Towards Growth Strategy & Economic Reform

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Planning Commission

• Preoccupation with stabilization and crisis

• Growth policy by default– Aggregation of projects– Sectoral focus

• Result: sporadic growth

• Lack of structural reform: declining potential growth rate

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Characteristics of Growth in Pakistan

Economic Growth 1972 - 2010

3Boom – Bust CyclesBoom – Bust Cycles

Volatility and decline in potential GDP growth

Demographic Challenge

• A bulge in the working age in coming 40 years

• Required growth:– 8% per annum to

absorb growing labor force

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Projected Population by Age Groups

Million

65>

Growth Alternatives (2011-15)

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Business as Usual: Low aid-led public investment, high Inflation (Average 3.5 %)

Stabilization : Reform of PSEs, increase resource mobilization (Average 4.7%)

Growth Alternatives (2011-15)

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Business as Usual: Low aid-led public investment, high Inflation (Average 3.5 %)

Stabilization : Reform of PSEs, increase resource mobilization (Average 4.7%)

Stabilization + Reform: Market reforms & productivity gains (Average 5.6%)

Short Term: Getting back to potential

• Utilization of existing capacity

– Up to 30% in industry

– Up to 50% in fertilizer, auto sector, sugar, cement and steel

• Requires:

1.Removing major constraints

a. Energy (Electricity and Gas)

b. Availability and pricing of credit

2.Macroeconomic stability

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Longer term: Increasing Potential

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Sector based & Project based

Missing: Innovation, Entrepreneurship, Markets

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Overall Infrastructure Quality

Country ScoreIndonesia 2.5India 3.3China 3.4Pakistan 3.4Thailand 5.0Korea 5.1Taiwan 5.4Malaysia 5.7Hongkong 6.4

Source: Global Competitiveness Report

Country

Global Innovation Index (out

of 132 countries)

Quality of Education

System

Spending on R&D

Pakistan 79 99 80

India 30 37 36

Indonesia 39 44 28

Thailand 57 67 47

Malaysia 24 23 19

China 26 52 23

Hardware Software

Pakistan Lacks Growth Software

Developing a Growth Strategy

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• Productivity through economic reforms

• Better management of public resources

• Better managed PSDP

• Restructuring and privatizing PSEs

• Consultative process in a federal structure (post 18th

Amendment)

o Taking feedback from provinces, chambers of commerce

and civil society organizations

o Building ownership through academia and media

PSDP Weaknesseso Decreasing PSDP Sizeo High share of bricks &

mortar (60% of total in 2011)

o Money Spread thin (large sectoral & regional spread)

o Project governance

Prioritizing PSDPo Projects nearing

completiono Social sector projectso Key infrastructure projects:

energy, water, transporto Projects for removing

regional disparity

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PSDP Resource Allocation StrategyPSDP Resource Allocation Strategy

Rationalization for ResultsRationalization for Results

1,905 projects with

Rs 3,057 Billion throw-

forward

1,421 projects with

Rs 2,509 Billion throw-forward

• Maintaining infrastructure development through a better managed PSDP

• Ongoing:

– Modernization of feasibility reports

– Project approval (PC-I) stating benchmark parameters for monitoring and evaluation

• Proposed:

– Harmonize rules of donor agencies with GoP policies

– Constitute joint donor – GoP appraisal teams

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Project Approval Process Improvement Measures

Need to Restructure Public Sector Enterprises

Sr. PSE Financial Position

1 PIA Accumulated Losses Rs 76.6 billion

2 PASSCO Loss of Rs 440.7 million in 2008-09

3 TCP Subsidized operation

4 USC Subsidized operation

5 NHA Government monopoly in highway contracts

6 PEPCO Accumulated debt of Rs 425 billion

7 Pak Steel Accumulated loss of approx. Rs 36 billion

8 Railways Accumulated losses (2005 to 2010) Rs 86.7 billion

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Ongoing PSE Reform Efforts

• Reform of Power sector under implementation

• Reform Strategy for Railways formulated

• Reforms of Gas Sector under formulation

• TCP and PASSCO to be examined for closing down

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Pillars of New Growth StrategyIncreasing Productivity

Potential Governance Agenda

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• Civil service reform –structure and incentives to attract talent– Monetized salaries, merit based promotions, and easy

entry & exit

• Devolution of powers, responsibilities and resources to lower tiers of government for better service delivery

• Performance based governance • Business process reengineering with technology

(outdated regulations & multiplicity of processing layers)

Markets & Entrepreneurship

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• Modernize laws and regulations for better markets

– Agriculture market committees

– Entry of new investment into the engineering sector

– Bankruptcy law (legislation drafted)

• Deregulating markets e.g. wheat, sugar & commodities exchange (under implementation)

• Encouraging innovation through incubation centers, cluster strengthening (e.g. Sialkot, Gujranwala, Wazirabad)

• Improving environment for domestic commerce

– Taxation regime, rent laws

– Legal structures for common property ownership (shops & flats)

Cities as Hubs of Commerce

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• Reform zoning and building regulations – Two zoning laws– Restrictive limits on heights

• Various needs unmet (office space, commerce, flats, warehouses, schools etc.)

• Property rights and land markets (issues of titles, taxation structures etc.)

• Freeing government land for commercial purposes

Youth & Community

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• Youth bulge - policy priority

• Making social capital available for youth– Community & social infrastructure (libraries,

community centers etc.)

• Difficult to productively employ growing young labor force – Develop framework for youth self employment

Thank Youwww.pc.gov.pk

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Thank You