IN recent weeks, Pakistan has been stalked by bad economic news: a tough IMF package, revenue shortfalls, sharp rupee depreciation, stagnant exports, reduced foreign investment, and, to top it all, no oil or gas at Kekra.

Not surprisingly, the opposition parties are portraying these discouraging developments as the consequence of the PTI government’s missteps and mismanagement. But the fault is not entirely within us. Almost all emerging markets are facing a slowdown due to dollar appreciation and higher interest rates, the uncertainty and protectionism generated by the US-China trade war, and the growing geopolitical threats to global economic stability. Emerging markets, including Pakistan, are expected to grow next year at an average rate of four per cent.

The government’s earlier effort to find alternative or supplementary sources of financing to the IMF was understandable. At the time, the IMF was asking for a free float of the rupee. And, the US had raised objections to China’s CPEC financing.

While the economic prognosis is not rosy, it does not spell doom or disaster.

The package which is now likely to be concluded with the IMF will, no doubt, contain some tough conditions. However, two major concerns have already been largely addressed. First, the rupee has depreciated close to what is considered its present ‘market’ value. Second, the US objections to CPEC financing have been mitigated by Pakistan’s facilitation of the US-Taliban talks.

The $6 billion IMF package, though modest, will enable Pakistan to raise concessional financing from the development banks and borrow on the bond markets at reasonable rates. The smaller IMF package may also ease Pakistan’s expected effort to wean itself away from IMF supervision as soon as possible.

The IMF’s targets for reduction of the fiscal and current account deficits will impose constraints on economic growth and socioeconomic programmes risking public ire and further fire from the opposition and a critical media.

Yet, while the economic prognosis is not rosy, it does not spell doom or disaster.

Several of the structural measures prescribed in the IMF programme, such as bringing the fiscal and current accounts into balance, are actually essential for the long-term health of the Pakistani economy and should be implemented regardless of the IMF.

The manner in which the fiscal and trade accounts are balanced is largely up to the government. In reducing the fiscal deficit, it can place primary focus on raising revenues rather than eliminating vital socioeconomic programmes. Pakistan’s tax-to-GDP ratio can be raised from the present 10pc to the norm of 18pc, provided the government is prepared to take politically difficult decisions, such as bringing agriculture and the retail sector fully under the tax net and plugging revenue leakages.

The hundreds of mostly loss-making state-owned enterprises bleed the exchequer of around 2pc of GDP each year. If these SOEs are urgently restructured and/or privatised, this alone would enable Pakistan to meet the IMF’s fiscal reduction target. Perhaps the simplest way to restructure and, where advisable, divest these enterprises is to hire one or more specialist firms to undertake the exercise. Several countries have done so successfully.

Further, if austerity is to be imposed, it should not fall on the shoulders of the poor. The burden of austerity should be borne mainly by the nation’s affluent classes whose profligacy has brought the country to the present economic pass.

Differentiated austerity could encompass measures such as: higher gas prices for upper-income households, higher duties and taxes on luxury or larger cars, car pools and alternate driving days to save on oil consumption, higher property taxes on larger homes, higher taxes on air travel, luxury taxes on air conditioners. Digital technology can enable efficient implementation of differentiated austerity.

A substantial part of the government’s expenditures could be deployed for pro-poor programmes including: financing and support for food, housing, health, education and transport for the country’s 60 million ‘poor’.

Considerable financing for some of these programmes could be generated by ‘monetising’ government assets, like land for housing; and raised from development and charitable institutions and through public-private partnerships. Such investments in social and human infrastructure are essential to create the foundations for future robust economic growth.

Balancing the external account will be challenging as well. World trade has declined by almost 2pc last year due to the increasingly protectionist and uncertain trade environment. Export opportunities for developing countries have shrunk significantly.

Pakistan’s manufacturing sector is puny, contributing only 11pc of GDP, and its products — mainly textiles — are low end and uncompetitive. The sharp rupee depreciation should level the playing field against Indian and Bangladeshi competitors. Unfortunately, Pakistan’s yarn and fabric producers have shied away from and, at times, obstructed investments for value addition in textiles and clothing. They should be challenged to invest in modern plant and machinery and join the global supply chains to enlarge export volumes and earnings.

The government also needs to ignore false Western free trade rhetoric and offer tariff and other protections to nascent manufacturing industries (electronics, machinery, consumer durables, chemicals, steel and other industries), especially to SMEs, and thus reduce the import bill and build capacity for future exports.

The US-China trade war may offer Pakistan a unique trade opportunity. Faced with huge US tariffs, many Chinese manufacturers are likely to move production, at least of labour-intensive industries, to other developing countries. The relocation of these Chinese industries to Pakistan should be a prime objective of CPEC’s Special Economic Zones.

Pakistan’s economy has underperformed mainly because it has been cash-starved and constrained by policy and execution inefficiencies. Its high growth potential resides in the pent-up demand for consumer and durable goods and health, education and other services; in the unexploited domestic and export potential in agriculture, mining, textiles, industrial goods and other sectors; in the country’s huge infrastructure requirements and in its undervalued assets and companies.

The ultimate answer to Pakistan’s economic challenges is massive, direct, foreign and domestic investment to unleash this large and latent potential of the Pakistan economy. This should be the government’s top economic priority.

The writer is a former Pakistan ambassador to the UN.

Published in Dawn, May 26th, 2019