The new man’s old track record

  • When Dr Sheikh was last in charge


The PM has recently made changes to the Federal Cabinet. Reportedly he also intends to induce changes in the Punjab provincial cabinet. Indeed, all in positions of authority should be held accountable. Having said that, some other ministers at the federal level have also not come up with much policy and its implementation, take say the portfolios of education or climate change. The list can easily be extended to the provincial level in Punjab for example, where not much policy has been announced regarding improving real sectors.

PTI’s main thrust in the manifesto was on justice and education, and yet not much policy has been given on either of them. Here, no legal reforms have been tabled in the parliament, while no innovative and radical ideas have been floated for improving the status of in particular primary education; let alone suggesting ways towards improving higher education.

The same is the performance of the Punjab planning and development department, and its Bureau of Statistics. The websites of both indicate lack of clarity on policy philosophy and direction, and show data that updates mostly with big lags, and that is difficult to make sense of in the province’s larger economic picture. Not much has changed here in the province’s PTI government’s past eight months. Shouldn’t more heads roll? What has the CM done to ensure accountability of this poor performance?

While Asad Umar’s performance left a lot to be desired and therefore the PM was right to replace him, yet is Dr Abdul Hafeez Sheikh the right choice for the appointment of PM’s Finance Advisor? After all, he served as Finance Minister in the PPP government for 36 months (March 2010-February 2013), and his performance was not satisfactory, as the analysis below indicates. In this regard, the weight of history, in terms of the Dr Sheikh’s performance, does not seem to have much bearing on the PM’s decision. One could only hope that this time around he will leave a better mark on the economy, which can ill-afford with another misfire. Nor can the PTI government

Average CPI inflation remained in double digits during Dr Sheikh’s previous tenure, at 11.5 per cent, even after a very prolonged exercise of tight monetary policy. A closer look reveals the cracks in the policy thinking of both the Finance Ministry and the State Bank, whereby during his first-five months as Finance Minister, while policy rate- then (and until 24 May, 2015) represented by the SBP overnight reverse repo rate, was kept at 12.5 per cent, inflation could only drop by 6 basis-points to 12.3 per cent (where it even went up to 13.3 per cent during that time).

And this SBA programme, a few months later in September 2011, pre-maturely ended, as Pakistan was reportedly unable to carry out to completion the agreed reforms negotiated with the IMF

Having said that, even this small downturn quickly rose to 15.7 per cent in just two months in September 2010, and even after persisting with a much higher policy rate for eight months (November 2010-June 2011), inflation could only fall slightly by 2.2 per cent during these many months to 13.3 per cent. If this experience was not enough to amply indicate the limitedness of the policy rate hike on inflation, the same tight monetary policy was repeated for even a longer period of time of ten months, whereby during October 2011 to July 2012, policy rate was kept constant at 12 per cent; yet even then inflation could fall by only 1.4 per cent to 9.6 per cent. Even when Dr Sheikh left, inflation was at 7.4 per cent and policy rate was higher than inflation at 9.5 per cent.

This clearly indicates that the developing country context of inflation was not taken into consideration much–not much use of fiscal policy and governance and incentive related institutional reform of markets for price rationalisation was made– and in turn this tight monetary policy came at a huge price in terms of unjustifiable sacrifice of economic growth and employment.

Hence, during fiscal 2010/11 real GDP growth stood at an alarming 2.4 per cent; even the most pessimistic economic growth projection, done by IMF for 2018/19 is even higher at 2.9 per cent. Although the heavy floods of 2010 and 2011 chipped off a little portion from projected growth, one cannot deny the heavy toll of long persistence with tight monetary policy in keeping growth suppressed during Dr Sheikh’s tenure. It was 4.4 per cent in 2011/12 and 3.6 per cent in 2012/13. At the same time, unemployment rate rose from a high 6 per cent during the first year of his tenure to an even higher 6.2 per cent in 2013, as indicated by the two Labour Force Surveys in this period. So as now, the country kept suffering from stagflation, whereby there was both high inflation and unemployment, and low economic growth. I wonder if this was not taken into consideration while appointing him.

Even though monetary policy was tight during those three years, the fiscal deficit averaged a high 7.7 per cent of GDP– 6.6 per cent in 2010/11, 8.5 per cent in 2011/12, and 8 per cent in 2012/13. Even exports could not show any significant increase, and hovered around the $25 billion mark; whereby in 2010/11 they stood at $25.4 billion, then fell to $24.6 billion in 2011/12, and slightly rose to $24.8 billion in 2012/13. The economic situation of the country was quite aptly summed up by the IMF at the conclusion of First Post-Programme Monitoring Discussions on 29 November 2012, “Pakistan’s economy faces many challenges. Deep seated structural problems and weak macroeconomic policies have continued to sap the economy’s vigour. Real GDP growth over the past four years has averaged only about 3 per cent annually, and is projected to be about 3¼ per cent in 2012/13, insufficient to achieve significant improvement in living standards and to absorb the rising labour force.” And this indicates the situation after 33 months (March 2010-November 2012) of Finance Minister, Dr Abdul Hafeez Sheikh, being in office.

As the Finance Advisor, Dr Sheikh is tasked to negotiate and implement successfully a likely upcoming programme with IMF, and as one bids him all the luck, one needs to remember the last time he was Finance Minister, Pakistan sought a nine-month extension in the then negotiated Standby Arrangement (SBA) programme with the IMF to complete the policies remaining under the fifth and sixth reviews; which was granted on 29 December 2010. And this SBA programme, a few months later in September 2011, pre-maturely ended, as Pakistan was reportedly unable to carry out to completion the agreed reforms negotiated with the IMF.