As the year 2022 comes to an end and the country welcomes a new year with hope, the prognosis for Pakistan’s economy seems bleak. While the government at various levels has tried to allay concerns pertaining to the likelihood of default, economic experts and observers continue to warn against worst case scenarios while exhorting concerned stakeholders to join hands for the country’s best interests.
In an exclusive interview, former finance minister Miftah Ismail shares his thoughts on the country’s economic future, sharing suggestions for leaders to steer Pakistan towards the path of growth and progress.
SA: Many observers and experts have been ringing alarm bells that Pakistan is dangerously close to default. According to them, all indicators are pointing in this direction. What can a country that ends up defaulting expect? How could such a situation affect the common citizen? If a country does default, how long would it need to recover from such a crisis?
MI: Default is a very negative situation for a country. It occurs when a country finds itself unable to pay back the debt it owes. That is what is meant by default.
The common citizen is directly affected by default or a default-like situation because such a scenario brings about a shortage or no supply at all of imported commodities. For Pakistan and many other nations, these commodities include things like petrol, cooking oil and many food items, among others.
If Pakistan does default, God forbid – which, I believe can be avoided – it would take six months at the minimum to recover. What would happen if such a thing happens to pass is that we will have to go back to the International Monetary Fund and other lenders, and will have to request them that we will pay any amount due to them this year in the year that follows. We would also have to request them to reschedule any other future payments Pakistan owes.
SA: The public was given the impression that the government of Imran Khan was incompetent and that its policies were ill planned, but what about the Pakistan Democratic Movement? Have things not gone from bad to worse under the watch of the incumbent PDM government?
MI: To answer this question, we need to look back into the country’s recent past when then finance minister of the PTI government, Shaukat Tareen, presented a very expansionary budget in June 2021. A lot of unneeded tax cuts and relief were given in the budget, which began to exhaust our reserves.
Tareen also delayed the agreement with the IMF. Although it was eventually agreed to in November 2021, the deal was once derailed by February the following year. This was when Pakistan’s default rating started to climb. And who can forget the famous $1.5 billion subsidy Imran Khan announced for fuel and electricity at the end of February 2022.
When the PDM government took charge, we had to increase the gas and electricity tariffs, which the PTI government had subsidised. These subsidies were placing a huge burden on Pakistan’s economy. We had to increase the prices for fuel because the country was buying it from the international market at an expensive rate. Our economy was not in a position to subsidise the fuel.
All of these steps were taken at the cost of our political mileage, but these same steps eventually helped us reach the agreement with the IMF. We showed that Pakistan comes first and that our political priorities should always be second.
SA: If we suppose that Imran Khan sabotaged or derailed the IMF deal at the start of 2022, what about status of the agreement under the current finance minister? Why is the IMF review currently hanging? Is Finance Minister Ishaq Dar trying to salvage political mileage for his party by refusing to accept the demands of the IMF?
MI: We cannot compare Ishaq Dar with Imran Khan. It is like comparing the one who brought us on the verge of default with the ones who averted it. Imran Khan and his populist policies were responsible for bringing about this critical situation – of Pakistan being on the verge of default. The PDM, on the other hand, managed to avert it by agreeing to compromise its popularity and vote bank.
I do not believe that there is any harm in doing politics per se. There is always a margin for it and politics is what a politician is supposed to do. But yes, when the nation is facing tough situations, the national interest should be placed above everything else. In this, I hold a firm belief.
SA: The recent unprecedented monsoon and the subsequent floods ravaged many of our food crops. At the same time, we also have import curbs imposed on the country. Should we foresee a crisis pertaining to the supply of food and other essential commodities in Pakistan?
MI: Food items are being imported and there is not going to be a shortage of wheat or rice in the country. Yes, the rice crop was somewhat destroyed by the rains and floods in Sindh. But the rice fields of southern Punjab remained safe. Pakistan rice production remains good enough and the country will also manage to export this crop.
SA: Pakistan’s textile sector, which accounts for the largest number of exports from the country, is also dependent on imported yarn due to insufficient cotton production locally. Much of the cotton crop was destroyed in the devastating floods as well. Do you believe our textile sector will be able to compete in the global market if it continues to rely on imported raw material?
MI: I do not think this is big problem. While we are definitely forced to import raw material, our textile industry is capable of generating four to five times the value from the products manufactured using it. Thus there is no imbalance.
SA: What can the government and other stakeholders do to increase Pakistan’s exports?
MI: There should be a proper strategy for export promotion and we should reject import substitution. Just ensuring a proper supply of electricity and gas to the industry at the competitive rates that the governments of India or Bangladesh are offering along with keeping Pakistan’s currency at its realistic value will yield results in the export sector in the coming years.
SA: Is there any sector that government should focus for export promotion?
MI: No, this is not the job of the government. Just provide our industries with electricity, gas and security, and things will eventually get better. Provide Pakistan’s youth good education and you will also see our IT exports increasing.
For information technology, let me be clear, Pakistan lacks trained youth in the field of IT. I have written about this too that when India in the 1950s was opening Indian institutes of technology, Pakistan had sent home seven prime ministers. We should focus on building institutes at the same level as the IITs and gradually we will have similar opportunities in this field too.
SA: The government is burdened with so many loss-making departments. Would privatisation be a good option for government to ease its burden?
