Why Shehbaz is undermining Finance Minister?

At a time Muhammad Aurangzeb, Finance Minister needs the government’s fullest backing to conclude the crucial deal and implement tough economic reforms over the next several years, it seems that some circles are trying to undermine his role in the cabinet.

Prime Minister Shehbaz Sharif has ditched Aurangzeb twice within span of a month. His decision to name Foreign Minister Ishaq Dar to the all-important Council of Common Interests (CCI) and keep Aurangzeb out of it looks like an attempt to contain his role in decision-making.

Sadly, this was not the only occasion, earlier Aurangzeb was also sidelined. The prime minister in a break from tradition, decided to chair the Economic Coordination Committee (ECC) the top policy making forum. It was only after widespread criticism that he yielded the position to the finance minister.

Similarly, Aurangzeb’s role in the privatization process was also diminished by appointing Dar as head of the Cabinet Committee on Privatization.

In the CCI’s case, what exactly is the foreign minister expected to contribute to the council’s deliberations? As against this, the presence of the finance minister in the CCI — the top constitutional forum mandated to discuss and decide on matters and disputes related to the federation and the provinces — is of utmost importance at this moment because the implementation of several IMF program goals and policy reforms hinge on the active involvement of the federating units.

There is no better forum than the CCI to enlist the buy-in of the provinces on the IMF program and reforms. It can only be hoped that sense will prevail and the prime minister will replace Dar with Aurangzeb in the CCI in the larger interest of the country.

 

Dar included, Aurangzeb excluded from CCI

Reportedly, Prime Minister Shehbaz Sharif has excluded Muhammad Aurangzeb, Federal Minister for Finance and Revenue as a member of the Council of Common Interests (CCI) and included Minister for Foreign Affairs, Ishaq Dar. This has been done for the first time in the history of Council.

In the past finance minister was not always included in the CCI, yet energy minister and planning minister were included because they deal with matters of concern with provinces.

According to the notification issued by the Secretariat of Council of Common Interests on March 25, 2024, in exercise of powers conferred under Article 153 of the Constitution of Pakistan, the president on the advice of prime minister, has constituted eight Member Council of Common Interests, with effect from March 21, 2024 that include Prime Minister (Chairman); Chief Minister Balochistan (Member); Chief Minster, Khyber Pakhtunkhwa (Member); Chief Minister, Punjab (Member); Chief Minister, Sindh (Member); Ishaq Dar, Minister for Foreign Affairs; Khawaja Muhammad Asif, Minister for Defence and  Engr Amir Muqam, Minister for States& Frontier Region (SAFRAN).

The new notification supersedes Secretariat of CCI’s notification of January 9, 2024 issued during the term of caretaker government. Caretaker prime minister included the then Finance Minister, Dr Shamsha Akhtar, Minister for Privatisation, Fawad Hasan Fawad and Minister for Law and Justice, Ahmad Irfan Aslam as Members of the CCI.

Analysts argued that presence of finance minister and law minister in Council of Common Interests is critical as these two portfolios are required to respond to different queries raised by the provinces during the meeting.

Prime Minister Shehbaz Sharif has also conferred control of Cabinet Committee on Privatisation (CCoP) to Ishaq Dar against past practice of giving it to the Finance Minister.

The caretaker government of Anwaarul Haq Kakar gave the chairmanship of CCoP to Privatisation Minister Fawad Hasan Fawad aimed at expediting actions on decisions of PC Board.

Earlier, Cabinet Division has issued a notification of Economic Coordination Committee (ECC) of the Cabinet, under the chairmanship of Prime Minister, Shehbaz Sharif himself. However, after massive criticism from the media, the notification was withdrawn and a new one issued giving the chairmanship to the finance minister.

 

Caretakers outperform PDM in debt management

In a rare comparison before leaving portfolio on completion of about six months, caretaker Finance Minister Dr Shamshad Akhtar on Thursday claimed better debt management — domestic and external — from all aspects than her predecessor Ishaq Dar in the PDM-led coalition government.

“Borrowings in the caretaker government’s term have been lower as compared to the preceding period”, although they inherited tougher conditions, said the Ministry of Finance in a statement.

