Pakistan’s economy has recovered somewhat over the last three years as is underscored by the improvements in the fundamental indicators and the International Monetary Fund’s parting note released earlier this month. Chances of a crisis revisiting the economy any time soon appear minimal.

The economy is expanding — though at a much slower pace than is required to create enough jobs for over 2m people entering the market every year — and seems to have developed sufficient strength to even absorb the ‘shock’ of a potential surge in global oil prices in the near future.

The foreign exchange reserves have peaked to above $24bn, multilateral lenders are ready to dole out more money and international investors willing to buy government bonds — at least for the time being.

But the ‘recovery’ remains feeble and perched on extremely rickety foundations as suggested by the economic data available for the first quarter of the ongoing financial year to September.

The current account deficit, for example, has widened to 1.7pc of GDP to $1.36bn, up by 136pc from $579m or 0.8pc of GDP a year ago, on an increasing trade gap, falling remittances and foreign private capital inflows, according to a media report.

The economy is expanding … and seems to have developed sufficient strength to even absorb the ‘shock’ of a potential surge in global oil prices in the near future

Trade deficit has gone up 30pc year-on-year to over $7bn, with merchandise exports plunging over 9pc to $4.67bn and imports growing 10.5pc to $11.74bn. Remittances sent by overseas Pakistanis, which cover almost 45pc of the nation’s imports, are down 5.4pc to $4.69bn from $4.96bn as oil exporting countries are coping with low global prices by cutting jobs to save costs. The size of foreign direct investment has shrunk 38pc from $403m to just $249m. The pace of growth in large scale manufacturing is slowing and the agriculture sector remains in difficulty.

“The economy continues to recover and we are out of the danger zone. Though our economy is less vulnerable today, the recovery is fragile and serious challenges to its long-term durability remain. A lot — the tougher part related to long-standing structural issues impeding investment and growth — is yet to be done as Pakistan still remains one of the least competitive economies internationally; at the bottom of the global development ranking,” Lahore Chamber of Commerce and Industry president Abdul Basit warns.

He points out that tax collection has increased, but little has been done to directly tax the untaxed and under-taxed segments in order to net new taxpayers and reduce taxes on existing businesses. “Similarly, nothing concrete is being done to control electricity distribution losses and theft, and the entire burden has been shifted to the consumers in the shape of higher power tariffs. Nor has anything been done to plug the leakages in the public sector.”

Basit argues that Pakistan’s economic recovery is primarily founded on low global oil prices and international debt accumulated over the last three years, rather than on an increase in exports, investment and tax-to-GDP ratio. “The need of the hour is to tackle the long-standing structural issues impeding investment in the industry, and growth in exports, by reducing the cost of doing business and lowering taxes,” he explains.

Private investment has picked up in certain sectors like cement, as these industries see an opportunity for themselves with energy and transport projects under the China Pakistan Economic Corridor picking momentum. But, as pointed out by the IMF, in its report on the conclusion of the three-year $6.2bn loan facility, private investment remains too low to support growth (despite improvements in energy supplies to the industry).

Bankers too don’t see a lot of investment in the near future unless the government takes measures to improve the business climate. “Business persons are coming to us to explore opportunities but there is still a lot of cynicism despite low credit costs. I don’t see much investment outside CPEC-related projects in the next couple of years,” a Karachi-based banker insists.

Jeved Kayani, chairman of the Pakistan Sugar Mills Association, too is rather pessimistic about new investment in the country at the moment. “Poor security conditions, political uncertainty, law and order issues in Karachi, business-unfriendly bureaucracy, harsh regulatory environment, etc are keeping business persons from investing in expansion,” he says.

He is also worried about the looming pressures on the balance of payments situation in view of falling exports and remittances. “So far the external sector is not faced with any imminent threat. But the policymakers must understand that the situation will not take long to reverse if the country’s exports aren’t increased, and investors not encouraged, through favourable policy.”

Kayani is of the view that it is the government’s obligation to facilitate and provide incentives to sectors like textiles — whose exports have become uncompetitive in the international markets — to protect existing jobs and create new ones.

“It is high time that any industry that has the ability to fetch dollars and euros is facilitated and encouraged to export. (But) I don’t think exports and investments are currently on the government’s priority list.”

Published in Dawn, Business & Finance weekly, October 24th, 2016