The nine-month $3 billion Stand-By Arrangement (SBA) with the International Monetary Fund is generally seen as a breather and bridge to a subsequent broad-based and longer reform programme to enforce financial discipline and reduce debt default risks. It has brought much-needed relief to the policymakers and capital market but does not enthusiastically raise hope of an early economic recovery.

With shrinking national income (GDP) growth, cash and dollar-starved Pakistan faces a daunting challenge to repay $25bn debt during the current financial year. That would squeeze the space available for investment to shore up the economy.

Notwithstanding the extraordinary rally in the share market attributed to the SBA, analysts believe that raising fresh capital through the stock exchange will likely remain muted. Only one company, Globe Residency (a real estate investment trust), held the initial public offering in 2022-23 to raise Rs1.4bn.

The dollar was down by Rs23.49 to Rs275.44 in the inter-bank market on July 4 from the peak of Rs298.93 on May 11 owing to expectations of higher greenback inflows, attributed to the Eid and SBA.

Reforms should focus on boosting export-oriented and import-substitution sectors’ productivity to reduce trade and current account deficits

But dealers also said the grey market, where the dollar sells for Rs295.3, is still attractive for remittances.

Not surprisingly, while acknowledging the need for long and broad-based IMF support, it is also argued that a growth-oriented structural reform agenda is also necessary. On the heels of the SBA, this view has gained ground among leading analysts, economists and the government.

The reforms should focus on boosting export-oriented and import-substitution sectors’ productivity to reduce trade and current account deficits.

Despite the tough regulatory and policy measures to curb imports, FY23 ended with a trade deficit of $27.5bn while stifling economic activities. Exports have continued to drop for the tenth consecutive month, falling 19 per cent in June compared to the same period of last fiscal year.

It may, however be acknowledged that during FY23, the trade deficit was slashed by 43pc from a daunting $48.35bn, while imports dropped by 31pc from $55.29bn in FY22. It would be interesting to observe how the SBA would impact this trend.

“The most important task facing Pakistan’s policymakers is to realise the goal of a high rate of economic growth on a sustainable basis,” says analyst Javid Husain.

It is necessary to focus on macroeconomic stability agenda as agreed with the IMF but coupled with a growth-oriented structural reform agenda, says former State Bank governor Dr Reza Baqir.

The government should use the next two IMF programmes to establish a stable and inclusive economic growth path, says Dr Abid Qayum Suleri, head of the Sustainable Development Policy Institute.

The critical factors for success, he adds, are maintaining policy consistency and continuity and ensuring political ownership of SBA commitments by the current, caretaker and elected governments.

Prime Minister Shehbaz Sharif vowed to continue the journey of economic stability and national development. He has said that all sectors of society, classes and institutions would have to contribute to the country’s economic revival. It is, however, not known how this will come about. It is, however not known how this will come about.

The government has come up with the Economic Revival Plan (ERP), whose details have yet to be announced. At this point in time, the ERP appears to be a non-starter. The prime minister says the ERP will lead to employment for four million people. It is possibly a guestimate without any real homework.

The establishment of the Special Investment Council, whatever its merit, is not seen by many as a creditable tool to get things moving.

Scholar Rashid Ahmed argues that the real task of carrying through structural reforms to ensure sustainable growth will fall on the government that will take over in November. And Dr Reza Baqir says space and ownership are needed to address structural reforms areas.

He suggests that we should start now a process of national debate and reach a consensus over specific measures so that the next elected government can drive them forward as a home-grown reform programme.

A consensus is required to neutralise the feared loss of political capital in carrying out painful reforms

The hybrid democracy does open up space for needed change, as is evident from the 18th Amendment and the 7th NFC award when the political parties act collectively and decisively.

Analysts also raise the question of whether the new set-up after elections will be stable enough to implement tough and unpopular economic and financial reforms.

It thus becomes incumbent on all political parties to draw up political manifestos and forge alliances with like-minded parties to address the major problems facing the country, such as how to democratise governance to make it effective, reduce foreign dependence and avoid foreign debt default, ensure inclusive and sustainable economic development, control inflation, generate employment, and empower people at the grassroots to improve their livelihood and quality of life by themselves.

There is, however a consensus on the need to tap into the potential of the workforce to stimulate economic growth. And it is also widely recognised that democratic governance is central to managing the common good.

A national consensus on structural reforms is necessary that incorporates, with the help of technocrats, inputs provided by the IMF. A consensus is also required to neutralise the feared loss of political capital in carrying out painful reforms, says a politically conscious citizen.

Published in Dawn, The Business and Finance Weekly, July 10th, 2023