Pakistan ‘desperately needs debt restructuring’: Dr Murtaza Syed

Pakistan is passing through a dire economic situation and “desperately needs debt restructuring”, said former deputy governor State Bank of Pakistan (SBP) Dr Murtaza Syed.

Dr Syed, who is also a former IMF official, was talking to ‘Asia Business Report’ at BBC World on Pakistan’s economy.

“The situation is really bad, Pakistan is caught in the crosshairs of a perfect storm. We are facing perhaps the worst economic crisis in our 75-year history, growth is tanking, poverty is on the rise, and inflation is running at 30%, a 50-year high.

Pakistan will need another IMF programme in June: Dr Murtaza Syed

“Whereas food insecurity is acute, the currency has plummeted this year and has been one of the worst performing currencies in the world, and our reserves are very near to an all-time low,” said Murtaza.

He said that the country is struggling to pay for imports and service its external debt, while the public external debt has increased “quite dramatically.”

The former SBP official, who also served as the central bank acting governor, said the factors behind the current predicament were both external and domestic.

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On the external front, Syed said that the US Federal Reserve tightening in wake of a global commodity supercycle and global dollar rally played its part.

“But domestically as well Pakistan has not done the right thing,” he said, adding that the country deals with political polarization, policy paralysis, delays with the International Monetary Fund (IMF) and floods devastation.

“But the good news is that we seem to be very close to reaching an agreement with the IMF on the next review,” said Syed.

He said that the government has taken a number of steps recently, including passing the mini-budget with Rs170 billion in additional taxation, and has raised fuel and electricity prices to appease the international lender.

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“My expectation is we should have an agreement with the IMF fairly soon, and that will unlock the next tranche of about a billion dollars that we desperately need from the IMF. I believe that we also desperately need a debt restructuring in Pakistan,” he said.

The former IMF representative said that the conditions presented by the international lender require ‘to take some difficult measures’.

“I am disappointed with the IMF myself on three counts, first of all if we look at the details of the agreement that are being thrashed out with the IMF, unfortunately, the main measure seems to be an increase in indirect taxes, which happens to be very regressive,” said Syed, while highlighting that there is nothing in terms of taxing property, agriculture and the retail sector.

“The second disappointment that I have with the IMF programme, is that it doesn’t talk about debt restructuring. I believe Pakistan needs debt restructuring without it the adjustment the IMF is asking for risks creating a lot of social tension in Pakistan,” he said.

Days ago, Kristalina Georgieva, managing director of the IMF, had said that the lender “wants the poor people of Pakistan to be protected” and the government’s subsidies should not benefit the wealthy.

Pakistan remains in talks with the IMF for the resumption of the stalled Extended Fund Facility (EFF), a bailout programme that has become severely critical in the face of fast-depleting foreign exchange reserves.

Talking about the fundamental flaws of Pakistan’s economy, the economist said that the country which has approached the IMF 23 times has deep structural economic problems, including low savings, FDI, investment, exports etc.

On role of China, Syed said that the world’s second-largest economy has had a very good influence on the rest of the world.

“Unfortunately, right now because of interest rate going up and the US dollar rallying, there is pressure on the lending China has made to developing countries,” said Syed.

He said that China should provide a bit of debt relief to its creditors in the form extension of maturities.