MUCH has been written on the desirability of the loan agreement with the International Monetary Fund. The conditions that have been agreed to have been termed as fair or unfair.

It seems that the IMF had to give money to Pakistan and Pakistan had to take it. Whatever possibility of negotiation was there mostly involved some of the conditions. But there was not much negotiation.

No country can run large deficits on a sustained basis. There can be debate on how quickly they are plugged and how. No country can live on borrowed money alone — local taxation systems have to be improved. No country can afford significant levels of untargeted subsides on borrowed money. Subsidies have to be rationalised.

One can debate how all of these are to be accomplished, the speed at which these must be attempted and the groups that have to pay for the adjustments. But that is an ongoing and mostly internal dialogue for the country to take part in. IMF conditionalities tend to be broad and at the macro level and give space to countries to structure how the macro targets are to be achieved.

The real problem is the lack of domestic dialogue. If electricity subsidies have to be reduced or eliminated, most groups will have to pay more. If taxes have to be raised most people will again have to pay or pay more. Few want to pay more given the lack of trust in the government’s actions and policies and given the inequities of the system.

If the government can ensure fairness and equity as the principle behind making adjustments, there could be more of an argument for change and potentially more support. But, going by some of the changes made, fairness and equity are the first victims. The government has raised taxes for those who are already paying them. But there has been hardly any effort to widen the tax net.

Salaried people and others already in the tax net are now paying even more than the substantial amount they had already been paying, while many income groups (a lot of them strong constituencies of the PML-N) historically outside the tax net have been allowed to stay that way. In such conditions there can be little support for most policy actions and all agreements and moves can only irritate.

However, too much time is given not only to the IMF but also to the issue of macroeconomic stability. The latter seems to be one of the easier things to achieve. Cut down and hold down expenditure, fill the foreign exchange and remaining expenditure gap with borrowing and you have the makings of stability. We have achieved this sort of ‘stability’ a number of times. After the Musharraf takeover, debt rescheduling and new borrowings resulted in fiscal space. Right after the PPP came into power in 2008, we did the same thing. We can be sure similar results will be achieved and celebrated by the finance minister not too far into the future. The real issue seems to be that of growth. Once we have this sort of ‘stability’ then what? We cannot hold this stability, due to repressed expenditures and foreign borrowing, for long. What path goes from stability to growth?

Here the dialogue in Pakistan gets murky. Cutting expenditures and further taxing those who are already in the net or making electricity more expensive might be helpful in bringing down the deficit. But they are not the means through which we will find ourselves on a high and sustained growth trajectory. Where is the government’s theory of change there? What are the policy actions that will lead to growth?

Part of the answer has to come from a credible theory of change that the government has to formulate in collaboration with other important stakeholders. What reforms are needed for growth, how are the reforms to be carried out, what sectors will lead the revival of growth, what sectors will sustain it, and how are these sectors going to move from current conditions of stagflation to growth? Which sectors are going to lead on exports? Which ones are going to generate employment for the millions looking for work in Pakistan? Part of the answer lies at the micro level. We need to figure out what is stopping sectors that have significant growth potential from delivering. We have been hearing, for the last two decades at least, that Pakistan is the fifth or sixth largest producer of milk in the world. But why are we only processing 5pc to 6pc of what we produce? Why are we not a sizable player in the milk or dairy product markets of the world?

If our citrus fruit is among the best in the world, given the size of the world market for orange juice and related products why are we not a player in that market too? Similarly, a lot of our other fruit and vegetables are supposed to be quite good. Why are such agri-industries still so underdeveloped? The same is the story with a lot of our textiles, sporting goods and light engineering products. In fact, in many of these markets we seem to have lost ground rather than gained any.

Most of the debate seems to be focused on stability and related issues. But they do not seem to be the real issues we need to focus a lot of our attention on. Real attention needs to go to reforms that will ensure stability leads to a path to growth and then on policy and other changes that we need to institute to ensure sustainable and sustained growth. The last part has to be more micro than where the current debate is right now.

The writer is senior adviser, Pakistan, at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.