The central question that the contributors to this volume seek to answer is
how to reverse the current prolonged period of low growth and high
inflation—stagflation—that the country has experienced over the past five
years, and to suggest and implement measures that would decisively
move the economy onto a higher, more sustainable growth path.
Eight key messages emerge from the studies presented in this
volume:
The first is the urgent need to revive investment, which has fallen
dismally to 12.5 percent of GDP in 2011/12 from its peak of 22.5 percent
in 2006/07, by improving the investment climate and removing binding
constraints—especially in energy—on new domestic and foreign
investment. Pakistan needs to increase its investment-to-GDP ratio to
over 30 percent over the next decade if it is to generate sufficient
employment to productively employ its fast-growing labor force and
compete effectively with other rapidly growing developing countries.
However, in the medium term, investment may continue to be
constrained by resource availability and so, in the near future, a large part
of the revival of growth will have to come from exploiting unused
capacity and productivity gains.
The second is that Pakistan’s economic problems are basically
structural and not just cyclical in nature. Deep economic reforms are needed
to remove structural imbalances to increase efficiency and competitiveness,
and to spur entrepreneurship and innovation in the economy. Undertaking
these reforms will require political will and a carefully sequenced pace of
critical reforms so as to ease the burden of adjustment.
The third is to overcome the binding constraints to Pakistan’s growth
in order to revive the economy and ensure sustainable growth. These
Overview
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include overcoming the crippling energy shortage, increasing revenues to
regain macroeconomic stability and reduce the current unsustainable
fiscal deficit, and ensuring the availability of water to meet the needs of
the agricultural economy.
The fourth message is to make exports a major driver of economic
growth. This will mean reversing Pakistan’s past poor performance in
integrating with global markets—reflected in the country’s stagnant share
in global exports. It will need bold steps to create and take advantage of
regional trade opportunities, including trade with India. Critical to the
success of this strategy will be to improve the quality of Pakistan’s human
resource, which could provide the cutting edge in a highly competitive
global economy.
The fifth is that the economy has been badly mismanaged, not just in
recent years, but also over a long period of time. This has considerably
hampered its economic performance and reflects poor economic decisionmaking,
uncoordinated responses, lack of implementation, rampant
corruption, and poor governance.
The sixth is that the country must aim not only for sustained and
higher growth, but also inclusive growth such that the poor and
vulnerable both participate in as well as share the gains of economic
growth, and that development spreads to the country’s less developed
economic regions.
The seventh is that, after the passage of the National Finance
Commission (NFC) Award and the 18th Constitutional Amendment, a
much greater responsibility falls on the federating units. The provinces
will now have to play a major role in economic management and
improving the welfare of the people. This will require their greater
participation in overall macroeconomic management as well as close
coordination between the federal and provincial governments in
formulating and implementing development plans.
The eighth message concerns the roles of the state and the private
sector. Having alternated between the ascendancy of the state and private
enterprise for decades, the country needs to settle into a mutually
supportive relationship between these two components of the economy.
The private sector should play the leading role in all economic activity but
within a well-functioning regulatory environment developed by the
government. The government’s primary role should be to provide social
and physical infrastructure, support for cutting-edge research, and
affordable social protection and safety nets for the poor.
Pakistan: Moving the Economy Forward
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Pakistan has enormous potential for high and inclusive growth if its
resources are well and effectively managed. The policy recommendations
emanating from this volume can play an important role in realizing this
potential.