PAKISTAN faces a paradox: its economy has been stabilising but growth remains elusive. The ‘feel good’ part of the economic recovery story forms the core of the official narrative that Finance Minister Muhammad Aurangzeb repeated at a conference at Harvard University on Monday. “We have stabilised the fundamentals, restored confidence, and reignited growth,” he argued. Acknowledging these developments, he said, Fitch had upgraded Pakistan’s sovereign credit rating. However, the job of pinpointing what continues to ail the economy and prevents it from growing has been left to the State Bank, which, in its half-yearly report on the state of the economy published the same day, noted: “One of the prominent challenges long undermining the sustainability of growth is low and falling productivity that has adversely affected the country’s economic competitiveness.” The country’s weak productivity growth has contributed to frequent balance-of-payments crises, with the economy stuck in a recurring boom-bust cycle, the report adds.

That our productivity remains low is not surprising given that the entire structure of the economy is founded on consumption to achieve growth rather than on investment in the real and social sectors to boost productivity of the economy as well as individual workers. Decades of low investment in industrial infrastructure and agriculture means that we produce fewer things for the domestic and international markets and import more to sustain our flawed growth model. As a result, we are always looking for handouts, loans and bailouts to keep the economy afloat and pay our import bill. In the last couple of years, the authorities were forced to implement strict fiscal discipline, slash development spending and curb imports to stop the haemorrhaging of international reserves to secure multilateral funds and stave off an imminent default. This has undoubtedly helped the government somewhat stabilise the main economic fundamentals and reduce import-based consumption to improve reserves. But at the same time, it has killed growth. Economists agree that any attempt to grow faster than 3-4pc without restructuring the economy and boosting industrial and agricultural productivity would push us into a worse crisis. Yet we do not see substantive efforts being made in this respect. Our economy needs shock therapy; spirin will not work where surgery is required. Unless backed by substantive economic reforms, a feel good narrative has a very brief shelf life.

Published in Dawn, April 30th, 2025