Latest Economic Survey of Pakistan (ESOP) is replete with self congratulations. “The economy is presently on a high growth trajectory. With the right economic and fiscal policies by the present government during the last five years, the economy has been placed on strong foundations. All the fundamentals are in the positive territory.” That’s one ESOP extract among many, conveying a “mission accomplished” message.
What’s more, the planning czar said at the survey launch yesterday that GDP growth would have crossed 6 percent had it not been for political disturbances. There is some truth there. Barely a year into its term, the PML-N was flat-footed by 2014 dharna. After some peace and quiet in 2015, the Panama Papers rocked political stability in 2016. Later that year, another political standoff resulted in the apex court picking up the case, eventually ousting Nawaz in 2017. The season of disqualification continues in 2018.
Arguably, the economy could have done better despite those political shocks. The Punjab speed and Chinese spending helped CPEC energy projects take off, helping ease a main growth bottleneck. Throughout Nawaz’s time, there had been an economic tailwind of low inflation and benign interest-rate environment, thanks to a long period of low crude oil prices. In addition, peace had returned to the homeland, with security gains being consolidated across the country.
But the window of reforms was missed between 2014 and 2016, especially in areas of energy governance and tax policy & administration. While domestic demand soared on the heels of rising retail spending, the FDI numbers didn’t respond much. Meanwhile, CPEC projects became the ministers’ talking points, with little focus on the economic reforms promised in the PML-N manifesto.
Better economic conditions at home could have helped exports. But worryingly, exports took a beating in recent years. There is a view among independent economists – and this view is now also shared by high-ups at Commerce Ministry – that the government’s reliance on import tariffs as a revenue-maximization tool instead of a trade-policy tool has hurt Pakistan’s export competitiveness in recent years. Export woes worsened as government kept burning dollars to defend the rupee, instead of making timely adjustments.
The current finance team has taken some steps to correct the course regarding currency and taxation matters. But the fear is that this course correction will not matter much for the ultimate economic scorecard in Pakistan’s context: balance of payments. Time will tell whether Pakistan needs an IMF rescue later this year. But the fact that folks are even talking about another IMF bailout doesn’t help the PML-N narrative of an “economic turnaround”.
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