Prime Minister Shehbaz Sharif’s declaration that the economy was out of the woods sounded more like political bombast rather than serious economic analysis. His ebullience may be seen as owing to the occasion, the launch of the National Regulatory Reforms, with his using the occasion to talk up the economy, but the fact remains that while inflation seems to have been controlled, the economy is not growing, and generating the jobs needed to accommodate enough of the new voters, to improve the position of the ruling party. Mr Sharif can point to a slew of improved indicators to justify his claims, and economic orthodoxy says that the indicators should lead to more growth and more jobs. However, things could still go awry.
Mr Sharif’s main problems are two: he has trusted the IMF’s economic analysis, and there are too many factors beyond his control. As for the IMF’s economic analysis, he has followed it carefully, cautious not to repeat his predecessors kicking at the traces. The IMF’s analysis has been orthodox, which implies that economic growth is not as much a priority as much as ability to repay. It does not provide a path out of the debt trap. It just makes sure that Pakistan can keep servicing its foreign debt, including what it owes the IMF. However, the economic theory states the economy should pick up by now. Is the economic theory wrong? The delay in growth has not lasted long enough for a firm positive, but it has been long enough for the question to be asked. Then there are the world commodity prices. It only needs the global oil price to go up for whatever positive signs there are, to fade fast. Also, the uptake of Pakistani exports is not dictated by the government and depends entirely on the health of the West’s economies.
Perhaps only when there is actual improvement in growth, and there is consequent job creation, should Mr Sharif make such declarations as he did. There are still too many things that could go wrong. Mr Sharif, to be fair, was comparing the present situation with February 2024, when he returned to office. He naturally wants to take political credit for whatever improvement has taken place, but the time will be when the recovery is on a more substantial basis, and the fear of yet another bust has receded.
