Credit where it is due. Finance Minister Muhammad Aurangzeb deserves congratulations for identifying an instrument that few in Pakistan have heard of, fewer have studied and perhaps no previous government had seriously pursued: the United States Exchange Stabilization Fund (ESF).
The request: a $10 billion bilateral exchange-stabilisation facility.The purpose: protect SBP reserves. Stabilise the rupee. Reduce risk. Restore access to global capital markets.
Plain fact: Pakistan is not asking for a grant. It is asking for a financial shield. Not $10 billion to spend. Not $10 billion for development projects. Not $10 billion for subsidies. A backstop. A dollar line. A reserve defence mechanism.
Look at Chinese rollovers, Saudi deposits, IMF tranches and UAE support -- all are borrowed, deposited, rolled over or released in installments. Every few months, another deadline. Another negotiation. Another rescue.
Look closer: An exchange-stabilisation facility could change the psychology of the market.
Here’s how the market-chain works: Currencies weaken when reserves fall. Currencies also weaken when markets fear that reserves may fall. Fear creates dollar buying. Dollar buying creates pressure. Pressure creates depreciation. Depreciation creates inflation.
To be certain, a credible $10 billion backstop will interrupt that chain. First benefit: stronger reserves. Importers would know. Lenders would know. Investors would know. Speculators would know.
Second benefit: a steadier rupee. Not an artificially fixed rupee. Not a politically managed rupee. A less vulnerable rupee.Third benefit: lower borrowing costs. Pakistan borrows at high rates because lenders fear that dollars may not be available when repayment becomes due. That fear is called risk. Higher risk means higher interest. Higher interest means more debt. More debt means more taxes. A credible US-backed facility will reduce that risk premium.
Fourth benefit: better market access. Fifth benefit: fewer emergency rescues. Sixth benefit: geopolitical weight.Financial history has it that the US does not routinely offer exchange-stabilisation facilities. If approved, this would not be ordinary financial support. It would be a strategic signal. A signal to international investors. A signal to rating agencies. A signal to the IMF. Yes, a signal to Beijing, Riyadh and Abu Dhabi.
First message: Pakistan matters. Second message: Pakistan has options.The facility has not been approved. The structure is unknown. The pricing is unknown. But the idea is sound. And the finance minister deserves credit for three things. One-for looking beyond the usual lenders. Two-for finding a new instrument. Three-for converting diplomacy into economic possibility.The ESF will not make Pakistan rich. It can make Pakistan harder to destabilise. That is the real $10 billion idea.
The writer is an Islamabad-based columnist.
