Pakistan is heading toward elemental changes in its political system. If you examine the recent Constitutional amendments, you can see some desperate moves to ensure that the underlying structure of the current hybrid regime is sustained. And you’ll also notice some subtle and not-so-subtle attempts to undermine the superior judiciary.

So, let’s assume the current hybrid regime remains what it is. Let’s also assume that the superior judiciary may not find enough constitutional room to undo anything that is done to solidify the structure of hybrid governance. Wouldn’t that further shrink space for the political opposition and lead to further suppression of the rights of the weak and the marginalised and enhanced controls on mainstream and social media?

Such concerns are becoming widespread enough to drive structured agitation. That explains why the government is strengthening its structure on the one hand and is also giving the economy due priority. Considering ongoing monetary easing, the planned launch of Eurobonds and moves to attract foreign investment in this light may bring about better contextual understanding.

But what if the monetary easing fails to lift aggregate output to the desired level and the promises of foreign investment take longer than projected to materialise? It will be difficult if the country’s investment rating doesn’t improve enough to facilitate the launch of the Eurobonds.

Along with monetary easing the government needs to let the economy take off by fostering an environment of inclusivity and tolerance

The State Bank of Pakistan has reduced its key interest rate from 22 per cent to 15pc in four instalments, and the government is busy renegotiating deals with 18 independent power plants to reduce “capacity charges” that it pays them for large quantities of electricity they don’t produce despite having the capacity to do so.

Unless this issue is resolved within the promised six-month period, monetary easing alone will not make industrial operations cost-effective because the government will not be able to halt energy price hikes.

Finance Minister Muhammad Aurangzeb has categorically said that the launching of the Eurobond is subject to Pakistan’s improved international credit ratings, which are further subject to not only better economic performance but also to a visibly improved security environment.

The government has so far not succeeded in providing fool-proof security to Chinese nationals despite open demands from China, and the general law and order situation in the country is far from ideal. This could impede foreign direct investment even from friendly countries like China, Saudi Arabia, United Arab Emirates and Qatar and impact the ability to obtain better investment grade ratings from international credit rating firms.

The International Monetary Fund’s (IMF) three-year $7 billion balance of support is too small given our needs, and even the continuation of this lending programme requires the display of not only economic wisdom but also political maturity. The Fund’s demand for adopting a freer foreign exchange rate is sure to become louder and persistent after the recent 2.5pc cut in Pakistan’s key interest rate.

Meeting IMF conditions is not only necessary for periodical unlocking of the $7bn instalments but also for securing at least another $1bn under the Fund’s climate financing. Remaining on track with the Fund programme is also critical for securing foreign investment from anywhere, even from our friendly countries.

The State Bank of Pakistan’s (SBP) monetary easing provides the economy with much-needed fuel for drive, but the government needs to let the economy take off first by fostering a better political environment of inclusivity, tolerance and respect for human rights. Besides, the government and the central bank also need to tackle the impediments to smooth transmission of monetary easing.

The SBP now needs to monitor closely whether banks pass on the benefit of the monetary easing only to large companies, leaving out micro, small and medium enterprises (MSMEs) on one pretext or the other. The government needs to ensure that genuine issues of MSMEs, like unfair treatment by tax authorities, lack of support from provincial industries departments and frequent breakdowns in power and gas supplies, are addressed spot on.

There are over five million MSMEs in Pakistan. They have the potential to create jobs and boost productivity across industries and services sectors, besides strengthening the links between agriculture and industry. However, very little has so far been done to address their issues, including the lack of access to formal finance.

When it comes to private sector lending, banks naturally prefer low-risk clients, thus closing the doors for most of our MSMEs. Provincial and local governments need to act as a bridge between banks and MSMEs operating in their jurisdictions.

Published in Dawn, The Business and Finance Weekly, November 11th, 2024