Pakistan has lost all credibility due to the coalition government’s incompetence and its inability to get cash from the International Monetary Fund (IMF), according to Pakistani-American economist and former member of Pakistan’s Economic Advisory Council (EAC), Atif Mian.
Highlighting several key factors that have led to the crunch today, the economist wrote on Twitter that Pakistan’s economy is going off the rails as a result of extreme government mismanagement, the authority’s inability to get a bailout from the IMF, and a negative supply shock amid a “full-blown currency crisis”.
A dive into recent data suggests that Pakistan's economy is going off the rails
First, exports … there was a global surge in exports post-covid, but around 2nd quarter 2022, Pak exports drop off relative to India and Bang – the gap is now over 20%
1/ pic.twitter.com/WWqjJTiO9m— Atif Mian (@AtifRMian) April 5, 2023
Atif Mian explained, “A dive into recent data suggests that Pakistan’s economy is going off the rails. First, exports … there was a global surge in exports post-covid, but around 2nd quarter [of] 2022, Pak[istan’s] exports drop[ped[ off relative to India and Bang – the gap is now over 20%”.
He said all of this happened despite the large currency devaluation and all “efforts” to boost exports given the severe balance of payment issue faced by Pakistan. “What’s going on? The export drop likely reflects serious supply-side disruptions in the economy,” he commented.
The economist termed the present government “on another level” in its ability to get into an agreement with the IMF due to extreme government mismanagement. “I’ve spoken in the past about PTI’s role in bringing the country to this situation. But what the PDM gov[ernment] has done is on another level,” he said.
Citing pertinent examples, the Princeton University-based economist grilled the authorities for removing the central bank governor without a plan. “It removed CB governor with no plan in mind, started in-fighting against its own FM, and ultimately replaced him with a close relative of the PM – competence be damned”.
The economist also questioned the authorities on their unrealistic import controls, which made it difficult for businesses to plan ahead while the exchange rate was approaching 300 to the dollar.
“Repeatedly claiming that IMF agreement will be signed next week …. and then crickets …This is how a country loses credibility, a feeling that either nobody is in charge, or those in power have no idea what they are doing,” he complained, adding that “All this has led to a negative supply shock in the midst of a full-blown currency crisis. When both demand and supply shrink, it’s not a pretty dynamic … and this is what Pakistan is witnessing today, the drop in exports highlights the negative supply-side shock”.
Mian continued to grill the government’s other more questionable policies. “Imports also show the same pattern – now you want some import compression due to bop pressure (like Bangladesh), but not so drastic and not at the expense of exports (again, thanks to those who designed the import controls),” he wrote.
He warned that this leads to rapidly rising inflation. He pointed towards Pakistan’s price levels, which are well below India and Bangladesh. “It is off the charts, and extremely dangerous … millions are falling back into poverty. Large deficits and constricting supply is a recipe for hyperinflation,” he stated.
Mian further remarked that the exchange rate will naturally mirror the price level as well since “you cannot control the exchange rate, at least not with this level of incompetence”.
The economist emphasized that the most important aspect of policy-making is to provide confidence in the system, meaning that people can invest in the long term for a better future. “That confidence is now missing,” he said.
In his concluding remarks, Mian reiterated, “I’ve said before that Pakistan’s nervous system is fundamentally broken – that combination of administrative and political structures that guarantees a certain level of confidence in the economy. The country must begin to build a functioning nervous system … somehow”.
