Ishaq Dar has been appointed the new finance minister of Pakistan. Unlike the past, he has little room to maneuver the economy under new IMF conditions. Political exigencies, rather than an economic urgency, seem to be the main reason behind his appointment. However, ground realities in the country show that he might not be able to perform miracles on economic and political fronts.

Another sad aspect of the change is that Miftah Ismail, the outgoing finance minister, who took “difficult decisions” and negotiated with the International Monetary Fund for the revival of its bailout package, was removed on political grounds. He took all decisions after approval from the party leadership. In the end, he was shown the door because former Prime Minister Nawaz Sharif and Ishaq Dar were not “happy with his policies.” People were told that Nawaz Sharif had left a meeting which decided to hike petrol prices. Ishaq Dar also criticised Miftah Ismail’s policies publically. However, the former finance minister was not removed when he was making “tough decisions.” He was sacked when he had taken all possible decisions to put the economy on the path to revival. As there were political consequences of the decisions, he was removed to create an impression that he had taken them on his own and the party leadership was not taken on board about them. However, the sacking of Miftah Ismail will discourage people who are serious about the country and its economy. He is being portrayed as a villain now despite the fact he worked selflessly for the country, without caring for his personal reputation. It also shows the mindset of political parties, which sacrifice their loyal workers and leaders for political gains.

On the other hand, Ishaq Dar is being portrayed as a Messiah and a financial wizard, who will steer the country out of the economic mess in a few months. The US dollar had started decreasing against the rupee even before his arrival but it was attributed to him. He was also credited for a recent reduction in prices of fuel. However, the new finance minister faces an uphill task to revive Pakistan’s economy, which has deteriorated after decades of mismanagement and inaction. He and his party are also blamed for it. He artificially lowered the value of the US dollar in the past governments of his party, which left the economy in tatters. Pakistan was facing the biggest current account of its history when the last government of his party completed its term in 2018.

Other challenges he faces are fast depleting foreign exchange reserves, low exports, high inflation and growing fiscal and current account deficits. The issues are not easy to handle. Pakistan’s successive governments have faced the same problems for decades but they failed to plug the gaps for political gains. Every government has inherited a bigger crisis than its predecessor after President Gen (retd) Pervez Musharraf’s regime. The new government faces the same dilemma. In fact, the past government took some harsh steps to improve the economy, which increased inflation in the country and made the lives of people miserable.

If the new government takes more steps to revive the economy, it may provide an opportunity to the opposition to exploit the situation and provoke people against it. However, if the government succumbs to the pressure and reneges on its promise of reforms, the economy will worsen. It is time the government broke the cycle of passing the crisis to the next government.

Experts say the PTI faced an economic mess because the last PML-N government had failed to use favorable domestic and international circumstances to address the chronic issues. Instead, the issues became more complicated by a wrong set of policies by the PML-N, especially the policy to artificially stabilize the value of the rupee for which (borrowed) $24 billion were injected by the government in the open market to keep the value of the rupee below Rs105 a dollar from 2014-2017. The overvaluation of the rupee from 2014 to 2017, according to eminent economist Dr Hafeez Pasha, was a serious mistake, leading to subsidized imports and reduced exports, a large current account deficit and fast rising debt repayment liabilities.

The mismanagement and negligence of decades have left an enormous mess for the government to clear. The result is that the country finds it difficult to even run its day-to-day affairs. In fact, 30.7pc of Pakistan’s government expenditure is earmarked for debt servicing. With the current government enjoying internal institutional consensus on the national agenda, Pakistan must focus its attention on resolving its economic woes before it finds itself on the shores of bankruptcy, experts warn.

The Asian Development Bank has linked the country’s medium-term prospects to the restoration of political stability and uninterrupted implementation of the IMF programme to rebuild economic stability and fiscal and external buffers. In its latest update, the ADP also noted Pakistan’s rate of inflation going up to 18pc for the current fiscal year against its previous forecast of 8.5pc made in April but attributed it chiefly to the lagged impact of unsustainable energy and fuel subsidies of the previous government. “Pakistan’s medium-term prospects hinge critically on the restoration of political stability and the continued implementation and deepening of reforms under the revived IMF EFF programme to stabilise the economy and rebuild fiscal and external buffers,” the report said.

The economic outlook will also depend on the continued availability of adequate external financing under challenging domestic and global economic and political conditions. The ADB warned that the potential economic consequences of the recent severe floods heighten the already significant risks to the outlook, including the elevated inflation rate, possible fiscal slippage as general elections approach, and a higher-than-projected increase in global food and energy prices.

Fitch Solutions says floods in Pakistan will exacerbate the already weak economic outlook and political situation. It also lowered its real GDP growth forecast for Pakistan to 0.2pc for 2022-23, from 0.6pc previously, as adverse weather conditions will not only reduce agricultural production which accounts for 19pc of GDP but also weigh on exports and exacerbate Pakistan’s external imbalances. The report says Pakistan was facing a potential balance of payments crisis even before the floods hit and a widening trade deficit would further weigh on the dwindling foreign exchange reserves and the Pakistani rupee. The agency sees downside risks to its forecasts for the current account deficit to widen to 4pc in the fiscal year 2023, as foreign reserves are also falling.

Pakistan’s economic issues have been exacerbated by recent floods. On the other hand, former Prime Minister Imran Khan has announced the start of his “long march” in a few days. In the situation, it is unfair to expect too much from the new finance minister.