Structural reforms
THE World Bank's Managing Director has emphasised the need for deepening Pakistan's economic reforms and increase investments in priority development areas to achieve a higher level of growth. In a statement issued at the end of her three-day visit to Pakistan, WB official Mulyani Indrawati said that initiatives were needed to improve people's everyday lives such as energy, health, education and social safety net. She specially asked the government to expand the tax base and encourage the private sector's contributions to the development of the country. According to her, the youth was a great asset for the country and this called for improvements in education and training and job creation.
The WB MD is not the first to call for substantive economic reforms in Pakistan. Economists have repeatedly pointed out that the government has been moving tardily in the matter of instituting structural reforms without which the desired development objectives cannot be achieved. Recently a well known think tank issued a report on PML-N's economic agenda, saying that the government's overall score was poor in all sectors. The government has not only failed in reviving the economy but also in ensuring energy security. There has, in fact, been regression in key areas of policy and legislative development, institutional reforms and implementation.
No doubt, macroeconomic indicators have improved but there is still a long way to go to turn economic stabilization into sustainable growth. The economy is still vulnerable in many sensitive sectors. Despite the government's efforts, exports have remained stagnant. Imports which have ballooned in the last few years went up further last year. Similarly, despite the loud claims of FBR, tax collection has fallen short of the target, and the tax-to-GDP ratio is as dismal as ever. IMF has also taken serious notice of FBR's failure to broaden the tax base by bringing wealthy and rich non-taxpayers into the tax net. FDI has also shown a declining trend.
Surely, the country's economic managers have a challenging task ahead of them. Some very important budgetary targets have not been achieved. The provisional fiscal deficit announced in the budget documents was 4.9 percent for FY15, as against the previous year deficit of 5.5 percent. But the FBR revenues fell short by Rs20 billion, from the revised target, to slip the deficit by another 0.07 percent. As for provincial revenues, the budget document envisaged a surplus of Rs289 billion, while the actual number is a meager Rs13 billion. Combining these slippages, the fiscal deficit is set to jump by 1.46 percent to 6.4 percent, from provisional 4.9 percent. It is also feared that that as a result of the failure to meet deficit targets, PSDP probably will again be axed in FY16.
Economists have in their comments called attention to misallocation of resources of which the prime example is the power sector. As we all know, allocations for power production and transmission are lower than those on road infrastructure. Education also remains a neglected sector with the latest figures showing the literacy rate falling to 58 percent from 60 percent last year. This is resulting in low labour productivity and the economy losing its growth potential. The country needs growth as two-thirds of the 1.5 million new labour entrants remain unemployed at the prevalent growth rate of four percent. The government needs to adopt new measures to raise revenue for development expenditure. It should also channel more resources in sectors like energy, education and health. The economy is now in a stabilized phase. This is the ideal time to accelerate the growth process.