As the IMF moves in

Within the last two weeks, the PM has removed the entire team responsible to manage our economy. The country had barely absorbed the earth-shaking news of the removal of the finance minister when came news of the sacking of two key players – the SBP governor and the chairman FBR.

In any period, three key players in government being removed is an extraordinary event and would shake the markets negatively. But the timing of these recent changes is unprecedented – barely weeks before the budget and at the final stage of IMF negotiations.

So, what is it that triggered these changes? There could be a host of reasons. There is no doubt about the state of the economy which has taken a downturn for the worst in the last nine months. Naturally, the PM would be a very worried man at the state of the economy. Nothing has worked since the present government took over in August. Every sector of the economy has suffered with no sight of recovery.

Just a glimpse of macro-economic situation shows us the slowest revenue growth in 20 years; GDP growth expected to be around three percent, coming down from 5.8 percent in the last fiscal year; inflation almost doubling compared to last year; and millions going below the poverty line in the last nine months. Moreover, there are massive job losses; no growth in exports despite massive devaluation; continuous decline in the stock market with billions of dollars going out of the market; massive FDI decline; unprecedented rise in public debt; circular debt rising from Rs1.1 trillion to approx Rs1.6 trillion in nine months; fiscal deficit expected to remain over seven percent – one of the highest in our history; and, most importantly, erosion of confidence among the key stakeholders and general public about the present state of the economy and future direction.

With such a gloomy macro-economic situation, any PM would feel extremely concerned. Having waited so many months and nothing coming together, the PM was under extreme pressure to make necessary changes. Contrary to the promises he made prior to the elections, Pakistan witnessed one of the worst economic meltdowns in its history. The prime minister was under immense pressure to deliver on his economic promises and the best way he could respond was to shift the blame to other members of his economic team.

I am not sure the PM considered the significance of the timing while making the changes in his economic team. Removing the chairman of the FBR in the second last month of the fiscal year is unprecedented. With tax revenues falling abysmally short of targets and with no chance of recovery, there were serious concerns about the performance of the FBR team led by its chairman. Indeed, the PM had expressed his dismay back in February when he announced that he would set up a new FBR.

The case for the removal of the SBP governor is even worse. This is a three-year tenure position during which time the government could not replace him. So enough pressure must have been exerted for the governor to resign on his own. The reasons coming out through unofficial sources say that the PM was not happy with the governor’s management of the exchange policy. The government faced serious criticism when the rupee tumbled against the dollar and the PM at that time distanced himself from a possible decision to let the market determine its free fall. The PM announced that he got news of the devaluation through TV channels. The finance minister of the time, though, had publicly announced that he himself had informed the PMof the decision a day before the massive devaluation. Clearly, the PM was trying to put the blame on the SBP governor and the finance minister.

Whether the present government wants a free-float policy or wants to regulate the exchange rate through intervention in the markets is not clear. The government has vigorously defended the massive devaluation, saying it was necessary to do so under the circumstances but the governor of the SBP has paid the price for not doing enough to stem the fall of the rupee.

The new team has been announced. Till last week, the new governor was a paid IMF employee serving as resident director, Egypt. What we have seen in Egypt is a standard IMF prescription – massive devaluation and significant increase in energy prices. Obviously, his proposals in Pakistan would be no different. However, we would expect the new team to protect our national interests while negotiating with the IMF. But it is rather difficult to imagine that the IMF/World Bank led team will be able to protect Pakistani national interests.

The PM surely has come a long way – from claiming he'd commit suicide before approaching the IMF to literally handing over the country's finances to the same institution. He obviously had no idea when he was making all those statements against the IMF (not just before the elections but even after assuming power. In his address on August 19, he said it would be a matter of shame if he approached the IMF). As for the new FBR chairman, there’s nothing to suggest that we will see a major improvement in tax collection. Surely, we are going to miss the target by close to Rs500 billion.

The PM will find it easy to put the blame on the former finance minister and former FBR chairman. This is typical of this government since it has come into power. Any inefficiency or non-performance is blamed on the PPP or PML-N governments. From now on, the blame for poor economic management will be put on the team that has just been replaced. The question is: when will the present government, especially the prime minister, start owning its responsibility and being answerable for non-delivery? The PM must realize that the honeymoon period is long gone and people are running out of patience. It's time to perform.

The writer is former governor Sindh and former minister for privatisation.