IPRI-HSF NATIONAL CONFERENCE “ROADMAP FOR ECONOMIC GROWTH OF PAKISTAN”

Introduction

Islamabad Policy Research Institute (IPRI) in collaboration with Hanns Seidel Foundation (HSF) organized a two-day National Conference on “Roadmap for Economic Growth of Pakistan” on October 22-23, 2014, at Marriott Hotel, Islamabad. Prominent scholars, academicians, practitioners and policy makers from all over Pakistan participated in the conference and shared their views on prevailing challenges to the economy of Pakistan. They envisioned various trajectories of economic growth, and recommended policy options to re-rail the national economy.

 

Summary of the Concept Note

Sound economic planning is crucial for both developed and developing countries. It entails making best use of available resources of production, deciding what to produce and how to distribute. This requires deep knowledge of country’s needs and requirements. Proper planning serves to improve macro-economic indicators such as Gross Domestic Product (GDP), growth, inflation, budgetary deficit, interest rate etc. It also induces efficiency in producing raw material, arranging equity, profit focused balance between products and services output, curtailing unemployment level and in discharging Corporate Social Responsibility (CSR). The ultimate objective is to have a surplus current account and a stable exchange rate. Economic planning is basically the responsibility of government but private sector also has a participatory role to contribute through informed policy inputs and implementation strategies.

Accelerated growth automatically boosts revenue generation. However, that needs capacity expansion through development of infrastructure, human capital, uninterrupted energy supply, and a secure investment climate. Policymakers and planners can utilize inherent strengths in Pakistan’s economy which are its resources and manpower. In fact, manpower is Pakistan’s main strategic asset. The Small and Medium Enterprises (SMEs) that are considered the backbone of any economy must be encouraged to play their part. SMEs have a huge potential, as they can employ the bulk of the workforce, form significant business setups and make substantial contribution to the GDP.  Sound economic policies that address the chronic ailment of rising foreign and domestic debt while aiming at raising the general level of living have to take into account not just the size of the national exchequer or its constraints but factors like labour rights, minimum wages, environmental degradation etc. It is imperative, therefore; that Pakistan develops a long-term vision of economic growth and formulates a prospective plan of action with identifiable goals.

 

Conference Proceedings

Day I: October 22, 2014

 

Inaugural Session

Welcome Address by President IPRI.    In his opening remarks, Ambassador Sohail Amin welcomed the chief guest, session chairs, speakers and participants of the National Conference. He said that it is a matter of pride for IPRI to arrange such an outstanding gathering of scholars and economic experts in collaboration with the HSF. He articulated that the timing of this conference is very appropriate since all Pakistanis remain focused on the measures being taken by the government for the economic development of the country. He stressed that Pakistan is an important South Asian country with a vibrant society of 180 million people; and to become an internally strong democratic welfare state and play an important role for peace and development in the region, Pakistan needed a well progressing economy.

 

He stated that according to some economists, Pakistan’s economy had not been progressing as desired, due to various factors. In the aftermath of the global financial crisis, Pakistan’s exports had suffered badly together with substantial decline in the flow of Foreign Direct Investment (FDI). Persistent power shortages have slowed down economic activity that has resulted in depressing output levels and substantially reducing the growth rate. The chronic insufficiency of revenue generation continues to deprive the economy of any internal support as state-owned enterprises have become a liability.  Moreover it was estimated that Pakistan’s counter-terrorism efforts have caused Pakistan an estimated economic losses of more than 100 billion USD.

He expressed the hope that despite above mentioned constraints, the prospects of economy’s revival in the future were good. He stated that according to British economist Jim O’Neill, Pakistan’s economy had the potential to become the 18^th largest economy of the world by 2050 from its current 44^th position. The signs of economic recovery are also being seen positively by the rest of the world. One positive indicator is the response of international investors to Pakistan’s issuance of Eurobonds, reflecting renewed confidence in country’s economy. Other promising indicators are decrease in inflation, appreciation of Rupee against the US dollar and encouraging economic growth of 4.14 percent for the FY 2013-14.

