A decade-high GDP growth, a contained inflation, expansion in all key sectors, dividends of massive CPEC investment being cashed in and a visible improvement in security and power supply — yet it still doesn’t feel like a fresh start. Are there external vulnerabilities? Can twin deficits reverse the rising tide? Is the growth thrust strong enough to survive political upheaval? Is it sensible for stakeholders cognisant of risks in an election year to hold

THE acceleration in economic growth and the political compulsion to focus on voters in 2018 may augur well for the masses. The failure of the system to deliver on the promise of a decent, secure life for all has not weakened citizens’ romance with democracy in Pakistan.

The government’s confidence, however, on its finance team to handle the risks on the external front efficiently appears misplaced. The challenge of succeeding in raising funds to match loan repayment obligations and finance essential imports may prove daunting. By mid-2018, for lack of other options, Pakistan may find itself back in the IMF fold.

For now, however, people-centric initiatives are expected to improve the quality and coverage of basic public utilities. The expanding job market will improve job prospects and achieve salary increase for the working class.

The inflation graph will look up but it is not expected to get out of control and accelerate into double digits unless there is a major upswing in the global oil market.

The exchange rate may come under pressure because of external sector vulnerabilities but currency dealers do not foresee a major dip after the December seven per cent adjustment in the value of the rupee against the dollar. Assuming everything else remains the same, devaluation by at most 5pc during 2018 is expected.

The year ahead is expected to turn out better for Pakistanis engaged in capital formation in the real sector as opposed to those shuffling assets through speculative businesses. Gamers, gamblers and speculators may be driven out of the mainstream to watch the economy grow from the sidelines.

In this special report Dawn’s Business magazine team reaches out to the key players and attempts to identify crucial drivers to project the trend in focal sectors in the New Year

Business houses may expand their industry and explore new projects in collaboration with Chinese companies. Improved credit access under the new policy may bolster medium and small enterprises. This under reported sector is considered to be highly potent lending resilience to the economy.

There are multiple factors indicating that the farming community may plough back its profit in the hope of richer dividends in 2018, in an environment where it expects higher demand for its produce and a more congenial government stance. The community’s expectations may be based on its awareness of the value of rural vote bank for all those who aspire for a political career.

Growth in Pakistan may not be even across all segments of the service sector. While transport, construction and communication may boom the pace of growth in retail and banking may be moderate.

The demand of higher compliance standards and the closer financial engagement with China may necessitate costly adjustments in the banking sector.

In 2018, the retail sector is expected to expand but the pace may be slower, as in an uncertain political situation consumers tend to be less enthusiastic. An online survey by Dawn to gauge people’s perception on financial expectations in 2018 supported this projection.

The capital market may recover but an upward swing, if at all, is expected towards the end of the year. The brokers’ community, unruffled by the blot on their credibility for unrealistic projections for 2017, continues to sell optimism.

At the start of last year, brokers predicted a 20pc increase in the index in a year. Instead the index took a beating in the second half, dropping by about the same percentage. It wiped out stakes worth billions of rupees from the markets, hitting retail investors the hardest that had entered the rings too late.

The regional disparities can’t vanish but the growth tide is expected to lift all boats. In the absence of provincial economic surveys, a deeper insight into the regional economies is lacking.

However, on the basis of whatever little information that trickles out of provincial establishments, Punjab will continue to lead while the performance of the other three provinces may be significantly better on both physical and social indicators.

It will be unrealistic to expect meaningful structural or taxation reforms in an election year. There are weak signals of improvement in resource mobilisation as the economy expands, but dramatic happenings on that front look improbable.

The progress on the export front will be slow and tedious. A spike in remittances inflow appears unlikely. The option of financial help from friendly nations will not be available. Therefore, the danger of the breach of amended Fiscal Responsibility and Debt Limitation Act 2005 can’t be ruled out.

“A bolt from the blue or a major misadventure by the self-professed guardians of national interests can disrupt the trajectory of progress but the chances are slimmer in a changed world with growing Chinese stakes in Pakistan,” commented an economist sympathetic towards the PML-N.

The conflicts in a transformational country can’t be wished away. Some friction and fireworks will probably persist in the foreseeable future beyond 2018, but busting the limits of the constitution might be unviable for even the most ambitious lot, with China now watching over their shoulders.

“As long as the game is inside constitutional boundaries, the thrust of growth with $25 billion investment in infrastructure under the CPEC has generated enough steam to keep the economic train moving at a higher speed,” commented a retired bureaucrat now working on a World Bank project.

The political opponents of the government find the perception unrealistically simplistic. In their complete distrust of the politicians, they are betting on a government of technocrats to carry out corrections and structural reforms and ensure rich dividends for Pakistan from the CPEC. They tie the good fortunes to the exit of PML-N from the political scene for once and for all.

In its remarks at the end of the post-programme review meeting in early December, the IMF warned, “Maintaining this positive trend will require strengthening the economy’s resilience with greater exchange rate flexibility, fiscal discipline, and an adequately tight monetary policy stance”.

Published in Dawn, The Business and Finance Weekly, January 1st, 2018