Money Matters

Caretaker challenges

June 11, 2018
By Mehtab Haider.

The caretaker Minister for Finance Dr Shamshad Akhtar has assumed charge at Q Block or the Ministry of Finance at the Secretariat, and kick-started her sojourn to steer out the economy from the existing morass on internal and external fronts.

The caretaker Minister for Finance Dr Shamshad Akhtar has assumed charge at Q Block or the Ministry of Finance at the Secretariat, and kick-started her sojourn to steer out the economy from the existing morass on internal and external fronts.

She is known for her workaholic attitude, as she used to burn midnight oil for discharging her responsibilities. Her close aide just told this scribe that the newly sworn in minister starts her day early in the morning and continues working in the ministry till 8 to 9 pm every day.

The minister has a huge task ahead of her. She will have to strategise a comprehensive plan to overcome the difficult economic situation that she has inherited from the previous government led by the Pakistan Muslim League-Nawaz (PML-N). The caretaker finance minister needs a short-term plan to deliver effectively and also possibly make a path for the next elected government to follow.

Several challenges are lying before the incumbent finance minister, who also holds charge of other ministries. She will need a full-fledged and dedicated team to perform her assignments. The first and foremost challenge for the new minister will be the lack of a professional and efficient team within the bureaucracy.

Except for a few, her team in the Ministry of Finance is lethargic, inefficient and inaccessible, whereby some prefer to work only from 10 am to 2 pm, and even during that time a lot of their time is consumed in fulfilling public relations requirements.

With her professional knowledge on macroeconomic issues, she has received extensive briefings in the first few days to come up with prescriptions for the economic ills. Irrespective of plunging into the political debate, it is the right decision on part of the caretakers to hold article IV consultations with the International Monetary Fund (IMF). As matter of principle, the interim regime does not possess mandate to hold any dialogue with the lenders, but keeping in view the peculiar situation on the economic front and dire need for evolving broader consensus on economic ills after gauging the actual health of the economy on the ground, this step cannot be delayed till the installation of the elected government after July 25 elections.

The caretaker government has taken a stance that it was a routine dialogue, which is taken up by all member states of the Fund once in a year. These talks were due in March 2018, but the previous government delayed the dialogue because they were busy preparing for the budget. Therefore, it was expected to be held at the end of June this month. Holding of the Article IV consultation does not imply that Pakistan will be seeking another package from the IMF.

All this might be correct and these are just routine dialogues and the caretaker government is not seeking out another package. But the devil lies in details, so the finance minister must spell out a clear cut strategy. In the aftermath of Election Act 2017 it is not the mandate of caretakers to sign any IMF loan; however, nothing bars them for holding article IV consultation when it is required in the best interest of the country.

Although the schedule of talks has not yet been finalised yet, it is expected that the IMF team might visit Islamabad by the end of June or early July for holding the consultations with Pakistan. The IMF mission will stay here around 7 to 10 days and then they will require 4 to 6 weeks to present their report before the Fund’s executive board. In the meanwhile the general elections will be completed in Pakistan, and there will be a new elected government in place with fresh mandate from the people. It will be the sole choice of the coming elected government to make a decision to formally approach the IMF soon after taking oath in August this year.

There is need to recognise the fact that Pakistan does not have any option but to get the loan from the IMF. There should be no doubt about it. Hence, there is need to negotiate the best deal to obtain the necessary bailout package from the IMF, and Islamabad must devise a strong and reliable strategy in this regard.

Increasingly worrisome are the repayments that have to be done on account of the previous loans taken from the IMF in the past years. Islamabad will have to pay $190 million outstanding amount in June (the ongoing month) to the IMF. Another $490 million will become due in the coming fiscal year 2018-19 starting from July 1, 2018, and exactly the same amount will be again due in September 2018

Pakistan has to pay back $879 million in 2019-20, $1.158 billion in 2020-21, $1.174 billion in 2021-22, and $1.2 billion by 2022-2023.

The IMF has projected gross financing gap of $24.4 billion for the outgoing fiscal year with the current account deficit projected at $15.6 billion. The current account deficit, which had already crossed $14.2 billion for the first ten months (July-April) period, might cross $16 to $17 billion till end June 2018. The IMF projections further showed that the available financing stood at $20.7 billion, so the remaining foreign currency reserves would be depleted, which had already caused a heavy toll on the economy in the outgoing fiscal year.

Keeping in view massive financing requirements, Pakistan will have to convince the IMF for providing the next bailout package beyond its existing quota within the IMF arrangement. It will not be an easy task to convince the IMF team during the technical level talks. So, the caretaker role becomes even more important in this whole scenario. Without negotiating with skills, it will never be an easy task keeping in view the global scenario, especially when Donald Trump is sitting as the US President.

Finally, the finance minister must devise a communication strategy. Keeping the head in the sand and making the whole ministry inaccessible for the media is not the correct strategy. Such a situation will only spark speculations.

It is important to nominate a senior officer of the ministry as a spokesperson with the responsibility to represent the view of the ministry on the arising challenges. The minister herself should spare some time on regular basis to interact with media persons. If she continues shying away from the media, then speculations will turn rife in coming days, which will not serve the purpose of the caretaker setup of ensuring smooth transition of power at this difficult juncture.

The writer is a staff member