He pointed out that there is a consensus amongst the eminent economists that Pakistan needed to enhance its economic growth at a faster pace by addressing four main issues: (i) restoration of law and order, (ii) meeting energy requirements, (iii) developing infrastructure, and (iv) efficiently utilizing strategic asset of human capital. This would help in attracting foreign investment, increasing value added industrial and farm output, enhancing revenue generation and boosting exports. He recommended that it was necessary for Pakistan to develop a long-term vision of economic growth and formulate a perspective plan of action with identifiable goals. He hoped that all the participants would benefit from the expert views of the distinguished scholars who would be presenting their papers at the conference. He informed that the papers read in the conference would later be compiled in the form of a book which IPRI would publish soon after the conference.

 

Opening Remarks by Resident Representative HSF.    In his opening remarks, Mr. Kristof Duwaerts welcomed all participants to the conference. He said that Pakistan’s economy was not too bad, ranking 26^th out of 188 nations, as per the IMF listing, in terms of GDP in 2013. In the past, Pakistan’s economy had proved to be resilient. This country did not face as many financial and economic repercussions as did other Asian nations during repeated waves of recession or international financial crises over the past decades. He said that at a population growth rate of nearly 2% per year, Pakistan globally had the 5^th highest number of new citizens per year in absolute terms after India, China, Nigeria and Indonesia. Therefore a comprehensive strategy was needed to address the challenges of population growth.

He talked about the oft quoted dilemma whether a strong economy would be a prerequisite for sustainable peace, or sustainable peace would be a prerequisite for a strong economy. Obviously the two were mutually dependent and reinforcing, but a gradual strengthening of the economy was more fruitful to reinforcing stable peace. He referred to the example of Federal Republic of Germany, which through its concentration on economic stabilization, in the immediate post-war years, managed to become one of the economically stable nations in the world. He added that, since then, Germany has continued to be the economic powerhouse of the European Union (EU) despite many setbacks in the recent past.

He stated that Pakistan faced many issues. At the forefront stood the lack of education, energy, employment, as well as the exodus of young elites. Still, none of this was irreversible. He hoped that the conference would contribute towards formulating a roadmap. He concluded that Pakistan did have the potential of becoming the 18^th strongest economy in the world by 2050. The country did have vast resources, the potential of attracting major national and international investments, and a huge powerbase which was made up of its young population.

Inaugural Address by the Chief Guest.      Dr. Asad Zaman, Vice Chancellor, Pakistan Institute of Development Economic (PIDE), QAU Campus Islamabad, was the chief guest in the inaugural session of the conference. He made a presentation on “Roadmap for Economic Growth of Pakistan.” He said that technological or physical constraints did not prevent Pakistan from development and progress, rather it were the mental constraints which discouraged the country. One can change things by putting efforts in the right direction. The root of problem was lack of self-confidence at national level.

He stated that development was a multidimensional process which included simultaneous coordination at various fronts. The “hardware indicators” for development included energy, security, industry, technology, FDI, and exports, while “software indicator” for development was community based human development. He contested the prevailing concept of growth that, economic growth was imperative to reduce poverty; in fact, he added that; it was the opposite which was true. Though it was articulated that trickledown effect of economic growth benefits the poor; during the economic growth, actually the wealth accumulates in the hands of few. He suggested that improving human lives entailed development which led to sustainable economic growth. The people then become the drivers of growth. The government had to facilitate people to live in an honourable manner, and in turn, people would provide ingredients for development and growth. He stressed that the importance of human development was visible from the fact that the first pillar of “Vision 2025” was the human development. He was of the view that the most effective way to develop the potential of the people of Pakistan was through addressing the basic needs of the people.

 

Session-I: State of Pakistan’s Economy

Dr Imran Sharif Chaudhry, Department of Economics, Bahauddin Zakariya University Multan, spoke on “Economic Performance in Recent Past.” He said that the performance of Pakistan’s economy had been very volatile and fluctuating since its inception. The rider clause of country’s economic history was that our economy had been suffering from shocks of different nature and intensities. While analyzing Pakistan’s economic performance from 2001 to 2014, he talked about eight primary economic variables: sectoral growth, investment and saving, inflation, fiscal sector, public debt, trade & payments, infrastructure development, human resource and social development. His findings suggested that Pakistan was a rapidly developing country and was one of the eleven declared countries that have a high potential to become the world’s largest economies in the 21^st century. He was of the view that development in social sector would accrue achievement of short and long term economic goals.

