<\/p>\n
The banker-turned-finance minister faces the difficult task of managing the national kitty and steering the country out of its incessant economic crisis.<\/p>\n
Muhammad Aurangzeb, a former chief executive of Habib Bank Limited (HBL) with extensive experience in the financial sector, has taken the reins as Pakistan\u2019s new finance minister.<\/p>\n
He inherits a daunting economic landscape, grappling with intertwined issues like inflation, unemployment, and significant budget and current account deficits.<\/p>\n
A note by Topline Securities stated that the investors were keen on seeing how he performs, as the former banker is hailed as a \u201csolid finance guy\u201d through and through.<\/p>\n
But what are the challenges he faces, in the short and long term? Dawn.com<\/em> spoke to analysts to get some answers.<\/p>\n The finance minister definitely knows his first immediate challenge. He laid out his agenda in a single sentence: to focus on the implementation of much-needed reforms and secure a new deal with the IMF.<\/p>\n \u201cNo debates, no waste of time \u2014 just a steadfast commitment to implementation,\u201d he said while interacting with reporters right after being sworn in. Yesterday, in his first formal media interaction as a minister, he indicated negotiating a \u201clonger and larger\u201d<\/a> ec\u00ado\u00ad\u00adnomic bailout package with the IMF.<\/p>\n Khurram Husain, a business and economic journalist, says that the newly appointed finance minister will face the herculean task of \u201csecuring the last IMF tranche of the current programme as it comes to an end in April and then negotiating a new one immediately after in the coming months\u201d.<\/p>\n According to macroeconomist Ammar H. Khan, the need for the IMF programme is tied to the country trying to avoid a current account crisis.<\/p>\n \u201cThe first challenge the finance minister would have to overcome is essentially closing the programme so the country can move towards macroeconomic stability,\u201d he says.<\/p>\n Ali Farid Khwaja, chairman of KTrade Securities, notes the first short-term step the finance minister would have to take on is delivery on economic reforms to ensure the IMF\u2019s support to avoid a sovereign default, and to ensure that the \u201cglobal markets believe that he can deliver on IMF reforms\u201d.<\/p>\n Amreen Soorani, head of research at JS Global, states that the new finance minister \u201cfaces two critical, interlinked tasks\u201d which include concluding the current IMF Stand-By Arrangement (SBA) and negotiating a new, longer-term IMF program.<\/p>\n \u201cUnlocking further financial assistance from the IMF would maintain Pakistan\u2019s access to international financial markets\u201d Soorani says, adding that a longer programme duration will \u201coffer stability and predictability for implementing economic reforms\u201d.<\/p>\n On June 29, the country got a green light from the IMF for a $3bn bailout programme, with an immediate disbursement of about $1.2bn followed by $700m in January.<\/p>\n The current IMF programme is expected to conclude in the second week of April, with the government readying itself for a bigger bailout in the coming months.<\/p>\n More critically, the new finance minister would have to work on debt restructuring \u2014 a critical step in the IMF programme as the institution conducts<\/a> a Debt Sustainability Analysis (DSA) before it decides on lending to a country to ensure they are on a \u201csustainable development track\u201d.<\/p>\n The process of debt restructuring<\/a> is essentially used by a country to avoid the risk of a sovereign default on its existing debt. This can include negotiating rollovers or lower interest rates on existing loans.<\/p>\n According<\/a> to an Atlantic Council, debt restructuring is \u201cessentially a zero-sum game of allocating the burden among different creditor groups\u201d.<\/p>\n The IMF says<\/a> debt restructuring for low-income countries poses different challenges externally and domestically. Domestically, there can be \u201cdifficult trade-offs between the need to restructure sovereign debt owed to domestic banks\u201d in addition to impact on financial growth. Externally, this will give rise to coordination challenges due to \u201cincreased diversity in the creditor composition\u201d.<\/p>\n The \u201creal big job\u201d, according to Husain, will be managing the status quo and the \u201cuntenable debt\u201d.<\/p>\n Recently, a report<\/a> by Tabadlab stated that Pakistan\u2019s debt profile is \u201calarming\u201d while the country\u2019s borrowing and spending habits are \u201cunsustainable\u201d, stating that the country\u2019s total debt and liabilities \u2014 including domestic and external debt \u2014 is at a whopping Rs77.66 trillion, or $271.2bn.<\/p>\n The report said that since 2011, Pakistan\u2019s external debt had nearly doubled while the domestic debt had increased six-fold, of which the country would need to pay back an estimated $49.5bn in debt maturities \u2014 30pc of it being interest.<\/p>\n Another report<\/a> called Pakistan\u2019s External Debt Dilemma written by Farrukh Iqbal and Ijaz Nabi and published by the Center for Global Development concurred with the findings. It highlighted that the country\u2019s debt servicing had been weakened by \u201cpoor export performance\u201d, adding that the new government would have to take on the essential task of restructuring external debt.