The good and the bad

There is good news and there is bad news for the Pakistani economy – if the World Bank is to be believed. The good news first: the World Bank predicts that Pakistan’s GDP will grow at 5.5 percent for next year. But the Bank is concerned about the increase in ‘macroeconomic imbalances’ in the last year and predicts that inflation is set to hit six percent in the current fiscal year. Overall, it is a question of how the Bank’s biannual report is read which determines whether one takes it at a positive or negative story. The higher growth rates are certainly something that the government will take pride in. It has been claiming that the country is ready for economic take off and will cite this as evidence. The World Bank believes that two key determinants will be a recovery in remittances and higher government spending in election year. This will result in an increase on the consumption side, which will push economic growth. However, the Bank remains concerned about Pakistan’s ability to compete in the global market, suggesting that the country needs to pursue more economic reform. While the reform that is needed is unlikely to be the one advertised by the World Bank, the fall in exports is a major concern for the country’s economic future going forward.

Pakistan’s need to manage the security and political situation is obvious if the growth trajectory is to be continued – but the trouble is that for many Pakistanis the numbers remain hard to believe. There has been little delivery of tangible improvements in living standards on the ground. The increase in growth in individual sectors needs to be balanced by job creation and equitable distribution. In itself, the high industrial sector growth of seven percent will be delivered on the basis of improved power supplies. The World Bank is also concerned about the possibility of the current account balance becoming unsustainable. The deficit has increased by 112 percent from last year in the first quarter. This is unsustainable in the medium-term and also makes very little sense given that the price of the biggest import – oil – has only increased slightly. Pakistan’s high remittance dependence itself is another concern but this is a long-term structural issue that needs to be looked at. One space to watch is the World Bank’s suggestion to depreciate the rupee to help narrow the trade deficit. The demand has been made before but the government has continued to resist. This is a picture that has some signs of hope but as long as the warning signs are not ignored.