Miftah Ismail has held the portfolio of federal finance minister twice in the past five years. During this period, Pakistan’s economy has battled two serious balances of payment crises. Although the coincidence paints him in harsh light, both stints were cut short in less than six months, not allowing sufficient time for him to see his reform agenda through.

By his own admission in an op-ed for this newspaper published last week, the economy flirted with default during the latest stint at Q-block. Although Pakistan may no longer be at the brink in the near-term – and the former minister credits himself and his party for saving the country from default – the economy is hardly back on track yet.

Nevertheless, if there is one thing Miftah Ismail can take credit for, is speaking his mind without fear of reprisal. In his recent press interactions, he has frankly admitted to differences within PML-N over policy issues, repeatedly insisting that the current state of the economy requires harsh measures, even if that means sacrificing political capital.

BR Research sat down with Miftah in Karachi over the weekend to discuss these and several other issues. For the benefit of readers, the interview transcript is edited for brevity and focuses on areas not highlighted in his other press interactions.

BR Research (BRR): It is often claimed that by capping fuel prices, the PTI government pushed Pakistan towards default. If PTI’s actions truly threatened economic stability, why did it take the incumbents nearly three months to reverse them?

Miftah Ismail (MI): It did not take that long. Prime Minister Shahbaz Sharif took oath of office on 11th April. Yes, the subsidy was finally fully removed by end of June, but in less than two months it had been substantially reduced.

Many in the PDM coalition believed that by capping fuel prices, PTI had tried to entrap the incoming government. And that raising prices after immediately taking power was akin to walking into that trap. Others understood the gravity of the crisis but agreed that the decision could only be taken with consensus.

During my meetings with the Fund in mid-April, I insisted that it issue the Memorandum [of prior conditions] immediately, which would have listed fuel and power prices rationalization as top demands. This could have helped force government’s hand to take the necessary actions if it wanted to resume the IMF program.

Unfortunately, the Fund wanted to review the federal budget first to see whether the coalition government was ready to undertake all measures required for fiscal consolidation. This too was an outcome of PTI’s disastrous policies. Remember, the last federal budget under Shaukat Tarin had run afoul of many of the commitments with IMF, which in turn forced the Fund to take a more rigid approach.

BRR: How does it reflect on the foresight and acumen of political leadership that knowingly walked into a trap laid by its opponents?

MI: Even before the ‘Vote of No Confidence’ had been tabled, many within the PML-N were absolutely clear that if the economy had to be saved, fuel and energy prices must be rationalized, and said as much publicly.

In my view, popularity is not an indicator of competence. The real test of political leadership is its willingness to take tough but right decisions, even if that means burning the political capital in the process. That’s exactly what Mian Shahbaz Sharif did.

BRR: In retrospect, would PTI’s narrative have had received so much traction, had PDM headed off to elections immediately after VONC rather than bearing the brunt of unpopular fiscal measures?

MI: This was not a choice. During my meetings with the IMF in April, the Fund made it clear that it would not engage with an interim setup. Had necessary actions been delayed until after the holding of elections, the uncertainty could have sent the economy into a tailspin, even triggering default.

Political calculations can go wrong, just as commercial decisions do. This does not mean that any government should ever put economic survival on the line for temporary political gain.

BRR: IMF’s reluctance to negotiate with caretakers should not have come as a surprise to seasoned politicians.

Nevertheless, once the Fund program had been resumed, should PDM have not secured a fresh mandate from the electorate so that structural reforms could begin?

MI: Many leaders within the PDM – including some within PML-N – believed that the national and provincial assemblies must complete their term. In fact, once consensus was reached to come into power, I told the Prime Minister that the proposal to go towards elections in two months’ time did not make any sense.

Coming to power at a time when the economy faced imminent default meant staying on course till such time necessary stabilization measures were in place. One hopes PDM also stays in power long enough to see the positive effects of these decisions manifest themselves to the electorate.

BRR: But fiscal adjustment is not same as structural reform, and politicians cannot expect praise for raising prices alone. Considering PML-N has already staked its political capital by undertaking unpopular decisions, would it have not made more sense to simultaneously fast-track structural reform process and strengthen economic fundamentals? Or reforms can never be expected in the run up to elections?

MI: No, the best time for reform is always ‘the present’. For the last 70 years, subsequent governments have been undertaking unavoidable fiscal adjustments, while delaying reform to the ‘next year’. The ‘next year’ never comes. Loss making SOEs, for example, must be shut down or sold off today, not next year or the year after.

Political compulsions exist in every country. And the process of reform is never easy anywhere in the world. But when an economy is at the brink, then compromises can no longer be afforded. If political leaders are unwilling to do the right thing even now, they should not seek power to begin with.

BRR: In your experience working on the inside, is the reform process stalled more so because of absence of willingness or that of capacity?

MI: Reforms take painstaking commitment. Those in position of power – especially those in bureaucracy – do not understand what structural reform entails. Yes, privatization is a necessary part of the reform process, for example. But foremost, it is the state and government that needs to reform itself. Those made responsible to undertake reform do not appreciate that they have become part of the problem.

If everything goes right, privatization of any state-owned asset would take at least 1.25 years. Even so, no privatization of note (other than secondary offerings) has been successful in at least past 15 years. That’s because Pakistan has turned into an overly litigious society, where every effort for privatization has been stalled due to unnecessary lawsuits. Yet, media and political parties accept this as the norm.

Similarly, the excessive footprint of the government is also accepted as a given in our society today. Even though most Pakistanis are deeply unhappy by their experience interacting with public sector organizations, there is no serious effort or movement in the country to limit and reduce government ingress in private life.

It is a travesty that we hold head of government responsible for price setting at the fuel pump every fortnight. That instead of serious economists and sector experts working in regulatory bodies such as NEPRA, we have provincial representatives as members.

That, for example, because regulator does not understand how competition can be induced in energy markets or how wholesale markets for energy can be established, it jealously guards against any effort towards deregulation and privatization altogether.

That losses [in bill collection] concentrated in some geographic jurisdictions – such as tribal areas or AJK – are barely ever discussed. That, by policy, utility connection of state-owned installations, whether hospitals, police stations or other sensitive buildings, can never be disconnected, which means they delay/avoid payment with impunity. Or, how merit order in electricity generation is rarely followed.

Unless those responsible for governance begin to appreciate that they have become part of the problem, rather than the ones offering any solution, the process for reform will not begin.