Amateur hour – extended remix

The last time Pakistan had a new army chief was in 2016. By 2017, the twin towers of public discourse decision-making in Pakistan had had enough. They decided that one of the worst things about Nawaz Sharif’s Pakistan was how indebted Pakistan had become. This was the era of the Rawalpindi-Imran Khan one page.

Like clockwork, the right wing, centre-right, the hypernationalist and nationalist press and most of social media went to town on Nawaz Sharif: “Pakistan was too indebted”, “it had taken on too much debt”, “Pakistan had a current account deficit that needed to be fixed”. In short, Pakistan had to be saved from, among other things, too much indebtedness.

According To the IMF’s External Debt Sustainability Framework, in 2017 the gross external financing needs of the country were roughly $22 billion. This grew to $28.5 billion in 2018. The short-lived era of former prime minister Shahid Khaqan Abbasi featured some measure of correction – thanks to Dr Miftah Ismail. By the summer of 2018, caretaker finance minister Dr Shamshad Akhtar came in on a fire engine named ‘austerity’ and slashed spending massively. Asad Umar followed her on a streetcar named ‘unprepared’ and fumbled about, though with great earnestness. He was replaced with the decisive darling of Rawalpindi, Dr Abdul Hafeez Shaikh.

In 2019, gross external financing needs were restricted to $26.6 billion. Shaikh’s keto diet for Pakistan, combined with Covid-19 helped reduce the burden on the system, and external financing needs shrunk to only $19.8 billion in 2020, and $14.8 billion in 2021. All that breathing room for the economy was not invisible. Sensing the need to be exactly like the big spending Sharifs, Imran Khan brought in Shaukat Tarin to loosen up the reins and love the people a little more. Enter large PSDPs and then that God-forsaken petrol subsidy. Exit prudence (and stability). Then came the Vote of No Confidence, and since then, the movement for ‘haqeeqi’ azadi (apparently, someone likes used MQM splinter group names and apparatus. If Imran Khan’s re-election campaign slogan wasn’t proof enough, the new governor of Sindh, Kamran Tessori, sure is). Some would have been forgiven for thinking that the redux of Dr Ismail as finance minister was recompense for the incredible miscarriage of justice that produces a five-month long jail stint for the scholar-businessman from Karachi. It’s clear now, six months later, that no such sense of fairness had occurred to Nawaz Sharif. Dr Ismail was not being rewarded for his loyalty to the PML-N. He was being punished for not being a relative of the Sharifs.

When he took over as finance minister for the second time in April 2022, Dr Ismail’s job was to calm the nerves of the four key stakeholders critical to Pakistan’s macroeconomic stability: first, the international financial institutions, especially the IMF; second, the country’s key bilateral partners, especially Riyadh and Abu Dhabi; third, the bondholders that buy and trade Pakistani bonds and sukuks; and fourth, domestic markets. The context of the frayed nerves of these four critical stakeholders was two-fold: first was the spike in commodity prices caused by Russia’s invasion of Ukraine, and the second was the external debt crisis in Sri Lanka (which by May 2022 had metastasized into that country’s first ever default).

Crocodile tear wielding (and gaudy crocodile skin shoe wearing Daronomics peddlers) will incredulously ask: “where do the people of Pakistan figure in this list of stakeholders?” That is a good question but is probably better left to those with actual stakes in Pakistan. That isn’t Ishaq Dar. But we digress.

Dr Ismail did what any responsible Pakistani adult with even a very elementary understanding of Pakistan’s gross external financing needs would have done. He engaged with the four key stakeholders, adjuring them to extend Pakistan the ability to meet its obligations and ensure that there was enough left in the tank for Prime Minister Shahbaz Sharif to adequately run the federal government, and fulfil the centre’s obligations to the provinces. The culmination of Dr Ismail’s efforts was a renewed and enlarged IMF programme – with some cuts and bruises that come with the territory of running Islamabad without having power in the four provincial capitals (hello, Taimur Jhagra). Default was averted and Pakistan was seemingly on the road to some kind of recovery.

Ask any addict: recovery is a tenuous, arduous process adorned with peril at every turn. And when the addiction is cheap, debt-fuelled growth for a large country, getting over substances like the Shaukat Tarin Subsidy? Not so easy. Gross financing needs for 2022 rose to $34.3 billion. This is supposed to level off a bit in 2023 at $30.8 billion, assuming a six per cent GDP growth rate this year (which is not happening). From 2024 Pakistan’s gross external financing needs will continue to rise each year, from $36.6 billion all the way to nearly $40 billion in 2027.

Is this all Imran Khan and Shaukat Tarin’s fault? Absolutely not. But the external account stability that Covid-19 helped secure was floundered with not a lot to show for it. Growth-at-all-costs cheerleaders (including, at times, this writer) have a lot to think about. A lot of the so-called anti-poor decision making that causes inflation, causes increases in fuel prices and electricity prices, and causes increased taxation is a product of this reflection. The math is not hard. If Pakistan is to remain solvent, it has to increase the inflow of dollars, limit the outflow of dollars and raise a lot more money through taxation. In these calculations, there is not a lot of choice.

The only real choice is how to conduct and position Pakistan’s economic policymaking. The PML-N really is a remarkable party in terms of the disparities it carries within it. The spectrum of choices available in this regard have been on full display over the last several weeks. Arrogance, hot air and bombast have defined the Ishaq Dar Redux – the most comical of his performances being his threats to Moody’s on the downgrading of Pakistan’s credit risk rating. Almost the polar opposite was visible during the Miftah Ismail Redux: constant appeals to compassion, empathy with the victims of the headline inflation that higher gasoline or petroleum prices were causing, and a very deliberate and careful treatment of the holders of Pakistan’s external debt, especially the folks holding Eurobonds and sukuks issued by the government of Pakistan.

What kind of mindset then would afford Nawaz Sharif the luxury of inserting Ishaq Dar back into a role that the infinite wisdom of our national security overlords had deemed too sensitive for him to continue to hold in 2017? Probably the same genius mindset that has parachuted Kamran Tessori into Governor House in Karachi. Of course, in the all-time greatest hits of this genius mindset, top billing still belongs to the manipulation of the 2018 general election in favour of Imran Khan and the PTI – but we digress.

Here is Pakistan. Just a country saved from default in July and August, being plunged into peril by a man that has had, in three separate decades, the chance to run Pakistan’s economy three separate times, and done the same thing, every single time. Ishaq Dar is Shaukat Tarining the economy. It is what he does.

Are Ishaq Dar Version 4.0 and Faisal Vawda, oops, I mean, Kamran Tessori Version 1.0 a reflection of the lessons learnt by the national security establishment of the perils of intervening in politics? Or are Dar and Tessori reflections of a broken and helpless political elite? Either way, it doesn’t matter much. A country that should be fixated on fixing Karachi searched among 20 million Karachiites and came up with Tessori. A country that should be fixated on reassuring bond investors and forging economic stability searched among 20 retirement age former officials and came up with Ishaq Dar.

Dar is so overcome by his triumphant return (surely as good a victory for democracy as any other since March 2022) that his every statement now spooks bondholders, credit risk rating agencies and international financial institutions into further uncertainty. Underwriting all this? Extensions and extended fund facilities from the IMF. And the insatiable need for validation that important office-holders across the land keep exhibiting.

The people of Pakistan, still drowning in the calamitous floods of 2022, still reeling from record inflation, still shell shocked by a year of relentless instability? Silence. As usual.

The writer is an analyst and commentator.