The way the rupee is sliding suggests that the phenomenon has been accepted as un-controllable. This is a bad sign because the trend continues to stall a rise in industrial competitiveness, and has also neutralised the temporary advantage accruing from a large fall in oil price.

The economic impact of rupee’s depreciation (28.5 per cent since Jan 02) will be worsened by hasty withdrawal of subsidies on fuel to cut the fiscal deficit. Surely, the deficit needs cutting but bringing it down from over eight per cent of the GDP to 4.7 per cent by the end of FY08-09, may cause the economy serious damage.

The government needs to focus on addressing issues that require unbiased dialogue with local and foreign experts and the stakeholders; it is oblivious to the fact that it is running out of time for fixing the distortions – falling rupee, exports, and exchange reserves, and rising inflation and uncertainty that are eating away the roots of the economy.

An indication thereof is the rise in that part of inflation, which owes itself to the greed of market players; it goes unpunished because regulators are either too disorganised to regulate the markets or no longer bother about honouring their obligations. Either way, it is unfortunate and reflects poorly on those, who must press the regulators into result-oriented action.

To bolster internal security, the government has yet to implement a visionary and collectively owned strategy to defuse this threat. In this backdrop, economic instability will worsen Pakistan’s risk profile and prevent raising the resources it needs to contain poverty that will aggravate internal security even in areas that don’t harbour terrorists.

That’s why the escalating political and economic risk is now viewed as a medium not short-term stress. It will further dampen investor confidence. Moody has again down graded its outlook (not rating) because it believes that Pakistan will find it hard to override even in the medium-term the external financial pressures it faces.

This reality is reinforced by the fact that, recently, there has been a sizeable flight of capital. Visibly, the factors that caused it were political instability and to a lesser extent, terrorism, but market observers agree that the pre-dominant factors were the rupee’s rapid fall and galloping inflation that eroded investment values not just in stock markets but in real estate as well as in business.

External flows are urgently needed to sustain even essential services. The rumour that by end-September financial burden of the un-reimbursed oil subsidies worth Rs86 billion will force OMCs to stop selling diesel is very disturbing. It reinforces the reality that Pakistan needs quick injection of substantial resources, which the government can’t raise in the near future except by borrowing.

In a scenario marked by IFI perplexing reluctance to lend, our Middle Eastern neighbours withholding help (until a nod you know wherefrom), and privatisation of state assets far from materialising, containing trade deficit to the combined level of exports and inward remittances and also meeting debt retirement commitments that began in 2008, is dangerously overoptimistic. This dream won’t materialise; it will further damage the economy and accentuate social chaos.

It is undeniable that the exuberance of the Shaukat Aziz era (reflected in the huge trade deficit) left Pakistan with no option but to sell more of the ‘family silver’ for repaying its external debt, reviving its sagging financial position, and sustaining its economy. There are no two ways about it. This is the outcome of our collective blindness to what went on during 2002-07.

But to ensure that state assets are privatised from a position of strength to fetch fair prices, the government must adopt a multi-pronged strategy that first stabilises the rupee, cuts inflation, and brings back a semblance of social stability to repair the damaged confidence of both, domestic and foreign investors. Unless economic risk profile improves, privatisation won’t yield the desired results.

Privatising state assets in a purpose-oriented manner requires selecting non-strategic assets for disposal, re-organising and rehabilitating them for privatisation, and then completing the sensitive and onerous process of privatisation. This is a time-consuming exercise and indulging in it without stabilising critical macroeconomic indicators would be counter-productive.

A realistic strategy would be to borrow short-term (18 months) from the IMF (even at market rates) to bolster exchange reserves and stabilise the rupee, bring down inflation, and revive economic activity to its FY06-07 level. Simultaneously, focused work should commence on privatisation so that we first privatise non-strategic assets and exercise privatisation options that don’t compromise national interests.

This is imperative for improving for medium-term risk outlook and assuring investors that they can hope for reasonable benefits by investing. Privatising state-owned assets without adopting this strategy while the economy continues to slide would, in all likelihood, attract inappropriate investors, who, in the long-term will fail to deliver benefits in terms of either increased import substitution or export enhancement.

We urgently need a strategy that prepares four action plans: first for privatising state assets that offer optimal pre- and post-privatisation economic benefits, the second for propping-up export of high value-added goods, the third for quickly implementable steps to revive import substitution industries, and the fourth for revamping the taxation system to ensure taxing wholly un-taxed or inadequately taxed sectors and minimising indirect taxes that businesses collect but pass on only partially to the FBR. Doing this in a purpose-oriented fashion, will take time. No matter how much our policy makers might dislike IMF borrowing, they don’t have a choice. They must accept that mending grossly wronged economy requires time to think, plan and than act (all with a visionary approach), and to survive until this process is completed. Pakistan must borrow at least $7 billion for 18 months. The $0.5 billion trickles won’t help but with the return of economic stability, more funds could flow in voluntarily.

The suggestion assumes that this time the policy makers would deliver far more quickly and won’t allow vested interest to undermine national interest. Eighteen months should be enough to make a beginning for restoring order (and therefore confidence) in the economy.