TOUGH measures are having an impact. Good times are around the corner. The government’s policies are working. We have heard this time and time again. Every IMF programme in this century has led to the following: the currency depreciates, inflation peaks, and the fiscal and trade deficits narrow.

Read: Pakistan's economy is expected to stabilise. Is growth next?

All of this occurs as the economy slows down, inflation inches up, and life gets harder for most citizens. That the stabilisation programme is having its intended effect — both good and bad — cannot be disputed. But does that mean that the government can pat itself on the back and start celebrating? To answer this, one must dig deeper, for the devil is in the details.

Let’s start with the first quarter’s revenue numbers. The government has said that revenue grew by 15 per cent in the first quarter of this fiscal year and that it was able to largely meet the IMF’s target. In fact, the finance secretary has reportedly said that while the IMF demanded a primary deficit of about Rs100 billion, the government was able to have a surplus of almost Rs200bn. Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh has proclaimed that the fiscal deficit is under control.

On the surface, this looks like quite an achievement, especially given the lacklustre level of growth in the economy. But look a little closer and you will see all sorts of creative ways being deployed to make the numbers look good.

On the revenue side, associations representing the export industry claim that the government has not refunded over Rs150bn to exporters in the last quarter. That’s a substantial sum that is creating all sorts of working capital issues for export-oriented businesses at a time when increasing exports is the need of the hour. This working capital crunch is leading to higher costs given the sky-high rates of interest.

One can see all sorts of creative ways being deployed to make the numbers look good.

In a slowing global economy, businesses are being forced to cut costs and compete for thinner margins — recent data shows that while the quantity of exports has increased, a decline in prices has led to flat revenues. Further compounding the woes is the fact that the government’s solution of issuing bonds instead of refunds has failed, primarily because there is no secondary bond market where exporters can sell off the bonds to meet their working capital needs.

Dr Shaikh also has not disclosed the funds released under the Public Sector Development Programme (PSDP), which is a significant chunk of money disbursed by the government for key infrastructure projects. These projects are critical for long-term growth in the economy as they build vital infrastructure necessary for sustained growth. Slowing these projects may yield benefits in terms of reducing the fiscal deficit, but it also lowers potential long-term growth of the economy.

Given the cash crunch being faced by the government, it would not be unwise to assume that the fiscal deficit improvement has been driven by reduced PSDP disbursements. Finally, the finance secretary has also reportedly said that the improvement in revenues is driven by increase in non-tax revenues, which are a one-off occurrence.

If we remove the pending refunds, reduced PSDP disbursement, and one-off revenue inflows, then the numbers look quite bleak, even though the quarterly revenue target was significantly lower than the 45pc annual increase agreed upon with the IMF.

While the fiscal deficit poses the biggest short-term risk to the stabilisation programme, medium-term growth wholly depends on the successful implementation of structural reforms. This is mentioned in the World Bank’s most recent report and has been mentioned in similar reports going back years. These reforms include privatisation of loss-making SOEs, resolving the circular debt in the energy sector, and improving competitiveness to boost exports and attract FDI inflows.

For various reasons, mostly political, successive governments have failed to push these reforms through. The story is similar under this government, where reports indicate that the cabinet is split on aggressively pursuing the privatisation programme. In fact, in a sea of taskforces and committees, we have yet to see a singular vision that elaborates on the economic vision and reforms that this government will push through in the coming months.

Read: Results of government's difficult decisions now showing, says Hafeez Sheikh

The fact is that Pakistan’s economy is still a long way away from stabilising, while achieving sustainable growth in the medium term remains a pipe dream. The revenue being collected by the FBR is significantly below what was agreed to with the IMF, even if one ignores the creative means that have been used to pad these numbers. The revenue target remains the Achilles’ heel of the ongoing stabilisation programme and it is highly likely that these targets will be missed in the second and third quarters of this fiscal year. As the pressure mounts and the numbers do not add up, the government will have to further increase tariffs and raise taxes, while the State Bank will have to keep interest rates at a high level to stem inflation, resulting from a persistently high fiscal deficit and secondary effects of increased tariffs.

Given this backdrop, it is unwise for the government to yet again declare that victory is close at hand. Such proclamations were made at the end of last year, and the situation has only worsened since. While these claims lead to a short burst of optimism in the country, the gains quickly fade away and turn into a liability as economic pain mounts.

What the prime minister’s team should do is come clean about what is required to achieve key targets in the short term, why these decisions must be made, and disclose and execute a medium-term plan to reform this sickly economy. Tough decisions must be made, and the more honest the government is, the greater its ability to push through reforms in the face of an increasingly vocal opposition. If the government fails, then Pakistan’s economy will quickly find itself back in the emergency room soon after the stabilisation period is complete.

The writer is director at a strategic consulting firm based in Washington D.C.

Published in Dawn, October 17th, 2019