In the process of development when the growth of various sectors and sub-sectors of the economy is not properly synchronised, or if harmonisation policies are not effectively implemented, macroeconomic imbalances occur.

And when the imbalances are not addressed in the nick of time and allowed to linger on indefinitely, they assume the proportion of serious stubborn multiple-crises.

Currently, the consumption-led, import-oriented and debt-driven economic growth approach tends to depress indigenous production and trade surpluses, resulting in severe macroeconomic imbalances.

More than 90 per cent of the country’s economic growth is import-based which increases its current account deficit, says Dr Abid Qaiyum Suleri, head of Sustainable Development Policy Institute. And 95pc of the economic growth is consumption-led, resulting in low savings and low investment-to-GDP ratio.

Political divisiveness and polarisation is widening the gulf between governments and citizens and deepening divergence of views within state institutions as well civil society

Households account for 86pc of the consumption which, Dr Suleri points out, makes them highly vulnerable to any shock or reduced supply of resources.

Import substitution remains a challenging long-term goal. Many analysts, therefore, stress that the trade deficit should primarily be reduced by boosting and diversifying value-added production and exports.

Encouraged by the current performance, the government plans to set an IT sector export target of $5 billion — supported by a proposed incentive package — for the next financial year.

However, this year’s relatively high growth might not be sustainable in the face of macroeconomic balances, said the Monthly Economic Update and Outlook for May issued by the Ministry of Finance (MoF) on the 29th of last month.

The MoF report listed challenges that included “accelerating inflation, high external deficits, exchange rate depreciation, declining foreign exchange reserves and mounting uncertainties.”

Left with no other option, Finance Minister Miftah Ismail is looking forward to the International Monetary Fund (IMF) credit facility. He told a press conference on May 28: “We have requested them (IMF) to extend the programme by a year and expand it by $2bn. I expect that they will agree.”

While reiterating that the ongoing talks with Pakistan remain very constructive Fund’s Resident Representative Esther Pervez on May 31 said: “Pakistan needs to take wide-ranging steps to repair macroeconomic stability.” She explained that “implementing a package of comprehensive actions, including the removal of fuel and energy subsidies and the 2023 budget, will be important to achieve the programme objectives.”

Last week, the fuel prices were increased to meet the IMF conditionality while Prime Minister Shahbaz Sharif announced a Rs28bn relief package to mitigate the impact of the hike in fuel prices on the poorest segments of the population.

Talking to Reuters at Davos on the sideline of World Economic Forum’s annual meeting, Foreign Minister Bilawal Bhutto said the IMF deal was not based on ground realities, and the context had absolutely changed from the time this deal was negotiated. He argued it was a pre-Covid, pre-Afghanistan fallout, pre-Ukrainian crisis and pre-inflation deal.

Terming the deal outdated, Mr Bhutto explained that it would be unfair and unrealistic to expect a developing country like Pakistan to negotiate geopolitical issues under the current agreements.

No doubt such additional IMF measures as extending pandemic-related credit facility or pause in the execution of Fund programme in Pakistan, have provided much needed relief to both businesses and the poor. The IMF has also facilitated short-term debt rescheduling by developed states for emerging economies burdened with excessive foreign debts.

However, in these turbulent times prompting transformation change, the IMF needs to devise short, medium and long-term strategy to help the developing countries achieve high growth with long lasting stability.

While fighting the proximate fires of meltdown, the seeds should be shown for Pakistan’s economic growth in the medium-term, says distinguished Professor at the Beaconhouse National University Dr Akmal Hussain.

He suggests we should begin by addressing the structural constraints for a sustained people-centred growth process. “We must chart a new path for development whereby sustained and equitable growth can be achieved through the talent and enterprise of all people rather than a few.”

From the embers of an economic meltdown, Dr Hussain says, let a phoenix rise: an economy for the people, by the people.

Dwelling on the long-term development prospects, the MoF report said “accelerating the share of Gross Fixed Capital Formation in GDP would create additional production capacity to meet the demand for consumption and production.”

Despite crisis after crisis, the corporate sector has been able to make profits but it finds new diversified investment in commodity producing sectors risky because of the ever-fluctuating or rising exchange and interest rates that constantly push up the cost of production. Private investment has primarily been focused on industrial and business consolidation including IT-related spending for operation efficiency.

Escalating multiple crises are eroding the consensus on many ways of doing things. Political divisiveness and polarisation is widening the gulf between governments and citizens and deepening divergence of views within state institutions as well civil society. But to quote a social scientist, good things quite often happen amidst great chaos and confusion.

Published in Dawn, The Business and Finance Weekly, June 6th, 2022

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