In his recent speech to Parliament, the Minister of Finance declared that any pressure to revive growth, presumably until the necessary reforms are completed and economic stability is completely restored.
However, this firm position was questioned by some critics who asked why I was building reservations based on commercial loans of high interest. Is this a sign that the economic stability that the government affirms that it has achieved in a short period is simply a mirage?
There is a great element of truth in this. Governments previously announced quickly that the economy has stabilized and then fallen into their faces when it is affected by internal or external shock. But this debate raises two questions. First, when can one really affirm that the economy has stabilized enough to revive growth? Second, how long can the Minister of Finance wait to restart growth, despite its current position?
Let’s first address the second question. Not much. A political government that has come to power for unstable reasons must show results, especially given the strong increase in poverty after COVID-19, an angry middle class whose numbers are rapidly decreasing and a youth bulge that faces unemployment. Then, the government is making pink promises every day, the most recent of which is Uraan Pakistan with its ambitious objective of rapidly increasing per capita income and turning Pakistan into an economic power in the next 10 years. Without tail wind, can Uraan Pakistan take off?
So how long should the Minister of Finance resist the temptation to rekindle growth? It must be aware of the growing pressure and is taking all caution measures when building currency reserves so that, if the thrust is pushed, have enough to gradually press the accelerator.
We have not even begun to introduce structural changes.
But before I can contemplate this step, you must increase income. In Davos, he said that the relationship imposed on GDP from just over nine percent to almost 13.5pc would increase during the next year or two (without accurately defining when). If FBR officials drive in new cars (and fortunately they do not fly in helicopters) can achieve this, in fact it would be worth the cost. But it must also be aware that increasing the relationship imposed on GDP in a stagnant economy that staggers a very high inflation attack is much more difficult than in a growing economy.
Returning to the first question: when will we know that the economy has stabilized enough to move towards reviving growth? Briefly, when the IMF allows us to do it. So that we do not forget, we are under a three -year IMF program that was signed only four months ago.
The long answer is more complex. Let’s examine the last time we tried to revive the economy in 2021-22 after Covid-19 left the economy at a dead point. The premise was that we had reservations of about $ 20 billion and the objective growth rate established in the budget was modest at 4.5pc. But then the heavens opened. The economy grew that year for more than 6pc and foreign exchange reserves fell to half. The then experienced secretary of Finance, Waqar Masood, warned against this rapid increase in imports (mainly raw materials), but the state bank, which should have better known, after drastically reducing interest rates, maintained a deafening silence. The change in the government did not help. The rest, as they say, is history.
What the current government expects is to learn from this experience under the tutelage of the IMF. He believes that his new stability and the strong decrease in inflation, which has allowed the great drop in interest rates, will strengthen business confidence and cause a revival of growth led by the private sector to the back of the long anticipated investment Foreign This has not happened until now. The large -scale manufacturing remains in the crisis, the weather gods have abandoned us and we can face a crisis of wheat scarcity. The business sector, as always, never satisfied, clamons for a higher rapid reduction in interest rates.
But the true dilemma facing the economy is more fundamental. The process of provoking basic structural changes in the economy has not even begun. Until now, we have only been scratching the surface. By increasing income, all we have done is to increase taxes on those already taxed. The industry still enjoys subsidized inputs. Losses in energy distribution continue. Our current account surplus is being driven by remittances with imports shooting. And our traditional lenders (China, Saudi Arabia) are reluctant to lend more.
Meanwhile, let the Minister of Finance build currency reservations in case he is forced to press the growth accelerator. For the economy to change its own impulse on a path of sustainable growth could be a very long wait!
The writer is an economy professor at Lahore School of Economics and former Vice Chancellor of the Pakistan Development Economy Institute.
Posted in Dawn, February 2, 2025