EDITORIAL: Caretaker finance minister Shamshad Akhtar, together with Governor State Bank of Pakistan, successfully led the policy level negotiations on the first review of the Stand-By Arrangement (SBA) with an International Monetary Fund (IMF) team.
This outcome was critical, given that in spite of disbursement of pledged assistance by multilaterals and bilaterals post-29 June 2023 when the SBA staff-level agreement (SLA) was reached, foreign exchange reserves remain disturbingly low, at 7396.7 million dollars on 10 November 2023, which are less than three months of imports.
Akhtar’s approach has fortunately been markedly different from her predecessor, who violated the conditions agreed with the Fund under the then ongoing Extended Fund Facility programme - from his appointment on 27 September 2022 till 26 June 2023 when the eleven-party coalition government began to reverse his flawed policy decisions to meet the “prior” conditions for the yet to be approved SBA.
Akhtar’s decision to hold a press conference a day after the Mission Leader publicly declared that a staff level agreement had been reached must also be appreciated as, again unlike her predecessor, she did not blow her own trumpet and instead focused on truthfully appraising the legitimate concerns of domestic economists with respect to the shortfall of 6 billion dollars of the budgeted external inflows from commercial banks abroad and issuance of sukuk/Eurobonds at affordable rates as Pakistan’s rating has yet to improve subsequent to SBA approval: “I have decided to postpone the new (international) bond.
It is going to be expensive. Interest rates are very high. So we cannot go to the international market,” she said during her interaction with the media but added that the government intends to repay the one billion dollar bond that would mature in April next year.
If elections are held as scheduled on 8 February an elected government would surely be in place by April 2024 and this must raise a red flag for all stakeholders – the general public, parliamentarians and institutions – as the general perception today is that Nawaz Sharif would be the Prime Minister whose campaign narrative is to compare 2017 macroeconomic data with the current data while ignoring the sixteen-month economic catastrophe wrought by the Shehbaz Sharif-led government’s economic decisions.
Two observations are in order. First and foremost, comparing the current macroeconomic data with almost six years ago reflects little grasp of economics as a discipline for two reasons: (i) comparing prices of essentials with those prevalent five years ago makes little sense from an economic perspective because even at very low inflation rate prices do rise over a period.
In India, for example, tomato prices were around 60 rupees per kg in 2017 and 165.7 rupees per kg in November this year – a rise of 176 percent. India’s consumer price index remains in single digits while Pakistan’s is in double digits, a differential due to the penchant of our finance ministers in general and those appointed by the PML-N (Pakistan Muslim League-Nawaz) in particular to borrow irresponsibly from foreign markets evident particularly during the 2013 to 2017 period with the economically unsound rationale provided at the time; notably, that the domestic rate of interest is higher than that prevalent abroad – a policy that led to a historic high in the current account deficit by 2018; and (ii) the appalling situation today with respect to the power and the tax sectors can be sourced to sustained poor performance of these sectors – the former dating back to the contracts signed under the China Pakistan Economic Corridor (CPEC) that favoured the Independent Power Producers (IPPs) over domestic consumers and are a source of depletion of our scarce foreign exchange reserves due to the agreement to import fuel and repatriate profits, and the latter due to the sustained heavy reliance on indirect taxes as revenue sources whose incidence on the poor is greater than on the rich.
However, what must be particularly disturbing for domestic economists was Nawaz Sharif’s directive to Ishaq Dar during his meeting with current and former Lahore Chamber of Commerce and Industry (LCCI) presidents and executive committee members, to formulate a policy that would not require an industrialist to disclose his source of wealth.
If implemented this would be violative of the agreement with the Fund under the ongoing SBA not to launch any amnesty scheme in future, as it is a disincentive to honest taxpayers, violates international treaties signed during his third tenure as the prime minister and may well place us back on the black list of Financial Action Task Force.
To conclude, one can only hope that better sense will prevail and the next prime minister would seek a qualified economic team leader with the capacity to think out of the box.
The next prime minister must not be too short-sighted to insist on success where there was failure, as the economy can no longer withstand someone who has been tried but failed in the past.
Copyright Business Recorder, 2023
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