Gloomy forecast

Pakistan’s economy just does not seem to be getting a break. At least, that’s what some international analyses have concluded. To start with, on Monday the IMF lowered its economic growth forecast for Pakistan and the region by 0.3 percent to 2.4 percent. According to the Fund, there may be a mild improvement in 2020, to around 3 percent, but the overall figures remain dismal. In particular for Pakistan, the IMF has identified tightening financing conditions as the main culprit for the low growth forecast. Compounded with the weak oil output growth in the region, the IMF sees Pakistan stuck in a rut with its western neighbours, Afghanistan and Iran. The Fund has predicted a 1.8 percent growth in Saudi Arabia, compared to the 2.6 percent GDP growth figures projected by Riyadh itself. The IMF’s figures are likely to be more accurate after the Saudi economy actually shrunk by 0.9 percent last year. The Fund’s pessimistic forecast also factors in the growing US-China trade confrontation, Brexit and other international uncertainties. The question is: where does all of this leave Pakistan?

Already, the Pakistan government has begun to revise its growth targets. One must wonder if this situation will get worse if the SBP devalues the rupee further as has been predicted by Fitch Solutions. The rating agency has issued disparaging reports of the PTI-led economic reforms — with another negative report released on Monday. According to Fitch, the rupee will remain under depreciatory pressures due to its weak external finance situation. This comes only a week after the rating agency warned that Pakistan could face large economic distortions and troubles because of its choice of funding sources to avert a balance of payments crisis. Fitch is of the opinion that the low appetite for austerity and economic reforms will soon have unfavourable repercussions on the country.

The depreciation of the rupee has increased the cost of production for a number of domestic manufacturers, including the pharmaceutical industry. The case of the pharma industry, which has faced a 4 percent increase in costs, is only one example of a number of industries that have said that they are facing severe economic distress. The automobile parts industry has also taken to the media to issue advertisements about its potential collapse. The real question is whether Pakistan can only delay a crisis or whether there is something that can be done to avert it. As it stands, the government’s approach seems to rely on patch work: one loan here, one loan there. We will need to see more assured policymaking if Pakistan’s economy is to avert such negative projections.