THE State Bank Governor’s Annual Report for FY2023 is “cautiously optimistic” about the economy. It projects headline price inflation to drop, the current account deficit to narrow, and GDP to expand during the ongoing fiscal year.

However, the report warns, this outlook hinges on the absence of adverse shocks stemming from geopolitical tensions, unforeseen climate events and unfavourable movements in global commodity prices.

That aside, the bank expects inflation to slow down to 20pc-22pc, the current account gap to narrow to 0.5pc-1.5pc of GDP, and the economy to grow by 2pc-3pc. The projected recovery is modest but still a source of comfort after a tumultuous year in which Pakistan barely avoided default.

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“The economic landscape of Pakistan has faced unprecedented challenges throughout the fiscal year,” the report notes, highlighting that political uncertainty was another factor impacting business and consumer sentiments, thus affecting economic activity.

The report asserts the “SBP’s commitment to maintain price stability”, highlighting the “crucial role of fiscal policy and effective administration in supporting stability”. But, such assertions have featured in most previous SBP reports, including the bank’s monetary policy statements, in the last few years.

There is no doubt about the core role of fiscal policy in our balance-of-payments crisis as well as escalating inflation — the bank cannot absolve itself of its own part. Its past projections have often proved wrong, and the SBP has been behind the curve when it comes to taming inflation and checking the dollar’s flight.

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It may be impossible to undo the past but with 2023 behind us, many want to know if our rulers have learnt their lesson and are prepared to meet the upcoming challenges. This year should see stabilisation. The new government, which will take office after the February polls, will have its work cut out.

The first and most crucial challenge for it would be to negotiate a bigger, medium-term IMF loan to stabilise the external sector and raise funds from other bilateral, multilateral and commercial creditors in order to build the country’s foreign exchange reserves.

Such a deal will entail a series of difficult fiscal, governance and structural reforms. The question is: will a government taking office as a result of a tainted election and questionable mandate be able to execute the required reforms and make tough decisions? This year is going to be a defining one for Pakistan’s future trajectory. Many countries have managed to turn their crises into opportunities for fixing their respective economies.

All our economic challenges, including the ongoing balance-of-payment crisis and shortage of foreign currency, can be fixed. We are at a crucial juncture from where we can turn either way: towards a brighter and prosperous future or total collapse. It is all in our own hands.

Published in Dawn, January 2nd, 2024