Amid Crisis, Pakistan Govt Planning To Borrow People's Gold For Help

Amidst record-high unemployment, inflation and poverty, Pakistan Prime Minister Imran Khan-led government seems desperate for more help. It is now considering a proposal to borrow gold from the people.

The Pakistan government plans to borrow gold bars and biscuits from people, to increase Pakistan's foreign exchange reserves that are continuously on a downfall despite already taking over USD 5 billion as loans from bilateral and multilateral creditors in the past 3 months, according to a media report in PTI yesterday.

This 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, as per what The Express Tribune newspaper reported, citing sources in the Ministry of Finance.

Reuters

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Details Of The Proposal

According to the govt proposal, the commercial banks will issue a negotiable discounted instrument to the gold owner and pay an interest rate on the precious metal. The commercial bank in Pakistan will reportedly deposit the gold with the SBP which can then monetise it to increase the foreign exchange reserves that are already largely built by taking expensive foreign loans.

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The Declining Reserves & Pile Of Debt

Pakistan¡¯s foreign exchange reserves have been witnessing a downfall amidst the economic crisis. Reserves fell by $398 million or 1.8% in the week ended January 28 and then fell by $241 million to $17.095 billion during the week ended on Feb 11th 2022, as per the State Bank of Pakistan (SBP).

And in the past 3 months, the Pakistan government took a USD 3 billion loan from Saudi Arabia, raised the most expensive debt of USD 1 billion in Pakistan's history by pledging motorway and received another USD 1 billion from the IMF. But still, the reserves could not be stabilized due to the lower level of exports and higher imports along with growing foreign loans repayments.

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The Background

The proposal to borrow gold from people against a negotiable instrument had initially been floated by an expatriate, Tahir Mehmood, to Prime Minister Imran Khan.

Pak PM then referred the matter to the EEC that has now fine-tuned it to increase reserves and bring more cash into the market against an idle asset like gold.

In the last EEC meeting, Finance Minister Shaukat Tarin reportedly said that the objective of the gold-based negotiable instruments was to translate gold into foreign currency to enhance foreign exchange reserves.

According to some estimates shared with the EEC, Pak people have roughly 5,000 tonnes of gold bars and biscuits.

The EEC had also discussed the issue of low tax contributions from the jewellers. There are reportedly roughly 36,000 jewellers in the country and only over 50 registered for sales tax purposes with the FBR (Federal Board of Revenue)

Even last month, the Pak government slapped a 17% sales tax on the sale of gold and jewellery, and now it plans to take help from the same asset by borrowing it from its people.

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