Work in progress

The State Bank governor's optimistic projection of economic growth must be viewed through the lens of the current economic reality. While the transition from stabilization to sustainable growth is essential, it is still in its infancy. Governor Jameel Ahmad anticipates GDP growth to increase from 3.7% in the previous fiscal year to between 3.5% and 4.5% in the current year, aided by stricter fiscal policies.

However, the projected growth range signals potential challenges: at its lower end, growth would be sluggish. Even 4.5% would only signify a modest recovery for an economy facing a rapidly growing population, increasing unemployment, and unmet investment needs. Furthermore, stabilization has not yet laid the groundwork for sustained economic expansion.

Recent progress has been largely driven by restrained demand, fiscal discipline, reduced imports, and improved external position due to debt rollovers and borrowings. While these factors are crucial for stability, they do not constitute a growth strategy. Sustainable growth necessitates higher productivity, increased private investment, growing exports, and investor-friendly reforms.

Ahmad's mention of record remittances ($41bn in FY26 and potentially reaching $44bn this year) should be considered cautiously. Remittances are household transfers, not a replacement for export competitiveness or foreign direct investment (FDI). An economy cannot permanently finance its development goals solely through the earnings of its citizens abroad.

Moreover, the expectation that reserves will surpass $21bn is promising, but such accumulation must be coupled with a stronger capacity to earn foreign exchange. Otherwise, the economy risks a recurring cycle of reserve accumulation followed by another external financing crisis. Inflation averaging 7.1% is a significant positive development.

However, maintaining inflation within the 5-7% target requires more than just monetary restraint. Food, energy, and administered prices remain susceptible to supply disruptions, exchange rate pressures, global commodity shocks, and regional crises. Monetary policy can help curb demand-driven inflation, but it cannot address structural weaknesses in agriculture, energy, or supply chains.

The digitization of payment systems is a useful step towards financial efficiency, but the system's infrastructure is merely an enabling factor, not a driver of growth. The primary challenge now is to ensure that stabilization does not become an end in itself. Pakistan has repeatedly achieved temporary macroeconomic stability, only to see it falter when growth accelerates through imports, fiscal overspending, and external borrowing.

This time, the critical question is whether the economy's productive capacity can be expanded without falling prey to those vulnerabilities. The transition from stabilization to sustainable growth will only be realized when the cycle of borrowing, harsh adjustments, and crisis management becomes a thing of the past.