NO one in Pakistan expects a smooth ride in 2024. Business optimism hinges on assumptions such as political stability after the February elections, a successful agriculture harvest, decreasing inflation, moderating credit costs and improved management of energy and external sectors under the International Monetary Fund’s (IMF) guidance.

The seasoned business leaders did not feign enthusiasm for the future by outlining strategies to seize a larger domestic or global market share through innovation. Despite the evident failure of the outdated patronage-based framework to deliver sustained growth and development, they aren’t even striving for a revamped economic model.

This inertia has left the country lagging behind its counterparts in various key indicators, particularly productivity and competitiveness.

Heightened geopolitical risks, marked by conflicts in Ukraine and Gaza, coupled with the escalating impact of climate change and stringent emissions regulations, as well as the commercial application of artificial intelligence, are unsettling businesses globally.

Business leaders warn of limited growth and the need for tough economic decisions from the next government

The emerging challenges of navigating supply chains and market access in a world reverting to two distinct blocks have shifted focus from business growth to its sustainability.

The palpable fear, both real and perceived, alongside public disillusionment with the indifferent behaviour of global leaders towards human suffering, has cast doubt on claims of collective progress towards justice, respect for public opinion, and adherence to regulations and charters designed to promote peaceful coexistence with compassion on the planet. This atmosphere has dampened demand, dulled the competitive drive and tempered investors’ risk appetite.

Musadaq Zulqarnain, Chairman, Interloop and its associated companies, underscores the paramount importance of political stability in fostering a robust economy. “I don’t foresee much improvement in utility pricing. With high utility and policy rates, both economic growth and exports will remain under pressure.”

However, amid these challenges, Mr Zulqarnain identifies a potential silver lining. He sees a glimmer of hope in the growth of agricultural produce and the export of services, particularly in the field of Information Technology (IT). This optimistic perspective hints at the resilience of certain sectors that could contribute positively to the overall economic landscape despite prevailing challenges.

Arif Habib, Chairman, Fatima Fertiliser and CEO Arif Habib Corp and allied companies, expresses a hopeful outlook, anticipating an economic turnaround. He foresees a subsiding of ‘economic and political headwinds in 2024’, fostering an environment of GDP growth. “We maintain an optimistic stance supported by favourable macro-economic factors.”

He envisioned several key indicators shaping a positive trajectory for the economy, including anticipation of the elections as per schedule, a growth rate exceeding three per cent, a current account deficit of -1.1pc of GDP, and inflation within the range of 12 to 25pc. Additionally, he predicts the initiation of monetary easing, projecting a decline in interest rates to 15pc by the end of 2024.

Moreover, Mr Habib underscores the expectation of well-devised administrative steps to enhance foreign exchange inflows, fortify the national currency, and achieve a revenue target of Rs9.4 trillion by the Federal Board of Revenue (FBR). He expects that non-tax revenues will surpass the target.

Ehsan Malik, CEO, Pakistan Business Council, emphasised the significance of the completion of the current $3 billion IMF Stand-by Arrangement and the incoming government’s need to negotiate a longer-term, reform-centric 24th programme to maintain a stable and solvent economy.

Despite these critical measures, Mr Malik anticipates limited chances of robust growth in 2024. He doubts the next government’s willingness to expand the tax net to encompass the retail, services and rural sectors.

In a written response, Mr Malik highlights the importance of a smooth transition to an elected government and its commitment to pursue a path set by the caretaker government, especially given the short timeline between elections and the need for a new IMF programme.

He notes that “core inflation is likely to recede, allowing for potential cuts in the policy rate, which would benefit both the government and the private sector.” However, Mr Malik predicts that energy rates will remain high until there is improved governance of distribution companies and an increase in energy demand, which is currently at the low Covid level.

Mr Malik also observes that exports are unlikely to grow until the end of 2024, anticipating a restoration of demand in the Western countries. He cautions that “Pakistan’s GDP growth rate is unlikely to surpass its population growth, resulting in static per capita earnings”.

On a positive note, he mentions that a good wheat and cotton harvest will contribute to buffering the balance of trade. “There is a glimmer of hope that the FBR will avoid the easy course of imposing higher taxes on an already taxed sectors and population.”

M Abul Aleem, Secretary General, Overseas Chamber of Commerce and Industry (OICCI), expresses concern about politics overshadowing economic and business interests in Pakistan. He anticipates the next government will face a challenging economic situation, constrained by the need to comply with the IMF’s demand for fiscal discipline.

Mr Aleem foresees pressure on the elected government to make tough economic decisions, including raising utility costs, eliminating subsidies, addressing circular debt, broadening the tax base across all sectors, closely monitoring development funding and reducing government spending.

He emphasised the importance of strengthening the tax collection machinery, leveraging IT and AI tools for documentation and advocating for a fair tax system that burdens the organised corporate sector.

Mr Aleem encourages the government to think innovatively to boost and diversify exports, including engineering, services, and horticulture, to participate in the global supply chain. He cautioned against relying on subsidy-based export strategies.

Looking ahead, Mr Aleem notes that foreign direct investment is expected to remain below par in the next 12 months unless the new government ensures policy consistency as the existing foreign investors demand.

Despite these challenges, he anticipates relative stability on the political front, supported by improved economic activity, with a projected GDP growth of over 2.5pc in 2024.

Published in Dawn, The Business and Finance Weekly, January 1st, 2024