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Pinning hopes on interim government

April 01, 2013

Justice (r) Mir Hazar Khan Khoso is being presented garlands after he was appointed as Caretaker Prime Minister of Pakistan by the Election Commission of Pakistan. — Online Photo by Waseem Khan

THE interim government of Prime Minister Mir Hazar Khan Khoso cannot be expected to take any major initiative to turn the economy around over the next few weeks, as it will relinquish power to the next elected government soon after May 11 polls.

Though aware of the limitations of an interim set-up, investors and corporate executives, still reluctant to trust the political class, pin hopes on Mr Khoso to put things right for the economy by doing all it takes at the policy level. In this pursuit, many “businessmen with competing interests rushed to Islamabad hoping to influence the government’s decision-making. Fertiliser, textile, LNG, LPG, auto and drug barons are present there in person, or through proxies, to seize any opportunity that might arise to push through pending decisions in their favour,” a senior officer of the ministry of commerce told Dawn.

However, the limited time, defined mandate of the caretaker prime minister and the delay in installing the interim cabinet seems to have somewhat dampened the hopes of these powerful lobbies.

But the bureaucratic hierarchy in Islamabad feels that the economic administration will continue to carry out its routine functions. “No interruptions are expected in the working of the multiple economic ministries and divisions.

“Believe me, the country can do better without the political crowd in Islamabad. If you ask me, it is a chance for ministries to work in peace and clear the backlog of pending files. Ministers often prove to be more obstructive, as they want their wishes to be treated as commands, even when the law of the land does not permit it,” said a federal secretary of a key economic ministry.

“The investment policy has been approved by the last cabinet, and the investment strategy 2013-17 is in place. Our hands are full at the Board of Investment (BOI). So I do not think that we are going to miss on anything,” a senior BOI officer told Dawn.

In the meantime, pressure is building on the external front, as the country’s foreign exchange reserves deplete owing to outflows on account of loan repayments and tardy inflows from friendly nations and development partners.

According to State Bank of Pakistan (SBP) data, the country’s total liquid foreign exchange reserves fell to $12.37 billion during the week ended on March 22, from $18.295 billion in July 2011. Reserves at the central bank fell from $7.45 billion to $7.27 billion. The country has to pay back $785 million to the IMF in four installments by June 2013.

Besides fears of a risk of sovereign default, there is also anxiety over the falling value of the currency, which had dipped to a low Rs100 to a dollar in the open market in February, before recovering to trade around Rs98.42 on March 29.

Investors also want the Khoso government to initiate dialogue with the IMF for the next programme, or persuade the Fund to allow Pakistan to defer payment on standby loan for at least a year.

“I would say the sooner the better. Why wait to hit the rock bottom and knock at the IMF’s door in desperation? We must know that the bargain would get tougher as we draw closer to the crisis,” said an analyst.

The rising current account and fiscal deficits depict weakening of the economic management. The current account deficit during the first eight months of this fiscal has reached $700 million.

Last week, SBP also reported astonishing government borrowing figures. Borrowing for budgetary support during the current fiscal till March spiked to Rs911 billion — reporting a fiscal gap crossing over the dangerous mark of about eight per cent of GDP.

Experts want the interim government to put a cap on borrowing and curtail wasteful public expenditure to save the situation from getting worse. This will help boost investors’ confidence.

“The approaching elections will put added pressure on the government to be generous in politically motivated spending. The government needs to check financial hemorrhage and desist from borrowing liberally to halt the economic slide,” a senior banker commented.

Some leading businessmen also want the government to avoid a possible backlash over the Iran-Pakistan gas pipeline project. They are also not quite comfortable with the increasing tilt of foreign policy towards China.

“I fail to see the wisdom of such a drama over a project that we know would irk the sole world power, when no immediate gain is expected of it,” argued an irritated business magnate with deep trade ties with western companies.

“Yes, China is our long-trusted friend, but Pakistan cannot afford to alienate the world community when its economy is already underperforming. The business [sector] cannot imagine a survival if it is shut out of the West.”

“The emerging bonding between the PM and the Chief Election Commissioner has brightened the prospects of a smooth transfer of power after polls. It has, however, disappointed politicians across the political divide aspiring for favours in return for a surprise appointment of a retired judge at the coveted post,” said an analyst with contacts at the highest level.

Those hoping for a hurriedly concluded IMF programme to counter fears of a US backlash over the IP gas pipeline project, and opposing the tilt of the foreign policy towards China, have not given up thus far. They are waiting for the announcement of the finance minister.