Pakistan economy enjoys run of good news

Like many public officials in Pakistan, a country on the frontline of the fight against Taliban militants, central bank governor Ashraf Wathra takes security seriously. At the bank's headquarters in Karachi, visitors' phones are removed lest they be used to trigger explosives.

Yet despite the constant threat of attack, Mr Wathra is visibly relaxed after a recent run of good news.

"We are now seeing growing stability in the economy," he says in an interview with the Financial Times.

The IMF has acknowledged that Pakistan averted a balance of payments crisis in 2013 and managed to stabilise its foreign reserves. This week Standard & Poor's, the credit rating agency, raised the outlook for its B minus rating from stable to positive, while Moody's last month raised its outlook to stable from negative - albeit for a Caa1 rating, which puts it one notch above Greece.

With liquid foreign reserves having grown almost fourfold in the past year to $12.5bn, a figure equivalent to about three months of imports, Mr Wathra has less cause for concern about the stability of the rupee than some of his predecessors.

The recent plunge in the price of crude has seen the cost of oil imports fall to $9.7bn in the nine months to March, down from just over $11.2bn a year earlier, according to central bank figures.

Falling oil prices have also helped lower the fiscal deficit to an expected 5 per cent of gross domestic product in the year to June, down from above 8 per cent just over two years ago. And the country's GDP is forecast to grow by about 4 per cent this year, following a similar rise last year.

But the government's critics say the recent strong economic performance owes more to luck and a falling oil price than design.

Salman Shah, the former finance minister, is among those who say Islamabad cannot claim credit for this newfound economic stability. The stabilisation of foreign reserves "is a windfall that came because global oil prices fell and pressures on countries like Pakistan eased," Mr Shah says. "It's no credit to the government."

Huge reform challenges remain. The government has failed to reform a notoriously corrupt and inefficient tax collection system, Mr Shah says. Western economists rate Pakistan's tax collection as among the worst in the world. Only 1.5 per cent of the country's 185m people pay any income tax.

"Progress has just not taken place," Mr Shah says. "It's the hard stuff where the government has simply failed to make a difference."

Hafeez Pasha, a former finance minister, agrees. "There is an irony which is that while foreign reserves raise confidence, Pakistan's economy remains very weak".

Mr Wathra acknowledges that certain intractable issues remain, notably the country's acute electricity shortages. "The most important issue [for the economy] is electricity generation and distribution," he says.

It is not unusual for parts of Pakistan to see crippling power cuts for up to 18 hours a day, undermining key sectors of the economy like industry, agriculture and small businesses. The country's reliance on expensive oil-powered plants helps explain the blackouts, as does the illegal tapping of electricity wires.

One western economist says that up to 25 per cent of the electricity generated in Pakistan "is lost and unaccounted for in the transmission system. It's the most visible theft of a valuable resource in Pakistan".

Other risks remain. Pakistan's economy is vulnerable to foreign policy - both its own and that of others. Tensions have mounted over the country's reluctance to provide ground troops, naval assets and fighter jets to Saudi Arabia to join its offensive in Yemen.

Some even fear that up to 2m Pakistani expatriate workers in Saudi Arabia could be repatriated - an unlikely but devastating outcome given the billions of dollars of remittances they send home every year.

Even as he welcomes the boost provided by the lower price of oil, Mr Wathra acknowledges the foolhardiness of relying on it to boost the Pakistani economy. "Why," he asks, "should we rely on a factor which can be unpredictable and not in our control?"

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