Economic growth — missing the mark

The government needs to identify the problems impeding growth and then develop the political will to eradicate them

The Pakistani economy has been projected to have a growth rate of 4.2 per cent for the outgoing fiscal year, which ends on June 30, meaning the government has missed the ambitious target of 5.1 per cent it had set itself. According to a provisional reading of the growth in GDP, the country was just marginally ahead of its performance last year but well short of the target. However, the projections remain largely in line with what the IMF, the ADB and the World Bank had predicted for Pakistan. The announcement of a 4.2 per cent growth rate does not come as a surprise. The growth is higher than what Pakistan had achieved in the last few years and is due in part to the perception of a pro-business government in place. There is no doubt that the Nawaz Administration has always tried to instill confidence in the business community — maybe a few select sectors to be more precise — and managed to help the capital markets’ performance as well. It was also largely to its advantage that global crude oil prices slumped over 50 per cent during the outgoing fiscal year, helping the country’s businesses to flourish to some extent. This also gave an opportunity to the government to reduce discount rates, with the inflation rate recording one low after another, benefiting highly leveraged companies as well.

However, we need to take a look at the larger picture. More than two-thirds of the growth came from the services sector, including telecommunications and banking. Growth in industrial and agricultural sectors could not catch up. Historically, Pakistan has never been a manufacturing country and therein lies the problem. While we can sit back and celebrate the growth in services, what is actually needed is the utilisation of the current favourable scenario to promote the manufacturing sector. Exports have failed to rise the way they could have and constant changes in policy is a huge impediment. All sectors, including automobile, textile and agriculture, have lamented the frequent changes in policies as the core reason for their lack of growth. The power crisis is another cliched reason but a major one nevertheless. The government needs to identify the problems impeding growth in various sectors and then develop the political will to eradicate them; otherwise, the Pakistani economy reaching its true potential will remain a dream.

Published in The Express Tribune, May 21^st, 2015.

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