No doubt, macroeconomic indicators are improving. The current account is stable, with a surplus expected in FY25. Inflation has fallen to single digits, and food inflation is under 5 percent. Fiscal discipline is evident—FY24 marked the first primary surplus since FY04, with another projected for FY25. These are hard facts, free from any number-fudging.
Yet, the grim reality is that GDP growth is alarmingly low. As a percentage of GDP, private sector credit has plummeted to its lowest level since the privatization of banks — down to 10 percent from a peak of 23 percent in FY07. The World Bank forecasts a mere 2.8 percent GDP growth for FY25, placing the three-year rolling growth average at 1.7 percent, the lowest since 1953. These are also undeniable facts.
The narrative that improving macro indicators equates to economic revival is misleading. Pakistan’s economy cycles through highs and lows.
In FY22, high domestic demand and a global commodity super cycle triggered an unprecedented crisis. Suppressed demand and lower international commodity prices are driving improvements in the current account and inflation. Fiscal surpluses are being achieved by overburdening a narrow tax base—a strategy with long-term ramifications.
This is not a broad-based recovery. Stability at such a low equilibrium is neither sustainable nor desirable. Job creation is absent. Growth is missing. Manufacturing is contracting, with negative large-scale manufacturing (LSM) growth in the first quarter. Agriculture is faltering, as poor cotton yields indicate another likely decline.
The IMF’s medium-term growth forecasts have been revised downward due to lower private-sector credit and limited foreign investment. Growth projections for FY26 have dropped from 5 percent to barely 4.5 percent in FY28. This is an excruciatingly slow pace for a country with a rapidly growing population.
Where are the reforms? Lower interest rates and a stable currency, driven by cyclical factors, are not reforms. Raising energy tariffs to reduce circular debt isn’t reform either—it’s simply passing inefficiencies onto consumers. The structural vulnerabilities that caused the 2022 crisis persist, making any future growth spurt likely to trigger another crisis. The cycles are shortening, but the fragility remains.
While the stock market hits record highs, this surge doesn’t reflect broader economic progress. The KSE-30 index, even with its recent spike, is only 10 percent higher than its 2017 peak, signaling delayed catch-up rather than transformational growth. The bull run might last another year or two, but it’s benefiting a small pool of investors.
The largest profits are concentrated in sectors like banking, which relies on low-cost deposits and cash-starved lending, and fertilizers buoyed by subsidized gas. Energy companies are merely offsetting inefficiencies by passing costs to consumers. There’s no tech unicorn, no breakthrough in renewable energy, and no revolution in vehicle manufacturing driving the economy forward.
Growth demands investment. Local private conglomerates must take the lead, but heavy-handed policies, like coercive negotiations with IPPs, shake their confidence. Foreign investment is vital, but local investors play a crucial role in creating an enabling environment.
The road to economic revival isn’t paved with stable numbers alone. It requires a commitment to real reform—the sanctity of contracts, the rule of law, and a business environment that inspires long-term confidence. Without these, Pakistan will remain trapped in its low-growth cycles. The simple truth is that numbers can improve, but without reforms, lives won’t.
Copyright Business Recorder, 2024