The Institute of Public Policy (IPP), Beaconhouse National University, has brought out its annual report on the economy at a time when the nation was headed to elections. Without any real concern about which party was elected, the IPP team was able to make the report a blueprint for any incoming government to take action.

The team was eminently qualified to look at the economy, for not only is the BNU Vice Chancellor, Sartaj Aziz, a former Finance Minister, but the IPP Chairman, Shahid Javed Burki, and the Vice Chairman, Dr Hafiz Pasha, are both former caretaker Finance Ministers, and both were part of the research team behind the report.

But just because there was no choice of party does not mean lack of commitment. The report takes a definite position on the positiveness of holding elections, and goes as far as saying that “there cannot be a serious discussion of Pakistan’s economic future without an equally serious probe into the way its political order is evolving.” However, the report does not hold back on any of the ills that plague Pakistan’s economy, and speaks of a two-pronged strategy, of first stabilising the economy, and then moving to a higher growth trajectory.

To begin with, the report provides context by noting the problems, both political and economic, such as the increase in violence, the longest downturn in the country’s history, serious macroeconomic imbalances, and the absence of consensus on how to place the economy on a path of higher sustainable GDP growth.

The report also notes that there are resilient sectors in the economy, such as the stock market, private consumption, and though there is some flight of capital, the rupee is not in free fall.

The report also notes that an impending crisis is that of yet another foreign exchange crisis, which is indicated by the bleeding of foreign exchange reserves.

Also, there is a need for increased tax collection, better management of public enterprise losses and handling of energy shortages. There is the looming danger of the economy falling into the trap of stagflation, what with low growth coinciding with high inflation.

The report does not see the improvement of public finances as only an issue of orderly reduction in the fiscal deficit through improving revenues and cutting back expenditures, but also of a substantial restructuring and reprioritisation of expenditures to support economic growth. Not only this, but there should be greater efforts to mobilise resources, through both policy reform and better tax administration, which, in turn, would require political will and a well paid and honest collection service.

Important to the process of revival is the need to reverse the stagnation in exports. Another important prerequisite is investment in human and physical capital. It would require a major turnaround to take gross fixed capital formation to the modest rate of 15 percent over the next three years.

Among the taxation measures recommended are an agricultural income tax, and a focus on encouraging documentation. Both federal and provincial tax administration will be improved by increasing automation, simplifying the tax system, introducing greater accountability of tax officials and publishing an annual tax directory.

On the expenditure side, the needs include pruning development projects, zero-based budgeting of the new federal post-18th Amendment ministries, a recruitments ban, freezing non-development expenditure and rationalisation of subsidies and grants.

The report also makes monetary policy recommendations, calling for the SBP to have a policy rate of 12 percent, adding that the widening gap between the interbank and market rates should be a policy concern. It proposes a trade policy that goes for import compression to reduce the trade deficit, though not on essential items like POL, edible oil or medicines.

Beyond 2013-14, the next fiscal year, once the major repayments to the IMF have been made and stabilisation achieved, then the country can embark on the path of revival of the economy. The report proposes the above measures as a stabilisation package, irrespective of whether the incoming government has recourse to the IMF or not, which should be a last resort.

The report also examines the main impediments to revival, with power loadshedding heading the list. It describes its removal as a prerequisite of revival. It estimates the cost of loadshedding as amounting to two percent of the GDP. An approach based on primary data yields a figure of Rs 1,228 billion cost during 2011-12. Thus, the loss of 1.5 percentage points in the GDP, means that the growth figure would have been 4.5 percent.

The report proposes that the Musharraf period strategy, of using up excess capacity, be applied at the initial stage. This would imply focusing on the supply-side, especially improving the availability of electricity and gas to industry. The second stage of revival in industry will imply an increase in private sector investment.

However, important prongs of the industrial strategy would include energy for industry, the cluster approach, proactive role of the provinces, promotion of Foreign Direct Investment (FDI) and export-led growth, better management of state-run enterprises, bringing down costs of doing business and encouraging women entrepreneurs. Among the more specific recommendations are the use of LNG within the system, and moving to coal for power generation.

The report proposes a comprehensive long-term development strategy with the following key elements: revival of growth, governance, trade and foreign investment, a compact with the private sector, productivity growth and managing the energy crisis.

Given the presence of so many former Finance Ministers, three, and all economists, in the preparation of this report, it is, perhaps, only to be expected that it should comprise the best in economic orthodoxy and spring no surprises, and that it should demand of the government an exertion of political will that it has avoided so far.

The report thus represents an encapsulation of economic orthodoxy, and the new government need not look any further to find a fairly risk-free prescription on what it should do. Another thing commending the report, and particularly to the incoming government, is that it is homegrown, and does not seem to be looking over its shoulder at any foreign lending institution.

The writer is a veteran journalist and founding member as well as executive editor of The Nation.