Daily Times

Discussion is taking place on the kind of economic reforms needed to boost productivity and economic development in Pakistan. We refer to some literature (Burki 2008, Pakistan Vision 2025) in this article to illustrate it.

The industrial sector is in decline in Pakistan. In the recent past, the services sector has attracted more private sector investment and also grew more than the industrial sector. According to the Economic Survey of Pakistan 2017-18, the services sector has 60% sectoral share in the GDP, while the industrial sector has only 21%. The industrial manufacturing base has not increased and the investment in this sector has remained limited to up-gradation and capacity enhancement, mostly in the textiles and food sub-sectors. There has not been enough focus on value addition, research and development, and innovation.

The industrial sector has been quite reliant on government intervention and funding since the time it started producing consumer goods that are largely absorbed by the domestic market. Some other political economy literature (not cited above) is quite critical of the private sector development in Pakistan. It links growth of the private sector with rent-seeking practices, linked to absorbing funding, subsidies, protection, and other concessions offered by the government rather than relying on its own entrepreneurial talent. The private sector has not harnessed the potential of industrial development by going beyond the facilitation offered by the government policies and practices. Even the Pakistan Vision 2025 (cited above) states: “The existing industrial policy has led to rent-seeking behaviour and low value-added products”. There is a call to give “time-bound incentives” to vital industries to facilitate them climb the value chain ladder rather than providing a carte blanche protection.

The literature recommends adopting a “balanced approach” for economic reforms as a way forward. It requires a combination of financing by the State Bank, borrowing from the market, decrease in the government’s current spending, and partial privatization of government-owned assets. This “balanced approach” should be adopted within the framework of the country’s medium and long-term growth goals. The financial adjustment should be carried out by including the industrial, agricultural, and trade policies in the medium and long-term growth frameworks.

Employment-generation needs to be built into the industrial policy and due consideration needs to be given to the development of small and medium industries for that purpose. The government needs to play an important role to reinvigorate the private sector and promote industrial development

Employment-generation needs to be built into the industrial policy and due consideration needs to be given to the development of small and medium industries for that purpose. The government needs to play an important role to reinvigorate the private sector and promote industrial development. The government itself does not need to be involved in the production of goods and services; it needs to play the role of a “facilitator, enabler and regulator” of the private sector. According to Shahid Javed Burki, “the state needs to be invited back to play a more significant role in industrialization than was advocated by those who believed in The Washington Consensus” that alludes to onset of the neoliberal economic policies in the world pushed by the Western countries.

Pakistan Vision 2025 recommends a “cluster-based development” whereby competitiveness of the selected economic sectors would be improved within the clusters. It would involve the collaboration of the private sector companies, the government departments, and research/academic institutions. Through enhancing supply-chain development, incubator services, and joint research and development (amongst others), competitiveness would be promoted throughout the value-chain. This “cluster-based approach” could particularly benefit the small and medium enterprises. There is a particular need to focus on better research and development for our private/industrial sector to make it more competitive. There is also the need to leverage available knowledge to enhance productivity.

Private sector development can also be enhanced by providing a robust regulatory framework. While the government document envisages the regulatory framework to be favorable to the private sector development in the purview of pro-investment industrial and competition policies. The academic literature calls for the regulatory framework that is effective in preventing the growth of monopolies in the private sector.

Lack of familiarity and implementation of quality standards is another weak area that needs to be worked at. Pakistan Vision 2025 calls for strengthening the Pakistan Standards and Quality Control Authority to define and enforce the quality standards for the industries.

Providing an institutional reform framework for the federal and provincial government departments and organizations that support the associations linked with industry, and research and development sector. Such an institutional framework is needed to improve corporate governance, audit functions, and contract enforcement. The main function of such an institutional reform is to provide a “level playing field” for the private sector development. Therefore, there is need to strengthen the State Bank of Pakistan’s capacity to undertake an independent monetary policy. Securities and Exchange Commission of Pakistan also needs to be improved to better regulate the financial sector.

As citizens of Pakistan, we need to know to what extent the Vision 2025 was implemented and what have been the key achievements/challenges so far and what is the future road map going ahead? The economic challenges that the present PTI government is facing are the continuation of trials that the previous governments went through, as has been said elsewhere as well. Without learning from the past strategies on how to handle economic reforms and stocktaking the past achievements/challenges, the PTI government might not be able to induce fresh thinking needed to bring about economic reforms and reinvigorate the private sector development.

The writer is an Islamabad-based social scientist