The National Economic Council (NEC) on Saturday approved a new strategy for growth prepared by Planning Commission of Pakistan. The new strategy will focus on both the governments and markets.
The approved strategy is based on sustained reform that builds efficient and knowledgeable governance structures, and markets in desirable, attractive and well-connected locations. It recognises the severe resource constraint that the country faces and therefore focuses on ‘productivity’ improving the efficiency with which assets are used. Global indicators such as competitiveness and cost of doing business also highlight factors such as management, innovation, quality of regulation and governance and research and development as the more immediate constraints to growth.
The thrust of this strategy, therefore, is to focus on the ‘software’ of economic growth (issues of economic governance, institutions, incentives, human resources, etc.) so as to provide an environment in which the ‘hardware’ of growth (physical infrastructure) could be expanded and made more productive at every level.
The growth strategy diagnostics point to two important constraints to economic growth i.e. inadequate market development, (lack of competition, tax, tariff and policy distortions, entry barriers, government involvement, poor regulation, etc.), and lack of efficient public sector management to (a) provide core governance goods such as security of life, property, transaction and contract, (b) facilitate markets and investment with informed policy and competent regulation, and (c) promote deepening of physical, human and social infrastructure.
The growth strategy is informed by the latest in economic thinking and seeks to strengthen both government and markets. It is not a ‘government versus markets’ approach but a ‘government and markets’ approach.
According to the strategy the economic growth is ensured through the accumulation of labour and capital and through the efficient allocation of these assets—known as Total Factor Productivity (TFP).
The contribution of productivity in the growth of Pakistan’s GDP has been less than impressive. Labour productivity in Pakistan is growing at a comparatively lower rate than neighbouring countries.
Our analysis and consultations have shown poor governance and dysfunctional markets to be among the most important reasons why growth in Pakistan has not achieved a sustained acceleration.
Currently the government is an active player in every sector, as a direct market participant and competitor, obstructing private sector entry. Research by the Competition Commission of Pakistan has also established that government intervention is impeding the development of competitive markets. Better government should be established following a two-pronged approach a) reorienting the role of government—which focuses on an exit from markets and deeper deregulation, and b) improving public sector management—which includes reforming civil service, improving resource mobilisation, elimination of untargeted subsidies (particularly to loss-making public sector enterprises), efficient public investment through results-based management.
While announcing export promotion in some sectors, policy has relied heavily on import substitution in others. Consumers have paid the price for these policies through taxation for export subsidies and through high prices and sacrifice of quality goods where import substitution policies prevail. Meanwhile, innovation and entrepreneurship have suffered as the incentives are skewed in favour of lobbyists (rent seekers) rather than reliance on competitive markets.
The growth strategy presents a clear road map for developing vibrant markets. Public enterprise reform and privatisation where necessary, will make space for increased entrepreneurship. Several markets require the government to move from producing and directly participating in markets to just regulation. For example, the current regulatory framework represses domestic commerce (retailing, warehousing, and transport) and construction and city development.
Direct participation of government in agriculture, storage, transport, construction, to name a few, is stifling investment. Openness and city development combined with focused public sector management would go a long way towards developing innovative markets.
Commercial activity requires well-connected cities and communities. Connectivity is critical stratagem of the growth framework. While our PSDP has built physical infrastructure, given significant fiscal constraints, private investors should be encouraged to participate in development projects.
Pakistan will have to keep pace with trends in international connectivity. This will require strong efforts. Government should also pass electronic signatures act, which should provide legal cover to the use of digital IDs. The use of ICT services, if encouraged across the board in the public and private sectors can greatly reduce the costs related to transport and logistics.
The approved strategy is based on sustained reform that builds efficient and knowledgeable governance structures, and markets in desirable, attractive and well-connected locations. It recognises the severe resource constraint that the country faces and therefore focuses on ‘productivity’ improving the efficiency with which assets are used. Global indicators such as competitiveness and cost of doing business also highlight factors such as management, innovation, quality of regulation and governance and research and development as the more immediate constraints to growth.
The thrust of this strategy, therefore, is to focus on the ‘software’ of economic growth (issues of economic governance, institutions, incentives, human resources, etc.) so as to provide an environment in which the ‘hardware’ of growth (physical infrastructure) could be expanded and made more productive at every level.
The growth strategy diagnostics point to two important constraints to economic growth i.e. inadequate market development, (lack of competition, tax, tariff and policy distortions, entry barriers, government involvement, poor regulation, etc.), and lack of efficient public sector management to (a) provide core governance goods such as security of life, property, transaction and contract, (b) facilitate markets and investment with informed policy and competent regulation, and (c) promote deepening of physical, human and social infrastructure.
The growth strategy is informed by the latest in economic thinking and seeks to strengthen both government and markets. It is not a ‘government versus markets’ approach but a ‘government and markets’ approach.
According to the strategy the economic growth is ensured through the accumulation of labour and capital and through the efficient allocation of these assets—known as Total Factor Productivity (TFP).
The contribution of productivity in the growth of Pakistan’s GDP has been less than impressive. Labour productivity in Pakistan is growing at a comparatively lower rate than neighbouring countries.
Our analysis and consultations have shown poor governance and dysfunctional markets to be among the most important reasons why growth in Pakistan has not achieved a sustained acceleration.
Currently the government is an active player in every sector, as a direct market participant and competitor, obstructing private sector entry. Research by the Competition Commission of Pakistan has also established that government intervention is impeding the development of competitive markets. Better government should be established following a two-pronged approach a) reorienting the role of government—which focuses on an exit from markets and deeper deregulation, and b) improving public sector management—which includes reforming civil service, improving resource mobilisation, elimination of untargeted subsidies (particularly to loss-making public sector enterprises), efficient public investment through results-based management.
While announcing export promotion in some sectors, policy has relied heavily on import substitution in others. Consumers have paid the price for these policies through taxation for export subsidies and through high prices and sacrifice of quality goods where import substitution policies prevail. Meanwhile, innovation and entrepreneurship have suffered as the incentives are skewed in favour of lobbyists (rent seekers) rather than reliance on competitive markets.
The growth strategy presents a clear road map for developing vibrant markets. Public enterprise reform and privatisation where necessary, will make space for increased entrepreneurship. Several markets require the government to move from producing and directly participating in markets to just regulation. For example, the current regulatory framework represses domestic commerce (retailing, warehousing, and transport) and construction and city development.
Direct participation of government in agriculture, storage, transport, construction, to name a few, is stifling investment. Openness and city development combined with focused public sector management would go a long way towards developing innovative markets.
Commercial activity requires well-connected cities and communities. Connectivity is critical stratagem of the growth framework. While our PSDP has built physical infrastructure, given significant fiscal constraints, private investors should be encouraged to participate in development projects.
Pakistan will have to keep pace with trends in international connectivity. This will require strong efforts. Government should also pass electronic signatures act, which should provide legal cover to the use of digital IDs. The use of ICT services, if encouraged across the board in the public and private sectors can greatly reduce the costs related to transport and logistics.
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