There has been a great deal of euphoria about the stabilisation of the economy of Pakistan. This is amply demonstrated by the quantum decline in the rate of inflation.

The year-to-year increase in December 2024 of the Consumer Price Index (CPI) was only 4.1 percent. This is in comparison to the rate of inflation in December 2023 of as high as 29.3 percent, and 24.5 percent in December 2022.

The previous week’s article by this writer on Stabilisation versus Growth highlighted the tradeoff between achieving the improvement in the current account of the balance of payments and reducing the rate of inflation with the resulting containment of growth of the economy.

The striking fact is that Pakistan has probably witnessed the lowest GDP growth rate in the period of any five years in the years, 2018-19 to 2023-24. The average growth rate recorded in these five years is only 2.6 percent.

This is only marginally above the annual growth rate of population. Therefore, the people of Pakistan have seen hardly any increase in the real per capita income over these five years.

Of course, there is need to recognize that this is not all due to the restrictive policy stance including very high interest rates to reduce private investment, physical containment of imports of inputs restricting domestic production, massive cutback in federal development spending and big increases in indirect taxes.

There have been two very large exogenous factors fundamentally limiting growth of the economy. The first was the mega pandemic, COVID-19. This led to large-scale shutdowns and interruptions in 2019-20.

The year, 2022-23, then witnessed the worst floods in Pakistan’s history. The total damage to the economy due to these floods is estimated to be as much as $30 billion. It is not surprising that the GDP........

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