A Nascent Recovery Takes Hold
Economic indicators are pointing upwards, suggesting that the worst may be behind us.
Over the last few weeks, the ruling PTI and its ministers have been talking up the economic recovery, pointing to substantial increases in exports, remittances, and large-scale manufacturing as evidence of the turnaround.
While the data points shared by the PTI are cherry-picked to paint a rosier picture, the fact of the matter is that the economy is indeed rebounding, albeit from a low base.
As the chart below shows, the sharp recovery in LSM is coming off record-lows, which is why the numbers shared by the PTI should be taken with a pinch of salt.
I looked at the latest set of SBP data to figure out what other long-term data indicates. Here are some key points to consider:
Pakistan’s food imports have grown substantially due to poor harvests and shortage of wheat and sugar.
Machinery imports have hit 5-year highs, a positive development indicating investment activity is picking up.
Textile imports have sharply rebounded, indicating that momentum in the textile industry is building. This is good for textile exports.
Petroleum imports are below 5-year highs, creating space for capital goods imports and reducing inflationary impact in the economy.
Overall, this data indicates that barring growth in food imports, the uptick in imports is in categories that are driving economic growth.
This is a good sign and indicates that an expansionary economic cycle is taking hold.
However, this does not mean whatsoever that the structural issues that have plagued Pakistan’s economy for decades have been resolved. In fact, the breathing space given to the government by this nascent recovery is an opportunity to push through tough and painful reforms. These reforms will take time to have a positive impact on the economy, which is why they ought to be enacted now.
The question is: will the PTI and its leadership ignore pressing issues and self-congratulate themselves for a nascent recovery after a terrible economic slump, or will they continue to focus on the task at hand and enable sustainable economic growth from taking hold in the country?