On Miftah replacing Dar

During premier Shahid Khaqan Abbasi’s recent visit to the PMLN boss in London, perhaps the decision to replace Finance Minister Ishaq Dar may well have been taken. The writing was on the wall; Dar was seen inactive in a crunch time for the current account deficit CAD), with the urgency shown by the ECC (for more on that, read, “Economy: weighing options”, published on 19th Sep, 2017).

Ever since the verdict came against Nawaz, Dar was put on the back seat. Prior to that, he was one of the most active finance ministers in any of the democratic setups the country has seen so far. BR Research did not agree with all the policies Dar was running; but credit goes to him for having some sort of policy direction, albeit not an optimal one.

The authority that Dar used to exercise was simply missing in the previous regime. The technocrats in the last PPP government might have been better economists or bankers; but they did not have the political capital to take the tough decisions. Dar had prior experience of running the country’s fiscal affairs. He had a roadmap right from the day one and he worked on it persistently until he and his leadership got into trouble lately.

Dar has been inactive for about a month or so. The problem compounded with the balance of payment vulnerabilities becoming profound. This column urged Dar to either actively manage the economy or to leave the hot seat for someone else (for more on that, read, “The Uncomfortable Silence “, published on 17th August, 2017).

The uncomfortable silence continued for almost couple of months in which the reserves’ depletion was challenging the macroeconomic stability. And now, reportedly, the decision for Dar to step down is in the offing. The new PM, seemingly, has different ideas of managing the economy. And he might as well get the ball rolling.

News reports point at Miftah Ismail as Dar’s replacement in his capacity as advisor to the Prime Minister on finance. Dar reportedly wants to focus on the references filed against him in the NAB. This could perhaps be the end of Dar’s career. He was one of the most powerful finance ministers the country has ever seen. Some also term him the de-facto PM for the past four years.

The report card of Dar’s tenure is not very impressive. Considering the windfall the economy has had in the form of low commodity prices, he is leaving behind a twin deficit problem for his successors to handle. When Dar occupied Q-block in June 2013, the CAD he inherited (FY13: 1.1% of GDP) was way lower than the CAD he has left behind (FY17: 4% of GDP). On the fiscal side, a deficit of 5.8 percent in FY17 is not much different from the number in FY13, adjusting for circular debt clearance, which Dar cleverly passed on to the previous regime back in June 2013.

Anyhow, Dar seems history now. The question is what a combo of Miftah and Abbasi could bring which was missed by Dar. Miftah is a well-educated person with PhD in public policy from Wharton; but are academic degrees enough a credential to run an economy? Dar had a prior experience in managing fiscal affairs at federal level, something not present in Miftah’s resume. He neither has much to boast from his time heading the Board of Investment (BOI) for four years nor does he have political power to take tough decisions.

The ball is perhaps in premier Abbasi’s court as he can now run economic policies without the influence of Dar. Perhaps he still has to have Nawaz’s consent in taking tough decisions, such as currency adjustment. Earlier, it was felt that even though Abbasi had become the head of the ECC, economic decision-making was still in Dar’s control (for more on that, read “Options for Dar and Abbasi”, published on 30th August, 2017).

Now the new PM seemingly has free hand and Miftah might just be a figurehead of the finance ministry, with the former actually running the show. But the question is, how much can the PM handle himself? The need is to have an active finance minister to deal in crunch times. Either Miftah changes his style seen in the BOI years, or Nawaz must move out of his inner circle to appoint an active and experienced finance minster. If none of those scenarios materialize, the economic scorecard for the ruling party’s remaining tenure would be no different from what it was in pervious PPP regime.