Incoming Pakistani administrations are invariably high on optimism in their ability to achieve development that subsequent performance shows was highly misplaced. The proof lies in the fact that currently we are on the 23rd International Monetary Fund (IMF) programme which, on average, is of three years duration accounting for a total of 69 years in our 74-year history.
Each of the three civilian administrations since 2008 have gone on a Fund programme – 2008 signed off by Shaukat Tarin as finance minister and Dr Shamshad Akhtar as Governor State Bank of Pakistan (SBP), 2013 by Ishaq Dar and Yasin Anwar, and in 2019 by Dr Hafeez Sheikh and Dr Reza Baqir.
Post-2008 period of our history is marked by a turnover in finance ministers as well as governors SBP within one administration that is unprecedented. The Zardari-led PPP government (2008 to 2013) witnessed the highest number of finance ministers – Ishaq Dar (31 March 2008-12 May 2008), Naveed Qamar (12 May 2008 to 8 October 2008), Shaukat Tarin (8 October 2008 to 22 February 2010), Dr Hafeez Sheikh (18 March 2010 to 19 February 2013) and Salim Mandviwalla (19 February 2013 to 7 June 2013). With the exception of Qamar and Mandviwalla, who together held the portfolio for around six months and were regarded as interim appointments, the other three finance ministers were not party members, claimed the status of technocrats though their ability to deliver on the Fund’s conditions not only led to the suspension of the programme with two tranches remaining undisbursed but by 2012 Sheikh was trying to negotiate another Fund programme.
The Zardari years witnessed four SBP governors who resigned well before the expiry of their constitutionally mandated tenure. Supporters of granting autonomy to SBP, barring investigation against any senior member of the SBP and delinking the decision of the Monetary Policy Committee (MPC) to decide the discount rate without any pressure from the Ministry of Finance need reminding of a statement by the fourth US president James Madison: “the essence of government is power; and power, lodged as it must be in human hands, will ever be liable to abuse.”
The PML-N government witnessed two finance ministers (2013-18): Ishaq Dar (7 June 2013 to 28 July 2017), and Miftah Ismail the de facto finance minister from December 2017 till the end of the PM-N tenure – first as Advisor and formally appointed as finance minister on 27 April 2018 till 31 May 2018. PML-N in contrast to the other two national parties has a number of economists within its ranks however Nawaz Sharif appointed Dar, a long term party loyalist, who rose from being an accountant for the Sharif family’s business to the country’s finance minister. Dar lacked academic credentials but was able to effectively dismiss criticism due to unquestioning reliance by Nawaz Sharif on him on all matters – on occasion a reliance that transcended his own brother’s justified reservations.
Dar slinked away from the country with the full support of the Shahid Khaqan Abbasi-led government after the case against him for assets beyond means was filed. He left behind an unenviable legacy of a rupee that was grossly overvalued which enabled him to show budget deficits that were manageable but which ate up the country’s reserves with exports plummeting. Miftah Ismail reversed the rupee over-valuation but was severely constrained because of the forthcoming elections.
Dar appointed two governors of the SBP – Mahmood Wathra and Tariq Bajwa – and no doubt played some role in the resignation of Yaseen Anwar who quietly resigned on 31 January 2014 (two years and 104 days into his tenure) - seven months after Dar was appointed as the finance minister.
Imran Khan began his innings with a party loyalist Asad Umar who was replaced by a Musharraf acolyte DR Hafeez Sheikh, a technocrat with the requisite education and background. However, he lacked empathy with the people of this country and signed off on an agreement with the Fund which stifled productivity envisaging 1.5 percent growth (further reduced to negative 0.4 percent due to the pandemic). He was supported by the incumbent Governor SBP who took decisions that generated severe criticism not only from previous governors but also from independent economists without presenting any supporting research to this day: (i) a discount rate of 13.25 percent (July 2019 to March 2020) by linking it to the consumer price index as opposed to the previous practice of linking it to core inflation (non-food and non-energy items that are not susceptible to the discount rate in this country; (ii) this discount rate attracted portfolio investment of around 3 to 4 billion dollars but the Bank ignored overwhelming research that such inflows leave an economy at the press of a button if there is a better opportunity elsewhere in the world – inflows that have since left the country; and (iii) reports indicate that the rupee is undervalued to this day and repeated calls for calculating the rupee value are ignored on the plea that this can be calculated only in the long term. Why SBP research wing does not go back in years to assess the rate, has elicited no response.
Enter Shaukat Tarin in this milieu. He is working with a Governor who appears unnerved by the summary dismissal of Dr Hafeez Sheikh, appointed less than a month before he was, and who on Thursday past remarked that opening of Roshan Digital Accounts by Pakistanis living in Saudi Arabia witnessed a significant upward trend (no amount cited) following Imran Khan’s recent visit to the Kingdom. The 7 percent discount rate is now backed by core inflation rate however analysts argue that this maybe appropriate during normal years but with the ongoing pandemic the rate should be lower still.
To conclude, this is the time for brutal honesty as the country continues to struggle amidst the third wave of the pandemic and a set of IMF conditions agreed by Sheikh/Baqir in February 2021 which would fuel poverty levels in the country. Tarin is committed to renegotiating the utility rate rises, the revenue generation agreed, raising public sector development programme and, one would assume, the prevalent discount rate and the rupee depreciation which has remarkably stabilized since 31 March 2021 – the day after Dr Hafeez Sheikh’s dismissal became public knowledge.
Copyright Business Recorder, 2021
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