Atif Mian, a well-respected economist, has criticized Pakistan’s economicpolicy terming it ‘non-sensical’. While comparing the experience of Ghanaand Sri Lanka, he has concluded that Pakistan should “take decisiveactions, aggressively restructure and take courageous actions”.
This is a veiled suggestion to declare default. This is a misplacedcriticism made from a purely theoretical point of view. The gentleman hasno idea how practical economics operates in practice. His comparison withGhana and Sri Lanka, is also misplaced given the incomparably small size oftheir economies and populations relative to Pakistan.ALSO READ
Fundamentally, he didn’t care to analyze the structure of Pakistan’s debtwhich has less than 10% share in commercial bonds/sukuks, with the nextmaturity falling due in April 2024. The rest of the debt is owed to themultilateral and bilateral creditors. Both these classes of creditors areengaged with Pakistan and none has assessed that Pakistan should default.
The author has completely ignored the deep-rooted reforms Pakistan hasundertaken in the last 9 months. These included market exchange rate,interest rate adjustments, mid-year taxation to improve fiscal position,imposition of levy on petroleum products and non-monetization of fiscaldeficit. All these actions were undertaken under an IMF program which wasunprecedented as never in country’s history such front-loadedconditionality was imposed.
However, we accomplished it through heroic efforts. It is unfortunate thatdespite such actions, the staff level agreement (SLA) has still not beenreached delaying the release of 9th review tranche. The country issurviving economically and would continue to survive. What Pakistan hasdone is decisive and courageous; we would continue to walk the road toreforms to stabilize our economy and, in course of time, to steer it towardthe path of sustainable growth.
Read Top Stories
The comparison of nominal exchange rate is also unwarranted. Pakistan’sreal exchange rate is currently estimated to be 15% undervalued. Thenominal rate is the result of speculation, market manipulation and generaldistraught from political instability. The undervalued exchange rate isreflective of the fact that underlying fundamentals are improving.AL
Pakistan has historically sold petroleum products at significantly lowerprices than regional countries. With petroleum levy of Rs.50 achieved, thisdoesn’t involve any subsidy from the government. It would be unwise to levyadditional tax on consumers on top of prices that have doubled in less thana year, especially when they are facing rising inflation. The author hascited this as an example of non-sensical policies. This is simply amisplaced example.