- Economist's statement is a misplaced criticism made from a purely theoretical point of view, says Finance Ministry
The Ministry of Finance on Saturday strongly hit back against recent comments made by Atif Mian, a noted Pakistani-American economist, saying that he “has no idea how the practical economics operates in practice”.
The remarks come after Atif Mian criticised the government’s economic policies and termed them as ‘nonsensical’.
In a series of tweets on Wednesday, while comparing the experience of Ghana and Sri Lanka, he concluded that Pakistan should “take decisive actions, aggressively restructure and take courageous actions”.
In response, the Ministry of Finance said his statement “is a veiled suggestion to declare default”.
“This is a misplaced criticism made from a purely theoretical point of view. The gentleman has no idea how the practical economics operates in practice.
“His comparison with Ghana and Sri Lanka is also misplaced given the incomparably small size of their economies and populations relative to Pakistan,” said the finance ministry in its rebuttal.
“Fundamentally, he (Atif) didn’t care to analyse the structure of Pakistan’s debt which has less than 10% share in commercial bonds/sukuks, with the next maturity falling due in April 2024.
“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,” assured the Ministry of Finance.
It added that the economist completely “ignored the deep-rooted reforms Pakistan has undertaken in the last nine months”.
“These included market exchange rate, interest rate adjustments, mid-year taxation to improve fiscal position, imposition of levy on petroleum products and non-monetisation of fiscal deficit.
“All these actions were undertaken under an International Monetary Fund (IMF) programme which was unprecedented as never in country’s history such front-loaded conditionality was imposed.
“However, we accomplished it through heroic efforts.”
The ministry said that it is “unfortunate” that despite such actions, the staff level agreement (SLA) with the IMF has still not been reached yet, delaying the release of 9th review tranche.
“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 toward the path of sustainable growth,” it said.
On the comparison of nominal exchange rate, the ministry said that Atif’s comments are 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,” it said.
The Pakistani rupee settled at 285.15 in the inter-bank on Friday. However, in the open market, the US dollar was being traded in the range of 308-311 level against the greenback, as the gap widened due to foreign currency shortage.
Meanwhile, Atif, while giving an example of petroleum prices, in his tweets on Wednesday said “Pakistan is selling petrol at a price that is 20%-25% below the price it is sold in Ghana, Sri Lanka, India, or Bangladesh.”
“This is just one example of the nonsensical policy choices being made,” the economist said.
To this, the Ministry of Finance responded that Pakistan has historically sold petroleum products at significantly 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 nonsensical policies. This is simply a misplaced example,” it said.
The ministry was of the view that Pakistan’s current economic crisis is due to international shocks of COVID, Ukraine war and 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 departure of Pakistan Tehreek-e-Insaf (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,” it said.
The ministry said Atif “is also oblivious to unprecedented political challenges faced by the country”.
“The present situation has major repercussions for the economy. With political stability likely to emerge soon, there would be a major economic turnaround,” it concluded.