A lot has been said about State Bank Governor, Dr Reza Baqir, as of late due to the news of the notoriously controversial SBP autonomy bill.
Some call him an agent, some say he is still on IMF’s payroll, while others claim he’ll make Pakistan another Egypt. Most of what is said outside financial circles about him are often hearsay that has little to do with reality. Despite the fact that the post, regardless of whether the governor of a province or SBP, remains apolitical and rarely criticised, Dr Baqir has faced and still faces more than his fair share. Profit debunks some of the claims made about him.
So who is Dr Baqir and how did he end up as Governor?
Dr Baqir’s family belongs to a village called Vehari. His father, Chaudhary Sharif Baqir was a Barrister of Law who also had a political background. His father joined the Pakistan People’s Party (PPP) and even contested in the general elections in 1988. He, however, did not win. Later on, in 1997, he became an advisor to the then interim PM Azam Mairaj.
Following his education at Aitchison College Lahore, Baqir moved to the US where he obtained a degree in economics from Harvard University. Later on, he obtained a PhD in economics from the University of California, Berkeley. He holds an A.B. (Magna cum Laude) in Economics from Harvard University.
Baqir managed to land himself a job at the IMF where he spent approximately 16 years of his life and served as the IMF office head and senior resident representative in Egypt. He also served as the chief of the IMF Debt Policy Division that looked at policies regarding external debt sustainability and restricting debt for member countries and as deputy division chief of the IMF’s Emerging Markets Division.
Through his role at the Debt Policy Division, he helped design debt and fiscal policies for countries like Greece, Cyprus, Ghana, Jamaica, Portugal, and Ukraine that were facing major debt-induced economic crises. In addition to this, he has also had the privilege to head the IMF delegation at the Paris Club meetings.
Moreover, Baqir has also worked at the World Bank and Union Bank of Switzerland, in addition to the Massachusetts Institute of Technology (MIT).
Pakistan Egypt bhai bhai?
While there may be similarities between Egypt and Pakistan, it is very important to note the stark differences. Pakistan is a democracy. The extent of democracy in Pakistan remains up for debate, but it is vastly different from Egypt that is governed by a dictator. During the IMF Programme, Egypt was transitioning to a democracy. The elected Muslim Brotherhood government, however, was faced with a number of challenges on the political front including, internal and external resistance.
Secondly, Egypt does not have nuclear weapons. Pakistan, on the other hand, is the only nuclear-armed country that keeps going back to the IMF. Egypt entered into its last IMF programme after a gap of 15 years. Pakistan has not made it that long between IMF bailouts. Pakistan first sought assistance from the IMF in 1958. Following that the country has been bailed by the organisation 22 times out of which 15 times have been from 1980 to the present.
Egypt, however, had a tougher time dealing with the international financial institution’s regulations and conditions considering the fact that it was not used to IMF programmes and its interference.
Did Baqir replicate Egypt’s inflation problem in Pakistan?
The most significant problem Egypt faced after going into an IMF programme was hyperinflation whereby the food prices shot up by 40 per cent and headline inflation maxed out on 30%. In comparison, throughout Pakistan’s history, inflation has peaked at 25% during 2008.
Reasons for the hyperinflation witnessed in Egypt can be linked to the slash in subsidies that it had given out on petroleum products. Subsequently, the prices of electricity shot up by 40% too. In addition, currency adjustments required by the country fueled inflation. The slash in subsidies, however, resulted in an approximate 2.2x increase in the number of people living below the poverty line resulting in 60% of the population below the poverty line.
However, hyperinflation can occur in a country regardless of whether there is an IMF programme or not such as with Venezuela, Argentina, and Zimbabwe.
While Pakistan is witnessing high inflation rates, it has not entered into hyperinflation territory despite a number of IMF suggested reforms and actions being put in place. For instance, the currency is now left on the behest of market forces following a massive devaluation. The impact of the devaluation is now in the past and had been weighed on inflation rates of 2019 and the first half of 2020. A similar case has been witnessed with the high policy rates that had also weighed on inflation. As for petroleum subsidies, Pakistan did not have to remove any as the government rather than subsidising, applies a levy on the price.
Most importantly, Pakistan’s inflation can be tied to corruption which has resulted in supply shocks. Shortages of food staples have resulted in the prices soaring. This is beyond the scope of any central bank and cannot be tied back to the State Bank of Pakistan.
Is it bad that Baqir once worked for the IMF?
To simplify this, Reza Baqir is now an employee of the Pakistan government. This means that despite him being paid less than what he would have made at the IMF, his loyalty should remain with his current employer. With the country entering agreements with Baqir’s former employer, the governor brings the right experience to negotiate and explain on Pakistan’s behalf in the language and way the IMF would best understand. Having been on the other side of the table, and now having to think from a national perspective, Baqir’s past should not make his appointment a cause of concern, especially two years later.
To make this easy to understand, let’s say you hire an ex-loan agent at a bank as your personal finance manager. The odds of him being in cahoots with his old employer are slim. It’s similar in this case, but just on a bigger and fancier level.