The Ministry of Finance on Friday issued a rebuttal to Pakistani-American economist Atif Mian’s criticism of its economic policy, terming it “misplaced” and a “purely theoretical point of view”.
Mian, who is a professor of economics at the prestigious Princeton University and the first Pakistani to rank among the 25 top economists in the world, had compared Pakistan with two other countries — Sri Lanka and Ghana — that have also been facing economic crises.
In a series of tweets, he pointed out that while both Ghana and Sri Lanka had defaulted during the last two years, Pakistan did not but its currency devalued by half, as did Ghana’s while Sri Lanka’s devalued by one-third.
The Pakistani currency, he noted, had devalued significantly more than Sri Lanka’s.
Comparing Pakistan’s trajectory with that of Sri Lanka and Ghana after they defaulted, Mian pointed out that both Ghan*aian and Sri Lankan currencies had stabilised post-default as they ent*ered restru*cturing programmes.
Pakistan’s, however, continued its downward trajectory over the two years, and “it continues to go down” and “there is no end in sight”, he said.
“To thump your chest and say, ‘see we have not defaulted,’ means nothing if you continue to ignore the underlying crisis. The only thing worse than indecisiveness in the face of a crisis is incompetence.
“One example: Pakistan is selling petrol at a price that is 20-25 per cent below the price it is sold in Ghana, Sri Lanka, India or Bangladesh. At the same time, the government is restricting imports of raw materials needed for production and export,” he said.
Mian added: “In other words, the government would rather cut the country’s GDP in order to sell cheap petrol! But then lower GDP will make it more difficult to pay off the debt — leading to more devaluation — more misery — and higher petrol prices in terms of purchasing power.
“This is just one example of the non-sensical policy choices being made. Addressing a BOP (balance of payments) crisis requires that a country acts decisively, restructures aggressively and takes courageous decisions that demonstrate a clear break from the past.”
Responding to his critical analysis, the Ministry of Finance issued a statement saying the “well-respect economist” had made a “veiled suggestion to declare default” with his conclusions.
“This is a misplaced criticism made from a purely theoretical point of view. The gentleman has no idea how practical economics operates in practice,” the ministry said, adding that the comparisons with Ghana and Sri Lanka were also “misplaced” due to the “incomparably small size of their economies and populations relative to Pakistan”.
Mian “did not care to analyse the structure of Pakistan’s debt, which has less than 10pc share in commercial bonds sukuk, with the next maturity falling due in April 2024,” the statement read.
“The rest of the debt is owed to multilateral and bilateral creditors. Both these classes of creditors are engaged with Pakistan and none has assessed that Pakistan should default,” the ministry maintained.
It also said that Mian had “completely ignored the deep-rooted reforms” undertaken in the country in the last nine months, including a “market exchange rate, interest rate adjustments, mid-year taxation to improve the fiscal position, imposition of a levy on petroleum products and non-monetisation of fiscal deficit”.
These measures, the ministry said, were undertaken under an International Monetary Fund (IMF) programme which was “unprecedented as never in country’s history such front-loaded conditionality was imposed”.
It went on to say, “We accomplished this through heroic efforts” and it was unfortunate that a staff-level agreement with the IMF for the release of a $1 billion tranche was delayed despite these efforts.
“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 stabilise our economy and, in course of time, to steer it towards a path of sustainable growth,” the ministry said.
It added that Mian’s comparison of the nominal exchange rate was also “unwarranted”, claiming that Pakistan’s real exchange rate was currently estimated to be 15pc 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,” it maintained.
It added, “Pakistan has historically sold petroleum products at slightly lower prices than regional countries. With petroleum levy of Rs50 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.”
The ministry further said Pakistan’s economy had suffered because of “international shocks” of the Covid pandemic, Russia-Ukraine war and 2022’s devastating floods. Despite that, the statement said, the government had overcome the challenges from an “overly heated economy bequeathed to us in April 2022 and the breach of the IMF conditionality on the eve of departure of the PTI government”.
It maintained that the government had brought the current account deficit down to around $3.2 billion from $17.5bn. “This achievement is a reflection of bringing the economy to within its latent strengths and not on borrowed resources,” it said.
The ministry claimed that Mian was “oblivious to unprecedented political challenges faced by the country”.
“We are not living in calm and serene times,” it said, adding that the present situation had major economic repercussions but “with political stability likely to emerge soon, there would be a major economic turnaround”.
‘Jugarr economics’
Reacting to the ministry’s statement, journalist Khurram Husain said “jugarr (makeshift) economics hits back at academic economics”.
Likewise, Pakistan Initiative at Atlantic Council’s South Asia Centre Director Uzair Younus quipped that the finance ministry “truly does have its priorities in order”.
“Responding to threads by economists sitting abroad while the economy burns to the ground and inflation inflicts generational trauma on millions,” he tweeted.
DAWN
