Tasks for interim finance minister
photo: file
We will have an interim government fairly soon and it would not be an easy time for that set-up due to political temperature, and more importantly due to the dire economic situation.
The interim finance minister may have the most difficult job but the one with the best opportunity to contribute significantly towards economic recovery. The following may be considered by the interim finance minister as the most important tasks to deliver during his tenure.
Firstly, take the citizens into confidence. Tell the truth about economy, debt, income and expenditure. An ordinary citizen is the most affected by economic crisis but certainly the most ignorant about the state of affairs except political statements and slogans.
It may be good to issue a fact sheet with national and foreign debt, particularly the repayments that are due in the next few years, and the collaterals for such loans.
Yes, the Economic Survey of Pakistan and the State Bank of Pakistan’s (SBP) reports do carry some of these numbers but not in a form that is understandable for an ordinary Pakistani. Get ownership of owners of the country, the citizens.
The minister, in parallel, should sit with all of the lenders and donors and negotiate with them the realistic repayment or rollover terms, based on the fact sheet. While there may be a trust deficit due to the anticipated steps taken by the next government, but a well-meaning attempt by the interim finance minister may go a long way towards managing the lenders’ expectations.
Secondly, conduct a performance audit of public sector expenditure. There are plenty of financial pilferages, other than corruption, to be checked and saved. It would be quite easy to save billions of rupees from such inefficiencies rather than putting extra pressure on ordinary citizens through increasing taxes on utilities.
The fiscal discipline in current form may be revisited. It looks easy to curb imports and stop foreign payments and current account transactions, but such measures would have negative impact in the longer term. Why can we not find other avenues for fiscal discipline, particularly in public sector expenditure.
Thirdly, withdraw all tax exemptions, albeit for a definite period of time. In this time of economic emergency, we cannot afford any tax exemptions, particularly when the impact of such exemptions is not proven to be significantly positive.
Moreover, there is a need to impose super tax on sectors such as banking, which are still minting supreme profits. Recently, banks evaded extra tax by playing with deposit ratios. It is time to be strict and straight.
Fourthly, leave the exchange rate of rupee to market forces. It is true that depreciation of the rupee hurts but keeping it artificially controlled would hurt much deeper in the longer term. It is better to address the root causes of depreciation of the currency than artificially controlling the currency.
It may give a short-term shock if the rupee is left to market forces, but with its natural balance, the long-term impact would be more realistic and positive.
Fifthly, chalk out a roadmap for public sector involvement and engagement in the economy, beyond policy, and business. This roadmap should focus on dealing with public sector enterprises and come up with criteria to keep these in public sector or privatise.
The criteria should go beyond financial performance, as some of the public sector enterprises are important from national security and statecraft perspective. Other than that, it is normally not the business of policymakers to be in the business.
Sixthly, democratise finance in Pakistan. It takes just the implementation of credit allocation policies in true letter and spirit. Moreover, it would be great to introduce some strict disciplines towards loan write-offs that are no more than a way to incentivise the already privileged class. It would be great to issue a list of loans written off in last five years.
At present, the finance, or loans in simple words, is available mostly to the elite; yet another elite capture. The ordinary citizen is given a privilege only to get consumer finance through credit cards, home and auto loans and thus pay two to three times more interest than business loans.
Loans for agriculture sector are even more skewed and smallholder farmers have no other option than to get into the vicious circles of informal and brutal finance.
It may sound quite ambitious for an interim minister who would be in office for three months or so, however, having no political baggage it would be quite easy to take decisions in collaboration with other ministries and policy circles.
It will be a great service to the country if the apolitical finance minister would be bold and honest and share the whole, not selective, truth about economy and take the citizens into confidence and create an inclusive national narrative to manage the economic crisis.
The writer is an international economist
Published in The Express Tribune, January 16th, 2023.
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