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The fall of Dar

November 27, 2017

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FINALLY, the Ministry of Finance is without Ishaq Dar — the man who led the PML-N’s economic team for the third time after replacing senior party colleague Sartaj Aziz in November 1998.

To ensure a decent exit, Prime Minister Shahid Khaqan Abbasi immediately approved his request for a leave of absence on health grounds permissible under the rules for a maximum of three months.

Prime Minister Abbasi, however, had started to gradually withdraw powers from Mr Dar ever since he replaced ousted prime minister Nawaz Sharif, under whose leadership the former finance minister wielded maximum influence, practically acting like a deputy prime minister heading more than four-dozen committees in various spheres.

While approving the leave of absence, Mr Abbasi also withdrew Mr Dar’s remaining ministerial portfolio of finance, revenue and economic affairs.

He was initially clipped of privatisation and statistics portfolio the day Prime Minister Abbasi took oath of office. A week later, he was removed as the head of economic cabinet committees like the Economic Coordination Committee, Executive Committee of National Economic Council, Cabinet Committee on Privatisation and Cabinet Committee on Investment where he had resisted many proposals from Mr Abbasi’s erstwhile Ministry of Petroleum And Natural Resources. Early this month, Mr Abbasi removed Mr Dar as a member of the Council of Common Interests.

Mr Dar has been in the middle of headwinds ever since the Panama leaks assumed centre stage in Pakistani politics, culminating in a judicial scrutiny for allegedly helping Mr Sharif and amassing wealth beyond his known sources of income.

Mr Dar was formally indicted by an accountability court on this count on Sept 27, because of which he couldn’t attend the high-profile annual meetings of the World Bank-IMF in Washington for the first time in four years.

His tenure is characterised by his successful stabilisation of the economy and for his inability to introduce deep-rooted structural reforms

A month later, on Oct 27, he took a one-way flight to Tajikistan aboard a special plane of the prime minister to attend the 16th Central Asia Regional Economic Cooperation ministerial conference which he had earlier regretted to attend due to court appearances.

He then reportedly travelled to Saudi Arabia to meet the ousted prime minister — also a close relative — before reaching London and getting admitted to a hospital for medical treatment on Nov 4.

In speedy accountability proceedings, the NAB court issued non-bailable warrants against Mr Dar for not appearing before it on Nov 14 and declared him an absconder a week later on Nov 21. In his absence, leaks started to flow out of the Prime Minister Secretariat predicting his imminent exit.

Mr Dar is credited by friends and foes alike for successfully stabilising the national economy for three years after 2013, but was criticised by many for his inability to introduce deep-rooted structural reforms towards sustainable growth.

With the PML-N under political and judicial pressure, sadly, the journey to reform had already become the least priority and foreign exchange reserves had started a downhill route. This happened amid Mr Dar’s reluctance to allow currency depreciation to avoid its translation into higher debt stock in the absence of support from exports, which have been on the decline for almost four years.

He had the guts to keep a tight control on the public purse despite increasing political demands in an election year.

Under security-related pressures, even though the fiscal deficit at the end of the last financial year was almost two per cent higher than budgeted, the first-quarter gap between revenues and expenditure this year was reported lowest at 0.9pc even though fiscal operations for the period are yet to be made public.

While there were limited expectations for further economic reforms, the only continuation should have been the fiscal discipline that may be the next casualty as the Abbasi-led political government moves towards the next elections with a headless Ministry of Finance.

This comes at a time when Mr Dar’s trusted Secretary Finance Shahid Mehmood will also be on leave leading to his retirement before the New Year sets in.

Under a stopgap arrangement, the additional charge of secretary finance has now been given to an officer of another, ministry with prime minister’s principal secretary Fawad Hasan Fawad calling the controlling shots.

Mr Dar was perhaps the only minister of the Sharif cabinet who did not allow Mr Fawad to have a say in administrative or policy-level decision-making relating to his ministry.

Mr Dar had already selected a consortium of banks for the launch of two separate bonds. As the decision-making suffered following political uncertainties, the government has now decided to launch both bonds simultaneously with a larger size.

Two of Mr Dar’s trusted aides, Governor State Bank of Pakistan and outgoing secretary finance are currently holding road shows abroad to raise up to $3 billion of sukuk (Islamic bonds) and conventional Eurobond, most probably by this weekend, subject to favourable investor response.

The Ministry of Finance has been trying to ensure, sometimes through short-term commercial loans, to sustain national forex reserves above $14bn — a threshold for three months of import cover — to remain an uninterrupted recipient of the World Bank loan.

The two successful bond launches would uplift this limit to a comfortable zone for a couple more quarters as exports and remittances show signs of improvement.

But despite sympathetic credit ratings, the bond pricing may not be as favourable as secured in previous launches because of a prevailing sense of political instability and tension among institutions.

Markup and profit rates on bonds are generally directly linked to the vulnerability and eagerness factor of the fund-raising client, but these funds are very crucial amid the large current account deficit to avoid heavy drawdown on reserves.

While Prime Minister Abbasi has kept Mr Dar’s portfolio to himself and may chip in a junior minister for parliamentary requirements, leaving day-to-day matters being run by his principal secretary, such an arrangement would send a confusing, rather negative, signal to the market.

A full-time federal minister or a powerful adviser has to take the driving seat along with the responsibility of steering the country at this transitory stage.

Published in Dawn, The Business and Finance Weekly, November 27th, 2017