The State Bank of Pakistan’s second-quarter report does not contain entirely negative news, but it does point to certain developments which cause concern and which must be addressed at once before they go beyond the capacity of the government to handle. Some of the good news includes the GDP growth expected this fiscal year, of 3.94 percent, which compares favorably with -0.4 percent last year, in 2019-2020, and which more importantly indicates that the recovery from the covid-19 pandemic is going to be V-shaped. That drag on the economy meant that while 20.7 million people lost their jobs, the majority of them are back at work. Another positive development has been that the foreign remittances have remained healthy throughout the year, and this has played a key role in keeping a surplus in the balance of payments.
However, the State Bank report does mention certain areas of concern, which have to be tackled urgently, if the economy is to be kept on an even keel. The debt situation is of great concern, because it is almost impossible to service existing debt, but the government keeps contracting new debt, both foreign and domestic, to stay afloat. As if that pressure on the balance of payments was not enough, the report expressed concerns that imports were going up. That alone is enough to throw the balance of payments out of kilter. Food insecurity does not help, created by the failure of the government to judge whether or not food staples like wheat, or essentials like sugar, should be imported or exported.
Such unpredictability does not bode well for the government’s ability to manage inflation, which is another concern the SBP report mentions. With inflation also fuelled by the devaluation of the rupee, which may make exports cheaper but also makes imported foods dearer, there are tough times ahead. Because exports depend on imported inputs (not just raw materials, but fuel for both transport and power), devaluation has affected their prices, and made it all the more difficult to run up the trade surpluses which are the way out of this situation. The government must focus on handling the problems, and leave the celebrations of the good news to others.