Economic prospects

18 Sep 2020

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THE Asian Development Bank says Pakistan’s economy is moving out of the coronavirus-induced sluggishness and beginning to crawl forward. A new report released by the Manila-based bank on Tuesday forecast a modest but broad-based recovery, projecting the economy’s expansion by 2pc in the present fiscal year. This is in line with the government’s GDP target of 2.1pc and a significant improvement over the negative growth of 0.4pc last year. Indeed, short-term economic trends show that the economy is returning to the path of recovery. Yet the ADB forecast in the Asian Development Outlook Update report should not be taken as gospel because it assumes that the impact of the Covid-19 health crisis will subside by end-December this year and the implementation of structural reform under the IMF Extended Fund Facility to address macroeconomic imbalances will resume.

This means that while so far the trends show that the economy is getting back on its feet, in spite of earlier fears of further contraction, the future remains uncertain. Pakistan’s success in controlling the virus and reopening its economy has been tempered with fears over a possible escalation in infection rates, even if business activity is picking up momentum. Still, the ADB projections about growth, a stable balance-of-payments situation in spite of a bigger current account gap of 2.4pc owing to an expected fall in remittances compared with 1.1pc last year, recovery in the industrial and agriculture sectors, and domestic demand growth, provide us with a reason for cautious optimism though it is too early for celebrations.

Improved GDP growth prospects aside, the report has also pointed out that Pakistan’s economic expansion will remain significantly lower than that of other economies in the South Asian region. The economy of the Maldives, which was the most affected by the virus in the region, is likely to grow by 10.5pc. India, the second worst-affected country economically, is forecast to make a comeback with an 8pc GDP growth rate. Similarly, Bangladesh’s economy is expected to expand by 6.8pc and Sri Lanka’s by 4.1pc. The only countries to grow at a slower pace than Pakistan are Bhutan, Afghanistan and Nepal. The comparison is important because it underscores the structural issues plaguing the economy — the weaknesses that we have been long aware of but done little to tackle — which take us back to the IMF for a financial bailout every few years. Pakistan is not the only country to have experienced ‘boom-and-bust’ cycles. But it is certainly among those economies that have ignored deep-rooted structural issues for too long at the peril of the well-being of the citizenry. The Central African Republic, Chad, Nigeria and Afghanistan are the only countries that occupy a lower place than Pakistan among 153 nations on the Global Wellness Index. That says a lot about how our economy is faring.

Published in Dawn, September 18th, 2020