 

Dr. Vaqar Ahmed, Deputy Executive Director, Sustainable Development Policy Institute (SDPI), Islamabad, presented his paper on “Fiscal Challenges and Response.” His study focused on three challenges to domestic resource mobilization: exemptions in tax system; reforms regarding tax administration; and efforts needed to broaden the tax base. He stated that there were various sectors which were provided tax exemption and there was no solid mechanism to determine eligibility for exemptions. He informed that in the fiscal budget of 2014-15, two thousand companies were exempted from taxation. Tax exemptions account for up to 3-4 percent loss in the GDP. Coupled with similar number of tax evasion related losses, the amount equaled government’s total annual borrowings! He suggested that government should rationalize tax exemptions and arrest tax evasion; reduce government’s borrowings; and improve direct tax collection mechanism to reduce the burden of indirect taxes. He recommended a centralized data base of expenditures and revenue generation record at the Ministry of Finance.

 

Prof. Dr. Naheed Zia Khan, Dean Faculty of Arts and Social Sciences, Fatima Jinnah Women University Rawalpindi, presented her paper on “Problems and Prospects of Foreign Direct Investment.” She was of the view that FDI was one of the important processes of globalization in present times.  Although governments, think tanks and policy makers supported the FDI, the outcomes of FDI for the host countries, specifically in developing parts of the world, were widely debated. She informed that Pakistan stood at 74^th in the world in terms of FDI. Pakistan had 24.3 billion USD stocks of FDI. In 2013, over 60 countries invested 5.3 billion USD in Pakistan. She proposed that the government should give preference to manufacturing sector for FDI. This policy would reduce the poverty of the country as the rate of unemployment would reduce.

 

Session II: Overhauling the Economy

Dr. Rehana Siddiqui, former Joint Director, Pakistan Institute of Development Economics (PIDE), Quaid-i-Azam University Campus Islamabad, spoke on “Meeting the Energy Requirements.”  She opined that energy requirement of countries depends on the size of the population and structure of the economy. To achieve the growth rate of 7 percent, required growth rate of electricity was 9.65 percent per annum, while actual figure was 5.25 percent. Therefore, in the long run energy supply bottlenecks may hamper growth potential. Factors like rising population, increase in the demand for energy and mismanagement in demand and supply have led to energy crisis in most of the developed and developing world, including South Asian countries. She informed that the major crisis faced by Pakistan is power shortage which is adversely affecting the production systems, and the quality of life of the population. The output losses varied between 30-60 percent. Her study concluded that: efforts were required on both demand and supply sides; the focus of the demand side efforts should be on improving energy efficiency and energy conservation; the supply side also needed enhancement; and Pakistan needs to find an appropriate energy mix which should be cost effective.

 

Dr. Ashfaque Hasan Khan, Principal and Dean School of Social Sciences and Humanities, National University of Sciences and Technology (NUST), Islamabad spoke on the subject of “What Ails Pakistan’s Public Finances.” He presented the overview of the issue by saying that fiscal profligacy and failure to mobilize adequate resources to finance ever growing public expenditure requirements has emerged as one of the key economic issues of the country; and fiscal discipline is essential for preventing macroeconomic crisis and hence realizing full growth potential and social development. He mentioned that since 2007, the gap between budgeted revenue target calculated by the FBR and the actual revenue collected was increasing. FBR had failed to forecast revenue at the beginning of the fiscal year because the main focus of budgetary planning remained on PSDP. During budget planning, expenditures were finalized first, particularly development expenditure or PSDP by making sure that projects of influential leaders receive adequate funding in the budget; and revenue is treated as residual divorced from the level of economic activity or GDP.

