Home »Editorials » ‘A charitable view of Pakistan’s economy’: clarification

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  • Jun 22nd, 2017
  • Comments Off on ‘A charitable view of Pakistan’s economy’: clarification
A spokesman for the Finance Division here on Wednesday while commenting on the editorial, "A Charitable View of Pakistan's Economy" carried by Business Recorder yesterday said "it is important to mention that IMF is an independent institution and they have their own assessment for every member country based on their research and do not blindly follow the facts and figures provided to them and they are neither under any pressure nor under any influence. The principles and rules framed by IMF are applicable world-wide. No specific rules/regulations are being adopted by IMF for Pakistan. The fact remains that ground realities are not changed through any own assumptions and opinion.

"The editorial while referring to the review of the IMF press release "foreign exchange reserves have declined in the context of a stable exchange rate" and in the middle of the sixth paragraph the IMF press release notes that "Directors called on the authorities to allow for greater exchange rate flexibility - rather than relying on administrative measures - to help reduce external imbalances and bolster external buffers". That recommendation unfortunately is unlikely to be heeded and repeatedly ignored in spite of persistent clamor by economists and experts that an overvalued rupee is disastrous for the economy.

"It appears from the editorial that the exchange rate is the only reason behind current performance of external sector, particularly exports, while the role of international developments have conveniently been ignored. Pakistan's export performance largely depends upon favorable international commodity prices, and degree of global demand. Recent slowdown in global economy, particularly the subdued conditions in international trade, is impacting the exports. In this connection, the government has made a number of export enhancing initiatives. However, the negative effect of exports is bottoming out in CFY compared to last year. The imports are increasing due to increase in import demand of machinery group thus reflecting signs of productive activities and improved performance in industrial sector and also backed by impressive growth in credit to private sector.

"While talking about the impact of exchange rate changes on exports and imports, one must know the sensitivity of exports and imports to exchange rate fluctuations in Pakistan's case. This aspect is missing in the discussion. It seems that the editorial writer has implicitly assumed that both the exports and imports are highly sensitive to the exchange rate. One can ask the question about the impact of depreciation in Pak rupee on exports and imports in the past.

"Pakistan Institute of Development Economics (PIDE) conducted a dialogue to discuss the situation of external sector in which one conclusion illustrated that historically devaluation has never benefitted Pakistan. It may be noted that some of Pakistan's imports are highly inelastic in nature such as petroleum, chemicals & machinery.

"It is advisable to read the views of renowned economist, Dr Ishrat Husain on Exchange Rate that were published in BR Research "Brief Recording" dated 02nd May, 2017. He states that "just blaming everything on the exchange rate is also misplaced. If you depreciate the currency by 10 percent, the foreign buyer will say "give 5 percent as a discount. Then 40 percent of your exports are using imported raw material which is adding value. So the cost of this 40 percent will go up and your net gain will be limited to 2-3 percent as a result of 10 percent currency devaluation". It is more important to look at general equilibrium aspect rather partial equilibrium.

"The editorial also incorrectly quoted that the definition of debt followed by the government is inconsistent with the IMF. In this regard, it is important to mention that Ministry of Finance as well as State Bank of Pakistan in their publications mentioned both the gross and net numbers of public debt which are consistent with the IMF "Public Sector Debt Statistics Guide for Compilers and Users (2013)". Accordingly, gross public debt stood at 65.5 percent of GDP while net public debt stood at 59.3 percent of GDP as at end March, 2017. It is to be noted that as per the IMF latest press release titled "IMF Executive Board Concludes Article IV Consultation with Pakistan" dated June 16, 2017, the IMF projected net debt number 60.3 percent as at end June, 2017 which is consistent with the number 59.3 percent as at end March, 2017 as reported by the Ministry of Finance". Therefore, contentions of the editorial regarding mismatch between IMF and Ministry of Finance regarding definition of debt are based on either limited understanding of the writer with reference to reporting of debt numbers or the writer's intention is to mislead the public by creating sensations without substance. It is further to be noted that the IMF itself mentions both the gross and net public debt statistics in its publications. Therefore, allegation of the editorial in this respect is totally baseless and incorrect.

"In order to remove the anomalies and distortions in the interest rates of National Savings Schemes, their rates were aligned with the wholesales domestic debt instruments yields. This has reduced the possibility of interest rate arbitrage. Therefore, contentions of the editorial with regard to national savings schemes interest rates are not supported by the facts rather the views mentioned in the editorial show limited understanding of writer on this subject.

"With regard to data manipulation that "independent economist as well as this newspaper challenge the GDP figure released by the Pakistan Bureau of Statistics, under the administrative control of the Finance Ministry, as much of the data is not synchronized with data released by other departments as well as credible industry sources".

"The editorial should point out specific data that is released by government department which is not synchronized with the data released by PBS. "PBS computes the National Accounts according to well stated and publically shared parameters. The methodology is based on the System of National Accounts (SNA) 2008 which provides the internationally accepted and adopted methodology. The data used to compute the GDP numbers is provided by a host of agencies, public and private as well as Federal, Provincial and local authorities. The data providers are members of National Accounts Committee meeting and verify the data provided by them. The numbers are based on hard and verifiable data," the clarification concluded.



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