Macroeconomic Brief No. 3

Despite some positive developments including easing of inflation and reduction in fiscal deficit, Pakistan’s economy remains in a precarious state with sluggish growth, fragile macroeconomic fundamentals, and heightened vulnerability to balance of payments shocks. Sadly, the key problems afflicting the economy including energy shortages and a host of structural impediments that have held back investment and growth have not been tackled effectively, showing signs of misgovernance and policy inertia. More worryingly, with the government embroiled in political controversies and the election year approaching, pressing economic issues are likely to remain on the backburner dimming hopes of a reversal in economic situation at least in the near term. At the same time, the government may be tempted to adopt populist measures ahead of the elections that could further compound economic difficulties. Challenging times thus lie ahead.