NEXT to the World Bank’s forecast on economic expansion in Pakistan during the present fiscal year, the State Bank’s growth projections in its flagship State of Pakistan’s Economy report for the first quarter of FY2021 will appear far too optimistic. While the World Bank’s Global Economic Prospects 2021 says Pakistan’s economy will grow by a 0.5pc this fiscal, the SBP believes that it could expand by up to 2pc — in line with the target set by the government in its budget. The central bank has tried to tamper its estimate by cautioning that the recovery faces downside risks owing to “intensification of the second wave of the pandemic”. Still, it may appear to many as the SBP’s desire to avoid stepping on the toes of the government, which is trying to sell the recent improvement in short-term economic trends to the people as a success of its policies.

The SBP bases its growth forecast on current economic data. The recovery in economic activities is evident across the agriculture, industry and services sectors, according to the report. To support its argument, the central bank underlines the change in business confidence as reflected by an increasing demand for subsidised long-term loans for new investments. Furthermore, it adds, external and fiscal sector indicators remain favourable, showing that an emerging recovery has been achieved while keeping macroeconomic stability intact. Indeed, when examined in isolation, current trends do exhibit a turnaround in economic activities. The problem with this report, like previous ones, is that it cleverly hides the negative trends.

The SBP, for example, speaks about external account stability and improvements in its reserves, but does not discuss the costs the economy is paying for maintaining a current account surplus. Likewise, the growth in large-scale manufacturing since the inception of the present fiscal is showcased in the report to underscore an economic upturn, but it fails to inform us that industrial output remains far below the level it had achieved in the previous government’s final year. Also, LSM growth remains narrow, restricted mainly to the tobacco, pharmaceuticals and cement industries. The rise in the pharmaceutical industry is attributable to the increased demand for medicines and other products owing to the pandemic, while cement sales owe mainly to the generous construction package and amnesty given on illegal money invested in the real estate sector. Most importantly, the current ‘economic revival’ emphasises the failure of most of the IMF-mandated policies implemented by the government and SBP before the pandemic hit. This ‘turnaround’ owes much to the reversal of the harsh stabilisation policies that had brought the economy grinding to a halt long before the global health crisis forced countrywide lockdowns and business shutdowns. What happens when the suspended IMF programme is restored? Will the central bank still be as overly optimistic on the country’s growth prospects?

Published in Dawn, January 7th, 2021