The economy is projected to grow at two to three per cent, and the average inflation rate is expected to decline in the range of 20-22pc in FY24, from 29.2pc in FY23, according to the latest State Bank of Pakistan’s (SBP) monetary policy statement.

And to quote SBP Governor Jamil Ahmed, economic uncertainty has decreased since the last Monetary Policy Committee (MPC) meeting two months ago, whereas near-term external sector challenges have largely been addressed.

In July, the trade deficit was significantly reduced by 41pc to $1.61 billion owing to a substantial fall in imports below $4bn, whereas, in July last year, the deficit was recorded at $2.73bn. However, the central bank also acknowledged the possible risks to its perceived near-term macroeconomic trends.

Merchandise export on a month-to-month basis dipped by 12.6pc in July (declining for the 11th month in a row), while the government has set an annual export target of $30bn for FY24.

The imbalances have struck deep roots in the economy as the various sectors did not grow in tandem because of policy failures and domestic and international shocks

Inflation measured by Consumer Price Index surged to 28.3pc in the first month of the current fiscal year mainly due to the rise in food and energy prices. And on August 2, Finance Minister Ishaq Dar announced a massive hike of Rs20 in petrol and diesel prices, taking them to Rs272.95 and Rs273.40 per litre, respectively.

The International Monetary Fund (IMF) programme projects the value of rupee to decline by 20.4pc in FY24. Inevitably, says an analyst, a depreciation in the exchange rate will further escalate the inflation rate.

When the inflation rate continues to rise unabated, producers and suppliers raise prices promptly but adopt a cautious approach to bringing down prices when the inflation rate decreases. Production and supplies are cut to raise prices where demand can absorb it.

The central bank was aiming at sustained and continued growth, unlike past years where it hit highs but then had to be slowed down due to the economy heating up, says the SBP governor. With the growth rate lowered from the budgeted estimate of 3.5pc, improving the economy’s fundamentals would be difficult.

Given the high SBP policy rate of 22pc, Dr Hafiz A. Pasha says it is unlikely that gross capital formation will increase to 14.7pc from 13.5pc of the GDP as officially stipulated. Domestic compulsions are at odds with external pressures. That is why external financial support does not have a lasting effect.

The projected reduction of the unemployment rate from 8.5pc to 8pc also appears optimistic, says Dr Pasha. In his view, GDP growth of only 2.5pc will not enable full absorption of the incremental labour force in FY24, and the employment rate would rise to 9pc.

The imbalances have struck deep roots in the economy as its various sectors did not grow in tandem either because of policy failures or owing to domestic or international risks/shocks.

At the ‘Pakistan’s Minerals Summit’ held on August 1 in Islamabad, foreign investors were invited to explore the country’s hidden reserves. Prime Minister Shehbaz Sharif urged the investors to explore the untapped resources, including the vast natural minerals reserves and develop the agriculture, information technology, and industrial sectors.

Development is not a catalogue of construction projects; it is much more than economic growth,“ says former civil servant Syed Mohibullah Shah. To move in the direction of development, he adds, the first thing to do is to empower people and enable them to take the development process forward.

To quote eminent economist Joseph Stiglitz, development is about transforming the lives of the people and not only about transforming the economies.

Lamenting that there has been no development to upgrade the living standards of the people over the last over 70 years, Mr Shah redefines the concept of development. He says it is “an all-encompassing, multi-disciplinary process, which touches the lives of people at individual and collective levels and adds to their social, cultural, economic and political wellbeing.”

It also appears at the moment that political uncertainty has been reduced. However, the real test lies in the outcome of the next general elections, whenever they are held.

The polls should be held within three months as constitutionally mandated in case of early dissolution of the national and provincial assemblies to prevent further damage to the current political and economic structure.

Unlike the federation, the provinces have enjoyed politically stable representative governments since the parliament passed the 18th Amendment. PTI’s dissolution of provincial assemblies has not helped the party achieve its objectives.

According to the IMF programme, the provincial cash surplus is required to be increased to Rs900bn to significantly contribution to limiting the size of the consolidated fiscal deficit.

In the case of Punjab and Khyber Pakhtunkhwa, observes an analyst, a precedent has been set, not just of a delay of elections but also to run provinces (and eventually the centre) through unelected governments, focusing on constitutional requirements other than one mandating elections in three months.

As the record shows, political problems cannot be resolved through administrative means. Political problems have to be resolved politically. Doing otherwise may worsen the political crisis. What may be seen as an effort to consolidate political power by delaying elections may turn out to be a serious political risk in the next polls for those prolonging political uncertainty.

Published in Dawn, The Business and Finance Weekly, August 7th, 2023