<\/p>\n Khurram Schehzad, chief executive of Alpha Beta Core, says that the new government will have to immediately work on debt reprofiling \u2014 another way of saying debt restructuring \u2014 \u201cto make the country\u2019s debt sustainable and manageable\u201d. This includes local and foreign, with a special focus on the Chinese portion for the next three to four years.<\/p>\n Khwaja observes that there is a need to \u201cstrengthen communication, collaboration and trading relationships with the countries that have to roll over the bilateral loans\u201d. These countries include China, the US, UAE and Saudi Arabia. He elaborates that a \u201cgood relationship with our creditors is needed to avoid a sovereign default\u201d.<\/p>\n In addition to juggling dealing with creditors, Aurangzeb also has to cater to the pressures of a government that is answerable to its constituents.<\/p>\n According to Husain, the new head faces the daunting task of managing the demands of the party in power, who would want to pander to their vote base by shoring up funds and the negative fallout of painful reforms that are necessary for steering the country out of the financial crunch.<\/p>\n The report by Iqbal et al observes that political, bureaucratic, and business interests \u201ccoalesce repeatedly into pro-consumption coalitions\u201d due to which export performance \u2014 episodically improved by the depreciation brought by the IMF \u2014 cannot be sustained, which poses a challenge to real economic growth.<\/p>\n This quote illustrates how political will could wither away in the face of backlash that follows tough but necessary reforms.<\/p>\n Fatima Attarwala, the editor of Business and Finance at Dawn<\/em>, observes that the country\u2019s informal economy is \u201cnorth of $450bn and increasing\u201d.<\/p>\n An informal, or shadow economy, contains a large amount of cash in circulation, with little documentation of transactions. This lack of documentation grants opportunities for illicit activities.<\/p>\n Dealing with the staggering amount of illicit cash present in the country is a can of worms that, according to Husain, \u201cno finance minister previously has been able to effectively deal with\u201d.<\/p>\n Attarwala states that \u201cthrough the last few years of the pandemic, floods, and economic crises, more people have been pushed towards the \u201cshadow economy\u201d.<\/p>\n \u201cThe increase in cash in circulation to over Rs9tn indicates that the informal sector is increasing,\u201d she notes, adding that despite the efforts of the State Bank of Pakistan to increase digitisation, the average value of e-commerce transactions has remained below Rs5,000 over the last five years.<\/p>\n The formalising of the informal sector has proved to be a \u201ctough nut to crack\u201d for previous governments, although this step has been noted to be the only way to significantly raise the tax net.<\/p>\n \u201cThe ministry would need to expand the tax net,\u201d Ammar Khan notes, \u201cThey would have to include segments such as retail, wholesale, trade and agriculture.\u201d<\/p>\n \u201cEven with those who are included in the tax net, there is a lot of leakage that needs to be plugged,\u201d he points out.<\/p>\n As far as digitisation is concerned, Khurram Husain notes that since this is something the former HBL chief executive has spoken about before, he will have to work on the digitisation of the economy and manage a largely informal sector economy to bring people into the tax net.<\/p>\n \u201cHe [Aurangzeb] will need to deal with people who are very stubborn and refuse to change,\u201d Husain notes, about the reforms that are needed.<\/p>\n Aurangzeb had recently reiterated his desire to move towards \u201ccomprehensive\u201d digitisation of the tax system to increase transparency and widen the tax base.<\/p>\n Schehzad concurs with Husain about the documentation of the informal sector through digitisation and reducing cash in circulation \u2014 a task that falls on the finance ministry.<\/p>\n Schehzad says that for a digital infrastructure to thrive, there is a need for \u201cbetter, reliable and low-cost internet, with duties and taxes on mobile phones and other digital gadgets to be massively reduced\u201d.<\/p>\n Soorani notes that the \u201csize of the [IMF] programme would directly impact the resources available to address external balance issues as our import cover is still below two months\u201d.<\/p>\n She adds that it is important for the ministry to align the budget with the IMF\u2019s recommendation to secure its approval, this will include \u201cfiscal consolidation and structural reforms, especially in the energy sector\u201d.<\/p>\n Regarding energy sector reforms, she elaborates it is pertinent to \u201ckeep the pile-up of the circular debt stock close to zero through no additional subsidy and other operational efforts on theft and inefficiencies\u201d.<\/p>\n \u201cRegular cost pass-ons and other measures\u201d would be key in increasing energy sector efficiencies, she said.<\/p>\n Circular debt refers to the intricate web of liabilities in the country caused by inefficiencies and cash blockage in the energy sector.