Euphoric tides

Its all too familiar. The awards, the recognition, the ratings, and what not; this past ten days alone have seen a spate of positive news about Pakistan that Ishaq Dar and his team would not fail to tout at any given opportunity.

The start of this month saw Wall Street Journal quoting Nestle Pakistans CEO as saying Pakistan is entering the hot zone. The bottomline thesis of that WSJ story was that Pakistans middle-class is soaring, which makes the country fertile grounds for businesses pegged to consumption.

A few days later Bloombergs columnist Tyler Cowen also handpicked Pakistan as a clear winner amongst the worlds underrated economies. His thesis hung on to the annual stock market gains, falling poverty, improving GDP, booming retail business, and the countrys graduation from the IMF programme.

Then, as luck would have it, Fitch Ratings agency affirmed Pakistans long-term foreign- and local-currency Issuer Default Ratings (IDRs) at B with stable outlook.

Latest in that series is The World in 2050 report by the global accounting and audit firm PwC. That report forecasts Pakistan to be the 16th biggest economy by 2050 (at $4,236 billion at PPP) and 20th biggest by 2030 from 24th biggest in 2016. This effectively implies that Pakistan would be overtaking Italy and Canada on a PPP-basis. Although in February 2015, PwC had forecast Pakistan to be the 15th biggest (at $4,253 billion at PPP), but be sure to expect government circles to ignore that little fact.

The fact that aside from Fitch, none of these publications mentioned CPEC as the driver is both strange and positive. The latter because perhaps they see Pakistan as a growth story with or without CPEC; the former because how could any serious economic observer comment on Pakistan and not evaluate CPEC and its impact on Pakistans economy.

Anyway, does anyone remember how Pakistan featured in Goldman Sachss Next Eleven in the years 2003 and 2005? The excitement of those years: that thrill, that racing pulse; and then poof: a damp squib.

Many countries suffered from the global financial crisis of 2007-08; many in fact suffered much more than Pakistan did, because they were much more integrated with the world than was Pakistan.

But of those, few struggled as Pakistan has to rise up back into the marketing mumbo-jumbo behind growth stories that investment banks and financial research houses produce every now and then. The reason: Pakistans clear lack of focus on governance and soft infrastructure. What was it that Warren Buffet said? Oh yes! Only when the tide goes out do you discover who's been swimming naked.

A year is a short time for reforms, but one does expect at least some green shorts in four years of rule. If only Pakistan had seen a similar spate of positive news for banking courts and judicial courts reforms, police, taxation reforms, civil service, productivity, strengthening of institutions, and so forth. Does anyone remember back-to-back positive news along these lines?

Chances are there wont be; not least in the next 14 months. Who would want to ruffle reformist feathers in the last year of government? Even if there are more years to this government, it lacks the incentive to roll out reforms, since after all we have got the manna from the heaven: the CPEC.

With money pouring in from China, and businesses and stock exchange community feeling hot, hot, hot, why spend time, money, and efforts on reforms and risk the erosion of political capital, which is already dented by Panama Leaks.

This column has been already flagging this concern for sometime; and has now been joined by the Stockholm International Peace Research Institute that recently published a report on The Silk Road Economic Belt. The report, based on year-long research involving elite interviews across the region, cautions that Pakistan might not engage in deep reforms since it knows that China will most likely continue to invest because it needs the support of Pakistan and a functioning CPEC.

Moral of the story: if Pakistan fails to roll out reforms for improving governance and soft infrastructure, a few years down the line, whenever the dragon catches the cold, that Buffet quote will become relevant again.