THE latest annual State of the Economy report issued by the State Bank basically confirms much of the commentary that has been pointing out that the challenges confronting the economy are growing increasingly stark. On the fiscal side, the report notes that with election year approaching, the deficit between revenues and expenditures is going to be difficult to contain at target, especially since it is believed that the provincial governments are far less likely to turn in the surpluses they are expected to run. Likewise with reserves. The report says that pressures from the current account deficit — the leading culprit contributing to the drain on reserves that began last October — are likely to persist as import volumes continue to grow and exports fail to keep pace. These are the twin deficits that have been the Achilles heel of Pakistan’s economy for decades, and the chief reason why the country keeps landing at the doorstep of the IMF every few years. That cycle, of short-term booms followed by quick bust, is likely to be repeated one more time if the situation does not reverse itself. By now, it is quite obvious that the government has few tools at its disposal to bring about a reversal through policy action. Steps like regulatory duties on ‘unnecessary’ imports have failed to arrest their growth in the recent past, and an exchange rate adjustment has been ruled out one more time by the finance minister — not that it would solve the problem.

The report presents some interesting numbers. For example, contrary to the government’s claim that the rise in imports is due mainly to the import of capital goods, which are growth-enhancing for the future, and therefore healthy, the report points out that 48pc of the increase in imports since last year is due to capital goods. That is undoubtedly a significant percentage, but it still means that 52pc of the increase is coming from elsewhere, chiefly fuel and textiles. In a number of places the report suggests that, given the present levels of productivity and competitiveness, Pakistan cannot afford to grow in this manner because the costs mount up faster than the dividends. This should be noted by the critics of the government as well, who are seeking to score a few political points using the travails of the economy.

Still, the scenario presented is far from doomsday — although the economy is stressed, and pressures on the fiscal and external accounts are mounting with no end in sight. With course correction, it is still possible to avert a hard landing, but the only problem is the political atmosphere and timeline. A beleaguered government and the approach of elections means that space for bold policy action is limited. The economy is on its own through all this.

Published in Dawn, October 15th, 2017