May 28, 2023 (MLN): The Ministry of Finance has termed the criticism of Atif Mian, who is a well-respected economist, purely theoretical and stated, "The gentleman has no idea how the practical economics operates in practice."
Atif Mian has criticized Pakistan's economic policy terming it 'non-sensical'. While comparing the experience of Ghana and Sri Lanka, he has concluded that Pakistan should "take decisive actions, aggressively restructure and take courageous actions".
This is a veiled suggestion to declare a default. This is a misplaced criticism made from a purely theoretical point of view, he said.
"His comparison with Ghana and Sri Lanka, is also misplaced given the incomparably small size of their economies and populations relative to Pakistan," the statement by the finance ministry reads.
Fundamentally, he didn't care to analyze the structure of Pakistan's debt which has less than a 10% share in commercial bonds/sukuks, with the next maturity falling due in April 2024, it added.
The rest of the debt is owed to the multilateral and bilateral creditors. Both these classes of creditors are engaged with Pakistan and none has assessed that Pakistan should default, it said.
The author has completely ignored the deep-rooted reforms Pakistan has undertaken in the last 9 months. These included market exchange rate, interest rate adjustments, mid- year taxation to improve fiscal position, imposition of a levy on petroleum products, and non-monetization of fiscal deficit.
All these actions were undertaken under an IMF program which was unprecedented as never in the country's history such front-loaded conditionality was imposed. However, we accomplished it through heroic efforts.
It is unfortunate that despite such actions, the staff-level agreement (SLA) has still not been reached delaying the release of the 9th review tranche.
The statement further added that the country is surviving economically and would continue to survive. What Pakistan has done is decisive and courageous; we would continue to walk the road to reforms to stabilize our economy and, in the course of time, to steer it toward the path of sustainable growth.
The comparison of the nominal exchange rate is also unwarranted. Pakistan's real exchange rate is currently estimated to be 15% undervalued. The nominal rate is the result of speculation, market manipulation, and general distraught from political instability.
The undervalued exchange rate is reflective of the fact that underlying fundamentals are improving, the statement clarified.
Pakistan has historically sold petroleum products at significantly lower prices than regional countries. With a petroleum levy of Rs.50 achieved, this doesn't involve any subsidy from the government.
It would be unwise to levy additional tax on consumers on top of prices that have doubled in less than a year, especially when they are facing rising inflation.
"The author has cited this as an example of non-sensical policies. This is simply a misplaced example," it added.
Pakistan's economy has suffered because of international shocks of COVID, the Ukraine War, and the devastating floods of last summer.
The challenges that resulted from an overly heated economy, bequeathed to us in April 2022, and the breach of IMF conditionality on the eve of the departure of the PTI government, have been overcome by the present government. The current account deficit, the primary indicator of balance of payments imbalance has firmly been brought down from a high of $17.5 billion to around $3.2 billion.
This achievement is a reflection of bringing the economy to within its latent strengths and not on borrowed resources.
The author is also oblivious to the unprecedented political challenges faced by the country.
"We are not living in calm and serene times. The present situation has major repercussions for the economy. With political stability likely to emerge soon, there would be a major economic turnaround," it read.
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Posted on: 2023-05-28T19:07:58+05:00