Atif Mian, a noted Pakistani-American economist and currently a professor of Economics, Public Policy, and Finance at Princeton University, slammed government policies as the South Asian economy continues to struggle with a growing balance of payment crisis.
In a series of tweets on Wednesday, in which he compared Ghana, Sri Lanka and Pakistan, and what it teaches us about dealing with crises, Atif highlighted issues related to government policies.
The economist, who also serves as the Director of the Julis-Rabinowitz Center for Public Policy and Finance at the Princeton School of Public and International Affairs, said that both Ghana and Sri Lanka defaulted during the last two years, while Pakistan did not.
However, “currency devalued by 1/2 for both Pakistan and Ghana, and 1/3rd for Sri Lanka.”
“So Pakistan currency has devalued significantly more than Sri Lanka’s (SL),” he said.
“More importantly, let’s compare Pakistan’s trajectory with that of SL and Ghana after they default,” said the economists while sharing graphical representations of the currency trajectory of Sri Lanka and Ghana post-default, which showed that the currencies stabilised after entering into restructuring.
“Notice how both Ghana and SL currencies have stabilized post-default as they entered restructuring programs,” said Atif.
On the other hand, the Pakistani rupee has been on a “downward trajectory over the two years, and it continues to go down”.
“There is no end in sight,” said Atif, while sharing graphical representation of the Pakistani rupee trajectory since May 2021.
“What’s the lesson? To thump your chest and say ‘see we have not defaulted’ means nothing if you continue to ignore the underlying crisis,” he said, adding that “the only thing worse than indecisiveness in the face of a crisis is incompetence”.
Despite challenges, Pakistan to avert default: report
Marred by growing political instability, a continuous delay in resumption of the crucial International Monetary Fund (IMF) programme, and dwindling foreign exchange reserves, the Pakistani currency has been at a receiving end for the last two years.
The currency has lost over 40% of its value against the US dollar in the ongoing fiscal year alone. At present, the rupee is being traded at 287.20 in the inter-bank. Meanwhile, in the open-market, the currency is available in the range of 308-310 level.
Meanwhile, Atif, while giving an example of petroleum prices, 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.”
“At the same time, the government is restricting imports of raw materials needed for production and export. 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,” he said.
“This is just one example of the nonsensical policy choices being made,” added the economist.
IMF is baulking probably due to political unrest in Pakistan, says Bloomberg
Atif concluded that in order to address a balance of payment crisis the country needs to “act decisively, restructure aggressively, and take courageous decisions that demonstrate a clear break from the past”.