KARACHI: As newly appointed Finance Minister Ishaq Dar attempts to tackle Pakistan’s economic crises, financial and business leaders said on Thursday that to believe Dar was a “magician” who would easily rid Pakistan of its ills was an over-optimistic feeling.
Dar took oath as a federal minister on Wednesday, five years after he was ousted from the role by a court in a corruption case.
Dar is a member of PM Shehbaz Sharif’s ruling Pakistan Muslim League-Nawaz (PML-N) party and has already been finance minister four times.
The 72-year-old takes the driving seat of Pakistan’s economy at a time when the South Asian country is struggling to contain a balance-of-payments crisis, faces depleting foreign reserves, high inflation and a weakened currency.
Dar has vowed to rein in inflation, which currently stands at a 47-year high at 27.3 percent. He has also vowed to bring stability to the currency market, where the rupee has been taking a battering against the US dollar in recent months. In a bid to bolster Pakistan’s currency, Dar has also warned currency smugglers and speculators against actions that could weaken the rupee.
On Thursday, the finance minister held a virtual meeting with International Monetary Fund Mission Chief Nathan Porter to assure him Pakistan would undertake reforms envisaged under the deal between the two countries.
He said the government would take measures to reduce the burden on Pakistan’s economy while protecting vulnerable sections of the country’s population.
“Dar is focused on two things; the first being inflation that he wants to keep in check and the second is the interest rate reduction,” Farhan Mahmood, head of research at Sherman Securities, told Arab News.
“That is not his domain but through an inflation cut, it could be achieved,” he added.
Mahmood said Dar aspired to contain currency speculation and hoarding through regulatory controls, adding the new finance minister also wants to bring in proceeds from exporters.
“Around 10-15 percent of textile exporters’ proceeds don’t come to Pakistan. Dar can make some arrangements for early repatriation,” he added.
The impression that the finance minister will be tough on currency hoarders and speculators has left some visible marks. Since Monday, Pakistan’s rupee has been making gains against the US dollar.
The rupee in the interbank market has appreciated by Rs10.08 or 4.32 percent against the greenback during the last five consecutive trading sessions. The gains were witnessed following the coalition government’s decision to replace ex-finance minister Miftah Ismail with former premier Nawaz Sharif’s confidant.
Pakistan’s rupee closed at Rs229.63, up by 1.09 percent on Thursday, the State Bank of Pakistan’s (SBP) figures showed.
Analysts believe measures to bring stability to the currency market and reduction in global prices of commodities would prove to be a favorable outcome for the new finance minister.
“Timing of his arrival is good as the prices of commodities in the international market have declined by 36 percent, including those of diesel and petrol,” Mahmood said. “Even today we estimate that if the exchange rate stabilizes at Rs200, the petrol price that is at Rs237 could [go down to] Rs190 per litter,” Mahmood said.
Samiullah Tariq, Director of Research at Pakistan Kuwait Investment Company, said the situation seems favorable for Dar at the moment. However, he said the future outcomes depended on sustainable actions.
“If actions against currency hoarders and those involved in speculations are materialized, things would be better,” Tariq said. “But this should be on a sustainable basis. However, the global financial conditions have changed which may impact his (Dar) ability to execute performance as compared to the past.”
Pakistan estimates losses from unprecedented floods may go as high as $30 billion, another mounting challenge for the cash-strapped country.
The country’s reserves, in the face of growing pressure from import payments and other factors, have declined to $8 billion.
“Many aspects need attention with an economy in a balance of payments challenges worsened by floods,” Dr. Khaqan Najeeb, former adviser to the Ministry of Finance, told Arab News.
“Building reserves is important to signal external stability and orderly movement in markets. Ensuring multilateral flows in the short run can help in this regard,” Najeeb said. “Constructing a new macro framework is essential as GDP, fiscal and current account estimates have changed after floods,” he added.
“This will form the basis of negotiations with the IMF for reconsideration.”
Pakistani industrialists and business leaders believe Dar faces the daunting task of pulling Pakistan out of its current economic crisis. They said he may not be able to solve the country’s entire problems.
“Keeping in view the long list of Pakistan’s chronic economic problems, if somebody is feeling that Ishaq Dar is a magician, then he or she is “over-optimistic,” Engineer. M. A. Jabbar, Vice President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), told Arab News.
“We expect ‘Daronomics’ may find some of the answers but not all the answers for the ailing economy of Pakistan,” he added. “External account, inflation and forex market are the key areas where the new finance minister has to enhance his focus.”
Pakistani financial experts believe mobilizing funds for flood relief will remain important, and direct relief to millions affected would be the best way forward.