Economic optimism

Finance adviser Hafeez Sheikh seems to be an economic optimist. He is confident that Pakistan’s economy is stabilizing and the difficult economic decisions undertaken by the government are slowly showing results. But optimism cannot lead to growth alone – or economic performance.

To take one example, Pakistan’s economy is projected by the IMF to slow down to 2.7 percent in 2020. The latest World Economic Outlook has noted that deficit over the last year has exceeded expectations; there would be medium-term rise in growth but it is expected to decline in the short term. There are uncertainties and even Pakistan is not immune to global geopolitical or trade tensions either.

Now Hafeez Sheikh is holding a series of meetings in Washington to convince global financial and business partners such as ABD, World Bank, and IMF that Pakistan economy’s is improving despite the tough macroeconomic conditions. He has stated that the trade deficit has been brought down by 35 percent while fiscal deficit was reduced by 36 percent; additionally revenue has increased by 16 percent.

Another man entrusted with a rather difficult task is State Bank Governor Reza Baqir. He has stated that Pakistan must negotiate the threats of slowing economy and control inflation; a chilling warning has been given that prices will further rise. The exchange rate is also said to a much better reflection of the economic situation.

Pakistan now has the highest interest rates in Asia after borrowing rates were more than doubled to 13.25 percent since the start of 2018. The rates have remain unchanged for the first time in more than a year. Baqir stated this is necessary as Pakistan must raise the savings rate to escape the endless cycle of IMF. He has earlier said that Pakistan will never need to go to the IMF again, but it is known fact that the country is a frequent visitor to the global lender.

Baqir, who was employed with the IMF before joining the State Bank in May, has stated Pakistan opted for the best available option by going back to the IMF. He said that central bank fixed the exchange rate previously leading to depletion of foreign reserves every time the government completed the IMF loan programme, but now they have a market-based exchange rate system.

Despite Hafeez Sheikh and Reza Baqir’s optimism, the truth is that Pakistan’s economy isn’t performing well. Nor has the economy collapsed as constantly claimed by the opposition parties. Now there is another worrying report that Pakistan’s middle class is shrinking; one wonders if there is to still reason to remain optimistic.