With a positive growth rate, Pakistan’s economy has somehow managed to skirt a recession during the ongoing fiscal year, even if the GDP growth has fallen flat to less than 0.3 per cent — the slowest increase in domestic output in four years — from 6.1pc a year ago.

Yet it also underlines that the economy is suffering long-term effects from the crises caused by the balance of payments vulnerabilities, high indebtedness, weak governance structure, climate change impact and sustained political troubles and will remain trapped in a slow growth mode for many years.

The national accounts numbers published by the National Accounts Committee last week show a broad-based decline in the organised segment of the economy and a sharp rise in some undocumented sectors like the livestock sector growing by over 3pc and the small industry by 9pc, engendering doubts about the authenticity of the GDP growth. This has also lent credence to the private estimates of negative growth this year.

Overall, the provisional growth estimates are in line with the projections of 0.4-0.5pc made by multilateral lenders like the International Monetary Fund (IMF). The accounts show the industry has cumulatively contracted by 2.94pc, mainly because of the restrictions imposed on imports to avoid a default on debt payments.

Any effort to fix the economy must begin with resolving the intense political crisis

However, the agriculture sector has grown by 1.6pc on better wheat and sugarcane crops despite the devastation caused by the last summer’s floods. That has come as a surprise to many.

Likewise, the services sector increased by a mere 0.9pc. In dollar terms, the economy shrank by $34 billion or 9pc, whereas per capita income also decreased by $198 or 11.2pc, according to the provisional estimates approved by the committee.

The events of the last year and the growth estimates underscore that Pakistan’s economy is contending with a severe crisis amid a gloomy and uncertain outlook.

The State Bank of Pakistan (SBP) report on the state of the economy during the first half of the present fiscal year admits that the macroeconomic fundamentals are deteriorating, but it understates the severity of the painful crisis and its impact on the people. So did finance minister Ishaq Dar when he insisted that the country was not on the verge of a financial crisis and “would absolutely not default”.

To prove his point, he pointed to the current account surplus of $570 million and $18m recorded in March and April, respectively. But he did not say that the government had achieved this surplus at the cost of GDP growth, widespread industrial closures and production cuts, as well as tens of thousands of jobs.

The country must pay billions in debt repayments over the next three years, but its foreign exchange reserves are enough for only a few weeks’ worth of controlled imports

At least, the SBP was more forthcoming on this than Mr Dar, whose style of economic management is being questioned by more people during his present tenure than before.

Little wonder, the minister’s claim in the face of such a sustained and deep economic crisis provoked Princeton economist Atif Mian to retort that “to thump your chest and say, ‘see we have not defaulted’ means nothing if you continue to ignore the underlying crisis”. He went on: “The only thing worse than indecisiveness in the face of a crisis is incompetence”, as he cautioned that cutting GDP to sell cheap petrol “will make it more difficult to pay off the debt, leading to more devaluation, more misery, and higher petrol prices in terms of purchasing power”.

Noting that Pakistan needed economic restructuring, the Princeton professor compared Pakistan with Sri Lanka and Ghana, which have also been facing economic crises. He said both countries had defaulted during the last two years. Pakistan did not, but its currency devalued by half, as did Ghana’s. Sri Lanka’s currency was devalued by a third.

Comparing Pakistan’s trajectory with that of Sri Lanka and Ghana after they defaulted, he said the two countries’ currencies had stabilised post-default as they ent­ered restru­cturing programmes.

Pakistan’s currency continues to go down and there is no end in sight, he said, arguing that addressing a balance of payments crisis required “a country to act decisively, restructure aggressively, and take courageous decisions that demonstrate a clear break from the past.”

Whether the government admits to it or not, the economy is teetering on the brink. It may have dodged a formal default for now, but the price we have paid in the form of shutdowns, job losses, steepest currency devaluation, fastest consumer inflation and plummeting business confidence has been massive. The country must pay billions in debt repayments over the next three years, but its foreign exchange reserves are enough to pay for only a few weeks’ worth of controlled imports. Foreign official and commercial inflows are drying up due to the uncertainty surrounding the restoration of the suspended IMF programme and the ongoing political strife in the country.

Any effort to fix the economy must begin with resolving the intense political crisis. The method being used to achieve political stability by engineering a breakup in the PTI and banning it will only intensify political instability in the country.

Everyone feels that the government has agreed to this plan of eliminating the PTI for its own political survival rather than to save the economy.

The only way to political stability in the country is through elections. But will the government want to take this route? That looks uncertain, given the fact that Imran Khan remains the most popular leader.

Published in Dawn, The Business and Finance Weekly, May 29th, 2023