By Amir Zia
Money Matters
The News
August 6, 2012
“Our finance minister is an honest and above-board person; he doesn’t seem fond of protocol – the police escorts and hooters blaring with his cavalcade. He prefers to go on drives in his old car along with his wife and sweetly waves to acquaintances or well-wishers on the road,” said the official. “The problem is that he is also not into hard work nor does he want to make a name for himself. One wonders why he chose to become a minister.”
Finance Minister Abdul Hafeez Shaikh must be in a celebratory mood. Last week, the United States finally released the $1.118 billion due to Islamabad under the Coalition Support Fund (CSF), ending Pakistan’s balance of payments worries for at least the next two to three months. The fresh US inflows, which were stalled for nearly 18 months, are likely to keep the State Bank of Pakistan-held foreign exchange reserves around the $10 billion mark, despite repayments to the International Monetary Fund (IMF) worth $420 million due in August and another $760 million-plus by the end of the year.
This also means that if the executive-judiciary developments do not spin out of control, the PPP-led coalition government will be able to complete its term without a balance of payments crisis.
Shaikh has one more reason to celebrate: the Pakistan-US deadlock over the resumption of Nato supplies to Afghanistan was broken by his expert negotiating skills. When it came to the final round of talks, it was the easygoing, laidback finance minister – not the star Foreign Minister Hina Rabbani Khar – who brokered the deal. To many political commentators, this underlines the fact that Shaikh enjoys the confidence of not just his political bosses but, more importantly, of the real source of power in Pakistan: the mighty military establishment.
Finally, with record remittances worth $13.186 billion dollars in fiscal 2011-12; the much-vaunted return to ‘single-digit inflation’ (9.6 percent in July 2012 compared with 12.4 percent during the same month a year ago) as well as a slight improvement in economic growth (3.7 percent during FY12, up from the three percent in FY11), Shaikh and his team have a few numbers worth flaunting as the PPP’s innings draw to a close.
However, the question that needs to be asked is how representative these ‘achievements’ are in the context of the Pakistan economy. Are we really headed out of the low growth, high inflation cycle we’ve been caught in for the last four years?
While the minister and his coterie paint a rosy picture, the tidings for the future remain ominous with most independent economists predicting much tougher days ahead.
With the budget deficit predicted to range between eight and nine percent for the last fiscal (official figures are yet to be released); continuously declining foreign direct investment (down to $812.6 million in the last fiscal as against $5.4 billion in 2007-08 fiscal); a crippling energy crisis; a poor domestic and business environment (due to continued lawlessness, terrorism and political instability); financial hemorrhaging of key public sector entities and corruption scandals, the performance of the PPP-led coalition on the economic front will go down as wasted years in our recent history.
Call it feat or failure, the government has managed to run the show without any economic vision or commitment to reform. All the promises Shaikh made when he took charge of the Finance Ministry in 2010 were, apparently, meant for the gallery as the government – despite repeated promises to the IMF – took no meaningful steps to implement its stated reform agenda.
The tax base has not been expanded nor has agriculture income been brought into the tax net; the budget deficit hasn’t been curtailed, neither by the slashing of expenses nor by the mobilisation of fresh resources.
The government has not been able to create a business- and investment-friendly environment nor has it managed to reform the loss-making public sector entities (which alone cost a mammoth Rs 900 billion in annual subsidies to the national exchequer, including the subsidies given to the ailing power sector.)
Interestingly, even the officials within the Finance Ministry are no better informed. “Don’t ask us about the government’s economic vision; even we don’t know what it is,” says a senior Finance Ministry official requesting anonymity. “It is all about superficial day-to-day management. There are no mid- to long-term goals. All crucial decisions remain pending for months and reforms have been put on the back-burner.”
According to most accounts, the problem stems from two factors. First, the political bosses of the PPP have never been interested in taking the tough decisions vital to putting the economy back on track. Even when they had time, in the first two years of their term, party stalwarts never saw eye-to-eye with their ever-changing economic team, which comprised people overwhelmingly borrowed from here and there. The first finance minister Ishaq Dar was on loan from the PML(N), Shaukat Tarin was a professional banker and Shaikh was once a key member of former military ruler Pervez Musharraf’s team. As such, the PPP lacked an economic team and vision of its own and the ‘outsiders’ carried no weight within the party, which saw the tough IMF-backed reforms as unpopular and contrary to its grain.
