Miftah Ismail is one of the key figures of Pakistan Muslim League-Nawaz (PML-N), a leading politician and an economic wizard of the country who knows his job and has never shied away from calling a spade a spade. He is a true democrat and patriot for whom the national interest comes first. He served as Federal Minister of Finance from April 19, 2022 to September 27 last year when the country’s economy was in shambles. Miftah burned the midnight oil and left no stone unturned in fixing the economy and did a good job by putting the economy on the right track.
In fact, whatever measures he took made sense but in September he was replaced by another senior PML-N leader, Ishaq Dar as Federal Minister for Finance. Miftah had also served as federal finance minister in Shahid Khaqan Abbasi’s cabinet from April 27, 2018 to May 31, 2018. He had also served as Special Assistant to the Prime Minister (Minister for State) from December 27 to April 27, 2018. Prior to this, he has also served as head and vice chairman Punjab Board of Investment and Trade in 2012-2013. He had also served as chairman of the Pakistan Board of Investment and an economist with the International Monetary Fund (IMF). Miftah who is a credible voice in PML-N’s cadres is also known for bravely voicing his concerns for the betterment of the country above party lines. He received his PhD from the Wharton School of Business at the University of Pennsylvania in Philadelphia. The Friday Times (TFT) talked exclusively to him about the IMF program, threat of default, devaluation of Pak rupee and other burning economic issues faced by the country.
TFT: Do you think it was a good idea to resume dealings with the IMF now?
Miftah Ismail (MI): The government has taken a good decision to bring the IMF. The Prime Minister has taken a good step, and so, by the grace of Allah, we have seen that the stock market has also improved. The IMF itself has said that it will help. As a Pakistani who lives in Pakistan, whose property and business is in Pakistan, I know that when my value of rupee decreases, the value of my business will also decrease. But I am happy that Pakistan has taken a good step that the default will be averted, even if it stings a little in the short-run.
TFT: Do you think there is no danger of default if the IMF program is implemented? Because despite the external actions that have been taken, people are also expressing their concern about how difficult it will be to survive with the IMF?
Miftah Ismail: The quick response of the IMF means that they absolutely want to work with us and that the IMF will protect us. The IMF is the best insurance we have against default. So I think that if the IMF agreement is made, then God willing, it will be good.
TFT: The government has also made deals with other friendly countries as well as the IMF, and they were making commitments, but later they started to openly demand reforms from Pakistan first. Do you think that funds will come from there?
Miftah Ismail: Saudi Arabia said that they will give 2 billion dollars. After that, their finance minister said the same, that they will provide funds after we bring reforms. This was then followed by the UAE agreeing to give another 1 billion dollars. Qatar had already agreed to invest 3 billion. All this money will come, God willing. Apart from this, you will also see that we will get some help from China as well as the countries of the Paris Club. We have to show the world that we are ready to do the right thing and to sit with the IMF, and we will get help from them.
TFT: So, are you angry that you were removed after what you were saying four months ago, but now they are doing what you had said back then?
Miftah Ismail: I think all that matters now is saving Pakistan from defaulting.
TFT: But had these decisions been made four months ago, along with the IMF program being there, would things have gotten this bad, especially seeing how the dollar is at Rs 255 -262 rupees, etc.?
Miftah Ismail: We all know that there was a time when it came to 245, but then it went from 245 to 213, but it went back up after tweets of disagreements. Then after that it was slowly reaching 238, -40, and we thought it would come back. But the truth is even though t I used to pay attention to it, I did not try to stop it through any funds or administrative measures because markets do not work like this. Now when we actually did this for 3-4 months, the exports and remittances decreased by 10%. So, this is a loss of around 3 billion dollars. These 3 billion dollars would have been in our reserves today and along-with the 1.1 billion dollars that the UAE banks would have re-rolled had the IMF's new review was done by the end of October. The risk of default would have been reduced considerably too.
TFT: In a statement issued by the IMF, they asked us to restore the viability of the power sector and to reverse the continued accumulation of circular debt. What will the government have to do for this?
Miftah Ismail: We have not increased rates in the last 3-4 months. The IMF had agreed to my request that we defer charging Fuel Adjustment charges to consumers with up to 200 units and then charge them in winter by increasing it by Rs 1. But after I was removed the government waived the fuel charges for consumers of up to 300 units. The IMF is now asking that these bills be reinstated.
TFT: So if the rate is increased, will they agree to it?
Miftah Ismail: The IMF was not willing to come to the table unless we let go of the currency, meaning we let market forces decide the rate. Now that we have done that, they are here to talk as well. The second thing to consider is that the bill collection percentage had gone down during the floods but the ministry has now made extra efforts and have more than made up for the loss during floods. So this good performance will make things a little easier.
