Former Finance Minister Ishaq Dar recently stated that if his party were to secure another opportunity in the upcoming General Elections, he believes Pakistan’s economy could recover within a span of 3-4 years. However, for an individual who has held the role of Finance Minister on a record-breaking four occasions, a status unmatched in Pakistan’s 76-year history, the past 11 months present a concerning outlook should Dar’s aspirations come to fruition.
PKR and PSX Dar assumed office as Finance Minister on September 28, 2022. During his tenure, from his inaugural day to his departure on August 11, the Pakistani Rupee (PKR) experienced a significant depreciation of Rs. 56.37, culminating in a 19.5 percent decline. Presently, the interbank PKR rate stands at 305.6 against the US dollar, marking a 24 percent reduction from the 232.12 rate recorded on September 28 of the preceding year.
It is worth noting that Pakistan’s Real Effective Exchange Rate (REER) was at 90.9 in September 2022, whereas it registered at 91.59 in July 2023.
Despite the initial optimism in equity markets following Dar’s appointment as Finance Minister, it failed to prevent the Pakistan Stock Exchange (PSX) from enduring its most challenging period in six years for investors. According to Topline Securities, sectors such as engineering (-45 percent), automobile (-41 percent), pharmaceuticals (-33 percent), refinery (-32 percent), and cement (-31 percent) witnessed the most significant declines on the PSX by the end of December 2022.
Startups Dar’s tenure at the helm proved to be arduous for entrepreneurs and startups, with a pro-IMF mini-budget and increased taxes discouraging foreign direct investment. Data released by Data Darbar at the time showed a decline in investment in Pakistan’s tech ecosystem, plummeting to just $15.15 million in October-December 2022, marking the lowest quarter for startup funding compared to the $5.025 million recorded in January-March (Q1) of 2020. Furthermore, in January-March 2023, startup funding declined by 86.6 percent compared to the previous year.
Electricity and Petroleum Since 2022, the power tariff has surged by Rs. 15.41, with commercial and domestic consumers facing tax hikes of 78 percent and over 50 percent, respectively. Over the past year and a half, there has been an overall increase of up to 80 percent in power tariffs.
Electricity bills for up to 200 units have risen from Rs. 18.95 to Rs. 30.86 since last year, while bills for 300 units increased from Rs. 22.14 to Rs. 35.04, and for 400 units from Rs. 25.53 to Rs. 39.94 per unit.
During Dar’s term, petroleum product rates witnessed substantial increases, with petrol soaring by 35.8 percent, rising from Rs. 224.8 per liter on September 30, 2022, to Rs. 305.36 as of August 31, 2023. Similarly, high-speed diesel experienced a 32.5 percent increase, climbing from Rs. 235.3 last year to Rs. 311.84 per liter by the end of August.
Default Ishaq Dar’s tenure was marked by persistent rumors of an impending default, which severely impacted Pakistan’s domestic markets and foreign maturities denominated in dollars between October 2022 and March 2023. Moody’s Investors Service, on October 6, 2022, downgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1, subsequently further lowering the country into junk territory at Caa3 on February 28, 2023. Fitch Ratings also downgraded Pakistan’s default rating to CCC- on February 14, 2023.
IMF After months of delay and uncertainty, the former Finance Minister succeeded in persuading the International Monetary Fund to sign a staff-level agreement (SLA) with Pakistan for a $3 billion “stand-by arrangement” in June 2023. Although initially welcomed by equity and currency markets, this development led to a surge that persisted until mid-July before reversing trends in the following month. The PSX witnessed a decline of 3,032 points (-6.31 percent) during August 2023, closing at 45,002 points, marking the steepest decline since the COVID-19 crisis in March 2020, as reported by Arif Habib Limited.
Forex Reserves On the day Dar assumed office as Finance Minister, the central bank’s liquid foreign exchange reserves amounted to $8.005 billion. As of August 10, 2023, Dar left behind State Bank of Pakistan (SBP) reserves of $8.043 billion, aligning with his approach of preserving a modest reserve of dollars for the subsequent government.
Considering these circumstances, the question arises: Would you still endorse Ishaq Dar as Pakistan’s next Finance Minister?
