By Staff Reporter
KARACHI: Pakistan’s economy is spiraling out of control, from crisis to catastrophe, and now the system is becoming unhinged, warns renowned economist Atif Mian.
A Pakistani-American economist and professor of economics at Princeton University, who is also the first Pakistani to rank among the 25 top economists of the world, Mian blames “judiciary, politicians, and generals” for the current economic and political mess in the country.
“The last couple of years have witnessed a level of chaos, infighting, and jostling for selfish power grabs that have brought the country to this catastrophe,” Mian said in a series of tweets he posted on Wednesday.
“We can see this in the increasing stagflationary forces: growth is rapidly falling, and prices are rapidly rising. These are very worrying signs.” “Stagflation is persistently high inflation combined with high unemployment and stagnant demand in a country’s economy.”
Mian warns that inflation in Pakistan is not only being fueled by large deficits and money printing but also by “foolish policy choices” that have seriously impacted the productive capacity of the economy.
According to Mian, recent data shows that the “economy is going off the rails,” citing several factors. First, exports: There was a global surge in exports post-Covid, but around the 2nd quarter of 2022, Pakistan’s exports dropped off relative to India and Bangladesh – the gap is now over 20%.
This happened despite the large currency devaluation and all “efforts” to boost exports given the severe balance of payments issue. The export drop likely reflects serious supply-side disruptions in the economy, “most notably the inability to get into an IMF agreement,” writes Mian, while blaming the government’s “extreme mismanagement” for this situation.
“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 FM (finance minister), and ultimately replaced him with a close relative of the PM (prime minister)- competence be damned,” he wrote.
“What followed has eroded any remaining confidence in the system,” said Mian, referring to Finance Minister Ishaq Dar policy 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, he wrote, 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.
Mian warns that Pakistan is losing credibility, and millions are falling back into poverty due to the government’s policies.
He notes that large deficits and constricting supply are a recipe for hyperinflation and that the exchange rate will naturally mirror the price level. He argues that one of the most important aspects of policy making is to provide confidence in the system, which is now missing in Pakistan. The country’s nervous system is fundamentally broken, and Mian urges those in power to rebuild it to guarantee a certain level of confidence in the economy.
“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.”
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