Does Pakistan Need A Sustainable Growth Strategy?
The Pakistan Institute of Development Economics’ (PIDE) growth reform agenda has received widespread appreciation and support from across the country. It is a report named “Reform for Accelerated Prosperity and Inclusive Development” (RAPID). This report on growth was developed by the commission comprised of 20 renowned economists, development practitioners, and policymakers from across the country.
Emphasizing the productivity and investment for growth in Pakistan, the report highlighted that if Pakistan maintains a seven to nine percent growth for 30 years, it will eradicate poverty, unemployment, and the country will also get rid of the public debt burden. Furthermore, for the country’s accelerated growth, we need to reform our state institutions, develop cities in accordance with modern needs, reduce regulatory barriers for investors, limit the terms of prime minister and all legislators to a maximum of two terms, and break the monopoly of a few families over the country.
Unfortunately, in its incipient times, the incumbent government did not pay due heed to growth, which had severe repercussions on our economy. Overwhelming needs for a new framework for growth where the old framework is not working at the current time. Growth in the country will not come to the country by merely reshuffling and removing of the ministers but need to take concrete steps and to make a concise policy of the long-term growth for the country.
We are still enacting the colonized laws; it looks like our colonizers have changed from Britten to the IMF and World Bank. Pakistan has been in the grip of the IMF for the last five to six decades. The focus of the IMF is on squeezing aggregate demand by market determining exchange rate and policy rate and more on tax reform (structure of the tax system in Pakistan is a debatable issue). Therefore, the sacrifice ratio of growth is unconvincingly high.
The most important area in terms of accelerating the process of growth is changes in expenditure priorities. It is truly tragic that Pakistan’s development spending, at a time when we need particularly to focus on water resource development, is dwindling to half the level in terms of percentage of GDP. How do we ensure more effective development expenditure which creates a stronger multiplier and how do we ensure some of the bottlenecks that are emerging, e.g. moving from water stress to truly water short economy? How do we ensure enough financing for these top priority areas which otherwise will exercise severe constraints on our growth potential?
Moreover, another critical area is export-led growth. Unfortunately, Pakistan has been a big failure in terms of promoting its exports. Over the last 7-8 years our exports in terms of the dollar remained more or less unchanged. How can we accelerate our exports, and how can we diversify them beyond the traditional dependence on low value-added textile?
Those sectors that have strong backward and forward linkages should be identified. These are some issues that we need to focus on in terms of arriving at a long-term strategy for managing the process of growth. It is a difficult subject and perhaps made more difficult by the situation created by COVID-19.
Talking about the growth with sustainability in this current situation, Where, on one hand, the government is confronting the third and most dreadful wave of COVID-19 and on other hand, there are issues of twin deficit and BOP crises. COVID-19 disrupted production, the supply chain, and lower consumption. Moreover, income and demand are also compressed. Shortly, the whole economy is down spiral. Government is more concerned about how to take care of 30-40 million peoples who are out of work now. How do we put our workplace back into operation? Inflation is changing into deflation, global trade is disrupted, overseas remittances fall dramatically. In a nutshell, the whole world is turned upside down.
During a virtual webinar, Dr. Hafeez Pasha, Ex-finance minister, said there are 3-4 key areas that pursue the growth-led strategy. The first area is the construction sector, where the government has taken some major steps by giving incentives and tax amnesty, but the problem lies on the demand side. The government should focus on the demand side to boost the demand for construction activity. The second key area is the small and medium-sized enterprise (SME’s) sector, which has hopelessly stopped credit. Private system credit from the banking system has contracted. Proper attention is needed to this sector also. The third area is the agriculture sector, it was the single most important sector of Pakistan economy, but we are losing it day by day. Look, what we have done with cotton (textile sector). We have replaced cotton with sugar and given incentives and support price to the sugar sector while ignoring the cotton industry. If we want growth, then we must think about these key sectors.
There is perhaps a paradigm shift. It is difficult to sustain a level of growth above five percent, at current times. We have given much time to finance the short-term problems and no room, no motivation for medium- and long-term thinking. So, we must focus on medium- and long-term strategies.