Let the games begin

Published May 16, 2013 09:26am

A COMPLICATED election has given us a simple outcome. With a single party in charge of things, perhaps one can hope for some stability in the government.

And with a mandate just large enough to legislate and run policy, but not large enough to tamper with the structure of the Constitution (unlike 1997), the electorate has given Nawaz Sharif just enough space in which to deliver on his promises and not an inch more.

So as the old saying goes: let the games begin. Given that the first 100 days are the most crucial, when the government has the largest room for manoeuvre and is least constrained by the play of vested interest, its actions during this time will be the best indicator of its intentions.

Here are two things that we can reasonably expect to see concrete movement on right away: approaching the IMF to shore up the deteriorating reserves, and the grant of MFN trading status to India.

In both cases, the groundwork has already been done. Mr Ishaq Dar should speak first and foremost to the State Bank and get a detailed briefing on the state of the reserves. He should ask first for the detailed numbers on the reserves, followed by the repayment schedule to the IMF.

He will discover that the next fiscal year, which begins July 1 and ends next June, is the last year of repayment to the IMF as such. Total repayments scheduled during this fiscal year are somewhere around $3.3 billion, with two large payments looming — one in August, the other in November — each of which is just under $400 million.

At the State Bank he will be told by most that the situation is deteriorating fast. The treasurer is likely to complain that he is having a hard time keeping the rupee steady without adequate firepower to back him up. The monetary policy department is likely to tell him that interest rates cannot be brought down so long as the reserves position is shaky.

Mr Dar should then ask them what advice the State Bank gave to the outgoing government regarding the reserves. If the position is indeed as shaky as it is being painted, he should say, when did they first begin to sound the alarm bells?

If he feels that the State Bank advised the outgoing government to leave the decision of approaching the IMF to the next government, then Mr Dar should ask them whether this was an economic decision or a political one, and who at the central bank wishes to take responsibility for this advice.

A large sprawling meeting with treasury heads and exchange companies — the sort that Mr Saleem Mandviwalla so eagerly sought — should be avoided because nothing useful ever comes out of them.

Instead, Mr Dar should make up his own mind whether or not an approach to the IMF is needed or whether Pakistan can weather its last year of repayments and capital account stress without any support from the lender of last resort.

The only point he needs to have urged upon him is to do this fast, and signal it unambiguously to the markets. This is not a 100-day agenda, this should be done in the first 10 days.

Let’s not repeat the worst mistakes of 2008, which included a government heavily distracted and excessively hopeful that bilateral aid would make any approach to the IMF unnecessary. Time should not be wasted tallying up projections of possible inflows from bilateral sources. We either resolve to ride out the next year on the strength of our own balance of payments, or we get support from the IMF. There is no option C.

Mr Dar is a known quantity in the money markets. Many players there — whether treasury heads of major banks or exchange companies — have been around long enough to remember the last time Mr Dar headed things at Q block. Some of them even worked with him during those crucial days, when Pakistan floated on a wafer-thin raft of ice, managing its payments to foreign creditors and oil suppliers on a day-to-day basis.

Things are not that bad this time round. Another positive here is that Mr Dar is not really a ‘technocrat’ of the sort that the outgoing government relied upon. The typical technocrat has a tough time being heard or being taken seriously by his cabinet colleagues.

By contrast, Mr Dar is a political insider with deep roots in his party and equally deep links with the party leadership. He should not have as hard a time getting his way as his predecessors did, which places a burden of expectations upon his shoulders at the outset.

In the power sector, the new government must do two things if it is serious about delivering on its campaign promise of ending loadshedding in two years. First it must amalgamate the ministries of petroleum and water and power into a single ministry of energy. Then it must shine a light on the power bureaucracy, and develop and implement a plan to choke off all sources of arbitrary decision-making within it.

Both tasks involve more tedium than rocket science, and both are possible in the first 100 days. Without doing this, the new government will find itself going round and round in the same circle that the last government went dizzy in. The whole power crisis will then necessarily devolve into the question of arranging liquidity for PSO so it can pay for the next consignment of furnace oil.

Of course there’s the fiscal side, probably the most important which merits special treatment. But for now, some of us will be watching carefully to see how serious the government is about resolving the economic issues facing the country, and the first steps they take within days of coming into office will tell us a lot about their seriousness of purpose.

So like I said, let the games begin!

The writer is a Karachi-based journalist covering business and economic policy.

khurram.husain@gmail.com Twitter: @khurramhusain


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