This was characterized through reduced exports and fall in the direct foreign investment (DFI), which accounts for 20 percent of the gross fixed investment in Pakistan, and in combination with other internal factors restricted growth to a modest level of 1.2 percent during 2008-09.

This poor performance of the economy, apart from external factors, was also a sequel to the imprudent policies of the previous regime to fuel the growth process through high consumption and extensive luxury imports financed through external borrowings instead of relying on investments in the real sectors of the economy i.e. agriculture and industry.

As a consequence the fiscal deficit climbed to an alarming level of 7.6 percent of GDP; there was a run on foreign exchange reserves and crash of the stock market. More importantly it triggered a steep rise in inflation.

Other factors that brought about this downturn include a drain of resources due to the war on terror and the energy crisis inherited by the government. The latter is estimated to have kept the growth rate adrift by two percent.

However, despite the severe challenges, the economy has shown resilience during the year 2009-10 by registering a 4.1 percent growth in GDP.

This turnaround is not a result of any miracle but a dividend of an imaginative and realistic approach to the economic challenges by the present government. It was an unswerving focus on attaining macroeconomic stability and moving toward growth by targeting agriculture and industry sectors, introduction of policies and adoption of budgetary and legislative measures to put these sectors onto the path of greater productivity and also giving a humane face to these developmental efforts, which made this happen.

The paradigm shift in economic management has paid off. As a result of the determined policy effort, Pakistan has achieved impressive initial gains in restoring macroeconomic stability in the aftermath of the balance of payments crisis of 2008.

The International Monetary Fund in its “World Economic Outlook” report has indicated that the economy of Pakistan will grow by four percent during the current fiscal year and expand to six percent within the next five years.

It has also predicted further reduction in the current account deficit during the next five years due to the measures sculptured by the Pakistani authorities. That assessment is a resounding endorsement of the success of the economic policies of the present government.

The World Bank has also approved a new $6.2 billion four year program spanning 2010-13, which also shows an increasing confidence in the future prospects of the Pakistani economy.

However, the economic managers in Pakistan remain cautious about these achievements and regard it as a fragile turnaround that needs to be consolidated through some unpalatable decisions. Pakistan, like the Western countries, needs to shrink its fiscal deficit through raising tax-to-GDP ratios and withdrawal of subsidies in the power sector.

Politically, these decisions have a downside. But at the time of crisis the leadership has to be bold and decisive in promoting the long-term interest of Pakistan. The present government has not been found lacking in taking a decisive action. It has shown impregnable resolve to go for the best available option under the circumstances. It is determined to raise the tax-to-GDP ratio through the introduction of VAT, improvement in the tax administration and reinstating tax audits.

The cumulative effect of these measures will raise the tax-to-GDP ratio to 13 percent by 2013 from 8.9 percent in 2008-09. Due to a reform of the power sector, electricity tariffs have been raised between 40 to 55 percent in less than two years in an effort to reduce the level of subsidies in the budget, while simultaneously moving to a full cost-recovery tariff for the power utilities. The Parliament has made the adjustment in tariffs for changes in fuel prices for power generation automatic.