By Fuzail Zubaid Ahmad

Shaukat Aziz survived a suicide attack and the chances are strong that he will be the next prime minister of the country. Manmohan Singh in India and Shaukat Aziz in Pakistan, what better peace and development prospects one could wish for?

This piece will describe Shaukat Aziz’s achievements so far and the challenges he faces right going forward as the next prime minister of Pakistan.

Education & professional career

He was born in Karachi on March 6, 1949. He received his early education at Saint Patrick’s School, Karachi and Abbottabad Public School. He studied at the country’s prestigious business school - the Institute of Business Administration (IBA), Karachi where he was awarded the Master of Business Administration (MBA) degree in 1969. Some would argue that he was a born-elite and chances were always strong that he would reach the top. However, getting to the top of Pakistan’s government, by no measure, is a mean achievement.

At IBA, Shaukat’s juniors were Irfan Marwat, Sindh Minister of Minining, and Ali Raza, President of NBP, to name only two.

In the work life too Shaukat Aziz started off from where most elite would, the Citibank. But most would also agree that he worked his way up through his own brilliance.

He joined the Citibank in 1969, Karachi and moved overseas in 1975, serving in Philippines, Jordan, Greece, USA, UK, Malaysia, Singapore and Saudi Arabia. His assignments included Head of Corporate and Investment Banking for the Asia-Pacific Region; Head of Corporate and Investment Banking for Central & Eastern Europe, Middle East and Africa; Corporate Planning Officer, Citicorp; Managing Director, Saudi American Bank; and Global Head, Private Banking for Citigroup.

He has been a member of the Board of several Citibank owned entities including Saudi American Bank, Citi Islamic Bank as well as several non-profit organisations. He was appointed Executive Vice President of Citibank in 1992 and till he joined the Government of Pakistan as Finance Minister in 1999, had 30 years of experience in global finance and international banking.

Appointment as finance minister

Shaukat Aziz put his entire reputation, as a prudent global banker, at stake by joining a ‘customer’ long treated by international banks as bad credit. This was Government of Pakistan as Finance Minister, in November 1999 with the task to revive the economy and get it going in the right direction.

As the finance minister, Shaukat’s experience as a global banker came in handy, as a good banker is always very conservative and prudent, a trait that Pakistan needed urgently to address the very serious issues with overall fiscal management.

He was given the responsibility for managing country’s Finance, Economic Affairs, Statistics, Planning and Development and Revenue Divisions. He is also Chairman of Economic Coordination Committee of the Cabinet; Chairman, Executive Committee of National Economic Council; and Chairman, Cabinet Committee on Privatisation. He became a Senator in 2002.

Only a few disagreed when ‘Euromoney’ and ‘Bankers Magazine’ declared him as the Finance Minister of the year 2001.

Credits & discredits

Many people credit him as the main architect of Pakistan’s economic revival, a claim that others dispute, saying that it was the global situation that enabled him to. The credit is due, but somewhere in between these two extremes.

As the finance minister of Pakistan, Shaukat Aziz is considered by many as someone who benefited from good global economic environment to salvage a near-bankrupt economy and putting it on a path of sustained high growth with financial stability and considerably improved external balance of payments position in just four years.

One former finance and then foreign minister of Pakistan said some 15 months ago to the author that Shaukat Aziz could at best be credited for being the right person at the right time. One who was trusted by the military as well as business community and professionals, hence given just the right level of authority to take the country out of the economic morass it was in. He also added that it was the huge defence related expenditures in the eighties that directly or indirectly resulted in widespread poverty during the 1990s. He said that is wrong to call 1990s as a lost decade, but a decade in which many political governments in place were trying desperately to salvage the situation.

This seems to have some truth. During the 1980s, Pakistan’s defence budget as a percentage of GDP was 6.6 percent, which declined in 1990-95 period to 6.1 percent, from where it was consistently on the decline, and now stands at 3.3 percent of new GDP numbers. From 26 percent in 1980s to 18.8 percent of total budgetary expenditures, defence budget has fallen. This achievement cannot be undermined.

Nuclear tests that Pakistan conducted in May 1998 worsened the situation. No doubt it was a tough political decision undertaken by the then Prime Minister Nawaz Sharif, but the economic fallout of this test put the last nail in the proverbial coffin of Pakistan’s economy.

Many people discredit Shaukat Aziz by saying that poverty level has failed to decline, despite the great economic numbers he is projecting inside and out of the country. The counter-argument to this is that if he was not the finance minister, the high rate of poverty growth could have continued.

