- Says Pakistan stands out in how poorly its median citizen fares on basic needs such as education and health, even when compared to countries with similar income per capita
Renowned economist Atif Mian shared in detail concerns over Pakistan’s economic situation, saying that the country’s “economy is in deep crisis”, while calling for a “political grand bargain” to overcome the current quagmire.
Taking to social media, Atif in a series of tweets on Wednesday said that the country is effectively shut off from private capital markets despite a high spread on debt, which ranges around 16%.
"Pakistan's economy is in deep crisis," he said in his first tweet. "The spread on $ debt (16%+) is in range where the number only matters for speculators now, the country is effectively shut off from private capital markets.
"Rupee has lost 20% of its value in 3 months, while current account remains negative and $ rollovers coming due."
He said the rot runs deep, stressing on the economy's structural issues that remain unaddressed.
His remarks come as Pakistan‘s economic situation continued to worsen with the country’s central bank also admitting the ongoing fiscal year 2022-23 as the most challenging for the country’s economy and even worse compared to the challenge of the Covid-19 pandemic because of the global commodity prices and the geopolitical situation. The ongoing situation has seen the rupee hit fresh lows, losing nearly 7.5% in the inter-bank market across 5 sessions alone.
Meanwhile, elaborating on the causes of Pakistan’s current economic predicament, Atif said the situation remains precarious as the resumption of the International Monetary Fund (IMF) is crucial for the country.
“If assistance does not come through - starting with the IMF - the feared ‘doom loop’ of financial markets constricting the real economy will only intensify,” he said, adding that this would not lead to “default per se - but has terrible consequences for the people”.
The economist said that the political elite has left Pakistan completely at the mercy of foreign assistance, as the country remains dependent on imports to meet its energy and other basic needs including food.
“So the key issue will be ‘rationing’, in the short run, no price can clear these markets, because Pakistan cannot produce these essentials, and who else will pay for it?” he said.
Highlighting the geopolitical situation, Atif said that Russia’s invasion of Ukraine led oil prices to sky rocket, however, he stressed that Pakistan’s situation remains worse off than its counterparts including Bangladesh, which purchases the same oil.
“One reason is that while oil prices were going higher, Pakistan was selling some of the cheapest oil in the world domestically!” he said.
He questioned the previous government of Pakistan Tehreek-e-Insaf (PTI) over its decision to reduce price domestically and subsidising it.
“The decision to lower prices was purely political, to gain public support, and perhaps more importantly set a minefield for the incoming Pakistan Muslim League-Nawaz (PML-N) government,” he said. “The politics trumped the national interest ... and the irony is that the decision worked politically.”
The economist expressed concern that the toughest challenge Pakistan faces is the loss of credibility, which needed to be brought back for its investors and own people.
“There has to be some minimum set of rules that everyone - the main parties, and the ‘establishment’ will legitimately agree on,” stated Atif.
He said that the country needs a grand political bargain.
"The powerful are knee-deep in unproductive, rent-seeking sectors like real estate and sugar. That must change. The taxation and incentive structure must favor productive activities over unproductive ones - and open up the economy to women," he added.
The economist also highlighted that the onset of the pandemic helped Pakistan's economy by taking "the pressure off external demand".
"People weren't driving as much, the rich weren't flying and so on. The result was a temporary current account surplus.
"It was temporary though, and deeper structure imbalance was just waiting to whiplash the economy once Covid receded. You can see that by coming Pakistan's swing in current account with that of its peers."
He said dynamics for Pakistan's economy were quite negative even before the Russian oil shock hit, and the oil shock and PTI's response it only hastened the fall.