Islamabad, Pakistan – When the Pakistan Muslim League-Nawaz (PML-N) party swept to power after general elections in 2013, chief among their promises was to turn around an economy in dire straits, revitalising growth and overcoming a chronic energy shortage that had crippled many industries.
The situation was, by any definition, dire.
Economic growth had dropped to just 3.5 percent, with foreign reserves dropping fast in the face of a huge import bill, and a balance of payments crisis looming.
As the PML-N took office, central bank foreign exchange reserves stood at $6.5bn, their lowest level in 10 years. Facing the possibility of default, by September the government had approached the International Monetary Fund (IMF), seeking a three-year $6.68bn programme to help stabilise the economy and introduce macroeconomic reforms.
It would be Pakistan’s 12th IMF programme in almost three decades, and came with conditions enforcing discipline on managing fiscal deficits and privatising state-owned entities, many of which were not fully met.
Five years on, the PML-N will tell you, Pakistan’s economic situation looks markedly rosier.
Helped by low international oil prices and boosted by the start of work on the $56bn China Pakistan Economic Corridor (CPEC), economic growth stands at a projected 5.79 percent, its highest level in 13 years, taking the gross domestic product to an estimated $297bn this year.
CPEC, an economic corridor project that links southwestern China to the Arabian Sea through Pakistan, has spurred huge spending on development projects, coming with $36bn in loans to construct a series of power plants across the country.
Some of those power plants have already begun to come online, bringing reductions to rolling power blackouts that have plagued the South Asian country for years.
The PML-N, in turn, is bullish, and feeling confident that they have delivered on their promises to turn Pakistan’s economy around.
“This is the highest growth rate in 15 years, and the highest in the manufacturing sector in 10 years,” Miftah Ismail, Pakistan’s outgoing finance minister, told Al Jazeera.
“We’ve brought in growth and stability to Pakistan, so that big promise that we made, that has actually happened.”
But not everything, analysts warn, is as rosy as it seems.
“They have succeeded in restarting growth and […] in executing some mega projects, and in activating CPEC,” says Khurram Husain, an economic analyst and journalist. “But the manner in which they have done so has raised many questions.”
A major chunk of Pakistan’s economic growth, Hussain says, is led by consumption, most of it government spending on development projects, which raises questions of long-term sustainability.
“What is driving it is a sharp increase in development spending [by the government]. So that leaves a lot of people wondering what happens if the government is not able to sustain this level of development spending?”
Moreover, repeated government attempts to widen the country’s tax base has had only limited success, leading to a widening fiscal deficit, as the government continues pumping money into the economy.
The rise in consumption, Hussain points out, has not been accompanied by a rise in investment in the private sector, leading to a growth trajectory that may be inordinately dependent on the government.
“There have been various incentive schemes and packages, but the private sector says that they are losing their competitive edge in international markets due to a rising cost of doing business, including high energy prices, high transaction costs, and a poor state of infrastructure.”
In 2017, Pakistan ranked 147 out of 190 countries on the World Bank’s ‘Ease of Doing Business Index’, a metric that measures how conducive regulatory and infrastructure environments are to allowing private enterprise to flourish.
The challenges faced by industry have seen Pakistani exports drop from $25bn in 2013 to $22bn in 2017, according to central bank data, stretching Pakistan’s foreign exchange reserves and putting further stress on the country’s current account deficit.
“To put the external sector in a more sustainable footing it will be important to address constraints to exports’ competitiveness, including an overvalued exchange rate, a weak investment environment and a trade policy that at times hurts rather than supports exports,” says Enrique Blanco Armos, the World Bank’s lead economist on Pakistan.
All of that means that there is a larger, familiar crisis on the horizon.
In July, Pakistan’s central bank foreign reserves dropped sharply by $601.8m to just $9.6bn, which is enough to cover just two months of imports.
The fiscal deficit, meanwhile, has ballooned to 5.5 percent of GDP, from the targeted 4.1 percent, the central bank said on May 25.
The external current account deficit rose to $14bn in the first 10 months of the 2018 financial year, a 50 percent rise from the same period last year.
“[Pakistan’s] growth has been accompanied in the past 18 months with an increase in macroeconomic imbalances,” says the World Bank’s Armos. “These imbalances will need to be corrected […] we think that further adjustments will be needed to put the economy on a much stronger footing, narrowing fiscal deficits and a combination of policies to reduce the trade deficit.”
The outgoing government, however, said it was not worried.
“We are borrowing from the international market, and there is no difficulty in that, and we will be borrowing again,” said Ismail, the outgoing finance minister.
In May, days before its term was completed, the government announced it would be taking an additional loan of up to $2bn from Chinese lenders in order to avert a balance of payments crisis.
“We understand the importance of reserves and the importance of being liquid, even before the [loans] we took a currency devaluation in December and again in March,” Ismail told Al Jazeera, speaking before a further devaluation took place in June.
The PML-N says it will focus on increasing exports if it returns to power, but analysts warn, that it may not be enough.
“If the past is anything to go by, then the present appears to be taking us back towards the IMF,” says Hussain.
“This is how it has always worked, for the last 20 years we have seen this pattern. Reserves rise for a period, then they hit a peak, and then as they fall they do not autocorrect.”
Opposition leaders, too, have been pointing to rising debt levels as the government struggles to control macroeconomic imbalances as being of significant concern.
“It is pretty much in the same spot that we were five years ago, except this time as we get ready for a new bailout, we are starting with a current account deficit which is far bigger, and a significantly larger external debt,” said Asad Umar, of the opposition Pakistan Tehreek-e-Insaf (PTI) party.
Umar’s PTI, led by cricketer-turned politician Imran Khan, has been tipped by many to replace the PML-N government, if it is able to displace the party from its stronghold of Punjab province. If that were to happen, would the PTI be open to going back to the IMF?
“We are burning cash much faster and the debt load is much bigger, and the danger is just as real as it was last time, except the odds are even worse,” he said.
“No option is off the table […] Beggars can’t be choosers, so we will have to look at all possible options.”
Asad Hashim is Al Jazeera’s Digital Correspondent in Pakistan. He tweets @AsadHashim.