 

Prof. Dr. M. Arshad, Dean, Faculty of Agriculture, University of Agriculture Faisalabad, made his presentation on “Strategies for Enhancing Agricultural Growth and Food Security.” He said that food production and security for the ever increasing population was becoming a great challenge for the scientists and policy makers. Growth in agricultural productivity faced severe constraints from land degradation, climate change, scarce water supplies, provision of quality seeds, balanced use of nutrients, use of obsolete traditional practices restricted to conventional cropping system, credits for the farmers, marketing system and competition for energy resources among agriculture, industry and urban centres. He suggested that multidisciplinary approaches involving balanced and efficient use of fertilizer, effective use of water, integrated use of bio-organo-mineral fertilizers, integrated pest management, reduced post-harvest losses, risk management strategies, best agronomic practices, precision agriculture and use of Geographic Information System (GIS), and effective national policies for credit and marketing systems could be helpful in achieving the desired levels of  growth in food, fodder, fuel and fiber subsectors.

 

Day II: October 23, 2014

Session III: Essentials of Economic Growth

Dr. Bashir Ahmed Khilji, Head of Economics Department, Preston University Islamabad, presented his paper titled, “Undertaking Structural Reforms and Reform of Public Sector Enterprises.”  He stated that if through privatization process, Public Sector Enterprises (PSEs) are sold to the private sector, the burden on national budgets would be minimized. Private sector prioritized their business interests; hence the loss incurred by ex-public sector enterprises has minimized, their profits have maximized, and these entities have transformed from white elephants to productive units. Productivity, employment and capital mobilization have also increased. He stated that unnecessary subsidies, corruption, inefficient resource mobilization, lack of efficient human resources and the lack of profitability necessitated privatization of existing PSEs as well. He hoped that through structural reforms, PSEs would be converted into profitable units, and contribute positively in economic development of the country.

 

Prof. Dr. Allah Bakhsh Noon, Dean Faculty of Agriculture Engineering and Technology and Director, Water Management Research Centre, University of Agriculture Faisalabad presented his paper on “Impact of Water Management and Climate Change on Economic Growth.” He said that Pakistan was the state most vulnerable to climate change including glacier retreats, floods, droughts and rise in temperature. He was of the view that during the next 40 years, frequent severe floods would be followed by marked reduction in river flows by 40 to 50 percent. Moreover, climate change could reduce rice yields from 8 to 30 percent and wheat yields from 6 to 19 percent, which would increase poverty by 6 percent by 2050. This requires adaptation to innovative farming practices, including new crop varieties.

 

Associate Prof. Dr. Bushra Yasmin, Chairperson, Department of Economics, Fatima Jinnah Women University Rawalpindi, shed light on the subject of “Tapping the Human Capital.” She opined that treatment of Human Capital (HK) as endogenous factor had long been introduced by growth theorists. The role of HK accumulation and research and development (R&D) had been acknowledged as an engine for attracting physical capital and investment. But effective use of physical capital depended on the quality of human capital for which technically, professionally and administratively trained people were required. She proposed that there was a need to reduce the gap between industry and academia.

 

Session IV:  Strategy for Sustainable Economic Growth

Dr. Usman Mustafa, Head, Department of Business Studies & Chief, Training and Project Evaluation Division PIDE, presented his paper on“Appropriate Development Strategy and Role of Private Sector.” He explained that private sector   plays pivotal role in the growth of an economy. The large as well as the SMEs use state of the art technologies to produce goods and services for domestic as well as international consumers. These entities also provide employment. He was of the view that doing business by the government is just as disastrous as oppression by the government. Pakistan is witnessing the inefficiencies, overstaffing and tremendous financial losses in few public enterprises. These have become liabilities, and in order to run these enterprises, government is bearing millions of rupees as “bailout packages”. He stressed on need of knowledge-based economic environment.  He was of the view that the development of private sector depends largely on strengthening institutions and good governance.

 

Prof. Dr. Ather Maqsood Ahmed, Head, Department of Economics, NUST Business School Islamabad, made his presentation on“Tapping Potential Sectors of Growth.” He said that besides accumulation of physical capital and labour, the importance of knowledge, technology, R&D, and innovation have vastly improved the understanding of economic growth. He reviewed the sectoral performance in historical context to highlight that Pakistan has been an under-achiever as none of the three sectors of the economy i.e. agriculture, industry, and services could reach the status of ‘engine’ of economic growth.Within the agriculture sector, a strategic focus was needed on effective use of inputs to enhance productivity of major crops. Investment in human capital and use of modern technology was the key to success. The manufacturing sector not only needed investment in human capital, it also required diversification of the base, its opening up to international trade transactions, financial development of the economy, and the use of technological advances in the field. And the growth potential of services sector could be reaped if there was a holistic review of numerous services and the regulatory and taxation structures are streamlined accordingly.  In the industrial sector, a shift was required from traditional textile-centric approach to more diversified industrialization.

