More than economics

Published October 5, 2022

THE shouting match over the recent decrease in PDL on petrol between Finance Minister Ishaq Dar and his predecessor Miftah Ismail is reflective of a deeper malaise than just a difference of opinion. It is a manifestation of the conflict within the PML-N and a reflection of the competing political narratives now emerging in economic policymaking.

It wasn’t without reason that Mr Ismail publicly criticised Mr Dar’s first major act in office, without prior IMF approval, as “reckless”. After all, his own attempts to avert default were second-guessed and he was publicly undermined by not only Mr Dar but also Nawaz Sharif during his six-month stint.

Editorial: The fall guy

Maryam Nawaz not only disapproved of many of his actions but also forced him to revoke taxes on traders at the cost of significant loss of revenue to the treasury.

Nor would Mr Dar have responded to him during an interview, saying: “Don’t we have a heart? Must we keep on burdening 220m people with taxes? Miftah need not worry. I know how to deal with the IMF.”

Mr Dar’s appointment is but a sign of the paradigm shift in economic policymaking.

While Mr Ismail had done a commendable job by taking hard decisions to revive the stalled IMF programme, the government doesn’t have long to improve its image for the voters.

Mr Dar, who represents the Punjabi trading community and small businesses like his leader, has apparently been brought back to revitalise his party’s political capital ahead of the next elections. Known for his interventionist policies, he plans to pull it off by strengthening the exchange rate as a weakening rupee always comes at a large political cost to Pakistan’s ruling parties.

Read: 'Rupee's guardian angel': Will the new finance minister be able to fulfil all expectations tied to him?

The recent appreciation in the value of the rupee without any change in economic fundamentals, and despite the destruction caused by the floods, indicates that the foreign exchange market has already started to price in his interventionist policies and begun shedding the speculative fat it had gathered of late.

However, is it sustainable, considering that Mr Dar has limited avenues and even fewer dollars to influence the exchange rate unlike the last time he held the portfolio? More importantly, will the IMF let him upend the contractionary monetary and fiscal policies under its loan programme which require leaving the exchange rate to market forces, increasing the interest rate, slashing expenditure, erasing subsidies and raising taxes?

Read: Return of the ‘Dar’ Ages

The statement by its resident representative in Islamabad that “policy commitments made by the government to resume the support programme continue to apply” is already being interpreted as the Fund’s disapproval of the PDL cut.

The PML-N has made a risky wager: if Mr Dar fails to stabilise the economy and reduce inflation it will hurt the party’s electoral chances, and if he succeeds in creating an illusion of prosperity through market interventions and loose fiscal policies, it will be harmful for long-term economic sustainability.

Published in Dawn, October 5th, 2022

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