Pakistan’s finance minister Ishaq Dar has pledged bold measures to reverse the country’s waning economic fortunes, following a rancorous week which saw the country’s month old coalition government rescue itself from the brink of collapse.
In an exclusive interview with Emerging Markets, Dar said the resolution of a deadlock on how to restore judges fired by President Pervez Musharraf last year had provided the stability needed for the safe passage of key economic reforms.
Pakistan’s ruling parties agreed Friday how to restore the judges , potentially resolving the most contentious issue facing the infant government and preventing the fragile coalition from collapsing. Dar acknowledged that the issue of the judges’ reinstatement had represented a profound challenge to the cohesion of the government, but said that “[The resolution of this issue] will certainly add to the political stability” necessary to see through economic reform measures.
“I don’t see any serious impediments to running the coalition,” he added.
The minister .said that drastic action had already helped turnaround a deteriorating economic picture. “On day one I started fire-fighting to minimize the damage and to prevent the current fiscal year becoming one of unacceptable macroeconomic indicators,” he said.
He added that the coalition government is united on the direction of economic policy. “We have all agreed a roadmap and we will make our best efforts. In the span of one month we have taken measures and we will close[the fiscal year ending June 30, 2008] with a fiscal deficit below 7%,” Dar said. “Without action, it would have been 9.5%.”
Dar’s comments follow his April 9 attack on the previous government for having manipulated the country’s accounts to hide the true extent of the fiscal deficit. “What was budgeted was a 4% deficit could rise to a 9.5% deficit without any action,” he told Emerging Markets.
Dar laid part of the blame over the scale of the accounting mistakes at the doorstep of multilateral lenders, including the IMF and World Bank. “I believe there was light management on the part of the multilaterals with regards to the previous government. For unknown reasons there were serious slippages which were not taken care of properly.”
Dar said further irregularities were unlikely to surface. “Right now I am quite satisfied that what we call the due diligence exercise has been carried out. I don’t think that anything extraordinary will now come up,” he said.
The minister also denied that he would seek prosecution for the country’s previous finance managers over the alleged cover-up. “I don’t have time for that frankly,” he said. “ I don’t believe in the blame game.” The minister said the country’s main economic priority is to “recreate a stable macroeconomic envieronment.” The South Asian economy faces the same problems as its neighbours, including rising prices of imported food and fuel, a threat to exports and growth from slowing developed markets and a deterioration in the trade balance.
Economists worry about the growth in money supply on the back of excessive government borrowing. “The government has to reduce its borrowing and make the necessary changes,” Dar said. He singled out broad money supply, which has been in the high teens. “I’d like to see its growth in single digits,” he said.
Consumer prices in March were 14.12 percent higher than a year ago, pushing inflation to its highest level in 13 years and spelling trouble for an economy that has notched up average growth of 7 percent a year since 2002.