Dar sticks head in sand

ISLAMABAD: The initial fist-thumping days of Ishaq Dar’s current reign as finance czar are well and truly over as the battered accountant turned economic manager tries to run out the clock and on the consequences of his own actions. 

At a presser in the federal capital on Friday, Mr Dar ruled out the imposition of financial emergency in the ongoing situation. A number of commentators had predicted that such measures might be possible because of the mounting debt that needs to be repaid by Pakistan to its international lenders – a task becoming more difficult with every passing day because of the rising rate of the dollar. 

While Friday offered some respite to Mr Dar as the rupee gained by around Rs 6 there was little to celebrate since it came a day after a historic increase of Rs 19 – leaving the rupee at Rs 13 less than its value two days earlier. 

Perhaps these glum realities are why the finance minister continued to ignore questions about the accumulated debt in the current government’s tenure owing to currency depreciation. 

Mr Dar claimed that the government of Pakistan will meet the foreign obligations of $5 billion, instead of $7 billion during the current fiscal year. “Ensuring external financing was not a prior action of the International Monetary Fund (IMF)” said Dar. Adding to that the Finance minister said that Pakistan was expecting $1.3 billion in financing from the Industrial and Commercial Bank of China Ltd (ICBC) in the coming days.

The reliance of China has recently proven to be a temporary tactic when the Chinese also helped beef up Pakistan’s forex reserves to keep the country from defaulting. However, continued pressure is being exerted from the fact that the IMF is still giving Pakistan a hard time.  The government will also receive $950 million in one project soon, he said. “I am confident that by June 30 we will take the State Bank’s reserves to $10bn and the national reserves near $16bn.”

Regarding the Pakistani rupee’s depreciation against the dollar and reports of an artificial price cap, the Finance minister said that “We did not release dollars into the market,” and there was no “question of us intervening or us having any capacity for it considering how low our reserves were”.

The State Bank of Pakistan independently decides matters regarding monetary policy as well as exchange rate after it’s autonomy law passed by Parliament in the last government’s tenure, he added.

He also revealed that the government was made aware of the illegal movement of $2 billion on an annual basis, from South to Peshawar in vans and a mechanism was being devised to control it.

Finance minister also said that “We have never defaulted and we won’t do it now, however we were in a precarious situation and are going through it currently.” he added.

The government of Pakistan has paid every liability to global financial institutions in time, he added.

Ishaq Dar said the current government made a “principled decision” to save the state instead ot its own politics, around the time of last year’s vote of no confidence against Imran.

The state’s interest was prioritised over political interests at the time, and it was the “right decision” to make, he added

Finance minister also said that the state will be affected if we do not conduct the matters with conscience. While the current crisis is a direct result of the actions Mr Dar took since taking over from Miftah Ismail, he pointed his criticisms towards his political opponents.  “I am unable to understand whether Imran Khan has a problem in his leg or his brain,” he said. “Instead of protecting the national interest, PTI’s leadership tried to sabotage the IMF deal.” 

“They keep going on and on about default but their ministers are the ones who called their provincial finance ministers to sabotage the matters with the IMF.” Dar added.

The finance minister also attributed a majority’s of the country’s issues to the financial losses inculcated from last year’s catastrophic floods. As per him, over $30 billion loss was suffered.

What must be remembered is that these losses are being calculated in terms of infrastructure not money spent on relief. The direct impact of the flooding is less on the macroeconomy and has more importantly hit farmers and rural communities by displacing them and putting them out of business. The destruction of crops has also played a role in increased inflation. On top of this, subsidies like the Kissan Package have been scrapped to try and appease the IMF. 

“Our requirement for the next three to four years is $16bn or Rs4,000 billion.” He also said that the international donors will give project-linked loans for mitigating the suffering of flood effects.

According to him, it is the global inflationary pressure that is majorly responsible for the rising inflation in the country.

The finance minister said the government had a “roadmap” and policies for taking the country out of the current “quagmire”. However, the policies could not be made public.

Regarding the progress of negotiations with the International Monetary Fund for a bailout programme, Dar said all prior actions demanded by the Fund were fulfilled.

On the question of his resignation, he replied that, “Why should I tender resignation? The Prime Minister and Cabinet fully trust me and institutions are also supporting us.” One other question with regards to failing to take timely decisions on economic matters, the Finance Minister said that “no one can blame me for inaction as I have taken all the decisions timely”.

Earlier on Thursday in one interview, Former finance minister Miftah Ismail stated that the risk of Pakistan defaulting would not be lessened even if an agreement with the IMF is reached. He believed, however, that the agreement would be signed by next week because “necessary steps” had been taken.

The ex-minister stated that certain political moves have to be taken, including the ones on the prime minister’s level, as the global money lender had spoken directly to the premier previously. He added that talks must also be held with “friendly nations”.

Miftah said that there was a “trust deficit” between the IMF and the finance ministry which could be bridged by the prime minister having a dialogue with other nations.

He maintained that the IMF agreement was the “first step”. According to Miftah, the government took certain structural decisions due to which the deficit could not be controlled. He maintained that even if Rs 20,000 billion were collected, the country’s budget deficit could not be fulfilled. The figure was a mere 25% of Pakistan’s GDP.

He continued that circular debt was increasing for the past 20 years, and all governments had failed to decrease it despite their promises.

Miftah added that the government was trying to privatise the small and medium enterprise banks for the past 15 years but failed. In comparison, he gave the example of Dubai for erecting “half a city” in 15 years, and China for laying down extensive gas pipelines.

“The government is ineffective, unless and until we change – and I believe this involves empowering local governments or we are nowhere”.