'All roads led to IMF': Asad Umar, economists discuss country's financial crisis

Published June 2, 2019
(L-R): Khurram Hussain, Kaiser Bengali, Akbar Zaidi and Asad Umar, discussing the economic future of Pakistan at an event in Karachi on June 2. — Photo by author
(L-R): Khurram Hussain, Kaiser Bengali, Akbar Zaidi and Asad Umar, discussing the economic future of Pakistan at an event in Karachi on June 2. — Photo by author

In a panel discussion with economists on the economic future of Pakistan, former finance minister Asad Umar acknowledged that striking a deal with the International Monetary Fund (IMF) was unavoidable. He, however, defended the government's attempts at procuring a different route for the economy prior to the agreement.

Umar, who currently oversees the National Assembly Committee on Finance, was speaking at an event in Karachi titled "Ye Watan Humaara Hai 3: IMF & the Economic Future of Pakistan" alongside economists Kaiser Bengali and Akbar Zaidi. The event was moderated by Khurram Hussain, business and economy journalist.

According to Umar when the PTI came into power, he had repeatedly said that no option, including the IMF, could be ruled out.

"We had been saying this prior to the election, so we had the political capital available to simply sign an IMF agreement right off the bat," he argued.

The government last month reached an agreement with the IMF on a $6 billion bailout package for Pakistan, following which it received flak from the opposition who termed it "anti-public".

"This was the general consensus that going to the IMF was unavoidable," said Umar. "Maybe because we have always gone to the IMF and because the balance of payment crisis we were facing this time was unprecedented.

"We did exactly what we had fought the election on. We said we would explore all options. Ten days after I took oath, we sent a message to IMF that we have not yet decided to take a loan but we are a member country and wish to discuss our options.

"Within a month of the PTI coming into power, a team had arrived and we were also doing our homework alongside."

"Then the US foreign minister went and declared that they will not allow the use of this loan for the settlement of Chinese debt," Umar added. "Had we not explored other options, it would have been absolute recklessness."

Asad Umar defending the economic decisions taken by the government in the past ten months. — Photo by author
Asad Umar defending the economic decisions taken by the government in the past ten months. — Photo by author

"To create time, options, negotiating space, we attempted to arrange additional funding in which Prime Minister Imran Khan was incredibly successful and we were able to raise significant amount of funds."

Umar said that he agreed with Zaidi's remarks, made earlier in the discussion, that the conditions of the IMF deal were more stringent than ever before. He said, however, that the conditions put forth by the Fund in October, when they first arrived in Pakistan for discussions, were far more strict.

"Prior action 150 basis points [...] discount rate improved. You know what was their [IMF's] demand? 600 basis points prior action. I don't even want to tell you what they thought should happen to the rupee. They projected that if you [enter into the programme], the inflation this year would be 19 per cent. The discount rate was supposed to go to 21 to 22 per cent."

No choice but IMF

Economist Kaiser Bengali also agreed that IMF seemed to be the only probable route.

"With a foreign exchange gap as large as it was, there was no choice for us but [to turn to] the IMF. The shuffled diplomacy between Riyadh, Beijing, and Dubai was meaningless, we all knew there would be no result out of this," he said, referring to Prime Minister Imran's diplomatic efforts prior to the IMF agreement.

"All financing sources never want to talk to you unless and until you have IMF clearance. The responsibility for that does not lie with this government but with all prior governments from the last 25-30 years," said Bengali. "If they didn't create such conditions [as are faced by the economy today], then we wouldn't have needed to go to the IMF. The crisis is one that has been deliberately created over the past 20 years."

"After the 1999 military takeover, an imported finance minister who then became the prime minister was brought in who brought an imported team of technocrats who were all employees of international financial organisations. They deliberately opened up the country to such an extent that the foreign exchange gap we are facing today was unreachable without approaching the IMF. I am using the word deliberate because Pakistan has been led up the garden path to this point so that we can be blackmailed, and we are being blackmailed and the story is yet to unfold," said Bengali.

Umar as finance minister

Prominent economist Akbar Zaidi commented on Asad Umar's tenure and his unceremonious removal as finance minister.

He said he is of the opinion that Asad Umar was a "khush qismat tareen" [fortunate] man — pausing to lay emphasis on the word 'tareen' prompting the audience to erupt into laughter.

"The primary reason for me saying so is because six months from now, what [Adviser to the Prime Minister on Finance] Hafeez Shaikh is setting out to do to the country and to the economy, in which he [Umar] has no hand, the tumultuous times we are about to face, everyone will say 'Those 10 months of Asad Umar's tenure, where have they gone? Bring them back please'."

"Maybe Imran Khan will say — as he says right now that Pakistan's golden era was Ayub's tenure — that the golden era for Pakistan's economy was Asad Umar's tenure.

"He's saved. He dodged a bullet there, which is why he is sitting here all relaxed," quipped Zaidi.

"If Hafeez Shaikh does even one-tenth of what he did when he was part of the Zardari government, then you can only imagine where we are headed. Things can be much worse now."

"Having said that, I will also say that he [Umar] cannot be absolved from all responsibility. I think that where our economy stands today, perhaps has partly to do with Asad Umar, and maybe with Imran Khan to a large extent, and their economic team, of course, together, are all responsible.

"I will say that when the PML-N tenure ended, figures from July for GDP were reported at 5.8 per cent which was then adjusted to 5.5pc which is not bad; in fact, the highest over the last 13 years. You can say a lot of loans were taken and the current account deficit grew but we must accept that when Imran Khan's government came, the economy did begin to decline," stated Zaidi.

"They got a state of economy which had its merits and demerits, but they have made things worse over the past 10 months; they have not improved them."

"The greatest crime is that they worsened things. PML-N would have rushed to go to the IMF, no doubt [...] PTI had a pride of sorts which has since seen a reduction in some measure, a sense of 'We will fix anything'.

"When a new government comes, it has some leeway — from the people, from the business sectors and in the international arena. The first five months are very important. They tried to secure loans from here and there, and obtained some. And as soon as they received these, the money was spent.

"The government did not decide exactly how to manage the economy. Two mini-budgets came but no such clear strategy emerged on what to do with the economy. And now they were doing what perhaps they would have done earlier, but now the terms are more stringent.

"And I think, a big reason for that is that in the first ten months, the government did not fully understand [the economic situation], which is why they were unable to manage it, which is why they were unable to figure out a solution. And now we are paying the price for it," said Zaidi.


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