No choice but to revive IMF, says Ismail

Former-finance minister Mifta Ismail has warned that Pakistan’s current economic crisis has left no alternative but to expedite an agreement with the International Monetary Fund (IMF).

Ismail made these remarks during the 2nd Pak–German Business Gathering of 2023 held at the Consulate General of the Federal Republic of Germany in Karachi. The event was organised by the Pakistan Desk of the German Industry and Commerce (AHK) in collaboration with the Diplomatic Missions of the Federal Republic of Germany.

Addressing the German-Pakistan Business Community, Dr Rüdiger Lotz, Consul General of the Federal Republic of Germany in Karachi, emphasised Pakistan’s potential as a business destination for German companies. Despite the current challenges, he expressed confidence in the long-term prospects for bilateral trade.

Mifta Ismail highlighted Pakistan’s struggle to make significant improvements in its systems and efficiency despite borrowing $100 billion from foreign sources. He pointed out the lack of technological advancements in industries and inadequate workforce training as contributors to the prevailing inflation. He noted that foreign investment primarily targets the domestic market, resulting in limited export-oriented ventures.

Ismail expressed gratitude to those who invest in Pakistan despite the challenging economic conditions. Lamenting Pakistan’s massive cycle of borrowing without a clear plan for debt repayment, he said, “Every year, we need to pay $24 billion in debt servicing that we don’t have.”

The country finds itself borrowing from one country to pay another, both domestically and internationally, he said, cautioning that the international community is now increasingly hesitant to lend to Pakistan. Ismail also mentioned the significant discrepancy between the country’s debt obligations and its revenue collection, with around 6 trillion required for domestic loans and an estimated revenue of 7.2 trillion.

He noted that the government must allocate a significant portion of its revenue to provinces, akin to providing money to children who spend it carelessly without concern for its origin. Ismail described the situation as a debt trap.

While discussing the impact of taxes, Ismail mentioned his emphasis on taxing the wealthy instead of increasing sales tax, which disproportionately affects the poor. He also pointed out that amnesty schemes, such as those introduced by Prime Minister Imran Khan, are not new in the real estate sector.

By October, Pakistan will have less than $2 billion in foreign exchange, as the rerolling of loans by China differs from other countries and takes time in the process.

Speaking at the event, German Emirati Joint Council for Industry and Commerce (AHK) CEO, Oliver Oehms, highlighted the challenges faced by German companies due to the current economic conditions in Pakistan. “We would like to see revival of the talks among political parties so they could come to minimum consensus about economy so that the country could run its business,” said Oehms.

First Secretary of the Economic and Political Section at the Germany Embassy in Islamabad, Christian Böttcher echoed the sentiment, expressing hope that Pakistani stakeholders would soon reach a bipartisan consensus on economic reforms. He emphasised the need to revive the economy, enabling interaction with international markets and ultimately leading to greater prosperity for the nation.

Despite the economic challenges, Pakistan’s local markets have demonstrated resilience, with companies increasing prices, indicating their pricing power. While the country grapples with food inflation of 50% and an overall inflation rate of 34%, the former-finance minister highlighted the positive impact on farm income.

Published in The Express Tribune, May 18^th, 2023.

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