In his victory speech, soon-to-be prime minister Imran Khan has set a lot of well-meaning targets and the direction of his government’s economic policy that seem no different from those of any leader in the recent past.
Mr Khan has gone on to the extent of yearning for a welfare state like Madina of Prophet Muhammad (PBUH) and yet idealising China’s economic policy that has traversed through communism to controlled capitalism and referring to the China-Pakistan Economic Corridor (CPEC) as a “game changer” — the pet phrase of his predecessors.
The role of the finance minister-in-waiting — Asad Umar — would be crucial to transform this agenda into reality in five years. Mr Umar would be the fourth finance minister with an MBA in the last three decades.
Policy literature suggests reforms get successful when they are undertaken at the very beginning of the term and carried forward with desired adjustments along the way
The other three MBAs were Syed Naveed Qamar, Shaukat Aziz and Shaukat Tarin. Mr Qamar and Mr Tarin had rather short stints in office. While Mr Qamar had a few months at his disposal to leave any mark, Mr Tarin, otherwise a distinguished banker, is either despised for or credited with the landmark 7th National Finance Commission (NFC) Award of 2009.
Nearly all federal stakeholders, from the armed forces to the Ministry of Finance and independent economists, still regret that NFC award as it left the federation a pauper even after almost a decade of its passing.
Whether a large enough economy worth $313bn facing significant challenges and needing deep-rooted economic reforms gets a helping hand from a man with a degree in business administration and who ran a $1bn company is going to be interesting to watch. It would also be interesting to see if the new government is able to make adjustments to fiscal federalism to satisfy increasing demands of the security quarters and yet be able to create job and business opportunities while others resist a reversal of hard-gained fiscal autonomy to the federating units.
The foremost and immediate outcome of the formation of the new political government and its road map will be the signs of relative confidence to the market to settle the exchange rate to a reasonable level and recovery in the capital market spoiled by rather longer political instability. But its extent would again depend on the depth of the strong opposition crying foul over the election process.
According to former PML-N finance minister Miftah Ismail, some of the promises made by the PTI entailed an additional expenditure of almost Rs1.6 trillion per annum or about Rs8 trillion over five years. But there appears to be no matching plan to generate required funds.
The good sign is that the PTI has sufficient numbers of its own to form a comfortable government immediately and start working without wasting time. However, it will require the support of a coalition for securing major policy initiatives and reforms to sail through the approval process. Mr Khan has promised no political victimisation which, if ensured, will earn a space to make policy choices easier.
More positively, there are no signs of an upfront economic crisis, although problems have been heating up and the new government has a reasonable time to take stock of the ground realities and start acting immediately.
Declining foreign exchange reserves are still enough to finance about two months of imports unlike 2008 and 2013 when they were down to a couple of weeks. The financial system is stable and the stock exchange, although down from an elevated level of 50,000 points, is still above the 42,000-point level, needing a fresh psychological and monetary injection to boost activity and create a feel-good environment with fresh investment potential.
Debt levels are on the higher side, but within manageable boundaries along with a reasonable time span. The energy sector’s circular debt is another potential challenge on the fiscal side. But these issues are not as big as they were five or 10 years ago despite supply-side expansion.
All this would need seriousness in the policy approach to steer the economy, rather than the tendency of political blame game that would reduce the space to operate.
It is important that the new government based on its political capital takes difficult decisions and serious reforms at the start of its tenure rather than falling prey to populism and then start reaping the benefits halfway through for the next elections.
All available literature suggests reforms get successful when they are undertaken at the very beginning and carried forward with desired adjustments along the way. Playing to the galleries with notional gimmicks seldom earn long-term political and economic rewards.
Published in Dawn, The Business and Finance Weekly, July 30th, 2018