MI: Governments are not supposed to sell petrol or run airlines. These entities or corporations should be sold to the private sector. Not only these, but electricity supply companies, including transmission companies, should be privatised regardless of whether they are turning a profit or running into loss. It will relieve the government from a great burden.
SA: Do you think our agriculture sector needs any sort of overhaul? Should we focus on increasing the yield of our crops using new technology and techniques such as those used in India and China?
MI: The government can support the agriculture sector with cheap supply of gas, subsidised fertilizer but other than that, what we lack is the availability of genetically modified organism seeds.
If farmers are provided with modern seeds and agriculture extension training, we will start to see results in the field of agriculture. I do not compare our agriculture sector with China but we can compare it with India since both the countries have similar weather. If India can yield one maund (40 kilogrammes) of wheat from a single acre, why are we only yielding 32 kilogrammes from the same size of land.
Similarly we can also increase productivity of the cotton crop by adopting modern methods in the field of agriculture. Let me conclude this by saying that India has bigger land and that we should not do a complete comparison. But we can compare the province of Punjab in both countries in term of crop production on both sides.
SA: Why has the government failed to control inflation despite imposing a higher interest rate of 16 per cent?
MI: Prices of essential commodities are at an all time high globally. Increasing interest rates is one way to control inflation but on the other hand the government is focusing on providing relief to the lower income or less-privileged strata through the Benazir Income Support Programme. The government disbursed Rs70 billion for those affected by the floods as well. These are the measures taken by the government to minimise the affects of inflation on the less-privileged segments of Pakistani society.
SA: Why have we failed to increase Pakistan’s tax base? Why is it always the salaried class that bears the brunt over other income groups in the country?
MI: I absolutely agree that Pakistan’s tax base should be widened. For example, there are 2.2 million retailers or shop owners in the country but only 30,000 of them are paying taxes. There is no harm in bringing these shop owners into the tax base as it cannot be only the salaried class that pays taxes in the country. Therefore, the tax base should be widened to increase revenue.
SA: Why do people prefer investing in real estate instead of investing in manufacturing and export industry, etc, in Pakistan?
MI: In the recent past, we did see a boom after PTI government provided amnesty and relief to the real estate sectors. Meanwhile, if you are setting up a manufacturing industry, you will be burdened with so many questions and compliances from various government departments, provision of utility services, labour related issues and heavy taxations. If you choose to park your wealth in buying a plot, you are going to have no such issues. And yes, it is the easiest way to get rich in Pakistan.
SA: What is the way forward for Pakistan’s economy? What are your basic suggestions for the country to progress?
MI: It is very simple and no rocket science. If our exports of $31 billion and remittances of $30 billion amount to collective $61 billion of foreign inflows, why can we not keep our import bill under this figure instead of running it up to $80 billion.
In a way, it is as simple as running your household or a factory, but why can the government of Pakistan not understand that we cannot continue to borrow money for our deficits. Some day those lending us money will eventually either refuse to loan us more or put forward strict conditions on lending. Pakistan simply needs to start living within its means or income.
Privatisation, as I said before, is a must otherwise the burdens on the state will continue to multiply. Other than this, the government should prioritise birth control in the country. Last but not least, the children of this country should be provided with the best opportunities for education and this is a great responsibility on the part of government. Provision of education to every child will automatically set Pakistan’s course on the right track for the future.
SA: If we draw a comparison between the economies and spending of Pakistan and India, including the defence budget of both countries, we see a huge disparity. Would initiating trade relations between the two neighbours not bring mutual benefit?
MI: At the moment, I see India as a bigger reason behind whatever tensions or problems persist between India and Pakistan at the moment. Or you can also say India’s Prime Minister Narendra Modi is that reason. His politics has always revolved around stoking and exploiting anti-Muslim sentiment. Two thousand people died in the anti-Muslim riots in Gujarat and the Indian Supreme Court failed to provide justice to Muslims in this regard.
Even if we put aside the issue of Kashmir and the oppression against Kashmiri Muslims, people are being killed in a state like UP for eating beef. Narendra Modi’s anti-Pakistan agenda is basically an extension of his anti-Islamic rhetoric. He needs to show his voters that he is anti-Muslim and anti-Islam, and so, he must express his for Pakistan as well.
Another element in this regard is how in Pakistan, political parties do not get any votes for using anti-India rhetoric. In India, however, a large number of votes can be gained by abusing Pakistan. So, as long as Modi continues to lead India, peace between the two countries will be very difficult.
If we opt for peace believing Pakistan to be a weaker side in contrast, it is going to be a very uneven, unsustainable peace. So, it is better to remain hostile neighbors for another 10 years as we have been for past 70 years instead of unequal treatment in the name of peace.
SA: As a former finance minister and a politician, how do you feel when you hear about the brain drain from Pakistan?
MI: Yes, it is a phenomenon and people who are eligible do opt for better opportunities in foreign lands, including educational scholarships. What is going to be left behind if our qualified youth will leave the country? But, if things get better in Pakistan, this issue will be resolve itself.
SA: What do you think about the future of leadership in Pakistan?
MI: Pakistan has never had any vacuum of leadership in the country. In 1970s we had Zulfikar Ali Bhutto. Later Benazir Bhutto and Mian Nawaz Sharif emerged as leaders and then we saw Imran Khan’s entry into the nation’s politics.