Challenges before the new finance minister

President Asif Ali Zardari has taken oath from the newly-inducted Federal Cabinet headed by second time Prime Minister of Pakistan, Shehbaz Sharif.

Among the 19-member cabinet, 13 are members of the National Assembly, and three hail from the Senate. Additionally, three technocrats; namely, Muhammad Aurangzeb, Mohsin Raza Naqvi, and Ahad Cheema have been made part of federal cabinet. This diverse composition reflects a blend of political representation and technical expertise aimed at addressing various challenges and fostering national development agenda under the leadership of Premier Shehbaz Sharif.

In the previous tenures of Pakistan Muslim League (Nawaz) — PML (N) — Ishaq Dar has always been the finance minister. However, his last term as fourth-time Finance Minister under the coalition government of Pakistan Democratic Movement (PDM), elicited widespread criticism of his unsatisfactory performance that despite his extensive experience as finance minister it was marred by policy shortcomings, calling into question the party’s choice for this key position.

Ishaq Dar’s failure to effectively address pressing economic challenges exacerbated the already precarious economic situation teetering on the brink of default and unsuccessful negotiations to restore relations with global lenders added to the turmoil. Ultimately, it fell upon Shehbaz Sharif to personally intervene and seek a bailout from the International Monetary Fund (IMF).

Notwithstanding, Ishaq Dar’s boisterous claims of economic revival and stabilizing Pakistani rupee’s freefall, the economic situation, fraught with difficulties, presented highly pessimistic outlook than ever before, during his tenure under PDM. His mishandling the already stagnant economy led to a setback in the PDM’s efforts to steer the country towards stability and growth, prompting a reassessment of strategies and leadership qualities.

Hopes were high for a fresh face to assume control of economic affairs at Q Block, signaling Dar’s final exit. Muhammad Aurangzeb’s oath-taking of the crucial portfolio of federal Finance Minister, on March 11, 2024, marked a significant departure.

He served as CEO within JP Morgan’s Global Corporate Bank in Singapore and lately as President of Habib Bank Limited. His appointment ushers in expectations of a new direction in economic stewardship, with aspirations pinned on his extensive experience and strategic acumen to meet the country’s economic challenges.

This change of guards underscores a pivotal moment in Pakistan’s economic landscape, as Muhammad Aurangzeb assumes responsibility for steering the nation towards economic stability and fiscal consolidation, ultimately leading to much needed higher and sustainable growth.

The prevailing economic conditions, undoubtedly, underline the collective failure of successive governments and their respective finance ministers. Despite the presence of a diverse array of professionals—bankers, economists, chartered accountants, and bureaucrats—Pakistan continues to grapple with entrenched structural challenges that remain unattended.

This persistent setback in addressing systemic issues has perpetuated economic instability, highlighting the urgent need for comprehensive reforms and strategic interventions to galvanize the country towards sustainable growth and inclusive development.

The newly-appointed Finance Minister brings with him a background steeped in banking, devoid of any prior experience in public service. While selection of technocrats may seem logical, it raises concerns regarding their ability to grasp the intricacies of governance and the needs of the populace. Unlike the private sector where focus often lies on economic management and profitability, public service demands a delicate balance between economic stewardship and public welfare.

Therefore, the challenge lies in ensuring that decisions made by technocrats align with ground realities prioritizing well-being of citizens over purely economic considerations.

In recent years, our Finance Ministry has seemingly transformed into a mere “branch office” of international lenders, with their directives overshadowing our own economic policies.

The ministry’s function is restricted to the efficient implementation of externally dictated micro and macro-economic strategies raising concerns about sovereignty in our economic decision-making and our growing dependence on foreign influences. Such a scenario highlights the need for a recalibration of our economic approach to ensure greater autonomy and resilience in the face of global economic pressures.

There are several pressing challenges facing the new Finance Minister that demand immediate attention foremost being the daunting task of successfully going through the second and final review of the ongoing US$ 3 billion Stand-By Arrangement (SBA) with the IMF together with negotiating twenty-fourth extended facility (EFF) programme with a substantially increased outlay, commensurating with our financial requirements.

With the impending federal budget for fiscal year 2024-25, Pakistan faces a dire situation marked by an unprecedented surge in debt service obligations, leading to historically high fiscal deficits for the last many years has ensnared our economy, intensifying the burden on both businesses and the general populace. Against this backdrop, there is a growing disparity between the government’s escalating tax demands and the struggling capacity of businesses and individuals to bear additional financial burdens. Finding a sustainable balance amidst these challenges will be pivotal for the new Finance Minister.

Apprehensions are that the stipulations and prerequisites accompanying the forthcoming IMF programme will be particularly stringent, necessitating the government to intensify revenue generation efforts. Expectations are pinned on the finance minister to articulate a comprehensive strategy and blueprint for economic revitalization, one that transcends the conventional approach of burdening the common populace.

Addressing systemic inadequacies and inefficiencies is imperative, with emphasis on enhancing tax compliance across sectors by rectifying existing disparities, ensuring fair taxation for all, including those currently either untaxed or taxed below their potential. Additionally, providing relief measures to tax-compliant segments is indispensable for fostering an equitable economic growth.

The persistent failure of successive governments can be attributed to systemic accountability lapses and entrenched relationships between influential elites and governing bodies. Pak rupee has experienced an historic depreciation, prompting State Bank of Pakistan to issue show-cause notices to several banks following media reports of speculative transactions in currency but despite these actions, outcomes of investigations remain allusive, leaving regulatory accountability in question.

Meanwhile, on the fiscal front, the government implemented a windfall tax to claim its share of the activity’s proceeds. However, substantive progress on the regulatory front is yet to materialize, necessitating robust measures to hold accountable those responsible for destabilizing the exchange market and inflicting significant economic losses. Moving forward, proactive regulatory enforcement and stringent oversight are indispensable for safeguard against future disruptions and for sustainable economic growth.

Copyright Business Recorder, 2024