KARACHI: Former finance minister Miftah Ismail said on Thursday that the government is unaware of the true extent of the ongoing economic emergency because “Pakistan has been facing a crisis persistently”.
Speaking at an event titled ‘Pakistan’s Financial Crisis and a Way Forward- A Pre-Budget Discussion’ at the Salim Habib University in Karachi on Thursday, he said Pakistan has managed to escape and avert its economic issues in the past, and this is why the current situation is being treated “like any other”.
“Pakistan does not have enough revenue to pay interest on previous loans,” said Ismail at a gathering of academics, students, and members of the business community.
“It is taking new loans to cover the interest payments of old ones. When a country borrows to repay old interest, then that debt is unsustainable.”
Miftah for creating more provinces
Ismail, the finance minister to successfully negotiate the combined seventh and eighth reviews with the International Monetary Fund (IMF) before being unceremoniously removed to make way for Ishaq Dar, stated that the net tax revenue of Pakistan was insufficient to cover interest payments.
Ismail stressed that the IMF was not the root of Pakistan’s economic problems, but it was “rather the successive leaderships of the country”.
“Our problems are self-created. We have been unfair with Pakistan,” he said. “While inflation rose throughout the world, it surged at a steep pace in Pakistan.”
He pointed out that India and Bangladesh had a lower inflation reading than Pakistan. “All inflationary pressures cannot be connected to global rise in prices.”
According to him, Pakistan made errors in policy making.
“I blame myself too. Our leadership is the worst in the world.”
Ismail has been campaigning for a major overhaul in Pakistan for some time including the privatisation of loss-making state-owned entities, education sector revamp as well as population control.
His remarks come as Pakistan remains engaged in talks with the IMF over revival of its stalled bailout programme.
‘World Bank, IMF not responsible to run Pakistan’
The former finance minister stated that the World Bank and IMF were not responsible to run Pakistan and should not be blamed for the country’s economic ills.
Govt will have to save Pakistan from default for next two years: Miftah Ismail
“China has given us 4-5 bailouts while the UAE and Saudi Arabia have helped us from time to time. Pakistan has nothing to show for it,” he said.
“We go to the IMF because no nation wants to give loans to us and IMF demands structural reforms,” he said, expressing regret that the country violated the current IMF programme for a third time.
He was of the view that Pakistan will have to go to IMF for a 24th time as the country will default without it.
Miftah calls for economic ‘overhaul’
Currency devaluation
While accepting that Pakistan’s debt payments were piling up due to a depreciating rupee, Ismail held the view that currency’s slide was not a loss for the country.
“Our imports are $20 billion more than exports and remittances combined therefore, currency devaluation is used to put a stop on inward shipments,” he said. “If this is not done, then Pakistan would be buying for the current generation at the cost of future ones.”
Pakistan’s ex finance chief Miftah warns against any kind of debt restructuring
He underlined that importing at an overvalued currency would build pressure on future generations.
IT exports
When asked why Pakistan was lagging behind in IT exports, he noted that there was a problem with the education system.
“India made 5 institutes of technology within 10 years of its independence,” he said. “Pakistan’s education system cannot compete with India’s.”
Pakistan’s low quality of education is also an economic problem, he said. He also cited that spending on education was insufficient and the mechanism for spending was flawed as well.
Ishaq Dar has inflicted huge financial dent to Pakistan: Miftah Ismail
“The country is far behind in business process outsourcing (call centres) because no foreign investor wants to pour money in Pakistani market.
“The only foreign investment that comes to Pakistan is for local consumption and not for exports,” he said. “We are not an ideal destination for foreign investors.”
He also lamented that the business ecosystem of Pakistan took a dent on May 9 following the outbreak of protests and riots. This discouraged foreign investors who were in Pakistan at that time, he said.
He also regretted that the Dhaka Airport alone hosted more airlines than Karachi and Islamabad airports combined.
Talking about the ongoing political instability in Pakistan, Ismail said the Arab Spring was also one such crisis and people of the affected country expected that it would lead their nation to prosperity but this did not happen.
“Instead, the nations went from the frying pan into the fire,” the former finance minister emphasised.
He noted that “Pakistan’s leadership needed to be reformed” to bring a change in the country’s fortune.
Recommendations
He underlined the need to enhance competition between provinces to enable them to perform better. The former finance minister called for further devolution of federal institutions to provinces. He stated that the US followed this model and its states performed better economically.
The former minister advocated raising the minimum wage in the upcoming budget, stressing that “35% inflation makes it mandatory”.
He also called for a meeting of all political stakeholders of Pakistan to debate what policies to follow to drag the country out of economic quagmire.