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Pakistan's economy: walking on thin ice

  • Dar and his team of policymakers will be treading a very thin line, as they seek to accelerate economic growth in unfavourable conditions marred with a global economic slowdown all while remaining cognizant of IMF conditions
Published October 7, 2022
Photo: Reuters
Photo: Reuters
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“Uncertainty always creates doubt and doubt creates fear.” This quote from American businessman and executive chairman of United Airlines, Oscar Munoz, perfectly encapsulates the current predicament of Pakistan, a country that has been in tenuous shape, facing a plethora of challenges including domestic economic and political turmoil along with a volatile situation internationally.

The situation has only exacerbated following flash floods that emerged out of record monsoon rainfall in the country, a clear sign of ongoing climate change in its most extreme form, leaving millions across the country homeless while causing scars and devastation that will take years to heal.

So dire is the predicament that the Ministry of Finance in its latest monthly Economic Update & Outlook for September itself admitted that Pakistan's economic outlook has become uncertain.

On the other hand, the incumbent government, which already has its work cut out, decided to remove Miftah Ismail from the post of finance minister, arguably the most important role in the current setup, and replace him with Pakistan Muslim League-Nawaz (PML-N) stalwart Ishaq Dar.

Dar brushes off concerns after Moody’s cuts Pakistan's rating

The arrival of Dar dominated the news cycle for quite some time, however, his ascendance to the top at the Ministry of Finance slot just months before the dissolution of the National Assembly, currently scheduled in August 2023, does raise some eyebrows, while adding more uncertainty in the country.

Dar, a four-time finance minister, is no stranger to his current job. However, he does carry a reputation, which might not bode well in the current climate as Pakistan is currently under an International Monetary Fund (IMF) programme.

This was quite evident with Dar's first crucial decision since taking charge of the Ministry of Finance last week, as he announced a cut of around 5% in the prices of all petroleum products for the next fortnight, while not increasing the petroleum development levy (PDL).

Dar's decision might have gained some traction among inflation-ridden masses, but it did lead to a very public display of disapproval from his predecessor Miftah who, in a tweet, called this decision “reckless”.

The newly appointed finance minister did not take criticism from his political party member lightly.

In an interview with a private news channel, he not only defended his decision but clapped back at his forerunner, "I will be dealing with the IMF and not Miftah," without mincing any words.

PARTLY FACETIOUS: What’s common between Dar and Miftah?

This public confrontation between the two key players of PML-N not only exposed serious fractions within the ruling party on key issues but more importantly created doubt over the future course of Pakistan's economy with Dar at the helm.

Will the PDM government resort to populist measures to gain some voter mileage before the election, similar to what its predecessors the Pakistan Tehreek-e-Insaf (PTI) did? This would be ironic considering this is what the current government believed was the prime culprit behind the current economic woes.

It is apparent, however, that economic direction is set to change, as Dar expressed his intentions to lower both the interest rate and inflation, and is gearing up to take on the bulging dollar head-on.

The announcements may sound like great news for a slowing economy, but seem a bit detached from reality as reducing the policy rate in the current scenario would only flare up inflation rate, which remains well above 20%.

Meanwhile, the US dollar, which is rising high globally after the US Federal Reserve hiked up the key interest rate several times, can only be brought to a certain level against the local rupee until the elementary forces of supply and demand kick in.

IMF explains why market-determined exchange rate crucial

Moreover, how much room for negotiation still remains with the IMF is yet to be seen and now would be Dar's ultimate task, a man who himself claims to be well-versed in dealing with the international lender.

On the other side of the coin, Pakistan continues to battle with the same problem i.e. a shortage of dollars, which can only be met through exports and investments.

Unfortunately, the government has currently diverted all of its muscle into looking to convince the international community for the climate change-induced devastation in Pakistan and consequently, expects the gateway to open for further loans, while paying little to no attention to the above-mentioned means of inflows.

It is truly baffling how no one in the corridors of power is talking about increasing local exports, which have stagnated if not declined in recent months, while the state of foreign investment in the country is abysmal, to say the least, which continues to only intensify the uncertainty.

Dar and his team of policymakers will be treading a very thin line here, as they seek to accelerate economic growth in unfavourable conditions marred with a global economic slowdown all while remaining cognizant of IMF conditions, which is essential to keep the country out of the dreaded default zone.

The article does not necessarily reflect the opinion of Business Recorder or its owners

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Ali Ahmed

An avid wrestling fan, just likes to have fun with numbers and stats.

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