|By : Syed Muhammad Kashshaf |
The recently highlighted government’s claim that the economy is on the mend is not entirely factual given the forecasts in the World Bank report. According to the report, the growth rate is expected to fall at 2.4% in the current fiscal year with only a slow recovery to 3.0% in the next fiscal year. The anticipated recovery in the growth rate of the next fiscal year is dependent upon few factors such as low international oil prices, reduced political and security risks. It has also been stated that the domestically introduced structural reforms will have its minor yet positive effect on the recovery expected in the next fiscal year. Where the government is highlighting positive points of the World Bank reports they should also consider the fact that it also raises its reservations on the depicting high foreign debt and high fiscal deficit as a massive problem and will cause very slow economic growth.
There have been this argument that declining growth will lead to inflation and that will negatively affect the masses. Structural reforms are necessary, during their implementation vulnerable households capacity to face these reforms will depend on growth rate, food and non food inflation and the elasticity for sectors relevant to their employment which are agriculture, construction, wholesale and retail trade. Also, the consistent and massive increase in debt over the period of time will mean that the economic crisis will prevail. This has to be strongly stated that the success of the governments Poverty Alleviation program will remain a distant dream given the current economic scenario. The positive sign we saw in the economy was exchange rate flexibility and an overall better trading environment in South Asia in the first two quarters of the current fiscal year which was the reason for growth in exports .
It is significant that increase in foreign debt will continue to cause a decline in reserves and inhibit the economy from getting out of the vicious cycle of the debt trap which consists of taking more loans to pay off interest of previous loans and so on. We have to consider the fact that stagnant economic growth will affect the masses in terms of inflation, unemployment and poor business environment. However, structural reforms are inevitable and will slow down economic growth but it is a now or never implementation.
The considerable alternative point of view that has not been properly projected is that the structural reforms take place in phases. The first target to achieve is to decrease current account deficit and increase reserves. The anticipated current account deficit to GDP according to the World Bank Report will reduce to 2.2% of the GDP due to increased exchange rate flexibility which was 6.3% of GDP in 2018. This will stabilize the low reserves. Also, the economy for the first time in recent years will depend on exports led growth instead of import led growth or consumption led growth. If government continued with imports led growth we might have achieved higher GDP but trade deficit would have increased from $20 billion instead of decreasing to $13.5 billion. Recent statements by IMF and Asian Development Bank have said that macro adjustment policies such as monetary tightening, exchange rate adjustments and cuts in development spending have started paying the desired results with stability and growing strength visible in many sectors of the economy. The current economic team has prevented Pakistan from bankruptcy and basically implemented crisis management. The second year will show signs of stability and the economy will steadily continue towards growth and development in the next years following the achievement of stability.