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Faltering economy

June 12, 2019

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MUCH of it was already known, but it bears repeating from an official platform like the latest Economic Survey of Pakistan that the country’s economy is now in the throes of a sharp slowdown which is expected to persist all through the next year as well. The growth target set at the start of the fiscal year was 6.2pc, but the out-turn today is 3.3pc, just past the halfway mark. This is far below the level that the growth rate needs to be at to even absorb the additional requirements in the labour force on an annual basis. To top it off, the Survey, as well as the prime minister’s finance adviser Hafeez Shaikh, highlighted that inflation will be “considerably higher” all through next year after seeing steep increases in the closing months of the current fiscal year. There was no indication of how much higher, but perhaps a clue will be provided if and when the government announces its inflation target for the next year. Suffice it to say that one of the main drivers of inflation next year will be higher utility and fuel prices, as per Mr Shaikh’s remarks and the Economic Survey.

What this means is that we should brace ourselves for a full year of rising unemployment coupled with high inflation. This is an incendiary combination that is rarely seen. The last time we saw collapsing growth amid rising inflation was when the country made the transition from military rule to civilian democracy about a decade ago. It was the legacy left behind by Gen Pervez Musharraf and it took many years — till 2013 — before growth returned and inflation was finally tamed. But even in those years, as the finance adviser himself pointed out, the adverse impact on employment was mitigated by the government’s policy of shifting the base of its spending, and the motor force of the economy, from the urban to the rural economy. As a result, as Mr Shaikh said, the economy was able to still generate more jobs despite growth having fallen to around 2pc, compared to the fastest-growing years of the PML-N government that followed.

The Survey makes it abundantly clear that a large economic adjustment has to be undertaken. Revenues have posted zero growth while expenditures have grown by almost 8pc. Even the shrinking of the current account deficit by 27pc from last year is not as encouraging a story when one sees that much of it owes to the shrinking furnace oil imports, along with a handful of other items. Exports have posted zero growth as well, while foreign investment has fallen by almost 50pc. It now remains to be seen what strategy the government intends to follow to help mitigate the impact of this awful situation on the poor. We can only hope that something more than cosmetic measures will be undertaken for that crucial objective.

Published in Dawn, June 12th, 2019