The economic team seems to lacks implementable ideas and more importantly, the capacity to maximize benefits accruing from external fronts. The Finance Minister is new to the game and does not have the experience of dealing with pressing issues.
The government in general, and Asad in particular, are eying to bring changes in the structures with different ideas, but the learning curve is not there to implement them. The accountability fear is at its peak, hindering routine decisions and also making it difficult for attracting talent in the public sector.
At the same time, the government’s balance sheet buffers will not be there forever. That was the case in PPP (2008-13) and PML-N regime. The problem exacerbated with falling capacity within the Ministry of Finance, the Planning Commission, the Monetary Policy Committee and other related departments.
Lack of capacity is visible in day to day decisions - such as distorted signals in debt market by accepting long term bonds at higher rates (for details read: ‘Debt pricing – far from ideal, published Jan 2, 2019). There was no DG debt at MoF in 2014 when around Rs2 trillion PIBs were issued at peak cost. The position is vacant again, and the problem of domestic debt management is back.
The SBP is too aggressive in monetary policy stance having taken real interest rates up by 4-4.5 percentage points, without realizing that the room for demand curtailment through monetary tightening is limited as consumer finance is a mere 4 percent of total banking system credit. The major dent of higher rates is on government domestic debt servicing as public debt including PSEs is more than 60 percent of total banking system credit.
The economic team is finding it difficult to negotiate matters with the IMF, and it is tough to instill hard sought reforms without capacity. In the previous regime, there were strong finance secretaries - with background of economics and dealing with complex bureaucratic structure at the same time – enabling the government to complete the IMF programme by negotiating on waivers. The current finance secretary seemingly lacks that kind of depth.
There is no chief economist at the Planning Commission, and the economic advisor(s) to FM as a full time role is missing. All the members of EAC or other eminent economists in advisory role are either too busy with their day jobs or are retired to fully commit to the services for the government. The FM needs full time smart economic thinkers and analysts on his team.
The FM is taking too long in appointing people. The first step of reforming PSEs is to have right people for the job. But that is yet to be seen. The NBP CEO is yet to join, there is no fresh appointee at any DFIs, and the NSS is missing a vibrant leader too. Asad has to learn quickly and should start taking decisions in building requisite capacities.
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