Asad Umar: Man in the eye of the storm

Editors of Global Village Space sat down for an exclusive discussion with Asad Umar, Pakistan’s new Finance Minister. We realize that he faces unprecedented challenges, perhaps never faced by any finance minister before. Pakistan not only confronts a serious fiscal and current account deficit but Imran Khan’s government is also a political change not liked by Washington and its linked international institutions. We, therefore, call him, “Man in the Eye of the Storm”

GVS: Recently a prominent economist described you as ‘A Sad Umar’, how do you feel?

Asad Umar: Well, there are two ways of looking at it. One, in a short-term scenario, if you look at the economic situation where Pakistan is right now-then, yes, most thinking people would be sad. But if you look at the potential of the economy– then there are great challenges but even greater possibilities, as I said in the tweet I posted after getting nominated for this position.

GVS: Pakistan’s senior economist Dr. Pervez Tahir, has criticized that instead of adopting the vision of a “ghairatmand musalmann” [honorable Muslim], you will be rushing to IMF. Despite it becoming increasingly clear that the IMF and the USA are bent upon restricting CPEC.

Asad Umar: First of all, if you remember the programs I have done, I have always said that the direction in which we are taking the economy is nothing but a deep hole we are digging for ourselves and the consequences of that, might not just be economic but for national security as well. I said this repeatedly and that is implicitly what Dr. Pervez Tahir is referring to and I do not necessarily disagree with him about the risks.

The economic conditionalities don’t worry me – not in the sense that they don’t have negative consequences – however, tough economic decisions have to be taken regardless of going to IMF. The previous government delayed those decisions since acknowledgement of economic problems would have been an admission of failure, and that would have been negative for their election campaign, so they refused to do that.

As for Interim government, it did not have the mandate to take the decision. So as a result of all this, we are ruling out no option including the IMF. If we choose not to go to IMF, it will be only if we are ready to incur more pain. So, the economic pain is not the determiner of going to the IMF, instead, the non-economic considerations are where we would draw the line.

GVS: So the problem is that you have to do what IMF wants you to do, without IMF’s money.

Asad Umar: Not what IMF wants us to do, but what the economy requires us to do. However, the line has to be drawn at non-economic considerations and national security considerations – there is no way that we will cross that line. And if that means there is no IMF, then we will face the nation, tell them the reality of where we stand, and we will ask them to stand up and take the pain.

GVS: Are you saying this because the Prime Minister, as reiterated in his address to the nation, has always taken a very strong position against foreign debt?

Asad Umar: The two are not linked. What he was talking about was our continuous process of going around with begging bowls in our hands for last thirty years. And that is not a position any sovereign nation wants to be in, that’s not a position that you would want to be in.

You would want a position where you have your own resources, where you can generate whatever is needed in the country and in that context, taking loans is not unacceptable. But this situation, where we are begging and borrowing just to survive, that’s what he was talking about. He wasn’t talking about the ghairatmand musalmaan, he was talking about the khuddari [self-respect]. So, the decision to go to the IMF will not be dictated by this.

GVS: While you and the Prime Minister are still thinking about going to the IMF or not, the US Secretary of State, last month, made an unexpected statement, warning the IMF that Ameri- can tax payer’s money cannot be used for bailing out countries (Pakistan) that have Chinese loans.

Asad Umar: As I said earlier in the media, Mr. Pompeo should be more worried about the US-Chinese debt problem, rather than the Pakistani debt problem. I have always admitted that Pakistan has a debt problem, however, it is not a Chinese debt problem. What Mr. Pompeo is saying does not stand to reason, because if you look at the $95 billion that Pakistan currently owes to the world, only a fraction of it comes from China.

So, it’s not just Chinese debt which is being bailed out, but those of many other countries and Mr. Pompeo represents the United States of America, which holds around 16.5% of the shares in IMF. So, his statements neither make sense in the context of IMF programs nor do they reflect the economic reality of Pakistan.

GVS: Even within Pakistan, there are voices in the media and the business community which believe that the CPEC deals are not transparent, the rates on equity are as high as 30%. You have said that you would like to take these deals and contracts to the parliament for transparency purposes. Are we expecting a soft negotiation and review in certain instances?

Asad Umar: There are two different issues here. One, were the rates of return higher than what they needed to be? I, in my individual capacity, had gone formally with a NEPRA review petition saying that we don’t need to give anything. But let’s be very clear, these were not CPEC or China-specific.

This was a policy that the government of Pakistan came out with anybody in the world could have taken advantage of this policy. Even Arab investors took advantage of this policy. Generally, we will ensure the continuity of projects to ensure that those investing in the country know that it doesn’t matter if governments change, their investments are safe.

What he was talking about was our continuous process of going around with begging bowls in our hands for last thirty years.

How would anybody agree to make investments in Pakistan, if the current government does not agree with the previous government and upends everything? However, if there are wrong doings and malpractices, then obviously Pakistan has the right to open up contracts.

