March 31, 2021 (MLN): Another year, another finance minister to manage the economy. The PTI government has so far appointed three finance ministers in the country since winning the 2018 General Elections.
Prime Minister Imran Khan’s first choice, Asad Umar was shown the door in 2019 after he stalled negotiations with the International Monetary Fund (IMF) for a bailout.
His second choice, Dr. Hafeez Shaikh was sent home packing for apparently failing to rein in inflation – even though controlling prices did not fall in his domain. Some in the economic circles believe that Dr. Shaikh was due to resign from his portfolio by June any way since he failed to secure the Senate seat. But the timing of his ouster raised eyebrows as the announcement of his removal came just an eve before the government’s first bond issue in the international markets. Shaikh’s removal comes as a shock especially because only a few days ago, PM Khan and PTI’s political leadership was campaigning for him to win the Senate seat during the elections.
Replacing the outgoing finance minister is Hammad Azhar. Since 2018, this would be his fourth portfolio as before being appointed as the finance minister, he has served as the Minister of State for Revenue (September 2018 to July 2019), Minister for Economic Affairs (July 2019 to April 2020) and Minister for Industries and Production (April 2020 to date).
Going by the official narrative Hammad Azhar is being roped in to tame inflation. Keeping in view the fact that most of the factors causing inflation are supply-side driven, it remains to be seen what Hammad Azhar can do in his new position which Hafeez Shaikh couldn’t.
With the month of Ramazan upon us – a month in which CPI has seen an uptick historically, Hammad Azhar has a tall order ahead of him against the backdrop of a rise in international food and fuel prices. Meanwhile, the government is already locked horns with the traders of essential commodities in the country and has miserably failed to check the rising prices of items such as sugar, wheat, vegetables etc. Under Dr. Shaikh, a National Price Monitoring Committee (NPMC) was formed to review prices of essential items on a weekly basis. The NPMC was tasked to intervene at the provincial as well as district level in order to ensure prices surges are controlled. However, no breakthrough was made through the said committee. It remains to be seen if Hammad Azhar can shake up these committees to take some action against the rising prices of essential items.
Then there are the proposed tariff hikes and fuel cost adjustments which are likely to add further momentum to CPI-based inflation. These hikes have been deemed inevitable as the country is currently sitting on an extremely large circular debt and needs to pass through these adjustments to contain the circular debt.
Another key task facing the incumbent finance minister is preparing the budget for FY2021-22 especially after the resumption of IMF’s Extended Fund Facility (EFF) programme. The IMF is likely to recommend harsher conditions and a sharp rollback of fiscal measures unveiled by the government in the wake of Covid-19. On the other hand, refusing to pass on difficult adjustments might not be a choice as was the case in the last 12 months which insulated the outgoing finance minister to a certain degree considering the fallout from the pandemic.
Moreover, if the government is to get the proposed SBP Autonomy Bill passed from the parliament, the finance ministry will have to depend entirely upon fiscal policies to spur growth. The country’s fiscal deficit reached 2.5% of the GDP or Rs1.138 trillion – a record high in absolute terms – during the 6MFY21. SBP’s autonomy bill aims to shift the central bank’s focus on inflation control rather than growth. This essentially translates into an end to the cheap financing available to the industrial sector.
With higher tariffs, rising inflation, expected interest rate hikes, end to cheap financing, austerity under the revived IMF programme, chances of reviving GDP growth look extremely slim.
With just two-and-a-half years left before the next elections, time is running out for the PTI to deliver on its campaign promises. And as elections get nearer, Hammad Azhar would need to resist giving into political temptations and continue with the reforms set in motion by his predecessor.
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