Pakistan’s economy has been in the doldrums. With inflation rising and the government deficit reaching record heights, the new coalition government headed by PM Shahbaz Sharif has been taking all the possible steps to wrest the derailment of the country’s economy.
In an exclusive conversation with WION correspondent Jodie Cohen, Pakistan Finance Minister Miftah Ismail talked about IMF rolling out another bailout package and the possibility of India-Pakistan trade that had been suspended following tensions over terrorism and revocation of Article 370 and 35A of the Indian Constitution that gave special powers to Jammu and Kashmir.
WION: The International Monetary Fund (IMF) has set out five major conditions for the revival of the $6 billion bailout package for Pakistan, including the reversal of fuel subsidies, which you seem to agree with. But if this is enforced, would you be able to provide relief to the people of Pakistan?
Miftah Ismail: I think that it’s very important for Pakistan to back the IMF program.
We have spent the last two-and-a-half years on this program, where the IMF was able to disperse $3 billion to us with another $3 billion in offing in the next six months. So, to give up this program just now when it was backdoored will make no sense to us. Also, we have some difficulty in raising funds right now and selling our Eurobonds right now in this very difficult market. So, it’s very important that we have our multilateral partners.
In that context, we had a discussion with the IMF, which has agreed to send the mission to Pakistan in the middle of May to revive that 7th review, which would entail a tranche of at least a billion dollars or something like that. So, I look forward to welcoming the IMF mission in Pakistan, and one of the points of discussions with the IMF has been about reversing subsidies that were given by the last government in the last month of this government. These are a very large drain on the Government of Pakistan that we cannot sustain. And the amount of money we have to borrow to pay these subsidies is so large that it just crowds out all private investments and increases the deficit and fuels inflation.
So, in order to actually provide real relief to the people, we will not distort prices and try to pass on, in a gradual manner, the real price of fuel and then try to control inflation by cutting down on government deficits.
WION: India is a country which has a huge market. Do you think it’s time Pakistan got down to business? And do you see this happening given that both the prime ministers have engaged in a messaging of stability for the region?
Miftah Ismail: Well, I’m very happy that Prime Ministers Modi and Sharif exchanged civilized, decent messages. But that’s not the first time that this has happened between the two countries’ leaders. But I’m afraid that as long as Modi is riding on this wave of right-wing ideology and network, it would be very difficult to achieve a thaw in relations between Pakistan and India and get us to have engaged in more vigorous trade. But nonetheless, I can say this on behalf of the Government of Pakistan, if the Government of India is willing to engage with us then they would not find us unwilling. We will be happy to meet India halfway but, India has to sort out the (long-pending) issues and then focus on building peace in the region.
WION: With the current account deficit (CAD) touching $20 billion this fiscal year, according to the IMF, PM Sharif is due to visit friendly countries —Saudi Arabia, China, and the UAE—ahead of the new budget. Are you optimistic that you will get some relief from them?
Miftah Ismail: My first task is to try and reduce the CAD as much as I can and hopefully, will end the year with not more than $16/17 billion in the CAD of the $20 billion. That’s the first point. Secondly, yes, the prime minister is going to visit friendly countries. We have very deep historic ties with Saudi Arabia and the UAE and China have been an all-weather friend of ours. The visit will not be, per se, to get help with the budget or financial support, but you know if it’s forthcoming then yes, I would note that these friends have always stood by Pakistan.
With Saudi Arabia, we talked about building a refinery either near Gwadar or Karachi. Saudi Arabia has done a lot of investments in India and at that time also, they said that they were looking to invest in Pakistan. They were also interested in buying certain power plants in Pakistan as part of our privatisation program —these are the point of discussion. Saudi Arabia and UAE are big suppliers of energy to us and so is Qatar. There are multiple issues that we need to talk to these countries.
WION: On your way to Washington, you met former premier Nawaz Sharif. What are his plans?
Miftah Ismail: Yes, I did meet him. I was on an exit control list for the last three years so, I have not been able to see him. It was a pleasure to go and meet him. I really didn’t discuss his plans so much, as we were discussing the state of Pakistan’s economy. He showed a lot of concern over what was happening to the Pakistan economy.
WION: Pakistan has this fog of the Financial Action Task Force (FATF) somewhat hovering over its skies. And there’s a review pending in June. Are there any plans on taking Pakistan out of the FATF’s grey list?
Miftah Ismail: I have criticized the PTI government and rightly so on almost everything that they’ve done. But there are some key areas in which they did some good work. And I’m going to build on that work and try and get Pakistan out of the grey list by June this year, and I’m very optimistic. I have spoken to some people in Washington and I’m quite optimistic that Pakistan will be taken out of the list. I’ve also spoken to our ambassador, who seems quite optimistic.
WION: And what about the smuggling of the US dollars into Afghanistan. Pakistan needs US dollars to sustain. The previous government alleged that dollars are being smuggled on a daily basis to neighbouring Afghanistan. Any plans to stop that?
Miftah Ismail: So, there are two to three issues that I, as an economist, would like to address. If dollars are being smuggled out of, let’s say, Pakistan territory into Afghanistan but it’s paid for with the Afghan currency, then it doesn’t affect the exchange rate between the Pakistani rupee and dollars. There’s no effect, no bearing on the exchange rate. You know, the transaction could be physically taking place in Islamabad or Dubai, or it could be taking place in London, it doesn’t really matter as long as the payment is being made in Afghani rupee/currency. It has no bearing on our current exchange rate.
The other tissue is the cross-border smuggling of currencies. I think the Pakistani government has put serious controls over these exchange companies.