The second problem has to do with Shaikh himself. According to ministry insiders, Shaikh isn’t seen as the tough taskmaster who will push himself and his team for results, set goals and give vision. “The minister usually starts his day at noon and is a master procrastinator; files remain on his desk for weeks and sometimes even months,” says the official. “Issues that need efficient and hands-on handling are treated sloppily; decisions such as timely and sufficient release of funds are kept pending.”
According to him, the state-run institutions, which can be revived with a large, one-time injection of funds and structural reforms – PIA, Pakistan Steel and Pakistan Railways – are kept barely alive by providing small chunks of money, which do no good to them or the economy. “They just keep booking losses and further burdening the national exchequer,” he says. “In Pakistan, people crave cabinet slots for three reasons,” says another official at the Finance Minister, requesting anonymity. “Either they want to make quick money or they enjoy the protocol and the perks or they want to make a name for themselves by doing big things,” he says.
“Our finance minister is an honest and above-board person; he doesn’t seem fond of protocol – the police escorts and hooters blaring with his cavalcade. He prefers to go on drives in his old car along with his wife and sweetly waves to acquaintances or well-wishers on the road,” said the official. “The problem is that he is also not into hard work nor does he want to make a name for himself. One wonders why he chose to become a minister.”
Dr Ashfaque Hasan Khan, a former Finance Ministry adviser and one of the main critics of the government’s economic team, thinks that Shaikh and a few like him choose important portfolios in order to boost their CVs.
However, the fact remains that the ineffectiveness and lethargic attitude of the economic team is hurting the country. Unlike his predecessor Tarin or former State Bank governors Saleem Raza and Shahid Kardar who decided to quit when they saw the PPP bosses were paying little heed to their suggestions and advice, Shaikh has decided to stick it out.
The Finance Ministry itself is in a state of paralysis because of the frequent changes of the team members and the corresponding lack of institutional memory. And, says Khan, matters are compounded by equally weak teams at the Planning Commission and other related departments and institutions.
The only reasons Pakistan’s economy is still surviving are the parallel informal economy and the resilience and dynamism of its people who never say die despite the odds they face. Will a new government post-elections or a caretaker government with a long-term assignment (an option pushed by many political pundits and wheelers and dealers in Islamabad) bring the much needed ‘economic vision’ for Pakistan? Let’s keep hoping and praying.
The News
August 6, 2012
“Our finance minister is an honest and above-board person; he doesn’t seem fond of protocol – the police escorts and hooters blaring with his cavalcade. He prefers to go on drives in his old car along with his wife and sweetly waves to acquaintances or well-wishers on the road,” said the official. “The problem is that he is also not into hard work nor does he want to make a name for himself. One wonders why he chose to become a minister.”
Finance Minister Abdul Hafeez Shaikh must be in a celebratory mood. Last week, the United States finally released the $1.118 billion due to Islamabad under the Coalition Support Fund (CSF), ending Pakistan’s balance of payments worries for at least the next two to three months. The fresh US inflows, which were stalled for nearly 18 months, are likely to keep the State Bank of Pakistan-held foreign exchange reserves around the $10 billion mark, despite repayments to the International Monetary Fund (IMF) worth $420 million due in August and another $760 million-plus by the end of the year.
This also means that if the executive-judiciary developments do not spin out of control, the PPP-led coalition government will be able to complete its term without a balance of payments crisis.
Shaikh has one more reason to celebrate: the Pakistan-US deadlock over the resumption of Nato supplies to Afghanistan was broken by his expert negotiating skills. When it came to the final round of talks, it was the easygoing, laidback finance minister – not the star Foreign Minister Hina Rabbani Khar – who brokered the deal. To many political commentators, this underlines the fact that Shaikh enjoys the confidence of not just his political bosses but, more importantly, of the real source of power in Pakistan: the mighty military establishment.
Finally, with record remittances worth $13.186 billion dollars in fiscal 2011-12; the much-vaunted return to ‘single-digit inflation’ (9.6 percent in July 2012 compared with 12.4 percent during the same month a year ago) as well as a slight improvement in economic growth (3.7 percent during FY12, up from the three percent in FY11), Shaikh and his team have a few numbers worth flaunting as the PPP’s innings draw to a close.
However, the question that needs to be asked is how representative these ‘achievements’ are in the context of the Pakistan economy. Are we really headed out of the low growth, high inflation cycle we’ve been caught in for the last four years?
While the minister and his coterie paint a rosy picture, the tidings for the future remain ominous with most independent economists predicting much tougher days ahead.
