Key economic indicators reflect a worsening trend (as per data released by the Finance Division) in July-August 2023-24 against the comparable period of the year before: remittances declined by 21.6 percent, exports by 8.3 percent, credit to private sector declined by 222.8 percent, which no doubt contributed to negative 15 percent growth in large-scale manufacturing in June this year (compared to plus 11.6 percent in June last year), fiscal deficit rose by 7.3 percent, and while foreign exchange reserves rose to 7.7 billion dollars they were almost entirely borrowed.
The scale of this deterioration in just one year raises serious questions about the competence of the economic team. On 27 April 2022 Miftah Ismail took oath as the finance minister of the eleven-party coalition government led by Prime Minister Shehbaz Sharif while his successor Ishaq Dar took oath five months later on 27 September 2022. Clearly, the flagging data cited above pertains to Dar’s tenure – data that visibly indicates Dar’s poor handling of the economy.
Sadly, however, Dar’s standing within the party due to his relationship with the party supremo, Nawaz Sharif, continues to suppress all criticism against his policy decisions within the party; and visibly disabled 75 plus of his cabinet colleagues (including the then Prime Minister Shehbaz Sharif) from questioning/challenging his policies, patently flawed though they were.
The challenge by the then Foreign Minister Bilawal Bhutto Zardari was limited to committed federal disbursements to Sindh in general and the flood victims in particular, prompting Shehbaz Sharif to intervene to keep the coalition intact.
All current political indicators – from the failure of former President Asif Ali Zardari to make any headway in his visible attempt to secure support from electables of South Punjab and form an alliance with the Balochistan Awami Party to the incarceration of former Prime Minister Imran Khan and the continued splintering of his party – suggest that Pakistan Muslim League-Nawaz (PML-N) is ordained to win the next general elections whenever they are held.
This strategy is, of course, subject to change if the existing set of inputs/conditions change, however, if carried out it leaves the distinct prospect of Ishaq Dar being reappointed as the country’s finance minister for the fifth time – a prediction based on Nawaz Sharif’s reported continued satisfaction of Dar’s handling of the economy and, on a more flippant note, his penchant for refusing to acknowledge past blunders and therefore insisting on making the same mistakes again and again – each time hoping for a different result.
The state of the economy today is legitimately a source of serious concern for all the stakeholders including: (i) those who draw salaries at the taxpayers’ expense notably the caretakers and members of the civilian administration assisting in the implementation of policy decisions as well as the military (more recently playing a visibly enhanced role through representation in the Special Investment Facilitation Council and its sectoral subsidiaries); (ii) the private sector influencers (the rich landlords, the bankers and the industrialists including those that have formed powerful organizations that allow them to collude to dictate the price of their product); and (iii) the general public reeling under a September inflation rate of 31.4 percent coupled with rising unemployment as productive units shut down due to high inputs costs.
As the economic impasse continues and elite capture in terms of expenditure allocation (current expenditure rose by over 26 percent in 2023-24 from the revised estimates of last year and over 50 percent from the budgeted expenditure of last year), revenue sources (more than 80 percent of all revenue collection is from indirect taxes whose incidence on the poor is greater than on the rich) and passing on the buck to consumers through ever-rising utility tariffs for sustained poor performance of these sectors, the capacity of the general public to sustain such an elitist system has reached a very low point.
A recent World Bank report noted that 40 percent of Pakistanis are living below the poverty line of 3.2 dollars per day and the real possibility of widespread civil unrest, if existing policies continue, is looming large on the horizon. In this scenario to insist on a Dar appointment as the next finance minister should set alarm bells ringing amongst all the stakeholders.
Dar has routinely dismissed domestic criticism as grapes being sour though he continues to cite foreign sources, however remote and/or susceptible to advertisement support in their opinion pieces they may be, to prove his performance has been exemplary.
He attributes his failures during his most recent stint as the finance minister to the weaknesses of the agreement signed by Hafeez Sheikh with the IMF in 2019 and the decisions taken during the very short tenure of Miftah Ismail. Without going into the merits or demerits of these charges one would have hoped that Dar would have at least responded to the damning indictment of his policies by the IMF in the Stand By Arrangement (SBA) documents uploaded on the Fund website in July 2023: “without the ability to formally intervene in the Forex market, informal efforts began in the Fall, including moral suasion on banks, to nudge the exchange rate to appreciate.
When this did not succeed, import-payment restrictions and a crawl-like behavior from October 2022 through end-January 2023 fueled pressures in the Forex interbank market, exacerbated the scarcity of dollars, allowed the Forex black market to grow (with a rising informal premium), and caused disruptions in the timely import of key inputs for domestic production and exports.
After reserves declined to about US$3 billion (½ month of import coverage) in mid-January 2023, the exchange rate was allowed to depreciate by almost 10 percent on January 26.” Not mentioned is the 4 billion-dollar decline in remittance inflows through official channels – foreign exchange that the country desperately needed which further reduced the country’s leverage to negotiate for bilateral/multilateral loans.
What is equally, if not more, disturbing is the IMF’s reference to an untruth that Dar repeated publicly as well as to members of parliament notably that all the conditions of the Fund post-January 2023 had been met and he could not understand why the staff level agreement on the ninth review was not reached: “normalization in the Forex market was short-lived, with premia reemerging in February (amid a notable appreciation) and again from May onwards on the back of import restrictions (while price movements in the interbank market remained minimal).”
To conclude, Pakistan’s economy cannot withstand another Dar tenure, as the country’s finance minister and it is extremely doubtful if the general public would endorse a decision to reappoint him. One can only hope that the party and all stakeholders evaluate his performance as a finance minister without prejudice.
Copyright Business Recorder, 2023