THE recent oversubscription of the foreign loans sought by the Pakistan government, and the relatively favourable rates on which these were obtained, indicates that lenders seem to have shrugged off this year’s sharp (20 per cent) fall in the Pakistan Stock Exchange and concerns about widening trade and budget deficits, domestic political turmoil and threats of US sanctions.

The market’s optimism about Pakistan’s economy is well placed. Despite bad or indifferent management, the country’s GDP has grown, in nominal terms, from $80 billion in 2002 to $300bn in 2017. In Purchasing Power Parity terms, the Pakistani economy’s size is $1 trillion. And, these statistics do not count the estimated 36pc of the economy which remains undocumented.

The planning minister asserted a few days ago that economic growth this year would have reached the 6.5pc target (instead of 5.3pc) were it not for the domestic political turbulence. But the government’s economic decisions appear to be clearer and quicker under the stand-in prime minister. And, the blockade of the capital by religious zealots was too recent to affect the growth statistic. It is investment which largely determines the rate of growth.

The market’s optimism about the country’s economy is well placed.

Until two years ago, growth in Pakistan’s economy hovered around 4pc or less. It rose to 5pc last year and 5.3pc this year mainly due to the investment in energy and infrastructure under the CPEC project.

It is estimated that to eliminate extreme poverty and double per capita income (from $1600 to $3200) in a decade, Pakistan’s economy should grow at 7pc annually. To achieve this level of growth, investment in the economy (external and internal) should be around 20pc of GDP ie around $60bn annually, equal to the entire amount committed so far under CPEC.

Most of this $60bn in annual investment will have to be mobilised by Pakistan itself, from its domestic revenues, national capital markets, the private sector and external earnings.

Although tax collection has increased recently, Pakistan’s tax-to-GDP ratio is still much lower than the global norm of 16-18pc. Well managed, tax revenue can be doubled.

Apart from enlarging the tax net, the government can effect enormous savings by selling off or shutting down the dozen or so state-owned corporations (white elephants) which are costing the exchequer around 2pc of GDP each year.

Similarly, subsidies (for electricity, water, fertiliser production, textile and other exports), unless efficiently provided for specific development goals, encourage ‘rent-seeking’ and corruption, distort the economy and waste precious state resources. They must be progressively eliminated.

Third, once fully developed, Pakistan’s capital markets can be a significant source of investment.

Fourth, a well-conceived and energetic effort is required to mobilise domestic and foreign private investment.

While money can be mobilised, investment must be deployed strategically to create sustained growth, employment and development. There are five areas which deserve to be accorded priority: physical infrastructure, social development, agriculture, manufacturing and technology.

Under CPEC, Pakistan’s energy and transport infrastructure requirements are being addressed with China’s cooperation. Hopefully, this vital enterprise will not be derailed by malign internal or external intervention. CPEC should be enlarged, as envisaged, to encompass cooperation in the industrial and other sectors of the economy.

However, building Pakistan’s ‘social infrastructure’ — education and medical facilities; water and sanitation; urban and rural transport systems — is equally if not more important than physical infrastructure. This is essential to create the human foundation for modernisation of the economy and should have first call on the national development budget. Some progress in these sectors has been made in Punjab and KP; not so in Sindh and Balochistan.

Agriculture contributes 25pc of Pakistan’s GDP and absorbs 40pc of its labour force. Pakistan possesses the largest integrated irrigation system in the world. Yet its per unit agricultural output is one of the world’s lowest. It wastes over 30pc of its water and food production. Unless agricultural production grows at more than the present 2-3pc, Pakistan will be unable to feed its growing population. What is required is clear: more equitable land distribution (to smaller, more productive farmers, 50pc of whom do not own any land); upgradation of the irrigation system; focused financing of advanced techniques for efficient water use, improved seeds, cultivation and harvesting, storage, transport, marketing and processing of agricultural products.

Likewise, unless it industrialises, Pakistan will be unable to grow rapidly or provide employment for its ‘youth bulge’. Since Pakistan’s growth is driven mainly by domestic demand, it is well placed to develop its textiles, steel, heavy machinery, engineering goods, automotive, electronics, petrochemical, consumer goods, and food-processing industries, without relying on exports.

As every industrialised country has done historically, Pakistan will need to ‘protect’ its nascent industries from external competition for a time. The WTO rules permit developing countries to do so. If a foreign company can sell a product in Pakistan, it is unlikely to invest in producing it there. Premature trade ‘liberalisation’ is a recipe for deindustrialisation. Pakistan’s access to foreign markets in any sector will be meaningful only once it is competitive in that sector. Islamabad should renegotiate all so-called FTAs and review its trade regime to build in the protections required by its industries.

Technology is key to economic dynamism. Every industrial process, every business model, is being transformed by the application of digital and other technological innovations. Pakistan must absorb these developments like a sponge, mobilising public and private entities, at home and abroad, to find the most efficient and productive ways to promote growth and development in targeted areas, often leapfrogging the existing techniques applied in advanced countries. In the final analysis, this will be one of the two decisive factors in Pakistan’s economic success or failure.

The second is the quality of Pakistan’s governance. A modern state requires a functionally competent, honest system of governance which can set the rules, create capacity, ensure fair competition and equitable distribution of the fruits of growth and development. After decades of misrule, the people must accord first priority to evolving an answer to the question: how to secure a leadership that is dedicated to Pakistan’s national interest, not its own; one that is enlightened, honest and accountable; one that can respond to the enormous challenges and opportunities that face Pakistan today?

The writer is a former Pakistan ambassador to the UN.

Published in Dawn, December 10th, 2017