ONE question keeps coming up in all conversations about the shape of a post-election set-up. Will Ishaq Dar be the finance minister? Here is my answer: yes, he will, even if he doesn’t formally occupy the position of finance minister, he will be such an overbearing presence that anybody else will find it impossible to operate outside of his wishes. Meaning that even if he is chairman Senate, or occupies any other such position, his presence will still be felt in Q block.

There is a reason why Mr Dar keeps returning to this particular position whenever there is a PML-N government in power. One reason, obviously, is because he is related to Nawaz Sharif through the marriage of their children. But this is not the full explanation, and it certainly does not explain why Dar keeps returning to the finance ministry as opposed to any other position of power.

To understand why finance, it is necessary to understand something about the predicament of Pakistan’s economy. For many years now, Pakistan’s economy has been stuck behind a stagnant “production possibilities frontier” to use the language of introductory economics.

What this means is the country’s economy is relying on the same industries year after year, decade after decade, to be the drivers of its growth, and in the process, sinking into a quagmire of low growth. Every growth spurt over the past quarter century has been shorter in duration, lesser in intensity, and perhaps required larger inducements in the form of borrowed capital and accommodative monetary and fiscal policies.

There are two large options all policymakers have when they come to power and are confronted with an economy such as this one. One option is to try and ‘bust out’ through a reform programme that changes the relationship between state and capital, incentivises investment in new areas where capital can be more productively employed and allows the sun to set on older industries that have lived long past their sell-by date.

Such a reform path is difficult to conceive, carries risks of failure, elicits opposition from vested interests opposed to a change in industry, meets bureaucratic lethargy, and brings short-term pain in the form of a rising tax burden and possible shutdowns in key industries, and so on. It is a tough path to walk.

There are two large options all policymakers face when they come to power in an economy such as this one.

The other option is to ‘hunker down’ and find more and more effective ways to manage the growing scarcities as the economy sinks deeper and deeper into this unproductive quagmire.

When in hunker down mode, the rulers eschew all attempts at change and seek to extract more from the system as it is. In this strategy, the ruler assumes the position of an all-powerful watchdog over the economy, keeping strict tabs on who is making how much, who is selling what, at what price, to whom, and so on.

This is the economy in which a sector showing unusual dynamism in its earnings reports can find itself slapped with a ‘windfall tax’, or exporters can be given a bargain to accept an overvalued exchange rate in return for subsidised natural gas for their captive power plants.

In such an economy, managing prices and production and inventories and imports all become the job of the finance minister, who proceeds to subordinate all economy-related functions of the state to his diktat in order to be able to discharge such sprawling obligations.

The State Bank and the Bureau of Statistics must operate as per his wishes, for example, so interest rates and exchange rates can be regulated by him as per the bargains he is striking among the business elites, and the data can be managed to ensure it does not reflect a picture too much at odds with the one the finance minister wishes to see.

Pakistan’s economic management has to choose between one of these two roads. Dar embodies the ‘hunker down’ option. He made his bones as a ‘hunker down’ man back in the late 1990s, when he took control of the economy in the aftermath of the nuclear detonations and the ensuing sanctions.

He managed the scarcities of foreign exchange and energy and fiscal resources in those days. But he failed totally at getting the IMF programme restarted, without which there was no hope of finding stability beyond the day to day.

In his second stint, from 2013 to 2017, he ran an economy with abundant access to foreign capital and a relatively relaxed geopolitical environment (compared to the late 1990s in any case). And growth under ‘hunker down’ mode basically meant holding interest rates and the exchange rate constant, artificially so, while pouring borrowed dollars in the billions into the economy year after year to produce a resource-intensive dynamism that ultimately ended in a crash.

In 2022, he came back to ‘hunker down’ once again, to manage the scarcities, and distribute the losses among the business elites. He managed to persuade Nawaz Sharif that the then finance minister was not hunkering down effectively enough and the result was outsize inflation that was fuelling disaffection among the PML-N voters.

He arrested the slide in the exchange rate and held fuel prices as constant as he could, but in the process, drew down the foreign exchange reserves and brought the country back to the brink of default by June 2023.

If there is a PML-N government after the elections (assuming they are held), Dar will be there, either in the seat as finance minister, or from some other perch, haranguing whoever is the finance minister to hunker down and keep the economy under his thumb.

The short-term costs of the ‘bust out’ approach will make it very difficult for anyone to take that course, while the short-term sense that hunkering down makes will prove too alluring to be ignored.

The writer is a business and economy journalist.
khurram.husain@gmail.com
X: @khurramhusain

Published in Dawn, December 7th, 2023