HOW is the economy shaping up in the wake of a recently concluded three-year IMF stabilisation programme that has been dubbed an outstanding success by the government? To answer this question, we need to critically examine a number of areas that the government and the IMF sought to address via the over $6 billion lending arrangement of September 2013. A sub-set of questions will help clarify the underlying situation with regards to the economy. Is the economy now in a position to deliver robust growth? Is private investment picking up? Have the underlying structural issues in public finances been fixed? Are Pakistan’s power-sector challenges behind us? And, of most immediate concern, has the threat of another external payments crisis been averted?

Judging by the immediate aftermath of even partially successful past Fund programmes, this should be a sweet spot for the economy. Under previous IMF-financed and debt-funded episodes of macroeconomic stabilisation, economic activity has, more often than not, rebounded sharply as the uncertainty — and the foreign exchange constraint — have eased and the economy stabilised. Private investment and investor sentiment have usually recovered quite strongly too.

This time around, however, the economy has experienced its weakest and most modest recovery post-IMF programme. Real GDP growth has moved up from 3.7 per cent in 2013 — the start of the IMF programme — to an official 4.7pc at its end in 2016. The government-released growth figure for 2015-16 is highly disputed. Even so, three years after the start of the government’s stabilisation efforts, the change in GDP growth (the ‘growth momentum’) is a mere 1pc. This translates into a negative change if independent estimates of GDP growth of 3-3.5pc are used.

This anaemic boost to growth has occurred despite the government building up international reserves by contracting external borrowing of $35bon over this period, and by a significant uplift to economic growth provided by the substantial improvement in Pakistan’s external terms of trade.

The economy is in its weakest post-stabilisation ‘recovery’ in recent times.

By contrast, in a similar three-year period between 2009 and 2012, under the previous IMF programme, real GDP growth moved up from 0.4pc to 3.8pc, a swing of 3.4pc. This turnaround happened despite the fact that international oil prices were averaging around $100 a barrel during that period — twice current levels.

The overall weakness of the economy is reflected in a range of ‘soft’ numbers. Large-scale manufacturing output rose 2.2pc during July-September. Adjusting for a blip in production of iron and steel, and continued strength in cement output, production growth for all other sectors was only 1pc during this period. Utilisation of bank credit by the private sector is also subdued, despite banks being flush with liquidity, suggesting weak credit demand. Foreign direct investment inflows are down 50pc over the previous year, despite on-going investment in some CPEC projects.

Perhaps most surprisingly, there has been a steep fall in business sentiment. The latest Business Confidence Index released by the Overseas Investors Chamber of Commerce and Industry, conducted in September/October 2016, has slumped by 19 percentage points, to plus 17pc from plus 36pc previously. This indicates a sharp reversal in business confidence.

On the public finances front, despite some modest effort at reform by the government, total tax revenue collection by the Federal Board of Revenue and provinces for the first quarter of 2016-17 has been sluggish, rising by only 2pc against same period last year. The overall budget deficit for the first quarter is also 0.2pc of GDP larger than the previous year, at 1.3pc versus 1.1pc of GDP.

As a result, government borrowing from the banking system for budgetary support is showing a large increase, of over 77pc as of Nov 25. More importantly, the composition of borrowing has reversed completely, with the government borrowing over Rs1 trillion from the central bank between July 1 and Nov 25, 2016, versus a retirement of nearly Rs323bn in the same period the previous year. This is a clear indication of a weakening of fiscal discipline since the completion of the IMF programme at the end of September, and is a result of a combination of sluggish tax revenue collection and higher expenditure by government.

In the power sector, the subdued accumulation of circular debt has been attributed by the IMF entirely to the decline in oil prices, rather than to any significant improvement in the governance of the sector. According to the latest IMF country report, the fall in oil prices caused a decline in circular debt of Rs119bn. Had oil prices been at the same level as previously, circular debt would have continued rising, though at a slower pace.

Finally, Pakistan’s perennial weakness — its external account — continues to remain vulnerable. Despite a modest 2pc year-on-year increase in export earnings in October, after many consecutive months of decline, merchandise exports have fallen to an abysmal 7.3pc of GDP — the lowest since the 1980s and the lowest for any developing country in Pakistan’s peer group. With an uncertain outlook for remittances, strong import growth due to the requirements of CPEC projects, and repayments of large forex liabilities on the horizon, the external account remains vulnerable — even without an increase in international oil prices.

The fact that the economy remains in such an anaemic state at the end of a three-year IMF programme, and despite a massive boost from the fall in international oil prices since 2014, indicates persisting underlying structural weaknesses. Hence, by all accounts, Pakistan is currently in its favoured habitat — sans serious reform, enjoying the sun in a brief interlude between two Fund programmes.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, December 9th, 2016