In the Pakistan Investment Conference recently held in London, the PML-N’s government announced its priorities and made it abundantly clear that the energy sector is the government’s key focus area.

However, the capacity expansion plan is ambitious and even if 20-30pc of new planned capacity is added to the grid, it will be a remarkable achievement.

The incentives in place for potential power producers are unquestionably attractive, with the main question mark around the sustainability of this investment regime beyond this government's tenure. In terms of incentives, automatic tariff adjustment, facilitation of land and tax holidays stand out.

However, it is not totally clear how bill recovery can be guaranteed though the intent is there. It appears that the public balance sheet will be used to backstop the non-payers for now, not a positive for fixed income investors.

Finance: There is a quantum jump in the quality of thinking and execution on this front. Fiscal deficit is being brought down and the new euro bond proceeds were used to reduce borrowing from the central bank. This should help inflation dynamics and tighten local currency liquidity. With balance of payment crisis averted and projected increase in reserves, rupee is likely to remain stable for now as it starts its new cycle of accruing real appreciation via higher inflation. Islamic sukuk is the new initiative to raise reserves further.

Pakistan has regained access to international markets, and now needs to select projects to back the raised resources. For instance, if infrastructure is the key source of capital expenditure then the government could benefit greatly from issuing project-backed funding instruments while investors could understand the risks/return profiles accurately.

Securitisation of remittances is an interesting idea but deploying it without charting out the list of investment projects the raised proceeds will go towards, is not recommended. The asset side of balance sheet will determine the cost of funding provided by the market and difference can mean billions of rupees for the national exchequer. Unfortunately, consumption is unlikely to be financed at reasonable rates by foreign investors, given the dearth of national savings.

Infrastructure: The government's priority of building infrastructure (especially, energy) is anchored on a very sound policy framework to increase growth rates, but to derive full value out of this capital building exercise, it is imperative that the bigger strategy objective is clear.

Given its important geo-strategic location, Pakistan can play an important role as a trade transit state connecting the Karachi port to eastern China and India. Indeed, the value of any infrastructure deployed will be increased manifold if capital deployers can see how the infrastructure can be monetised. China is already starting to invest for connecting its eastern cities to Pakistan and a similar possible connection with India will increase the value of these assets substantially, thus raising national wealth.

Indeed, if selection/deployment of individual infrastructure projects is done with this big goal in mind, investment efficiency is likely to be enhanced. Pakistan should remember that both India and China are undertaking significant financial reforms, which will open their capital accounts. According to some reports, China alone will have $4trillion of capital to invest for diversification purposes. Pakistan can play a very important role as China consolidates its position as middle-income country readying itself to engage with the world not only in trade but, through capital deployments as well.

Education: Although, education was noted as a priority area, it was not abundantly clear what significant initiatives were being taken in this area. On this front, Pakistan needs to really raise its game, if it wants to compete with other countries for international capital. Without, a skilled labour force, ideas such as business outsourcing, IT exports etc are unlikely to be executed. In addition, education is critical to reducing poverty and any half hearted policy is likely to remain sub-optimal and will likely nullify the returns generated from the initiatives being deployed in infrastructure etc.

Law and order: Nervousness around law and order remains the number one worry factor. If foreigners don’t feel safe in a country, the FDI is unlikely to pick-up significantly. Initiative to create peace using dialogue, has a limited shelf-life. Pakistan is unlikely to fulfill its potential and even risks significant deterioration in its economic conditions, if the law and order situation is not improved. Here, the ruling elite (political and non political) should realise that economic growth creates many synergies and is a virtuous cycle, which benefits the public and helps strengthen the source of political power, which lets the elite govern in the first place.

Tax policy - The tax policy remains weak and collections and base expansion initiatives are far from optimal. With a fiscal crisis still brewing, the time is ripe to push through radical structural reforms of the taxation code and implementation. My worry is that the change in sentiments of international investors will potentially give rise to complacency which will slow reforms in this key area. The government shouldn’t forget that foreign investors tend to be very fickle and cyclical in their thinking and behaviour. If fiscal balances remain stretched, the risk of a sharp change in sentiment will always remain real and will continue to happen with regular frequency with a risk of adding structural premium to the country’s borrowing costs.

Local currency bonds - Pakistan should seriously consider opening the rupee -denominated sovereign debt market to foreign investors. Already, Finance Minister Dar has indicated that rupee ( govt) bonds will be exchange listed. But Pakistan should seriously consider offering local currency bonds to foreign investors. This segment of the market now has crossed $7 trillion in size and is now much bigger than the $ bond market. With yields in advanced economies expected to remain very low, Pakistan offers attractive returns for local currency bond investors and it has the key advantage of keeping external borrowing low/manageable.

Strategic goal: As indicated above, Pakistan's strategic position in the region is likely to enhance the underlying value of its assets (both human and fixed) substantially. Politically, the government can do a much stronger exercise in selling this idea to both the public and key stake-holders. If executed, Pakistan is likely to realise the dream of entering the group of the 20 largest countries in coming years.

The writer runs the global and emerging fixed income strategy for Lombard Odier Asset Management