Ac­cel­er­a­tion of GDP needed

The Financial Daily - - INTERNATIONAL -

Soon af­ter in­de­pen­dence, Pak­istan econ­omy grew at a fairly as­tound­ing rate of 6 per­cent per an­num through the first forty years. The sat­is­fac­tory eco­nomic per­for­mance was main­tained through civil­ian and mil­i­tary gov­ern­ments in 1950s, 60s, 70s and 80s un­til the decade of 1990s. The GDP growth in­di­cates that Pak­istan has ex­pe­ri­enced high eco­nomic growth in 1961-65 (7 per­cent), 1966-70 (6.5 per­cent) and 1981-85 (6.5 per­cent). Pak­istan be­came one of the four fastest grow­ing economies in the Asian re­gion dur­ing 2000-07 with its growth av­er­ag­ing 7 per­cent per an­num for most of this pe­riod. As a re­sult of strong eco­nomic growth, Pak­istan was suc­cess­ful in re­duc­ing poverty by one-half, re­duc­ing a large amount of the coun­try's debt bur­den, rais­ing for­eign ex­change re­serves to a sat­is­fac­tory level and the coun­try's ex­change rate re­main­ing sta­ble, fix­ing in­vestors' con­fi­dence. It is ob­served that growth has been slow dur­ing the civil­ian rules; while the three long pe­ri­ods of mil­i­tary rule have seen phe­nom­e­nal re­cov­ery. This must be taken as fact and not ig­nored.

Pak­istan's econ­omy now con­tin­ues to strug­gle hard with its low an­nual GDP. Its eco­nomic growth is likely to hover around 4.1 per­cent in the fis­cal year 2014. The eco­nomic growth slowed to 3.7 per­cent in the fis­cal year 2013 from 3.8 per­cent a year ear­lier. Saudi Ara­bia gifted $1.5 bil­lion to Pak­istan to in­crease its for­eign ex­change re­serves, meet debt-ser­vice obli­ga­tions and un­der­take large en­ergy and in­fra­struc­ture projects. The Saudi as­sis­tance has con­trib­uted to a sharp re­cov­ery of the Pak­istani ru­pee, which rose to a nine-month high of 97.40 from 105.40 against the dol­lar be­tween March 4 and 12, its strong­est rally in 30 years. Pak­istan raised more than $1.1 bil­lion in its long-de­layed auc­tion of next-gen­er­a­tion telecom­mu­ni­ca­tions li­cences, snapped up by the coun­try´s four ex­ist­ing mo­bile net­work providers. Global rat­ing agency Moody's up­graded the out­look of Pak­istan's econ­omy to sta­ble from neg­a­tive. Moody's said the coun­try's for­eign ex­change re­serves had sig­nif­i­cantly im­proved and its cur­rent ac­count deficit was also un­der con­trol. Pak­istan has the po­ten­tial to be­come 18th largest econ­omy of world by 2050, leav­ing be­hind many strong economies, ac­cord­ing to Jim O'Neill, a Bri­tish econ­o­mist. Ac­cord­ing to his pro­jec­tions for 2050, Pak­istan would be­come the 18th largest econ­omy in the world by 2050 with a GDP of US$ 3.33 tril­lion (al­most the same size as the cur­rent Ger­man econ­omy).This means that, if O'Neill's pro­jec­tions are cor­rect, Pak­istan's econ­omy would grow 15 times in the next 35 years or so.

Pak­istan is now fac­ing the worst eco­nomic crises of its whole his­tory. These crises are caused by many di­rect and in­di­rect fac­tors like; en­ergy crises, po­lit­i­cal in­sta­bil­ity, ter­ror­ism, less FDI etc. No in­vestors want to in­vest in Pak­istan due to the in­sta­ble con­di­tions. In­fla­tion though slow­ing down but is still high in Pak­istan and ba­sic ne­ces­si­ties of life are ex­pen­sive. Tax to GDP ra­tio at 9 per­cent seemed to be some­what of a per­ma­nent fea­ture and the low­est in the re­gion. No tax on agri­cul­ture sec­tor, leak­ages in the col­lec­tion machin­ery; sub­si­dies on elec­tric­ity, fuel, and agri­cul­tural com­modi­ties is in­creas­ing to the govern­ment's fis­cal bur­den. The cur­rent level of PSEs, cor­rup­tion and wastage and politi­cized unions in the PSEs is putting hur­dle to the growth in the econ­omy of Pak­istan. Pak­istan Steel Mill is on the verge of clos­ing soon. 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 de­ci­sion-mak­ing, un­co­or­di­nated re­sponses, lack of im­ple­men­ta­tion, ram­pant cor­rup­tion, and poor gov­er­nance.

Bold ag­gres­sive steps needed to ad­dress elec­tric­ity short­ages, a ma­jor con­straint to growth, would also help to raise the sus­tain­able pace of growth. Ef­forts to bring deficits un­der con­trol will also need to in­volve ef­forts to broaden the tax base, which is ex­tremely nar­row in par­tic­u­lar, in Pak­istan where a very small per­cent­age of af­flu­ent cit­i­zens pay in­come tax. Pak­istan has all po­ten­tial to in­crease tax to GDP ra­tio through mak­ing the sys­tem pub­lic-friendly and eq­ui­table. Widen­ing of tax net is re­quired but in a sys­tem­atic and re­al­is­tic way. Im­prov­ing gov­er­nance, erad­i­cat­ing cor­rup­tion and pur­su­ing eq­ui­table tax poli­cies are re­quired. Col­lec­tors should col­lect taxes with­out any ha­rass­ment. There should be a free and fair tax­a­tion pol­icy in or­der to raise rev­enues, broad­en­ing and sim­pli­fy­ing the tax col­lec­tion pro­ce­dures. The sta­bil­ity and growth of in­dus­trial sec­tor is very im­por­tant for Pak­istan. En­ergy sec­tor could be­come stronger and ef­fi­cient with the Chi­nese in­vest­ment, when there will be no en­ergy crises, the in­dus­trial sec­tor will grow and the in­dus­try turnover will stop.

There is great amount of hu­man cap­i­tal in Pak­istan at cheaper cost, when there will no is­sues of en­ergy; the for­eign in­vestors will be at­tracted to pro­vide Pak­istan For­eign di­rect in­vest­ment, the ex­ist­ing com­pa­nies will per­form more bet­ter and ef­fi­ciently, un­em­ploy­ment will de­crease, more op­por­tu­ni­ties will be avail­able to en­trepreneurs to ex­plore them­selves. When all these fac­tors come along it will be a bless­ing on Pak­istan with re­spect to cur­rent sit­u­a­tion. Af­ter the pas­sage of the Na­tional Fi­nance Com­mis­sion 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 plan.

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