THIRTY-FIVE years ago, when Ziaul Haq’s military regime started claiming major improvements in the economy, I coined what I called Pakistan’s first economic law: ‘All good that happens in the economy is due to the government’s efforts. All that is bad is due to the last government. What still remains unexplained, blame it on the weather.’ To my pleasant surprise, this law was subsequently picked up by the Far Eastern Economic Review.

I was reminded of this as we witness the contentious debate between the present government — backing similar claims with reports (selectively read) by the IMF and World Bank on substantial improvements in Pakistan’s economy under its watch — and, in the opposite camp, prominent economists backed by a large section of the media and an informed public, as always sceptical of any positive claims made by any government.

The government is correct in claiming that a semblance of macroeconomic stability has been restored and the economy can be viewed as poised for higher growth. For this turnaround, credit must go to the economic managers who have navigated an IMF programme without any contraction in the GDP. In contrast, the last government agreed to such a sharp decline in the fiscal deficit that the growth rate fell dramatically from five to 0.4 per cent in the first year of the IMF programme and the economy never quite recovered.

There are, however, caveats to the present government’s achievement. The high level of foreign exchange reserves has been built solely on foreign loans. The government’s case can be that such an action is justified on the grounds that an increase in reserves, whatever the source, takes pressure off the exchange rate and circumvents the resulting fall in value of the rupee. This avoids higher debt repayment and lowers imported inflation, which would have otherwise followed a decline in the exchange rate. This measure must, however, be weighed against lower exports to which an overvalued exchange rate certainly contributes. Also. once loan repayments start, the pressure will again be built up and therefore this can best be viewed as a stop-gap arrangement in the hope that net foreign inflows will improve.

Unless the political dominance of an ‘elite’-vested class is blunted, real economic progress will be elusive

Whether or not one acknowledges the current economic team for restoring macroeconomic stability with finesse, for it to make the larger claim that the economy has turned around is certainly not justified. The simple truth is that Pakistan’s economic problems are predominantly structural and not just cyclical, for which macroeconomic stability may be a necessary, but by no means sufficient, condition. We must, therefore, face the fact that, unless fundamental economic reforms are undertaken and the political dominance of an ‘elite’-vested class that reaps the major gains from the economy is blunted, real economic progress will remain a mirage.

In correcting these structural imbalances — from abysmally low levels of investment and domestic savings, a low tax-to-GDP ratio and stagnant, if not declining, exports, to increasing debt, untargeted subsidies for loss-making public enterprises and poor service delivery — the government has made very little progress. True, there is only so much one can show in three years, but in this case the will and commitment to undertake reforms has been sorely lacking.

Let me now turn to the government’s claim that it has raised the growth rate from around 3.7pc to 4.7pc. This is really not much to boast about. The minimum growth rate required to absorb the increase in Pakistan’s labour force is 6.5pc. Anything below this can raise unemployment and make it very difficult to achieve a real improvement in living standards. It is not surprising that, till the 1990s, the ‘norm’ or ‘Pakistani growth rate’ was on average at 6pc and any achievement below this was either a sign of economic mismanagement or the result of an adverse external shock or natural disaster. To claim credit for having increased economic growth from 3.7pc to 4.7pc shows just how far we have lowered our earlier performance targets.

That said however, there are some ‘green shoots’ emerging that can help raise the economy’s performance. The improvement in the security situation, especially in Karachi, should bolster investor confidence. The easing of the energy crisis will certainly help. The Planning Commission is performing better in coordinating and monitoring development expenditures. The youth bulge, now somewhat better educated, awaits decent jobs and if these are created, could help reap the ‘demographic dividend’.

Yet there is an overhanging dark cloud. The rural economy, where poverty is most concentrated, is in deep recession due to poor harvests and collapse in global prices. An ill-conceived support package has not worked. The manufacturing sector shows little sign of recovery. Banks are reeling and having their worst year as the government attempts to expand its tax base. Remittances that have helped keep the economy afloat are under pressure due to low oil prices.

The China-Pakistan Economic Corridor certainly offers a strong ray of hope for breaking out of the low-level growth equilibrium. But has such ‘manna from heaven’ not taken place in the past? The aid and foreign loan-led economic booms of the Ayub, Zia and Musharraf eras were relatively short-lived, losing momentum soon after the concessional aid flows tapered off. CPEC must be accompanied by much-needed economic reforms and the political will (including in the fight against corruption) to take advantage of the opportunities it offers and move the economy onto a higher, sustainable growth path. This is an opportunity we cannot afford to lose.

Let me end as I started, by postulating Pakistan’s second economic law: ‘No sustainable, equitable and higher growth is possible without the determination and political will to undertake far-reaching structural reforms.’ Since the government has, so far, shown little success on this count, one cannot blame the sceptics who play down — or run down — its economic achievements.

The writer is a professor at the Lahore School of Economics and former VC of the Pakistan Institute of Development Economics.

Published in Dawn, November 18th, 2016