The economic performance recorded in recent months is quite impressive. Many analysts are arguing that such a turnaround is nothing new but is part of many rebounds previously witnessed, especially in the backdrop of an IMF programmes.

In their view, this performance is not based on structural reforms and, therefore, as in the past, it would fizzle out as soon as the present dispensation passes on. In this article we would examine the performance and also reflect on how this may be a departure from the past.

In order to evaluate economic performance, it is important to spell out the challenges that confronted the economy at the baseline of FY23 when major disruptions were faced. The challenges included:

(i) Barring a couple of episodic bursts in-between, growth was absent for the previous five years;

(ii) Industrial output in FY23 was down by 10.30 percent, in sharp contrast to 11.75 percent growth in FY22;

(iii) Inflation was menacing at a historic level of 38 percent (average rates of inflation were 29 percent and 23 percent in FY23 and FY24, respectively);

(iv) Not surprisingly, interest rate was also historic at 22 percent;

(v) The Forex market witnessed an unprecedented disruption leading to a free-fall of exchange rate which hit as low as Rs335/$ at the beginning of September 2023;

(vi) External account faced a precarious position that required extraordinary measures that were adopted leading to a complete control by the central bank on opening of Letters of Credit for imports; The trumpet of imminent default that was blaring incessantly had cast a spectre of despondency on the economic outlook;

(vii) The Fund programme, predictably, was abandoned compounding the ills of the external outlook; several rating downgrades also affected investment sentiment;

(viii) Fiscal deficit was about 8 percent and primary deficit was 1.5 percent — way above the required level under the Fund programme;

(ix) Above all, a widespread economic disorder in the country ensued due to (a) rampant smuggling, (b) abuse of Afghan transit trade, (c) unrestrained speculative activity in the forex market, and (d) repressive regulatory practices undermining government’s stated policies and weakening of sanctity of contracts.

This was a very challenging scenario. Added to it were the political transitions; first, due to the passage of no-confidence motion in April 2022 and later due to fresh elections in February 2024. However, in the last two years, a significant and sustained improvement in the economic conditions is quite visible.

At the outset, let’s examine how the economy underwent changes during FY24 and FY25 compared to the tumultuous year of FY23.

The following Table presents the movements of key macroeconomic variables:

The following observations are evident from the Table:

i. Barring a 6 percent growth rate in two years, growth in this decade has remained muted. For two years it has been negative. For FY25, revised estimate is 2.7 percent. Growth is stalled because of deliberate contractionary policies followed in the wake of an overheated economy. This has been the primary factor behind the stability achieved since FY23.

ii. Owing to austerity measures and high interest rates, investment has been among the lowest levels in the last decade. Not surprisingly, the growth in output of large scale manufacturing has........

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