President Asif Zardari may not be able to find the time from 'other engagements to realise that this is an enormously critical moment in Pakistans troubled economic and political history. He is, reportedly, not an avid reader of the emerging global political and economic trends. His advisors are not nationally known for their deep insight of the economic issues. None of them are academic giants or potential candidates for winning the next Nobel Prize on the subject. Yet, the President cannot be unaware that most economic indicators are pointing downwards. The rate of growth in national product is on a declining trend. Hence, stalling GDP growth means increasing poverty and unemployment, and widening gap in average incomes of the relatively better performing areas in the country and those that are more backward. This is clearly not a sustainable situation. Unless arrested with the adoption of right sets of public policies, economic troubles will also produce those that are political and social in nature. Imran Khans Lahore rally was a demonstration that people are becoming increasingly restive. They want a change that will sweep away the existing corrupt and inequitable system. As political economists have been suggesting for several years, the feeling of relative deprivation not only deepens resentment among those who are concerned that they have been left behind, but their discontent also manifests in the form of a challenge to the States authority. That is what the world has seen in the political explosion on the Arab streets. It is this discontent that has increased, to a considerable extent, domestic terrorism in Pakistan. Continuing problems with domestic security have taken a heavy economic toll, which may well last into the future. There is a common perception that the fiscal situation is unlikely to improve due to the postponement of structural reforms on the taxation and expenditure fronts, as the political process moves into an 'election cycle, with a focus on populism. Elections are due in 2013, but could be held earlier. As opposed to these concerns, there is a degree of complacency arising from the present record level of foreign exchange reserves of over $17.5 billion and buoyancy in exports and remittances, which have led to a quantum reduction in the balance of payments. There is need, therefore, for undertaking the economic scenario analysis linked to the type of political developments that are likely to take place and which will largely determine the extent to which major structural reforms are undertaken. Given the existing problems of governance, including mismanagement and corruption, State enterprises continue to bleed heavily and require large subventions from the exchequer. No conscious efforts are made to restrain the current expenditure, while the burden of adjustment continues to be in the form of draconian cuts in development expenditure. The circular debt problem festers and the power sector places large claims on the budget. The PSDP is increasingly exposed to 'pork barrelling specifically before the elections. The consequence is that total expenditure remains, more or less, at the same level; however, the composition tilts towards recurrent and away from development spending with its negative implications for growth and development. This may prove to be the Achilles heel leading to a huge loss of votes for the coalition government. Assuming that the present 'fragile coalition will remain intact and form the next government after the general elections may not be possible, unless a strong reform agenda is adopted. So, the government would have to undertake measures for the introduction of the reformed general sales tax, withdrawal of exemption on goods, broad basing of sales tax on services, introduction of wealth tax and development of provincial taxes. The federal tax administration needs to be overhauled. Under invoicing has to be checked and massive evasion of taxes in the shape of Afghan Transit Trade and subsidies to public enterprises must be eliminated. This has become a festering sore. If surgery is required to weed out the corrupt and inefficient, then no matter how powerful the connections, the task must be performed. The size of the Cabinet must be reduced. A reduction in the non-salary cost must occur and be sustained. A reform in the monetary policy would require granting full autonomy to the State Bank; limits must be placed by Parliament on the borrowings from it. Overdraft limits must be enforced on commodity financing and borrowings by the provincial governments. A policy rate should be established to counter inflation. The balance of payments policy, too, needs to be brought into the reforms net. To begin with, there should be no intervention in the foreign exchange market; export controls should be withdrawn and imposition of selective tariffs should be done away with. If the proposed reforms are undertaken, a gradual recovery in the GDP growth rate from 4 percent in 2011-12 to almost 5 percent by 2014-15 can be expected due to some revival in the level of investment in the economy. Inflation would decline to a single-digit level, providing overall relief to the consumers. The writer is a retired secretary of the Government of Pakistan. He belongs to the former Civil Service of Pakistan. Email: