We are being told and on good account (from no other than the Finance Minister himself), that Pakistan’s economy is on the mend. The previous quarterly figures (albeit being compiled on an experimental basis) yield a rather rosy picture where the GDP’s growth rate has been in excess of 5%, textile exports have risen by more than 8%, large scale manufacturing has grown by over 13%, home remittances have registered a growth of 9.50% and last but not least the stock market is booming like never before. As a result the budget deficit has been reduced to a mere 2.20% and the Pak Rupee is also gaining in value at present. Now, one can surely punch holes in these figures cum official claims, however, the fact remains that even if the above numbers are slightly exaggerated there is indeed a sort of buoyancy in the Pak economy. And this in itself calls for a close analysis in order to determine what its causes are and what course the government needs to steer ahead to ensure that this upward economic swing lives up to its potential, and doesn’t just relegate to being a temporary phenomenon.

Starting with the strengthening of the Pak Rupee when we look around at economies similar to ours, we notice that perhaps the only emerging Asian economy in the last six months to not only stop its currency’s free fall but to also successfully shore it back up, is Indonesia. However, more importantly, Indonesia has done this the right way by taking some difficult but sound economic decisions. Right after June 2013 the Indonesian Central Bank abandoned efforts to prop up its currency and allowed it to float, leading to a depreciation of about 14% within 30 days in its real, trade weighted terms. The weaker rupiah made Indonesia’s exports cheaper in foreign markets and imports more costly. By January 2014 Indonesia started recording its biggest trade surplus for more than two years and by February 2014 its rupiah gained back 5% against the US Dollar and is still climbing. However, when we compare the phenomenon of the rallying of Indonesian rupiah with that of the Pak Rupee, can we honestly account for similar factors responsible for the recent hike of the Pak Rupee? Can we truly claim that our rupee’s strength is also being driven by the fundamentals of the current account equation and not merely by a mystery friend’s generosity? The answer unfortunately, is no. History is our witness that such friendly grants have invariably come with ‘attached strings’ and at very high costs to the overall welfare and solidarity of our nation!

Further, the notion given by the Finance Minister that the government has scaled back on its borrowings may be premature. Regardless of how one applies the cosmetics, there is no denying that lending to the government is growing at more than double the expansion rate of the gross domestic product, which is unsustainable and needs to be curbed quickly. While the government and the central bank both are aware of this imbalance, their response in this regard has been rather poor: A musical chairs of shifting cum shuffling government borrowings between the central bank and the privately held banks without truly reducing the total quantum of debt is nothing but foolhardy.

What the economic managers instead need to realize is that an unhealthy financial mix, meaning a) a lack of equity between public and private borrowings and b) Continuous booking of governmental borrowings at zero risk, is neither healthy for the financial sector nor is it a true reflection of the real financial risk being assumed by a country. More alarmingly, the fundamental question that the international risk analyzers always ask when assessing a country’s credit rating is, “Does it have the necessary tools to maintain financial stability amidst a depressed economic cycle?” The answer in our case can be tricky and probably tilting more on the negative side, since Pakistan no longer is a country dominated by state-owned banks. If the financial markets tend to go haywire, a system (like in India), dominated by state-owned banks that are really just the arms of the central government, is actually easier to stabilize than a complex market-driven network of private financial institutions. State-controlled banks may be inefficient at allocating capital, but they cannot be forced into insolvency unless the government itself becomes insolvent.

In essence, the economic policy makers need to set a three tier priority list. First and foremost, the Pakistani economy should be restructured away from over-dependence on government spending and infrastructure, toward exports and private businesses that increase quantity and quality of manufacturing by way of increasing productivity. Also, a focused effort has to be initiated that sees diversification into consumer goods and services. As we know an over dependence on exports, unless backed by a solid domestic demand, can at times end up exposing the economy to external shocks. The second, though many would argue is really the overreaching objective, is to ensure that this restructuring occurs in an orderly manner, without risking a slowdown or compromising GDP growth. And, Pakistan’s third major economic objective should be of reforming financing per se and restraining excessive growth of the sovereign debt. Government is never the most efficient user of capital and so care needs to be taken that what it borrows is only spent on productive areas. Also, if the financial space is limited (as in Pakistan) and the government’s borrowings happen to be crowding out the private sector the damage to economic activity gets compounded.

Finally, one may ask that while in theory it may be very well to say that Pakistan should simultaneously move ahead on all the above fronts, what if there arises a serious conflict amongst these three objectives? Well, in such a case maintaining an adequate growth in the economy should always take precedence over all other things. The 2008 financial crisis and the ensuing global recession should be ample warning for every aspiring economic manager that once economic growth stumbles; it invariably takes down the entire economy with it.

The writer is an entrepreneur and economic analyst.