Hardly had Finance Minister Muhammad Aurangzeb taken office, it seems, that he was put to work. Even before he filed his nomination papers for the coming Senate elections (for he had to be found a seat in Parliament), he had to head a team which was supposed to say Pakistan had carried out its promises to the IMF in the final review period, and the final tranche of the Stand-By Arrangement with the IMF should be released. Pakistan’s passing the review means that the door is open for more.
Aurangzeb was forced, at just a couple of days’ notice, to do one of three immediate tasks for which he was inducted in the Cabinet: get a release of the last tranche. Though the $500 million that will come in will be welcome, it will also serve as an assurance to friendly countries, notably the USA, Saudi Arabia and China, that the deposits they have made with the State Bank are safe, These negotiations are taking place in the backdrop of the next task ahead of Aurangzeb, getting the IMF to give a fresh package, of $ 6 billion over three years. Pakistan will attend the meetings of the World Bank and IMF in April with the future package very much on its agenda, with some heavy sidelines negotiating to go on. Auranzeb will lead the Pakistan delegation, and as soon as he returns, he will prepare a budget in view of those negotiations, so that it includes the conditions agreed on.
The IMF and Pakistan negotiations are proving to be tough, with the IMF probably using the PTI letter complaining about the fairness of the February 8 elections as a lever..The IMF has already publicly rejected the letter, but it would not be possible for it to keep it out. After all, the purpose of the elections was to produce a government that could deal with the IMF. Anything showing it couldn’t, would be a great help
The IMF review team floated an idea which will take a lot of percolation, so diametrically opposed it is to the general political consensus, which is that the federal and provincial shares in the NFC Award, presently 62.5:27.5, be revisited. It is interesting that it did not raise the subject of cutting military expenditure, as it has done in the past. It has not taken this particular talking point off the table, but it has chosen not to sound it.
At the same time, it is clear that it has not given up its effort to find some way of making the federal budget yield the funds necessary for repayment. It would like the CBR to give more of its collection to the federal budget rather than pass it on to the provinces. For that, it would like the revision of the Award. It would be against the Constitution for the provinces’ share to be reduced, but it would not be against the Constitution for the provinces to be given more functions to perform. Such actions as placing the power distribution companies with the provinces are a possibility.
However, the equation still will not balance out. It is not as if the provinces are awash in money. If they are given extra functions, they will ask for more money. The IMF seems to think that the provinces should be given more responsibilities, without much, or even any, extra money. The only way out is for the provinces to cut back on their functions, like shutting down schools or hospitals. The concept of public-private partnership was actually meant as a money-saving exercise.
That brings up another area where the IMF has long shown an interest, the power sector, more particularly the circular debt which is being caused because of the inability of the distribution companies to keep up with the capacity payments that have been promised the IPPs. The IMF sees that circular debt as a sort of black hole in the budget, which it is.
However, the problem the IMF does not address is that if the government collects the money, where will it buy the dollars from, because the country owes external debt in foreign exchange, and it is the trade and balance of payments deficits that are the root of the problem.
If Pakistan’s exports and remittances earned enough dollars for imposters to pay their bills, and the government to buy dollars to service its debts, there would be no need to involve the IMF.
It is also worth noting that the IMF seems to be ignoring the tremendous changes taking place in the power sector, particularly as far as generation goes. The world is also on the verge of a revolution in the transport sector. The need to combat climate change may have speeded it up, but it was bound to happen anyhow. Pakistan, as a fossil fuel importer, was bound to be in the forefront of the conversion. The IMF does not seem to be involved in this process.
Instead, it seems to be protecting the interests of the IPPs, making sure that whatever resources Pakistan can generate, go to paying off fossil-fuel-based liabilities, leaving little or nothing for the investment needed for the future investmentForeign Minister. He will remain in the Senate, though he will move from the Punjab to Islamabad, which makes something of a difference from Sartaj Aziz, the man who was replaced by Dar as Finance Minister. Sartaj left the Senate, and held the Foreign Affairs portfolio as PM’s Adviser.
Aurangzeb should learn lessons from the fate of Miftah Ismail, who was the first Finance Minister chosen during Shehbaz Sharif’s first tenure as PM. He was unceremoniously turfed out to make way for Dar, on the express recommendation of Mian Nawaz Sharif, whose touching faith in his abilities were not justified, for despite hiking the interest rate to 23 percent, inflation was not tamed. The result was that the PML(N) suffered a mauling in the elections, and only formed the government because it had been decided that the PTI could not. Miftah was not found a seat in Parliament, and contested a by-election, but lost.
Aurangzeb represents a return to the old pattern of technocrat Finance Ministers, because politicians are wary of this portfolio. Interior used to be the portfolio held by the second in line. However, Ijaz Shah, who first held the portfolio under Imran, was not so considered, but was thought to represent Imran’s backers. Similarly, Mohsin Naqvi’s induction, also relying on a Senate seat, means that the Finance, Foreign and Interior Ministers also belong to the Senate. t These are the three great offices of state, and the PML(N)’s failure to find an MNA for all of these jobs can only reflect the weakness of its parliamentary party. Even when Benazir Bhutto was allowed to take office in 1988 after she accepted Ziaul Haq’s Foreign Minister Sahibzada Yaqub Khan as Foreign Minister, V.A. Jaffery as Finance Adviser was a technocrat (being a former State Bank Governor), with only Interior going to a party stalwart, Aitzaz Ahsan.
Senator Dar, as Foreign Minister, will still be heavily involved in economic decision-making. That is because all the important relationships Pakistan has are about money. China, Saudi Arabia and the UAE are proving lenders of last resort; the USA has influence over the international lending institutions, including the IMF; even with India, the question of trade is linked; Iran has a pipeline project to be handled; and Afghanistan has numerous informal trade issues.
While the Commerce Minister will be involved in much of this, the primary responsibility will rest on Senator Dar. Already, his phone call to his Afghan counterpart, Amir Khan Muttaqi, shows that while Pakistan’s foreign relations have an economic component, there is also a strong political component. The discussion with Muttaqi focused on Afghan support for the TTP and the rise in terrorism in Pakistan, with trade relations only mentioned in passing.
The IMF and Pakistan negotiations are proving to be tough, with the IMF probably using the PTI letter complaining about the fairness of the February 8 elections as a lever..The IMF has already publicly rejected the letter, but it would not be possible for it to keep it out. After all, the purpose of the elections was to produce a government that could deal with the IMF. Anything showing it couldn’t, would be a great help.
