Monday May 29, 2023

Bad optics

By Editorial Board
October 05, 2022

Finance Minister Senator Ishaq Dar may have been in office for barely a week, but, to borrow his own words, he has been in business for 25 years. And yet he is kicking up controversies. For instance, one would expect a man of his stature and experience to know better than to make a mountain out of the molehill of a careless word from former finance minister Dr Miftah Ismail. Just as one would expect him to know better than to encroach on the turf of the central bank in the matter of the rupee exchange rate or inflation. One could equally rebuke Dr Ismail over his reckless remarks, but we must take into account that he does not have 25 years of experience behind him. What’s more, it became an unseemly public spat only after Dar had his say.

As for Dr Ismail, it is well known he guided Pakistan’s economy out of the shadow of an imminent default, and nobody can take that away from him. There is no reason to see his departure from the finance ministry in light of an unceremonious exit because, being unelected, he could only serve for six months – and he knew this beforehand. He also must realize getting him elected to parliament would be a daunting task for his party.

In any case, the fact remains that Dar is a veteran of politics and economic management and nobody can deny the achievements he stacked up over his earlier stints in office. Of course, he has his critics. However, his public retort to Dr Ismail’s remarks has drawn the IMF into the conversation. Again, they were not exactly out to remind Pakistan of the commitments made but fielding a reporter’s question. Next thing somebody from Pakistan, similarly fielding a reporter’s query, may assert Pakistan’s sovereign right to manage its affairs (including economic policy) as it deems fit. And Dar may have an ironclad defence for the policy direction he has taken. But putting the conversation out like this is certainly unseemly, not least because it feeds into the impression that the government is somehow ready to go on a spending spree in view of the general election due in 2023; or that Pakistan is looking to live large on debt. The only way to avoid that would be for both Dar and Ismail to bury the hatchet here and now. Dar bears the lion’s share of the responsibility for resolving this situation.

Also on Dar’s shoulders is the burden of maintaining the fiscal sanity brought back by Dr Ismail, and strengthening the macroeconomic policy framework by keeping his nose out of the affairs of the central bank. The independence of the State Bank of Pakistan is now legally mandated. As a parliamentarian, Dar must know that parliament rules through its acts, not through the opinion of individual parliamentarians. If he finds a law objectionable, he is free to move a bill for its amendment or repeal. Until such a bill passes parliament, it is his duty to play by the existing law. Today’s finance ministry is a far cry from the days of his last stint in office in that the central bank is now independent and the rupee is a free-floating currency. He has no leverage over the central bank to either rig the rupee’s exchange rate or dictate a monetary policy of his liking. Of course, he has his ministry’s secretary on the SBP board of governors, and his representatives on the Monetary Policy Committee – but that is about all there is to it, and the sooner he learns to live with it, the better.

The context within which Dar’s ministry operates adds to the urgency of the foregoing. Pakistan’s economy was broken before the epic flooding disaster hit the country this monsoon, and Dr Ismail has barely been able to hoist it above the surface when the calamity hit. That cost the common Pakistani a huge amount of hardship owing to historic high inflation fueled by rupee depreciation and stellar energy prices – all necessary for the revival of an IMF bailout, in turn essential to avert default on the country’s external obligations. In any case, the natural disaster led to a groundswell of sympathy for Pakistan as a victim of climate disaster. The goodwill born of this sympathy has stood Pakistan in good stead at international fora including the UNGM and SCO. Pakistan needs that goodwill not only to turn its economy from the ground but also to rebuild the large parts of the country laid waste by the floods. That goodwill must not be squandered on any account.