Finance Minister Ishaq Dar assured investors on Monday that there was no chance Pakistan would default, insisting that the country had a “beautiful future and a resilient economy”.
He made the remarks while addressing a ceremony to mark the first listing of the developmental Real Estate Investment Trust (REIT) on the Pakistan Stock Exchange (PSX).
REITs are investment schemes that collect money from investors and deploy it in real estate projects. They must list on the stock exchange within three years of inception — a feature designed to let small investors take exposure to an otherwise capital-intensive and illiquid real estate market.
“We hear every day that Pakistan will default. How will it default? There is no chance,” the finance minister asserted.
“Yes, we are in a tight [fiscal] position and we do not have $24 billion in reserves which [the PML-N government] left in 2016 but that is not my fault. The fault is in the system and we must ensure that everyone works together for Pakistan’s progress,” he said.
“Pakistan can progress and it will. Pakistan has a beautiful future irrespective of whether I am here or not.”
Dar said that previously, there was speculation that Pakistan would be unable to make its $1bn dollar bond payments. However, even when the payments were made, “these pseudo-intellectuals keep coming,” he rued.
He urged investors to ignore the naysayers and to spread awareness regarding the fact that Pakistan would not default. “I can go against anybody in any discussion and I can prove Pakistan will not default. But we are damaging the country for petty politics and petty objectives.”
He noted that the country’s debt-to-GDP ratio was 74 per cent while the US’ was 110pc and the UK’s 101pc. Dar said he could name a dozen Western countries whose debt-to-GDP ratio was above 100pc but “nobody there says we are in difficulty and a debt trap”.
“We are our own worst enemies,” he said.
The finance minister said “malicious propaganda” needed to be countered as it was making people afraid and they, in turn, were panic-buying gold and US dollars.
“We have serious issues but this does not mean we cannot get out of the storm we are in.”
Exchange rate gap
He also addressed the difference in the USD-PKR exchange rate in the interbank and open markets. He recalled that the markets had “started behaving positively” as soon as he boarded the flight to Pakistan.
“I hadn’t even done anything as I did in 1999 or 2014. We were moving in the right direction and there was a Rs1.5 difference between the interbank and open market rates.”
The finance minister said there were three primary reasons for the worsening situation — the smuggling of the greenback to a neighbouring country, import of wheat and its partial subsidisation, and import of fertilisers which was heavily subsidised. Wheat and fertiliser were also being smuggled, he said.
Dar said he had asked law enforcement agencies to ensure that the smuggling of all three items was stopped, saying that the economy needed to be defended in the same way the country was.
“Law enforcement and intelligence agencies are doing their best,” he assured.
He also implied that the country’s policy rate — which is at a 24-year high of 16pc — should be reduced.
He gave Turkey’s example where inflation was over 60pc but the policy rate was at 9pc. “The State Bank of Pakistan and its Monetary Policy Committee are autonomous,” he noted.
He termed inflation “imported” and linked it to the rupee’s depreciation, while calling for correcting the “games that have been played and experiments that have been done”.
The finance minister said Pakistan would complete the ongoing International Monetary Fund (IMF) programme. The PML-N government was the first one to complete an IMF programme in 2016, he said, adding that regardless of the difficult conditions the previous government had agreed with the IMF, he would make efforts to complete the programme a second time.
“They [agreements by previous PTI-led government] are sovereign commitments and should be delivered and we are delivering them.
“My team’s effort will be to complete the programme for the second time. But Pakistan’s people should not be taken hostage. We will do political management so that the burden on the public is reduced. Since I took over, my stance has been that if we can’t give relief, we should not increase the burden as well. We have delivered on our commitment on PDL (petroleum development levy) but we have reduced prices thrice,” he noted.
“We have taken some policy measures to improve the situation and decrease inflation; trade deficit and current account balance have improved. There is no magic wand to immediately improve things. Our [mechanism] is in place. We will not default. Everything is under control,” he iterated.
Dar said Pakistan had been declared a macro-economically unstable country in 2013, multilateral lenders and financial institutions were not willing to give even $1 to it and there was a perception that whichever political party won the general elections would declare default within 6-7 months.
However, within three years, the Consumer Price Index, through which inflation is measured, was at 4pc, food inflation at 2pc, policy rate 5pc and growth at over 6pc while the stock market was the best in South Asia and fifth-best globally, he said.
“We should reflect on why Pakistan has reached this point. Pakistan was predicted to be the 18th-biggest economy by 2030. Why have we reached this stage today where we are running after even $1 billion? I believe introspection is needed. We should not repeat the misadventures and experiments because of which we are standing here today.”
While acknowledging that the external account was “the biggest challenge”, he assured that the government was managing the situation. “We are expecting … we have identified more external resources and inflows. You will see by the close of the year, we will be in a much better position regarding the external account and reserves.”
Addressing the business community’s concerns, he said he had interacted with the SBP governor several times over the past week after which the central bank had lifted curbs on the import of essential items.
The country’s ultimate goal was to avoid going to multilateral lending institutions, he said. “Instead, we should again access bond markets but for that, we will need to improve our macroeconomic indicators and show the world we mean business and our economy is taking off,” he added.