Investors as well as economists dislike uncertainty. It makes it very hard to tell about the future. All investors must have some way of telling what will happen to the money they have committed; whether the investment they have made is secure; what kind of rate of return they should expect?

These questions need answers but not with a great deal of precision; after all there is always some risk associated with investments. But when the future is entirely uncertain, investors will choose to wait.

Uncertainty about the future does not bother all economists; it is of little concern to economic historians or to pure theoreticians. But it matters to those who work in the area of policy making. Policies affect the future; how the future would turn out to be is of great interest to the policy makers.

Pakistan today is passing though exceptionally uncertain economic times. They need a policy response. But policy makers should have some idea as to the causes of uncertainty. Some of these are related to developments that are entirely domestic. Will some kind of political stability return to the country after months of turmoil? Will they be able to minimise the impact on the less privileged segments of the population of the unprecedented increases in prices of goods of everyday consumption and of the likely slow down in the rate of economic growth? Will the rising tide of extremism begin to ebb? Will the current set of policy makers be able to provide good governance after its absence for many years?

Then there are questions about developments over which Islamabad does not have total control. Will the international community of donors come to the country’s help in a timely fashion and with a quantum of capital flows that is sufficient to keep the Pakistani economy moving forward?

Will the country be able secure the financing it needs without having to resort to tough conditionality by the IMF? What kind of external economic environment will Pakistan face as it begins the process of adjustment that promises to be fairly painful? It is the last question that will be my concern in the article today. Central to my analysis will be the changing role of the United States in world affairs, particularly in economic matters.

In spite of the rise in recent years of so many economies in Asia and Europe, the United States remains the dominant player in the global system. What happens to the American economy will matter for rest of the world. It will matter even for a country such as Pakistan that is still not well connected with the global economy.

America is important for Pakistan for three reasons. One, it remains the largest trading partner for Pakistan. In 2007-08 it accounted for one-fourth of Pakistan’s total exports. Two, since 2001, the United States has provided large amounts of official capital to the country. This flow will continue even under the administration of President Barack Obama.

Three, the large Pakistani diaspora in the United States has begun to play an important role in the development of their homeland. On aspect of this is the amount of capital it has begun to provide the country from which the members of this community originate. Of these three reasons, the first two need to be re-evaluated.

In spite of all the uncertainty that surrounds world affairs today, one thing is certain; the predominant economic and political positions America has occupied for the last couple of decades will need to be surrendered. The United States will have to share with other countries around the globe some of its political and economic authority. This was the theme of the speech given by Barack Obama on the night of November 4 after he was pronounced the winner in the presidential election held that day.

Speaking to 125,000 cheering supporters who had gathered in a park in Chicago to celebrate his victory, Obama emphasised that he will work with other nations of the world to bring peace and prosperity to all people around the globe. This sentiment was not expressed in a moment marked by extreme emotion; this was the theme to which he had returned time and again in the long campaign for the presidency.

If the new American president sticks to his promise in making public policy, it would signify a total reversal in the “go it alone” approach of the eight years of President George W. Bush. If America pulls back and allows some of the economic power it has wielded to be transferred to multilateral institutions, new and old, what would it imply for a country such as Pakistan?

Ever since its birth 61 years ago, Pakistan has focused its foreign policy on the perceived threat from India, its sister state. This has sometimes been described as an India obsession, sometimes as the India centric approach to the making of public policy. There were good reasons early on why such an approach made sense.

The first generation of Indian leaders made several attempts to cripple Pakistan economically while it was still an infant. Understandably making Pakistan immune to the Indian threat became the central purpose of economic policy making.

This preoccupation could have resulted in getting Pakistan to stand on its own feet. That did not happen. Instead Pakistan’s dependence on the United States increased overtime to the point that its economic fortunes became closely linked with how Washington felt about the country. When Washington was indifferent, Pakistan’s economy suffered; when it was generous, Pakistan prospered economically.

However, the changes that are taking place in the way America looks at the world — changes that will be accelerated under the leadership of President-elect Barack Obama — would considerably reduce its capacity as well as its willingness to aid countries such as Pakistan. This means that Pakistan’s policy makers must reorient their thinking about economic matters. This rethinking should manifest itself in at least three ways.

One, Pakistan should seek to reduce its dependence on foreign flows for supporting economic development. This would mean changing the tax structure and changing the structure of finance so that more incentives are provided for people to save and not consume.

The government will also need to alter its spending habits, spending more on development than on consumption. A way will also have to be found to reduce non-essential imports so that the country does not repeatedly find itself in a deep balance of payments crisis.

Two, the objective of economic policy should not be just the promotion of growth but sharing the rewards of growth among all segments of the population and all regions of the country.

No matter what was the complexion of the government that operated out of Islamabad, the “trickle down” approach became, either implicitly or explicitly, the guiding objective of public policy. A different approach focused on the welfare of the citizenry will produce greater political support for the direction of economic policy.

Three, the policy makers should begin to focus much more on the countries that are close to our borders in order develop external economic relations. This would mean in particular, crafting a China policy, an India policy, and a Middle East policy.

Once these have been formulated the incentive structures should be such that the private sector begins to factor in these relationships in its investment decisions. If that were to happen, we will find that the structure of the Pakistani economy will change significantly as will be the structure of international trade. This will considerably reduce Pakistan’s dependence on the United States for both capital and markets. An economy that is anchored in the neighborhood would be more resilient. It will also be able to withstand the impact of some of the profound changes that we are about to witness in the global economic order.

I began this article with the view that persistent uncertainty undermines the economy. One way of addressing this problem is for the present leaders in Islamabad to clearly spell out the direction in which they wish to take the country’s economy. A great deal of analytical and public policy work will need to be done before such as statement of strategy can be put out. This work should begin urgently so that those who would like to invest in the country’s economic future understand where the leadership groups are headed.