For example, China has run one of the most rigorous anti-corruption campaigns in the world, they have given death sentences to ministers involved in corrupt practices. However, my disagreement with the policies of the previous government does not allow me to renege any binding contract made by the Government of Pakistan.

GVS: In 2014, you wrote critically on the PML-N government’s privatization policy, calling it ‘Privatization or Sale of the Century?’ Pointing out that the government was hastily trying to sell 31 state-owned enterprises. At the time you strongly appreciated the Malaysian strategic investment fund, Khazanah Nasional Berhad. Do you still stand by those opinions?

Asad Umar: Absolutely! The original model, by the way, came from Temasek in Singapore. Lee Kuan Yew had set it up and then Mahathir Mohamad followed that with Khazanah in Malaysia. We believe that given the state of development that Pakistan has right now, in certain strategic cases there is a role for state enterprises.

That is one of the central themes of PTI; strong institutions, strong governance, autonomy and accountability. So, you will see a marked difference in the way we deal with these institutions and in some cases, you might even see legislation for the purpose of further strengthening these institutions.

So that absolute mantra of business which removes all government involvement in the economy as an absolute edict does not apply anymore. Nor does the reality of emerging countries show that. The Middle East and East Asia, both of which have done fantastically well economically, have state-owned enterprises in strategic sectors.

However, we believe that the economy should largely be led by the private sector, right now there are state-owned companies which we believe should be privatized. So, we are not anti-privatization, but this blind faith in privatization and that ‘everything must be sold and sold tomorrow’ does not make sense.

We warned them that they were rushing into it because they were not ready for it. What was the consequence? Five years later, they could not even privatize a single institution.

GVS: You expressed doubt that the Nawaz government could not provide strategic leadership to major enterprises like Pakistan Steel Mills, PSO, OGDCL, SNGPL, Sui Southern Gas, and so on. Is this still a concern?

Asad Umar: Indeed. In fact, it has become an even bigger concern over the years. Right now, most of the institutions that you just named are in deep trouble. SNGPL is probably facing the worst crisis in its entire history, the Steel Mill has shut down completely, PIA’s losses are higher than they were three years back, Railway losses are higher than they were three years back.

So, the state-owned enterprises are hemorrhaging money and that’s why the wealth fund model that we were talking about Temasek Khazanah analogy is important; give these enterprises to professionals who know how to run them. You can’t go on the way you are going right now.

GVS: Many of the enterprises complain that there is far too much interference from the ministries and the courts. People le petitions and that results in the micromanagement of these enterprises by the public from outside.

Asad Umar: As far as the court is concerned, there is definitely that issue which has arisen. My personal take is, whenever there is a vacuum, it gets filled. So, when the state is not performing and when the executive branch is not performing, then the judiciary comes into play.

Had there been a leadership provided by the executive, there wouldn’t have been the problems that have arisen as a result of indifference. As far as the political interference is concerned, that’s absolutely true and that’s why we need to take them out of the line ministries.

I am absolutely convinced that until we take enterprises out of the line ministries until we stop the political and bureaucratic interference and let professionals manage these enterprises, they cannot turn around.

GVS: You have expressed fear that the regulatory authorities like OGRA, NEPRA, SECP and the State Bank of Pakistan have been weakened by the past government. Are you going to do something to strengthen them?

Asad Umar: The Nawaz Sharif style of governance did not believe in strong independent institutions; everything was controlled from the center, edicts had to be followed and that showed up in many of the appointments in these institutions also. They needed people who could obey instructions, instead of people who could independently carry out checks and balances on the government itself as per their principal job.

One of the central themes of PTI is strong institutions, strong governance, autonomy and accountability. So, you will see a marked difference in the way we deal with these institutions and in some cases, you might even see legislation for the purpose of further strengthening these institutions.

You have talked about two airlines, Emirates and Singapore Airline, which are state-owned and doing very well. Is this how you see the way forward for PIA as well?

Asad Umar: Yes, I gave their examples. Similarly, the people of Pakistan must understand that oil has been produced in the Middle East for decades now. Until the late 60s, they were dirt poor nations but then they nationalized the oil and gas producing companies. And suddenly, they became the richest countries on Earth. So, there are strategic interventions where the state has a role to play.

That is the reason why 85% of oil and gas assets in the world today, are owned by state-owned companies. Aramco, the most pro table oil and gas company in the world, is a state-owned institution – more pro table than British Petroleum and Exxon Mobil. Dubai’s turnaround is built on two sets of companies: Emirates Airline, and construction companies, both of which are state-owned enterprises.

Singapore airlines became the foster child of the country and took its name. Petronas, the most pro table company of Malaysia is a state-owned company. I can go on and on, but it is important to remember that the economy must be led by the private sector. However, strategic intervention should be directed. And what is the principle there? Professional management, autonomy, accountability, no ‘political bhartian’ [recruitment] and no bureaucratic interference.

