Everyone and their aunt are right now talking about the possibility of default on sovereign debt and the need to raise inflows of foreign currency, whether we should go on a stabilisation programme with the IMF or not, or whether we should beg and borrow from our friends around the world. The situation is indeed quite critical. We do need a few billion dollars (estimated to be around $5 billion) this year to keep things away from the brink and we need $5-10 billion extra for the next few years to avoid getting into situations like the one we are in right now. But a lot of the debate is quite cosmetic. We will have to implement a pretty harsh stabilisation programme, whether we like it or not. Otherwise how are we going to get government finances in order? And given the resource crunch, the stabilisation programme will have to slash spending by a lot, find ways of raising local resources and supplement them with borrowing, and even after doing all this we might be on the edge for sometime. So whether we do this programme with the IMF or not seems to be more or less a moot point. If the IMF offers better terms than what some of our 'friends' offer or demand in return for the money, we should consider the IMF offer carefully. On the other hand, if 'friends' are kind, we can just get the IMF's nod for the programme (which is needed by other lenders as well) but not borrow money from them. Either way the programme is going to be more or less of the same severity, it will need similar levels of financing, and it will also require an IMF nod. Whether the money is from the IMF or not is not a big issue. The IMF issue seems more of a psychological issue for Pakistanis rather than a logical one. Irrespective of the sources of funding, we need funds, and we need a stabilisation programme. But there is a bit of a silver lining to the problems we face. The crisis that we are in is not really a private sector crisis yet. Of course private sector is being affected by it and is affecting the crisis itself, but it is neither the prime mover nor the prime culprit. A lot of the crisis is really about the government and its finances. The silver lining here is that given a strong and prudent stabilisation programme we should be able to see a significant difference in government finances and in the economy in about six months from when the programme is implemented. This should allow the economy and the private sector to recover much earlier than if the crisis had been private sector led, as in the United States. If the crisis were private sector led, there would be a need for a lot of transactions to occur, to settle dues, unwind and clear things and so on, before one could start improving things. But here, the matter seems a lot simpler. So, given some money inflows, a good stabilisation programme involving strong fiscal tightening and some monetary tightening, and prudent handling of money markets, Pakistan could have effective stabilisation within this fiscal year. Provided, of course, that no large external shocks occur and a number of things, like the incoming crops, are as expected. Once we have an effective stabilisation plan, that is well funded, in place, a lot of the panic that the private sector currently feels and is experiencing will go away. People will have more confidence in the banks and the pressure on local as well as foreign currency will ease up. This will, by itself, allow a certain degree of stability to come into the financial markets and will take pressure off of the State Bank and other players. But the key issue here is the introduction of a well-funded and well-worked out stabilisation plan. Assuming we can achieve a significant measure of stabilisation within this fiscal year, and though do-able this is nevertheless a big assumption, the real question is going to come then: what next? Stabilisation is a big issue and an urgent one as well, but that is not what the medium to long-term issue facing this country really is. It is necessary to address the stabilisation issue as a priority now, but addressing stabilisation will not be sufficient to address the real problems that we are in. The real issues have to do with the real sectors. We do not have any growth sectors in the economy. Agricultural productivity has been more or less stagnant for the last many years and our agriculture depends more on natural favours (weather) then our efforts, livestock and dairy, areas that have always been identified as having a large potential, have shown no path-breaking progress, industrial productivity levels remain low, and foreign investment that had come in over the last few years was mostly for local market and so has not had any impact on export growth. At the same time the more entrenched, longer term and institutional problems of our economy also continue. We have a dysfunctional judicial system, a poor police system, weak institutions for enforcement and regulation, defunct property rights regimes, non-functional contracts regimes, and all the institutions that are needed to make markets and modern economies function smoothly remain extremely weak, inefficient, ill-equipped and largely ineffective. Given the above, even if we achieve stabilisation, after all the rigmarole that we are going through, what are we going to do next? Will the stabilisation lead to sustainable recovery? If not, the stabilisation will not last as well. What is needed, as we work towards getting money for the stabilisation programme and getting ready to implement it, is a sound recovery plan as well. The better the recovery plan, the more outside donors will have confidence in our stabilisation plan and the easier it will be to implement the stabilisation programme and then move from there to an effective and sustainable recovery. The crisis is very much here, but the crisis can also lead to opportunities. The question is can we work at making these opportunities a reality or are we going to miss chances once again? This is where we need a lot of 'homegrown' efforts. We need a homegrown stabilisation plan that makes sense for us, given the resources we have and can raise, and more importantly, one that allows us to move to a sustainable recovery path as soon as possible. If we are to avoid similar problems in the future we need sustainable and widely shared growth, so that we can create higher incomes, more employment, tackle poverty and can create goods/services for export. If we cannot do that, no stabilisation is going to work and no recovery is going to be sustainable. If we can come up with such an integrated stabilisation and recovery plan, IMF and others would be more than happy to lend money for implementing it and they would be happy in endorsing it as well. So far government efforts have been centring around finding money from outside. They have not yet revealed even the contours of the stabilisation plan that they are going to follow. And recovery plan, for the medium term has not even been mentioned. But we need all of these now. We need to know, if the money comes, whatever the level, what are the details of the stabilisation plan, how much are we going to cut development by, using what criteria, which local fiscal resources are going to be tapped, and what kind of monetary policy are we going to pursue? We also need to know how this stabilisation is going to impact the local industry, agriculture and the larger economy, and how is this plan going to help the transition to recovery and then what are the details of the institutional reforms that we need to implement to ensure sustainability of the recovery? These plans need to be shared with the people of Pakistan and with the international community as soon as possible. A lot of the current debate is about stabilisation and raising the funds for it. It is indeed an urgent matter that requires a lot of attention. But where it is necessary to address stabilisation issues, stabilisation is not the goal and the medium to long-term struggle will be about recovery and the sustainability of that recovery if we are to avoid similar problems in the future. These latter issues require a different sort of plan: a plan that gels in well with the stabilisation plan but really takes us through the next few years focusing on growth and growth sharing, income generation, productivity gains, employment generation, export generation and institutional reforms for ensuring the sustainability of the recovery plan. While pursuing the short-term the government should not take its eyes off the medium to long-term goal, otherwise we will not be able to achieve even the short-term goals far less the long-term ones. The writer is an associate professor and head of the Department of Economics, LUMS The writer is an associate professor and Head of Department of Economics, LUMS and senior economic analyst E-mail: faisal@nation.com.pk