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It is not an easy time to be the Finance Minister (FM) of Pakistan. The PTI government has fired two in less than three years. There are talks of bringing eminent banker Shaukat Tarin as another one. The other option is to give responsibility to the young Hammad Azhar.

Here it is attempted to contextualize the situation, and a comparison is drawn based on what has happened in the past – especially in case of debt management. Performance should be measured on three counts – what is being inherited, how was the performance in the tenure and what legacy one left.

Musharraf got a rotten balance sheet – gross public debt was 101 percent of GDP in 1999 and it came down to 58 percent in 2008. Shaukat Tarin got low debt on his plate. There was not much pressure from the IMF on enhancing debt maturity profile. However, there was front loading in the programme.

The discount rate (there was no policy rate at that time) went up to 15 percent in Nov 2008 –highest in recent history. The currency depreciated by 30 percent prior to entering the IMF programme. The inflation was over 20 percent. It was a tough time, and the negotiations were based on front loaded interest rates and exchange rate adjustments – as was the case in 2019.

In between, Dar went to the IMF in 2013. The key reason for going to the IMF is to avert looming balance of payment crisis – current account was 8.2 percent of GDP in FY08 and 6.1 percent in FY18 – the situation was bad in both cases. However, Dar inherited current account deficit of a mere 1.1 percent of GDP. That was a piece of cake – PMLN went to the IMF just to get cheap loans. There was no pressure to adjust currency and inflation remained in single digit as oil prices remained low in most of the tenure.

Invariably, domestic debt kept on growing since 2008 and the rollover risk of short-term debt was becoming critical in the IMF’s eyes. It was 31 percent of GDP in 2008 and the rollover risk was low. It went up to 43 percent of GDP in 2013 and IMF was asking for issuing long term fixed bonds. The situation became even worse in 2018 when the ratio reached 48 percent of GDP and stands at 53.3 percent of GDP now.

This context is important to know. Tarin recently lambasted the PTI government on the issuances of fixed rate PIBs at peaking rates –Rs2.1 trillion PIBs were issued during 2019 between 11 percent to 14.25 percent – average rate 12.7 percent. The policy rate was 13.25 percent. However, that was not for the first time. In 2014, when the discount rate was 10 percent, Dar issues Rs2.2 trillion PIBs between 12.09 to 13.59 percent – average rate 12.74 percent. The discount rate was 10 percent at that time.

This means that during Dar’s time, debt reprofiling was relatively more expensive than 2019. The interest rate fell sharply in 2020. Banks who had taken positions in 2019 in PIBs made capital gains, and with PIBs secondary market yields moving up lately, those gains are washing out. Interestingly, Silk Bank made mark to market gains on its PIBs portfolio and that is being used to improve the weak capital adequacy position of the bank.

That is the history and context. Past is behind us. The bottom line is that under the current IMF programme, stabilization is achieved. The focus of PTI ought to be on growth and instilling structural reforms. Hafeez Shaikh was weak in this regard. He had effectively outsourced the fiscal management and did not appear to be in control of the situation. Optics matter.

The government needs a doer in the remaining term. Inflation is a big concern. Here the problem is administrative. PTI needs a strong administrator in Q-Block. Tarin has a reputation of doing things. He has support of Karachi business community. But at that same time, Hammad could be a good choice – as he has political grounding. He lacks experience but can build a good team while Tarin may face political resistance from within the party.

The confusion needs to end.


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