Pakistan’s policies do not support economic growth

Published: March 28, 2017
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LAHORE: Pakistan’s policies do not support its economic growth and the country must institute widescale reforms as growth can be achieved by ensuring a robust macro-economy, policies that stimulate investment and better governance, said a report launched by the Institute for Policy Reforms (IPR) on Monday.

Economic growth is the key to creating more jobs, providing better living standards and reducing poverty.

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An increase in economic gap with other countries could affect Pakistan’s regional position, the report said, explaining how high-growth economies transformed their nations through favourable policies.

In 1960, South Korea had a gross domestic product (GDP) per capita three times that of Pakistan. Today, its per capita income is 22 times more.

“Business as usual is no longer an option. Each year an additional two million people enter the job market and by 2030, Pakistan’s population will touch 260 million, more than half of which will be in cities,” the report said.

According to the findings, Pakistan does not generate enough savings for investment in future growth. There is major infrastructure deficit and low private investment, while spending on worker skills, education and other human needs is paltry.

The macro-economy does not support growth. These factors have locked the economy in a low or moderate growth trap. Pakistan’s small manufacturing sector produces low value-added goods and contributes just 14% to the GDP. Governance often burdens businesses, political economy favours the influential and resource allocation is inefficient.

Solution

The report also offered a plan for reforms. To begin with, Pakistan must increase government revenue to enable it to provide public goods and reduce external borrowing. Steps are needed to increase domestic savings.

High growth economies consistently invest over 25% of GDP, including 7% in infrastructure. They spend another 8% on health and education.

Pakistan too must aim for investment of at least 25% from the present 15% of GDP. It must increase the share in GDP of export-oriented manufacturers to become part of the global value chain.

Public investment must focus on high-priority projects in the areas of power supply, transmission, distribution and water storage and efficiency.

It must also strengthen agriculture research and extension services. Investment in skills and education must increase, the report said.

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Urban centres are important drivers of growth, hence, to promote economic activity, they must have reliable power, gas and water supply, mass transit systems as well as high-class Wi-Fi. Air, sea and dry ports must be brought up to global standards.

The report said an export-oriented trade policy would stabilise the external account. Of special importance are transit trade and border facilitation.

“The tariff structure must support export-led growth. We need to attract FDI in export sectors.”

The IPR report suggested that the government should review its power policy to improve the energy mix and the generous incentives to investors.

It must also reduce line and billing losses. Businesses need to have reliable power supply at competitive rates. Acquisition of land for productive purposes must be made easy for businesses and development organisations.

Availability of trained workforce is the difference between a firm’s success and failure, stated the report, adding the government must cooperate with the industry for skills development.

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It should set aside the needed financial and organisational resources. Present set-up needs a complete overhaul.

Published in The Express Tribune, March 28th, 2017.

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Reader Comments (11)

  • Sodomite
    Mar 28, 2017 - 12:57PM

    You have hit all the right buttons in your analysis. The question why Pakistan is trapped in near zero growth trap I believe it lies in the following: 1. Poor quality education has produced poor professionals and poor academics to develop a technology induced products and skills. 2. Labor is worse with no rudimentary skills, unwillingness to improve themselves and have an attitude problem too. 3. Pakistan’s economy was a demand-management one, as all resources were there to feed and clothe the domestic market. Pres. Ayub followed this model of industrialization, but Bhutto’s nationalization broke the mold. Bhutto did create huge public sector projects that failed due to poor management skills and corruption that came after Bhutto laying waste to everything including the Steel Mills, PIA etc., 4 Musharraaf/Shaukat Aziz supply side economics tore apart the demand-management model, with production of autos and anything that the private sector could produce to meet pent-up consumer demand.

    Now we have a macro-economic system that cannot meet consumer demand nor produce goods and services that the population needs. Result is current account gap of over $20billion met from additional borrowings. Pakistan does not have the factories and the products to meet international standards, such that it is in downward spiral that can accelerate with a minor external or internal event, e.g., if oil prices rose to $140 per barrel or if India stems flow of water coupled with major crop failures, cotton or wheat, could trigger a collapse leading to famine and violence as public administration has already collapsed. . Recommend

  • NR
    Mar 28, 2017 - 2:43PM

    Ishaq Dar are you paying attention? TBH we just dont have competent people running the country PERIOD.Recommend

  • GKA
    Mar 28, 2017 - 3:29PM

    Sorry – but Kashmir takes priority.

    CPEC will solve all other problems. Chinese will save for us.

    And we have nuclear weaponsRecommend

  • Amir
    Mar 28, 2017 - 3:34PM

    As for education, Pakistan do have good business, engineering and technical schools to provide the right resource. But our government provides wrong information to the business coming here. eg. our government has told these companies that minimum wage they can get a resource us PKR 15K minimum wage in Pakistan. So when they need an engineer from NED, NUST, GIKI, he or she will not come at this pay…from a recent experience with a chinese company setting up operations in Karachi

    Government has made a very lengthy registration process, which has to pass through various red tape, and at each blocks, functionaries are sitting to ensure that their palms are greased. That the locals around the site jumps in taking stay orders without knowing what the company is doing, claiming environment hazard. Tying the company in legal tape. Than the political parties mNA/MPA or their family members step in to resolve the issue, for a certain price or giving them exclusive contract. Personal experience in Sheikhupura

    Road hurdles are everywhere. Government needs to make a policy where all safety standards needs to be met, and speed up the registration process Do not sell minumum wage labor, sell our universities and schoolsRecommend

  • Rahi milla
    Mar 28, 2017 - 4:15PM

    It’s not an analysis, it’s an opinionRecommend

  • Confused
    Mar 28, 2017 - 7:25PM

    The root cause in my opinion is that our myopic political leaders don’t want to see businesses thriving and as a consequence overtaking them in terms of wealth generation. They want to remain omni powerful forever.Recommend

  • Chhota Shikoh
    Mar 28, 2017 - 9:51PM

    @Sodomite:
    In summary, we have too many useless people, period. Its about population, population, population. Most, if not all, of our problems would have been mitigated with less people. But now taking any meaningful course of action in that direction will probably not help. Should have taken drastic steps after losing East Pakistan.Recommend

  • Aware Citizen
    Mar 29, 2017 - 12:43AM

    No hope for betterment in current electoral system. Same people get elected again and again. Need full modification and overhauling of existing system.Recommend

  • oats
    Mar 29, 2017 - 1:33AM

    @Rahi milla: It’s an opinion that is not supported by all the international analysts who have upgraded Pakistan’s economy from developing to emerging market/ Everyone can say what they want but on the ground we can all see an improving situation.Recommend

  • Rollin & Trollin
    Mar 29, 2017 - 3:51AM

    @Confused:
    Don’t worry, when you become PM or Prez you can return the compliment. We all do once we’re king of the mountain.Recommend

  • RK Singh
    Mar 29, 2017 - 9:00AM

    how does it matter. Even if there is zero growth, Pakistan government will fudge figures and show better than average growth.Recommend

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