Growth vs stabilisation — the dilemma of economic recovery

A narrow and unilateral focus on stabilisation by the government in Pakistan risks creating greater instability. Consequently, stakeholders have advised Prime Minister Shehbaz Sharif government to adopt a more balanced approach. By supporting sectors such as agriculture, information technology, tourism and construction — industries with potential for growth without negatively impacting the current account — the government can foster a more sustainable economic environment.   

If public discontent — stemming from unbearable economic pressures — boils over into widespread protests, it may overwhelm a weak government already grappling with the spectre of militancy and low-level insurgencies in some regions of Khyber Pakhtunkhwa and Balochistan.

The corporate sector, acutely aware of inherent economic risks such as the potential for sovereign default on credit repayments and lacking political foresight, openly supports Finance Minister Muhammad Aurangzeb’s strict adherence to stabilisation policies. However, they are not opposed to revitalising sectors that are less reliant on imports and would have a limited impact on the current account. Ultimately, this segment of the business community is primarily focused on the continuation of the IMF programme, which they view as essential and contingent upon compliance with stabilisation measures.

The trading community and businesses impacted by monetary tightening, import restrictions and policies that suppress consumer demand are urging an immediate shift to pro-growth strategy. Analysts are increasingly concerned about rising public disenchantment over higher taxes, soaring prices, stagnant incomes and vanishing jobs — all of which they attribute to government’s actions. They advised the government to avoid testing the limits of ordinary families’ endurance and to reformulate its policy mix to better align with the aspirations of the populace.

Atlas Honda Chief Executive Officer Saquib Shirazi effectively articulated the corporate sector’s perspective. “Our goal should be sustainable growth rather than short-term gains. The business community has experienced too many boom-bust cycles, and my advice is to remain prudent while implementing essential reforms.

“Addressing the challenges of twin deficits, a narrow tax base, unfunded pensions, and affordable energy must be prioritised. For now, no one would oppose a stabilisation approach, especially if it is coupled with price stability, a predictable exchange rate, and credible progress on these issues. A measured approach will foster socio-economic stability, create sustainable employment opportunities, and attract quality investors for the long term”, he remarked.

Faisalabad Chamber of Commerce and Industry President Dr Khurram Tariq contested finance minister’s approach fixated on stabilisation and stated, “The current situation is untenable. Our net growth is currently negative when adjusted for population growth. It is essential for the country to adopt pro-growth strategies, though with caution.”

Arif Habib, a prominent stockbroker with interest in the construction sector, sees potential for a selective growth strategy. “There is a prevailing belief that attempting to accelerate growth will lead to a larger current account deficit. However, I believe this risk can be mitigated by carefully selecting areas of growth. By targeting sectors such as agriculture, IT and construction, we can avoid putting pressure on twin deficits and actually help reduce the current account deficit. Furthermore, these three sectors are largest employers and would generate significant job opportunities.

“Currently, the construction industry is operating at only about 45 per cent capacity utilisation. Promoting the construction industry could enhance capacity utilisation in this sector, leading to increased tax revenues and job creation, all while contributing to a higher GDP growth rate with minimal additional investment in machinery”, he explained.

Karachi Chamber of Commerce and Industry leader Anjum Nisar believes that the government’s stabilisation approach is appropriate. “After a long period of instability, rushing to accelerate growth could reignite inflation and lead to rising interest rates, which have recently stabilized after significant effort and cost.

“Historically, aiming for growth rates of 6pc or higher has resulted in increased imports, straining foreign exchange reserves and putting pressure on rupee. Therefore, the government should pursue gradual growth by first stabilizing the economy, which is crucial. Once we are out of the IMF programme, we can implement a growth plan that exceeds the population rate to reduce poverty effectively.

“On a positive note, inflation has significantly decreased, leading to lower interest rates. Exports have risen by at least 10 per cent, imports are under control, and remittances are up by 12pc, year-on-year. These factors contribute to stability in the exchange rate, creating a favourable environment for foreign direct investment and portfolio investments. Overall, the economic sentiment appears positive”, he remarked.

Federation of Pakistan Chamber of Commerce and Industry former president Chaudhry Muhammad Saeed refuted the notion that the current government is focusing solely on stabilisation instead of growth. He emphasised that the government is actively pursuing export-led growth policies, aiming to boost exports to $60bn over the next four years. “Recent cabinet discussions included the meat and grain exports, indicating a substantial in the services sector and halal meat exports.

“A significant indicator is the record-high lending to the private sector by banks. Additionally, the UN food agency has removed Pakistan from the list of countries facing food shortages, suggesting robust agricultural growth that meets the local demand and potential for future food exports.

“The IT sector is also being prioritised, with a target of $3 billion in exports in the next two years. However, regional trade requires improvement, particularly in building better relations with neighbouring countries. Trade with UAE has surpassed $10bn, and trade with Iran is increasing., while Afghan trade is being documented effectively.

“Overall, these factors may contribute to economic growth projected at 3.8 per cent this year, expected to rise to 5.5 per cent to 5.8 per cent in the next two years,” he argued.