For the third consecutive year, Pakistan’s requests to be a constituent of the MSCI Emerging Market Index has been turned down on account of dismal investor interest reflected on premier stock exchanges. It so turns out that only three entities out of the voluminous 100 meet the minimum size requirements of the index.
‘Ease of Doing
Business’ report
The explanation does not require much research. The ‘Ease of Doing Business’ report issued by the World Bank has explained it with distinct clarity. Over the last year, Pakistan’s Doing Business (DB) Rank has deteriorated to 83 from 75 in 183 economies (See Table I)
Delving into the mechanics of individual components reveals that it is much easier to start a business in Afghanistan than in Pakistan with the former’s ranking of 25 in comparison to 85 of Pakistan. However, on a positive note it is relatively easier to access credit and investor protection in Pakistan in comparison to other South Asian economies.
Nevertheless, it is common knowledge that the economy is stagnating; there are goods to be produced, protection to be offered and avenues to be explored. Even though, the DB Index provides an insight into the degree of institutional degradation, the rectification costs are not quantifiable. However, there are other very simplistic infrastructural and human capital problems; solutions to which numbers can be assigned. Moreover, research stands witness to the fact that institutional change towards effective property rights only comes when resource endowments shift in favour of the enterprising class. In Pakistan of late, this class seems marginalised, as they have restricted access to liquidity, energy, skilled labour, resulting in dismal levels of productivity and economic growth. Thus, in the very short term, costs have to be incurred to ease access to inputs for production of tangible or intangible goods.
PSDP allocations – an impact enough?
Before moving on to deriving cost estimates of input provision, it would be instructive to examine what the government spends on economic development through the PSDP, which stands at Rs452Billion, about 16 per cent of the total budget size this year.
Thus, as Table II suggests, about Rs199 billion in the PSDP gets assigned to government divisions seemingly involved in infrastructure and industrial development. This expenditure’s insignificance in contribution towards sec
toral development becomes evident to individual examination of conditions in their respective sectors. For instance, the Pakistan Railways has been constantly complaining of bankruptcy as most allocated funds are being used to service exorbitant levels of debt. Secondly, despite a seemingly higher allocation to WAPDA, the power crisis is expected to loom till 2018. Spending on the NHA only contributes to road maintenance, as evidently the road network has remained stagnant at 260,000 km for the past two years in all four provinces of the country. The economy needs to grow and provide for survival, and, the basic compounds of the prescription are well known to all.
Infrastructure-Roads: Pakistan’s road density (km of road per sq. km of land area) is one of the lowest in South Asia (See Table III) due to which development is concentrated in a few urban centres. Moreover, a study conducted by NHA in 2005 revealed that 43 per cent of the roads were in poor to very poor condition. Even though much time has elapsed since then, the situation is not drastically different.
In Pakistan, road construction costs (excl. land acquisition costs) range between Rs40-120 million per kilometer. Going by this measure, laying down a road network spanning a thousand kilometers, would require additional funding ranging between Rs40-120 billion depending on the specifications of the roads/high ways being constructed.
Power Generation: The industry is severely bearing the brunt of power shortfall and gas outages reflected in the measly one per cent growth in large scale manufacturing over during FY11. Pakistan faces a shortfall of 3000-6000MW, with no foreseeable near term solution to resolve this deficit. Moreover, by 2015, the energy shortfall is expected to exceed 30,000 MW. The current power mix comprises hydel and thermal power generation while inroads are being made into exploring alternative and renewable energy sources. The table below provides a summary of requisite investment.
The hydel estimates have been derived based on costs specific to the Kalabagh Dam, whereas wind power numbers are sourced from a recent wind project being undertaken by a fertiliser company. Other renewable energy sources include coal, where costs, (though not exactly publicly known) can be expected to lie on the higher side based on a high sulphuric content present in the coal.
Communication: Due to a considerable inflow of foreign funds, the telecommunication infrastructure in Pakistan can be termed relatively developed as compared to other components discussed above. The teledensity (63 per cent) can be considered somewhat at par with that of India (70 per cent) and about 43 per cent of the country has access to broadband connections. Moreover, with the emergence of the Universal Support Fund, Pakistan may not need to worry about a supply deficit on this front.
Cost of Education: The literacy rate hovers around 50 per cent and constitutes of people who can read and write. A report presented by the Ministry of Education to UNESCO in 2003 highlighted that the total cost of achieving 86 per cent adult literacy as Rs208 billion. In terms of constituting a bill, given escalation of costs owing to high levels of inflation in the past decade, assuming a 100 per cent increase, the total cost of achieving 86 per cent literacy would stand at Rs416 billion.
Changes in Policy: Greater investment and growth cannot be expected to come about until the private sector has access to funds. Alarmingly, the private sector credit offtake has stood at an average of Rs3 trillion (+/- 0.3) since 2008. This calls for a change in policy towards more investor friendliness and reduction in risk aversion. The primary measures to be suggested in this purview are reduction in government borrowing and the benchmark rate, which currently stands at 14 per cent.
To put words in a fairytale manner, “Pakistan is a wonderland endowed with many riches” that can ensure a stable growth path if sincerely invested in. Else, the case of economic deterioration slipping into moral degradation will become a strongly embedded malaise leading to societal implosion. Each person, authority, visionary must improvise and revolutionise themselves.