Can Pakistan’s military government make the economy grow?

{"text":[[{"start":8.64,"text":"Pakistan’s Prime Minister Shehbaz Sharif was triumphant as he hailed the launch of the country’s landmark $3bn Eurobond in London, touting his government’s “deep-rooted structural changes” and “very promising” economic indicators as reasons for investors to snap up its debt."}],[{"start":26.92,"text":"Pakistan has had about two dozen IMF bailouts in the past six decades. Two years after it went to the fund for its latest programme, the military-backed government appears to have pulled its economy out of a tailspin."}],[{"start":39.16,"text":"Annual inflation fell from a high of 38 per cent in May 2023 to low single digits last year — though the Iran war pushed it to 10.3 per cent last month — and central bank reserves have doubled in the past two years to $21.4bn."}],[{"start":54.88,"text":"S&P upgraded Pakistan one notch to a B in July, its highest level in a decade. Last month’s Eurobond was the country’s biggest-ever single issuance and was twice oversubscribed."}],[{"start":68.16,"text":"The task for the generals now is to build on this fragile stability to deliver sustainable growth and escape the up-and-down cycles that have made the country a frequent petitioner to multilateral agencies."}],[{"start":79.88,"text":"Pakistan needs to deliver “focused growth which is more sustainable”, rather than “boom and bust spikes”, said Jameel Ahmad, governor of the central bank, referring to balance-of-payments crises that have long been the country’s Achilles heel."}],[{"start":92.56,"text":"“If you look at both fiscal and monetary policy, both of them . . . are operating in a very co-ordinated way. And there is a discipline on both sides.”"}],[{"start":null,"text":"

"}],[{"start":101.48,"text":"Having cut the fiscal deficit, tamed inflation and rebuilt reserves, the government now points to further plans to cut import tariffs, strengthen tax collection and renew a push for privatisation, starting with flag carrier PIA in June."}],[{"start":116,"text":"Investors “now have more confidence in Pakistan’s economy because of the reforms that we have successfully implemented”, planning minister Ahsan Iqbal told the FT. “We are one of the very attractive markets, 260mn people, 60 to 80mn middle class, which is bigger than many European countries,” he noted."}],[{"start":136.32,"text":"Iqbal said US President Donald Trump’s bonhomie with Field Marshal Asim Munir, Pakistan’s military chief, had raised the country’s international profile."}],[{"start":145.84,"text":"But Pakistan’s request for a $10bn exchange stabilisation facility has yet to be agreed, and while the US Export-Import Bank has promised $1.25bn of financing for the Reko Diq copper and gold mine, security risks have slowed the project."}],[{"start":162.38,"text":"The war in the Gulf is not making the task any easier. Pakistan relies heavily on imported oil, making it especially vulnerable to price shocks. The economy lost momentum in the three months to June, growing just 2 per cent, down from 4.4 per cent in the previous quarter."}],[{"start":179.96,"text":"Ali Hasanain, associate professor of economics at LUMS University in Lahore, said the military-backed government was “doing reasonably well at stabilising the economy” but there was “very little” structural change."}],[{"start":193.4,"text":"“You need political buy-in if you want to really reform the economy. And that political buy-in at the top leadership level is not clear.”"}],[{"start":null,"text":""}],[{"start":201.54,"text":"Opposition politicians and independent analysts say Sharif’s government faces a problem of legitimacy: his party assembled a coalition with the backing of the military after coming second in a 2024 election that outside observers said was seriously flawed because of constraints on the opposition. This limits Sharif’s ability to promote reforms that challenge vested interests such as the military or landowners."}],[{"start":226.04,"text":"Some 1,100km south of the capital in the commercial hub Karachi, private sector figures said the government’s actions have fallen fall short of what is needed to encourage investment."}],[{"start":235.92,"text":"“I don’t see any serious economic reform taking place,” said one senior manager of an industrial company. “Yes, there is stability but we are not going to grow significantly. No basic foundations are in place for growth.”"}],[{"start":249.98,"text":"Business leaders and independent economists complain that power prices are too high, the rupee is overvalued and state-owned enterprises are bleeding money, while the small formal sector is heavily overtaxed."}],[{"start":260.12,"text":"“There are a lot of sacred cows,” said another top industrial executive. “Retail is 18 per cent of our GDP but pays 1 per cent of the tax. Agriculture is 23 per cent of GDP and pays 1 per cent. Other services are around 20 per cent and pay 1 per cent. So 60 per cent of the economy pays just three per cent of the taxes.”"}],[{"start":281.98,"text":"The government has raised Pakistan’s tax-to-GDP ratio to a projected 12.9 per cent in the 2025-26 fiscal year from 10.1 per cent in 2022-23, according to IMF figures."}],[{"start":295.36,"text":"But the IMF noted in its latest review that “although . . . tax revenues in Pakistan have reached their highest level since at least 2000, they remain considerably below those of peer countries”. Agriculture was the biggest undertaxed sector, it said."}],[{"start":null,"text":""}],[{"start":309.44,"text":"Business leaders and economists also worry that Pakistan is heavily exposed to the Iran war, as a major energy importer and because of its reliance on remittances from migrant workers in the Gulf, which amount to about 9 per cent of GDP."}],[{"start":322.92,"text":"YeeFarn Phua, S&P lead analyst for Asia sovereign ratings, said Pakistan’s success in meeting IMF targets was key to the agency’s recent upgrade but cautioned that it needed to maintain reform momentum after the three-year, $7bn programme ends in October 2027."}],[{"start":340.08,"text":"A senior government official who requested anonymity touted “a lot of change” to come in the next few months to boost the economy and ensure that “the people benefit from the important work Pakistan has done regionally and globally” to help end the US war in Iran."}],[{"start":354.72,"text":"But Shahid Khaqan Abbasi, a businessman and leader of the opposition Awaam party who served as Pakistan’s prime minister in 2017-18, was more pessimistic."}],[{"start":364.32,"text":"“Pakistan has serious problems and the people in power are not up to it,” he said. “They were not elected and they have no moral authority. The population is disappointed, disillusioned and frustrated and the elite do not want to face facts.”"}],[{"start":378.56,"text":"Data visualisation by Haohsiang Ko in Hong Kong"}],[{"start":386.84,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1793085443_3275.mp3"}