THE successful auction of two bonds that has raised $2.5bn provides a narrow opportunity for celebration for the beleaguered PML-N government. The auction saw heavy participation by foreign investors, showing that the prevailing political risks have not trumped the positive economic news coming out of the country in the form of a growing economy and heavy investment inflow under the CPEC framework. The shrinkage of the rates at which the bonds were raised, relative to the comparative tenor of US treasury bills, shows that the timing was right, and investors are not attaching any particular risk premium to Pakistani paper. There is reason also to believe the government`s claims that the tactical book-building exercise was handled skilfully, considering how the auction opened at offering rates far higher than what it closed at. There is also not going to be any net increase in public debt because the government intends to sterilise these inflows by retiring an equivalent amount in domestic debt.

But here the good news ends. Success in raising debt should not be hyped excessively. At the end of the day, the bonds have only bought a little more time since they will help reverse some of the slides in the foreign exchange reserves that have been gathering pace since late last year. The important thing is what the government intends to do with that time, because if the ensuing interregnum of relative stability on the external sector is squandered, all that would have been achieved is temporary respite. Having successfully arranged for this inflow, the government now needs to demonstrate that it has the right plans to make productive use of them, and those plans should begin with the growing trade deficit which is eating away at the stability of the external sector. The temporary respite earned on the external sector brings with it a temptation to kick important decisions, for example regarding the exchange rate, further down the line rather than tackling them now. It also creates the illusion that the consumptive binge under way in the country can continue forever, when it is, in fact, unsustainable. The government is beleaguered and hemmed in by a hostile opposition and the legal difficulties of the party leadership, as well as eclipsed by an approaching election. But despite this, the interregnum should be seen as an opportunity to arrest the deterioration in the external sector. Anything less means the celebrations will be short-lived.