Caught in the Misery Index


Dr Qaisar Rashid

On 22 January, using the Misery Index, which combines the unemploy­ment and inflationary rates, Bloomberg Economics issued a report on the question, which government over the years managed the economy better than the others.
The report, called the Bloomberg Report, is misleading, as the report does not take into account the way the governments had been manag­ing the economy before 2023. The modus operandi had been to seek­ing foreign loans in dollars to stabilize the currency and subsidize certain sectors (especially related to energy) to control inflation (and consequent unemployment). That is, inflation did not find a compet­itive environment to select its true place, one notch up or two notch­es down. Instead, inflation remained subdued to a sitting government which kept on ameliorating the Misery Index by using foreign loans (se­cured in dollars) to showcase a semblance of economic opulence.
Relying on the Misery Index in isolation is devastating. The malpractice ru­ined the economy and brought the country on the brink of sovereign default on its debts. The country had barely enough foreign currency to pay for a month of imports in July 2023, when the International Monetary Fund (IMF) approved the bailout package of $3 billion for nine months. Out of it, $1.2 billion was giv­en upfront to stabilize the economy. With that, the contest between the IMF con­ditions and any effort to improve the Misery Index commenced, being dealt by the existing interim government. The Misery Index (aka the Economic Discom­fort Index), which measures economic distress felt by people daily, is the sum of the inflation rate (cost of living) plus the unemployment rate. The higher the combined score, the worse the economic situation, and the greater the misery felt by average citizens. Both inflation and unemployment are intertwined. For instance, a rise in oil price can cause both inflation and unemployment. Paki­stan remained in a habit of subsidizing oil, natural gas, and electricity to keep the Misery Index favourable, but the cost Pakistan paid was in terms of draining foreign currency reserves. This is where the IMF enters the scene.
The IMF asked Pakistan to let the local currency float on its own unhindered to find its due place. Consequently, the rupee experienced devaluation and the dollar touched the mark of 300. That, one dollar worth 300 rupees. Similarly, the IMF asked Pakistan to withdraw subsidies from oil, natural gas and electricity, besides increasing their prices to pay the circular debt. On the one hand, these steps helped Pakistan improve its foreign exchange reserves, whereas on the other hand, these steps brought in price hike and unemployment. Apparently, owing to the IMF conditions, in 2023, Pakistan’s Misery Index remained high, in­curring hyperinflation and hyper-unemployment.
Old habits die hard. Pakistan had been inured to offering subsidies owing to ever present foreign aid (or foreign investment). For instance, the United States (US) kept on helping Pakistan monetarily, because of one reason or the other. Certain Middle Eastern Countries also used to assist Pakistan financially and ma­terially (by providing free of cost supply of oil). Both these wells are now dried out. Being part of the political electoral system, in order to please the voters, the economic experts kept on practicing measures incongruent with reality. Pakistan refused to wean off the nasty habit of subsidizing certain sectors of economy, be­sides spending beyond means, and hence are the consequences.
In fact, the bailout package of the IMF militates against the Misery Index. The IMF is saying that let the rupee float freely to find its rightful place against the dol­lar. Artificial controlling the exchange rate exhausts foreign currency reserves. Similarly, the IMF is saying that let inflation readjust the demand and supply equation. After a period of hyperinflation, prices would go down to an affordable level. Let that time come. Perhaps, the same had been a point of conflict between Ishaq Dar and Mifta Ismael, two economic wizards. Dar was valuing the Misery Index whereas Ismael remained inclined to the IMF conditions. The year 2023 marked a revolt against the Misery Index. The depletion of foreign exchange re­serves brought Pakistan on the edge of sovereign default. Smuggling and hoard­ing exacerbated the crunch. Dar was found sweating with anxiety and helpless­ness. Finally, the IMF got its conditions accepted, upending the Misery Index. The dollar reached its pinnacle, so were inflation and unemployment rates.
In July 2023, when the IMF approved the bailout package, Pakistan thought that it would find some time and fiscal space to arrange foreign investment or aid to come out of the economic crisis, but that has not happened so far. Mere specula­tions and expectations have refused to work. Unfortunately, Pakistan is refusing to reduce its expenses and mend its ways. The practice of subsidizing the economy also offered leeway to non-democratic forces to seek foreign aid, mostly from the US and its allies, in dollars, and manipulate the political system to achieve desired objectives. Ironically, the practice is alive but the foreign aid is almost absent. Such is a paradox Pakistan is living with. The point is simple: in the absence of substan­tial foreign aid, the practice of interfering in politics is now short of life. The IMF loans are not available for subsidizing the economy. Scarcity has taken over reality.
Similarly, the age of securing debt to repay debt is also over. Pakistan is now cash-strapped and it needs to service the debt of around $2 billion a month in external debt repayments for three financial years, including the current one. Pakistan’s major refuge, austerity, has also run out of utility. Instead, Pakistan’s economy need restructuring.
The writer is a freelance columnist. He can be reached at