Ishaq Dar has replaced Miftah Ismail as the new finance minister of Pakistan. Apparently, he has been brought in to do what Miftah Ismail was not doing. Miftah took a lot of flak for making some hard decisions. Surely he was not alone in all this but he has been singled out for the government’s policy failure.

The question is, how will Ishaq Dar set things right? As is generally believed, Ishaq Dar’s top priority will be strengthening the rupee and controlling inflation. It means going back to the strong rupee policy as during his previous stint as the finance czar. But will he be able to stabilise the rupee, turn the economy around and control inflation? Are we going to see a paradigm shift in the PDM government’s economic policy?

In his previous tenure, Dar kept the exchange rate stable at around Rs90 per dollar, despite criticism by experts that the rupee was overvalued. It is believed that this time too, he will try to strengthen the currency. The rupee’s deteriorating value was due to speculative buying of dollars and it is expected that Dar will be able to bring the rupee back to its actual worth.

But Dar’s biggest challenge is to tackle economic issues such as inflation which has broken all previous records. The ravaging inflation is driven by disruptions in supply chains and global commodity price hikes as well as by a steadily declining rupee. A bit of stability in the currency market will surely ease inflationary pressure.

But it is easier said than done. The Pakistan rupee has gained Rs11.26 over the last few weeks but it is doubtful if the momentum can be sustained because the dollar has been strengthening internationally, reaching two-decade highs against some currencies.

A formidable array of challenges face the new finance minister. The economy is in a serious crisis which has been exacerbated by the harsh conditions imposed by the International Monetary Fund (IMF). Other problems include a widening current account deficit, falling reserves and the economic damage caused by unprecedented floods.

What tricks Ishaq Dar has up his sleeves to stabilize the economy? According to experts, Dar will ask the central bank to liberally inject foreign exchange into the market to prop up the rupee. Secondly, he will lower interest rates to stimulate economic activities. But it will not be easy going. The current global environment and the IMF programme stand in the way. Under the ongoing IMF programme, Pakistan has agreed to a market-based currency exchange regime and earlier this year the government passed a law that gave the central bank more autonomy and insulated it from government pressure. Secondly, with the IMF watching closely, it will not be easy to remove fuel and power subsidies. Recently, however, the IMF has indicated it would soften programme conditions because of the devastating floods that are estimated to have caused around $30 billion in losses, and will slow growth this year to below 3pc from an earlier estimate of 5pc.

The main issue at the moment is a volatile rupee which is taken as an indication of the incumbent government’s poor economic performance. Economic wisdom dictates adhering to a market-determined exchange rate but political considerations require a controlled exchange rate.

It may be noted here that the rupee remained unstable even after the revival of the International Monetary Fund (IMF) programme. With dollar value going up, pressures on the rupee continued to mount. About a month ago, the rupee was trading at 233.5 per dollar in the open market against the interbank rate of 219 — a gap of Rs 14.5. Later, the rupee dropped in interbank trade to 239 per dollar, mainly due to continued speculative pressure in the open market, which was so strong that even the news of Saudi Arabia rolling over a $3 billion deposit did not stop the slide. And as the rupee depreciated, inflation also increased, eroding the credibility of the government further and further.

Ishaq Dar is expected to improve things but will Daronomics work in the present circumstances? The situation today is completely different from the past. As far as Pakistan’s economy is concerned there is no quick fix. There is a need for structural reforms which will take time. All said, the chances of controlling inflation and reviving the economy are slim. Firefighting is no answer to our deep rooted economic woes.

Supply chains have been disrupted and food inflation has spiked. Rising global food prices is another challenge since Pakistan will be dependent on wheat and rice imports to stave off the effects of agricultural destruction. The twin crises of balance of payments and political instability, coupled with the unprecedented monsoon rains, mean that we must be ready for a prolonged economic crisis. In the present situation, the only way out is to boost our exports and attract massive foreign investment. At the same time all unnecessary expenditures should be curtailed and every penny saved to minimize our dependence on foreign loans.