PC outlines economic growth framework

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The Planning Commission (PC) of Pakistan is all set to unveil its ‘Pakistan Economic Growth Framework’ in the National Economic Council (NEC) meeting, which is going to be held on May 28. It has recommended a major overhaul of the economic system in spite of severe resource constraints that Pakistan is faced with today.

A PC official draft made available to Pakistan Today indicates that the growth experience of the last four decades witnessed annual volatility and an overall decline in long run growth. It illustrates that productivity growth (a measure of efficiency) has been low in contrast to competitors with no increase in per capita income during the last four years and persistent double digit inflation.

The Pakistan Economic Growth Framework (PEGF) official draft paper underlines that the country’s growth policy is mainly based on public sector projects and arbitrary incentives – subsidy and protection, which compromised the development of infrastructure and competitive markets.

The Commission has also underscored that the broad thrust of PEGF will focus on a ‘software approach’ to economic growth which means that issues related to economic governance, institutions, incentives and human resource will be addressed through this strategy. It has also indicated that the physical infrastructure or ‘hardware side’ of the growth will be improved automatically with favourable environment.

The strategy argues that entrepreneurship and innovation which drive growth could be greatly encouraged by reforming and strengthening institutions such as the civil service, legal and judicial framework, the taxation system and other vital institutions. It also proposes measures, such as a reform of the restrictive zoning laws, which have impeded the growth of domestic commerce.

The commission stresses that such programs would vastly improve the investment climate and reduces the cost of doing business as well as enhancing productivity and expansion. The strategy also proposes special programmes to support key segments of population, like the youth who suffer disproportionately from unemployment.

Targeting Economic Growth: Official strategy draft points out that around 68 percent of the country’s population is regarded as youth (under 30 years). Many of them are now coming into the labour force, increasing the size of workforce by over three percent per annum. It estimates that to absorb this youth bulge, the real GDP needs to grow at an average rate of over seven percent.

However, considering the financial restraints, the strategy proposes that efforts would be made to revive the economy to its short-term potential GDP growth rate of about 5-6 percent if issues related to energy governance are resolved and some credible macroeconomic stability is maintained.
Constraints to Pakistan’s Economic Growth: The strategy indicates that Planning Commission’s diagnosis has revealed that inadequate market development (lack of competition, tax, tariff and policy distortions, entry barriers, government involvement in markets and poor regulation) is a major constraint to economic growth.

It also highlights that a lack of efficient public sector management, including core governance goods such as security of life, property, transactions and contracts; markets and investment facilitation through informed policies and regulations, is hampering economic growth in the country.

It advocates there is a need to reform the roles of both government and markets. It emphasises that government versus markets approach has to be transformed into an integrated strategy designed to achieve efficiency and economic growth.
Building Better Government: The official document also indicates that poor governance and dysfunctional markets are among the most important factors standing in the way of sustainable economic growth. Government intervention in almost all sectors as direct market participant or competitor hinders private sector growth.

It estimates that the footprint of the government is over 50 percent in the national income which make very difficult for private sector to expand.

It recommends reorientation of the government role, which includes exit from markets and deeper deregulation. In addition, improving public sector management such as reforming civil services, improving resource mobilisation, elimination of untargeted subsidies and efficient public investment, PEGF document recommends.