The flip side

Pakistan's economy shows improvement, high energy costs, investor concerns hinder sustainable growth

A euphoric picture of the economy painted by the financial guru is merely one side of the story. The fact is that Pakistan, in pursuit of abiding by the IMF program, has done all it was required to do to achieve macroeconomic stability, and has been successful to a great extent in slashing the spiralling inflation and establishing a semblance of certainty in the foreign exchange rate. Likewise, soaring forex reserves have lifted investors' confidence amid stringent reforms undertaken over the past year. That is why the finance minister believes that Pakistan has reached a critical turning point, and policy continuity will lead toward export-led growth.

The salient features of positivity, of late, incurred in the economy are achieving both primary fiscal surplus and current account surplus, helping break from a cycle of recurring deficits. Strong remittance inflows and a fall in inflation from 38% to single-digit levels are other plus points, paving the way for moving away from a consumption and debt-driven growth model toward an export-led strategy.

There are, nonetheless, several ifs and buts on this contested claim of having put the economy on a path of proficiency and profitability. The prices of energy, especially of electricity, are untenable with competitive exports, and as a result, the industry is on the verge of extinction. The least required is to ensure that reforms come to lower energy costs so that industry flourishes and exports improve.

The exit of many multinationals and a dip in agricultural production are other points of concern and cannot be overlooked. One of the reasons cited by foreign giants as they exited the orbit is an unrealistic tax regime and high energy costs. Likewise, exorbitant interest rate was another deterrent, as well as the weakening rupee that has lost 63% of its value since 2017.

This extortionate attitude is responsible for repelling investors, warranting an instant auto correction. With growth stunted at 2.7% of GDP, redundant red tape and a heavy state presence in the economy are undermining efficiency and deterring investment.