Hafeez caretaker PM?

Dr Hafeez Sheikh’s resignation as the Federal Minister for Finance has generated considerable speculation as to its reason. What fuelled these speculations was the fact that the Presidency issued a press release on Monday stating that the recently appointed Minister of State for Finance Saleem Mandviwalla had been elevated to the post of a full federal minister for finance and there was no news about whether Dr Sheikh had resigned till late in the evening.

Did Dr Sheikh resign voluntarily or not is a question that is now being raised? There is no question about the economic impasse that the country was steered towards during the past three years when the finance portfolio was held by Dr Sheikh: from heavy reliance on domestic borrowing that literally crippled private sector borrowing and led to a rise in primary deficit to his inability to form a consensus amongst relevant cabinet colleagues on implementing identified power sector reforms that may have reduced load shedding and its negative impact on not only the economic activity in the country but also on general public discontent with obvious repercussions on the political fortunes of the ruling party. The budget deficit is expected to reach 8 percent of GDP by the end of the current year – higher by 0.4 percentage points at least from what the government inherited in 2008 and which compelled the government to go on the International Monetary Fund programme soon after it took over power. And failure to implement the agreed power and tax reforms with the IMF (an agreement made during Shaukat Tarin’s tenure) accounts for the cessation of all budgetary support from multilateral and bilateral sources since soon after Dr Sheikh took over the portfolio of finance.

Be that as it may, Dr Sheikh was not implicated in any major scandal of the like that many of his cabinet colleagues have been implicated in. And, as a consequence, many analysts give him due credit for his honesty. However, honesty is not only in question when there is blatant corruption or awarding of contracts/making appointments on the basis of nepotism. Honesty comes under question when national data is manipulated to present a performance better than is the case in reality. Dr Sheikh is accused of blatantly manipulating national data prepared by the Federal Bureau of Statistics through: (i) disallowing a change in base year premised on detailed surveys since 2005-06 and insisting on 2000 as the base year when Pakistan was isolated in the aftermath of the Musharraf coup and before the 9/11 attacks in the US, (ii) changing the weightage of food in the calculation of Consumer Price Index by 6 percentage points thereby showing a lower rate of inflation that simply can not be compared with previous years, and (iii) not taking account of heavy subsidies to the food and energy sector while calculating the budget deficit.

Dr Sheikh’s sustained failure to stand up to his politically more powerful colleagues was quite apparent during the past three years; in his own defence he insisted that he was being brow beaten by his colleagues to spend more on current expenditure than he wanted to and was not able to generate higher taxes because of the parliamentarians’ resistance to taxing themselves (tax on farm income) or their major constituencies (value-added tax) are known.

And last but not least Dr Sheikh’s relationship with the media was what one would expect of the Governor of the State Bank who is expected to remain silent as a statement by him can impact on the external value of the domestic currency with its consequent impact on the country’s debt repayments as well as on the balance of payment position. In Pakistan’s case, the newly appointed Governor has frequently challenged the assessment of the economy by departments that operate under the Finance Minister while Dr Sheikh as the Finance Minister remained reticent, a portfolio that in a democracy is accountable to the people.

So in the context of the current state of the economy to dismiss Dr Sheikh and not allow him to continue with policies that account for the economy being on a roller coaster drive to unsustainable macro economic indicators was not necessarily a bad decision even though it was a mere three weeks before the government was constitutionally mandated to vacate the office for the caretakers. But this logic assumes that he was fired.

The question is was he? Two major conspiracy theories have surfaced. First theory is that Dr Sheikh has resigned because he was told by the President, with whom he remained closeted on the day that Saleem Mandviwalla was administered the oath of Finance Minister, that he would be PPPP and its coalition partners’ one of two nominees for the caretaker prime minister. Irrespective of the fact that the PML (N) has repeatedly and publicly stated that it would oppose Dr Sheikh’s role in the caretaker set-up the process of selection of the caretaker prime minister may favour the PPPP if the MQM, now sitting in the opposition benches, decides to vote in favour of the PPPP choice rather than that of the opposition. Thus in case there is no agreement on the caretaker prime minister between the Leader of the House and the Leader of the Opposition the Speaker would set up an eight-member committee with four from the government and four from the opposition. The MQM would without doubt get one seat from the opposition benches given its current strength in parliament thereby negating any opposition move that would account for the Election Commission of Pakistan making the decision as a last resort.

Analysts are not convinced that this theory has been refuted after the PPP withdrew the local government ordinance angering the MQM with the MQM Governor summoned to London to meet his party leader for consultations.

Second conspiracy theory maintains that Dr Sheikh, not being a long-term jiyala who became enamoured of the Bhutto clan no more than a little less than three years ago, was the choice of the establishment, a claim that is backed by the fact that he was also in Musharraf’s cabinet though he did not hold such a powerful portfolio at the time. Those who speculated that he was the choice of the multilaterals given his own employment record with a multilateral, have little to back their contention given that no multilateral assistance has been released for budget support since soon after he took over as Finance Minister in spite his repeated pleas. The establishment and the PPPP have better relations relative to the establishment’s relations with the PML (N) – a claim backed by the WikiLeaks. Perhaps, these analysts conclude, the wily President would nominate Dr Sheikh as it may imply establishment’s tacit support during the forthcoming elections.

Be that as it may, the state of the economy is critical and one can only hope that parliamentarians in the present national assembly desist from awarding contracts in the remaining two weeks or so and initiate the process of establishing a caretaker team that would refrain from taking any economic policy decisions during their tenure, leaving the next representative government to articulate and implement its economic vision. That is only fair and democratic. Would that happen? Not likely as the newly appointed Salim Mandviwalla, as chair of the Economic Co-ordination Committee, has begun to approve a lot of projects without seeking comments from relevant departments and extended bailout packages to state-owned entities (the energy sector extended 10 billion rupees). A debt trap remains imminent due to the need for sustained domestic borrowing as disturbingly indicated by the Governor State Bank of Pakistan to the Senate Standing Committee on Finance.