Pakistan’s former finance chief, Salman Shah, has offered an olive branch to his successors amid growing controversy over alleged financial mismanagement. In a telephone interview with Emerging Markets, Shah defended the economic record under his watch and dismissed as politically motivated charges that his team had misstated economic data, including the size of the fiscal deficit.
Shah insisted that the political turmoil of the past 18 months had not stifled longer term economic prospects for the besieged nation. “[Pakistan] is moving towards reconciliation and with the passage of time things will move in the right direction,” Shah said. “The [Pakistan People’s Party] is showing a lot of maturity. It has woven together a coalition right across the country.”
Shah said that while he “wouldn’t totally endorse” the new managers, “they’re showing that they are competent.
“They [the new government] are reasonable people and will do their best,” he said. “We should give them some time, things will settle down.” In an interview this weekend with Emerging Markets, Pakistan’s finance minister Ishaq Dar reiterated his charge that the previous government had fudged key numbers to the extent that a 4% deficit target would have ballooned into to 9.5% deficit “without any action.”
But Dar denied he would seek prosecution for the country’s previous finance managers over the alleged cover-up. “I don’t believe in the blame game,” he said. “These are extraordinary items and actions and mismanagement. I don’t have time for that, frankly.” The new minister stressed that both the previous and caretaker government failed to make any adjustments until after February elections. He drew attention to oil price subsidies, which had been budgeted at Rs15 billion, but which would have ballooned to Rs153 billion by year end.
“On February 19 the adjustment was made, followed by another one two weeks later, but which were only 17% of the whole problem,” Dar said, adding he expected to close the financial year ending June 30 with a deficit of “under 7%”.
But Shah argued the allegations were “intended for a domestic audience, not the international community.” He said he would have no problem in answering charges if they were ever formally made against his management of the economy. “I think that would be fine. The [government] can do whatever it wants,” he said.
Shah added that revisions of economic data was a widespread phenomenon that reflected a changing external reality.
“When we prepared the budget, oil prices were $55-65 per barrel. Obviously at that time, when you look at the projections, you don’t expect them to come to $120. You prepare the budget on your best judgment,” Shah said.
“Last year our oil import bill was $7 billion, this year it will be $11 billion – that translates into Rs300 billion extra you have to pass through. But this is happening all over the world. India has been adjusting its prices too.”
“Instead of spooking the markets we should focus on boosting investment,” Shah said, adding that the new government’s revised budget deficit target of 6% is, from a global perspective, “something which international capital markets will approve.” Defending the record, Shah said over the previous eight years GDP rose from $65 billion to $160 billion while tax revenues have surged from Rs300 billion in 1999 to around one trillion rupees now.
But Dar said: “The economic policies which are in place at present were introduced by the previous government [in the 1990s].”