The government is basking in the glory of achieving highest economic growth in a decade. The finance minister last week wrote a letter to the prime minister congratulating him and the nation over the expected achievement of 5.2 percent GDP growth in the current fiscal year, which is highest in the last ten days. He hoped that the government would achieve six percent growth target for the next financial year.
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The government is basking in the glory of achieving highest economic growth in a decade. The finance minister last week wrote a letter to the prime minister congratulating him and the nation over the expected achievement of 5.2 percent GDP growth in the current fiscal year, which is highest in the last ten days. He hoped that the government would achieve six percent growth target for the next financial year.
The macroeconomic indicators undoubtedly have shown very encouraging signs for the past four years and the present government must be credited for making this achievement possible. The country has moved a long way from the situation when it was on the brink of a collapse.
A semblance of macroeconomic stability has been restored as almost all economic indicators are showing positive trends but any claim that the country is completely out of woods is totally unjustified. Independent analysts have long been cautioning the economic managers of the grave challenges faced by the economy of the country, and Pakistan’s foreign lenders, particularly the International Monetary Fund (IMF), too have recently started highlighting those challenges in a very subtle manner.
The government has managed to avert a balance of payment crisis, contain inflation and build-up foreign exchange reserves over the past four years. However, declining exports, low foreign investment, falling foreign remittances and almost dormant privatisation process are major challenges for the economy.
The recent figures of the country’s current account deficit show much more needs to be done to achieve durable economic stability.
In the first 10 months of the fiscal year, July-April, the external account deficit has risen to 7.2 billion dollars, more than triple the figure for the corresponding period in last year.
The analysts have long been warning the government about burgeoning current account deficit, but the figures are being downplayed and those responsible are saying that the tremendous rise in the country’s import bill is because of import of machinery for the China-Pakistan Economic Corridor (CPEC).
They argued that once those machineries are installed and started production, those fears would simply evaporate.
Fitch Ratings, one of the three big credit rating agencies, has recently said Pakistan’s external finance pressures are still manageable despite enormously high external account deficit.
However, Moody’s Investor Services, another credible rating agency, has forecasted that Pakistan’s external debt would grow to 79 billion dollars by June – higher than initial estimates – and the country’s weak fiscal base is weighing on its ability to afford this never-ending debt burden.
The independent analysts too are of the view that the current account deficit is increasing at a tremendous speed and if the government did not take appropriate measures to contain it, it would put pressure on country’s foreign exchange reserves, which would ultimately force the government to seek another remedy in the shape of a new bailout package from the IMF.
Successive governments have committed these mistakes for their own convenience and the gravity of the problem could be discovered only after they left the office. The incoming governments always blamed their predecessors for these blunders but, unfortunately, repeated the same mistakes for themselves.
Pakistan was on the brink of a virtual default when general Pervez Musharraf staged a coup against the second government of prime minister Nawaz Sharif in 1999.
Musharraf, who elicited generous support from the United States as well as west-backed financial lenders after joining the war on terror, had been able to achieve a semblance of macroeconomic stability. But all those gains were lost because of the political turmoil in 2007 that eventually led to Musharraf’s ouster.
The economic situation became bad to worse under the Pakistan Peoples’ Party government that replaced Musharraf-led regime. And country again was on the verge of balance of payment crisis when the present government took power in 2013.
The present government averted the crisis with the help of the IMF. Low international oil prices as well as commodity prices also resulted in the drastic fall in inflation that tremendously eased pressure on the government but it seems the present government is poised to repeat the mistakes made by its predecessors.
While macroeconomic stability is an important step for economic recovery of a country, it should not be construed as the only step needed to revive a fragile economy like that of Pakistan.
Pakistan’s economic woes are largely structural. What we need vitally are fundamental economic reforms. Otherwise, the dream of economic revival would remain unrealised.
The observers say the present government, which has enjoyed absolute majority in the parliament and faced no danger from within the parliament to its rule – did little to address long standing economic challenges of the country like low levels of investment and domestic savings, abysmally low-tax-to GDP ratio, falling exports, declining foreign investment, rising debt, lack of energy reforms, etc.
They say since the government failed to do anything tangible on these fronts in the first four years of its tenure, how could one expect from it to take tough and sometimes unpopular measures to address these problems in the last year of its term when it would try to take popular steps to win support from its voters.
There is a need for a broad consensus among Pakistan’s political leadership on measures needed to address the deep-rooted economic woes of the country. Habitually, Pakistani political parties, while in opposition have opposed economic reforms, which they badly need to implement when they come into power.
Moreover, the political parties, dominated by powerful lobbies, have also been reluctant to take bold economic reforms for fear of backlash from the powerful political lobbies.
Therefore, introduction of badly-needed and politically-difficult structural reforms would remain a mirage until Pakistani leadership show political muscle and will to implement those reforms.
Much of the macroeconomic stability we are witnessing nowadays is propelled by foreign aid and assistance. We achieved such stability in the past too, but swiftly lost those gains once that support vanished. Unless Pakistan introduces home growth reforms under which powerful Pakistani elite takes the bitter pill of shouldering the pain of those reforms, Pakistan’s economic problems were unlikely to mitigate.
The writer is a senior journalist based in Islamabad
