Pakistan’s savings and investment ratios are officially estimated to have declined as a percentage of the size of the overall economy — commonly called Gross Domestic Product (GDP) — during the current fiscal year. Yet, GDP posted around 6 per cent growth — surpassing all domestic and external estimates.

According to the National Accounts Committee (NAC) that worked out the GDP growth rate for the current year at 5.97pc — the second-highest in four years after 6.1pc in FY18 — the investment-to-GDP ratio actually declined to 15pc against 15.2pc of last fiscal year and missed the 16pc target.

Similarly, the saving-to-GDP dropped to 11.1pc this year when compared to 14pc last year and missed the 15.3pc target by a wide margin of 4.2pc. This is a manifestation of the deteriorating current account deficit that now stands well above $13 billion in 10 months. These are clear signals that GDP growth was fueled by consumption and imports.

The fixed investment-to-GDP ratio also fell to 13.4pc this year against 13.6pc of last year. The current year target for fixed investment was set at 14.4pc. The major decline here was on account of the public investment-to-GDP ratio that stood at 3.4pc this year against a target of 4.4pc and even lower than last year’s 3.8pc.

The cost of one-step-forward-two-step-back approach to structural reforms for the nation and the country is much bigger every time and this time is no different

Even the 3.4pc fixed investment-to-GDP ratio is susceptible to deterioration for the fact that these numbers were based on the budgeted public sector development programme which was drastically reduced.

Imports on the other hand have surged by more than 46pc in 10 months of the current year to $65.5bn against just 25pc growth in exports to about $26bn, leaving a massive trade gap of almost $40bn or 65pc higher than last year, resulting in deterioration of external account, fall in foreign exchange reserves and massive devaluation.

It did not come as a surprise but as a recall of the repeated boom and bust cycles the country has been accustomed to over the decades in the absence of structural reforms. The two-year painful stabilisation phase of negative growth amid the global health pandemic and resultant lockdowns was just over when Shaukat Tarin — Imran Khan’s fourth finance minister — decided to shift gears to high growth.

Red flags soon started to emerge about the usual culprits — rising imports much faster than exports and other foreign earnings, accompanied by the fiscal and current account deficits. The authorities downplayed concerns. Dr Reza Baqir, the state bank governor, even went to the extent of saying on August 13, 2021, that the current account deficit should be talked about with happiness because it was a sign of economic growth.

He then estimated the current account deficit to be 2-3pc of GDP (maximum of $9.5bn) for the current fiscal against 6pc (about $19bn) in FY18. He believed that all short term economic indicators showed stabilisation had been achieved and the economy moved firmly into the growth mode — 4-5pc GDP growth rate. Such hopes were as short-lived as ever.

Not long later on September 21, 2021, and within six months in office, Finance Minister Shaukat Tarin confirmed concerns that the economy was overheating and announced cooling down measures like 100pc cash margins and regulatory duties to discourage non-essential imports.

The overall revenues had improved by 45pc by exceeding the target by 24pc primarily because of increasing imports — a sign of growth and higher commodity prices, he believed at the time but conceded: “my concern is that it should not overheat to a level that creates exchange rate and balance of payment-related problems if the GDP growth rate exceeds above 5pc, we don’t want to jump to 6-7pc growth quickly that could be problematic and unsustainable”.

The damage had already been done. By December 2021, the International Monetary Fund (IMF) squarely blamed the authorities for the challenges that had lost the gains so painfully and resiliently built along with the Covid-19 fight. “Economic activity has rebounded strongly on the back of waning Covid-19 infections and expansionary fiscal and monetary policies. However, strong import growth — fueled by the macroeconomic policy mix, higher international commodity prices, and credit growth — has led to a marked deterioration of the external position. The current account deficit has widened, the rupee depreciated markedly and inflation remains persistently high”.

It went on to put on record that since the April 2021 review, programme implementation had been uneven: fiscal policy became increasingly expansionary and several key commitments rever­sed. The end of June commitments on the general government primary budget deficit and the non-intensification of exchange restrictions, non-modification of multiple currency practices, and zero new flow of State Bank of Pakistan credit to the government were missed. Moreover, several structural benchmarks were not met.

In December though, the Tarin-led economic team conceded a number of prior actions to revive the fund programme through over Rs350bn fiscal adjustment through a supplementary budget, tighter monetary policy, and electricity tariff adjustments. It was too late but that too was quickly reversed on February 28 by then Prime Minister Imran Khan.

No wonder then, the IMF glaringly recalled that “Pakistan had a long history of stop-and-go economic policies and weak implementation of structural reforms. This has resulted in elevated vulnerabilities and low investment and growth, which weigh on the population, including through high poverty incidence and weak development indicators”.

Pakistan is again at the doorsteps of the IMF for the revival and expansion of the programme. The cost of the one-step-forward-two-step-back approach to structural reforms for the nation and the country is much bigger every time and this time is no different. Many imports are already banned and fuel and electricity rates are on a massive rise to further skyrocket inflation already in double-digits.

Published in Dawn, The Business and Finance Weekly, May 23rd, 2022