Pakistan is going through a tough economic situation and “desperately needs debt restructuring”, said former State Bank of Pakistan (SBP) Deputy Governor Dr Murtaza Syed.
Dr. Syed, who is also a former IMF official, spoke to “Asian Business Report‘ in BBC World for Pakistan’s economy.
“The situation is really bad, Pakistan is caught at the crossroads of a perfect storm. We are facing perhaps the worst economic crisis in our 75-year history, growth is slowing, poverty is rising and inflation is running at 30%, the highest level in 50 years.
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“Although food insecurity is acute, the currency has fallen dramatically this year and has been one of the worst performing currencies in the world, and our reserves are very close to an all-time low,” Murtaza said.
He said the country was struggling to pay for imports and service external debt, while public external debt had “increased quite dramatically”.
The former SBP chief said the factors behind the current predicament are both external and domestic.
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On the external front, Murtaza said the tightening by the US Federal Reserve in the wake of the global commodity supercycle and the global rally in the dollar played its part.
“But at home too, Pakistan has not done the right thing,” he said, adding that the country was dealing with political polarization, policy paralysis, delays with the International Monetary Fund (IMF) and devastation from floods.
“But the good news is that we seem to be very close to reaching an agreement with the IMF on the next review,” Murtaza said.
He said the government had recently taken a number of steps, including passing the mini-budget with additional taxation of Rs 170 billion and hiked fuel and electricity prices to appease the international lender.
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“My expectation is that we should soon conclude an agreement with the IMF, and that will unlock the next tranche of about a billion dollars that we desperately need from the IMF.” I believe we desperately need debt restructuring in Pakistan,” he said.
The former IMF official said the terms presented by the international lender required “some tough measures to be taken”.
“I myself am disappointed with the IMF on three points, first of all, if we look at the details of the agreement that is being concluded with the IMF, unfortunately, the main measure seems to be the increase of indirect taxes, which happens to be very regressive,” said Murtaza , emphasizing that there is nothing in terms of property taxation, agriculture and the retail sector.
“The second disappointment I have with the IMF program is that it does not talk about debt restructuring. I believe that Pakistan needs debt restructuring without the adjustment that the IMF is looking for risks creating a lot of social tension in Pakistan,” he said.
A few days ago, Kristalina Georgieva, the IMF’s managing director, said the lender “wants poor people in Pakistan to be protected” and that government subsidies should not benefit the rich.
Pakistan remains in talks with the IMF to extend the stalled Expanded Fund (EFF), a bailout program that has become critical amid rapidly depleting foreign reserves.
Talking about the basic shortcomings of Pakistan’s economy, the economist said that the country which has approached the IMF 23 times has deep structural economic problems including low savings, FDI, investment, exports etc.
On China’s role, Murtaza said that the world’s second largest economy has a very good influence on the rest of the world. “Unfortunately, right now because of the rise in interest rates and the rise in the US dollar, there is pressure on the lending that China has done to developing countries,” Murtaza said.
He said China needed to provide some debt relief to its creditors in the form of a deadline extension.