 

Prof. Dr. Abdul Saboor, Chairman Department of Economics & Agricultural Economics, AridAgriculture University Rawalpindi, presented his paper on“Significance of Trade and Regional Economic Integration.” His presentation highlighted significance of trade and regional economic integration with special reference to Pakistan and South Asia. He said that trade agreements were considered welfare enhancing if they resulted in better economic opportunities at gross root level and human welfare. He informed that Asia’s intraregional trade approached 55 percent in 2012 while South Asia remained least integrated sub region having 33.5 percent of trade within Asia.  He underlined that Pak-India political tensions had always dominantly restricted economic integration in both countries and South Asia. Trade and financial flows through illegal channels from neighboring countries posed serious challenges for Pakistan’s economy. He suggested that to improve economic integration in the region, Pakistan and India needed to take joint initiatives to achieve eradication of poverty and inequality through inclusive and sustainable growth.

 

Comments by the Special guest:

 

Lt. Col. (Retd) Saif-Ud-Din Qureshi, Chairman Prime Minister’s Inspection Commission (PMIC), was the special guest to the event. While speaking to the conference participants, he said that deterioration in the government sector was deep and devastating and it was spreading to other sectors as well. Therefore, it was time for the nation to wake up and work for the development of the country. He opined that time for experimentation had passed, and the people needed to be more practical.  He said that from the platform of IPRI, he wanted to request the scholars, and researchers that government needed their input. There was a dire need to rebuild the nation through the experience of scholars and researchers in the field.

He proposed that the researchers should focus on opportunities which could revive the economy of the country.  There was a dire need to comprehend the phenomenon that why the country was importing seeds, why Pakistan could not produce seeds for own agriculture sector?  Why the agriculture yield was half of what the neighbouring countries were producing? He said that we are facing challenges in the power sector as well. He said that the country could only be recovered out of present day difficulties when we all work together, and sincerely.

 

Concluding Session

Address by the Chief Guest

Prof. Dr. Eatzaz Ahmad, Vice Chancellor, Quaid-i-Azan University, Islamabad, was Chief Guest in the concluding session. He said that there were two basic tenants of economic growth which included savings and productivity. Savings not only provided more resources for productivity but those could also be invested to build up more capital including human capital and physical capital. Once the resources were generated for productivity, it was important to understand the utilization of these resources. He explained that growth depends on accumulation of physical capital, labour, and human capital. The emphasis should be on improving the governance and management of country’s economy coupled with implementation of the models suggested by the economists for economic growth and development. He was hopeful that despite difficulties. country’s economy had shown resilience and it would grow in the future as well.

 

Remarks by Resident Representative, HSF.    Mr. Kristof Duwaerts, in his concluding remarks, thanked the chief guests, speakers and participants of the conference. He suggested that greater interaction between academia and government ministries could play important role in the development of Pakistan’s economy. He informed that there were 206 Higher Education Commission (HEC) recognized institutions in Pakistan. The publications of these institutions should be shared with concerned ministries in order to find out new approaches for the development of Pakistan. He hoped that the removal of some impediments, i.e., law and order situation, governance issues and public private partnership would lead to a bright future of Pakistan.

 

Vote of Thanks by President IPRI.     Ambassador Sohail Amin thanked Professor Dr. Eatzaz Ahmad for sparing time from out of his busy schedule and for enlightening the participants of the conference with his thought provoking concluding remarks as the Chief Guest. He also thanked all guest scholars who came from all over Pakistan to present their papers. President IPRI was also appreciative of all the participants who graced the occasion and made valuable contributions. He thanked HSF for making the conference possible. He added that, the chief guests at the inaugural and the concluding sessions, the chairpersons of various sessions, the scholars who presented their papers and the audience who participated in lively discussions were the real contributors to all that was achieved at the Conference. He informed the gathering that conference recommendations would be shared with the policy making circles of the government as well as the public at large.    

