HERE is an interesting question: if they decide to throw caution to the winds and pump growth this fiscal year, what sort of growth rates could they fetch given the state of the fiscal and foreign exchange buffers these days? A tentative answer suggests they could realistically produce up to two consecutive years of six per cent GDP growth before the buffers are fully exhausted. This is the outer envelope of what is possible at the moment, but there are ways to extend this horizon by as much as one more year.

My calculation is a relatively simple one. Let’s start with the last growth episode we saw that was fuelled by burning the country’s fiscal and FX buffers. The boom began in September 2020, when the Quantum Index of Manufacturing first turned positive after a long spell in negative territory. It continued for 22 months till June 2022, when it turned negative again. Then came a 12-month hangover, during which QIM remained negative while reserves continued to burn.

Over these 22 months of boom times, the fiscal buffer burned by Rs2.7 trillion — roughly Rs125 billion a month of primary deficits — and the reserve buffer burned by $2.9bn, about $130 million a month. These are average figures and they hide an important detail. The real reserve burn began in August 2021, a full year after the boom started. Until then, the reserves were still rising, driven by surging remittances and borrowing. But once the peak hit, the........

© Dawn