GVS: Many people say that Ishaq Dar was an accountant and saw everything from the lens of accountancy and balance sheets, and Asad Umar is not an economist but a corporate leader, he will also look at everything from a corporate point of view.

Asad Umar: That is absolutely correct. I am not an economist as I have tried to explain to many TV anchors. However, just for the record, the US is the biggest economy in the world and if you look at the US treasury secretaries, who are the equivalent of nance ministers here, for the last 40 years the vast majority of them have come from a corporate background.

They are not professional economists. But I believe very strongly that there is a significant role for professional and career-trained economists in formulating policies for turning around Pakistan’s economy. We have set up an economic advisory council, which was part of our manifesto. Here, we plan to bring in some of the best Pakistani economists, from within Pakistan and from the top academic institutions around the world.

This blind faith in privatization and that ‘everything must be sold and sold tomorrow’ does not make sense. We warned them that they were rushing into it because they were not ready for it.

And the words I have used with each one of them are ‘active engagement’. So, their professional expertise will be drawn, and we will work with them. Another purpose for which I want to use the economic advisory council for is to enhance the capacity of the government to make policies; that has weakened over time.

While, the finance ministry is relatively better overall, the policy development is weak. We want to engage with these networks because each of these people represents either the best academic institutions or some of the leading think tanks of the world.

So, we will create this network of institutions to back up the finance ministry and use cutting-edge global knowledge to make informed decisions. Because in the end, the decision making is political, and it has to be done in a particular political context. And that is why the word political economy is constantly used; unless you understand the “political economy”, just knowledge of economics is not enough.

GVS: While everyone talks of how few Pakistanis pay taxes – referring only to the one million tax filers and not overall taxes that are actually paid in Pakistan due to indirect taxes. Isn’t the crucial question not only the collection of taxes but the creation of the wealth in society which is not happening in Pakistan. Is this also on your agenda?

Asad Umar: Absolutely. The Prime Minister uses certain words again and again which he heard from two leaders, Mahathir Mohamad and Erdogan, whom he has personally met with and looks up to. They emphasized to him that unless you have wealth creation, you will not have investment; if you don’t have investment, you will not have job creation; if you don’t have job creation, you will not be able to lift people out of poverty on a sustainable basis – this is something that he is absolutely fixated on.

His driving force is that we have to lift Pakistanis (almost two-thirds of Pakistanis fall below the $2 a day line), and with that goal in mind we have to remember that the private enterprises need to lead our economic development. So, we have to allow people to generate wealth, we have to make sure that a fair tax is paid out of that wealth. But, if you oppose wealth creation, you will not be able to lift people out of poverty on a sustainable basis.

GVS: It is seldom discussed that the Pakistani labor and workforce lacks the skills vis a vis the world and the region. Are you and other senior ministers thinking in the terms of increasing the skillset of Pakistani population?

Asad Umar: Yes, for sure. Overall, when we look at the global economy right now, if I have to break it down to a single factor, it is knowledge and skills which determine what level the economic development of a nation will be.

If you have only passed the matriculation exam, there is x amount of money that you will be making in wages; if you have an MBA degree from Stanford, there is a different level of in influence that you are going to enjoy and the same, broadly, is true for the economy as a whole.

There are strategic interventions where the state has a role to play. That is the reason why 85% of oil and gas assets in the world today, are owned by state-owned companies.

So, the more knowledge and skills you can impart to the nation, the greater will be its ability to compete in the global economy, the more wealth will be generated and the economy will be able to progress.

Therefore, education and skills development is central. I remember in the 2013 elections, I was presenting the economic policy of PTI when one of the media guys asked me if that was the economic policy or the education policy! That’s how central, we believe, is the nexus of education and knowledge to the economic turnaround.

GVS: When should we expect to see the results of your vision?

Asad Umar: I think, it started from the very first cabinet decision that the Prime Minister took. We are in a crisis right now, so the first order of business is to come out of this crisis. Regardless of who created the crisis, we have accepted our situation in the form of an inheritance.

The first thing that the PM did was that he cut o all the tax payer’s expenditure on him and in the second meeting, moved on to the cabinet. So, it is slowly percolating downwards. While we are dealing with the crisis, we also have to talk about opportunities. The structural reforms will be made in collaboration with the economic advisory council.

So, you should expect, in the next two-three months, a very well defined and well-articulated roadmap of structural reforms of how we will take Pakistan from a condition of crisis and in need of bailouts, to a country which is prosperous, standing on its own feet and is a proud member of the global community.

That game plan, in its reasonable amount of detail, should become available to you. And as I said, who will define it? Not Asad Umar, but the best brains Pakistan has around the world.

Asad Umer is the Finance Minister of Pakistan. He has been elected twice from Islamabad; he joined Imran Khan’s PTI a few years before the 2013 elections after leaving Engro Corporation, which he headed as its CEO.

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