The Economy Puzzle

Spearhead Opinion – 20.09.2016

Is Pakistan’s economy doing well?

economy-puzzleYes, it is. Pakistan has successfully exited the IMF program with high marks from that institution including the determination by that institution that Pakistan’s economy now has resilience and can withstand ‘mild external shocks’. Inflation is way down and likely to stay at 6% or lower. The current account deficit has been reduced from 4% to just 1%. Fiscal gap has been reduced to 4.3% from a whopping 8.2%. Foreign exchange reserves hover between 20 to 22 billion dollars and remittances are more than 19 billion dollars. Growth is at 4.7% and may go higher. Power generation is expected to rise dramatically by 2018 because of all the projects underway. CPEC related activity is expected to spur medium and long term growth. Government is likely to increase public development spending opening up the job market. Pakistan is looking forward to increase domestic and foreign private investment with interest rates at their lowest.

So the economy is doing well then?

Well, not quite. There is the continuing downward trend in exports — not expected to halt anytime soon. In tandem with the decline in exports the imports are going up leading to a trade gap that stands at 27%. The slide in textile exports that bring in 60% of the total export revenue could be attributed to reducing global demand but the fact is that India, VietNam and even Bangla Desh are still in the game. More likely reasons are the power cuts, the taxes, the exchange rate and the cost of production that makes our exports uncompetitive. It not as if the textile sector is collapsing, though smaller units have closed down, because domestic demand fuelled by a robust undocumented economy is booming. There is the specter of remittances hitting a plateau and even falling. Debt repayments are due — almost 5 billion dollars a year for the next five years. We may have to dip into foreign reserves. Agriculture may pick up marginally but global commodity prices coupled with negligible research and water and energy shortages will keep this sector struggling. Generation capacity may shoot up but there is the problem of transmission and distribution and losses due to theft and non recovery of revenues. There is also the problem of tax and other structural reforms without which there can be no sustained medium and long term growth. The problem of failing and loss making public sector enterprises cannot be ignored. Management styles and the decision making process or lack of it remain weaknesses that hamper progress.

So is the economy doing well? Yes it is. No it isn’t. Depends on what you want to see and what you want to ignore. The economy should be the centerpiece of all our endeavors.