ACCIDENTALLY, the World Bank has issued a dire assessment of Pakistan’s stagnant economy. The country’s economic growth is predicted to increase — somewhat — from the current fiscal year (having shrunk by 0.2 percent the previous year), but it will stay below 3 percent for the following two years because “policy constraints to sustainable economic growth remain unaddressed,” according to a report released on Tuesday. The bank warned in the bimonthly Pakistan Development Update that growth will remain modest in the face of ongoing low investment, ongoing external imbalances, distortionary fiscal policies, and a significant state role in the economy unless a major structural reform program is durably implemented.Even the most recent growth projections for Pakistan are contingent upon “ongoing fiscal restraint and a fresh IMF rescue initiative.” The warning and the prognosis are not new. The lender had made it clear a few months prior that the debt-ridden nation of Pakistan’s current economic model was failing because it had lagged behind its rivals, that progress in reducing poverty was now beginning to regress, and that a small elite was benefiting from the growth.
Pakistan currently has two choices: it can either fall into an abyss or pull itself together to avoid economic catastrophe. The World Bank’s country head for Pakistan, Najy Benhassine, is optimistic that Pakistan’s current financial crisis will mark a “Pakistan moment.”if the government implements drastic structural changes to turn around the failing economy, as so many other nations have done when facing impending economic catastrophe.
However, his message is quite clear: Pakistan can only move forward by enacting extensive reforms on a long-term basis. He declared, “The structural reforms needed to improve the economic outlook are known.” Will the recommendations be followed by lawmakers?Global lenders, IFIs, and credit rating agencies have been open about the existential threat to Pakistan’s economy over the past several months, pointing out that the country’s fiscal and external imbalances continue to limit its capacity to pay off foreign debt and import necessities. Their concern over the ruling and commercial elites’ tendency to stray from the path and revert to their wasteful ways as soon as international reserves increase and the external sector stabilizes frequently interjects into their message of urgent reforms.
Despite the administration’s repeated promises to carry out changes for a long-term economic recovery, a clear policy orientation is lacking. For example, some progress has been made toward privatizing loss-making PIA, but the government has not yet unveiled a comprehensive plan for numerous other SOEs.
Investors and creditors are very concerned about the state of economic policy. The prime minister needs to realize that without clearly defining the economic policy direction and implementing significant structural changes, his goals to increase productivity and exports would fail.