Tarin versus Sheikh

The appointment of Shaukat Tarin as federal finance minister is generating considerable controversy particularly in the social media where he is being viciously attacked for how he performed during his tenure as the finance minister (8 October 2008 – 22 February 2010) with growth registering 0.4 percent and inflation at 17 percent in 2008-09 and 2.6 percent and 10 percent respectively in 2009-10.

Also coming under criticism is Tarin’s long banking career culminating in a notice sent this month to Pakistan’s Stock Exchange that negotiations on sale of Silkbank’s consumer portfolio with Habib Bank Ltd have been initiated; and many have also launched an unfair personal attack against him by challenging his ability to resist the influence of family members by marriage.

Tarin’s pandemic during his first tenure as the finance minister was two-fold - one external and one domestic. The external pandemic was in the form of high international oil prices (Pakistan’s major import item) that peaked at 169 dollars to the barrel in June 2008 and around 97 dollars per barrel by the time Tarin resigned in February 2010. In marked contrast oil price peaked in March 2019 at 62.6 dollars per barrel and was as low as 36 dollars per barrel in May 2020 but then Hafeez Sheikh faced Covid-19 pandemic from April 2019 to end March 2020 when he was dismissed.

The local challenge facing Tarin was the unsustainable budget deficit that he inherited (7.3 percent in 2007-08) due to massive subsidization of oil domestically in a failed attempt to engineer a PML-Q (the King’s party at the time) electoral victory. In 2018-19 the budget deficit was 9.1 percent after two months of the caretakers, seven and a half months of Asad Umer (it registered 6.5 percent the year before) and around two and half months of Dr Hafeez Sheikh though after his appointment data synchronization became a challenge – the budget deficit for 2019-20 was provisionally given as negative 7.1 percent in the current year’s budget documents and negative 8.1 percent in summary of consolidated federal and provincial budgetary operations 2019-20.

Be that as it may, anti-Tarin sentiments do not dim the general perception that Dr Hafeez Sheikh’s dismissal as finance minister was long in coming (20 April 2019-31 March 2021). He is accused of jealously guarding what he considered his fiefdom as the de facto finance minister (reflected by his reported opposition to Hammad Azhar retaining the portfolio of Minister for Revenue); he also acquired the dubious title of instigating the highest-ever senior staff turnover in his ministry and attached departments/boards in the country’s history, and his refusal to accept any advice with the Economic Advisory Council (EAC) all but made redundant.

But his most unforgivable failing in the eyes of the general public is his signing off on an International Monetary Fund (IMF) programme that was anti-people: he agreed to a tax target of 5.5 trillion rupees in the first year of the programme considered unrealistic (with a projected 1.5 percent growth rate pre-Covid-19) and to minimize the shortfall he relied on the low hanging fruit notably by taxing the already taxed with serious repercussions on productivity which, in turn, led to a rise in unemployment levels. He pledged the country would borrow 38.5 billion dollars in thirty nine months (pre-Covid19 target) and raised domestic indebtedness to a historic high – from 16.5 trillion rupees inherited by the Khan administration to over 25.2 trillion rupees in February 2021 – a 53 percent increase. It is relevant to note that the IMF’s Resident Representative in Islamabad Teresa Daban Sanchez during her recent interactions with the media pointed out that the ongoing Extended Fund Facility (EFF) programme, like all Fund interventions, belongs to the government of Pakistan and the Fund merely lends support.

Against this background enter Shaukat Tarin who took oath as the finance minister on 16 April 2021 and he has already held two meetings presenting an alternative to Sheikh’s approach. First, Tarin with the entire team held talks with the World Bank, the lead player in the power sector and presented some viable alternatives to the tariff raise of between 4 to five rupees per unit by December 2021 to minimize its impact on productivity and on the general public’s pocketbooks: (i) proposed termination of oil-based Independent Power Producers (IPPs) at a discounted value of a billion dollars (with an average seven years of the contract remaining that would have cost 450 billion rupees in capacity charges) which would benefit consumers to the tune of 60 paisa per unit; (ii) circular debt management plan that aims at zero debt over a reasonable period of time (given that it is around 2.3 trillion rupees today); and (iii) rationalizing taxes paid by IPPs and consumers.

Second, Shaukat Tarin has resurrected the EAC chaired by the Prime Minister who gave the members extremely challenging tasks notably to formulate short, medium and long-term road maps for important sectors with a view to achieving sustainable economic development. While it would be the prerogative of the finance minister to accept or reject any proposal made by the EAC yet one would hope that the Council members may at least sound a warning in the event that policies need adjustment. Dr Hafeez Sheikh during his two-year tenure focused only on convincing the Prime Minister that all was well by citing data whose integrity remained in question and summarily dismissed all criticism/warnings as those that were engineered by the opposition.

Reports also indicate that Tarin is already looking at those budget proposals for 2021-22 that were inputted by Dr Hafeez Sheikh in line with the pledges he made to the Fund staff in the second to fifth staff review dated February 2021. He has already indicated that he would consider raising the allocation for the public-sector development programme which is critical to jump-start the economy. However, one would expect that as he was the main architect of the seventh National Finance Commission (NFC) award 2010 he lays to rest the rhetoric by the Prime Minister and his cabinet members, and noted in the IMF ongoing programme documents, that there must be a rebalancing of federal and provincial resources; Tarin needs to raise total revenue by one percent of GDP each year as envisioned by the NFC architects, a doable target, which would provide enough resources for the federal government to meet its expenditure priorities in time. In addition, the one percent raise must not be from indirect taxes but on those with ability to pay. And Tarin must mercilessly slash expenditure compelling all to sacrifice, and not confine it to a wage freeze. Tarin no doubt must also be aware that the budget deficit contributes to inflation and must bring it down to around 5 percent during the remaining tenure of the Khan administration.

To conclude, while it is too early to assess Tarin’s performance during his second tenure as the finance minister, only ten days have passed since he took oath, yet he has clearly hit the ground running and one would hope that his response to his critics is through finally changing Pakistan’s beleaguered indebted economy into a robust economy.

Copyright Business Recorder, 2021