The growth problem

The international verdict on Pakistan continues to get more gloomy, despite the fighting words of the current government. In its regional economic outlook for the region issued last week, the IMF predicted that Pakistan’s growth rate will fall to 4.7 percent next year. This confirms the failure of our economic managers to convince Pakistan’s international lenders of the fiscal soundness of the current regime and its claims of macroeconomic stability in the country. The IMF growth rate is 1.5 percentage points short of the Pakistan government’s target of 6.2 percent growth for 2018-19. This is perhaps the sharpest difference between global predictions and domestic targets that has been witnessed in recent years. Broadly, international predictions tend to concur with the actual growth experienced in the Pakistani economy. This is why one might want to take the IMF prediction more seriously than the federal government would want us to. The fact that little information has been released about the purpose of an outgoing government engaging in detailed talks with the IMF and World Bank weeks before it relinquishes office itself leaves unresolved questions. With the future of the PML-N government by no means certain, it has little choice but to continue to spin a positive narrative if it wants to return to power.

Once that happens, maybe they can turn back to the public and admit that the fiscal situation is worse that they had admitted. The most haunting part going forward is not that no one is admitting the problem, but that no one seems to have a sound plan going forward. The current account deficit has become a serious problem for the country’s economy, something that only the financial managers of the government seem to be unaware of. One must question the IMF narrative itself. A year ago, the IMF director Christine Lagarde trumped up Pakistan as a success story of structural adjustment programmes. This was no doubt a cruel joke. In January, the IMF itself predicted that Pakistan’s growth rate would pick up in 2018-19. This justified the government’s decision to predict above six percent growth next year. In order for the IMF to justify the 1.5 percent readjustment of its own predictions, it needs to point to a strong variable that has changed – or admit to having made a serious error of judgment in the first place. We can be assured that no such admission will be coming forth from its high offices. Instead, if we rely on a closer reading of the report, it seems to suggest that the problem for Pakistan is that it has not done more of what the IMF has asked. The confusion over the realistic growth rate for next year will continue to remain for now – at least until a caretaker government is appointed and an impartial analysis comes forward.