FeaturedNationalVOLUME 18 ISSUE # 24

Positives from so many negatives

Pakistan is facing the most difficult time of its history. The worst floods have worsened the economy and the plight of the common people. Recently, Pakistan was on the brink of default. Even some experts say the country has already defaulted unofficially as it has been seeking international assistance to run its affairs for decades now. There were also rumours that a financial emergency was being imposed in the country after its foreign reserves fell to a dangerously low level.

In this situation, there is a report that Pakistan could be among the top economies of the world by 2075. A research paper published by Goldman Sachs, a leading global investment banking, securities and investment management firm, has projected Pakistan to be the sixth largest economy in the world by 2075, given “appropriate policies and institutions” are in place. Authored by economists Kevin Daly and Tadas Gedminas and titled “The Path to 2075,” the study projected that the five largest economies by 2075 would be China, India, the US, Indonesia and Nigeria. Goldman Sachs has been projecting long-term growth of countries for almost two decades now, initially starting out with BRICs economies but later expanding to cover 70 emerging and developed economies.

The latest paper covers 104 countries with projections going as far as 2075. Pakistan’s future star status is predicted on the back of its population growth, which along with Egypt and Nigeria, could place it among the largest economies in the world in the next 50 years. By the time, the research projects Pakistan’s real GDP to have grown to $12.7 trillion and its GDP per capita to $27,100. The numbers, however, are projected to be less than a third of the size of China, India and the US. India’s real GDP in 2075 is projected at $52.5 trillion and per capita GDP at $31,300.

Among key risks to their projections, the economists particularly highlighted environmental catastrophe and populist nationalism. Unless a path to sustainable growth is ensured through a globally coordinated response, climate change could heavily skew these projections, particularly for countries like Pakistan, with geographies that are especially vulnerable. With populist nationalists coming to power in many countries, it might lead to increased protectionism that could potentially result in the reversal of globalisation, thereby increasing income inequality across countries.

The report notes that global growth has slowed from an average of 3.6pc per year in the past 10 years to 3.2pc, and the slowdown has been relatively broad-based. It projected global growth to average 2.8pc between 2024 and 2029 and on a gradually declining path. While global growth is dipping, emerging economies are growing faster than developed markets and will continue to converge with them. The weight of global GDP will shift even more towards Asia over the next 30 years, as China, the US, India, Indonesia and Germany top the league table of largest economies when measured in dollars. Nigeria, Pakistan and Egypt could also be among the biggest.

The decline in global growth will be driven by the decline in population growth, which UN projections imply will fall to close to zero by 2075. The paper says this is a “good problem to have” as it mitigates damages to the environment but could pose economic problems arising from high healthcare costs and an ageing population. The US won’t be able to repeat its strong performance from the last decade, with potential growth remaining “significantly lower” than that of large developing economies. The US dollar is also projected to lose strength in the next 10 years. Emerging markets’ convergence has led to falling income inequality between economies but income inequality within most economies has risen. This poses a major challenge to the future of globalization, it observed.

However, the forecast for the recent time is not bright enough. Marred by political uncertainty and challenging economic indicators, Pakistan’s GDP growth is projected to witness a significant slowdown to 2.1pc in the ongoing fiscal year, an Egyptian financial services company said. “We forecast real GDP growth will slow to 2.1pc in FY23, from 6.2pc in the previous fiscal year with the potential for a mild recovery in FY24 to 3.1pc,” said the company, EFG Hermes, in its report titled “Pakistan Economic Note.” “The growth outlook beyond the current fiscal year is primarily hinged on future political developments, which will dictate the macro path. Pakistan’s macro outlook remains hostage to political instability that has unfolded since early this year after the impeachment of former prime minister Imran Khan. Since then, the political environment has become a deadlock with a cornered ruling coalition facing an increasingly popular opposition, leading to a political stalemate. Tensions between the PTI and the army have also added oil to the fire, leading to further concerns over political stability,” it noted.

“We see no resolution to this deadlock in the immediate future as any near-term elections would risk handing power to the more popular PTI. Moreover, adding to the challenging external economic conditions, recent floods paint an unfavorable economic outlook. The macro sustainability really hinges on Pakistan’s ability to receive external support from friendly countries,” the report said.

It expects the Pakistani rupee to remain under pressure despite the recent narrowing of the current account deficit. “The drop in remittances is of particular concern, which was likely driven by higher remittance inflows through informal channels that offer better rates. Moreover, the drop in imports remains partially driven by de facto import controls, hence this is not necessarily fully genuine. We project the current account deficit to narrow to 2.6pc of GDP in FY23 with risks mainly tilted to the downside considering the above mentioned concerns,” the report added.

It also projected elevated inflation due to supply disruptions on the food side, mainly due to the recent floods, and potential measures to contain the fiscal deficit.  “We project average inflation of 23.5pc in FY23,” it said.

It is encouraging to note that Pakistan’s current account deficit is shrinking. On the other hand, the Federal Board of Revenue (FBR) surpassed its five-month tax collection target of nearly Rs2.7 trillion on the back of enforcement measures and steady income tax growth.

Undoubtedly, Pakistan has immense potential to stand on its feet. However, successive governments relied on foreign and domestic loans to run the affairs of the country. They took popular measures, without caring for the economy. It is hoped that future governments will keep national interests above their political objectives. It is the only viable solution to solve national and public problems.