INP-WealthPk

Pakistan needs to fix structural issues in economy for sustainable growth

September 30, 2024

Ayesha Saba

The current account surplus for August 2024 is a positive sign, but it is a short-lived

relief unless deep structural issues in the economy are fixed to enhance export competitiveness and create a more conducive environment for investment.  “The revival of financial inflows from both the friends of Pakistan and multilateral and bilateral lenders has been crucial in building the State Bank of Pakistan’s foreign reserves. This not only strengthens our external position but also provides a buffer against potential economic shocks,” said Dr Eatzaz Ahmed, a former SBP memorial chairperson. Talking to WealthPK, he pointed out that inflows, including loans, foreign direct investment, and other financial instruments, had contributed to shoring up reserves, which are vital for meeting external obligations and stabilising the exchange rate.

“While the August current account surplus has provided optimism, financial inflows alone are not enough to ensure long-term stability,” Ahmed cautioned, and maintained that without deeper reforms, Pakistan risked relying too heavily on temporary financial inflows, which were vulnerable to external conditions. “The government must use this window of opportunity to implement policies that promote productivity and competitiveness in key sectors,” he underscored. He said that Pakistan’s external debt obligations were still high, and the country remained vulnerable to external shocks, particularly in energy and food prices. “Additionally, political instability could undermine investor confidence, which is crucial for long-term economic stability.”

Ahmed said that achieving a surplus was encouraging, but Pakistan must take proactive steps to maintain economic resilience in the face of future external shocks. He also pointed to the recent 200 basis point cut in the policy rate by the SBP, which is expected to stimulate domestic investment and support industrial output. However, he cautioned that this must be supported by fiscal discipline and strategic investments in infrastructure to ensure sustainable growth. After three consecutive current account deficits, Pakistan reverted to a current account surplus of $75 million in August 2024. During 2MFY25, the current account stood at a deficit of $171 million, down 81% YoY.

Credit: INP-WealthPk