Shaukat Tarin, the government’s new hope on the troubled economic front, has minced no words in stating that Pakistan can no more afford the stabilisation policy adopted by PM Imran Khan. To Tarin, a high growth rate is the only way out of the cluttered, mangled mess that the economy has become over the last two and a half years. Interestingly, Tarin’s views coincide with those of Ishaq Dar — the man who helmed the economy during the previous government, led by Nawaz Sharif, and who believes a high growth rate is the panacea for all that ails the economy currently. Dar is he who Imran and his loyalists have kept punching for, what they say, generating artificial growth mainly by adopting a fixed exchange rate regime to contain an otherwise high flying dollar and keep the inflation low — and the masses happy.
Yes, Dar did make use of the exchange rate tool to keep the rupee overvalued and thus the imports cheaper — and discouraging exports in the process. He did indulge in deficit financing — and pretty lavishly at that — for purchasing dollar from the open market to ensure a fixed parity with the rupee. He utilised all resources on increasing GDP growth in an import-dependent economy — all at the cost of economic stability, mainly reflected in high current account and budget deficits. This is Dar’s growth-intended model of the economy that he stubbornly pursued under the PML-N dispensation.
Let’s analyse Dar’s bias for the growth model. It’s hardly arguable that the business climate in our country is not conducive for trade and investment — fraught with irritants like political chaos, lack of peace and security, high operational cost due to exorbitant utility tariffs and lack of technology and automation, low growth potential, dilapidated transport infrastructure, absence of tax incentives, etc. Since there is no quick fix to many of these impediments, relying on imports and using the exchange rate tool to generate growth is a natural inclination on the part of the elected leadership in a developing country which remains under growing public pressure to create jobs, subsidise fundamental needs, and provide social protection.
Yes, such a growth does come at the cost of economic stability, and should ideally be pursued only as an interim policy measure — just like the shuttering employed during construction to allow for the wet concrete ceiling to solidify and sustain on its own. This is where there is room to criticise Dar for not working to address the above-mentioned irritants side by side, so as to gradually shift towards an export-led and FDI-laden economy. But frankly speaking, the three years during which he served as finance minister in the previous tenure were not enough to fix the fundamental flaws of the economy and turn the business climate good enough for investors and exporters to thrive. Thus there was nothing much unusual about Dar’s reliance on “artificial” ways and means to maintain — and raise — growth.
By the way, Dar is not the one who pioneered what is slammed by the PTI as a fake way to muster growth. The use of the exchange rate tool to keep the rupee-dollar parity fixed — at 60 then — and bolster the forex reserves was earlier seen during the Musharraf regime (1999-2008) when Dr Ishrat Hussain — currently the PM’s Adviser on Institutional Reforms and Austerity — was at the helm of the SBP. Hypocritically, while the PTI leaders continued to condemn Dar over his “binge buying” of the greenback, behind the scenes their government too resorted to purchasing dollars — worth $4.5 billion — from the open market to support the exchange rate, before entering the IMF loan programme in July 2019.
The cruelest thing that the PTI government did to the economy as part of its much-trumpeted economic stabilisation model was to agree with the IMF to let go of the exchange rate tool and allow the dollar to fly as high as it can without first taking steps to pave the way for raising foreign exchange earnings. Yes, the sitting government did take off the shuttering without allowing the concrete to solidify. And the ceiling is falling down on us. As Tarin seeks to take an about-turn on the government’s economic model, it will be interesting to see what magic wand he is going to wave to lift the growth rate to a desired high level.
Published in The Express Tribune, May 6th, 2021.