Growth at a crossroads

The government is growing increasingly concerned about the state of the economy due to the impact of the US-Iran war and the stress it is placing on energy prices and international trade. Though official growth targets are not being touched yet, the government has added enough caveats to make them effectively meaningless.

The State Bank's biannual monetary policy report says the economy should still grow between 3.5% and 4.5% this year, and that inflation should ease and stablise on the higher side of the existing full-year estimate. The current account deficit should be below 1% of GDP, the external account should be stable, and foreign exchange reserves should be over $20 billion at the end of the calendar year. But if even one estimate is off, things will fall apart like a house of cards.

While the government has gone to great lengths to factor in the estimated cost of the US-Iran war, with a strong El Niño expected to hit the country soon, rain alone could devastate the economy. Neither our farmers nor our government is prepared for yet another 'storm-of-the-century'. It is also notable that while the State Bank tries to temper expectations by placing most of the blame on circumstances beyond its control, careful observers know that lax flood preparedness, corruption and waste are all preventable concerns that could easily have been addressed at any point over the past several years. Unfortunately, the government would rather keep the cart moving rather than deviate from flawed plans.

This unwillingness to invest in critical issues such as young doctors while investing heavily in non-essential issues could come back to bite us, as fewer doctors are available in many parts of the country. Riding out the tide will require us not only to craft a prudent monetary policy, but also to undertake genuine structural reforms. Without such intervention, the recovery will remain fragile, at high risk of collapsing under the weight of even the slightest unwelcome economic surprise.