Economy on autopilot as cabinet titans clash for primacy

Both economists of stature, Caretaker Minister and Advisor for Finance are like two swords Caretaker Prime Minister Kakar is trying to fit in one sheath. What could go wrong?

By Muhammad Ali

ISLAMABAD: The worst fears of all keen observers of Pakistan’s economy have come to pass in the absence of a clear-headed economy czar in the caretaker cabinet, as crucial decision making has ground to halt owing to a personality clash between the Caretaker Minister for Finance Dr Shamshad Akhtar and the Caretaker PM’s Advisor on Finance Dr Waqar Masood Khan.

This at a time when the rupee is in a free fall, the already crushing burden of inflation is surging, growth is slowing down, and macroeconomic indicators are worsening in general. Inaction at this critical juncture can cost Pakistan dearly with the fate of Pakistan’s USD 3 billion International Monetary Fund (IMF) bailout hanging in balance.

The rupee has been in a tailspin for the last couple of weeks, with the greenback breaching the psychological limit of PKR 300 a pop in the interbank market – even though the exchange rate is still in breach of the understanding with the IMF to keep the official rate within 5 percent of the open market rate.

Thanks to the rupee’s slide, inflation is on the upswing once more after just slowing down in the preceding months. Market sources say the trend is driven by more and more investors converting their savings to the dollar and other hard currencies, as burgeoning inflation pushes the effective interest rate into the negative territory.

Observers say this state of affairs has been brought on, at least in part, by allowing the open market – which accounts for barely 10 percent of the forex trade – to lead the interbank market – which accounts for around 90 percent of the activity.

Clearly, there is an urgent need for course correction here because the slide of the rupee is feeding inflation and eroding growth. The caretaker economic team, however, has been unable to even convene a meeting of the Economic Coordination Committee (ECC) of the Cabinet.

The gridlock

The gridlock is rooted in the inability of the two key economic managers in the cabinet to agree on division of labour or responsibility. “There is a personality clash between caretaker Minister for Finance and PM’s Advisor on Finance which is known by many who had worked with them,” top official sources told Independent Pakistan.

Interestingly, the mandarins of the Finance Ministry seem to be siding with Dr Shamshad Akhtar in this power struggle instead of backing Dr Waqar Masood Khan, a veteran of the Ministry and so one of their own.

Caretaker Prime Minister Anwar Ul Haq Kakar is said to be aware of the situation, although he has been unable to break the impasse between the two stalwarts, each beginning valuable expertise and experience to the table.

A Balochistan politician picked to lead the caretaker government, Kakar is said to be considering whether to add a special assistant on revenue to the mix. Or he could shunt Khan to that office in an effort to break the gridlock over decision making as well as benefiting from his proven expertise in revenue collection.

Senator Ishaq Dar, the economy czar of the PDM was pronouncedly worried about the management of the economy and in particular the fate of the IMF program under the caretaker set up – to the extent that he was said to be willing to continue at the helm in person or by proxy.

However, it seems his wish could not be granted because of the acute need of his Pakistan Muslim League – Nawaz (PML-N) party to distance itself from the caretaker government for political reasons.

Khan and Akhtar are both highly qualified and widely respected economists, each well versed with the ropes of the trade and unquestionably capable of steering the economy through the dire straits it is in – which is perhaps why neither is prepared to follow the other’s lead. Both were among the first batch of caretaker ministers who joined the Kakar cabinet on 17 August 2023.

Who is Dr Shamshad Akhtar

Dr Shamshad Akhtar is a respected development economist, United Nations diplomat, and veteran banker who has previously served as the caretaker Finance Minister from 5 June 2018 to 18 August 2018.

The 14th Governor of the State Bank of Pakistan and the first woman to hold this office, Akhtar has served as a senior adviser to the then Secretary-General of the United Nations, Ban Ki-moon; and Vice-President of the World Bank for the Middle East and North Africa region.

A highly respected technocrat with over 40 years of experience in the public and private sectors, Akhtar is a member of the Bretton Woods Committee and the Global Economic Governance Group. She is also a recipient of the Nishan-e-Imtiaz, Pakistan’s highest civilian award.

Knowing Dr Waqar Masood Khan

A retired Pakistani civil servant, Dr Waqar Masood Khan served as a Special Assistant to Prime Minister Imran Khan on Revenue and Finance in the capacity of a Minister of State in Cabinet – from October 2020 till August 2021. He was Pakistan’s longest running Secretary of Finance.

Over his illustrious career, Khan has held several positions across the federal government including Special Secretary to the Prime Minister, Secretary Economic Affairs Division, Secretary Finance Division, Secretary Textile Industry, and Secretary Petroleum & Natural Resources.

Khan has also had considerable exposure to the banking side of the business, having served as a board member of State Bank of Pakistan, Islamic Development Bank, National Bank of Pakistan, and Pak-Oman Investment Company.

He also served on the boards of Pakistan International Airlines (PIA) and Pakistan Telecommunication Company Limited (PTCL) – besides a stint teaching macroeconomics to graduate students at Pakistan Institute of Development Economics (PIDE). Khan is also a recipient of the Presidential Award of Pride of Performance.

Dashed hopes

Both Khan and Akhtar are known for their in-depth knowledge on Pakistan’s economy and both score high on their capabilities to steer the IMF program successfully – although Dr Akhtar lacks the hand-on experience of an IMF program. Both are strict fiscal disciplinarians and advocates of clean governance.

The caretaker government will be responsible to successfully conclude at least one and possibly both of the remaining two reviews of the 9-month, USD 3 billion Standby Arrangement (SBA) signed by the PDM with the IMF to weather the country through the transition to the next elected government, at which time Pakistan is likely to request a further medium term (three-year) program.

The caretaker cabinet has taken the reins of the country at a time when Pakistan is facing a number of economic challenges, including high inflation, a widening current account deficit, and a slowing economy.

Khan and Akhtar were expected to play a key role in steering the economy through these challenges and preparing it for the upcoming elections. All those hopes seem to have been dashed because of their inability to work together as a tandem team.