It appears that Finance Minister’s charm is wearing off, but not before fooling the people and even the markets into believing that this time, somehow, would be different. Why else would equities and even the currency turn, with no fundamental justification, just as the ruling alliance axed Miftah and re-reinstalled Dar in the finance ministry?
He was now going to be the man to stabilise the rupee and renegotiate the EFF (Extended Fund Facility) with the IMF (International Monetary Fund), reintroduce subsidies into the policy mix and even get the state bank to turn dovish.
But where had we heard much, if not all, of that before? Dar was, after all, the fourth finance minister in as many years to waltz into Q-block on promises of getting the Fund to dilute its harsh structural adjustment conditions, especially stripping the economy of all subsidies.
Shaukat Tarin actually went ahead and presented a full-fledged budget solely on the assumption that he would succeed where his predecessor had failed not long after Hafeez Sheikh had thrown his hands up in frustration and accepted that there was no way around IMF’s “upfront conditions” this time. And, sure enough, the lender soon complained of “fiscal indiscipline” and tightened the screws, so there was a minibudget with adjusted taxes and subsidies in no time.
Then Miftah went to Washington to try his luck at renegotiating just as the new government was blaming the previous government for the stiff conditions, convinced that he’d be able to get his hosts to understand that contractionary fiscal and monetary policies during record inflation was not the way to go about it.
But then he understood, too, that the only way to revive the bailout programme and get a few billion dollars into the state bank’s vaults was to play along, no questions asked, and only barely managed to avoid default; even as he ruthlessly raised petrol prices and made his masters look silly because they booked their return on controlling runaway inflation. And now Dar, too, is having to go through the mill.
This is very surprising because it’s not as if these finance ministers, one after the other, have offered strikingly different sets of policies to use IMF’s money to lubricate growth.
The economy has shrunk so acutely, and the political need to expand has risen so desperately high that all of them have asked for the exact same concessions – more of the same subsidies, less of the same taxes, and more time. Only to be similarly disappointed; even when record floods drowned half the country and knocked 2-3 percentage points off GDP.
Yet every time the new kid on Q-block talks tough, news channels treat it as breaking news and the market’s pendulum swings back from fear to greed, even though the only news in it is that such things are still taken seriously.
Dar’s grim-faced return from Washington, where he attended the IMF and World Bank’s annual conclave, was without the usual bravado about pushing the rupee below 200 to the dollar and telling the Fund how it is.
The “befitting response” to Moody’s, for the downgrade, didn’t come either. Instead Fitch is also dumping Pakistan’s ratings, all but ruling out any chance to raise money from commercial borrowing.
Now, with $32 billion in foreign payments (mostly debt servicing) due this fiscal, the best bet is to get the Chinese to reschedule about $23b in consortium loans; which is not going to thrill Beijing as it grapples with the international fallout of President Xi’s record third term, elevated tensions with Washington, and a financial crunch that is pushing its fiscal deficit close to a trillion dollars.
And it’s not Dar’s charming personality that stands to tilt their decision in Islamabad’s favour, just like his personal touch made no difference with the IMF, nor did it impress Crown Prince Mohammad bin Salman when the begging and pleading brigade stopped in Riyadh.
Pakistan’s politicians and media houses are equally guilty of pushing non-news as real news, which often blurs the real issues behind the optics. Reserves are down to less than a month’s import cover, bonds are losing face value, and even friendly bailout countries are not returning phone calls.
Individuals, even as they compete for being less relevant to the finance ministry, will add no value because whoever takes the helm has only one immediate task – to put out the fire when all usual sources of borrowing water have run dry.
Yet all they’re doing, one by one, is knocking on the same doors again.
Copyright Business Recorder, 2022
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