TFT: Would an increase in rates lead to a decrease in collection?
Miftah Ismail: It normally does. But the last couple of months of performance gives me hope that the power division knows what it is doing and they will hopefully be able to collect bills. But yes, consumers find it hard to pay bills.
TFT: One statement is to allow the exchange rate to fall so that the shortage of foreign exchange can be cleared. What does this mean?
Miftah Ismail: Until now, the government has essentially been saving dollars by curtailing imports, for example, 9,000 containers are being held at the port as we speak. The IMF is saying that we should not put physical or administrative constraints on the dollar, and want us to let the rate of the dollar increase so much that eventually the supply-demand is equal.
TFT: Even though a deal has been reached, the government is saying that the behavior of the IMF is very strict, it is not ready to accept our credibility despite the Prime Minister having called them and the exchange rate having fallen. Why do you think that is?
Miftah Ismail: Our credibility had already been poor with regards to the rupee, and we had made assurances that we have not fulfilled. Other issues such as those of power subsidies are also difficult but the government is working on them. The government has given more subsidies than what had been allocated in the budget which is another concern.
TFT: What is the best way to give out subsidies?
Miftah Ismail: If we are to keep the IMF going and go towards sustainable growth, then we must give targeted subsidies to poor people. We increased the funds for BISP from Rs 240 million to 360 billion in the first budget of Mian Shahbaz Sharif’s government. The government can increase this if the provinces add 200 to 300 billion to it. So next year Rs 350-360 billion into 700 billion rupees, and double the money. This will increase the quantity of subsidies as well as the subsidy recipients. The IMF will not refuse that, because it is a targeted subsidy. There are so many ways to assess data in order to target the poor people, and we must use it. But when we give generalized subsidies on electricity and petrol, making them cheaper, we are actually incurring losses to the economy.
TFT: Are you convinced that the IMF will help Pakistan avoid a default?
Miftah Ismail: God willing, InshaAllah, the IMF will come to the table, as it already has to some extent and we will avoid a default. We will secure the funds we need.
TFT: Do you think the currency market will also stabilize?
Miftah Ismail: I request two things from you regarding the matter of our currency, it is imperative that for the time being, we do not focus so much on the currency market and think instead of the bigger picture. It will stabilize soon. This happens all over the world, but it gets resolved as well. It has been artificially held for four months now, so it is very difficult to bring it back to normal in a short amount of time. But it will stabilize eventually. Secondly, now that the government has taken this difficult decision, give it a little space. If petrol prices increase, give the government a little space. If the rupee is devalued right now, petrol prices are bound to increase and it is not Ishaq Dar’s fault. It is what it is.
In fact, whatever measures he took made sense but in September he was replaced by another senior PML-N leader, Ishaq Dar as Federal Minister for Finance. Miftah had also served as federal finance minister in Shahid Khaqan Abbasi’s cabinet from April 27, 2018 to May 31, 2018. He had also served as Special Assistant to the Prime Minister (Minister for State) from December 27 to April 27, 2018. Prior to this, he has also served as head and vice chairman Punjab Board of Investment and Trade in 2012-2013. He had also served as chairman of the Pakistan Board of Investment and an economist with the International Monetary Fund (IMF). Miftah who is a credible voice in PML-N’s cadres is also known for bravely voicing his concerns for the betterment of the country above party lines. He received his PhD from the Wharton School of Business at the University of Pennsylvania in Philadelphia. The Friday Times (TFT) talked exclusively to him about the IMF program, threat of default, devaluation of Pak rupee and other burning economic issues faced by the country.
TFT: Do you think it was a good idea to resume dealings with the IMF now?
Miftah Ismail (MI): The government has taken a good decision to bring the IMF. The Prime Minister has taken a good step, and so, by the grace of Allah, we have seen that the stock market has also improved. The IMF itself has said that it will help. As a Pakistani who lives in Pakistan, whose property and business is in Pakistan, I know that when my value of rupee decreases, the value of my business will also decrease. But I am happy that Pakistan has taken a good step that the default will be averted, even if it stings a little in the short-run.
TFT: Do you think there is no danger of default if the IMF program is implemented? Because despite the external actions that have been taken, people are also expressing their concern about how difficult it will be to survive with the IMF?
Miftah Ismail: The quick response of the IMF means that they absolutely want to work with us and that the IMF will protect us. The IMF is the best insurance we have against default. So I think that if the IMF agreement is made, then God willing, it will be good.
TFT: The government has also made deals with other friendly countries as well as the IMF, and they were making commitments, but later they started to openly demand reforms from Pakistan first. Do you think that funds will come from there?
