Challenges before new finance minister

Huzaima Bukhari, Dr. Ikramul Haq and Abdul Rauf Shakoori

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President Asif Ali Zardari has taken oath from the newly-inducted Federal Cabinet headed by second time Prime Minister of Pakistan, Shehbaz Sharif . Among the 19-member cabinet, 13 are members of the National Assembly, and three hail from the Senate. Additionally, three technocrats, namely, Muhammad Aurangzeb , Mohsin Raza Naqvi , and Ahad Cheema , have been made part of federal cabinet. This diverse composition reflects a blend of political representation and technical expertise aimed at addressing various challenges and fostering national development agenda under the leadership of Premier Shehbaz Sharif.

In the previous tenures of Pakistan Muslim League (Nawaz)—PMLN —Muhammad Ishaq Dar has always been the finance minister. However, his last term as fourth-time Finance Minister under the alliance government of Pakistan Democratic Movement (PDM ), elicited widespread criticism of his unsatisfactory performance that despite his extensive experience as finance minister it was marred by policy shortcomings, calling into question the party’s choice for this key position.

Ishaq Dar’s failure to effectively address pressing economic challenges exacerbated the already precarious economic situation teetering on the brink of default and unsuccessful negotiations to restore relations with global lenders added to the turmoil. Ultimately, it fell upon Shehbaz Sharif to personally intervene and seek a bail out from the International Monetary Fund (IMF ).

Notwithstanding, Ishaq Dar’s boisterous claims of economic revival and stabilizing Pakistani rupee’s freefall, the economic situation, fraught with difficulties, presented highly pessimistic outlook than ever before, during his tenure under PDM. His mishandling the already stagnant economy, led to a setback in the PDM’s efforts to steer the country towards stability and growth prompting a reassessment of strategies and leadership qualities.

Hopes were high for a fresh face to assume control of economic affairs at Q Block, signaling Dar’s final exit. Muhammad Aurangzeb’s oath taking of the crucial portfolio of federal Finance Minister, on March 11, 2024 marked a significant departure. He served as CEO within JP Morgan’s Global Corporate Bank in Singapore and lately as President of Habib Bank Limited. His appointment ushers in expectations of a new direction in economic stewardship, with aspirations pinned on his extensive experience and strategic acumen to meet the country’s economic challenges. This change of guards underscores a pivotal moment in Pakistan’s economic landscape, as Muhammad Aurangzeb assumes responsibility for steering the nation towards economic stability and fiscal consolidation, ultimately leading to much needed higher and sustainable growth.

The prevailing economic conditions, undoubtedly, underline the collective failure of successive governments and their respective finance ministers. Despite the presence of a diverse array of professionals—bankers, economists, chartered accountants, and bureaucrats—Pakistan continues to grapple with entrenched structural challenges that remain unattended. This persistent setback in addressing systemic issues has perpetuated economic instability, highlighting the urgent need for comprehensive reforms and strategic interventions to galvanize the country towards sustainable growth and inclusive development.

The newly-appointed Finance Minister brings with him a background steeped in banking, devoid of any prior experience in public service. While selection of technocrats may seem logical, it raises concerns regarding their ability to grasp the intricacies of governance and the needs of the populace. Unlike the private sector, where focus often lies on economic management and profitability, public service demands a delicate balance between economic stewardship and public welfare. Therefore, the challenge lies in ensuring that decisions made by technocrats align with ground realities prioritizing well-being of citizens over purely economic considerations.

In recent years, our Finance Ministry has seemingly transformed into a mere “branch office” of international lenders, with their directives overshadowing our own economic policies. The ministry’s function is restricted to the efficient implementation of externally dictated micro and macro-economic strategies raising concerns about sovereignty in our economic decision-making and our growing dependence on foreign influences. Such a scenario highlights the need for a recalibration of our economic approach to ensure greater autonomy and resilience in the face of global economic pressures.

There are several pressing challenges facing the incoming Finance Minister that demand immediate attention foremost being the daunting task of successfully going through the second and final review of the ongoing US$ 3 billion Stand-By Arrangement (SBA ) with the IMF together with negotiating twenty-fourth extended facility (EFF) programme with a substantially increased outlay, commensurating with our financial requirements.

With the impending federal budget for fiscal year 2024-25, Pakistan faces a dire situation marked by an unprecedented surge in debt service obligations, leading to historically high fiscal deficits for the last many years has ensnared our economy, intensifying the burden on both businesses and the general populace. Against this backdrop, there is a growing disparity between the government’s escalating tax demands and the struggling capacity of businesses and individuals to bear additional financial burdens. Finding a sustainable balance amidst these challenges will be pivotal for the new Finance Minister.

