The impulsive decision-making on economic and regional trade issues marked the fragile nature of the country’s political economy last week as inflation surged to 9.01 per cent in March from 5.7pc in January.
In one of the most mercurial moments, the federal cabinet rejected a decision of its Economic Coordination Committee (ECC) that had approved the revival of trade relations with India by allowing imports of sugar, cotton and cotton yarn through land and sea routes to address rising prices and shortages.
This was surprising given the fact that the “prime minister in his capacity as minister-in-charge for commerce has seen and authorised the submission of the summary to the ECC of the cabinet after adding criteria for (the) allocation of quota to commercial importers”.
This was reinforced by tweets three days earlier by his adviser on commerce Abdul Razak Dawood. He said Prime Minister Imran Khan was sympathetic towards value-added sectors on the issue of escalating cotton yarn prices and advised that all steps be taken through cross-border imports and that a summary would be presented to the ECC in the next meeting.
Conflicting signals from different power centres make investors jittery
Pakistan had suspended all trade relations with India after the latter merged occupied Jammu and Kashmir into its union territory by withdrawing the constitutionally granted special autonomous status in August 2019. Similarly, quick policy reversals had taken place during the preceding PML-N and PPP governments on the questions of most-favoured nation status to India.
Asked if India had given any indication of relaxation to the people of India-held Kashmir, Hammad Azhar at his maiden news conference as finance minister did not give a direct answer. He said the government had to take decisions that were in the interest of the people. When asked why the government did not allow the imports of tomatoes, onions and potatoes from India despite their skyrocketing prices in recent months, the minister said the decision would be taken when such a situation evolved.
Likewise, after almost weeklong public criticism on perhaps the steepest adjustment for the revival of the IMF programme and the attached unfettered autonomy of the central bank, Prime Minister Imran Khan suddenly removed Finance Minister Dr Abdul Hafeez Shaikh in an unceremonious manner when he had just received Dr Shaikh’s positive test report for Covid-19.
This happened at a time when Dr Shaikh has steered the national economy in tough times amid an unprecedented pandemic to a stage that the Fund programme was revived, which helped put together over $4.5 billion foreign assistance, including a coinciding $2.5bn international bond.
Interestingly, the federal cabinet headed by the prime minister himself cleared the IMF package that included a schedule for continuous increases in energy prices for over Rs900bn additional charges on consumers in less than 18 months, over Rs700bn worth of additional taxes in the coming budget and a set of other measures, many of them considered to be inflationary.
It reportedly emerged later to the prime minister that a summary for granting unprecedented and absolute autonomy to the State Bank of Pakistan (SBP) and particularly to its governor had gate-crashed routine checks and consultations to reach the federal cabinet. Other key stakeholders were also reportedly surprised.
In background interviews, bureaucrats cleared their position to the prime minister and his partners in decision-making as to how the SBP had fast-paced its new amendment bill to the cabinet while an earlier draft agreed to with the IMF’s technical mission was still pending with the cabinet committee on legislative cases (CCLC).
Young Hammad Azhar was given the additional portfolio of the Ministry of Finance and Revenue along with his existing position as Minister for Industries and Production. In his maiden news conference as finance minister, Mr Azhar paid tributes to Dr Shaikh and his predecessor Asad Umar for laying foundations of economic recovery and noted inflationary pressures as a key challenge and hinted that the government might be reviewing the Fund programme and the controversial SBP Amendment Bill 2021.
“We are taking the SBP law to parliament with an open mind and are ready to adopt recommendations for its improvement,” he said, adding the bill had been prepared in line with international best practices but was sensationalised as if the country’s sovereignty had been breached. He parried the question if the original SBP amendment bill, which was agreed to with the IMF, was set aside and a revised bill was suspiciously taken to the cabinet for approval without clearance from the CCLC. He also sidestepped the question about whether a report of the IMF’s technical mission on the agreed draft central bank law would be made public.
He said the government could also review the IMF programme if the design of the programme and its harsh conditions were unrealistic, adding the government always had the right to review the programme.
Soon after his presser was over, information flowed out of the official channels that former PPP finance minister Shaukat Tarin would be taking charge as the head of the Economic Advisory Council. Mr Tarin confirmed that he would lead the council that he was part of after the PTI had come to power in August 2018 and became dysfunctional after Dr Shaikh took over the helm of economic matters.
Mr Tarin is critical of the policies pursued under Dr Shaikh and SBP Governor Dr Reza Baqir, particularly those relating to high interest rates, steep currency devaluations and unprecedented hikes in electricity, gas and petroleum rates under an unreasonable agreement with the IMF that compromised economic growth and caused huge unemployment and poverty instead of allowing the economy to have a soft landing. He also despises the killing of his initiative, as head of the advisory council, for reviving state-owned entities through Sarmaya Pakistan and instead allowing repeated tariff increases.
Different power centres in economic decision-making usually send conflicting signals and make investors jittery. Nothing could be more dangerous to an economy than frequent changes to the economic managers that generate a sense of uncertainty and instability to the markets. It would also be interesting to see how the PTI government and its partners critical of the 7th National Finance Commission Award move forward on the advice of the architect of the same award while tempering with the IMF programme.
Published in Dawn, The Business and Finance Weekly, April 5th, 2021