The beleaguered Finance Minister gets no respite. He is constantly in the line of fire; at times under friendly fire as well. He puts on a brave face, using his analytical mind and impressive articulation to good effect. Ironically, this invites more flak, unsympathetic to the heaviness of demands and lightness of resources.
He is beginning to look like a cross between King Lear and Hamlet. Like the former, he has difficulty choosing among the claimants - realizing after the event that he chose wrongly; like the latter, he seems paralysed by the enormity of policy conflicts - sauce for the goose (populism)can be poison for the gander (economy).
Asad is an able man. His desire to set things right is genuine. He works very hard and reaches out to all segments. Why, then, this sense of despondency about the state of the economy?
It will be the lowest form of conversation to dismiss Asad as unfit for the job. The right question should be what prevents him from doing a better job. Does he have enough room for manoeuvre, or are there impediments of a structural nature?
Mysterious are the ways of Banigala but in answering that question one doesn't necessarily have to play the 'elephant and the blind men' game - forming perceptions based on the part of animal he touches. There is enough out there to form informed opinions.
First, there is the impossibility of Kaptaan's vision. It is a laundry list of ambitions, founded more on what should be done than what can be done. There is no strategic plan, with any regard to sequencing. Collision of 'out there' with the 'here and now' was inevitable, making the Finance Minister, who has to balance the numbers, a hard-to-miss target.
When the building is ablaze fire-fighting comes first. Long term, the reconstruction part, has to wait. Avert default before breaking the begging bowl. Nudge the FATF elephant out of the room before enticing FDI. Reset ties with the US before finalizing IMF. Create fiscal space before giving Exports a leg-up. Get the fundamentals right, unless you want to 'buy' growth as Dar did.
Second, who has the FM's back? When Shoaib or Ghulam Ishaque or Ishaq Dar spoke it was the government speaking. Interlocutors, the IMF included, knew there was no point going up the ladder - they were talking to the top dog. When IMF presents unusually hard conditions (especially prior action) we suspect they are pushing on a string to test if Asad is the government.
Third, and here Asad seems to be no less guilty, the government came grossly underprepared. Hubris, or sheer exuberance, made them all lose a sense of reality. Corruption is a cancer, no doubt, but there is much more to the economy than that. Whoever came up with ten million jobs slogan was either doing just that - sloganeering - or had not the faintest idea that you can 'buy' jobs but can't sustain them until the economy is put on a consistently high growth trajectory.
Even then it takes a long time. India has been growing at a fast clip for quite some time now but is yet to halt the growth of informal sector, showing the substantial time lag between high and consistent GDP growth and its impact on economic marginality.
Job creation is an enigmatic business. Take the housing initiative that the government contends will have a multiplier effect in terms of job creation. Yes it will, but how well can it be sustained, even if state-sponsored housing is a roaring success? What will happen to all these thousands of workers once five million units have been completed? Revisit Keynes?
Looking ahead, how successful will Asad be in securing his short-term agenda dominated by fiscal and current account deficits? Can it be done at an affordable political cost? To what extent can Sindh be prevailed upon to play ball? Will the bureaucracy, buffeted between the Courts and Accountability, be a spoiler or a partner?
We do not see government worrying too much on the fiscal side this financial. There will be some tinkering with tax policy, aimed at easy pickings, but nothing major. Government thinks it can live with a deficit of up to 6% that can be financed between the banks and the SBP (hence avoidance of IMF). The impact on inflation and the external sector will be there but nothing earth shattering.
We expect the heavy hammer to fall next year, hoping by then Sindh is tamed and the opposition scurrying for cover.
It is the external sector that has Asad scratching his head. Come next year and the bailouts would have run their course. You can perhaps squeeze another couple of billion out of remittances but Exports are going no place and FDI, even if it comes, will not translate into dollar inflows quickly enough.
Ease of doing business, zero-rating, cheaper utilities, and devaluation will make only a marginal difference to Exports. That ponderous promise of a shift to 'innovation-based' will require skills that the government doesn't have.
It would need an industrial policy that is strongly pro-export, of which there is little hope. The way we read Advisor Commerce's lips it will accentuate anti-export bias - as import substitution on the back of heavy protection, cartelization, and without productivity gains invariably does.
We are unlikely to attract export-oriented FDI until we learn FTAs are not for market access but to attract FDI for exports. We should not be seeking concessions for existing products (which only means export diversion, not creation) but for products we aspire to develop, perhaps with FDI partners. We should seek concessions where the FTA partner has high tariff barriers.
It is the external sector woes that will, inevitably, make us roll out the welcoming mat for the IMF. And we won't be a jot surprised if that is how Asad planned it: string the government along until it is left with no choice, while adroitly managing the timing of it.
Before his transition from FM-in-waiting to FM-in-office Asad had committed to quit if a clear 'direction' was not set within three months. Direction or not, we hope he stays. We don't want him to remind us of Queen Elizabeth chiding the resigning PM (Baldwin): "a confederacy of elected quitters".
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