In an unanticipated but untimely move, Prime Minister Imran Khan removed Asad Umar, the key player of his economic team, in an unceremonious manner and appointed Dr Abdul Hafeez Shaikh as Advisor to PM on Finance, Revenues and Economic Affairs, with the status of federal minister. Although, the reshuffle in the cabinet was on cards, nobody expected that it would be so abrupt.
In an unanticipated but untimely move, Prime Minister Imran Khan removed Asad Umar, the key player of his economic team, in an unceremonious manner and appointed Dr Abdul Hafeez Shaikh as Advisor to PM on Finance, Revenues and Economic Affairs, with the status of federal minister. Although, the reshuffle in the cabinet was on cards, nobody expected that it would be so abrupt.
Last week, Umar returned from Washington after attending annual spring meeting of International Monetary (IMF)/World Bank and participated into National Assembly Standing Committee on Finance and gave no indication that his removal was under consideration. When journalists asked him about his departure, he again read a poetic verse in Urdu that roughly translates as ‘there were thousands of wishes to die for that could not come true’ and said that nothing of this sort was even under consideration. Former top Engro Corporation official’s confidence showed that things were in his grip but he was unaware the conspiracies being hatched against him were in full swing and he would be shown door within next few days. He had made some wrong move when he stated that the deal with the IMF was almost done as many analysts believed that it was a premature statement because without striking staff-level agreement on all three year frameworks, conditions and other details, the claim of a deal almost done could have the potential to derail broader consensus between the two sides. Some circles say that the deal with the IMF and its attached conditions proved fatal for Umar, because Pakistan Tehreek-e-Insaf (PTI) leadership considered certain conditions hard politically so there was no other way but to change the face to renegotiate those conditions with the IMF mission expected to visit Pakistan before coming Ramazan.
When the premier offered him ministry of energy, Umar refused to join the cabinet at all adding more grace to his exit. He also mustered courage and faced the media to announce that he was going to step down on the premier’s behest.
The internal politics within PTI and delayed decision on IMF front were cited as major reasons behind his removal. However, at the time of his resignation, the outgoing finance minister did not forget to mention that his incoming counterpart would have to take tough decisions down the line as economy was still in bad shape.
When PTI took reins of power after winning last general elections it was only Asad Umar who knew from day one that he would be appointed as finance minister of the country. The foreign currency reserves were falling standing at around $9 billion in the wake of rising current account deficit. The current account deficit had peaked to $19 billion last financial year 2017-18. The PTI-led government adopted the strategy to get a breathing space by securing assistance from friendly countries and also took steps to suppress imports. The currency was allowed to depreciate and the utilities’ prices, especially gas and electricity, were jacked up. The monetary policy was tightened up to 10.75 percent to curtail demand. As a result the inflationary pressures started mounting and bordered on double digits.
After securing $9 billion from friendly countries including $4 billion from China, $3 billion from Saudi Arabia, and $2 billion from the UAE, the foreign currency reserves held by the SBP were standing in the range of just over $9 billion. It indicates that the deposits and loans obtained from all avenues had just evaporated owing to high current account deficit and repayment of previous loans in the shape of principal and markup.
On fiscal side, the yawning budget deficit remained the biggest challenge for the PTI during the first nine months of its tenure as the budget deficit is all set to make historic records of country’s history by end of the current financial year in absolute figures. In the wake of highest ever shortfall being faced by the FBR and expenditures overrun by major heads, the budget deficit might exceed 7 percent of the GDP on June 30, 2019.
Now the new economic wizard of the country Dr Abdul Hafeez Shaikh has assumed his charge. Dr Shaikh is a capable economist beyond any doubt but he will have to utilise all his capabilities to steer the economy out of crisis.
In the next 30 days, the newly appointed finance advisor will have to undertake three critical things including striking a staff-level agreement with the IMF, presenting next budget in line with the IMF-agreed program, and third ensuring smooth sailing from the Financial Action Task Force (FATF). The challenge is huge and laidback and lackluster attitude will not work.
It is relevant to put things on the record as it was under Dr Shaikh’s tenure in Pakistan People’s Party- (PPP) led regime from 2010 to 2013 when the IMF had canceled its program over the government’s failure to pass Reform General Sales Tax (RGST) in the parliament. The good offices enjoyed by Dr Shaikh into multilateral institutions will help us to some extent but delivering on the IMF conditions would be critical to run the next fund program in a successful manner. Otherwise we would once again prove to be ‘one or two tranche country’.
A daunting task is lying ahead for the economic team. First of all the economic team will have to develop cohesion among themselves and then they will have to undertake some of the trickiest negotiations with the IMF to get a favorable package in coming weeks. Then the budget for 2019-20 should be reflective of the IMF program and its terms and conditions. Any expectation of too much waivers should not be expected by the economic team so finalisation of next program will be critical to make it a success otherwise it will be suspended after couple of reviews in the next financial year.
The PTI’s prescription on the country’s economy is perfect but so far it has failed to come up with a strategy and implementation plan to fix the main problem and then move on towards growth trajectory on long and sustained basis. For the new finance minister laxity will not lead to remedy.
The writer is a staff member
