Asad Umar is getting a lot of flak. Does the fault lie in his not doing a better job, or lack of viable options? Opinion is divided. Most would allow more time but early signs hold out little promise. Charge of dithering, if not incompetence, is gaining currency.
It was an ailing economy that greeted him. But others before him have been there, facing the daunting challenge of balancing the rupee and dollar books. People are getting tired of being told it is someone else's fault. They know that. That's why they voted you in, believing in your promises.
Asad, articulate and self-assured, and as Stephen Sackur discovered on HARDtalk a hard one to bait, actually lost the plot before he walked into the Q block. How could he possibly miss clear signs of a quivering economy to make grandiose promises of ten million jobs and five million housing units?
How could he repeat, programme after TV programme, his resolve to quit if within three months he did not give a 'direction' to the economy? His assertions that he had no idea things were so bad sounds hollow; it smacks of paucity of policy imaginativeness not policy options.
It is the missing direction to the economy - a well-crafted and well-communicated reforms plan - that is worrisome. So far it has been a Band-Aid approach and not a grand design. Q block keeps stumbling from one solution to another problem. With all the policy reversals investors have no idea what is coming next.
This has led to a loss of credibility, obliging Asad to 'talk the market up', as he recently did with the exchange rate. Clearly, something is amiss when FIA has to be inducted to check 'hoarding' of dollars. Few find his thesis that the rupee has found its 'equilibrium' valid, especially when he rests his case on REER which is only a reference point and a moving target.
Those who have met with him, especially foreign investors, report he does not share any plans to address the myriad challenges. The impression they come back with is either he does not have a plan or is keeping it close to his chest. On first blush the medium term plan reads more like a prayer than policy.
Dar has been mercilessly pilloried for reckless borrowing. Is Asad following in his footsteps? He has been just as liberal, if less creative, in borrowing rupees and dollars. Unlike Dar, he seems less mindful of the perniciousness of a weak rupee and high interest rates.
Let's not forget Dar managed to keep forex reserves at a fair level despite his fetish for a strong rupee. Both interest rates and inflation kept going down and growth up - and revenues doubled. Asad is using the same instrument - borrowing - but simultaneity of devaluation, escalating interest rates and hiked administered prices has stifled growth and stoked inflation.
Slowing down of the economy and policy uncertainty have combined to set several bells tolling, most worrying of which are enhanced fiscal pressures and people getting laid off, especially at a time when the cost of living is going up.
There is strong anecdotal evidence of growing joblessness. An anemic growth rate (IMF is pitching it at 2.9% for current year; World Bank expects it to drop to 2.7% next year) will exacerbate the situation.
Non-development expenditures provide little space for cuts. Debt servicing, subsidies and public sector enterprises were the only heads with pruning potential. Between deval and monetary tightening debt servicing cost will mount, further cuts in subsidies will exact a high political cost, and the loss making State Enterprises have been sent to incubate under the Sarmaya Company.
Some State Enterprises are obvious candidates for closure. In an environment of growing unemployment it is doubtful if the Sarmaya Company would have the freedom to let them go belly-up. Recall the alacrity with which the government backed-off when Adviser Industries suggested closing down the Utility Stores Corporation?
On Revenues the only hope of FBR meeting its target is the new amnesty scheme, seemingly inspired by the local adage 'better the loincloth of a fleeing thief than nothing'. It is unlikely to yield much if those who could not avail of the last amnesty (PEPs) are kept out.
After more than seven months of yo-yoing with the idea of an IMF programme we now seem to be there. Jury is out on how good a strategy it was to delay the Programme while frontloading the expected prior actions (exchange and interest rates, energy prices, subsidies, state enterprises).
Whether or not it was a wise decision to do on your own what the Fund would demand in any case (to avoid the charge of bowing to IMF pressure) is now irrelevant. We have paid the price and what matters is if there is more to pay.
What is relevant is if we can avoid an IMF relapse while strapped to the IMF straitjacket.
The reason we keep going back to IMF is that we stop at macroeconomic stability. IMF makes the right noises but its 'structural reforms' fall short of a fundamental restructuring of the economy. It is outside its mandate to say 'you can't get the economy right without getting the politics right'.
Only significant export and revenue growth will keep us out of IMF's eternal embrace.
Exports don't have a chance without a sensible Industrial Policy where chosen sectors are protected and subsidized (on a diminishing scale) in exchange for pre-defined employment, export, revenue and other targets. This will also induce the badly needed FDI in exports. But we can't even begin to work on a stimulating Industrial Policy as long as we are in the Programme.
Technology and better administration will help revenue enhancement - but only if the government gives the right signals. By not taxing agricultural income, providing numerous exemptions, and lurching from one amnesty to another the unmistakable signal is 'bird in hand is better than two in the bush'. Existing tax-payers will have to bear the burden.
Let's not fault Asad for not knowing what he is doing. The fault lies in trying to make welfare, wealth creation, and IMF walk together. Welfare shall fall first, with wealth creators next - if NAB doesn't get them Q block will.
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