With the budget deficit predicted to range between eight and nine percent for the last fiscal (official figures are yet to be released); continuously declining foreign direct investment (down to $812.6 million in the last fiscal as against $5.4 billion in 2007-08 fiscal); a crippling energy crisis; a poor domestic and business environment (due to continued lawlessness, terrorism and political instability); financial hemorrhaging of key public sector entities and corruption scandals, the performance of the PPP-led coalition on the economic front will go down as wasted years in our recent history.
Call it feat or failure, the government has managed to run the show without any economic vision or commitment to reform. All the promises Shaikh made when he took charge of the Finance Ministry in 2010 were, apparently, meant for the gallery as the government – despite repeated promises to the IMF – took no meaningful steps to implement its stated reform agenda.
The tax base has not been expanded nor has agriculture income been brought into the tax net; the budget deficit hasn’t been curtailed, neither by the slashing of expenses nor by the mobilisation of fresh resources.
The government has not been able to create a business- and investment-friendly environment nor has it managed to reform the loss-making public sector entities (which alone cost a mammoth Rs 900 billion in annual subsidies to the national exchequer, including the subsidies given to the ailing power sector.)
Interestingly, even the officials within the Finance Ministry are no better informed. “Don’t ask us about the government’s economic vision; even we don’t know what it is,” says a senior Finance Ministry official requesting anonymity. “It is all about superficial day-to-day management. There are no mid- to long-term goals. All crucial decisions remain pending for months and reforms have been put on the back-burner.”
According to most accounts, the problem stems from two factors. First, the political bosses of the PPP have never been interested in taking the tough decisions vital to putting the economy back on track. Even when they had time, in the first two years of their term, party stalwarts never saw eye-to-eye with their ever-changing economic team, which comprised people overwhelmingly borrowed from here and there. The first finance minister Ishaq Dar was on loan from the PML(N), Shaukat Tarin was a professional banker and Shaikh was once a key member of former military ruler Pervez Musharraf’s team. As such, the PPP lacked an economic team and vision of its own and the ‘outsiders’ carried no weight within the party, which saw the tough IMF-backed reforms as unpopular and contrary to its grain.
The second problem has to do with Shaikh himself. According to ministry insiders, Shaikh isn’t seen as the tough taskmaster who will push himself and his team for results, set goals and give vision. “The minister usually starts his day at noon and is a master procrastinator; files remain on his desk for weeks and sometimes even months,” says the official. “Issues that need efficient and hands-on handling are treated sloppily; decisions such as timely and sufficient release of funds are kept pending.”
According to him, the state-run institutions, which can be revived with a large, one-time injection of funds and structural reforms – PIA, Pakistan Steel and Pakistan Railways – are kept barely alive by providing small chunks of money, which do no good to them or the economy. “They just keep booking losses and further burdening the national exchequer,” he says. “In Pakistan, people crave cabinet slots for three reasons,” says another official at the Finance Minister, requesting anonymity. “Either they want to make quick money or they enjoy the protocol and the perks or they want to make a name for themselves by doing big things,” he says.
“Our finance minister is an honest and above-board person; he doesn’t seem fond of protocol – the police escorts and hooters blaring with his cavalcade. He prefers to go on drives in his old car along with his wife and sweetly waves to acquaintances or well-wishers on the road,” said the official. “The problem is that he is also not into hard work nor does he want to make a name for himself. One wonders why he chose to become a minister.”
Dr Ashfaque Hasan Khan, a former Finance Ministry adviser and one of the main critics of the government’s economic team, thinks that Shaikh and a few like him choose important portfolios in order to boost their CVs.
However, the fact remains that the ineffectiveness and lethargic attitude of the economic team is hurting the country. Unlike his predecessor Tarin or former State Bank governors Saleem Raza and Shahid Kardar who decided to quit when they saw the PPP bosses were paying little heed to their suggestions and advice, Shaikh has decided to stick it out.
The Finance Ministry itself is in a state of paralysis because of the frequent changes of the team members and the corresponding lack of institutional memory. And, says Khan, matters are compounded by equally weak teams at the Planning Commission and other related departments and institutions.
The only reasons Pakistan’s economy is still surviving are the parallel informal economy and the resilience and dynamism of its people who never say die despite the odds they face. Will a new government post-elections or a caretaker government with a long-term assignment (an option pushed by many political pundits and wheelers and dealers in Islamabad) bring the much needed ‘economic vision’ for Pakistan? Let’s keep hoping and praying.
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