Growing pains

Pakistan’s economic future is not bright – and the sad thing is that the PTI has made many of us believe that this is the best course forward. Inheriting an economy growing at over 5.5 percent of the GDP, the current government’s eight months in power have brought it down to 3.4 percent for the current fiscal year, instead of inching higher as the previous government had predicted. While both the PML-N and PTI seem to share much of the same outlook on the economy, the difference seems to lie in the PTI believing in shock therapy, rather than maintaining the pretension that all is well with the economy. Could the PTI government have continued the low inflation, high growth trend that the PML-N government left it with? The answer is likely to be yes. Could it have continued it without damaging the economy in the long-term? This is where interpretations differ. Finance Minister Asad Umar only last week confirmed that Pakistan had two tough years ahead. The World Bank on Sunday confirmed as such, but the predictions are worse than expected. Rather that showing signs of improvement, GDP growth will fall to 2.7 percent next year. The reason is tight fiscal and monetary policies, effectively the PTI-IMF policy framework that we are witnessing in motion.

The question is whether shock therapy is the right way to approach the economy. One of the real fears is that the PTI’s governance strategy could send the economy into free fall. Much of it would be down to confused signalling on the part of the government. Increasing tariffs and devaluing the currency to plug structural problems in the economy does not create more macroeconomic stability. Key economic sectors are expected to slow down or contract. The World Bank thinks that both manufacturing and agriculture will contract next year, while services sector growth will also shrink from 6.4 percent to 4.4 percent. Economic growth is expected to recover to four percent in 2020-21, but it is difficult to trust international predictions when they have been revised so significantly over the last three years about the future of the Pakistani economy. The World Bank believes that the issue of trade deficit, crucial to addressing Pakistan’s recurring need to go to the IMF, is likely to start improving in the next fiscal year. It does, though, remain tricky to understand how it will be possible without significant growth in exports. Compared with our regional neighbours, who will grow at over seven percent in the next few years, Pakistan will be doing marginally better than Afghanistan. One might ask where the CPEC-led mega-growth that Pakistan’s political establishment promised is. The fact is that the future is going to involve a lot more pain than we were promised.