reduction in interest rates.

And he didn't know then its really a question mark on his performance. At the time of doing such a massive transaction, all possibilities are generally considered in which possible reduction in interest rate is the most common factor.

 

[volatile]

oliticans, even generals are tried in courts and publicly named, yet no one can touch bankers

bankers loot and destroy whole nations and quietly slip away ,


they are literally scum of this earth /

bhai these 2 will pack there bags as soon as thus Govt will be over ,Mark my words ,both have dual nationalities ,both families are not in Pakistan ,no assets nothing to held upon

It is highly unlikely that MoF had no information about reduction in interest rates.

And he didn't know then its really a question mark on his performance. At the time of doing such a massive transaction, all possibilities are generally considered in which possible reduction in interest rate is the most common factor.

They have all information even they are the ones who recommend rates . one day earlier selling of long term T bills at 8.75 causing 128 Billion loss in whole tenure ,the rate is fixed

 

[The Accountant]

I

bhai these 2 will pack there bags as soon as thus Govt will be over ,Mark my words ,both have dual nationalities ,both families are not in Pakistan ,no assets nothing to held upon


They have all information even they are the ones who recommend rates . one day earlier selling of long term T bills at 8.75 causing 128 Billion loss in whole tenure ,the rate is fixed

agreed this needs to be investigated.

 

[FOOLS_NIGHTMARE]

Very simple solution .Mr Hafeez Sheikh , Mr Raza Baqir should voluntarily put there names in ECL

These parachute Economists should be put behind the bars along with their handlers. The only thing they are good at is create INFLATION and bring misery to the poor folks.

 

[The Accountant]

These parachute Economists should be put behind the bars along with their handlers. The only thing they are good at is create INFLATION and bring misery to the poor folks.

Looking at inflation independently gives you a false picture.

For example 2009 inflation was backed by fuel prices that had gone upto 140 dollars a barrel. Prices before even corona were hovering between 50 to 60 dollars even after 11 years.

2019 to 2020 inflation is attributable to huge current account deficit of 19 billion dollars due to fixed exchange rate policy of PMLN and as a result IM government had no option but to let rupee depreciate and reduce domestic consumption by increasing interest rates and both of these reactionary steps resulted in inflation.

Nevertheless the current issue of issuing bond a day before increase in interest rate is a criminal act and needs to be investigated and culprit needs to be punished.

 

[FOOLS_NIGHTMARE]

2019 to 2020 inflation is attributable to huge current account deficit of 19 billion dollars

Current account deficits never account to Inflationary pressures, infact economies thrive on Manufacturing growth mostly responsible for the deficits. Most economies with larger deficits have inflation figures around 1.5-3.0.
https://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance

 

[The Accountant]

Current account deficits never account to Inflationary pressures, infact economies thrive on Manufacturing growth mostly responsible for the deficits. Most economies with larger deficits have inflation figures around 1.5-3.0.
https://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance

Sir u need to have basic understanding to give expert opinion.

Current account deficit of india is 57 billion dollars for a particular year whereas they have foreign currency reserves of 500 billion. They have economy of 2.8 trillion dollars.

Pakistan economy is 285 billion with 16 billion in teserves and due payment of loan of 9 billion deficit of 20 billion means default.

USA case is entirely different as USD is world reserve currency. So they can issue as much dollars as they want to finance current account deficit

 

[volatile]

Even i agree but to give a fair chance it has to be looked by various parameters as well e.g GDP growth ,reserves ,current account deficit ,balance of trade

 

[FOOLS_NIGHTMARE]

Sir u need to have basic understanding to give expert opinion.

Current account deficit of india is 57 billion dollars for a particular year whereas they have foreign currency reserves of 500 billion. They have economy of 2.8 trillion dollars.

Pakistan economy is 285 billion with 16 billion in teserves and due payment of loan of 9 billion deficit of 20 billion means default.

USA case is entirely different as USD is world reserve currency. So they can issue as much dollars as they want to finance current account deficit

Trade deficits are not that monstrous if they have reserves to balance them. For a growing economy you have no alternatives, need machinery to enhance manufacturing outputs in return get a better GDP,more taxes, more job opportunities and more fiscal space etc. You choke the trade you kill everything downstream, this is what Baqir did to Egypt. Raised the Forex rate,interest rate,inflation rate and killed the growth rate.

 

[The Accountant]

Trade deficits are not that monstrous if they have reserves to balance them. For a growing economy you have no alternatives, need machinery to enhance manufacturing outputs in return get a better GDP,more taxes, more job opportunities and more fiscal space etc. You choke the trade you kill everything downstream, this is what Baqir did to Egypt. Raised the Forex rate,interest rate,inflation rate and killed the growth rate.

U said yourself if u have reserves.

In our case we didnt have reserves ... and loan installment was also due for 9 billion.

No one is stopping trade the focus is to reduce import and increase export ...

Trade deficit was not on account of machinery import as machinery import during the period was just 6 billion out of 53 billion.

Dont we see consumeable goods flood in market from china ... alot of consumeable items were being imported due to lower value of dollars

 

[FOOLS_NIGHTMARE]

U said yourself if u have reserves.

Bad managers ruin the economy.

There are hundreds of graphical representations ,dont want to flood my post. All i am saying is put Hafeez Sheikh, Baqir and their sponsors on the ECL as these cronies dont have an illustrious reputation of fixing the economies in the past.