<\/p>\n According<\/a> to the Asian Development Bank, circular debt consists of the total liability position of the power distribution companies (DISCOs) in the country to the Central Power Purchasing Authority-Guarantee (CPPA-G) which is further complicated by delayed payments by the CPPA-G to the generation companies (GENCOs).<\/p>\n Moreover, Schehzad notes that the energy and the finance ministries will have to work closely together to overhaul the energy sector \u201cfrom single-buyer market to multi-buyer market\u201d.<\/p>\n A multi-buyer market diversifies risk by reducing its dependence on a single-buyer\u2019s ability, and it often leads to commercial attractiveness.<\/p>\n Furthermore, he adds that restructuring of the transmission and distribution sector, investment in alternatives (such as wind and solar) with more decentralization, lowering taxes on electricity to reign in inflation, and restructuring on Independent Power Producers (IPP) debt with the Chinese would be steps in the right direction.<\/p>\n Previously, the upcoming finance minister had talked about following<\/a> through the caretakers\u2019 policies, elaborating on the imminent privatisation of the national flag carrier, Pakistan Interna\u00adtional Airlines (PIA).<\/p>\n Schehzad points out that state-owned entities (SOEs) will \u201cneed to be restructured in terms of their managements and boards, where independent boards appoint competitive management to reduce losses, streamline operations and improve revenue streams\u201d.<\/p>\n Mohammed Sohail, chief executive of Topline Securities, adds that the finance ministry will have to follow up the caretakers\u2019 policies of \u201cprivatisation at a fast pace\u201d and attract \u201cimmediate investment from our Middle Eastern friends\u201d to tackle the economic quagmire.<\/p>\n Khwaja observes that investor sentiment often has gone under the radar of previous finance ministries, adding that \u201cas the example of India shows, a positive investor sentiment can bring in a lot of external capital\u201d.<\/p>\n He elaborates: \u201cTo improve investor sentiment, the government has to ensure that they give confidence to the public that the economy will recover.<\/p>\n \u201cEconomic markets tend to tighten and block the flow of money when there is a collapse in investor confidence. It leads to capital flight and also the flight of quality talent.\u201d<\/p>\n Ammar H. Khan also asserts the need for the country to move away from a consumption-based economy and increase export-based investment.<\/p>\n \u201cFor that particularly, there is a need for the rupee to be undervalued \u2014 and not overvalued as it is currently,\u201d he says.<\/p>\n This is reiterated by Khwaja who says that the new finance ministry will require \u201cenhancing our exports and global trade to attract capital\u201d.<\/p>\n Muhammed Aurangzeb is well known in the private sector circle with over 30 years of banking experience as he served as the head for the country\u2019s largest bank, HBL, since 2018. The bank also reported record-high earnings in 2023 of Rs114 billion.<\/p>\n Before taking up the role at HBL, he was also the chief executive of JP Morgan \u2014 a New York based global corporate bank.<\/p>\n As for his education, he did his bachelors and masters from the Wharton School of the University of Pennsylvania before kickstarting his career at Citibank and moving up the corporate ladder.<\/p>\n As of now, the banker has a myriad of challenges \u2014 political and economic \u2014 he would need to overcome in the coming few months, with the country\u2019s constant balance-of-payment crisis serving as a reminder of the difficult decisions needed ahead.<\/p>\n Header image generated by AI<\/em><\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":" The banker-turned-finance minister faces the difficult task of managing the national kitty and steering the country out of its incessant economic crisis. Muhammad Aurangzeb, a former chief executive of Habib Bank Limited (HBL) with extensive experience in the financial sector, has taken the reins as Pakistan\u2019s new finance minister. He inherits a daunting economic landscape, […]<\/p>\n","protected":false},"author":2,"featured_media":70726,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/i.dawn.com\/large\/2024\/03\/12141717ede96d9.png?r=114827","fifu_image_alt":"","footnotes":""},"categories":[10],"tags":[],"class_list":["post-70725","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-pakistan"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/posts\/70725","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/comments?post=70725"}],"version-history":[{"count":0,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/posts\/70725\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/media\/70726"}],"wp:attachment":[{"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/media?parent=70725"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/categories?post=70725"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/pakistaninewspaperlist.com\/news\/wp-json\/wp\/v2\/tags?post=70725"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Negotiating with the IMF<\/h2>\n
Debt restructuring<\/h2>\n
Managing the demands of the political leadership<\/h2>\n
Formalising the informal sector to increase the tax net<\/h2>\n
Reforms in the energy sector<\/h2>\n
Privatisation<\/h2>\n
Improving investor sentiment<\/h2>\n
Moving away from a consumption-based economy<\/h2>\n
Who is the new finance minister?<\/h2>\n