Wednesday August 17, 2022

A word to the unwise

December 08, 2021

LAHORE: While economy continues to hang in balance despite repeated change of guard, Pakistan’s finance squad, suffering from a delusion of grandeur, always trashes independent economists’ advice, no matter how relevant.

Shukat Tarin, Advisor on Finance to the Prime Minister, has criticised the “drawing room economists” for speaking out against the economic policies of the government. The gentleman is a former banker and a competent one as well, but that does not mean he is an economic expert.

The first thing he did after assuming the office of finance minister was pick apart the harsh terms his predecessor had agreed with the IMF (International Monetary Fund). In hindsight the terms agreed with the IMF by Hafeez Sheikh look much softer than the ones renegotiated with the IMF now.

In the same way the deposit loan obtained from Saudi Arabia is humiliating. Tarin is right the creditors have an upper-hand while determining the conditions of a loan.

But there is a thin line that separates a genuine loan from the compromise on sovereignty. We have compromised our sovereignty in obtaining loans from both the IMF and the Saudi government.

One must concede the one tackling the financial problems of the country is aware of the harsh realities and people sitting on the other side of the table are not aware of the actual situation on ground. In such cases the best thing that a government could do is to become more transparent.

It should consult with the opposing side and fix parameters up to which it could bulge in negotiations.

As the situation stands today, we need IMF assistance but that does not mean we surrender to the conditions of the donor agency completely. When we send a negotiating team it should comprise credible economic experts of divergent views who should try to convince the other side on the repercussions of the conditions on the common man as well.

The IMF is the lender of the last resort. It pitches in to ensure the economy of a country does not collapse.

In the current situation the withdrawal of tax exemptions is not a big deal. There should be no tax exemptions and that is the stated policy of the government of Pakistan as well. But other conditions like increasing the petroleum levy and power and gas tariffs directly impact the masses.

The IMF staff and the government of Pakistan have agreed to the measures that Pakistan would take for getting $1 billion tranche. But the actual approval would be granted after the IMF board meeting on January 16, 2022. If we failed to fulfill any of these conditions the approval could be withheld.

Then there are conditions on independence of the central bank and waiver of any accountability of decisions taken by the central bank officials.

Could anyone give a single example in a civilised world where so much sovereignty has been granted to a national institution and that too without accountability? The conditions of the Saudi deposit of $3 billion are even more insulting and have fully compromised our sovereignty.

Now that the agreements have been signed without broad-based consultation at home the flak of the miseries that the electorate is likely to face would fall on the government. Whatever agreements Hafeez Shaikh signed with the IMF were owned by this regime and it is responsible for its benefits or disadvantages to the country.

In the same way, whatever agreement Shaukat Tarin has signed with foreign powers for financial assistance is also the responsibility of this regime.

This regime would similarly be responsible for the outcome of these agreements if Shaukat Tarin choses to call it a day or is removed for the same reasons Hafeez Shaikh was sent home. The blame game worked for a while when it was passed on to the previous regimes, but it did not work when Asad Umar created the economic mess or when Shaikh was fired.

Economy now is fluid. We have no clear policy on how to run it. We want to curb the luxury imports by increasing duties but it would simply increase the government revenue without making a big dent in imports. We want to increase exports, but the costs of energy and power have been increased even for exporters.

The petroleum rates are also up. Under these circumstances we cannot further increase exports. Remittances even if they stay at current level would be the only saving grace for the country.