Ishaq Dar, Pakistan’s new finance minister, has already served in the position for three terms. This time around, however, he must deal with a country that is experiencing an economic crisis as well as the terms of an IMF programme.
On Wednesday, Dar, a seasoned politician and professional accountant, took the oath of office.
The 72-year-old has the difficult challenge of restoring stability to an economy that has been in freefall for months due to several risks such as soaring inflation, a growing current account deficit, and declining reserves — and is currently dealing with terrible floods.
Dar, who is currently a senator, has held the position of finance minister in the past, most notably from 2013 to 2017.
Yousuf Nazar, an economist and former Citigroup banker, told Reuters that Dar is an interventionist. Most notably, the minister forced the central bank to freely infuse foreign currency into the market to support the rupee.
According to Nazar, “He wants to see reduced interest rates and a stronger rupee.” But he noted that Dar would not be able to implement his hallmark programmes due to the existing state of the world and the ongoing IMF programme.
Intervention is challenging because Pakistan’s foreign reserves presently cover just over a month’s worth of imports.
Additionally, Pakistan committed to a market-based currency exchange mechanism as part of the ongoing IMF programme, and early this year it approved a legislation that granted the central bank more autonomy and protected it from government pressure.
Miftah Ismail, Dar’s predecessor, advocated adhering to a difficult IMF stabilisation programme that included eliminating gasoline and electricity subsidies despite the political cost of inflation exceeding 27% year-over-year and the rupee plummeting to historic lows.
However, the government recently claimed that the IMF had suggested it will relax programme requirements due to the disastrous floods, which are expected to have cost over $30 billion in damages and will force this year’s GDP to be lower than 3% from an earlier forecast of 5%.
The rupee has increased for the previous three sessions this week, which may be a sign that the market was inflated due to a lack of supervision or that it was pricing in intervention before Dar’s formal appointment.
Aqdas Afzal, an economics professor at Karachi’s Habib University, told Reuters that Mr. Dar’s main challenge is to stabilise the exchange rate in order to put the genie of massive inflation back in the bottle. He added that the government wanted to use Dar’s prior experience in taming inflation, which it desperately needs before the next elections.
Dar is an expert at managing the economy, he said.
Many people disagree with Dar’s actions, claiming that they caused the rupee to stay overvalued and negatively impacted the trade balance. This approach, according to detractors, is what caused the current account deficit to reach record highs of about $20 billion in the 2017–18 fiscal year.
Months later in 2019, the 220 million-person South Asian nation had to go back to the IMF for assistance.
Being completely trusted by former prime minister and leader of the governing PML-N Nawaz Sharif, whose younger brother Shehbaz presently serves as prime minister while Nawaz himself is in exile in London, is a benefit for Dar.
Dar has a marital connection to the Sharif dynasty as well. Due to his son’s marriage to the older Sharif’s daughter, he now occupies a position in the party’s inner circle and has the authority to act quickly and bypass the bureaucratic red tape that hampers Pakistani government.
His challenges will not just be in managing the economy: After living in self-imposed exile for five years, he returns to Pakistan. During that time, a Pakistani court proclaimed him to be a fugitive because he failed to show up for anti-graft proceedings against him.
Dar claims that the case has political undertones.
After the court last week postponed his arrest warrants, he was free to go to Pakistan up to October 7 without worrying about being detained, according to government prosecutors at the law ministry. Following the event, he was almost immediately given the position of finance minister.
Dar studied business and accounting in the eastern city of Lahore, which he shares with the Sharif family, and then attended professional accountancy colleges in London and Wales. He began his political career in the 1980s and has served in parliament several times.
Along with holding ministries for business, trade, industry, and investment, he previously served as finance minister from 1998 to 1999, again in 2008, and again from 2013 to 2017.