PR Lahore - Can Pakistan’s economy catch up with the prosperous countries of the West or East Asia? Only if it starts a national effort to stimulate growth. This is the essence of a comprehensive report issued by the Institute for Policy Reforms here on Monday. The report sets forth a practical plan of action for achieving rapid economic growth.
“Business as usual is no longer an option. Each year an additional two million people enter the job market. By 2030, Pakistan’s population will touch 260 million, more than half of which will be in cities,” the report stated.
Economic growth is a key for more jobs, better living standards, and poverty reduction. Increase in economic gap with other countries could affect Pakistan’s regional position. The report details how high growth economies transformed their nations through favourable policies. In 1960, South Korea had a GDP per capita three times of Pakistan. Today, its per capita income is 22 times more. Pakistan’s policies do not support economic growth. The country must institute wide scale reforms. Economic growth will come through an inter-play of factors. These include a robust macro economy, policies to stimulate investment, and better governance. Tweaking at the edges will not do.
Pakistan does not generate enough savings for it to invest in future growth. There is major infrastructure deficit and low private investment. Spending on workers’ skills, education, and other human needs is paltry. Over 22 million children are out of school. The macro-economy does not support growth. These factors have locked the economy in a low/moderate growth trap.
Pakistan’s small manufacturing sector produces low value added goods and contributes just 14 percent to GDP. Governance often burdens businesses. The political economy favours the influential. Resource allocation is inefficient. 44 percent of labour works on farms. Other headwinds include fragile security and severe power shortages. Improving the situation is entirely up to the leadership of the country, the report stated.
The report offers a plan for reforms. Examples of other countries show that this can be done. To begin with, Pakistan must increase government revenue to enable it to provide public goods and to reduce external borrowing. Steps are needed to increase domestic savings. High growth economies consistently invest over 25 percent of GDP, including 7 percent on infrastructure. They spend another 8 percent on health and education. Pakistan too must aim for investment of at least 25 percent from the present 15 percent of GDP. It must increase the share in GDP of export oriented manufactures and 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.
Urban centres are important drivers of growth. To promote economic activity, they must have reliable power, gas, and water supply, mass transit systems, as well as high class Wi-Fi. Air and sea/dry ports must be of world standards.
Favourable industrial policy will increase value added exports. The government must aid with tax incentives, low cost credit, R&D support, dedicated infrastructure, and training of workers. SEZs, being set up under CPEC, should connect with domestic and international markets.
An export oriented trade policy will 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 report highlighted.
The government may start new FTA negotiations and resume discussion with Iran. “Most importantly, we must avoid treating import duty as public revenue and reform tariffs to support export.” It added.
Most of all the country needs a committed and competent leadership to steward development. It must devise growth policies and build consensus. Public and private players must cooperate to boost economic activity. All incentives must be dispensed without patronage. The government must have a dedicated team of policy makers and experts to help decision making. Policies for the vulnerable and excluded groups are also necessary.
To increase public revenue, authorities must reduce tax evasion. At the same time, they may lighten burden on the manufacturing sector by enhancing collection from those paying less than their due. The government may review power policy to improve energy mix and the generous incentives to investors. It must also reduce line and billing losses. “Our businesses must have reliable power supply at competitive rates,” the report stated.
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. The government must cooperate with industry for skills development. It should set aside the needed financial and organisational resource. Present set up needs a complete overhaul, the report stated.