Preparations are afoot now for the second generation of reforms, more critical and difficult to implement than those preceding them. In the first phase, few areas and few institutions have been targeted for reforms which were more easily managed.

The new cabinet headed by Shaukat Aziz has to build upon what has been accomplished. The ongoing reforms have to be consolidated so as to move to the critical mass in the realm of governance, devolution and market reforms.

And to quote from the Poverty Reduction Strategy Paper, "a successful public policy requires emphasis on governance without which full economic potentials and effective service delivery cannot be realized."

Reforms have not embraced the critical mass in governance, the administrative machinery of the government but for the creation of district governments whose financial and administrative autonomy has to be consolidated.

The next phase of reforms therefore poses a great challenge for the 66-member team of cabinet ministers and advisors headed by Prime Minister Shaukat Aziz. And experience in many states demonstrate that the need for reforms is strongly felt when an economy plunges into a crisis and normally the reforms are triggered by crises. The fundamental reforms are more difficult to achieve because of the opposition of those facing risks.

This is true for Pakistan too. The financial sector reforms were initiated at the start of the decade of 1990s and banking reforms in 1997 to be followed by an effective fiscal stability programme.

But the pace of these reforms was slow and the outlook wayward till such time that a strong perception of an imminent default of foreign debt surfaced. In fact the reforms were driven by the gathering fiscal and monetary crisis, the more its intensity, the faster its pace. From a one-tranche country, Pakistan emerged as one of the best performers under the IMF programme, helped by development after 9/11.

The reforms and their pace, sequence and timing depend first on the political will, often reinforced by a crisis, and on the quality of resistance and the enabling political environment when it is ripe for a change. Presently political culture is more of the same.

PM's advisor on finance, Dr Salman Shah says preparations are afoot to initiate second generation of reforms with focus on infrastructure to attract foreign investment. An equally important thing is to increase the local firms' presence in the global market which is currently restricted to a few textile exporters.

The timing of the second generation of reforms coincides with the experiments of a presidential-cum-parliamentary system which former President Zia ul Haq failed to work with his nominated prime minister Muhammad Khan Junejo. President Musharraf is trying a new mode.

Many reckon that the government is going to be managed like a corporate entity. The Prime Minister has asked his cabinet ministers and advisors to set 100-day targets in addition to quarterly review of performance of each ministry/division.

He says he is going to be a hard task master. The large cabinet is top heavy when the need is to reduce governance layers to cut costs and improve efficiency. This is contrary to the spirit of stated objective to have a " flatter structure of civil service" and the practices in the corporate sector.

In its strategy paper, the government has recognized that "increased spending will not improve the delivery of key services" unless the system of governance was reformed. To overcome its "governance crises", the government says that there is need for " a change in political and organization culture."

A key issue is whether prime minister will be able to reform the system or will he become its " prisoner." SBP governor Dr Ishrat Husain is believed to have told newsmen at a workshop for economic journalists in Karachi recently that the economic team does not have an easy sailing and its proposals are also rejected by the civilian cabinet. The task would not be made easier by a much larger cabinet.

The reforms introduced so far have turned a regulated economy into an emerging market. Crony capitalism is giving way to a globally competitive economy. From a managed float, the national currency is testing its strength through a free float.

An exit from IMF and economic muscle it has acquired over the past five years is helping the government to regain much of the country's economic sovereignty lost in IMF conditionalities.

In the domestic affairs, the economic sovereignty is also being deepened by creation of autonomous institutions. For example, the State Bank of Pakistan (SBP) has become autonomous, and as the central bank puts it" within the government and not of government."

Perhaps, it may serve as a role model for other institutions. Barring the SBP, the regulatory authorities are weak and need to be strengthened. The government is also committed to consolidate devolution by administrative and fiscal decentralisation in the next 2-3 years.

The economic managers have yet to come to grips with the next National Finance Commission Award. The district governments have been deprived by the provinces of their legal powers in financial and administrative fields.

Changes in Central Board of Revenue and its personnel may have brought some positive results but these are still seen by some as a mere eyewash. However, it is universally recognized that the universal self-assessment scheme for taxation was major a step forward.

Governance is handicapped by a bureaucratic cobweb. The government and its institutions are not proactive in their basic obligations, both as a regulator and an effective facilitator. The economic agents need to be freed from bureaucratic hassles in which time value of money is lost and business costs mount.

The consolidation of economic reforms are also about integration of the national economy with the global market. Although local companies are allowed to invest abroad, the overall size of the investment overseas is nominal.

Perhaps, the first major move is a proposed investment by Fauji Foundation in the $200 million joint venture with a Moroccan company for setting up a fertiliser plant with a capacity of 375,000 tons of phosphoric acid.

National Bank President Ali Raza says there are no more than fifteen companies with turn-over of $500 million each which have presence in the international market. The Pakistani banks run small subsidiaries abroad.

In a bid to reduce its dependence on international financial institutions, the government is borrowing from international market. It raised $500million through international bonds and has plans to launch more of them.

But all these efforts, put together, are marginal. In the public sector, a key issue is about the development spending: how the projects are prioritized, how money is spent and how various schemes are supervised and monitored to ensure efficient delivery and to avoid mismatch between physical and financial targets.

Ongoing development schemes with cost over-runs expose weak governance and poor implementation. The size of the Public Sector Development Programme is increasing fast because of fiscal space and multilateral assistance. The development spending must be economical and efficient to make the projects yield a return to repay the debts.

In the past foreign funded schemes, ill- conceived and badly managed have created bad debts. Physical and not merely financial performance is a key criteria to evaluate the progress of a scheme.

There are hundreds of new hospitals and schools without the necessary staff, teachers and doctors. The critical test of the new cabinet depends on its success to improve governance and consolidate devolution.