Steady as she goes?
There’s never really a time when a World Bank or IMF pat on the back is a bad thing. Yet reading too much into donors’ sense of satisfaction – especially when reserves and deficits they speak of have improved on exogenous factors – sometimes risks ignoring vulnerabilities in the economy. Granted, growth is about as much as could be expected given our many revenue constraints. But deficit, inflation, etc, owe primarily to factors way beyond the finance ministry’s control. And if hadn’t been for the IMF program – in which we missed benchmarks for practically all important indicators at all important meetings – consolidating this welcome relief would itself have been difficult.
Yet it’s still not as simple as the Fund and World Bank have recently implied. Revenue and deficit are precarious not just because they remain hostage to outside factors. There’s also the question of Pakistan’s internal politics. The general election is not very far. And the present political climate has forced the ruling party into an early campaigning of sorts. That, as a rule, means additional pressure on numbers just like revenue and deficit. And since Prime Minister Nawaz Sharif has been recently stunned by the Panama affair, he’s likely to resort to a more visible sort of expansionary fiscal policy than would otherwise be the case. In the end that means more pressure on growth, earnings and, of course, eventually the deficit.
Our lenders of last resort should rather caution the government at this precarious time. Even if it is maintaining a decent growth trajectory, it is still not moving on enhancing export earnings or tax revenue. That means that basic revenue generation remains compromised and the economy is stuck in a region well below par. Such situation is closer to stagnancy than vibrancy. Even if the economy is steady, the course ahead should seek to diversify and expand as opposed to stay as it is.