EDITORIAL: The growth rate for the current fiscal year is likely to plunge to between zero and one percent in the current year against the budgeted target of 4.2 percent and the International Monetary Fund (IMF) target of 3.5 percent. This was stated by noted economist Hafeez A. Pasha on Aaj Television last Sunday.
He cited the negative growth rate in 2022 due to the devastating floods of that year. The damage assessment for the current year’s floods has not yet been undertaken, given that the devastating rains are continuing; however, the 2025 total damage is more than comparable to 2022 in view of the fact that prior to the release of floodwaters by India into Punjab, expected to reach the lower riparian Sindh soon, the damage estimate by Khyber Pakhtunkhwa has been cited at 35 billion rupees and Karachi at 15 billion rupees.
In 2022, the total loss was estimated at around USD 40 billion — a loss that galvanised the then cabinet members led by Prime Minister Shehbaz Sharif and Climate Change Minister Sherry Rehman to proactively seek support internationally. In this context, it is relevant to note that total pledges by the international community were 10 billion dollars, much of these in loans but by 2024 only 2.8 billion dollars was received and information as to how much of the disbursed amount was in loans and how much grant has not been shared.
Pakistan was on an International Monetary Fund (IMF) programme in 2022 though post-October that year the programme was stalled and later suspended as the then Finance Minister Ishaq Dar refused to abide by the agreed conditions; notably, to enforce a market-based exchange rate and extended over 100 billion rupees of unbudgeted subsidies to specific industry through lower electricity rates.
The Prime Minister had to personally pledge to the Fund Managing Director that all conditions would be adhered to which led to the nine-month-long Stand-By Arrangement in July 2023 — a pledge that was kept which, in turn, led to the 36-month-long Extended Fund Facility (EFF) programme that the country is on today.
The incumbent current economic team leaders, like their predecessors, accepted the IMF conditions without offering any in-house out of the box solutions, clearly indicated in the October 2024 loan approval documents and the May 2025 first review documents with severely contractionary monetary and fiscal policies remaining in place that account for a persistent negative large-scale manufacturing sector, with implications on not only growth but also on employment opportunities.
The IMF’s second review is due this month and one can only hope that given the lessons learned in 2022 the cabinet members do not just traipse around in foreign capitals, seeking grant assistance and instead present alternative policies that are economically viable to enable the hapless people of this country cope slightly better with natural disasters.
Empirical studies reveal that a natural disaster hits the poor much more than the rich and in this context a 2023 UN Habitat report for Pakistan, which promotes environmentally sustainable cities/towns, noted that dis-organised urban planning, with rapid rural to urban migration leading to sprawling slums due to acute housing shortage — a situation worsened by long-standing governance failures and poor policy decisions. These are serious long-standing problems and not likely to be sorted out in a couple of years; however, the out of the box solution must include seeking voluntary sacrifice (other than operational expenses) by the elite sectors (the largest recipients of budgeted expenditure), initiate pension reforms specific to the public sector that must entail employee contribution and reduce borrowing domestically and from abroad budgeted to meet these outlays (rather than envisaging a reduction by projecting a lower discount rate in future). This, in turn, will reduce the pressure on raising existing taxes, largely indirect whose incidence is more on poor than the rich, with a positive impact on domestic output.
It is important to note that Pakistan has been grappling with the IMF-supported severely contractionary monetary and fiscal policies since 2019 (excluding the Covid-19 years) which accounts for 22 percent unemployment and 44.7 percent poverty levels. This is unsustainable and one can only hope that better sense prevails.
Copyright Business Recorder, 2025
Comments
Comments are closed for this article.