EDITORIAL: Shaukat Tarin as a key member of the newly-constituted Economic Advisory Council (EAC) would be the de facto finance minister, as his self-imposed condition for accepting an appointment as advisor to the prime minister on finance is subject to his clearance by the court in the National Accountability Bureau (NAB) appeal filed against his earlier acquittal, with Hammad Azhar as the de jure finance minister. While Azhar, unlike Tarin, is a long-term party loyalist, yet he is inexperienced and therefore susceptible to being influenced by his senior cabinet colleagues. This is reflected by the cabinet’s reversal of his decision to allow cotton and sugar import from India on 25 March - the day after he approved it in his capacity as the head of the Economic Coordination Committee (ECC) of the Cabinet, less than a day after the notification giving him additional charge as the country’s Finance Minister. Azhar’s justification, reportedly presented during the cabinet meeting, was that he had approved the summary submitted by the Ministry of Commerce as the Prime Minister holds Commerce portfolio as well.
Tarin’s credentials of making difficult deals with members of the opposition (as the architect of the 2010 National Finance Commission (NFC) award which resulted in Shahbaz Sharif’s Punjab-led government agreeing to multiple criteria for distribution of provincial shares in the divisible pool - horizontal distribution - instead of population being the sole criterion – a skill which may stand the country in good stead if he negotiates changes in the NAB law) as well as his integrity (he successfully persuaded his cabinet colleagues in 2009 to agree to third-party Asian Development Bank audit of the controversial rental power projects) is not in question.
Tarin’s views on the current state of the economy during a recent interview with a private television channel are spot-on. Business Recorder has consistently expressed serious reservations at the monetary and fiscal policies agreed with the International Monetary Fund (IMF) on 12 May 2019 on five counts: (i) the discount rate of 13.25 percent effective 20 July 2019 till March 2020 crippled the large-scale manufacturing sector generating unemployment and a massive productivity decline which was projected by the Fund with the growth rate (pre-Covid-19) at 1.5 percent; and linking the discount rate to Consumer Price Index (CPI) instead of core inflation (non-food and non-energy) fuelled food inflation; (ii) the scale of the rupee depreciation within a short span - from 112 rupees to a dollar to 165 rupees to a dollar - further exacerbated inflationary spiral; (iii) the massive rise in utility rates, electricity, gas and petrol, made the value of each rupee earned by the householder erode at a fast pace with incomes no longer keeping pace with inflation while the productive sectors faced a rise in input costs making them uncompetitive both in the local (as it encouraged smuggling across thousands of miles of our porous border) and the international market; (iv) the unrealistic revenue targets agreed with the Fund put pressure on the Federal Board of Revenue (FBR) to continue to rely on low hanging fruit; the recent amendments in the Income Tax ordinance need to be reviewed; and (v) the primary deficit has been contained at the cost of a rising budget deficit; however, with the G20 countries extending a debt relief deferral due to the pandemic the Pakistan government has relied on a massive rise in domestic borrowing (from 16.5 trillion rupees inherited by this government to 23.7 trillion rupees by September 2020) – a highly inflationary policy.
This newspaper has always maintained that while reforms are justified and needed but the upfront time-bound conditions agreed with the Fund have not only pushed hundreds of thousands (with large families) under the poverty line at considerable cost to Imran Khan’s significant political capital at the start of the Fund programme. Going forward at the same pace would lead to complete annihilation of any political capital within months.
Sceptics question the space that may be allowed to the new economic team by the IMF in recalibrating agreed conditions. Tarin reckons there is some space given the third wave of Covid-19, which is a lot worse than the previous two. In this context, the 24 March 2021 press release uploaded on the Fund’s website notes that “the challenges from the unfolding pandemic and the authorities’ commitment to the medium-term objectives under the EFF, the policy mix has been recalibrated to strike an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms while maintaining social cohesion.” While a 500 million dollars tranche has been released after Board approval yet the IMF has not uploaded details and the timelines of the staff-level agreement; or in other words, the IMF as the elephant in the room may insist on adhering to what was agreed with the previous helmsman at least in this quarter and perhaps be open to engagement in the next quarter.
Those who argue that the IMF loan represents a small portion of our external needs are either unaware or choose to ignore the fact that being on a Fund programme provides a comfort level to not only other donors, bilateral (including China) and multilateral, but also the rate of return at which international investors are willing to enter our market. This is why Tarin stated that he is not advocating abandoning the programme and emphasised that there is a need to put our own house in order, especially with respect to power and tax sectors, and state-owned entities (SOEs) many of which remain without a chair. Tarin would be taking on a very difficult and challenging task however as he said there is no problem that has no solution. We wish him sound health and success.
Copyright Business Recorder, 2021