PAKISTAN’S economic growth significantly slowed down to a modest 0.92pc during the first quarter of the present fiscal year to September from 2.3pc the previous year, according to new National Accounts Committee data. This fall in the growth rate is not surprising given the massive cuts in public development stimulus due to the stabilisation policies being carried out under the IMF programme, the continued impact of a tough macroeconomic environment on industry and private investment, and the decline in major crops, owing to climate change and higher costs. However, the economy is still expected to expand by up to 3pc to 3.5pc during this fiscal year as the cost of borrowing is being slashed on plunging inflation and the external account stabilising, creating room for higher imports.

Any attempt at this moment to push the growth rate beyond this will require significant public development investment and unfettered imports to boost domestic consumption, which will lead us back to another balance-of-payments crisis — perhaps even default — accompanied by high inflation. Our ruling elites have tried this formula in pursuit of rapid growth for political gains too many times, always driving the economy back to the IMF’s door for bailouts to tackle one financial crisis after another. If anything, the increasing frequency of boom-and-bust cycles in recent decades have underlined that the country’s growth woes are rooted in our structural imbalances: low industrial and agricultural productivity, extremely low exports, meagre tax revenue collection, etc. Without fixing these imbalances, any attempt to boost the economic growth rate will produce the same results. With the world wary of our habit of living beyond our resources, the shortcut of pushing consumption-based growth with borrowed money is already closed. If the economy is to survive and grow, the policymakers will have to take the longer and tougher route of reforms they are still trying hard to avoid.

Published in Dawn, January 1st, 2025