Crisis may or may not be too strong a word for the current state of Pakistans economy, but its economic predicament is certainly far from being comfortable. For the last two (if not three) successive years, the size of manufacturing and productivity has been shrinking. Though the primary reasons being cited for this are power and energy shortages, the decline cannot simply be explained by these two factors alone. A frail economy ought at least to be free of price pressures, but Pakistanis have had no such luck. Inflation has consistently been in double digits (close to 20 percent minus the food index). Further increases in the cost of imported items (especially if the global oil prices go up more), relentless state borrowing, mounting fiscal deficit and unending supply side issues, compounded by poor governance, are likely to push the rate even higher. The imposition of sales tax (preferably with prudent exemption of zero-rating to exports) is much needed to help shrink a budget deficit that is on track to reach eight percent. The tax will, at the same time, provide the government with the much needed revenue to carry out its social and infrastructure development programmes. Although many would argue that this toxic mix of falling GDP, high inflation and big budget deficit is by no means a unique phenomenon in the developing countries. Now even the developed economies (Spain, Greece and Italy immediately come to mind) that are experiencing such a run of persistent bad news present a good argument for a policy rethink. The problem is that if the economy continues to stay weak, it may not be able to withstand further deficit-cutting measures, including any kind of direct relief measures directed towards the poorest of the poor. The persistence of high inflation (for the last three years it has been well above the level that Pakistanis have been exposed to historically) calls into question any ideas where the State of Pakistan (SBP) could possibly counter the effects of fiscal tightening by easing monetary policy. In fact, from the look of things it was a brave move on the part of the SB Governor to resist the temptation of further increase in the borrowing rate in its recently announced monetary policy (India and China have both taken an increase each of 50 basis points last month). How long can this be resisted remains to be seen, because relative quantitative easing (meaning avoiding to revise mark-up rates upwards) would then in the eyes of classical monetarists stretch too far the gap between the banks objective of low inflation and its actions. Also, the central bank would be concerned that its inaction might make the public think that it was going soft on inflation. So, the important question that arises here is that if fiscal tightening is unavoidable, and realistically the SBP cannot act differently either, then who takes up the mantle to kick-start the economy and generate growth? A natural answer to this, which is now being accepted by all the governments in situation similar to ours, is that the void needs to be filled by the private sector. The governments, on their part, need to improve economic governance by not just seeking entrepreneurial focus, but mainly by striving to make their country the best place to do business in. To bring about an environment of economic management that incentivises domestic investment and attracts foreign manufacturers to set up shops in their respective market place, hire their workers, pay decent wages, contribute to tax revenues and stir economic activity regrettably, it is this very type of visionary and proactive economic governance that we are lacking today A key tool in formulating sound economic policies is the data that is available to the decision makers. Unfortunately, in Pakistan the situation on collection of accurate data (or for that matter any sort of data) is far from desirable. There is practically no data collection and reporting system. The government only makes a half-hearted effort, which is not well coordinated and produces some isolated bits of data through various departments. In comparison, the scene at the international level in successful economies is quite different. A lot of trade and industrial data is collected in different manners and is used by the industry as well as governments for making informed, just and timely decisions. For any meaningful progress on improving economic management, this loophole needs to be plugged on an urgent basis. Nasty as our numbers are, they should not lead us to disillusionment or gloom and doom mindsets that undermine hope for the future. For all, the understandable anxiety the economy has proved stronger than seemed possible at the end of the last fiscal year. The external economy has done well over the first half of the current fiscal year. Exports and remittances have grown by more than 22 percent, while growth in imports of goods and services has been contained. The current deficit is much lower than the previous year and the foreign exchange reserves are nearly at an all-time high. The rural side of the economy (Pakistans 65-70 percent of the population still resides in the rural areas) is thriving and the wheat support price benchmark alone has induced an inflow of nearly Rs 500 billion into the rural economy. Also, often statisticians argue that it is not unusual for recoveries to stall, but over a longer period the graph is always cyclical - what goes down, comes up. However, the dilemma is that given our rate of high unemployment, touted to be as high as 38 percent and in excess of 50 percent with disguised unemployment factored in, we happen to be flirting with fire. Today, we need more a short- and medium-term plan where we can inspire the private sector to fill the gap in demand, which will surely be created by embarking on fiscal austerity. For this, the SBP will need to play its due role by ensuring that the crowding out of private sectors borrowing space is remedied right away. Like it or not, the IMF will need to be kept engaged if not for budget support, but to simply have access to other global financing institutions, which regard it as a kind of mandatory auditor before they agree to issue an exposure, and in addition to give stability to the Pakistani bond options in the global financial markets. Finally, as time has often proved, spending cuts tend to reduce budget deficits more effectively than tax increases, so these should not be delayed. Still if figures fail to improve, a reprieve on new taxes can always be termed as being 'essential. Deficit-financed public spending can never be called a prudent growth strategy, but on the other hand an export and investment driven recovery model has worked wonders for our regional neighbours like China, India and Bangladesh. On a positive note, we have today the prerequisites required for this: Rising global demand, weak currency and an upbeat international agricultural commodity price structure all going in our favour. It would be a real shame, if even in such circumstances we are unable to make our economy thrive as per its potential The writer is an entrepreneur and an economic analyst. Email: kamalmannoo@hotmail.com.