Mian Mohammad Mansha, one of Pakistan’s savviest businessmen, can feel the pulse of the economy like only a few others can feel. So when he tells the government to move away from its stabilisation policies and give growth a chance, his advice must be heeded. It was in middle of last month when he told a group of journalists that it was time to grow the economy and unlock its potential.

“We have achieved economic stabilisation and it is time to move towards growth,” the chairman of the Nishat Group asserted during a visit of the British High Commissioner to the country’s largest shopping mall — Nishat Emporium — being constructed in Lahore in the middle of last month.

He argued that the government would’ve to unleash growth by supporting both domestic commerce and exports if Pakistan wants to take full advantage of the economic opportunities to be created by the China-Pakistan Economic Corridor (CPEC) project.

The country’s overall macroeconomic outlook for 2016 is projected by both the State Bank of Pakistan (SBP) and the International Monetary Fund (IMF) as stable with inflation projected to ease further as global commodity prices are projected to remain soft. Interest rates are already at their historic low in 42 years and the security situation is improving. Foreign exchange reserves have increased to an all-time record high.

Yet many economic analysts believe that the government would not put the economy in the growth gear until September when the IMF’s $6.4b loan ends. “The government will not jeopardise its relationship with the IMF now that the loan is so close to end,” an economist working on a government project told Dawn on condition of anonymity. But he was quite certain that the government would shift quickly from stabilisation to growth in the second half of 2016. “That still allows Prime MInister Nawaz Sharif and his ruling Pakistan Muslim League-Nawaz two years to create higher growth in the run-up to the next elections and attract voters,” he concluded.

The government is targeting 5.5pc growth in GDP (gross domestic product) during the current financial year to June, hoping that the CEPEC linked energy and other projects to provide the required stimulus to investment and growth. The government plans to expand GDP by 8pc by the end of its present term in 2018. The IMF projects that the GDP will expand by 4.5pc.

“Given the recent cotton crop losses and closure of large-scale textile mills, my guess is that the economy will not grow faster than 4-4.5pc this year,” an economist working with a local bank’s treasury division said. He was also not optimistic about the government moving to growth policies any time soon because of pressure from the IMF.

He was of the view that government may find it a little harder to create growth in its last two years in power unless it tackled the issues like cost of doing business and energy shortages hampering investments in the manufacturing industry on a priority basis. “You cannot create growth out of nothing. Unless you have infrastructure required to boost economy and attract new investment in the industry, how can you create growth?,” he wondered.

The industry leaders agree. “Those who think that they can steer the economy towards growth without saving the industry now are gravely mistaken in their assessment of the situation,” argued Gohar Ejaz, a former chairman of the All Pakistan Textile Mills Association. “It is not easy to revive a closed factory and we already have around 100 factories shut down in Punjab alone and lost millions of jobs.” He was particularly critical of the government’s attitude towards export-oriented industry.

“We have lost our share in the international markets mainly because of high cost of electricity on account of the government policy of shifting the cost of of system losses and theft on to the manufacturers and refusing to transfer the benefit of low global oil prices to the industrial consumers. How long can we sustain our economy with the borrowed money?,” he asked, adding Pakistan had received more than $40b in workers’ remittances over the last two and a half years but wasted that money in bridging rising trade deficit created by falling exports and surging imports despite low oil prices.

The central bank itself has expressed its concern over the declining exports in its annual report on the state of the economy for the last financial year. It pointed out that the foreign exchange reserves had posted a net increase of $4.6b last fiscal with $2b contributed by the (net) loan installments from the IMF and $ 1.8b raised through Sukuk issuance and divestures. The rest of the amount came from project funding from the IFIs (international financial institutions).

“… Two factors are critical for sustaining this (external sector) stability over a longer time-period: exports and foreign direct investment (FDI),” the bank warned. Exports declined by 3.9pc during the last financial year, mainly in quantum, whereas FDI inflows more than halved. In fact, it is the weakness in these two indicators over the past few years that (has) made Pakistan increasingly dependent on external borrowings. How to boost these indicators, and build servicing capacity against fresh borrowings, therefore remains our major concern,” the bank concluded.

The IMF too has warned in its staff report after the conclusion of the 9th review of its loan programme that “economic activity continues to improve while challenges remain … the slowdown in private credit growth and weakness in exports and imports are weighing on growth prospects.” The private sector credit-to-GDP ratio in Pakistan is not only the lowest in the region but it has been facing a steep decline. The commercial banks’ credit to the private sector dropped from 27pc of GDP in 2008 to 13pc in 2015. During the last fiscal year, the credit to private sector could expand by Rs208.7bn compared to Rs371.4bn the previous year.

Published in Dawn, Business & Finance weekly, January 4th, 2016