However, it is only Pakistan whose GDP growth will fail to pick up in FY20, further declining to 2.4 percent. Until at least FY21, Pakistan’s GDP growth will be the slowest in the South Asia region.
The fact that Pakistan is undergoing economic stabilization, while other countries are deploying normal playbooks, explains its macroeconomic blues. Compared to major regional economies of India, Bangladesh and Sri Lanka, it is Pakistan that boats the largest food inflation, largest decline in industrial production, lowest growth in exports, highest policy rate, and the worst-performing stock market this year.
The report notes certain areas where Pakistan has let things slip. For instance, Pakistan couldn’t benefit from global US-China trade tensions the way Bangladesh did by further entrenching its garments exports, thereby shielding its manufacturing production and exports during period of weak domestic demand. The spike in food inflation here is something that other economies managed to avoid.
Meanwhile, Pakistan wasn’t alone in curbing its current account deficit in FY19. A sharp reduction in imports is something that is also seen across the region. The import decline, in addition to slight growth in exports and higher remittances, helped the major regional economies manage their current account balances better.
In a way, Pakistan has provoked a downturn in order to cool things down and then fix them. But the boom-bust cycle repeats every five years, on average. For a change, and as the report rightly points out, the current policy push in Pakistan is towards rebalancing the economy away from domestic demand and towards external demand. But the poor track-record of reforms looks askance at the rebalancing drive.
To cater external demand, the country’s manufacturing sector needs to become really competitive and sufficiently integrated with the global value chains. Besides domestic political stability to see reforms through, an export-oriented industrial revival is also dependent on massive investments, resolution of US-China trade war, stability in prices of major agriculture commodity prices, besides a lull in crude oil prices.
The report, which polled some two dozen Pakistani experts, suggests a blurred outlook over the next six months. On the ominous side, there is an agreement that GDP growth will further decrease, headline inflation will increase, and financial-sector stress will grow.
Among the positives, the survey predicts stability in interest rates, a decline in fiscal deficit, a jump in export volumes, and strengthening of PKR.
While external account is in the clear, domestic demand doesn’t look promising this fiscal. In a few months’ time, there will be more visibility on primary output (agricultural produce of the just-concluded Kharif season) and secondary processing (large-scale manufacturing of agro-based and textile products), which in turn impact services sector such as wholesale & retail trade. But that’s for the near term. For the longer term, the clichéd ‘structural reforms’ that are to boost export ‘competitiveness’ are still awaited.