Pakistan’s new prime minister has appointed Miftah Ismail, a 57-year-old economist, and businessman, as finance minister, with the task of quickly arresting a downward economic spiral and resuming IMF talks.
Ismail, who briefly held the position four years ago, brings a track record of decisive policy action and a close relationship with Prime Minister Shehbaz Sharif, but he faces a daunting array of challenges, including declining foreign currency reserves, soaring inflation, and potentially historic deficits.
He will have only a maximum of 15 months to act before general elections, which could be called sooner.
The former IMF economist, who holds a PhD in Public Finance and Political Economy from the Wharton School of Business, was appointed for a few months in 2018 when he joined a government nearing the end of its term.
In that short time, Ismail eliminated costly government exchange rate controls and increased the flexibility of the Pakistani rupee, while also lowering income taxes as part of a growth-promoting policy.
As he returns to the post, the central bank’s foreign reserves have fallen to $10.8 billion from $16.2 billion in just one month, according to the most recent figures released on Thursday, providing only about 50 days of import cover, according to Ismail.
According to ministry sources, he is considering requesting more deposits from friendly countries such as China, Saudi Arabia, and the United Arab Emirates in order to rebuild reserves. All of those countries have funds parked in Pakistan’s central bank that must be rolled over.
He will also prioritize securing a successful International Monetary Fund review in order to release a $900 million tranche and unlock funds from other international lenders that require a clean bill of health from the Fund.
Ismail has stated that he intends to restart talks soon to resume the 39-month, $6 billion bailout program that Pakistan entered in 2019, but negotiations will be difficult because many targets have fallen through.
He has also stated that his top priority will be to contain a burgeoning fiscal deficit that could reach 6.4 trillion Pakistani rupees ($35 billion), or about 10% of GDP, by the end of June, versus a target of around 4 trillion rupees.
Energy subsidies announced by ousted Prime Minister Imran Khan, which are draining Pakistan’s public coffers, are also a source of immediate concern.
A rollback would be politically difficult, with Khan increasing pressure for new elections and consumer inflation already at 12.7 percent in March.
The subsidies were extended for at least two weeks on Friday, citing political pressure from Sharif, but Ismail has stated that the support was not sustainable and would have to be reconsidered.
“We cannot allow our fiscal and external financial positions to deteriorate further and risk losing our development partners. Tough decisions must be made “On Saturday, he said in a tweet
Ismail, who comes from a wealthy family that owns a confectionery company called Ismail Industrial Ltd (ISML.PSX), is expected to have a close working relationship with the new premier. When Ismail began his public service career as the head of a provincial investment board a decade ago, Sharif was a provincial chief minister.