SO what is “fiscal liberalisation” anyway? According to the State Bank’s Monetary Policy Statement (MPS) of September, the term refers to a state of affairs where you have “shrinking budget deficits, contained government borrowings, and improved debt profile”. I always thought the term to describe this was stabilisation, but heck, what do I know, I’m just a journalist.

If the MPS had been written by a second-year economics student, it would certainly be docked a few points for this liberty with language. After all, words do have specific meanings. But it hasn’t been written by a second-year student. It’s the voice of the country’s central bank we’re talking about, the repository of the country’s economic common sense and the seat of its economics profession.

But let’s not nitpick over words. After all, everybody makes mistakes, even central bankers! Let’s take a look at how the State Bank chooses to describe the state of the economy in these complex times.

Exports and investment and capacity utilisation in industry were all falling long before the circus got under way in Islamabad.
Since at least January, the government has been telling us that a turnaround has been achieved in the country’s economy, which had stagnated in a “low-growth high-inflation equilibrium”, to borrow a phrase from an earlier State Bank pronouncement, since at least 2008. By July, the State Bank was telling us in its third quarterly report that a new growth story had begun in Pakistan as the economy crossed the 4pc growth rate threshold for the first time in years.

Now we have two stories to look at. One: what is the fate of this turnaround the government has been claiming all year? Two: how has it been impacted by the circus under way in Islamabad and the floods? These are separate but linked questions.

A close reading of the third quarterly report back issued in July showed that the turnaround was not all that it was being made out to be. “[Q]uarterly data reveals a sharp decline in YoY growth of LSM” in the third quarter of last fiscal year, that report had said. A close look at the numbers revealed that much of the growth had been narrowly based, and was deeply connected with the Rs500 billion or so injection into the power sector that the government undertook in its early days. In large-scale manufacturing, where most of the increase in growth had come from, the growth rates had fallen from 6.5pc in the first half to 0.5pc by the third quarter.

In fact, exports and investment and capacity utilisation in industry were all falling long before the circus got under way in Islamabad. Even in the crucial matter of the reserves, that rose so fast in April and May that the State Bank wrote “such a sequence of positive developments in the external sector” had not been seen since 2001, the real story was a lot less shiny. “[U]nderlying fundamentals do not show much of an improvement”, it said a few lines down, cautioning in veiled terms that the growing stock of external debt added greater urgency to augmenting the FX earning capacity of the economy.

All of these problems had been flagged, albeit very gingerly, in the third quarterly report back in July. Fact is, the government’s growth story was losing altitude long before the circus got under way in Islamabad, and long before the arrival of the floods. So we were all entitled to ask, where do things stand as of September?

We didn’t get an answer in the MPS. In fact, the statement laid the foundations for a different story altogether: things were going fine until the circus and floods came along, and now everything could go pear-shaped.

What else do we make of a statement that begins by telling us that the past few months have “continued to witness stable macroeconomic conditions”? And that “real economic activity is expected to continue” throughout the current fiscal year?

The only risks facing the economy now, we are told, are from a delay in the release of the next IMF tranche (a foregone conclusion by now), from the damage wrought by the floods, and from the possibility of an unsuccessful bond floatation and divestment exercise scheduled in the next few months. Hardly a word is mentioned about the risks from intrinsic weaknesses in the character of last year’s growth, save for an awkwardly constructed phrase on the growing trade deficit which “is going to dominate the composition of external current account deficit”.

In another place, a hope is expressed that “[c]ontinuation of the growth momentum” depends crucially on agriculture since large-scale manufacturing, that had driven last year’s growth spurt, “might remain constrained due to continued energy shortages; reduced production capacity of independent power plants; low supply of gas to fertiliser plants; lower domestic and international prices in the sugar sector; and higher inventories and slower exports growth prospects in food and textile sectors, respectively.”

Read that sentence again, and you’ll notice it’s actually a pretty long list of weaknesses weighing down on growth, causing it to “remain constrained”. And hardly any of it has anything to do with the circus and the floods. Yet the statement has little more to say on than what you read above.

To some extent, this is understandable. The MPS did receive some sensationalist press, which is bound to happen given the times. But the shifting of the emphasis, away from the inherent weaknesses of the growth story towards the circus and the floods appears contrived to satisfy demands coming from Islamabad rather than reflecting the view from the street. One can only hope that in the next MPS, or in the annual report, we’ll get a more comprehensive, and less diluted, view of the problems that continue to plague our economy.