 

Conference Recommendations

At the end of the conference, Ms. Asiya Mahar, ARO IPRI presented key recommendations of the National Conference; these are listed below:-

 

• Pakistan must improve law and order situation, address energy crisis, enhance human resource development; and develop requisite infrastructure to support a progressing economy.
• Pakistan should take initiatives for sustainable economic development by addressing the issues of lack of education and population growth.
• Factors leading to excessive spending at the societal level need to be discouraged and a simple way of living should be encouraged.
• Irrespective of the implications on government treasury, successive governments have kept on borrowing to meet their running expenditures. There is a need to adhere to the constitutional limits on borrowing. Likewise; there is a need to discourage reckless spending. Especially, there is a need to do away with discretionary powers at all levels and ensure appointments of financial managers on merit. Culture of political appointments against professional slots should be done away with.
• In order to enhance economic efficiency, simultaneous coordinated progress is required on many fronts such as hardware of economy like: energy security, industry, technology, FDI, exports etc., as well as software of economy such as: human development and poverty alleviation.
• Government should allocate more funds for social sector’s development. Heavy investment is needed in health and education sectors for increasing the number of public schools and hospitals.
• There is a need to look into alarming situation of population growth and its impact on urbanization.
• Sweeping tax system reforms are the need of time. An unbiased taxation system must be enacted. Pakistan needs to broaden its tax base, and in this regard debate the imposition of agriculture tax on large land holdings while protecting small and medium land holdings.
•  A mechanism should be developed to ensure that all multinational corporations also pay their taxes.
• Tax exemptions given to favourite entities should be withdrawn.
• There is a need of continuity in budgetary policies. Financial policies should be announced after due consultations and deliberations. However, once announced, these should remain intact for a respectable period–at least during the remaining tenure of the government which makes a policy.
• The practice of taking loans from international donor agencies should be made transparent. Terms and conditions of foreign loans should be made public; these should also be debated in the open session of parliament.
• Development projects should be prepared keeping in view a realistic target of revenue collection. Planning Commission should not approve the projects for which funding is not available or which are not economically viable.
• Forecasting of budgetary targets is essential for sound fiscal management. FBR should improve its capacity to meet the allocated tax collection targets. The practice of treating revenue as residual should be reversed.
• Government should create an investment friendly environment in order to boost the economic and industrial activity. In this regard, law and order situation should be made conducive and encouraging for foreign investors.
• Pakistan needs to create space for the growth of new entrants in the private sector by removing the constraints created by the state in their entry and smooth operations.
• If managed properly through currency swaps and bilateral trade deficit retention agreements, F DI can be attracted quickly and sufficiently.
• Pakistan should give priority to enhancing its technological capacity rather than just focusing on acquisition/transfer of technology.
• There is a need to introduce technologically advanced methods for producing energy and find an appropriate energy mix which is cost effective. Government should consider inviting foreign expertise in converting coal into energy, leading to the adoption of an integrated energy model.
• The yield gap between the potential and the present level of agricultural productivity can be reduced through acceleration of seed production, timely supply of inputs, introducing innovative products/practices and following best agronomic practices. The value addition of agriculture produce can improve the economy and ensure food security.
• Pakistan should take all necessary measures to save erosion of soil and ensure provision of rich fertilizers to make-up for soil related deficiencies arising out of negative impact of climate change.
• Water management practices like laser land leveling, water course improvement have the potential to conserve water in the range of 20 to 40 percent. Such management practices should be encouraged. Rainwater harvesting, tunnel farming, building of water reservoirs and developing heat resistant crop varieties can help mitigate the climate change effects on Pakistan’s agriculture sector.
• Skilled and globally competitive labour force is required for economic development. Demand-driven and international standard of skilled workforce should be encouraged.
• Technical education should be made easily accessible and affordable. Linkages between academia and industrial sector must be strengthened.
• Agriculture, industry and services sectors are vital sectors of Pakistan’s economy; these should be strengthened to reach the status of engines of the economic growth.
• Manufacturing sector requires investment in human capital, international trade transactions, financial development of the economy and the ability to employ cutting edge technologies.
• Pakistan needs to focus on revival of comparative competitive advantages.