Apprehensions are that the stipulations and prerequisites accompanying the forthcoming IMF programme will be particularly stringent, necessitating the government to intensify revenue generation efforts. Expectations are pinned on the finance minister to articulate a comprehensive strategy and blueprint for economic revitalization, one that transcends the conventional approach of burdening the common populace.

Addressing systemic inadequacies and inefficiencies is imperative, with emphasis on enhancing tax compliance across sectors by rectifying existing disparities, ensuring fair taxation for all, including those currently either untaxed or taxed below their potential. Additionally, providing relief measures to tax-compliant segments is indispensable for fostering an equitable economic growth.

The persistent failure of successive governments can be attributed to systemic accountability lapses and entrenched relationships between influential elites and governing bodies. The new finance minister’s background in banking adds intrigue, especially considering the recent allegations against Pakistan’s leading banks for currency manipulation and overcharging importers in Letter of Credit (LC) transactions, his bank being one of those presently facing investigations. Pak rupee has experienced an historic depreciation, prompting State Bank of Pakistan to issue show-cause notices to several banks following media reports of speculative transactions in currency but despite these actions, outcomes of investigations remain allusive, leaving regulatory accountability in question.

Meanwhile, on the fiscal front, the government implemented a windfall tax to claim its share of the activity's proceeds. However, substantive progress on the regulatory front is yet to materialize, necessitating robust measures to hold accountable those responsible for destabilizing the exchange market and inflicting significant economic losses. Moving forward, proactive regulatory enforcement and stringent oversight are indispensable for safeguard against future disruptions and for sustainable economic growth.

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Ms. Huzaima Bukhari , MA, LLB, Advocate High Court, Visiting Faculty at Lahore University of Management Sciences (LUMS ), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE ), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram and Huzaima Ikram & Ijaz , leading law firms of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, ML/CFT related laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals.

She has coauthored with Dr. Ikramul Haq many books that include ?Tax Reforms in Pakistan: Historic & Critical Review , Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Pakistan: Enigma of Taxation , Towards Flat, Low-rate, Broad and Predictable Taxes , Law & Practice of Income Tax, Law , Practice of Sales Tax , Law and Practice of Corporate Law , Law & Practice of Federal Excise , Law & Practice of Sales Tax on Services , Federal Tax Laws of Pakistan , Provincial Tax Laws , Practical Handbook of Income Tax, Tax Laws of Pakistan , Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 ( with judicial analysis ) .

She regularly writes columns/articles/papers for Pakistani newspapers and international journals. She has so far contributed over 1950 articles and research papers on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.

?Twitter:? @Huzaimabukhari

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Dr. Ikramul Haq , Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn . He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz . He studied journalism, English literature and law. He is Chief Editor of Taxation .? He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD ) and member of International Fiscal Association (IFA ). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE ).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review , Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition , ?Pakistan: Enigma of Taxation , Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax , Law and Practice of Corporate Law , Law & Practice of Federal Excise , Law & Practice of Sales Tax on Services , Federal Tax Laws of Pakistan , Provincial Tax Laws , Practical Handbook of Income Tax, Tax Laws of Pakistan , Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 ( with judicial analysis ) .

He is author of Commentary on Avoidance of Double Taxation Agreements , Pakistan: From Hash to Heroin , its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax . Two books of poetry are Phull Kikkaran De (Punjabi 2023) and Nai Ufaq (Urdu 1979 with Siraj Munir and Shahid Jamal).

He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

?Twitter: DrIkramulHaq

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Abdul Rauf Shakoori , Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.

His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.

His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif? , FATF and unjustly grey listed Pakistan , Corruption is no excuse for Incompetence , Next step for Pakistan , Pakistan’s compliance with FATF mandates, a work in progress , Pakistan’s strategy to address FATF Mandates was Inadequate , Pakistan’s Evolving FATF Compliance , Transparency Curtails Corruption , Pakistan’s Long Road towards FATF Compliance , Pakistan’s Archaic Approach to Addressing FATF Mandates , FATF: Challenges for June deadline , Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit . The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure , Environmental crimes: An emerging challenge , Countering corrupt practices .

?Twitter: Adbul Rauf Shakoori

?The recent publication, coauthored by these writes, is Pakistan Tackling FATF: Challenges & Solutions, available at:?

https://www.amazon.com/dp/B08RXH8W46 ? and ?

https://aacp.com.pk/product/pakistan-tackling-fatf-challenges-solutions/

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