Money Matters

Short tenure

June 11, 2018
By Zeeshan Haider

The caretaker government led by Justice (retd) Nasirul Mulk is now fully in saddle. Though constitutionally, the caretaker government is mainly tasked to oversee the elections and is not expected to take any major decisions as it has less than two months to stay in office, yet it has to tackle or lay groundwork for the elected government to tackle at least three big challenges faced by the country.

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The caretaker government led by Justice (retd) Nasirul Mulk is now fully in saddle. Though constitutionally, the caretaker government is mainly tasked to oversee the elections and is not expected to take any major decisions as it has less than two months to stay in office, yet it has to tackle or lay groundwork for the elected government to tackle at least three big challenges faced by the country.

The foremost challenge for Pakistan is how to deal with the monster of twin deficits, which literally runs the risk of losing the gains that have been made to achieve economic stabilisation over the past five years.

Many economists for long have been maintaining that a fresh bailout package from the International Monetary Fund (IMF) is inevitable for Pakistan. They say this in view of exceptionally high current account as well as budget deficits and fast depleting foreign exchange reserves that can hardly foot the import bill for a month and a half.

The Pakistan Muslim League-Nawaz (PML-N) government until its last day in office gave the impression that the economic situation of the country is not as precarious. The PML-N has been maintaining that it has made short-term funds arrangements with China to avoid an immediate balance of payment crisis.

The previous government also hinted at negotiating with other friendly countries for funds to avoid new IMF package, but those promises never materialised.

Pakistan, now holding just a little over 10 billion dollars in foreign currency reserves, has to pay back 190 million dollars in loans in the current month while another amount of 490 million dollars is due in the second half of the current calendar year.

After taking an overview of the economy after assuming charge, the caretaker finance minister Shamshad Akhtar has given green signal to the finance ministry to arrange policy-level dialogue with the IMF under Article IV consultation which is expected to be held later this month.

This dialogue does not mean that the caretaker government would seek a bailout package from the international lender. The former chairman Senate Raza Rabbani has also maintained that it is beyond the mandate of the caretaker government to do so. However, it seems that this option is becoming inevitable for Pakistan and the government formed after July 25 election might ultimately go for it.

The second big challenge for the foreign and the economic policy teams of the caretaker government is the upcoming meeting of the Financial Assistant Task Force (FATF) which has threatened to put Pakistan on its “grey list” of countries if it failed to take requisite measures to curb terror financing.

The meeting is due on June 24 and 25 in Paris.

Given strained relations with Pakistan in recent years, the United States has been leading the FATF efforts to pressurise Islamabad. Last week, US administration officials reached out to Pakistani civil and military leaders to discuss Pak-US relations as well as security situation in Afghanistan and the entire South Asia. Though officially there was specifically no mention of FATF meeting in these telephonic conversations, the conversations are deemed significant as they were held close to the Paris meeting.

The proposed talks with the IMF and the FATF meeting have no direct link, but observers believe that the decisions at FATF meeting could cast a shadow on the proposed IMF talks as US has a dominant role on both fronts.

Many economic experts believe that most of the decisions taken by the IMF have now become politically-motivated, and since Washington has a major say in the IMF decision-making it could impact decisions taken by other US-influenced international fora as well.

The third major challenge for the caretaker government is the deepening power crisis.

Just hours before the PML-N gave up power, the country started witnessing massive power cuts.

With much of the country baking under a sizzling sun, the frequent and long power cuts multiplied the miseries of people during Ramazan.

The people witnessed power outages even during sehri and iftaar.

The caretaker government has not yet officially spoken on the sudden surge in the power cuts but industry officials say burgeoning circular debt is the main reason behind these massive outages.

The PML-N government for political reasons have been paying money to IPPs to keep them producing the electricity without taking solid measures to address this issue permanently.

The circular debt is now reported to stand at over one trillion rupees—507 billion rupees payable plus 497 billion rupees in loans - belying the claims of PML-N government’s finance minister Miftah Ismail that his government left the payables at 397 billion rupees.

The amount is feared to rise further by the end of Ramazan.

The main reason behind the staggering circular debt is the failure of the PML-N government, like its predecessors, to bring in difficult but unavoidable reforms in the crippling power sector.

The previous government focused its full attention on setting up new power plants and generating more electricity, but failed to take tangible measures to stem huge losses incurred by the creaky transmission and distribution system of the power sector.

The caretaker government, with a limited mandate and tenure, cannot introduce these reforms and it is the next elected government which has to handle these issues on priority basis soon after coming into power.

It is heartening to see continuity of the political process in the country over the past decade. The PML-N’s was the second consecutive government which completed its full five-year term in the country’s chequered political history. One hopes for a smooth transfer of power after the elections.

Our political leadership must now take a break from populism and politicking, and focus on the real and deep-rooted problems faced by the country. They must make efforts to genuinely and credibly address these issues.

Democracy, however flawed, is undoubtedly, the best way of government in the world. But our leaders should now through their actions prove to the people that there is no substitute to this way of governance. Failing which, the people will lose faith in them, which is disastrous for them as well as for the country.

The writer is a senior journalist based in Islamabad