Pakistan’s economy finally seems to be moving in the right direction: GDP growth is up; large scale manufacturing is consistently registering double-digit growth; even the SME sector’s power consumption is showing an increase, which can only point to its revival; Exports have crossed the previous high and continue to grow; Remittances have touched an all-time high; and last but not least, the government’s revenue collection is showing a healthy year-on-year increase. However, the big question is; is all this sustainable? Well, while the outcome really depends on our economic managers’ management skills and expertise, it may perhaps help to list out the challenges confronting this present cycle of growth, since successfully managing these would hold the key for how the next 24 months will pan out.

Here is my list of ten main challenges, arranged in their order of importance.

One, the brewing Afghan situation: One does not have to look too far back in history to realise how some flawed notions and misplaced aspirations hurt us during the last such developments in Afghanistan. Not only did events boomerang on to us, but the virus of violence and terror also ended up inflicting Pakistan, taking with it everything from stability to security to the very social values that we always held dear. The litmus test will be in seeing whether or not the government this time actually follows—in letter and spirit—its stated stance of neutrality and on not allowing border crossovers either for refuge or for any type of safe havens. As we know, maintaining law and order and guaranteeing security at home directly correlates to business confidence and investment (both domestic and foreign).

Two, energy and oil and gas prices: Global oil prices pose a significant challenge, as an expected rise can exacerbate our circular debt and energy pricing woes at home. The economic managers need to realise that the current competitiveness of manufacturing is primarily utilities’ input driven and increasing them beyond a certain point risks flattening out the entire growth curve. Thus far, the energy, oil, gas and power sectors have been quite mismanaged, something also reflective in the frequent changes of ministers, advisers, secretaries and personnel; the sooner this government finds the right team that can prudently address this domain by encompassing a holistic view, the better it will be for the future prospects of the economy.

Three, connectivity: Pakistan’s main markets are the European Union, the United States, the United Kingdom, China and the Middle East. At the moment, businessmen remain totally disconnected with their customers and partners, since visas are either completely closed or delayed and travel to most of these destinations is simply not allowed for Pakistanis. If this persists, the situation will eventually have its own fatigue on businesses, as the current level of transactions will simply not be able to sustain itself in absence of such a physical disconnect. This reflects a complete failure on part of our foreign office.

Four, logistics: Smooth trade needs trouble free and affordable logistics. Of late, this area is becoming a cause of concern, especially for Pakistan. With PIA struggling and the presence of foreign airlines dramatically reduced owing to pandemic restrictions, this constraint is also affecting the air freight market where not only the prices have climbed by nearly 300 percent, but the sheer availability of space also poses a big problem. Sea freight has been another story altogether where rates have climbed almost 700 percent and are still rising. Additionally the frequency of vessels’ calling at Pakistani ports stands reduced to almost one third and that too with curtailed space allocation owing to the smaller size of the vessels calling at Karachi and Port Qasim. Unless the government steps in quickly (perhaps as done by the Bangladeshi and Vietnamese governments) to manage the situation, both with the shipping lines and the exporters, this problem alone carries the potential of eroding our export competitiveness. Only last week I was advised by the UMA Shipping Line’s representative that freight from Karachi, say to in-land South America is touching an astronomical level of $20k per container and to New Zealand and Australia almost 10k per container. Going forward, if not checked, the lines are contemplating an increase of around 75 percent till December 2021!

Five, current account deficit: As the economy heats up, the current account deficit once again is starting to swell. Since in all likelihood any meaningful FDI in the near term is unlikely, the government needs to start taking action now to ensure that this deficit does not spiral out of control, as witnessed during PML-N’s last tenure. A good start would be to curtail all types of unnecessary or luxury imports and to single-mindedly focus on increasing exports. The recent growth in home remittances is laudable, but cannot be expected to register a continuous growth or even hold itself indefinitely at the present levels.

Six, dwindling cotton crops: The continuous reduction in the size and quality of the national cotton crop poses a real danger to the country’s textile exports which constitute almost 67 percent of the total national exports. The space for cotton growing has been gradually encroached upon by sugar cane largely due to flawed policies by successive governments. A crop size that was not long ago hovering around the 13 million bales mark today stands reduced to under 7 million bales and that too of a deteriorating staple. Ironically, the recently announced 2021-22 budgetary measures tend to further discourage cotton trade. Not only do these policies have to be reversed, but also revised to instead promote cotton cultivation. Based on today’s global cotton prices, an addition of 5 million bales translates to roughly 1 percent of our GDP and 8 percent of industrial employment.

Seven, inflation and monetary policy: Agreed that controlling inflation over a certain threshold should be a top priority, but equally important is to understand the real drivers of inflation in Pakistan. This government may be barking up the wrong tree in its efforts to tame the prevalent double-digit inflation, as the causes lie somewhere else. Rent seeking (more on that below), misplaced policies, shoddy management of the SOEs, supply chain disruptions, reduced focus on agriculture support, vision-less taxation measures, currency volatility, and constraints on economies-of-scale in operations are all key elements that fuel inflation at home. As for the interest rate, the author opines that Pakistan still keeps a lending rate nearly 200 basis points higher than what it should be, which not only stifles growth, but also retards investment and compromises on the economy’s sustainability.

Eight, FATF: The longer it takes for us to come out of the FATF grey list, the more damage it will cause to our economic prospects. For example, a natural fallout has been our inclusion by the European Union in its eleven money laundering watch list countries. The resultant constraints—from such measures—on our business houses and entrepreneurs to be able to tap into global business opportunities are causing unquantifiable losses to Pakistan’s long-term economic prospects. One is hoping that this government quickly delivers on its promise on soon redressing this situation.

Nine, rent seeking and rising inequality: Despite some tall claims by the government and its functionaries, rent seeking in the economy still remains rampant. This not only stokes inflation and hinders fair competition, but also is rapidly leading to concentration of wealth, and naturally inequality. There is a need to address the legislative and administrative (especially in judiciary) gaps in order to strengthen the institutions overseeing fair competition, conflict-of-interest and prompt resolutions of antitrust disputes.

Ten, currency stability: Time and again, the author has written accompanied with empirical evidence that only a stable currency can ensure long-term, sustainable and equitable growth. The examples of recent growth stories around us are plenty that point out to this fact, but we do not seem to learn. Even exports, value addition and an innovative culture creation, all respond more positively to a stable currency rather than devaluation drives. Pakistan’s economy simply cannot afford to be a victim of yet another currency devaluation jolt.