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There is another reshuffle in the economic team. Shaukat Tarin has been appointed as the fourth Finance Minister in less than three years. The Captain keeps on experimenting. The question is: what change can this move actually bring? In order to offer an objective analysis, the overall macroeconomic picture and its boom-and-bust cycle needs to be contextualized.

When the Pakistan Tehreek-e-Insaf (PTI) government came to power, an external account crisis was brewing. The initial team took a lot of time to move onto the path of stabilization, i.e., signing up with the International Monetary Fund (IMF). And later, a front-loaded programme was signed by a newly-inducted team. Then Covid-19 hit.

Now the macroeconomic indicators are shaping well. State Bank of Pakistan’s (SBP’s) reserves are close to their all-time high and the external account is well under control. Inflation is high; but there are no signs of the economy heating up. The growth momentum is picking up strongly as suggested by several high frequency indicators.

Yet, the feel-good factor is missing. The euphoria is not there and the fiscal house is not in order. The overall feeling is that there is a lack of direction in Islamabad. Indecisiveness is creating confusion. Several key decisions are pending. In some cases, decisions taken at one forum are rolled back on the other; for example, payment to Independent Power Producers (IPPs) issue or trade with India. Clarity and direction are missing.

The PTI government needs an anchor to create the feel-good factor. That has frustrated the PM. And to develop that missing confidence, a need was felt for another reshuffle. It does not matter who comes into power, the structure of the economy is such that in the next two years, there will be some growth. There are exogenous factors that can boost or lower growth – such as trajectory of oil prices.

What the PTI government or perhaps any government would want at this point in time is to create confidence to attract investment in the manufacturing sector both by domestic and foreign private sectors. For that to happen, the visibility of the financial czar is imperative.

In the process, there are several tough nuts to crack – especially in the energy value chain. Authorities do not want energy tariff to increase and at the same time they seek to curb the circular debt flow without burdening the fiscal house – it is an impossible equation with no magic wand. Numerous concurrent steps are required to be taken simultaneously for the ship to sail.

The onus of stabilization policies was on the SBP which has done the job well. But there is a limit to the stimulus SBP can offer to spur growth. The structural issues are to be dealt with in Islamabad. Someone should walk the talk.

There are numerous national and international stakeholders to deal with – on one side, there is the IMF, World Bank and other multilaterals; and on the other side, there are Chinese investors and the China Pakistan Economic Corridor (CPEC). The FM has to negotiate with both parties while striking a delicate balance. However, given the geostrategic situation, not all is in control of the finance minister.

The key is to take decisions on State-Owned Enterprises (SOEs) and Federal Board of Revenue (FBR) levels. The privatisation of SOEs and concession awards process for Discos should roll out. Similarly, policy decisions pertaining to autos, refinery, IT and textile are pending. These should be implemented. The price control mechanism needs to be strengthened. Similarly, steps need to be taken to boost growth.

The PTI government does not have much political capital left to take tough decisions. It should achieve 5 percent growth in the next two years to have any chances of winning the next elections. It is not an easy task given the many politics fronts it has opened not just with the opposition but also within the party.

The PM is looking for someone to take a stand on these decisions. Someone who enjoys the reputation of being a doer. Someone who can take a tough stand for Economic Coordination Committee’s (ECC’s) decision in the cabinet. Someone who needs to bring all stakeholders to the table. Decisions can be right or wrong in retrospect; but decision-making is needed. Shaukat Tarin enjoys that kind of reputation. Let’s see how much he lives up to his reputation and PM’s expectations.

Copyright Business Recorder, 2021

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Ali Khizar

Ali Khizar is the Head of Research at Business Recorder. His Twitter handle is @AliKhizar

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