Since its inception in 1947, Pakistan has relied on the private sector as the primary producer of goods and services. The early 1970s, however, witnessed a crippling shift towards a command economy and subordinated private sector manifested through a policy of nationalisation. Educational institutions and industrial undertakings of little consequence were also taken over by the State; it did not have the capability to manage the programme. The people of Pakistan paid the price of nationalisation. The 1980s and onwards witnessed a reversal of this paradigm and the private sector again began to emerge and lead investment and economic activity. Beginning in the early 1990s, the Government of Pakistan pursued a strategy of privatisation, deregulation, liberalisation and good governance to promote private sector development. However, macroeconomic instability and political turmoil stood in the way of successful implementation of this strategy. General Pervez Musharraf took over the reins of government in 1999 by scrapping the Constitution and adopting other draconian measures to ensure his survival. The new military government launched major structural, governance and economic reforms with a focus on generating macroeconomic stability and creating an environment to encourage the private sector to become the growth engine in the economy. The Privatisation Act 2000, creation of the Ministry of Privatisation and Investment, setting up of a Board of Investment, legislative changes to the State Bank of Pakistan (SBP) Act empowering the banks Central Board to formulate, conduct and implement monetary policy, the creation of a Monetary and Fiscal Board to ensure formal monetary and fiscal policy coordination, and a Fiscal Responsibility and Debt Limitation Act 2005 mandating reduction in revenue deficit and reducing total public debt were important steps that underscored the governments recognition of the importance of macroeconomic stability, and a clear and transparent legislative framework to support a conducive business environment in the country. The Debt Limitation Act has not been enforced. The price for its non-enforcement is being paid by the people. Macroeconomic stability achieved in recent years has been critical in restoring private sector confidence and catalysing greater foreign and domestic private investment. But in FY2008, the macroeconomic situation deteriorated significantly because of the impact of higher oil and food prices and delayed policy response by the government in view of the difficult political conditions and the transition to a new government that affected the reforms in the country. The result has been a burgeoning trade, current account, and fiscal deficits, a high rate of inflation, massive devaluation of rupee, major drawdown of foreign reserves to finance the deficits in an environment of weak capital inflows, and a rising level of domestic and foreign debt. It is not yet clear to the government that macroeconomic fundamentals need to be protected and economic stability restored to ensure the continuity of the growth momentum based on sustained levels of private sector activity and investment. Private sector investment and growth in recent years has been mainly based in the services sector, especially telecommunication and financial sectors. Pakistans manufacturing base over the years has remained narrow with a concentration of investment in capacity enhancements and upgradation of facilities largely only in the traditional textile sector. This sector accounts for 46 percent of total industrial output and contributes 60 percent to Pakistans total exports. Such high reliance on a single subsector to deliver on industrial development should be a matter of high concern to the policymakers. This is not yet evident. The situation also raises the issue of whether Pakistan can sustain economic growth with a primarily services sector oriented growth momentum without a corresponding deepening and broadening of its manufacturing and industrial base. A structural transformation of the economy that focuses on development of the commodity based sectors, including industry and agriculture, is needed to ensure long-term sustained economic growth. The enabling environment for private sector development needs to be further strengthened within an improved policy and regulatory framework, which consists of a defined industrial policy, competitive policy, an investment policy, and stronger and capacitated regulatory institutions in key sectors of the economy. As one example of the latter, there is a need to strengthen the capacity of the Securities and Exchange Commission with respect to regulating the non-bank financial sector, including the insurance sector. A key constraint to private sector growth is the critical infrastructure deficit, particularly in the power sector. The demand-supply gap for power has increased substantially over the years without a corresponding increase in public and private investment in power generation and strengthening of transmission and distribution systems. There is a need for accelerated investments in the sector, alongside reforms and a strengthened regulatory and policy environment leading to uninterrupted and sufficient availability of power for industrial, commercial and domestic use. The private sector is being considered by the government as an increasingly significant partner in the financing and delivery of infrastructure in the power and other sectors. However, policy, legal and structural frameworks allowing public-private partnerships need to be developed and strengthened in many key sectors, including, power, transport and water to encourage private sector participation in infrastructure provision. Lack of human resource development and availability of educated, healthy and skilled labour are big issues in the competitiveness and growth of Pakistans private sector. This results in distortions in terms of factor utilisation by sectors, contributes to unemployment and lowers factor productivity. Pakistans liberal investment policy remains one of the most attractive in South Asia allowing 100 percent ownership to foreign investors in a vast number of sectors and allowing remittance of capital, profits and dividends without any regulatory approvals. This has been a key in attracting both foreign direct investment and portfolio investment. This could be, however, further improved by creating a level playing field between domestic and foreign investors and allowing domestic investors to tap international capital markets directly through, for example, utilising currency swaps and hedging mechanisms. In any future growth planning spaced over five to ten years, special emphasis will have to be placed on transfer of technology, training of manpower in skills and knowledge to use this technology, lowering the cost of doing business, strengthening product quality controls and enforcement of international standards fostering public-private partnerships and vitalising Pakistans capital markets. The maintenance of law and order must take priority over all other issues. The writer is a retired secretary of the Government of Pakistan. Email: shakeelahmad941@hotmail.com