Staying the course | Pakistan Today

Staying the course

  • SBP thinks the modest GDP growth target can be met

The State Bank of Pakistan (SBP), in its report on the third quarter of the financial year just past, 2019-20, has also commented on the current financial year, 2020-2021, and has said that the GDP growth target, of 2.1 percent, can be met, provided that the Public Sector Development pending is maintained at the budgeted levels. At one level, this is basic economic orthodoxy. Indeed, it can be argued that a government can do little to influence GDP growth other than to vary its development spending.

At the same time, it should not be forgotten that when revenue falls short of projections, or some special need arises on the expenditure side, it is the PDSP to which Finance Ministers turn to make adjustments. It is not as if the growth target is particularly ambitious. Indeed, had it not been for the circumstances, it would have to be characterized as anemic. However, considering that the covid-19 pandemic has already caused the 2018-19 growth to actually be negative, the target might seem difficult to achieve. The GDP growth picture will probably be clearer after the current Kharif crop is over, when the effects of the locust attack will be over. As the locusts threaten both cotton and rice, not only is a cash crop and an export earners under threat in the shape of the former, but our food security in the shape of the latter.

The main threat to the PSDP comes from the regional security environment. It is not just that an increasingly jingoistic and irrational leadership will engage in conflict, but it might begin an arms race that would oblige Pakistan to spend money. A hard-pressed government would then be tempted to cut funds from the PDSP to spend on security. Going by the SBP estimate, to maintain a growth rate that is already very low, any such temptation must be revisited very strongly. It should not be forgotten that development spending goes to contractors, and creates a multiplier effect as it goes through the economy, as contractors and their employees pay for goods and services. The social goods constructed, such as roads and dams, remain as additional wealth for the nation. This is not frittered away lightly.