ISLAMABAD: Rejecting the recent observations of a Princeton University professor on Pakistan’s economic policy thrust, the Ministry of Finance on Saturday ruled out the chances of default and predicted a major turnaround with political stability likely to emerge soon.

The ministry came out with the assertion in response to noted economist Atif Mian who recently through a series of tweets has criticised Pakistan’s economic policy terming it ‘non-sensical’. While comparing the experience of Ghana and Sri Lanka, he has concluded that Pakistan should “take decisive actions, aggressively restructure and take courageous actions”.

The ministry statement predicting the revival of the economy with political stability seems to be emerging with reference to the recent political developments in the aftermath of the May 9 incident when prominent leaders of PTI are quitting their party.

The finance ministry noted that Mr Mian’s remark is a veiled suggestion to declare a default. “This is a misplaced criticism made from a purely theoretical point of view,” the ministry further added.

Rejects Atif Mian’s remarks on economic policy direction

Mr Mian has no idea how practical economics operates in practice, the ministry said, adding his comparison with Ghana and Sri Lanka, is also misplaced given the incomparably small size of their economies and populations relative to Pakistan.

Fundamentally, he didn’t care to analyze the structure of Pakistan’s debt which has less than 10pc share in commercial bonds/sukuk, 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, the statement further claimed.

The ministry said that the economist has 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 IMF programme which was unprecedented as never in the country’s history such front-loaded conditionality was imposed. It is unfortunate that despite such actions, the staff-level agreement (SLA) has still not been reached delaying the release of the 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 further stated.

The comparison of the nominal exchange rate is also unwarranted. Pakistan’s real exchange rate is currently estimated to be 15pc 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.

Pakistan has historically sold petroleum products at significantly lower prices than regional countries. With a 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 non-sensical policies. This is simply a misplaced example.

Published in Dawn, May 28th, 2023

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