Dr Hasnain Javed
The four-time Minister of Finance, respected Mr Ishaq Dar, who is considered a financial wizard by the PML-N supporters seems to have lost his magic with numbers. A few analysts believe that it is only due to the deteriorated economic conditions that were truly out of anyone’s control so Mr Dar is no exception. I, for one, have always believed that the finance minister never truly had the financial wits but a very typical accountant mindset that allowed him to manipulate the finances. Therefore, the warm welcome he received and the hype that was created upon his return a few months ago were the most unfortunate moment and the beginning of the end.
Mr Dar, a key member of the PML-N cabinet, began his political career in the 1980s and has since regained an important position in the Sharif clan. He quickly became a favourite of his party’s leadership after advising on a few matters and (as a confidant) has since advised on all matters from budgeting, taxation fiscal, monetary and more. However, his most famous magic trick is controlling the rupee just like a magician pulling out a rabbit from his hat. He was lucky to have presided over the country’s finances during a period of good external conditions: from 2014 and 2017, crude oil was especially inexpensive on the international market. Dar was able to loosen the government’s purse strings to stimulate growth and reduce inflation in the short term due to the combination of reduced prices and a lower debt burden. Economists at the time largely disapproved of this action and warned of the risks Dar’s unsustainable policies were creating. Most notably, Dar was steadfast in his protection of the rupee in nominal terms on currency markets, presiding over a 26 per cent rise in the currency between 2013 and 2017. Importers, companies reliant on imported raw materials to serve domestic markets, and consumers all increased their spending as imports became more affordable. Exporters lost their competitiveness, and exports as a proportion of gross domestic product (GDP) decreased by more than 30 per cent.
Dar had imposed new withholding taxes and customs fees; increased the general sales tax and over-relied on borrowing to allow the then-ruling Pakistan Muslim League, Nawaz (PML-N) to finance questionable projects, such as the $1 billion Islamabad Airport, which was underutilized. He was also in charge of the Finance Ministry during a period when Pakistan was committed to massive new loans to fund the China-Pakistan Economic Corridor (CPEC). This type of financial planning has a dismal historical record. In 2017, for instance, the PML-N government’s chief economist predicted that four per cent of world trade would transit via the Corridor by 2020, with rental revenues of $6-8 billion per year covering CPEC expenditures. Sadly, Pakistan’s inability to manage these liabilities sensibly has generated distress among its Chinese partners and halted the development of potentially revolutionary cooperation.
One thing is clear as day: Mr Dar and the PML-N leadership learnt absolutely nothing from his previous stunts despite his huge failures and proven financial incompetence. Since his constant failure is not enough proof for the PML-N tigers, l would quote an international author, Harjap Singh, who in his publication for the Daily Sikh commented, “…some strange reason, in Pakistan, political leaders and the military prefer to hire chartered accountants and bankers over economists and appoint them as financial Czars.”
The interventionist, upon his return, swore to cut interest rates, reduce inflation, and stabilize the exchange rate, a miracle that the PDM government was willing to bet their lives on. Most economists knew that Mr Dar will only be able to recover some Pakistani Rupee value against the dollar but his policies are neither tenable nor sustainable and certainly not affordable. What took Dar by shock were the IMF Team’s stringent conditions, IMF’s hard-to-get-through attitude, the criticism from his party members and naïve expectation that he can blame it on the previous government and let his magic work. Fortunately for Pakistan and unfortunately for Mr Dar, the masses are now well aware of “Daronomics” and his financial impotence.
Dar spent over USD 20 billion in an attempt to stabilize the rupee versus the dollar in 2013 and had relied on three things to function: fiscal flexibility, control over monetary authorities (the State Bank of Pakistan), and sufficient foreign exchange reserves to play the markets and force a revaluation of the rupee. His most proud achievement, “the rupee control” trick, as attractive as it may seem, is only a recipe for economic disaster, unsustainable and short-term. Those who still hold Dar’s fortress for him and blame Khan and his economic policies as the main reason for the current economic turmoil must understand that while there might be some truth to it, the fact is that Khan’s economic policies were built on the foundation laid by Mr Dar. Thus, the economic unrest we experience today was concocted years ago by their beloved financial minister.
Since the State Bank of Pakistan can no longer temper the market as per Dar’s wish due to IMF’s close monitoring and conditionality, the country’s foreign reserves have depleted; bringing Pakistan on the verge of a collapse, with no fiscal space left to kickstart the economy and the PML-N government desperate for a miracle before elections. All I can say at the end is, what a sad Dar!
