An old car driven at 50km per hour seems to function well, but if raced at 120 it starts rattling with parts making strange and sometimes alarming noises. The story of Pakistan's economic recovery earlier this decade is similar to that of an old car. When growing at 2-3 percent felt too stagnant, the economy got a booster from external inflows and sped on with a growth of 6-7 percent in the last few years.
Then came the noises owing to a variety of factors. Now, with IMF's rescue service, a prescription of slow drive is followed. And although, the indicators are gradually improving, a worrisome slow growth period with high unemployment lies ahead. Yes, a déjà vu of the late 90s.
By the end of first quarter of FY10, the current account has narrowed substantially, inflation is less than half compared to last year's and fiscal deficit is also rolling downhill. The question is what is driving these indicators. A close look at the break-up of trade data shows that both non-oil imports as well as exports are falling.
The fall in machinery group and food imports implies a slowdown in economic activities. Continuous decline in machineries' import in the absence of adequate domestic technological capacity signals low investment for future growth - which will leave a negative impact on exports in the medium to long run.
While this demand contraction has eased inflationary pressure for the immediate term, one can't be too cheerful as the removal of power subsidies at home and resurgence of commodity bulls abroad threatens to breathe life into inflationary dragon again - while also straining fiscal balances.
And although growth numbers haven't been published for the last quarter, one can take a clue of fragility in the recovery process from stagnant revenue collection. Amid falling gross capital formation, the bleak security situation has forced domestic and foreign long-term investors to shelve their business plans. Lately, there are indications that domestic businesses are moving to less developed but more secure and investment friendly neighbouring countries.
Even if these indicators suddenly turn positive by some miracle, the long-term socio-economic indicators of a healthy economy - equitable resource allocation, poverty eradication and infrastructural development - will stay depressed if the politicians of past or present and future remain short sighted.
An engine overhaul is direly needed to ensure a smooth ride at faster speed. The structural changes, institutional reforms and improvement in governance - economic justice must balance the bettering of macro indicators. Surely, Pakistan doesn't need another round of lost decade, as one senior economist put it, when the institutions remained stagnant despite high GDP growth.
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