The World Bank cautions

The World Bank's latest South Asia Economic Focus is out, and from it appears it hardly adds anything new to the discourse within Pakistan's economics community. Since January 2014, and more so after July 2014, the generally accepted story is that Pakistan's stability and a potential take-off has been compromised by the government's failure to roll out the reforms, and the ongoing political crisis. The same views seem to have been buttressed by the bank.
The global lender says while Pakistan has seen an improvement in FY14, recent political tensions in the country "may weigh" on the macro stability seen in FY14. It adds that while the country could benefit from the GSP+, "continued political instability and large transport bottlenecks may prevent Pakistan from taking full advantage of this opportunity".
Similarly, as this column pointed out last week, the bank notes that while Pakistan's industrial production has recently been a significant contributor to GDP, growth in most sectors has remained lower than last year. The World Bank expects Pakistan's GDP growth to range between 4.3 percent and 4.6 percent in the current fiscal year on account of "services and large scale manufacturing on the supply side, and strong remittance flows, improving private investment and renewed export dynamism on the demand side". But it adds that "this outlook is based upon the important assumption that August 2014 events have not damaged investor confidence, dampened economic activity and growth or increased overall country risk".
It is interesting to see the bank sitting on an assumption, when in fact in its own commentary elsewhere in the report suggests that the damage has already been done, which should make this assumption invalid in the first place.
In an earlier part of the report, the bank is quite vocal in saying that "recent political tensions and protests will likely dampen this figure," referring to the GDP pick up in FY13. In latter pages, the bank says that "growth may have slowed down in the first quarter of FY15 as the virtual paralysis of the government machinery may have affected trade, construction and services."
So how much damage does the bank think has political crises has made to Pakistan's economy? Well, the bank hasn't shared any detailed calculations of its own, but has said that recent events have disrupted this [growth] path by inflicting estimated short term losses of 2.1 percent of GDP (early September estimates)".
"This is the sum of the FX reserve losses due to State Bank of Pakistan foreign exchange intervention and a 9 percent decline in the Karachi stock exchange. Although early signs of a growth slowdown are visible, particularly in relation to exports, the most pressing question is whether investor confidence has been damaged," the bank said.
This begs the question that now that the stock market has managed to work back up, does it mean that losses from the political crisis have reduced too? While we scratch our heads on that, there is one important piece of advice offered by the bank that the government should seriously consider.
Commenting on the risks of delay or modification of the planned reforms, the bank suggests the government to "consider strengthening some areas of the program such as power, with more decisive and less incremental actions, inclusion and governance. Strengthening media communication efforts on the benefits of reforms may also contribute to regaining the momentum."
This is exactly what this column has been advocating for long: when it comes to reform, going gung-ho in the first year should be the government's calling.