Finally, Asad Umar has been shown the door. After numerous denials and rumours circulating since the end of last year, the fate of the finance minister was sealed after the Prime Minister Imran Khan axed him last week in a major cabinet reshuffle.
In his place, the Pakistan Tehreek-e-Insaf government appointed Dr Abdul Hafeez Sheikh as an adviser to the prime minister on finance, revenue and economic affairs. Mr Sheikh has previously served as privatization minister from 2003-2006 in the Musharraf era and followed by a stint as finance minister from 2010-2013 in the PPP government.
Mr Umar’s handling of the economy since the start of the incumbent governments’ tenure was heavily criticized. Since the beginning, a ring of uncertainty had surrounded the economy and the attitude towards approaching the International Monetary Fund (IMF) for a bailout was also under heavy scrutiny. The descent of Mr Umar is even more remarkable, considering he was painted as the solution to all ills plaguing the economy before the elections. It speaks of the dissension amongst the party ranks and the PM’s dissatisfaction that led to the exit of the government’s leading minister.
The plunging of the economy into a bottomless pit isn’t entirely blamable on the former finance minister. The precursor to this had already been red-lighted by eminent pundits and experts during the last leg of the previous administrations’ tenure and the bleak situation on the economic front wasn’t a hidden secret. Dislodging Mr Umar so close to the agreement of the IMF bailout could have been fueled by the prolonged disillusionment over the economic indicators.
But the statements made by the ex-finance minister didn’t help his cause. On 8th April, Mr Umar said, “The crisis is over. Now we are in the stabilisation process. Once the economy is stable, the country can move towards growth.” On the contrary, the economy remains periled by dwindling foreign exchange reserves, high inflation, low tax collection and an increasing gap between revenue and expenditures.
As news of Mr Umar’s dismissal swept across social and electronic media, current account deficit on a month-on-month basis in March soared 195.7% to $822 million. On a year-on-year (YoY) basis, it declined 29.4% to $9.588 billion in July-March of fiscal year 2018-19 compared to $13.589 billion in corresponding period of last FY 2017-18.
In a comment to Surkhiyan, Samiullah Tariq Head of research at Arif Habib Limited said, “The appointment of Dr Hafeez Sheikh would probably expedite Pakistan’s negotiations with the IMF.”
He elaborated, “First of all Asad Umar was attempting to correct everything which is wrong with Pakistan’s economy at once. However, Mr Sheikh’s focus would be to achieve a deal with the IMF.”
Moreover, Mr Tariq believes, “Markets are short term in nature and once a deal is concluded with the IMF, markets performance will improve.”
The aftermath of Mr Umar’s removal is beset by mounting challenges on the financial and economic front. With the budget announcement looming in less than a month and an IMF team set to arrive at the end of April, Mr Sheikh has his work cut out. Dissatisfaction with his predecessor was a major factor that led to Asad Umar’s dismissal and Mr Sheikh’s prior experience as a finance minister during PPP’s tenure (2010-2013) will serve him well going forward.
The first prerogative for Mr Sheikh would be to seal a bailout deal with the IMF and he is already working on the forthcoming tax amnesty scheme, whose contours are currently being charted out. The twin (trade and current account) deficits are contracting, however the fiscal and budget deficits have risen creating problems for the government. Also, the newly appointed adviser to the PM on finance, revenue and economic affairs will have to take tough decisions for rescuing the economy out of its gloominess and which may not sit well with PTI’s ardent supporters and its vote bank.