'Imprudent PDM pushed Pakistan's economy in a tailspin'

Pakistan’s economy is in a tailspin, “going from crisis to catastrophe."

(Web Desk) – Pakistani-American economist Atif Mian has held “judiciary, politicians, and generals” responsible for the country’s economic woes.

Atif, a professor of economics at the Princeton University and the first Pakistani to rank among the 25 top economists of the world, and picked by PTI Chairman Imran Khan to lead his economists’ team, painted a bleak picture of Pakistan’s financial position in a series of tweets on Wednesday.

He wrote that Pakistan’s economy is in a tailspin, “going from crisis to catastrophe; but the bigger worry now is that the entire system is getting unhinged.”

Judiciary, politicians, and generals - the last couple of years have witnessed a level of chaos, infighting, and jostling for selfish power grabs that has brought the country to this catastrophe

— Atif Mian (@AtifRMian) April 4, 2023

“The last couple of years have witnessed a level of chaos, infighting, and jostling for selfish power grabs that has brought the country to this catastrophe,” Atif wrote.

But the bigger worry now is that the entire system is getting unhinged We are witnessing the kind of uncertainty that results in flight of both capital and humans - pushing further downward pressure on supply

— Atif Mian (@AtifRMian) April 4, 2023

“We can see this in the increasing stagflationary forces: growth is rapidly falling, and prices are rapidly rising. These are very worrying signs,” he added.

Atif observed that inflation in Pakistan is not only being fuelled by large deficits and money printing but “foolish policy choices” that have seriously impacted the productive capacity of the economy.

Referring to recent data on Pakistan, he warns, that the “economy is going off the rails” and cites several factors.

According to him, most important factor is exports. There was a global surge in exports post-Covid, but around the 2nd quarter of 2022, Pakistan’s exports drop off relative to India and Bangladesh – the gap is now over 20pc.

A dive into recent data suggests that Pakistan's economy is going off the rails First, exports ... there was a global surge in exports post-covid, but around 2nd quarter 2022, Pak exports drop off relative to India and Bang - the gap is now over 20% 1/ pic.twitter.com/WWqjJTiO9m

— Atif Mian (@AtifRMian) April 5, 2023

This happened despite the large currency devaluation and all “efforts” to boost exports given the severe balance of payments issue.

The drop in export likely reflects serious supply-side disruptions in the economy, “most notably the inability to get into an IMF agreement,” writes Atif while blaming the government’s “extreme mismanagement” for this situation.

Imports also show the same pattern - now you want some import compression due to bop pressure (like Bangladesh), but not so drastic and not at the expense of exports (again, thanks to those who designed the import controls) 8/ pic.twitter.com/vacmnxin9Y

— Atif Mian (@AtifRMian) April 5, 2023

“What the PDM govt has done is on another level. It removed the central bank’s governor with no plan in mind, started in-fighting against its own finance minister, and ultimately replaced him with a close relative of the PM – competence be damned,” he wrote.

“What followed has eroded any remaining confidence in the system,” he said, referring to the government’s efforts to keep the exchange rate to Rs200 to a dollar as reserves were going to zero and the exchange rate toward 300 to a dollar.

The government’s policies led to a negative supply shock in the midst of a full-blown currency crisis, adding that the drop in exports highlights the negative supply-side shock.

“This is how a country loses credibility, a feeling that either nobody is in charge, or those in power have no idea what they are doing,” he wrote. “Pakistan’s price level … is off the charts, and extremely dangerous … millions are falling back into poverty.”

Noting that large deficits and constricting supply were a recipe for hyperinflation, he added: “The exchange rate will naturally mirror the price level — it’s a law of nature: you cannot control the exchange rate, at least not with this level of incompetence.”

One of the most important aspects of policy-making is to provide confidence in the system - that people can invest in the long-term for a better future That confidence is now missing 11/

— Atif Mian (@AtifRMian) April 5, 2023

One of the most important aspects of policy making, he argued, was to provide confidence in the system - that people can invest in the long-term for a better future. “That confidence is now missing … Pakistan’s nervous system is fundamentally broken.”

He urged the rulers to rebuild the nervous system, which he described as a combination of administrative and political structures that guarantee a certain level of confidence in the economy.