Miftah Ismail: Saudi Arabia said that they will give 2 billion dollars. After that, their finance minister said the same, that they will provide funds after we bring reforms. This was then followed by the UAE agreeing to give another 1 billion dollars. Qatar had already agreed to invest 3 billion. All this money will come, God willing. Apart from this, you will also see that we will get some help from China as well as the countries of the Paris Club. We have to show the world that we are ready to do the right thing and to sit with the IMF, and we will get help from them.
TFT: So, are you angry that you were removed after what you were saying four months ago, but now they are doing what you had said back then?
Miftah Ismail: I think all that matters now is saving Pakistan from defaulting.
TFT: But had these decisions been made four months ago, along with the IMF program being there, would things have gotten this bad, especially seeing how the dollar is at Rs 255 -262 rupees, etc.?
Miftah Ismail: We all know that there was a time when it came to 245, but then it went from 245 to 213, but it went back up after tweets of disagreements. Then after that it was slowly reaching 238, -40, and we thought it would come back. But the truth is even though t I used to pay attention to it, I did not try to stop it through any funds or administrative measures because markets do not work like this. Now when we actually did this for 3-4 months, the exports and remittances decreased by 10%. So, this is a loss of around 3 billion dollars. These 3 billion dollars would have been in our reserves today and along-with the 1.1 billion dollars that the UAE banks would have re-rolled had the IMF's new review was done by the end of October. The risk of default would have been reduced considerably too.
TFT: In a statement issued by the IMF, they asked us to restore the viability of the power sector and to reverse the continued accumulation of circular debt. What will the government have to do for this?
Miftah Ismail: We have not increased rates in the last 3-4 months. The IMF had agreed to my request that we defer charging Fuel Adjustment charges to consumers with up to 200 units and then charge them in winter by increasing it by Rs 1. But after I was removed the government waived the fuel charges for consumers of up to 300 units. The IMF is now asking that these bills be reinstated.
TFT: So if the rate is increased, will they agree to it?
Miftah Ismail: The IMF was not willing to come to the table unless we let go of the currency, meaning we let market forces decide the rate. Now that we have done that, they are here to talk as well. The second thing to consider is that the bill collection percentage had gone down during the floods but the ministry has now made extra efforts and have more than made up for the loss during floods. So this good performance will make things a little easier.
TFT: Would an increase in rates lead to a decrease in collection?
Miftah Ismail: It normally does. But the last couple of months of performance gives me hope that the power division knows what it is doing and they will hopefully be able to collect bills. But yes, consumers find it hard to pay bills.
TFT: One statement is to allow the exchange rate to fall so that the shortage of foreign exchange can be cleared. What does this mean?
Miftah Ismail: Until now, the government has essentially been saving dollars by curtailing imports, for example, 9,000 containers are being held at the port as we speak. The IMF is saying that we should not put physical or administrative constraints on the dollar, and want us to let the rate of the dollar increase so much that eventually the supply-demand is equal.
TFT: Even though a deal has been reached, the government is saying that the behavior of the IMF is very strict, it is not ready to accept our credibility despite the Prime Minister having called them and the exchange rate having fallen. Why do you think that is?
Miftah Ismail: Our credibility had already been poor with regards to the rupee, and we had made assurances that we have not fulfilled. Other issues such as those of power subsidies are also difficult but the government is working on them. The government has given more subsidies than what had been allocated in the budget which is another concern.
TFT: What is the best way to give out subsidies?
Miftah Ismail: If we are to keep the IMF going and go towards sustainable growth, then we must give targeted subsidies to poor people. We increased the funds for BISP from Rs 240 million to 360 billion in the first budget of Mian Shahbaz Sharif’s government. The government can increase this if the provinces add 200 to 300 billion to it. So next year Rs 350-360 billion into 700 billion rupees, and double the money. This will increase the quantity of subsidies as well as the subsidy recipients. The IMF will not refuse that, because it is a targeted subsidy. There are so many ways to assess data in order to target the poor people, and we must use it. But when we give generalized subsidies on electricity and petrol, making them cheaper, we are actually incurring losses to the economy.
TFT: Are you convinced that the IMF will help Pakistan avoid a default?
Miftah Ismail: God willing, InshaAllah, the IMF will come to the table, as it already has to some extent and we will avoid a default. We will secure the funds we need.
TFT: Do you think the currency market will also stabilize?
Miftah Ismail: I request two things from you regarding the matter of our currency, it is imperative that for the time being, we do not focus so much on the currency market and think instead of the bigger picture. It will stabilize soon. This happens all over the world, but it gets resolved as well. It has been artificially held for four months now, so it is very difficult to bring it back to normal in a short amount of time. But it will stabilize eventually. Secondly, now that the government has taken this difficult decision, give it a little space. If petrol prices increase, give the government a little space. If the rupee is devalued right now, petrol prices are bound to increase and it is not Ishaq Dar’s fault. It is what it is.