What Next After Change of Financial Guard in Pakistan

Hafeez Shaikh, who will administer Pakistan's troubled economy after the exit of his predecessor Asad Umar, would do well to form a team of his own choice to be able to handle the country's failing economy and push down soaring inflation, writes one analyst.

Posted on 05/1/19
By Ikram Sehgal | Via ViewsWeek
Dr. Abdul Hafeez Shaikh will administer Pakistan’s economy after the exit of Asad Umar, the former finance minister.

After weeks of intense speculation over about his possible exit, Asad Umar resigned as the Federal Minister for Finance.  Subsequently he refused the offer of joining the Cabinet and becoming the Energy Minister. For the record, Asad deserves kudos for husbanding Pakistan’s economy from what was essentially a no-hope economic situation.   The irony of it was that Asad Umar faced unrelenting attacks by the Opposition, more particularly the PML (N), for the horrific situation that they were responsible for. Vocally critical about almost every policy or proposal that Umar formulated, a motivated section of the media, most of them armchair economic experts, supported the Opposition in successfully obscuring the fact that it was this man who for nine months prevented Pakistan from spiraling downhill into the economic apocalypse where the PML (N) Govt had intended bringing Pakistan to. A public perception was built up where anything Asad Umar did or say was deemed to be incorrect, the tragedy this that he was far more right than he was wrong.

Ishaq Dar spent US$7 billion of precious foreign exchange resources to keep the Rupee overvalued, this brought the economy to its knees. He is now “very sick” walking around the London streets! Because of his very impractical policies and the grandiose “martar and back” initiative of the Sharifs mostly in and around London, the country needed almost US$12 billion to avoid default when the PTI government took over. Given this extremely weak economic situation, Asad Umar’s task as Finance Minister was always going to be arduous. Among the first challenges was to do a financial “Houdini act”, to find the money to repay debts to avoid default while at the same time attempt to stabilize the economy for sustainable growth.  The previous government left a huge fiscal deficit of 6.6% the disastrous policies of increasing the country’s debt 5 times in 10 years has indebted the country for generations. The debt burden because of the last two political governments, PML(N) and PPP, jumped from just Rs. 6 trillion to Rs. 30 trillion.  Despite being placed in a no-win situation as regards foreign exchange repayments, Asad did not give in to the tough conditions initially imposed by IMF. In such a dire situation some very hectic and practical efforts were required, Asad Umar convinced a very reluctant Imran Khan to go to our friends such as China, Saudi Arabia, UAE and others to obtain funds and bridge the financial gap as much as possible. Consider the hypocrisy of the Opposition calling this “a begging bowl”.

Thanks to the “bridge financing” by our friends Pakistan is now in a position where it can negotiate with IMF terms that would be more favorable for the country than originally proposed by IMF.  Obviously being staunchly firm and unwilling to compromise did not go down well with the IMF. Having obtained bridge “financing” from our friends Asad Umar then negotiated with the IMF for a package, in his last press conference he confirmed that this was in the final stages and policy agreement had been reached with the IMF.

Both the PML(N) and PPP are creating a huge furore over the PTI’s decision government to now approach the International Monetary Fund (IMF) and the conditions thereof.  The PML(N) very conveniently forgets that in Feb 2018 its well-wishers had proposed seeking US$6-7 billion in short-term emergency funds under the Standby Arrangement (SBA) from the IMF to improve the country’s highly critical foreign exchange reserves. They forget that because of the Senate elections in March 2018, they were disinclined to fix the economy and opted instead to let any future elected government to deal with the IMF to rescue the economy through a bailout program. The caretaker government that came in was also not keen to ask the IMF for a package because they had no mandate to do so, this landed on the PTI’s government’s table by default after it came to power.

Criticism of the government is part of any Opposition’s job but this particular onslaught was mostly petty politics and personal attacks, it was mainly designed to obscure the blatant corruption that the PPP/(PML (N)) hierarchy had indulged in.  They were not  just “petty thieves” they were grand larcenists.  Consider the addition to their personal assets abroad while the country was heading towards economical catastrophe? The aim of this smear campaign is to bring about the collapse of the PTI government and thereby escape accountability. This is only confirmed by the manner the Opposition guns have now been turned on the incoming Finance Minister Dr. Abdul Hafeez Shaikh. To his credit, Asad Umar espoused which included very difficult decisions for the sake of the nation,  “I refused to take the decisions that would have crushed the nation.”

Even in normal times a cabinet shuffle or a transfer in a mature parliamentary democracy makes breaking news or headlines.  Moreover if a cabinet member/senior bureaucrats does not perform well, or is not seen to be doing so, he/she is replaced. In Pakistan there is a tendency to blow things out of proportions, to sensationalize it and Asad Umar’s exit is also being touted as some sort of “victory” by the Opposition parties. Only a cursory look at history will show that the PML(N) changed a number of finance ministers from Ishaq Dar (who is declared absconder by the accountability courts and NAB hopes to have him extradited through Interpol to stand trial), and lately Miftah Ismail. The PPP however takes the cake, during its tenure ending 2013 its finance ministry saw five different faces. Hafiz Shaikh was the longest-serving finance minister for nearly three years, Shaukat Tarin for 15 months, Naveed Qamar for five months. Interestingly when Dr. Hafeez Shaikh resigned the then President Asif Zardari quickly brought in one of his trusted Senators, Salim Mandviwala who remained in office for only 43 days. All this time Zardari ran a Presidential form of government while Salman Farooqui acted both as the de-facto PM and Finance Minister. Domestic debt rising dramatically had a negative impact on the economy.  All this time large sums of money were flowing in to fake accounts and flowing out to illegal foreign accounts.

An economist with an impressive resume, from 2000-2002 the newly appointed Finance Minister.  As Sindh’s Minister of Finance, Planning and Development of Sindh, Dr. Hafeez Shaikh brought Sindh from a deficit to a surplus situation.  Subsequently he was Federal Minister for Privatization and Investment during the tenure of Pervez Musharraf’s regime.  Well known on the international stage, he has virtually no time for settling in. Given the impending Federal Budge he must somehow be provided some maneuvering space. Hafeez Shaikh has a Herculean task ahead, while his first challenge will be to sit across the table with the IMF team arriving Pakistan later this month, agreement has been reached in principle on outstanding issues during Asad Umar’s recent trip to the US, the technical details and formalities have to be finalized. Hafeez Shaikh would do well to form a team of his own choice to be able to handle the failing economy and push down soaring inflation. Asad Umar’s aides did not serve him as well as they should have.  If anything he should have learnt not to trust motivated and “status quo” bureaucrats.  He must take lessons not only from his last stint as Finance Minister but should not depend upon those who ill-served Asad Umar.

Hafeez should need all the help he can get if he is to start implementing policies that will cut spending, raise revenues, reduce deficits, encourage investment and spur growth.  He will be well advised to take regular input from Asad Umar.  Without any hint of corruption, Asad Umar has every reason to be proud of the way he stood up for Pakistan in most difficult economic days for the nation. Since he is very close to the PM, Imran Khan’s decision to change Asad must have been a very tough one. For the sake of the PTI government he must accept another cabinet portfolio where his talents can continued to be used for the benefit of the nation.

The writer is a defense and security analyst

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