‘Pakistan needs economic overhaul’

Asad Umar calls for redefining resource allocation and incentive structure

ISLAMABAD:

Pakistan needs economic transformation by redefining resource allocation and incentive structure, said Federal Minister for Planning, Development and Special Initiatives Asad Umar.

Addressing a seminar on Friday, Umar said that deeper understanding and new levers are needed to trigger growth, and the most important function of the government is to provide policy signalling, a framework for competitiveness and supportive regulatory architecture.

He urged economists to do more research on the incentive structure in light of the East Asian experience, globalisation and technological advancements, highlighting that the industrial policy tools that Pakistan used in the 1960s are now outdated.

“A crucial question to be addressed now is which part of the value chain should be incentivised,” he asked.

The minister encouraged the economists to work on the political implication of reforms and to conduct empirical research on the impact of structural reforms on the lives of citizens.

Also speaking on the occasion, Planning Commission Deputy Chairman Muhammad Jehanzeb Khan highlighted the need for much better policy coordination and suggested that the government possibly needs to further strengthen capacity to achieve a much improved policy coherence across various ministries.

He said that the Planning Commission is in the process of acquiring capabilities to spearhead the growth and economic transformation agenda.

He stressed that political economy dimensions, including federal-provincial relations, should be considered in any plans for economic transformation.

Chief Economist Dr Muhammed Ahmed Zubair provided examples from the international best practices and highlighted the importance of development of local brands. On the occasion, officials of the Economic Advisory Group/PRIME Institute also gave a presentation, outlining a conceptual framework for economic transformation.

Javed Hassan, while making the presentation, pointed out that wealth of nations is closely linked to their productive structures, as reflected in the diversity and sophistication of goods and services they can produce and export.

He highlighted the metric of Economic Complexity Index (ECI), which shows how countries are ranked in terms of their relative level of sophistication. Pakistan is unfortunately ranked 99 among 133 countries.

Dr Ahmed Pirzada, from the Economic Advisory Group, highlighted, “What is required for economic transformation is continuous reallocation of resources towards more productive activities ie producing more sophisticated products requiring higher capabilities.”

For this, the incentive structure has to keep evolving and there should be willingness on part of policymakers to let inefficient businesses die out.

He mentioned that both bad policies and market failures can contribute towards keeping the incentive structure ‘static’ and, as a result, prevent economic transformation.

Furthermore, good governance and ‘right’ institutions are critical to stimulate capability-building and sustained growth.

PRIME Institute Executive Director Ali Salman presented indicative policy proposals to support economic transformation.

The EAG recommended that the Planning Commission should take a central role as custodian of the transformation agenda. It also called for the Planning Commission to revisit its recommendations for the upcoming budget and bring them in line with the transformation agenda.

Existing and forthcoming policies, including tax and tariff structures, should be modified, so these can aid transformation rather than prevent it.

One specific recommendation is to join RCEP, which is the world’s largest trading bloc announced in 2020.