Uncertainties in Political Economy – Journal


Impulsive decision-making on regional economic and trade issues marked the fragile nature of the country’s political economy last week as inflation jumped to 9.01 percent in March from 5.7 percent in January .

In one of the most turbulent times, the federal cabinet rejected a decision by its Economic Co-ordinating Committee (ECC) which had approved the revival of trade relations with India by allowing imports of sugar, cotton and yarn. of cotton by land and sea to cope with rising prices and shortages.

This was surprising given that the “Prime Minister in his capacity as Minister in charge of trade saw and authorized the submission of the summary to the cabinet ECC after adding criteria for (the) allocation of quotas to commercial importers. ”.

This was reinforced by tweets three days earlier from his trade advisor Abdul Razak Dawood. He said Prime Minister Imran Khan was in favor of value-added sectors on the issue of escalating cotton yarn prices and advised that all measures be taken through cross-border imports and that a summary would be presented to the ECC at the next meeting.

Conflicting signals from different centers of power make investors nervous

Pakistan had suspended all trade relations with India after the latter merged occupied Jammu and Kashmir with its Union territory by withdrawing the special autonomy status granted by the Constitution in August 2019. Likewise , rapid policy reversals had taken place in previous PML-N and PPP governments on most-favored-nation status issues for India.

When asked if India had given any indication of slackening to the people of Indian Kashmir, Hammad Azhar did not give a direct answer during his first press conference as finance minister. He said the government had to make decisions that were in the best interests of the people. When asked why the government is not allowing imports of tomatoes, onions and potatoes from India despite the price spike in recent months, the minister said the decision would be made when ‘such a situation would change.

Likewise, after nearly a week of public criticism over perhaps the most sweeping adjustment for the IMF’s program stimulus and unhindered central bank autonomy, Prime Minister Imran Khan suddenly fired the finance minister. Dr Abdul Hafeez Shaikh in an informal manner as he had just received Dr Shaikh’s positive test report for Covid-19.

This came at a time when Dr Shaikh led the national economy through difficult times amid an unprecedented pandemic at a point where the Fund’s program was relaunched, bringing together more than $ 4.5 billion in foreign aid, including a coincident international bond of $ 2.5 billion.

Interestingly, the federal cabinet headed by the Prime Minister himself approved the IMF package which included a schedule of continuously increasing energy prices to over Rs 900 billion in additional costs for consumers in less than 18 months, over 700 billion rupees in additional taxes in the next budget and one other measures, many of which are seen as inflationary.

It would later appear to the Prime Minister that a summary to grant unprecedented and absolute autonomy to the State Bank of Pakistan (SBP) and in particular to its governor had failed routine checks and consultations to achieve the federal cabinet. Other key players would also have been surprised.

In substantive talks, bureaucrats clarified their position to the prime minister and his decision-making partners as to how the SBP quickly pushed forward its new cabinet amendment bill as a previous project agreed with the IMF technical mission was still pending with the Cabinet Committee on Legislative Affairs (CCLC).

The young Hammad Azhar was given the additional portfolio of the Ministry of Finance and Revenue as well as his current post as Minister of Industry and Production. In his first press conference as Minister of Finance, Mr Azhar paid tribute to Dr Shaikh and his predecessor Asad Umar for laying the groundwork for economic recovery and noted inflationary pressures as a major challenge and a hinted that the government might revisit the Fund’s program and the controversial SBP. Amending bill 2021.

“We submit the SBP law to Parliament with an open mind and are ready to adopt recommendations for its improvement,” he said, adding that the bill had been prepared in accordance with international best practices but was sensational as if the sovereignty of the country had been violated. . He addressed the question of whether the original SBP amendment bill, which had been agreed with the IMF, was set aside and a revised bill was suspiciously submitted to cabinet for approval without letting it go. authorization from CCLC. He also sidestepped the question of whether a report by the IMF’s technical mission on the central bank bill would be made public.

He said the government could also review the IMF program if the program’s design and difficult conditions were unrealistic, adding that the government still has the right to review the program.

Shortly after his presser ended, information circulated through official channels that the former PPP finance minister, Shaukat Tarin, would take the head of the Economic Advisory Council. Mr Tarin confirmed he would head the board he was on after the PTI came to power in August 2018 and became dysfunctional after Dr Shaikh took the lead in economic matters.

Mr Tarin criticizes the policies carried out under Dr Shaikh and SBP Governor Dr Reza Baqir, in particular those relating to high interest rates, sharp currency devaluations and unprecedented increases in electricity tariffs, gas and oil in an unreasonable deal with the IMF that compromised economic growth and caused massive unemployment and poverty instead of allowing the economy to have a soft landing. He also despises the killing of his initiative, as head of the advisory board, to revive public entities through Sarmaya Pakistan and instead authorize repeated tariff increases.

Different centers of power in economic decision-making usually send conflicting signals and make investors nervous. Nothing could be more dangerous for an economy than frequent changes in economic managers which generate a feeling of uncertainty and instability in the markets. It would also be interesting to see how the PTI government and its critical partners of the 7th Prize of the National Finance Commission move forward on the advice of the architect of the same prize while tempering the IMF’s program.

Posted in Dawn, The Business and Finance Weekly, April 5, 2021

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