The visible difference between Nawaz and Abbasi is that the latter is easily accessible while it was really hard to meet the former when he was PM. What are the advantages of the PM being available to business community and others? He may have a better understanding of business environment and have different idea of managing economy; yet his hands are seemingly tightened.
Recently, various business bodies including PBC have met the new PM in a hope that his newly formed cabinet may correct the taxation and other policies to spur exports and value added manufacturing. The policies which were instilled by Ishaq Dar, with strong backing of Nawaz Sharif, though kick started the economy, were not sustainable.
The PMLN government had the windfall due to low oil and other commodity prices; this coupled with imposition of taxes on non-filers gave fiscal space to government to run pro-growth policies. These, along with CPEC and some doctoring of numbers brought growth above 4 percent in FY15 and FY16. The confidence was gained and private sector took the lead in FY17, especially in the second half, as the growth surpassed five percent and is broad based now.
But Dar did not capture the opportunity to have much needed structural reforms to make the growth momentum long lasting. The low interest rates, low petroleum prices and cheap imports triggered the consumer demand too fast to handle. The point is, whenever the economy grows at higher pace, imports grow too. However, unlike last boom, exports and remittances are not growing in tandem to keep external account at sustainable levels.
In 2008, the balance of payment crisis was primarily due to the sudden hike in commodity prices while today, even with suppressed prices the crisis is in offing. The business community proposed Abbasi to mend the policies to curtail demand such as tightening in monetary policy, hike in petroleum prices and rationalizing taxes; but he has conveyed that he would talk to Ishaq Dar before making any commitment.
Does this imply that Dar is still calling the shots? The initial impression after Dar removal from ECC chairmanship and from various other committees was that the power has probably tilted towards the new PM. However, a new theory is brewing up amongst business community that Dar omission is nothing but optics.
He is removed from the ECC perhaps on technical grounds, as PM being the energy minister cannot sit in ECC under the chairmanship of finance minister. Plus, NAB is behind Dar and it is better for PMLN for him to not lead. However, assuming he is still the economic decision maker, having full trust of ousted PM, it is hoping against hope to expect the currency to be adjusted voluntarily or petroleum prices being revised up without oil prices heading north.
But something has to be done to avert the trend of falling reserves. The option, knowing the thinking of Dar, is to go to the international market sooner than later. The market has appetite seeing the response of bonds issued by Iraq and Argentina. The Latin American economy which has defaulted eight times since its inception in 1816, and twice in this century, was still able to fetch $2.75 billion in a hundred year bond at an effective yield of eight percent. While the war torn Iraq raised $1billion in a 10-year bond at 6.75 percent.
Why can’t the booming middle class Pakistan economy get the money from international debt market? The doctor’s order is to go to international debt market immediately. Apart from that, tight monetary policy should be adopted by the SBP; if the government cannot politically, depreciate currency or increase petroleum prices.