This Eid, after ages, I went down the rabbit hole of thinking about economics.

What could the Iran War mean for Pakistan and its IMF program?

Not to sound like a Cassandra, but you're going to want to sit down for this one

(here's a 🧵with pictures and 5 main messages) … 1⃣ Regrettably, Pakistan is one of the countries most vulnerable to negative economic spillovers from the Iran War

After 2001, Pakistan benefited from generous debt relief & foreign aid that saw public debt plummet from 62 to 44% of GDP by 2007

In just 15 years, it has risen back up to 77%

A long🧵on how this happened, featuring wasted opportunities & policy missteps by successive regimes 1⃣ First things first. Our media & politicians erroneously speak of public debt in Rupee terms. This is not right. We should look at debt relative to the size of the economy (GDP). Even if debt is rising in Rupee terms, if GDP is rising faster, things are improving.

Pakistan has reached “staff-level” agreement for a 25th waltz with the IMF. To make it official, we need “financing assurances from our development and bilateral partners.” This is Fund-speak for securing secret debt relief from China. It is wrong, incomplete and dangerous. A🧵 1⃣It is wrong because Pakistan's debt problem is not "a Chinese debt trap". Pakistan does have unsustainable debt but the foreign players to whom we owe our debt are much more diversified. We owe more to MDBs like World Bank & IMF and the Paris Club (US + Europe) than to China

Pakistan's economic model has reached its sell-by date. After decades of mismanagement, the economy can no longer grow by more than 4% without creating major risks. We are forced to choose between growth &external stability. Can't have both together anymore.

A 🧵on this endgame There are 5 basic and problematic macro relationships underpinning the way the Pakistan economy is currently wired.

They explain why we can no longer have growth without rising public debt, unsustainable current account deficits and foreign exchange reserve depletion...

Pakistan is in one of the deadliest debt traps in the world. Our govts have accumulated too much debt & wasted it on unproductive spending like consumption. Remaining current on past debt is forcing us to default on our development & climate needs. A 🧵, not for the faint-hearted The government is paying more to service debt than any other country in the world & will continue to do so for the next several years. This necessitates punitive and unrealistic taxes to pay for old debt and leaves no real resources to invest in Pakistan’s future ...

While it is hard to think about anything except the tragedy in Gaza, here are my 8 takeaways from last week’s IMF/WB Meetings & what they might mean for Pak.

1️⃣ The mood in Marrakesh was somber, amid yet another reminder that the world is (literally & figuratively) on fire… ….The last time these Meetings were held in Africa was 50 yrs ago, when the long post-war boom was rudely halted by conflict in the Middle East, resulting in high inflation & recession across the world. The troubling parallels with today were not lost on participants.

Last week, the @IMFNews released its latest report on Pakistan. It marked the start of our 24th waltz together. It pulled us back from the brink of default. We all heaved a sigh of relief. But the report reads like an SOS. A last call. You might want to sit down for this one ... First, the IMF has come as close to declaring our debt unsustainable as it can diplomatically do. Risks are “exceptionally high” & the path to sustainability is “narrow”. Among many other implausible things, it requires a kind of austerity that Pak has never pulled off before …

Some 30 years ago, India too was on the edge of bankruptcy. In response, its Finance Minister delivered a budget speech for the ages. It changed India forever. It couldn't be more different than the budget we have recently heard in Pak. A thread on that remarkable India speech... First, India's self-effacing FM, Manmohan Singh, an accomplished economist, did not dwell on what his predecessors had done or on imagined global conspiracies. He acknowledged that the country was in its deepest ever crisis & that the crisis was of India’s own making...

1/ As Pakistan and many other countries around the world attempt to reduce their public-debt-to GDP ratios, one of the key questions we face is how much adjustment in the form of debt relief and fiscal consolidation we should be aiming for ... 2/ For this, one of the key considerations is how long we think interest rates are going to be relatively high (like they are now) and therefore our debt servicing needs will remain high & our access to foreign financing will be prohibitively expensive.

A super interesting chapter on how to reduce public debt led by my dear friend Prachi Mishra at @IMFNews. You can read the full chapter here: imf.org/-/media/Files/…
Here are my main takeaways, with her charts and some implications for Pakistan: 1/ Poor countries have been able to reduce their public debt to GDP by between 5-10% of GDP

2/ Fiscal consolidation (reducing expenditures, increasing taxes) helps to lower public debt

3/ But higher growth & inflation play a greater role in poorer countries (by increasing GDP)

I wrote this for a compendium commemorating 75 yrs of Pakistan's independence, being exquisitely curated by @YousufNazar. As with my other dabblings, I try to present the issue in a readable & relatively non-technical (some would say obvious) way. Some of the main messages: 1. Pakistan goes to the IMF time and time again because it runs out of foreign exchange reserves. These reserves are needed by a country to pay for its imports and to repay the debt it owes to the rest of the world.

