Making it work

Islamabad: In a country like Pakistan, which is surrounded by internal and external conflicts, managing the economy is an uphill task. Strained relations with India and continuous turbulent situation in Afghanistan never allowed Pakistan to realise its true potential.

In the last 74 years, the country’s economy is moving like a see-saw between military and democratic governments. Last time Pakistan’s economy achieved some economic stability was during President Pervez Musharraf’s tenure. His economic team led by former prime minister Shaukat Aziz achieved a growth rate of over 8 per cent.

Senior Economist Dr Ashfaque Hasan was the integral and most prominent part of this economic team. Dr Ashfaque joined the Ministry of Finance as adviser in 1998 and served it till 2009. During his stint as the adviser, he managed shocks of economic sanctions in the wake of nuclear tests conducted in 1998 and later the economic boom when sanctions were lifted after the 9/11 incident. For over a decade economic surveys and budgets were prepared under his supervision.

Dr Ashfaque did his PhD thesis in economics from the University of Pennsylvania and later from John Hopkins University. At present, he is serving as the principal and dean of NUST School of Social Sciences and Humanities.

In an exclusive interview with BOL News, Dr Ashfaque discussed in detail the root causes of the prevailing financial crisis, IMF programme and possible solutions to the economic woes.


What are the challenges being faced by the economy?

Pakistan’s economy is facing a host of challenges, including persistent increase in debt, balance of payments position, widening trade gap, and a rise in unemployment, which leads to poverty.

Do you think the government will be able to retire a huge external debt of around $8.6 billion this year?

Yes we can pay that amount because the foreign exchange reserves of the central bank stood at over $17 billion and the government is trying to build further reserves, so debt repayment is not an issue, at present. What is really alarming is that over the years our debt servicing, especially the external debt, is continuously increasing.

Currently, we are repaying $12 to $13 billion/annum, which was around $6 to $7 billion a couple of years ago. Since February 2008 onwards, the country’s debt is increasing rapidly, and I called this period of 2008 to 2018 a second lost decade for Pakistan.

In this period, we added $50 billion external debt liabilities and from 2018 to 2021 under the PTI government, the external debt liabilities increased $27 billion. At this pace, I fear that at the end of this government’s tenure another $45 to $50 billion will be added in the external debt liabilities, meaning that the pace of debt accumulation has been doubled during the PTI government.


Unfortunately, I don’t see the government’s will to curb unnecessary imports and I have been saying for over three years that Pakistan should go for a selective and aggressive import compression policy.

What is your take on consumption-based growth?

One has to understand that the structure of our economy is consumption-based. Almost 85 per cent of our GDP is based on this and if we measure our growth from the demand or supply sides, it will remain consumption-based. Whoever comes to power has to rely on consumption-based growth because it is a dominant component of our GDP.

When China was a developing country its growth was consumption-based. After attaining a certain level we can move to industrial and production-led growth.

From 1988 onwards, we are under the IMF programme, barring the 2004/08 period. The design of the IMF is such that it promotes de-industrialisation. Under the IMF programme, the share of industry keeps on declining in our GDP.

In your opinion who is responsible for the tough IMF conditions?


I knew very well that the IMF programme was “politically motivated” and it depends on the relationship with the United States. I have dealt with this institution from the highest level to operational level, so I know how their system works.

When Asad Umer as finance minister managed a meeting of the Economic Advisory Council with the prime minister, I strongly opposed this idea, whereas two non-members, who were also present in that meeting; former finance minister Dr Hafeez Pasha and former State Bank of Pakistan governor Shahid Kardar suggested him to go for the IMF programme.

I told the premier that if you go for the IMF programme your popularity will nosedive after one or two years. You should forget your promise of 10 million jobs or five million houses because the IMF won’t allow you to do that.

Have you proposed any alternative plan to Prime Minister Imran Khan?

Yes, I did. I suggested to him that the country is facing a financing gap of $10 billion annually, which was validated by the State Bank, as well. It could have been easily managed by curbing the twin deficits and with the additional financial assistance from the friendly countries.

The prime minister asked me that when you were in the government you entered the IMF programme, as well. I said yes we did, but then we were on the right side of the US, whereas now we are on the wrong side.


I quoted US Secretary of State Mike Pompeo’s statement, as well that “Make no mistake, we won’t allow the IMF to lend money to Pakistan so it can repay Chinese debt.”

I said this level of US interference is totally unbelievable and never happened in the past. But unfortunately he didn’t pay any heed to the issue and left the meeting without giving due consideration to my suggestions.

Do you think the government will be able to reduce the trade deficit?

Our imports rise because of a spike in the prices of essential commodities in the international market. Around 78 per cent increase in import bill is because of price effect and the same happened with exports, as well. Around 90 per cent of the increase in exports is because of the price factor so in my opinion the government or the Ministry of Commerce should not take credit for it.

What are the reasons behind inflation?

Increase in the international commodities prices, landing cost of imported items and the rupee depreciation are the main causes of high inflation.


What is your take on the rupee depreciation?

I think State Bank of Pakistan Governor Dr Reza Baqir not only severely tarnishes the image of the government but the amount of damage he caused to the economy is beyond imagination. I am surprised the PTI government is still oblivious of the collateral loss Pakistan has suffered due to the central bank governor’s decisions. In my opinion, the government should not give extension to Dr Reza Baqir in the greater national interest after his tenure ends in April 2022.

After the passage of the SBP Autonomy Bill from the Parliament, this kind of autonomy and central bank governor can be a lethal combination for the economy.

I feel frustrated that we sold our financial sovereignty for just $1 billion and celebrated it as an achievement. Both the houses of the Parliament did nothing to stop it.

What is your take on the government’s Naya Pakistan Certificates and Roshan Digital Account schemes?

Definitely, the rate of return we are offering on these certificates is around 7 per cent, whereas on a seven-year Sukuk Bond, which we sold in the international market is 7.95 per cent. This means that the rate of return on Naya Pakistan and Roshan Digital Account is high and expensive because on shorter tenors the rate of return is much less.


Most importantly, it is not guaranteed for a longer period like Sukuk or Euro bonds do. So far, we raised $3.25 billion from these schemes but instead of this if we have opted for bonds it would be much easier and less costly.

What do you think about changing finance ministers by the government on regular intervals?

I don’t blame Finance Minister Shaukat Tarin for the current situation because he inherited the IMF programme.

“His hands and legs were tied and we threw him in the ring to fight, which is not possible.”

The kind of fiscal and monetary independence given to the State Bank left very little room for him to do something exceptional. The revenue surplus of Rs300 billion of the Federal Board of Revenue (FBR) will vanish if the central bank increases the discount rate by 1.5 per cent because it will result in an increase of over Rs300 billion in the domestic debt servicing.

Lastly, what remedial measures do you suggest to the government for overcoming the economic crisis?


First of all, the government should remove the SBP governor, secondly it should ensure that after the completion of this IMF programme it will not approach them again. Thirdly, we go for compression of imports and fourthly the constitution of an Import Substitution Commission under the supervision of any leading industrialist of the country.

We should also increase the cotton and wheat production, and for this, we can seek technical assistance from China under the Phase II of the China-Pakistan Economic Corridor.

Lastly, we should also start industrialisation through the Special Economic Zones designed under the CPEC and promote the Small and Medium Enterprises (SMEs) for job creation.

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