EDITORIAL: Dr Aisha Ghous Pasha, Minister of State for Finance, became the latest in a line of senior cabinet members (including Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar) as well as the International Monetary Fund (IMF) Resident Representative in Pakistan to say that the delay in the staff-level agreement on the ninth review is because the Fund is seeking independent verification of the pledges/commitments from two friendly countries (Saudi Arabia and the United Arab Emirates).
This has fuelled debate within the country as to why these pledges remain unverified a month after all the upfront decisions that required implementing a market- based exchange rate, upgrading utility tariffs as well as the petroleum levy to the maximum possible were finally implemented? The debate has centered around two different/divergent approaches.
First group maintains that as long as Dar is the finance minister with a history of taking flawed economic decisions as well as reneging on the letter and spirit of an ongoing Fund programme the trust deficit will continue to be a factor big time.
Dar reneged on the letter and spirit of the seventh/eighth review agreement signed mid-August last year. The letter of the agreement remained unmet from October 2022 till February this year as Dar not only did not upgrade utility tariffs and petroleum levy as agreed but also extended a Rs 110 billion electricity subsidy to exporters while a substantial number of the 33 million flood-affected people were living under the open skies.
Moreover, he violated the spirit of the agreement by compelling the State Bank of Pakistan to intervene in the market to prop up the rupee even without adequate foreign exchange reserves, leading to the emergence of a grey market that negatively impacted on the desired official remittance inflows.
He finally abandoned this policy not because of the resultant decline in these desired form of foreign exchange inflows but because the Fund refused to commence negotiations on the ninth review till this disastrous policy was abandoned. Sadly, the grey market resurfaced mid-February after the departure of the Fund team which no doubt simply widened the trust deficit.
The second group is more focused on the changing global geopolitics in general and of the region in particular. The old paradigm, no doubt more familiar to the eleven-party coalition government, notably to seek assistance from the United States to influence the Fund staff to grant waivers and/or phase out politically harsh upfront conditions is no longer proving effective.
Saudi Arabia once firmly in the US camp with an almost identical world view of other regional countries including long-time regional rival Iran announced on 10 March 2023 the China-brokered resumption of relations with Iran.
Additionally, there has been a change in assistance policy announced by the Saudi finance minister in Davos this year notably that the country no longer will extend grants and deposits with no strings attached (Saudi Arabia gave Pakistan a grant of 1.5 billion dollars in 2014 that was ‘misused’ by the then Pakistan Muslim League-Nawaz government to prop up the rupee) but will now encourage reforms through international financial institutions.
A subsection of this group further argues that as Saudi Arabia and its close ally the UAE have yet to re-pledge assistance for Pakistan to the IMF; therefore, there may be some additional requirements with speculation ranging from purchase of state assets to additional troops.
One new proposal that is circulating in the media is the offer by Malik Bostan, the President of the Forex Association of Pakistan, during the meeting of same permanent legislative body or forum of one billion dollars a month, interest-free, for two years (which will be in addition to the normal inflows received every month) but on the condition that the government reviews its laws and regulations particularly one that would allow exchange companies to borrow directly from overseas Pakistanis. It is unclear whether Bostan can make good on this pledge; however, he did note that Dar gave the go-ahead to Saylani Welfare Trust to raise 2 billion dollars from overseas Pakistanis.
Business Recorder would, however, seek to stipulate that in the event that the government accepts Bostan’s offer the policy imperatives would require a team of advisers rather than a one-man show, which has failed to achieve any positive outcome. In this context, it is easy to dismiss the flawed policies of all non-economist finance ministers, yet even economists have performed extremely poorly.
Dr Hafeez Sheikh, as a case in point, is guilty of lacking empathy with the poor and vulnerable when he signed off on the ongoing Fund programme in May 2019 which was in marked contrast to Asad Umar’s framework that was considerably more empathetic, developed with the assistance of domestic economists and was accepted by the Fund (confirmed by senior members of the two teams).
Pakistan is in need of new blood and must seek prominent overseas Pakistani economists not in multilaterals as has been the practice but in academia.
Copyright Business Recorder, 2023
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