The ouster of Finance Minister Asad Umar ahead of the budget is being seen as the first official admission of the government of Prime Minister Imran Khan of its failure to revive the economy. Experts say the economy will take years to revive and the government has removed him to divert the public attention from real issues.
Experts say Asad Umar was removed for prolonging talks with the International Monetary Fund (IMF) for a bailout package, which extended uncertainty in the country. It is said Prime Minister Imran Khan was not happy with him because his policies had created an unprecedented price hike in the country. His supporters say he was not alone to formulate the economic policies and implement them. When the media and the opposition made him the butt of their criticism, the government removed him. It is said he had created panic among the public with his frank admission of the bad state of the economy. As finance minister, he was aware of financial problems, but he unnecessary shared them with the public, which created despondency in the country. Once, he was quoted by the media as saying that people would cry loudly when more economic reforms were introduced. Even in his last press conference, when he announced his resignation, he warned of tougher times for Pakistan and its people in the future. He is right. Pakistan’s problems cannot be fixed in few months and days. But his frank admission created panic among the public, rather than any hope for a brighter future.
There are also rumours that he was asked to step down after the international bureaucracy was not happy with him as he was not willing to compromise on many points and was persistently firm on his principles. Few months ago, the media reported that the IMF had asked the government to sack him because he was not willing to accept its conditions despite holding talks for months. It is obvious the government will accept harsh conditions of the IMF after the appointment of Dr Hafeez Sheikh, the new finance adviser, which Asad Umar was not willing to accept.
It is understandable the government will have to make some difficult decisions to stabilise the economy. The new finance adviser is not a politician, like Asad Umar, and he is expected to take decisions quietly, which may create more trouble for the common people, but put the economy on the path to recovery. The move coincides with reports that Pakistan’s economy will further slowdown in the next few years. Pakistan faces chronic economic woes, including dwindling foreign exchange reserves, low exports, high inflation, growing fiscal deficit, and current account deficit. In its “South Asia Economic Focus Report” the World Bank has warned that Pakistan’s economic growth will decelerate to 3.4pc in fiscal year 2019 and 2.7pc in fiscal year 2020, as fiscal and monetary policies are tightened to address macroeconomic imbalances.
Pakistan’s economy is projected to slow down significantly and weigh on the region’s aggregate growth rate, said Jihad Azour, director of the Middle East and Central Asia Department at the International Monetary Fund. At a recent talk on the economic outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region, Azour argued that global economic headwinds were making policy efforts more urgent and challenging for the region. For oil importers in the region, growth is expected to ease to 3.6pc, from 4.2pc in 2018, in part due to weaker global economic environment. Slowing global growth and trade, as well as geopolitical tensions and other potential external shocks, will pose economic challenges. The trends heighten the urgency of implementing reforms that bolster economic resilience and secure inclusive growth, the IMF director noted. In a related report, the IMF also sounded alarm on global debt. Noting that global debt had now reached $164 trillion or 225pc of global GDP, it warned that the world’s public and private sectors were more in debt now than at the 2008 financial crisis, when global debt/GDP peaked at 213pc.
Despite many negatives, there were some positive signs in Asad Umar’s era. The trade deficit of the country shrank by 14pc to $23.45 billion in the first nine months of the current fiscal year from $27.29b in the corresponding period last year. The decline in deficit — down $3.84b in the July-March period — is estimated to be in the range of $5-6b at the end of the ongoing fiscal year. The contraction was attributed to a steep fall in overall import bill even though export proceeds posted a mixed trend during the period. On a month-on-month basis, the trade deficit fell by 37.74pc to $1.93b in March from $3.1b over the corresponding month last year. However, the country’s exports fell by 4.54pc in March, making it the second consecutive month in which export proceeds declined. In absolute terms, the exports fell to $2.1b in March from $2.2b over the corresponding month last year. The massive 33pc rupee devaluation since July 2018, coupled with cash assistance to major sectors, mainly textile and clothing, wasn’t enough to boost the country’s exports as they grew by a marginal 1.05pc to $17.21b during the July-March period 2018-19, from $17.03b in the corresponding period last year. According to a recent IMF study, performance-based salaries of tax officials in Pakistan have significantly increased tax collection but the government move has also enhanced bribe rates. The study — “Tackling Corruption in Government” — analyses more than 180 countries and finds that more corrupt countries collect fewer taxes, as people pay bribes to avoid them, including through tax loopholes designed in exchange for kickbacks. The study also determined that when taxpayers believe their governments are corrupt, they are more likely to evade paying taxes. “While performance-based salaries of tax officials in Pakistan led to a significant increase in tax collection (by as much as 50pc), bribe requests increased by 30pc,” the study found and suggested combining higher wages with monitoring and sanctions to deal with the problem.
Asad Umar was removed a few days after he claimed the economy was out of the Intensive Care Unit (ICU) after “surgery.” Unveiling the Medium-Term Economic Framework report titled: “Roadmap to Stability, Growth and Productive Employment” to address three chronic gaps that have thrown the country deeper into a debt trap, he said Pakistan had accepted a longstanding demand of the IMF to return the executive’s power to issue supplementary budgets back to the parliament. In addition, he hinted at allowing western neighbours to trade with India through Pakistan’s land route. He also announced bringing energy prices to the cost recovery levels, and automatic quarterly tariff adjustments, which are key IMF demands.
The question is: why he was asked to step down despite accepting all IMF conditions? He was only acting upon recommendations of an 18-member Economic Advisory Council, set up by Prime Minister Imran Khan, on August 28, 2018. He presented two mini-budgets, depreciated the rupee, hiked power and gas prices, on recommendations of the council. He cannot be blamed for the unprecedented price hike in the country. Experts say his “threats” of more bad times ahead cost him his job.