FeaturedNationalVOLUME 19 ISSUE # 32

Economic Survey: The paradox of progress

The Pakistan Economic Survey presents a complex portrait of a nation striving for stability amidst fiscal turbulence. The survey, mapping the economic landscape for the outgoing fiscal year, reveals signs of recovery yet underscores persistent vulnerabilities.
Despite incremental improvements in key macroeconomic indicators, the nation’s reliance on international bailouts and the socioeconomic strains on its populace cast a shadow over these gains. As the country embarks on a new fiscal year, the path ahead remains fraught with challenges, demanding a critical examination of the policies and economic decisions shaping its future.
The present fiscal year marks another epoch of national forfeiture. According to the latest Pakistan Economic Survey, which delineates the economic milieu of the concluding fiscal period, the economy has ostensibly achieved a semblance of stabilization as pivotal macroeconomic indices have shown improvement, notwithstanding the anticipated shortfall in most fiscal objectives. This tenuous ‘stability,’ bolstered and financed by the IMF, remains precarious, dependent upon yet another more substantial bailout from the Fund for continuation. The economic nadir of the preceding financial year implies that any amelioration in macroeconomic indices this year is perceived as progress. Yet, the economic landscape painted by the survey offers scant cause for celebration or optimism about the future.
Indeed, the economy likely expanded by 2.4%, a rate slightly trailing the population growth. This increment is attributed to increased yields of cotton, wheat, and rice rather than industrial resurgence. Although the agricultural sector burgeoned by 6.3%—the most rapid growth in two decades—its reliance on major crops highlights inherent structural frailties. Both industry and the services sector exhibited an anemic growth of 1.2% each. This implies that the economy did not generate new employment opportunities to absorb the influx of job seekers. Furthermore, the government managed to reduce the current account deficit to $200 million in the first ten months, against a target of $6 billion for the year. The government has averted a default on its foreign obligations, augmented its international reserves to $9 billion, and stabilized the foreign exchange market. Nonetheless, this external account stability is the result of informal and administrative import controls, which have stifled economic growth, employment, investment, and exports. Moreover, the fiscal deficit has been slightly reduced, averaging 7.3% over the past five years, pushing public debt to over Rs67.5 trillion and debt servicing costs to Rs5.5 trillion in the first three quarters up to March.
This fiscal consolidation has compelled the government to slash its expenditures on economic and social infrastructure development, a cost that will be borne by the economy and populace in the ensuing years. Tax revenue collection has surged by nearly 30%, yet this increase stems from a heightened tax burden on the working classes and corporate sector. As with the preceding year, the current fiscal period has been exceedingly arduous for citizens, with deteriorating economic conditions, declining real wages, and rampant inflation proving to be debilitating for lower-middle-income households. So, where is the victory? The sole glimmer of hope lies in the possibility that, despite the considerable deviation of the Pakistani economy from its intended course, it could still be redirected if the ruling elite can transcend their narrow self-interests.
Encouragingly, key macroeconomic indicators have improved compared to the same period last year, with a GDP growth rate of 2.38% this year, in contrast to a negative 0.21% last year, attributed to “catastrophic floods, surging global commodity prices, global and domestic monetary tightening, and political uncertainty”. These catastrophic floods, however, had a “fertility impact” on major crops—wheat, rice, cotton—with agricultural growth at 6.25% this year against 1.55% last year, industrial growth at 1.21% this year versus negative 2.94% last year, and services growth at 1.21% this year compared to 0.86% last year.
The recent comparison with July-March 2022-23, under the stewardship of Ishaq Dar’s Finance Ministry, is unfortunately disheartening. At that time, the country teetered on the brink of default due to two fundamentally flawed policies that violated commitments under the then-ongoing IMF program, leading to its suspension. The first was an unbudgeted Rs110 billion electricity subsidy to exporters, even as 33 million Pakistanis were displaced by the devastating 2022 floods. The second was an attempt to control the rupee-dollar exchange rate, resulting in multiple prevailing exchange rates that stifled official remittance inflows by $4 billion. Consequently, the economic bar was set so low last fiscal year that any improvement, particularly when measured in percentage terms, would appear significant.
Furthermore, despite a bumper wheat crop this year, the caretaker Punjab government’s poor decision to allow imports prevented the provincial government from purchasing wheat directly from farmers due to a lack of storage facilities, causing a financial crisis for thousands of farmers.
Three significant improvements noted are in the current account deficit, though desired inflows from exports and remittances have yet to reach 2022 levels; the rise in foreign exchange reserves (bolstered almost entirely by rollovers from friendly countries); and an improvement in the primary surplus, albeit against a rising budget deficit in absolute terms. However, the Survey notes that the deficit is the same as last year in percentage terms.
The Survey acknowledges that the economy’s performance this year fell short of expectations. This assessment does not account for the typically over-optimistic projections made in budgets—some aimed at the general public (including underestimating the inflation rate at 11.3% for May and an unrealistic 6.3% unemployment) while others aim to appease multilateral lender concerns. This is especially pertinent now, with negotiations on the next long-term IMF program underway, requiring agreement on macroeconomic indicators, as judged acceptable by the IMF team, which will determine the conditions for the next program. This aspect accounts for the significant delay in presenting the three-year Budget Strategy Paper.
In conclusion, while the Pakistan Economic Survey highlights some strides towards economic stabilization, it also lays bare the underlying fragilities and policy missteps that continue to impede sustainable growth. The modest improvements in macroeconomic indicators, juxtaposed with the burdens of increased taxation and a precarious fiscal environment, paint a sobering picture. The government’s ability to navigate these challenges, transcend vested interests, and implement robust, forward-looking policies will be crucial in steering the nation towards a more resilient economic future. Only then can the hope for genuine progress and prosperity be realized for all Pakistanis.