About four months after the Finance Minister announced that Pakistan had achieved the highest annual GDP growth rate of the decade, at just over 5 per cent, dark clouds have begun to gather on the country’s economy. The prime cause for concern is the current account deficit which is estimated to have more than doubled compared to the last fiscal year, and is now close to four per cent of the GDP. With exports having stagnated for some years, and remittances from the Gulf states now beginning to slow down, the situation is quite worrying. The foreign exchange reserves stand at just below $14 billion — about $5 billion less than this time last year. The fiscal deficit is on the rise — expected to once again cross 5 per cent of the GDP this fiscal year. The Federal Board of Revenue (FBR) has been given a target of raising revenues by 16 per cent, but has been unable to bring a wide section of the population under the tax net and remains reliant on taxes generated from salaried persons in the formal economy. The FBR has been given a target of raising revenues by 16 per cent, but has been unable to bring a wide section of the population under the tax net and remains reliant on taxes generated from salaried persons in the formal economy There is only so much that this group can be squeezed. The international institutions are beginning to send out warning signals and news is rife that Pakistan will return to the IMF by the middle of next year. In an election year, this is not the sort of news a sitting government wants to put out. It is as yet too early to comment on how this fiscal year will turn out. But it is good that the news is beginning to come out and that the government is under pressure to keep an eye on the fundamentals. None of this is surprising. There are structural problems in Pakistan’s economy including a poorly trained workforce, a lack of incentives for small businesses, energy and infrastructure problems and heavy reliance on agriculture, which is subject to the vagaries of changing weather cycles and a poorly maintained irrigation system. Tackling these issues requires a long term planning framework and a willingness to make difficult decisions. The current government had come in with a strong enough majority where it was in a position to do this, but it shied away from upsetting its key constituents, including large landowners and small traders. Not much was done to address the fundamentals. Given the current state of political uncertainty, it seems the current dispensation will be extra cautious going into the next elections. Matters are not improved by the Army Chief’s decision to make a detailed public statement about the economy, and to point out the obvious — that there is a tension between the need to ensure national security while providing public services. If nothing else, an acknowledgment of the pressure on successive budget makers to meet significant security financing needs in the context of a resource crunch would have been in order. Given that this tension has existed since the 1960s, the accumulated effects of diverting resources into one sector while leaving key social service areas under-serviced are considerable and are now catching up with us. Pointing out a year’s fiscal deficit without taking in to account the longer term of its history would be disingenuous. The writer is an economist and policy analyst based in Islamabad Published in Daily Times, October 15th 2017.