Struc­tural re­forms

The Pak Banker - - 4EDITORIAL -

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.

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