I spoke to Bloomberg a few days ago (article follows at the end of the thread below) & also gave a live TV interview this morning on Pakistan's economic crisis. My 10 main messages are:

1. Pakistan appears close 2 reaching a staff level agreement with the IMF on the next review 2. Precious time (and foreign exchange reserves) were lost by Pakistan over the last year, as energy prices were frozen in Feb 22, the new government dithered on the IMF program until Sept 22, and the new Finance Minister blew hot & cold with the Fund over the last 6 months

Thank you friends 4 your heartwarming & kind wishes 4 my new gig. I am sad 2 leave. I would return in a heartbeat if the chance ever comes again 2 serve my country in an environment that values technocratic skills & gives freedom 2 deliver. There is no greater honor &satisfaction The English song that I would love to be remembered by during this hiatus is the wonderful "Dignity" by the Scottish band, Deacon Blue. It's the 2nd song in this awesome live performance (the first is not 1/2 bad either, and is Randy Newman's tongue in cheek jibe at the USA) ...

Phewww. OK, final thread on the exchange rate, which is linked to the previous two. I am exhausted writing them so can only imagine what it must be like to be reading them (apologies). This final part asks what can go wrong with the exchange rate system in Pak? Banks intermediate inflows and outflows in the interbank market. They can contribute to speculation when they to advise their clients to wait to bring their export proceeds onshore because they speculate the Rupee might depreciate.

This is a continuation of my previous thread. Let us first consider what factors affect the value of a currency under a flexible exchange rate. On a day 2 day basis, the exchange rate is determined by the demand and supply of foreign currency in the interbank market. Supply comes from exports, remittances, foreign direct investment (FDI) & borrowing from abroad. Borrowing from abroad are loans taken by our banks and companies, as well as foreign portfolio investment (FPI) into our stock market& government bonds (unfairly called “hot money”).

A lot of people have asked me to do a thread on the exchange rate, so here goes. I will cut some corners in the interest of speaking plainly. While my reference is Pakistan, I think what I say applies more generally to emerging market and poor countries. A flexible exchange rate is generally thought to be better than a fixed one because of 2 major reasons. First, it helps save valued foreign exchange reserves. To run a fixed exchange rate, you need a huge amount of reserves so that you can artificially prop up your currency.

It is depressing to see our politicians rail against each other whenever we have to go to the IMF. If you leave office with foreign exchange reserves teetering, you have failed. It really is as simple as that. Pakistan has had more IMF programs than any other country. This is not bad luck. It is bad policy making. Here is how to fix it and stop our politicians from taking us for a ride.

thenews.com.pk/print/1041158-…

A thread on “Guns, Babies, and China” (with apologies to Jared Diamond). At the risk of over-simplification, I would argue that the seeds of our economic problems over the last quarter century were sown by 3 major forces, all of which were deliberate policy mis-choices: (1) wasting of the generous debt restructuring and aid flows that accompanied our role in the war on terror during 2001-2003 on running large fiscal deficits--a bad habit that has since lingered

I am often asked why Pakistan keeps going to the IMF. A whopping 23 programs shows we are addicted to the Fund’s tough love. In fact, we are the IMF’s most “loyal” customers (Argentina with 21 is no. two). By contrast, our Midnight twin, India has only ever been to the IMF once. Running to the global emergency ward 23 times in 75 years is no way to run a country. So this thread will try to explain as plainly as possible why Pakistan has never been able to get off the IMF treadmill. Buckle up and pour yourself a strong one. It’s not a pretty story…

Dear friends, I just wanted to thank you all for the best fortnight of my Twitter life. It has been so much fun interacting with you all, from around the world. We live, we learn. Let us just always be kind, if we can. Tomorrow, I will be serious again, but tonight I leave you... in the safe hands of the Boss...

So I got some requests after my last post to shed a bit more light on how the IMF works, especially in relation to its program with Pakistan. As some of you may know, I worked at the Fund a long long time ago in a galaxy far far away ... For those familiar with the Fund, please look away as you really won’t learn anything. For others, I will try to break it down as simply as I can. It will be a bit long and boring, for which I apologize. But it is important to know a bit about a place we have gone to 23 times...