Ahmed Mukhtar Naqshbandi
Pakistan has suffered a loss of $ 101 billion loss owing to two policies Pakistan pursued under IMF program in last four years, says Dr Ashfaq Hassan Khan Former Economic Advisor to Finance Ministry.
He said, Pakistan started following IMF program in July 2018 and the losses are counted till December 2022. Dollar devaluation cost $ 75 billion and interest rate hike costed $ 26 billion which combines up to $ 101 billion.
Dr Khan said, this is the worst ever economic conditions of Pakistan. He was speaking on private TV channel program.
On one hand, Pakistan is asked to devalue the currency by IMF which is inflationary. Due to inflation policy rate is enhanced then for solution it is asked to raise prices of electricity and gas, which is again inflationary. Then it is passed on and it becomes inflationary.
So, on one had the policy is creating a problem and then on solution is aggravating the situation further. This is rather than solving an issue, it is rather creating further issues from the solution of a problem.
As a journalist you must ask the question to Governor State Bank that you mark up hiking solution is actually creating further problems than solving it, said Dr Khan.
One percent of increase in interest rate increases the Rs 250 billion interest payments. So, by increasing mark up in one jerk 2%, the addition in interest payments is Rs 500 billion, which is impossible to absorb at this stage.
He said, cost of the Current IMF program, from July 2019 when the program started but on prior action we had started working in July 2018, form that date till December 2022, that is around 4 years period, on only two points total loss is calculated. Its almost 4 and half years’ duration.
Dollar value was Rs 121 per one dollar in July 2018, Rs 262-63, and discount rate was 6%. Is now at 17% and is almost going at 19%. These two policies have how much damaged economy of Pakistan in these four and half years. From July 2018 to December 2022, with only devaluation the cost of damage is Rs 12511 billion (Rs 12.5 trillion) debt is added on Pakistan. This loss is $ 75 billion in the value of average exchange rate during this duration.
Then the loss from mark up, by hiking the rate, the interest payment increase is Rs 4275 billion (Rs 4.27 trillion). That is by dividing the average exchange rate of this duration comes equal to $ 26 billion.
However, combing these two comes to $ 101 billion loss for the $ 6.5 billion IMF program, (plus other donors program combines equal to $ 15 billion roughly). This is almost $ 25 billion loss every year, which means equal to entire remittances annually.
On the other hand, there is an argument that we have no choice other than IMF program, which is a huge lame excuse made by many organization and individuals. These huge deficit natures are running us down and creating more and more vicious circle of problems.
From April 2022 to December 2002, during this duration, $ 33 billion was added on extra interest payments and addition in public debt was caused from both interest payments and dollar valuation increase. During the current fiscal year.
IMF believe that everything is a monetary phenomenon, every problem is rooted in the monetary issues. While, in Pakistan the issues of inflation appear not from demand side but due to supply side shocks, Its by increasing the hike in prices of electricity and other input prices of supply side.
Empirical analyses say that when State Bank increases mark up by 1% the CPI inflation increases by 1.3% rather than falling. This was State Bank’s own study, which they have hidden it now, as analysts and I am (Dr Ashfaq Hassan Khan) speaking about it, they have hidden it. This is their working paper number 34 or 35 of 2010, titled as, “A Small Open Economy Model of Pakistan” as I had seen it. As they had taken the data of 1990s and the coefficient they used reflects now that it is equal to 1.3% when they increase mark up by 1%.
IMF follows Chicago School of thought that is monetary approach for every problem economy is facing.
Now from various sides various voices will start rising that there is no choice except to take additional loan from IFM, and Pakistan needs another IMF program after June 2023. As Martaza Sayyed former Deputy Governor State Bank has said in his two days back interview. There is a huge lot of people coming from donors which support his comment. They are retired from donors’ institutions and they support this concern.
The overheating of economy’s point of view is also spread from the donors supported point of view. How come 6% growth can be overheated. It is just a propaganda spread from donors’ point of view.
For import substitution, selective and yet aggressive policy should be followed.
