Bust amid boom

The Asian Development Bank’s flagship Asian Development Outlook (ADO) report is out, and while officialdom is sure to make much of what little optimism it expresses about Pakistan’s economy, the overall picture it paints is grim. With South Asia’s GDP growth projected to blaze away at a healthy average of 6.3 per cent in 2024 and 6.6 per cent in 2025, Pakistan’s GDP will continue to stagnate, growing at a leisurely 1.9 per cent and 2.8 per cent respectively. Clearly, the needle is barely moving, especially when you factor in the country’s high population growth rate and the low-base effect in play because of the 0.2 per cent contraction seen over 2023. Equally concerning, Pakistan is the only country seen posting double-digit inflation in the next two years – 25 per cent in 2024 and 15 per cent in 2025, with the regional average hovering around 7.0 per cent and 5.8 per cent respectively. Small wonder the ADB emphasizes the importance of economic reforms to solidify the prospects of Pakistan’s recovery. Coming against the backdrop, the word dropped by IMF Managing Director Kristalina Georgieva of Pakistan’s formal approach for a medium-term programme might as well be a gentle reminder for Pakistani authorities: There is so much to do to put this house in order.

None of the foregoing is to say that any of this is novel or unexpected. Pakistan’s economy has been in a bad shape for a while – and for well-known reasons. The country is barely rising from the rubble left behind by the cataclysmic 2022 monsoon flooding. Then there was the policy slippage of fiscal year 2023 (ended June 30, 2023), inflicted on the country by a previous government. Finally, there is the crippling debt burden of the economy. And as if that was not enough of a lot, there are also deep-seated macroeconomic imbalances. In particular, the more prosperous classes have become a rent-seeking racket, unwilling to so much as pay due taxes, let alone pull their weight. The collective is represented at every echelon of power in the Pakistani polity from parliament downwards. Bringing them to heel will no doubt be a tough ask, but fortunately or unfortunately, there is no otherwise: Farm and retail taxation must be rolled out in short order to keep Pakistan a going concern.

In the final reckoning, the future of Pakistan’s economy depends on the authorities’ ability to address these challenges and capitalize on the country’s vast potential for growth. Pakistan has a young population and a strategically important location, both of which can be leveraged for growth. These are substantial assets, but priming them for performance is the challenge facing a government beset by political instability. As the ADB report rightly points out, political risk is the greatest peril of Pakistan’s economy. Still, the time to ask if Prime Minister Shehbaz Sharif and his cabinet are equal to the task was yesterday. Now is the time for them to hurry up and do it. This country has remained in suspended animation for well nigh two years for this government to arrive and set things right. They better do it starting now. The nascent recovery the ADB sees ahead is based on the performance of communities and sectors hardest hit by the flooding and still mired in its aftermath, like agriculture and manufacturing. This is a measure of how gritty the common Pakistani, grunting under Asia’s highest cost of living, is. None of the hardship inflicted on the common Pakistani over the years should be in vain. Pressing ahead with the economic reform programme is the only way.