Austerity, current account surplus, & economic resilience
Go any deeper, it spells more problems for the economy than it brings a happy news for, especially in terms of creating economic growth consequences and much-needed greater spending towards meeting sustainable development goals (SDGs), and overall, climate change-, and 'Pandemicene' phenomenon-related economic resilience. Moreover, overall balance of payments (BOP) – which is composed of current account, capital account, and financial account – remained in the negative anyways, with a deficit over FY25 standing at US$3.7 billion while the deficit, in fact, increased by $877 million from FY24.
Hence, while reportedly the PM attributed this surplus to be 'Driven by record remittances, rising exports, and a laser focus on structural reforms…' none of the claims provides the needed stable foundations for this surplus which, during July-June 2024-25, stood at US$2.1 billion. Starting with exports, for June 2025, year-on-year (y-o-y) exports declined by US$81 million while y-o-y there was only a moderate increase in exports during July-June 2024-25, which stood at around US$1.4 billion.
Workers' remittances during FY25 y-o-y while increased considerably by $8.1 billion, yet they nonetheless remain a very unreliable resources, given a world of polycrisis, especially the fast-unfolding climate change crisis creating very unstable consequences for economic growth globally, bringing in its wake a high-level of randomness, not to mention gains from a serious crackdown in recent years on indirect channels on capital flows may have already provided much of the increase, and in that sense future years at most may see only low-level to moderate increase in remittances.
Structural reforms have remained the weakest link of the government's economic reform performance, and it is quite surprising that the PM has cited them as a leading source of improvement of current account surplus. Rather, more damage has been done to both domestic production, and exports through government's over-board austerity policies than any gains from marginal, and narrow-scoped structural reforms, both as outlined in the International Monetary Fund's (IMF's) extended fund facility (EFF) programme that is currently being followed, and beyond as well. Moreover, the procyclical, and neoliberal nature of economic policy – both within and outside of the IMF programme – has limited the scope of overall much-needed economic reforms, which otherwise required much better rationalized role of public sector, and would have meant greater emphasis of reforms on improving (a) economic institutional quality – both in terms of governance and incentive structures (including regulation) – and underlying (b) organizational, and (c) market reforms.
Hence, while the current account surplus remains on very unstable ground – not to mention that surplus anyways is not a favourable outcome for the country in any meaningful way, but more on this later in the article — overall balance of payments situation remains in deficit as indicated earlier, which means greater need for debt for an already highly debt distressed country, given a low level of foreign direct investment (FDI), which remains one of the most reliable sources for the economy in terms of bringing sustainable economic growth, among other positive consequences.
As indicated, over-board austerity policy has meant that cost of capital has been at a high level, which in a developing country like Pakistan, whose exports, and overall economic growth, are significantly import-dependent, has meant that this has taken a heavy toll on both of them — while exports have only increased by around a paltry US$2 billion during the last fiscal year, economic growth has continued to hover over the last few years around the population growth rate of a little more than 2 percent on average. Moreover, lack of economic growth has negatively impacted domestic resource mobilization which, in turn, has negatively impacted domestic debt sustainability, lack of much increase in exports, low level of FDI has not even allowed reduction in overall BOP deficit of FY25 over FY24, which overall has meant a low level of build-up of foreign exchange reserves, when compared with the high external debt distress, and overall gross external financing needs.
Last but not the least, Pakistan remains among the top-ten most climate change challenged countries in the world. In addition to the climate change-related goals in SDGs, it fares very poorly with regard to other goals, including poverty, disease, and education. This, in turn, means that the country needs to spend a lot more than it currently is doing, especially after spending a lot in terms of interest payments on debt, not to mention the fact that the lack of multilateral spirit has resulted in low level of multilateral finances, which puts all the more pressure on government to increase an otherwise low level of expenditure for increasing overall level of economic resilience.
Current account surplus, achieved after a lot of austerity-caused economic growth sacrifice, has neither been able to produce positive consequences for macroeconomic, and economic institutional quality due to poor level of economic reforms, which have also meant that the country still has poor showing for exports, FDI, and overall BOP, nor has it allowed reaching fiscal space for making adequate expenditures towards enhancing otherwise poor level of economic resilience.
(The writer holds PhD in Economics degree from the University of Barcelona, and previously worked at the International Monetary Fund. His contact on 'X' (formerly 'Twitter') is @omerjaved7)
Copyright Business Recorder, 2025
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