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Warning for the next PM
THE first thing that incoming prime minister Shehbaz Sharif has to realise is that no matter what happens, no matter how much pressure comes his way from his own party, including from Nawaz Sharif, he must not, under any circumstances, make Ishaq Dar finance minister again.
Bringing Dar in as finance minister one more time will be the worst mistake Shehbaz Sharif can make at this point.
The biggest disaster of his last stint as prime minister was precisely this. Dar undermined Miftah Ismail at a critical juncture, when the latter was trying to complete a stalled review of the IMF facility and avert a near imminent balance-of-payments disaster.
Dar derailed that understanding with the IMF, which had been reached after so many painful adjustments. And what was it for? A fleeting moment when it seemed the dollar might fall to 200 to a rupee? Dar could not deliver that bizarre promise of his, despite angrily declaring again and again on air that he would do so, and giving one date after another by when this target would be achieved.
All he managed to do was derail the IMF programme, and resume the country’s march towards default. Having done that, he proceeded to make the economic management of the country hostage to his ego. “I don’t care! I don’t care if they come! I don’t have to plead before them!” he shouted angrily when asked by a TV anchor about what the IMF would think of all the things he was saying and doing. “Sir, you may not care, but the country’s economy does,” the anchor replied.
This was an iconic exchange from those times, one of those moments in a public figure’s life that will long be remembered as a moment when the veil of civility dropped and we all saw a glimpse of the man behind the mask. It happened in the first week of December 2022, when the ninth review of the troubled Extended Fund Facility that Pakistan had signed in 2019, and limped along with on and off since then, had stalled once again. By then, the talks with the Fund had broken down entirely.
Whatever happens, it is critical that Ishaq Dar is not made finance minister again.
Everybody knows how things worked out after that. Everybody saw it happen. More than anyone else, Shehbaz Sharif himself knows, because it is he who opened a separate channel of communication with the managing director of the IMF in the first week of January 2023, after Dar’s own lines of communication had broken down. That was an eventful week as well.
To refresh people’s memory, the prime minister had first announced that an IMF team would visit Pakistan “in two days” to resume discussions around the review. But two days came and went and no such meeting happened. Then news emerged of a phone call between the prime minister and the IMF MD. It was during this call that Sharif persuaded the IMF team to have one more meeting with Dar on the sidelines of the climate-resilient Pakistan conference in Geneva.
Of course, that meeting proved fruitless too. To cut a long story short, the review remained stalled till June 2022, the month when the facility was to end, and no extensions were possible. That was the fateful month, when the country was supposed to land up with gross reserves of $17.1 billion, sufficient for 2.3 months of import cover.
Instead, it landed up with $9bn, barely sufficient to pay for 1.4 months of imports. This was a severely degraded position to end the Fund programme in. It was perhaps the first time in its history that Pakistan teetered on the very edge of default as it finished a Fund programme.
The prime minister might remember the rushed conversations with the IMF MD, the last-minute Stand-by Arrangement that was announced in the closing days of June, and the mad rush to arrange a $3bn inflow from Saudi Arabia and the UAE to complete the financing envelope of the SBA. Remember how both the inflow arrived hours before the IMF board was to sit down and deliberate Pakistan’s request for an SBA?
It should never have come down to the wire like that. A country of 240 million people should not have been driven that close to the edge of disaster simply because one man thought he could do something that he eventually turned out not to be able to do. He thought he could tough-talk the creditors and the markets into obeying his commands. He was wrong. He couldn’t. And along the way, the country nearly drowned in insolvency.
Whatever happens, it is critical that Ishaq Dar is not made finance minister again. This is not advice. This is disaster management on my part. Perhaps he has many attributes that endear him to his party leadership.
He knows the business landscape of this country. He knows the rackets that big business operate, and the rents they are addicted to. He knows who is making how much money, where their fortunes are hidden, the ways and means they use to conceal their real earnings and where they stash the proceeds from the mis-declaration of trade. He understands the games that take place under the table, and this knowledge is useful and required in a finance minister.
But it is not the most important requirement. It is even more important to understand the depth of the change that needs to be brought about in the economy to put it on a sustainable footing.
That is where Dar fails. He knows how to operate and game the status quo. He does not know how to change it. Change is what is needed to manage the debt load, the creditors’ requirements, to protect the poor, to create jobs, to generate revenues without choking dynamism. If Shehbaz Sharif appoints Dar again as finance minister, his game will be over even before it has begun.
The writer is a business and economy journalist.
Published in Dawn, February 15th, 2024
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