Is Ishaq Dar again creating an illusion of economic revival?

Recently, Moody’s downgraded Pakistan’s sovereign credit ratings to Caa1 from B3, which is perilously close to a default, as per the reports. This was followed by the devastating floods that hit the country earlier this year. However, Finance Minister Ishaq Dar warned of a ‘befitting’ reply if the agency did not reverse the decision. Dar has been famous for juggling with the figures and overstating them. Will it be possible for him to fudge the numbers with the IMF closely watching every statistic being given to them? This week, Bol News talks to four leading experts to get their insight on Dar’s presentation of the economic revival.

Dr Hafeez Pasha
Leading Economist

I don’t think he has made any statement about the growth rate of the economy, while he has mostly lied about the figures. If you remember about industrial production, there was a negative growth rate of 1.4 per cent and I think he is aware of that.

He has not said anything about the economic revival. It’s very difficult to decide whether Dar will be able to bring the economy on the right track but I assess that it will be extraordinarily difficult for him to do that.

Recently, Moody’s has downgraded the government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from B3, which is perilously close to a default. Moreover, they brought down the prices of the petroleum products in September and violated the understanding with the IMF that every month they would increase the prices by Rs10 but they did not do that, without even consulting with the IMF. Secondly, Dar has recently announced the electricity rate at Rs19.99/ unit — amusingly the famous Bata price — for the five export-oriented sectors to promote exports and improve the country’s balance of payments position.

This was also in violation because they made an agreement that no further subsidies would be given in the power sector. So, now we are in a bit of a mess because we still do not know the actual amount of losses after the devastating floods and we have to wait for the exact assessment, only then can we talk about bringing a change in the economy.

Hence, I think we are in a tight spot as far as the IMF is concerned so we have to wait and watch what happens. Ismail was given six months to stabilise the economy so we must give the same period to Dar, as well. Give him six months and then we will decide where Pakistan stands.

Dr Ikram ul Haq

I don’t think so, his only aim, at the moment, is to stabilise the rupee, as well as to contain the double-digit inflation. As his government is here for a short period so his agenda is not full-fledged economic revival, going for reforms or long-term solutions, but his main task is to address the two major issues Pakistanis are facing: bringing down the hyperinflation and controlling the rupee/dollar parity.

He wants the businessmen to invest dollars in Pakistan. He cannot rectify the fundamentals of the economy in this limited time because for that you need structural reforms and for efficient structural reforms, you need long-term perspectives. So, it would be unfair to demand long-term solutions and the revival of the economy from Dar in less than a year. If we compare Miftah Ismail with Dar and as far as the policies are concerned, the former had always been accepting the conditions of the International Monetary Fund (IMF).

However, Dar has mentioned time and again that he has the better experience to deal with the Fund. While dealing with the lender, a finance minister has many approaches; Ismail’s approach was to concede to all their demands but Dar believes we can show them that we can take an alternative route, as well. The IMF wants that we should have fiscal and primary deficits within certain agreements. So, I believe Dar’s approach is always better that we should keep in view our mundane realities and we should not blindly follow all the recommendations of the IMF, which perhaps Ismail was ready to do.

Although Dar has been accused of juggling with the numbers in his previous tenures, there were serious allegations of overstating the numbers and not showing the actual picture. However, at the moment, fudging the numbers is not possible because the IMF is closely watching every number and statistic that we give to them.

Muzammil Aslam
PTI Spokesperson on Economy and Finance

Yes definitely, he is trying to bring cosmetic changes and giving the impression that the country is moving towards the right direction. Unfortunately, whatever he is doing is not being endorsed by the Moody’s rating agency, while being forecasted. Anybody can bring the economy on the right track as long as there are the right policies but unfortunately, Dar is juggling with the data; for example, the electricity prices have increased 100 per cent.

However, last month, in the inflation data, it has been portrayed that the electricity prices have been reduced by 50 per cent. So this is not going to help. Similarly, the prime minister and the foreign minister at the United Nations mentioned that Pakistan has suffered losses worth $35 billion due to the flash floods. Although, our finance minister recently told Moody’s that the loss assessment is spiritual and it would have been much lower than it was projected earlier. So he is trying to portray that things are coming back on track but the truth is that the industries are going down. Uber has recently shut down the majority of their projects with Pakistan so our country is moving downward in every way. Although, I feel that both Dar and Ismail have their shortcomings; Ismail is overly pessimistic and cautious; moreover, he concluded a very aggressive programme with the IMF without thinking about how it will impact the general public and businesses.

While Dar is trying to manipulate things by artificially controlling the economic fundamentals such as inflation, growth and currency. So both have a different set of policies, which are not beneficial for the country’s development. I believe this government has failed to present an economic plan and no one knows their plan because when Pakistan Tehreek-e-Insaf was ousted, the GDP was 6 per cent and now the Ministry of Finance is predicting 2 per cent of GDP. So we do not know where the economy is heading. Inflation is at its peak with high deficits and we are not aware of their policies and what they want to achieve.

Dr Qais Aslam
Professor of Economics at the University of Central Punjab

Yes, Finance Minister Ishaq Dar is portraying things in the economy that are not there. Our economy is in a bad shape and the exports are crippling, so I feel that he is only using his political contacts to artificially manipulate things. There are two economies, one is for the people of the country, which is in a very bad shape, and the second economy is for the large-scale sectors and the speculators.

The question that arises is whether we will be able to get international assistance and direct investments. When the dollar was expensive, foreign investment should have come to Pakistan but it did not. Now that Dar is at the helm of affairs, Pakistan’s growth rate is expected to further go down. The economy is expected to grow by only 2.2 per cent, whereas earlier it grew by 6 per cent, which is a huge gap. This means unemployment will rise further. At present, around 12 million workers have been rendered unemployed due to the floods.

Besides, a million others are unemployed in different sectors and the numbers predict that the unemployment issue is not going to be resolved any time soon. Moreover, textiles — the most significant export sector — has also gone down, as the cotton crop has been destroyed, so we will have to import cotton, as well, which will further put a pressure on the already stressed economy. With the dollar coming down, the exports are going to be expensive and the imports are going to be more affordable.

Now, the question is will Dar bring down the general price hike? The interest rate is at 15 per cent and the inflation rate is at 23 per cent; hence, no sane investor will invest in Pakistan. The dollar rate is over Rs200 and there is no profit margin. So the issue is that the economy is not going to be set right this easily. Dar only brings temporary solutions, which will only give an unsustainable economy. The moment this government will go in a year or so, the economy will collapse.