It said the bulk of the borrowings raised in the last few months of caretakers was to meet debt repayment obligations including principal and interest expense liabilities as the caretaker government focused primarily on fiscal consolidation measures including revenue mobilization and expenditure rationalization.

Shamshad added US$300 million to foreign loans as against US$3 billion by Dar.

“The caretaker government inherited a policy rate of 22pc, which was the highest ever since 1972. The average policy rate during the preceding period was almost 19.5%,” the MoF said.

The caretaker finance minister did not blame the principal accounting officer (PAO) Imdadullah Bosal for ‘inferior performance’ under Ishaq Dar, nor gave him credit for ‘better management’ under Shamshad Akhtar.

As Secretary Finance, Bosal served under Dar for four months and with Dr Akhtar for six months. As such, the comparison is left entirely between Senator Dar and Dr Akhtar.

Improved profiling

“Over a short stint, with careful debt management operations, the caretaker government has managed to improve domestic debt profile,” said the statement, adding that the three-pronged approach — extending the maturity of government securities, raising debt on margin below the policy rate and tapping non-bank and retail investors through the capital market.

It said the focus was on reducing borrowings from government securities through the banking sector. As a result, the borrowing through government securities fell by 67% in the caretaker government’s term as compared to the preceding period”.

It said that the Dar-led Ministry of Finance contracted PKR19.862 trillion worth of domestic debt through government securities and paid out PKR14.031 trillio, with a net addition of PKR5.831 trillio. As against this, Dr Shamshad-led MoF contracted slightly lower domestic debt of PKR19.83 trillio in similar coupons but paid out an amount of PKR17.934 trillio, with a net reduction of PKR1.896 trillion.

Likewise, the “caretaker government successfully retired short-term Treasury Bills (T-Bills) amounting to PKR1.6 trillio, contrasting with around PKR3.3 trillio raised in the preceding period” under Dar’s oversight. This helped in reducing the gross financing needs of the government.

Domestic borrowings

Moreover, the caretaker government claimed that it shifted its domestic borrowing to long-term debt securities for the financing of fiscal deficit. Out of medium to long-term instruments, major borrowing remained from floating rate securities, while fixed rates instruments were borrowed on average at 3 to 4 percent below the central bank’s policy rate during the caretaker government period, it said.

Resultantly, the average time to maturity of domestic debt has increased to around 3 years by the end of January 2024 as compared to 2.8 years at the end of June 2023. This is in line with the targets mentioned in the Medium-Term Debt Management Strategy (MTDS) FY23-FY26 and a step in the right direction to meet the end-June 2024 target of 3.1 years.

It said the Dar-led MoF borrowed PKR3.877 trillion through Pakistan Investment Bonds (PIBs) and Ijara Sukuk in six months preceding August 16, against the outflow of PKR1.353 trillion, showing net inflows of PKR2.524 trillion. In comparison, Shamshad-led MoF borrowed PKR6.017 trillion in Sukuk and PIB against an outflow of PKR2.517 trillion, showing a net inflow of PKR3.5 trillion.

External debts

On the external side, the share of external debt in total public debt was 38.3% as of end-June 2023 which was reduced to 36.7% at end December 2023. This helped to reduce the foreign currency risk of the total public debt in line with the targets defined in the MTDS FY23-FY26.

“During caretaker government, the net external debt inflows were around US$0.3 billion, which was lower as compared to (more than US$3 billion) preceding period. Furthermore, no expensive external borrowing was raised from commercial banks and international capital markets during the caretaker government,” the statement said.

Giving details, the statement said the external public debt inflows were at US$8.4 billion in the concluding six months of the previous government against US$5.4 billion outflows, leaving a net addition of US$3 billion. However, inflows during the caretaker government stood at US$3.9 billion as compared to US$3.6 billion outflow, a net increase of US$300 million.

Based on the comparison, the ministry advocated for prudent debt management including breaking the nexus with the banking sector for excessive borrowing.

“Besides fiscal and external current account sustainability and privatizing state-owned companies, it is critical to pursue prudent debt management backed by reducing sovereign-bank nexus to avoid overburdening banks with public sector debt, while reducing private sector crowding out,” the caretaker finance minister’s office concluded.