LAHORE: A national-level effort is required to stimulate economic growth in Pakistan to compete with prosperous countries of the West or East Asia, a report released by the Institute for Policy Reform (IPR) on Monday.
The report details how high growth economies transformed their nations through favourable policies. “In 1960, South Korea had a gross domestic product (GDP) per capita three times of Pakistan. Today, its per capita income is 22 times more than that of Pakistan.”
It says that Pakistan’s policies do not support economic growth, and recommends that the country must institute large-scale reforms. “These include a robust macro-economy, policies to stimulate investment and better governance. Tweaking at the edges will not work.”
It added: “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,” says the report, and added that increase in economic gap with other countries could affect Pakistan’s regional position.
Highlighting some of the factors keeping Pakistan from achieving higher economic growth, it says that the country does not generate enough savings for it to invest in future growth. “There is a 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.”
It added: “Pakistan’s small manufacturing sector produces low value-added goods, and contributes just 14% to the GDP. The political economy favours influential people. Resource allocation is inefficient, with 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 sets forth a practical plan of action for achieving rapid economic growth. “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% of the GDP, including 7% on infrastructure. They spend another 8% on health and education. Pakistan too must aim for investment of at least 25% from the present 15% of the GDP. It must increase the share in the GDP of export-oriented manufactures, and become part of the global value chain.”
It said that public investment must focus on high priority projects in the areas of power supply, transmission / distribution, and water storage and efficiency. It also suggested increasing investment in skills and education sector, besides strengthening agriculture research and extension services.
“As urban centres are important drivers of growth, they must have reliable power, gas and water supply, mass transit systems, as well as high class Wi-Fi and air and sea/dry ports. The government must aid with tax incentives, low cost credit, research and development support, dedicated infrastructure and training of workers. Special economic zones being set up under the China Pakistan Economic Corridor (CPEC) project should be connected with domestic and international markets.”
It says that 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 policymakers and experts to help decision making.
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.”
Referring to the power sector, the report says that the government may review power policy to improve energy mix and the generous incentives to investors. “Our businesses must have a reliable power supply at competitive rates.
Acquisition of land for productive purposes must be made easy for businesses and development organisations.”