Verbose failure

Dr Abdul Hafeez Shaikh, the fourth finance minister of the present regime, resigned from his post on February 19. He remained the finance minister for almost three years and presented three budgets in the National Assembly.

The best way to review Hafeez Shaikh’s performance is to look at his maiden budget speech of June 5, 2010. In his budget speech, he highlighted the challenges of the economy and outlined his priorities in addressing them. His budget speech was unconventional, as more than half of the speech was extempore as if he was giving an ‘Economics 101’ lecture to his fellow parliamentarians. He was upright in acknowledging many failures of his government in the preceding two years.

He also bitterly criticised his predecessor for “indiscriminate borrowing” and doubling public debt in a short period of time. He promised to set new directions for responsible economic and fiscal management.

In his budget speech, he identified four major challenges, including problems in resource mobilisation as reflected by abysmally low tax-to-GDP ratio; abominable performance of the PSEs draining taxpayers’ money; energy deficit which had darkened homes, closed down factories and shops; and the need to create jobs for the youth.

He promised to restructure eight PSEs with rigid timelines and not to release funds unless they improved their performance. He also promised to address the energy issue on priority basis. On creating jobs for the youth, he promised to revive economic activity by improving the investment climate, limiting the role of the government to policy making and promoting fiscal austerity. He also promised to deliver on commitments made to the IMF to protect the country’s credibility.

In short, there were no disagreements on the issues that he highlighted and the way forward that he delineated in his budget speech. As such, Hafeez Shaikh received appreciation from all quarters.

As he began his journey of reviving Pakistan’s economy, he wavered and soon became directionless, continuing to compromise on policies, exchanging the uniform of a technocrat for that of the emperor’s clothes. He continued to live in history and stopped moving forward. His lethargic, laidback and non-serious attitude soon became the hallmark of his personality and the root cause of his failure as finance minister.

Let me turn to what he had promised and where he left. He failed miserably on the fiscal front. The budget-deficit continued to rise during his tenure, reaching as high as 8.5 percent of GDP in 2011-12 owing to his failure in resource mobilisation and expenditure rationalisation.

While he continued to provide funding for various packages (Larkana, Multan, Gujar Khan etc) he starved institutions of higher learning (universities). He failed to launch tax system and tax administration reforms, including the VAT or the reformed GST, which ultimately led to the suspension of the IMF programme in May 2010. As finance minister, he added Rs5 trillion to public debt, lost $5 billion in foreign exchange reserves and Rs15 per dollar in exchange rate.

He failed miserably in restructuring eight PSEs. In fact their performance during his tenure worsened as he continued to dole out resources in the name of bailout packages. He also failed to make any headway on the energy issue. Homes remained dark, factories and shops remained closed, and people continued to suffer from extended hours of load shedding and economic activity continued to suffer. His promises to give greater attention to the energy issue just evaporated.

Creating jobs for the youth by accelerating economic growth proved elusive. He failed to revive economic activity, restore investors’ confidence, improve the country’s investment climate and limit the role of the government to facilitating private sector investment.

In fact, investment declined to a 60-year low at 12.5 percent of GDP. Foreign private investment nosedived from $2.0 billion in 2009-10 to $0.7 billion in 2011-12. Economic growth continued to hover around 3.0 percent per annum and failed to provide jobs to over 2.5 million youth entering the job market each year. Unemployment and poverty therefore continued to rise.

During his tenure, Pakistan’s relationship with the IFIs deteriorated. The IMF programme remained suspended since he took charge of the finance ministry. He failed to introduce any structural reform privatisation programme remained suspended, failed to float any euro bond/exchangeable bond, or bring about the sale of 3G licenses or to get the money from Etisalat.

As a finance minister, Shaikh confined himself to his fourth floor office in ‘Q’ Block. He made little or no contact with the private sector, continued to avoid print and electronic media and most importantly, he failed to lead his ministry from the front and as a result the motivation, dedication and discipline of the staff diminished. In short, the ministry was never in such a bad shape as it is today – thanks to his failed leadership.

He lacked courage to call a spade a spade. While he talked about an austerity budget (Budget 2010-11) he raised the salary of the government servants by 50 percent. He was personally against the new NFC Award and BISP, but lacked courage to say the same to his political leadership until he faced serious criticism by his fellow cabinet colleague on his performance. Only then did he reveal the truth.

It now appears that his maiden budget speech was nothing but verbosity. He failed miserably to fulfil his commitment and left the economy in shambles. In fact, as finance minister, he presided over the destruction of Pakistan’s economy. He disappointed his fellow economists, friends, his party, mentors and above all the people of Pakistan. History will remember him as a finance minister who failed spectacularly.

The writer is principal and dean of NUST Business School. Email: ahkhan@ nbs.edu.pk