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Towards Growth Strategy & Economic Reform 1 Planning Commission Outline • What is the Current Growth Strategy? • What are Constraints to Economic Growth? • Why Move towards a New Growth Strategy? • What is Planning Commission’s Approach? • New Growth Strategy – Brief Overview • What should be the New Role of Government? 2 What is the Current Growth Strategy? • Growth policy by default • Projects being multiplied with no available resources • Regulated markets and sector picking • Result • Sporadic growth usually created by external resources • Preoccupation with crises and stabilization • Lack of structural reform No Long Term Thinking on Growth Strategy 3 What are Constraints to Economic Growth? Market Failure • Lack of Competition • No Incentives for Innovation & Entrepreneurship Governance Challenges • Poor Contract Enforcement • Distortive Taxes and Subsidies • Anti Competitive Practices • Lacking Software of Economic Growth 4 Pakistan Lacks Growth Software Hardware Infrastructure Quality Country Score Indonesia 2.5 India 3.3 China 3.4 Pakistan 3.4 Thailand 5.0 Korea 5.1 Taiwan 5.4 Malaysia 5.7 Hong Kong 6.4 Source: Global Competitiveness Report Country Software Global Quality of Innovation Education Index (out System of 132 countries) Spending on R&D Pakistan 79 99 80 India 30 37 36 Indonesia 39 44 28 Thailand 57 67 47 Malaysia 24 23 19 China 26 52 23 5 Why Move Towards a New Growth Strategy? • A bulge in the working age groups in coming 40 years • This increases potential productive capacity • BUT also raises challenges: – UNEMPLOYMENT without adequate investment Projected Population by Age Groups 2050 85 85 85 84 83 83 80 77 71 67 63 2040 2030 2020 2010 2000 0 60 236 31 224 25 210 20 195 16 178 13 160 11 0-14 142 9 125 8 15-64 110 7 65≤ 65> 95 6 81 5 120 180 240 300 360 Million – COMPETING South Asian countries also have young populations 6 Why Move Towards a New Growth Strategy? • How much economic growth rate is required to absorb growing labour force? • Expected long run labour force growth rate is 3.6% • Absorbing incremental labour requires 8% GDP growth 7 Planning Commission’s Approach to a New Strategy • Home grown – Donor-driven models not working across developing countries – Growth possible during stabilization – Taking stock of local knowledge • Consensus-driven – Meeting all segments of society including academia, civil society, business community 8 – Detailed consultation with provinces New Growth Strategy Economic Conceptualization Human Capital Growth Strategy Social Capital Physical Capital 9 New Economic Growth Strategy Economic Discipline Productivity Responsible Fiscal & Monetary Policies Governance & Institutions Market Reforms Restructuring of PSEs Urban Management Rationalization of PSDP Youth & Community 10 Short Term: Getting back to potential • Utilization of existing capacity – Up to 30% in industry – Up to 50% in fertilizer, auto sector, sugar, cement and steel • Requires: 1. Removing major constraints a. Energy (Electricity and Gas) b. Availability and pricing of credit 2. Macroeconomic stability 11 Longer term: Increasing Potential Economic Growth Physical Capital Public Investment Sector based & Project based Human Capital Skills Productivity Education Missing: Innovation, Entrepreneurship & Markets12 Growth Alternatives (2011-15) 7 6 Stabilization : Reform of PSEs, increase resource mobilization (Average 4.7%) 6.0 GDP Growth Rate (%) 5.5 5 5.0 4 4.0 3.4 3 3.6 3.8 3.9 3.0 Business as Usual: Low aid-led public investment, high Inflation (Average 3.5 %) 2 1 0 2010-11 2011-12 2012-13 2013-14 13 2014-15 Growth Alternatives (2011-15) 9 8 GDP Growth Rate (%) 7 Stabilization + Reform: Market reforms & productivity gains (Average 5.6%) 7.0 Stabilization : Reform of PSEs, increase resource mobilization (Average 4.7%) 6 8.0 6.0 6.0 5.5 5 5.0 4 3 3.0 4.0 3.4 2 3.6 3.8 3.9 Business as Usual: Low aid-led public investment, high Inflation (Average 3.5 %) 1 0 2010-11 2011-12 2012-13 2013-14 14 2014-15 Ongoing PSE Reform Efforts Reform for Power Sector Under Implementation Reforms Strategy for Railways Formulated Reforms of Gas Sector under Formulation TCP & PASSCO to be examined for closing down 15 PSDP Resource Allocation Strategy PSDP Weaknesses o Decreasing PSDP Size o High share of bricks & mortar (60% of total in 2011) Prioritizing PSDP o Projects nearing completion o Social sector projects o Key infrastructure o Money Spread thin (large projects: energy, water, sectoral & regional spread) transport o Project governance o Projects for removing regional disparity 16 Potential Governance Agenda Civil Service Reform Structure and Incentives to Attract Talent Monetized Salaries, Merit based Promotion, and Easy Entry & Exit Devolution Devolving powers, responsibilities and resources to lower tiers of government for better service delivery Performance based Governance Business process reengineering Need to address outdated regulations Remove multiplicity of processing layers 17 Markets & Entrepreneurship Modernize Laws & Regulations for Markets Deregulate Markets Encourage Innovation Domestic Commerce Agriculture Market Committees Wheat, Sugar & Commodities Exchange Innovation through Incubation Centers Taxation Regime, Rent Laws etc. Investment in New Sectors Review Sectors where Government may Exit Cluster Strengthening (e.g. Sialkot, Gujranwala, Wazirabad) Legal System for Common Property Ownership (shops & flats) Bankruptcy Law (legislation drafted) 18 Cities as Hubs of Commerce Modernize Laws & Regulations for Cities Reform Zoning & Building Regulations Address Excess Demand Need to Bridge Excess Demand for Commerce, Office Space, Warehouses etc. Land Markets Freeing Government Land for Commercial Purposes Property Rights Need to Address Issues of Titles, Taxation Structures etc. 19 Youth & Community Youth Engagement Strategy Social Capital Youth Entrepreneurship Voice Making Social Capital Available for Youth Difficult to Productively Employ Growing Young Labour Force Empowerment Social Infrastructure (Libraries, Community Centers etc.) Develop Framework for Youth Self Employment 20 New Role of Government Markets Government Ownership of Assets Financing of Assets Policy Regulation Production & Management 21 Quality Governance Creative Cities Quality of Life Vibrant Markets Energetic Youth & Community Thank You Thank You www.pc.gov.pk 22