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Politics of adjustment

December 06, 2018


JUDGING from the remarks that he made at the South Asia Economic Summit in Islamabad on Tuesday, it appears that Finance Minister Asad Umar is coming under immense pressure from within his own party in the aftermath of a second large devaluation of the rupee, and an equally big hike in interest rates. He tried to assure those attending the event — and undoubtedly his intended audience extended beyond the people seated before him — that there is ‘no financial crisis’ in Pakistan any longer. He pointed to an improvement in economic indicators, such as remittances and exports, and argued that the economy had turned the corner and was now getting ready to emerge from the extreme stresses and strains it had been under when his government assumed power. The message sounds odd and discordant given what is happening in the markets, as well as the state of the economy as painted by the State Bank only a few days earlier, which spoke of deeper imbalances beyond just the external. There may not be a financial crisis at the moment, but it is entirely premature to declare victory.

It is normal for an economic adjustment of this sort to generate political strains and test the popularity of any incumbent government. We have seen governments in the past tread fearfully down this path for the same reason, and now signs of trepidation and outright denial are emerging from this government too. In the days to come, politics will only heat up further, since we are far from the end of the cycle of adjustment. The finance minister needs to stay on message here, and prepare the country for the pain that is to come. For their part, his colleagues in government need to show some of that patience that they are asking the people of Pakistan to demonstrate towards them. It is far too soon in the game to start developing second thoughts about the finance minister himself (as speculation in sections of the media seems to suggest is happening). Changing course or the finance minister at this stage will signal tremendous weakness and a lack of clarity at the top levels of government, and the prime minister needs to play a firmer hand when talking about the steps his government has to take to restore stability to the economy. The coming days will bring many more tests. Let us hope the government can muster more patience and realism when facing up to them.

Published in Dawn, December 6th, 2018