Hot money is the short term investment that is behind the positive indicators of the economy of Pakistan.
But in fact, it’s killing our economy.
Here is how it works.
Usually, Euro bonds and US treasury bills are floated at 7% or 8% interest rate.
But the State Bank of Pakistan has set the interest rate at 13.25%.
This is lucrative, and it brought in the foreign investment in Pakistan at a record pace.
The investment is in the short term bonds for as low as three months, and investors are free to take their money whenever they want.
Hot money does benefit the economy in the short run as the State Bank reserves are now more than 11 billion US dollars.
But it severely affects the economy in the long run. As the interest payment is made in dollars, and there is not much economic activity to support the idea.
Hot money increases the debt burden and causes a high inflation rate and low economic activity.
This is a move that is backed by the IMF for countries facing an economic crisis. The State bank governor Mr. Reza Baqir is the master behind this move.
The short term benefits of hot money will cost us in the long run and will take us to a point of no return.
So we expect Prime Minister Khan to take a personal interest. And work out a 5 to 10-year plan to save the economy from the devastating effects of interest.