The big question has arisen after the sudden removal of the Finance Minister Asad Umar that will this abrupt decision help the economy to recover. The answer is not simple under these circumstances. The new finance minister and most probably the advisor on the economy Dr. Abdul Hafeez Sheikh will have to immediately negotiate a bailout package with IMF. The history of IMF programs shows us that every programe and its conditionalities slow down the economic growth rate. The inflation always rises as government withdraws the subsidies on different utilities and services.
IMF will ask further rise in the prices of Gas, electricity and oil products. But IMF program will definitely help to reduce the current account deficit. The government will be forced to tighten the belts and to impose the tighter fiscal discipline. Hafeez Sheikh will be forced to prepare the first real budget of PTI government under the tight supervision of IMF team.
It will be difficult for the new finance minister to immediately address the key economic issues immediately. No one can fix the longstanding issues and problems of the economy with a single stroke of magic stick. There is no possibility of immediate recovery. It will take time and correct policies to energise the economy. The reforms are inevitable in the economy to ignite the real fast growth.
Without reforms, the economy will continue to this cycle of nominal growth and hardly any growth. The problem is that respective governments have been avoiding the key reforms in the economy. The industrialisation, modern agriculture, broadening the tax base, reduce the indirect taxes and increase the direct taxes according to the incomes and to document the economy to reduce the informal economy. Every government avoids these reforms to make this economy as a middle income economy from current low income economy. The development of productive forces is necessary to increase the income of the working masses to reduce the poverty. The industrialisation and to organise the agriculture on modern scientific basis will create new economic opportunities that will reduce the unemployment.
If Dr. Hafeez Sheikh is going to head the finance ministry than his track record shows that he is not capable to initiate such basic reforms. He might be able to manage the economy better than Asad Umar because of his past experience at this post. He understands the Pakistani economy much better than Asad Umar. He has the experience to deal with IMF and World Bank. So conventionally, he might be able to do better but he will fail on the reforms front.
Imran Khan needs to think beyond removing one finance minister after the other. His entire campaign seemed to have two planks only: eliminate corruption, and put Asad Umar in the finance seat. Eight months into his term, the fight against corruption has yet to yield any major victory, while Mr Asad has been eliminated.
What does this say for the position the government is in? The prime minister now needs to explain his decision to remove Asad Umar from the finance ministry in more detail, especially considering that the latter failed massively to live up to expectations. The timing is also worrisome. The talks with the IMF are at an advanced stage and the budget is at hand.
There is a brand new finance secretary in place, so it is not clear who will be providing the much needed continuity in the days ahead and the party appears ill-prepared with a replacement.
In short, the removal of the finance minister at such a critical juncture has prolonged the period of uncertainty the economy has limped along with for more than a year now. Indecision will only aggravate matters, something the government cannot afford at this moment.
Just the change in guard at finance ministry will not solve anything without taking right decisions. There is need to change the direction of the economic policies.
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21 May, 2019