The fourth coming of Dar

A country that is hostage to a single appointment is now pinning economic hopes on another appointment, the finance minister. This is what a rather confident Prime Minister revealed at his postUN press conference in Islamabad. Known for pushing the dollar down as a matter of national pride rather than any economic rationale, the very announcement of Dar’s return has chipped the dollar off a cent or two. But the joy is unlikely to become a ride.

It is a temporary reaction from his supporters in the marketplace. An unusually polarised domestic politics, the weakest ever economic fundamentals made worse by the unparalleled flooding and the global recession driven by the Russo-Ukrainian stalemate leave little room for manoeuvre. If the PML-N’s pundits think that Dar’s magic wand will quickly bring the prices down and create fiscal space for constituency development with a view to regaining lost political capital for an early election, they are sadly mistaken. If there has to be any relief, the priority must be the flood-affected areas. These are the areas where the PML-N has insignificant presence. A myopic approach here will only divide the coalition.

Dar’s challenge is to build on where Miftah the pragmatist left. Miftah succeeded in avoiding default and provided a breathing space by conducting the toughest ever negotiations with the IMF. In the wake of some 40 billion dollar damage inflicted by the floods, Dar will see a somewhat humanitarian face of the IMF and the other donors. Bilaterals may reschedule debt, if China takes the lead. Multilaterals will likely repurpose existing loans. The IMF is considering opening its concessional window. Accessing climate-related funding is another small option. All this will still scratch the surface of the problem. The required external outflows are too large to allow Dar the space he is looking. He should focus on fiscal courage rather than fiscal space. In the past, he was too timid to touch his own constituency — the traders, the businesses, the bankers and the professionals in the finance sector.

Any new taxation will not please the Barey Mian Sahib anyway. Chasing the tax to GDP ratio of 15% promised in the 7th NFC has turned out to be a wild goose chase. Instead of doing something about the federal ineptitude, establishment politicians like Imran Khan start playing with fire by ranting against the 18th Amendment and the 7th NFC Award. They also present the presidential system as a cure-all. A start has to be made from the expenditure side. Effectively, the failure to carry out structural reform has been the inability to look at expenditures, including the bloated tax expenditures. The federal government continues to be bigger than the requirements of the 18th Amendment.

Also, the federal government keeps spending in areas beyond its domain. Within its domain are some major untouchable expenditures. At a time of grave natural and economic emergency, the country is going to spend $450 million on the repair of F16s. Dar has had a taste of what happens if one enters this no-go territory. He can, at least, stop development spending till the budget gains a primary surplus. There is not much hope, though. Dar and his supreme leader live in the 1990s. At the press conference mentioned above, the Prime Minister expressed the resolve to continue to take high road of stabilising the economy rather than protect political capital. But, Mr Prime Minister, Dar has made no secret to suggest that he has been sent to regain the lost political capital for a grand comeback of their leader.