All games must come to an end

Uncertainty is a killer. Whether economic conditions are upbeat or otherwise, investors always seek opportunities. However, if there is confusion in the decision making and the pendulum swings too abruptly, it keeps investment at bay. A similar story is now unfolding under the Pakistan Tehree-e-Insaf (PTI)-led coalition government.

When PTI came to power, its top finance brain, Asad Umar, could not survive even for one year. A new economic team was put in place while crucial negotiations were under way with the International Monetary Fund (IMF). Tough and frontloaded decisions were taken, and stability was achieved to some extent. Because the focus is now turning to growth, another finance minister (FM) has been forced to exit unceremoniously.

The question is whether or not the comedy of errors has stopped with FM’s exit. Unfortunately, however, it rages on. Although Hammad Azhar was notified as the new FM, it has since surfaced that the ministerial charge is ‘additional’ at the moment, and Shaukat Tarin is slated to soon take over the role, possibly as an adviser to the PM. Tarin lambasted the performance of outgoing FM in a media outburst, insisting that the IMF programme was poorly negotiated while also criticizing SBP’s pre-pandemic monetary contraction by State Bank of Pakistan (SBP).

Meanwhile, some tough and much-needed structural reforms are also underway, which are pre-conditions to secure Fund’s nod for future reviews. While amendments to the SBP Act have been caught up in a media whirlwind, amendments to the Nepra Act have already been enacted through an ordinance which will allow automaticity of power tariff increase. Furthermore, numerous corporate tax exemptions have also been eliminated.

Obviously, some of these decisions were taken in haste. Many of these provisions were not debated properly, and agreement to several IMF pre-conditions was made in haste to receive the pending or stalled tranche under the programme. Since then, Pakistan has raised $2.5 billion from international bond market, while additional flows are soon expected from other multilaterals.

The federal government was under immense pressure to resume the IMF programme. Now that has been successfully achieved, the implementation of tough actions, especially in the power sector, are under the spotlight. Inflation has now become a harsh reality. The consumer price index (CPI) has climbed 28 percent since the PTI government came to power, yet there seems to be little respite. In addition, there is severe pressure to increase wages, as power tariffs may soon see further increases. The economic predicament is yet to come under full control.

That has clearly pushed the PM to regularly reshuffle ministers, advisers and special assistants in the Q-block (ministry of finance) despite the poor optics. If he is indeed out of options, the government must take these actions patiently and tactfully. Instead, the PTI government has betrayed its weakness, sending wrong signals to markets regarding its decision-making capacity.

On the one hand, SBP is demonstrating independence in decision-making, and is now offering forward guidance to investors, its policies especially TERF, to counter Covid-19 has been well received by the industry. Moreover, the monetary policy stance is also accommodating.

On the other hand, however, there is confusion all around in Islamabad. Recently, Nadeem Babar (SAPM on petroleum) was asked to leave right before he was about to present a new refinery policy. This has also put his proposals in a limbo. His ministry was also negotiating a deal with the Independent Power Producers (IPPs). Now the SAPM on power, Tabish Gauhar, who has been re-designated as SAPM on both power and petroleum is in the driving seat.

In the process, IPPs payment deadline has lapsed as the government is waiting for National Accountability Bureau’s (NAB’s) nod. This has unnerved the Chinese investors in the power sector. Their payables are overdue as well. Furthermore, K-Electric sell-off deal also continues to be needlessly delayed. This could potentially affect the overall direction of projects under the CPEC scheme.

The confusion at the commerce ministry is also public. Promises were made to the export-oriented sectors to provide energy at regional competitive rates. Yet, all of a sudden, they have been asked to move from captive generation to grid without a clear roadmap. The industry fears that the energy prices will inch upwards. How can they make long-term investment decisions?

Resumption of trade with India became a joke last week. The decisions were taken by respective ministries. However, coordination with relevant quarters was clearly missing given the sensitivity surrounding the issue. Moreover, the FM was forced to resign on the eve of international bonds issuance – one night the unsuspecting man was conducting roadshows, the next day he was sacked.

Investors are reading into these signals nervously, and may interpret them as undermining the role of relevant ministries. The PM must take stock of the situation and put in place an effective mechanism to improve coordination. He must initiate a debate among different stakeholders and relevant ministries on government’s proposed policy responses to economic problems.

The bottom line is that in the first innings of a 5-day Test match the PM has undertaken far too many experiments in relation to the economy. It is high time to pick a direction and remain steadfast for the remainder innings.

Copyright Business Recorder, 2021