The Asian Development Bank (ADB) has only increased the confusion about Pakistan’s growth prospects for this fiscal by adding to the long list of predictions about it. The IMF reckons this year’s GDP growth will be 1.3 percent, the World Bank puts it at 1.5 percent, while the State Bank of Pakistan (SBP) and the ministry of finance expect it to land at 3 percent and 2.9 percent respectively. Now ADB is betting on 2 percent. Surely all the uncertainty caused by the pandemic is responsible for the many divergences because if only the country’s fundamentals were considered the spread among expectations would not be so wide. That is why ADB also made it very clear that even the 2 percent was contingent upon “successful vaccine rollout and the implementation of economic reforms under a stabilisation program with the IMF.” Simply put, if either of those goes off track then the 2pc too goes out the window.
The downward Covid drag isn’t entirely a surprise and more or less every country is experiencing it. What is of some concern, though, is the economy’s inability to snap into high growth even once things get going properly. And the reason for that is the presence of very little built up aggregate demand from before the pandemic. Let’s not forget that among the first gifts of the IMF program were a contractionary fiscal policy, which saw government development programs squeezed and taxes raised, and a very tight monetary policy, which pushed interest rates up to the point that private sector credit offtake declined sharply; with very obvious results. That makes persistent high inflation levels even more worrying, because prices are not pulled up by demand, rather pushed up from the supply side.
The new finance minister must have noticed how the central bank’s concessionary lending schemes kept the economy breathing even in the darkest days of the lockdown. So he would also understand that perhaps the best thing to do in this low growth environment, when businesses tend to struggle with retrenchment, is to extend some of those initiatives for at least another fiscal. Even a 2pc growth rate for this year, though below local expectations, would imply impressive forward march, considering the contraction of last year. So the economy seems to be holding despite all the bumps in the road. *