As the country continues to struggle to find a way forward, former finance minister Miftah Ismail warned that the economy will remain deep in the woods for the next few months, without giving a specific time frame.
in an exclusive interview Geo.tvAsked by Pakistan Muslim League-Nawaz (PML-N) leaders to comment on Chief of Army Staff Asim Munir’s recent “worst is behind us” statement at a meeting with businessmen, Miftah said he believes the economy will face trouble in the next few months.
Pakistan is relying on International Monetary Fund (IMF) funds to bail out its international obligations and revive its $350 billion economy. The funds will be critical to easing widespread shortages, curbing record high prices and boosting foreign reserves that barely cover more than a month’s worth of imports.
“I think this is too long a delay in reaching a staff-level agreement even after the IMF has accepted and implemented every condition imposed on Pakistan,” he said, expressing concern over the delay.
The former finance minister said the delay reflects the IMF’s lack of confidence in our ability to effectively manage the debt, and that our friendly countries have dragged their feet in making announcements and simply followed the demands of the international bailout.
“I mean, not only is there a lack of competence, but there is also a lack of trust. Besides, Pakistan is in the grip of political and economic crisis. It’s going to be a tough few months for us, but only a little bit,” Miftah said.
“IMF Doesn’t Really Trust Pakistan”
The former finance minister – who managed to revive the stalled IMF last year during his time in the Q Block – said the Washington-based lender does not trust Pakistan’s Finance Ministry.
“In the last year and a half, we have made three sovereign commitments and then fulfilled them …[former finance minister] Hafiz Sheikh made commitments to the IMF during the fourth, fifth and sixth reviews. [Pakistan Tehreek-e-Insaf (PTI) Imran Khan was the prime minister and as soon as IMF gives the money, Sheikh gets the axe.
“Shaukat Tarin comes in and tables a budget that has nothing to do with the IMF programme so that was the first time we broke our commitments. Then of course the IMF was not releasing the next tranche. Later, Tarin presented a mini-budget in November [2021] In February, as soon as the money arrived, the government of Imran Khan again lowered the prices of oil products, agreeing to a new IMF program. At that time, diesel cost the government more than Rs 200 per liter and he was selling it at less than Rs 150. This is the second time we’ve broken a commitment.”
Miftah recalled the entire visit and said that he came to power in April and after many difficulties Pakistan secured the IMF program again.
“As soon as the money arrived in September, I was fired. Dar Sahib comes along and says, “No, I’m going to look the IMF in the eye and renegotiate this program, this and that, and keep the dollar artificially low.” Our remittances and exports are through the floor and inflation through the roof. So I don’t see the point of all this, and then we started a third agreement with the IMF.”
“So now the IMF doesn’t really trust Pakistan, but do you?” the former finance minister responded convincingly to this secretary.
Commenting on the delay in the IMF program, Miftah said the finance minister had been saying for weeks that the government would do the review in a week, but now “he’s not even saying a week.”
“I think the problem is that the government of Pakistan has done everything it can and now we need funding from friendly foreign countries to keep our external accounts from running into deficit and meet our external requirements,” he said, explaining the real problem. , he said, “the IMF does not trust the Ministry of Finance.”
To win creditor support, Pakistan has raised tax rates and energy prices, and raised the policy rate to 20%, the highest rate in 25 years. The country has also allowed its anemic currency to become one of the worst performing in the world.
The trust gap between Pakistan and the IMF widened after the previous regime violated the terms of the agreement. In addition, in the face of the dollar crisis, investors expressed concern about the country’s ability to meet its international debt obligations.
The country is due to pay about $3 billion in future payments by June, and $4 billion is expected to be transferred.
“It’s easy to blame Afghans”
Throwing light on the currency crisis, the former finance minister – a PhD candidate in economics at the Wharton School – said it’s easy to blame others and “we always like to play that game”.
As the Pakistani rupee explores new lows, economic analysts and financial experts have blamed currency smuggling for the mounting pressure on the rupee.
They believe that the authorities concerned have failed to control the smuggling of US dollars into Afghanistan, which has continued to drain Pakistan’s foreign exchange reserves – which crossed $4 billion for the first time in the months ended March 3.
“It’s easy to blame the Afghans, we used to blame the Bengalis first, now we’re blaming the Afghans,” said Miftah, sharing his perspective on the whole situation.
He explained that Afghans buy US dollars with their own currency, Afghanis, so if you buy US dollars from Afghans, it does not affect the Pakistani rupee dollar market. This is like a Thai citizen buying dollars with baht in Bangkok, or an Indonesian citizen buying dollars with rupiah in Jakarta.
When an Afghan businessman buys US currency for Pakistani rupees, you ask, “Where is he going to get Pakistani rupees? “They are taking Pakistani rupees because we buy coal and other products from them in Pakistani rupees.”
He went on to say, what do Afghans do with Pakistani rupees? They would either buy goods for Afghanistan, or exchange them for dollars and buy goods from Iran and other countries.
“So the exchange rate of the Afghan currency is not the problem, the problem is that Pakistanis have only one demand for the dollar, and that is the transactional demand for the dollar,” he noted.
Referring to the types of demand for dollars in Pakistan, he said, “if he wants to buy imported milk or imported cars, he goes to the bank and says it’s Pakistani rupees, give him dollars, so he asks them to import these goods. Send those dollars to his foreign vendors.” He further said that there is another demand for dollars, which people are hoarding.
“At the same time, there is a flight to the capital. Pakistanis are afraid to invest their wealth in Pakistani rupees, so they buy gold or dollars, so the rupee comes under pressure,” he said.
“This has nothing to do with the Peshawar market. People who understand economics should know this,” he said without saying, proving that this is how things work here.
