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Boom and bust

Updated January 09, 2019

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AS the exercise to finalise the 12th five-year plan enters high gear, perhaps the planners can take a moment to reflect on how the story of the previous plan worked out.

Pakistan’s economy keeps going round in the same vicious cycle of boom and bust, something that is evident in the growth targets that are being set in the 12th plan. Average growth is being targeted for 5.8pc over the plan period, as per reports from within the consultative process.

Considering that, this year, GDP growth was supposed to come in at 6.2pc in the ongoing fiscal year, Pakistan will be lucky if it touches the revised target of 4pc, given the rapid slowdown in the pace of economic activity that is still continuing.

This is the cycle that the 12th plan must aim to break, where growth rates climb for a few years, only to come crashing down rapidly, sending disruptive shocks reverberating through the economy. The framers of the 11th plan were aware of this.

“Most episodes of the GDP growth have come to an abrupt halt because of deteriorating balance of payments,” they said in the plan document, pointing to inelastic exports with imports that are highly elastic to growth. “The plan aims to maintain a sustained BoP position for ensuring macroeconomic stability,” they claimed.

But that was five years ago. Today, that plan document reads like an antiquated scroll, littered with tales of disasters past and prophecies of a shining future.

“The capital and financial account will be strengthened by diversifying sources of financing,” the planners promised, “with greater recourse to non-debt-creating sources of financing.” Yet as the years progressed, they partook of external debt, creating inflows with a heady and reckless abandon.

They had no other choice, since very little had been done to promote a diversification of the export base or to address other underlying rigidities. They sought “to put Pakistan’s economy on a robust growth trajectory” and “ensure a stable macroeconomic environment with low inflation and sound internal and external balances” at the plan end.

Yet here we are, drawing up another plan to once again jumpstart a moribund growth process. Will the drafters of the 12th plan be writing yet another antiquated scroll? Or do they have genuinely new ideas about how to break this cycle of boom and bust? We will soon find out.

Published in Dawn, January 9th, 2019

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