THE government cannot stop congratulating itself for stabilising the economy over the past year, while the people don’t know whether to laugh or cry given their ongoing economic hardship. Have living standards improved? Has unemployment decreased? Has the recent rapid rise in poverty been curbed? Have real wages risen? Have the incomes of small and tenant farmers shown any growth?

The government’s response is that these improvements will happen, but first the severe macroeconomic imbalances they had inherited had to be corrected. They believe that having done this they deserve applause: inflation is now below three per cent, while it had reached near 30pc just two years earlier; the dreaded current account deficit, responsible for recurring boom-bust cycles, is in surplus; the threat of default that loomed in July 2023 has considerably faded and the tax-to-GDP ratio, crucial for funding development, is showing signs of a positive trend.

However, successful stabilisation is la­­r­gely applauded only by creditors, bankers, and multilateral development agencies to whom we owe a staggering $120 billion (one third of our GDP) and nearly $20bn (about two-thirds of our export earnings) every year in interest and service charges. Many of these creditors have extended more loans during this critical phase, as the IMF has done, to ensure we remain solvent and can at least service our debts.

The people, however, will only applaud if they see relief from the high cost of living, job opportunities for the youth, and real improvement in the quality and delivery of public services (education, health, roads), which have deteriorated over the years.

The real challenge lies in delivering the reforms.

Achieving these goals requires a turnaround in both private (domestic and foreign) and public investment. Unfortunately, the level of total investment as a percentage of GDP has not risen but rather declined to less than 15pc of GDP while the economy requires double of this for high and sustainable growth to reduce poverty and unemployment given our current rate of population increase.

I recently met a seasoned businessman and trader in Dubai, a major player in Pakistan’s towel exports, and asked him about the prevailing business climate in Karachi, the nerve centre of Pakistan’s economy. His reply was measured: “Some hope has returned,” he said, “but there is no action.” This comment highlights the depth of the economic crisis we have sunk into, suggesting that any recovery is still fragile and far off.

The situation regarding public sector development funding is even more dismal: it has dropped to nearly 2pc at the federal level and about 3.5pc of GDP, after including the provinces, down from the normally required 7-8pc at its peak. The current state of public sector infrastructure is rapidly deteriorating, as a report by the IMF (2023) indicates. The government’s growth and development strategy is outlined in the recently released Uraan Pakistan. Its goals and objectives are centred around the five Es — exports, e-Pakistan (ICT), environment, energy and infrastructure, and equity and empowerment driven primarily by the private sector — have considerable merit. However, it remains a strategy-cum-vision for charting the course the economy must take to generate sustainable growth.

The real challenge lies in operationalising this strategy through appropriate policy reforms and the equally essential creation of physical and social infrastructure to attract private sector investment and spur productivity growth. For this, the 13th Five-Year Development Plan (2024-29) approved by the NEC in June 2024 with its broader and detailed sectoral cove­rage can provide valuable inputs especially in drawing up a cost-effective public investment program­­me. Ti­­mely and effic­i­ent implementation of this task, especially in co-ordination with the provinces, which und­ertake half of this public investment, may necessitate appointing a deputy chairman of the Planning Commission in whom the planning minister has confidence.

The finance minister has played a critical role in stabilising the economy and has remained focused on delivering the IMF programme he signed. However, he must remember that stabilisation is always the easier first part of an IMF programme. The IMF will remind him of this based on its recently conducted review of the last three programmes. Delivering the promised structural reforms, a complex mission given the malleability of the economy and its institutions and the manner in which the ruling elite deflects efforts to extract their fair share of taxes, is perhaps the most formidable aspect.

The real task of implementing the refor­­ms promised to the IMF has only just begun.

The writer is a professor of economics at the Lahore School of Economics and former VC of the Pakistan Institute of Development Economics.

Published in Dawn, March 17th, 2025