Stable or stagnant?

Increased remittances and exports have helped Pakistan record its highest current account surplus in 15 years in the first half of the ongoing fiscal year (FY2024-25), capping off six months of mostly good news on the economic front. The current account is a reflection of a country’s financial transactions with the rest of the world, with the final figure based on net trade in goods and services (exports minus imports), net earnings on cross-border investments, and net transfer payments which includes items like foreign aid and loans. Simply put, the country has seen more money coming in than going out, posting a current account surplus of $1.2 billion in the July-December period of the current fiscal, as per central bank data released on Friday (January 17). This is a marked improvement compared with the same period last year when the current account saw a deficit of around $1.4 billion. The current account surplus for December 2024 alone jumped to $582 million, reflecting a 109 per cent increase year-on-year. That being said, it narrowed by 15 per cent compared with the previous month, which also saw textile exports growth slow down to 5.55 per cent after experiencing double-digit growth for four consecutive months since August 2024.

In a fiscal half that has seen a turnaround in the current account, a more stable and stronger rupee, declining inflation, and much lower policy rates, disappointing growth remains the main blot on the economic picture. The news of the current account surplus over the weekend was accompanied by the IMF lowering Pakistan’s GDP growth forecast to 3 per cent from 3.2 per cent.. A 3.0 per cent growth rate for a country whose population is expanding as rapidly as Pakistan’s is not a positive indicator. And while the current account surplus, policy rate cuts, and stabilising prices certainly are, they are all highly contingent on all the external support the country has received, mainly in the form of the IMF bailout last summer. In fact, the current account surplus coincided with the UAE’s decision to roll over $2 billion in deposits with the SBP for another year. As such, it is hard to give too much credit to domestic economic policy for this decision.

The large-scale manufacturing sector actually contracted by 1.25 per cent in the first five months of the ongoing fiscal and exports appear to be slowing down. Aside from foreign loans and other external assistance, the only other thing Pakistan has been able to count on to keep rising rapidly is remittances, which soared to an all-time high of $8.8 billion in the first quarter of FY2025. An economy so heavily dependent on the goodwill of foreign creditors and the salaries of expats is unlikely to attain the sustainable growth that it needs. This objective is only further complicated by the fact that the strings attached to continued IMF assistance require more taxes, fewer subsidies and concessions, and tighter budgets. This only raises the imperative for the government to make the tough economic reforms necessary to attract more foreign investment and shed the burden of unproductive state-owned enterprises. While stabilisation ought to be celebrated, a stable economy without much growth, investment or competitive companies will not remain stable for long.