As the chariots of the economy, the Pak government covets citizens’ gold to increase foreign exchange reserves. Will it keep the country afloat?

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

According to a report by the Pakistani daily The Express Tribune which cites sources in the Ministry of Finance, the proposal was discussed in the Economic Executive Council (EEC) – the body which includes all ministers of economy and the Governor of the Bank of India. State of Pakistan (SBP). .

The government plans to borrow gold bars and biscuits from the coffers of its citizens through commercial banks against a negotiable instrument at a discount to the owner of the gold with interest paid on the gold borrowed. The idea of ​​borrowing gold from citizens did not originally come to Imran Khan. This was initially started by an expat – Tahir Mehmood. Khan then sent it back to the EEC, which then refined it to increase reserves and bring more liquidity to the market against gold, which is considered an idle asset.

As the proposal stands, after “borrowing” gold from 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 $3.8 billion, according to its statement of reserves as of December 31, 2021.

The borrowed gold will then be monetized by the SBP to increase foreign exchange reserves that have been built up by expensive foreign borrowing. According to media reports, Pakistan’s foreign exchange reserves are continuously declining despite lending more than $5 billion from bilateral and multilateral creditors in the past three months. These include a $3 billion loan from Saudi Arabia, $1 billion from the IMF and another $1 billion loan through the Sukuk bond at a record interest rate. 7.95% – which is considered the most expensive debt in Pakistan’s history. and is the highest cost the cash-strapped country has ever agreed to pay in its history on an Islamic bond. Furthermore, Imran Khan’s government also agreed to mortgage part of the Lahore-Islamabad highway in return for the loan.

However, according to the SBP, reserves continue to decline with lower levels of exports and higher imports as well as increasing repayments of foreign loans. They fell $398 million (1.8%) in the week ending January 28, then fell another $241 million to $17.095 billion in the week ending February 11 .

According to EEC estimates, the Pakistanis own about 5,000 tons of gold bars and biscuits. Speaking of gold and citizens, jewelers have also been on the radar. The EEC is said to have discussed the low tax contributions of jewelers – out of approximately 36,000 jewelers in the country, only around 50 are registered for sales tax purposes with the FBR (Federal Board of Revenue). And just last month, Imran Khan’s government imposed a 17% sales tax on the sale of gold in the form of cookies and jewelry. Interestingly, he now covets the same gold from the same people to save himself.

With SBP’s 2.01 million troy ounces of fine gold reserves, if one were to assume that the government is able to borrow even half of the 5,000 tons of gold bullion and biscuits that he estimates his citizens hold would add another whopping 80 million troy ounces of the precious metal to his reserves and largely alleviate his financial difficulties. However, the question now is whether the citizens can bring themselves to trust Imran Khan’s government with their hard-earned gold.