After months of navigating through rough weather, Pakistan’s economy is showing signs of stabilising, amidst old as well as new challenges. A slow, but distinct, return of business confidence is evident, with the rupee stable and bank borrowing by the private sector having picked up sharply.

Production by the large-scale manufacturing sector has rebounded strongly (though it appears to be losing momentum after a few months of high growth), while inflation appears to be trending down. Tax revenue collection has also picked up sharply amidst sluggish imports, but the source of the Federal Board of Revenue’s (FBR) performance and the ‘quality’ of improvement in headline tax collection can only be gauged after more data becomes available.

The balance of payments position remains somewhat fragile. However, remittances from expatriate Pakistanis are holding up well, and the government’s sustained efforts at drawing in external inflows should begin to bear results in the next few months. As has been noted earlier, the fact that the pressure on the external account and the rupee did not ease despite Pakistan’s entry into an IMF program was an unintended consequence of the Fund programme design.

On the fiscal side, the government is optimistic that it is on course to implementing its plans for achieving a consolidation of around 1.7pc of GDP in 2013-14. The reduction in the budget deficit is premised on a containment of expenditures as well as a sharp increase in tax revenue. In the end, however, in a less-than-desirable move, it appears that the government may drop the axe on development expenditure.

On the flip side, electricity load-shedding is back (as widely predicted) due to the re-accumulation of the energy circular debt. Despite the fiscal deficit for the first six months coming in lower-than-target, the government resorted to borrowing for its fiscal needs almost entirely from the State Bank of Pakistan.

This was on account of delayed receipt of external inflows that feed into the budget, such as under the Coalition Support Fund. The government plans to reverse the borrowing from SBP once the other inflows it expects, such as from privatisation, the auction of 3G licences, etc are received.

All in all, the government is optimistic about engineering a ‘turnaround’ in the economy, expecting GDP growth of over 4pc for the year. The IMF is more cautious, but has also revised upward its projection for economic growth for the year to 3.1pc from 2.8pc earlier.

Despite the emergence of a somewhat more positive tactical picture, Pakistan has been here many times before, and the script is familiar — as the late Dr Meekal Ahmed had despairingly noted. Economic mismanagement leads to a balance of payments crisis, which triggers a full-blown macroeconomic crisis. The government of the day turns to the IMF, promises wide-ranging, meaningful and credible economic reform, secures a bailout, stabilises forex reserves — and without further ado and ceremony reneges on its commitments. Back to square one; business as usual till the next crisis and the next IMF programme.

So, will this time be any different? It is difficult to say. So far, the government has committed to a slew of reform measures under the IMF programme that many argue (including myself) do not go far enough. However, even for these measures, the pace of implementation appears to be slow. This could be due to the following reasons:

• Policy inertia

• Resistance by vested interests

• Capacity issues (especially in the civil service)

• Interference by the courts

In terms of fundamental structural as well as institutional economic reform, areas that warrant greater attention — include the following ‘big ticket’ items:

• A credible broadening of the tax base

• Governance reform in the energy sector

• Restructuring of FBR

• Restructuring of the public-sector entities

• Transparent privatisation

Finally, the government also seems to be making another familiar mistake with regard to the economy: it appears to be defining ‘success’ merely as achieving a higher-than-targeted rate of economic growth, or attaining a certain tax revenue collection target, or privatising X number of units.

Instead of focusing on headline numbers, it should define ‘success’ in terms of the ‘quality of adjustment’ it has managed to institute via structural or institutional reform. Thus, for example, on the tax target, the focus should be on how many new high net worth Pakistanis have been brought into the tax base, and the value of the tax concessions via SROs it has managed to remove.

Tailpiece: Pakistan lost a distinguished son this January. With the transition of Dr Meekal Ahmed, an honest, committed, competent and patriotic Pakistani passed away. While many of us have been bereft of a dear friend, the loss is larger than our individual sense of bereavement. Pakistan has arguably produced more brilliant economists than Meekal — but none stood taller in matters of principle or intellectual honesty.

A short tailpiece does no justice to Meekal Ahmed. He has been rightfully eulogised in several op-ed pieces in various newspapers. But not mentioning him in a column he used to keenly read would be amiss. May he rest in eternal peace.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.