Early challenges for Shaukat Aziz

As a result of heavy defence related borrowings in the 1980s and the fallout of the bold nuclear tests in the 1990s, Pakistan faced three major, interconnected challenges when Shaukat Aziz took charge as Finance Minister of Pakistan. These were:

(a) Alarming levels of domestic and international borrowings

(b) Dismally low investment and GDP growth rates, giving rise to widespread poverty and unemployment

(c) Ridiculously low levels of foreign exchange and poor balance of payments.

In this backdrop of grave macroeconomic crisis, Shaukat Aziz took over the charge of Ministry of Finance and assembled a good team of economists and civil servants to confront these challenges. Politically tough decisions had to be made but with the President on his side, he did not hesitate.

Come 9/11-the dollar started to weaken and interest rates in the developed world came down. Shaukat knew right things were happening, but instead of basking in glory, he took some tough fiscal measures, and this enviable combination of luck and prudence strengthened the fiscal backbone of Pakistan.

Tough political decisions

Some of the major tough decisions Shaukat Aziz took almost immediately are:

(a) Reduce the profit rates on National Saving Schemes and ask the foreign creditors to roll over the near term liabilities to far in future, thus reducing the debt burden, this decision annoyed many retired government servants and they protested vehemently.

(b) Link domestic prices of oil with international prices. Again this was a very tough measure as each time the prices increased in the international markets, local fuel prices were also marked up.

(c) Enable the CBR to collect more taxes despite the economic slowdown Pakistan was facing. Rates of duty drawback were slashed considerably much to the anger of exporters but the government did not cave in.

(d) Control current expenditures and rationalise the development expenditure, the latter gave a lot of fireworks to the opposition leaders, but Shaukat Aziz did not relent.

Major achievements of Shaukat Aziz

Due to these decisions on the part of Shaukat Aziz, and the global economic scenario (lower interest rates, weaker US Dollar), following were the major achievements that resulted:

(a) Pakistan’s near term debt repayment liabilities went down, and together with lower interest expenses, the total debt burden reduced sharply.

(b) Revenue collections went up sharply.

(c) Fiscal space was created for increasing public spending, for development, pro-poor and current expenditures. Sovereign credit rating of Pakistan went up.

(d) Public and private sector savings and investments rose substantially, creating more employment opportunities and putting an end to growth in poverty levels. GDP growth rate went back to the 6 percent per annum range.

(e) Private sector borrowings from banking system rose by unprecedented rates.

(f) Despite lower profits on bank deposits, banking system continued to get public deposits, fuelling unprecedented credit and investment growth by banks.

(g) Large public sector entities like WAPDA, KESC, PIA, Railways, PTCL, Steel Mills, etc. started to improve their financial strengths, and some of them having large bank borrowings were able to repay their debts. These PSEs are improving each quarter and in line with government targets mutually decided with multilateral agencies like IMF and World Bank.

(h) Stable US Dollar against Rupee, booming stock market and real estate have enabled banks to attract more Rupee deposits as well as repatriation of workers’ remittances without raising foreign currency deposits.

Going forward

Shaukat Aziz as the future prime minister faces following major challenges to keep the economic growth rate up and poverty levels down:

(a) Inflation has started moving up sharply, threatening the Rupee-Dollar parity and lower interest rates in the country. A part of the inflation is imported but some part pertains to domestic mismanagement relating with vital commodities. Capacity expansions by existing projects may take longer than needed to control inflation.

(b) Foreign investment is rising but it is not enough to take Pakistan in league with East Asian countries. Terror threats and activities are largely to blame.

(c) This is the most talked about subject in the Press. There is a very large and growing pool of low skilled and poorly educated unemployed people that continues to push more and more people into extreme poverty levels. Poor health facilities and family planning measures for the low-income group continue to accentuate poverty levels.

(d) With rising public and private sector investments, there is growing dearth of experienced professionals in the country to manage projects, giving rise to over-employment existing side by side with unemployment. Wasteful expenditures on the part of government are a real issue now because of this feature.

(e) With unprecedented rise in private and consumer debt in the country, there is a likelihood that next recession is going to be far more painful for the common man. The government on the other hand is trying to promote consumer credit and going forward, a caution needs to be exercised.

For Shaukat Aziz, the worst may have been over, but a lot more needs to be done to ensure stable economic growths in years ahead. He still enjoys the support of the establishment so tough decisions are going to be relatively easy for him, but the above-mentioned threats are too great for him to get complacent.