THE IMF’s economic growth projection of 3.2pc for Pakistan falls short of the 3.5pc target that the government has set for the present fiscal, but it still seems rather optimistic given our balance-of-payments constraints. This is also in contrast to the 2.8pc growth rate forecast by the World Bank and the Asian Development Bank. The State Bank has predicted the economy will expand between 2.5pc and 3.5pc this year. The Washington-based lender, which recently approved a $7bn rescue package for Pakistan, expects the country’s growth rate to gradually improve to 4.5pc by 2029. Moreover, in its latest World Economic Outlook, the Fund expects headline inflation to decline from 23.5pc last year to 9.5pc this year and to 6.5pc in 2029. Likewise, the current account deficit is seen by it as stabilising at 0.9pc of GDP. The IMF’s estimates are apparently based on the projections made by its staff under the assumption that Pakistan would meet all the targets of its new funding programme leading to increased foreign inflows, which would ease its balance-of-payments position, further stabilise its economic fundamentals and allow the authorities to pursue growth that is slightly higher.

There is no doubt that the economy is showing signs of ‘improvement’ after a couple of highly turbulent years, with moderate growth returning, inflation declining, external pressures easing due to IMF funding, the exchange rate stabilising and the current account deficit shrinking. But these improvements are due to cuts in essential public spending and restrictive policy decisions — including limits on imports and high interest rates. In short, growth continues to be constrained by balance-of-payments issues and an excessive public debt burden. It also means that the economic stabilisation achieved so far will likely dissipate when the economy moves towards a higher growth trajectory. Therefore, the improved indicators do not reflect any gains for the common people. If anything, Pakistan is undergoing an ‘adjustment process’ under the IMF. Shifting the economy to higher gear without first tackling the balance-of-payments constraints would be a blunder and lead the country back into the deep financial crisis as repeatedly seen in the past. What Pakistan needs is to use this ongoing adjustment period to undertake structural reforms to attract foreign private investment for boosting agricultural and industrial productivity in order to increase exports. In short, Pakistan must learn to walk before starting to race.

Published in Dawn, October 24th, 2024