While reiterating Pakistan’s renewed commitment to implementing the agreed programme with the International Monetary Fund (IMF), Finance Minister Muhammad Aurangzeb made a significant observation at the Atlanta Council think tank: “We know what to do to rebuild the economy.”

Realising that the IMF stability programme is squeezing, though not closing, the space for inclusive and sustainable economic growth, policymakers are trying to direct development loans and foreign investment into growth-enabling priority sectors.

The underlying issue is how to boost productivity to meet the needs of frustrated people, which are currently met via debt-financed imports.

When asked how Pakistan would successfully rebuild its economy, Mr Aurangzeb said, “We do not need too many policy prescriptions. We know what to do. It is time for us to move on.”

Pakistan needed “timely decisions, [and] timely execution … no strategy works without execution. We need two to three years of structural reforms,” he added.

Later, Mr Aurangzeb said Pakistan would request a minimum three-year economic reform programme while initiating discussions with the IMF for a new loan agreement “because that’s what we need … to help execute the structural reform agenda”.

To ease external sector pressures, on April 15, the government decided to convert all imported coal-fired power plants to local coal to save an estimated $800 million on costs and reduce end-consumer rates by about Rs3 per unit.

Related news is that the World Bank will provide $1 billion for the 2,160-megawatt Dasu hydropower project that would produce cheaper electricity and save dollars spent on imported fuel.

Among the reported projects identified for the $5bn Saudi package is the Diamer-Bhasha dam. Pakistan is seeking $1.2bn of Saudi equity investment in the project. The building of the dam has been long delayed for want of funds, among other factors.

“The creation of jobs, side businesses, wealth generation, income distribution and tax revenues are the guaranteed benefits of localisation,” argues industrialist Syed Raza Hussain in his article ‘Make in Pakistan’.

“The government along with stakeholders should develop a five-year economic localisation plan, with a roadmap for achieving self-sufficiency to transform an economy of $375bn,” suggests Mr Hussain.

Some business segments have already started taking steps in this direction. Decades earlier, the former chairman of Atlas Group of Companies, the late Yusuf Hussain Shirazi, had advocated to “think globally and act locally”.

The IMF’s short-term tariff-led approach has rendered the production sector uncompetitive in exports, resulting in negative consequences on the external account, said the Pakistan Business Council (PBC) — a business policy advisory platform — in a letter to the finance minister.

“That surely is not the IMF’s objective,” wrote Ehsan Malik, PBC’s CEO.

The manufacturing sector posted a negative growth of 0.5pc during July-February compared to the same period last fiscal year.

The letter was written on the eve of the finance minister’s departure for talks on a new, larger and longer deal with the Fund in Washington. The PBC has been actively advocating the need for a ‘Make in Pakistan’ policy.

Imports were expected to expand during FY24 as domestic demand strengthened and the stabilisation of the currency market made it easier for firms to import inputs, according to current month’s ‘Asian Development Outlook’ by the Asian Development Bank (ADB).

The study adds that the current account deficit (CAD) is projected to widen to 1.5pc of GDP in 2024. Indeed, the IMF sees the CAD increasing to 1.1pc from 0.7pc of GDP of last year.

The ADB report pointed out that Pakistan would continue to face challenges from substantial new external financing requirements and the rollover of old debts, exacerbated by tight global financial conditions. One may add that the fears of a lingering debt default have not fully subsided.

Flagging issues that Pakistan needs to address on April 14, IMF Managing Director Kristalina Georgieva highlighted, “The tax base, how the richer part of society contributes to the economy, the way public spending is being directed and of course… creating a more transparent environment.”

Though recent efforts to diversify foreign trade have yielded positive results, they are still far from their real potential. Exports to the seven regional countries — these include Bangladesh, Sri Lanka, Maldives and China, which topped the list — rose by 20.6pc in the first eight months of the current fiscal year compared to the same period last year.

And the value of exports to the five central Asian countries — Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan — rose by 21.2pc during July-February 2024 compared to the same period last year. Simultaneously, exports to the Middle East rose 35.8pc when compared with the eight months of last year.

Moreover, imports from the region have declined, resulting in a reduction in the trade deficit. The trade deficit with the Middle East narrowed by 22.6pc due to a drop in imports of petroleum products.

Pakistan’s economy is projected to grow by 2pc according to IMF’s World Economic Outlook 2024, which is lower than the global growth forecast of 3.2pc this year.

Published in Dawn, The Business and Finance Weekly, April 22nd, 2024