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Towards Growth Strategy & Economic Reform 1 Planning Commission Characteristics of Growth in Pakistan • Preoccupation with stabilization and crisis • Growth policy by default – Aggregation of projects – Sectoral focus • Result: sporadic growth • Lack of structural reform: declining potential growth rate 2 Economic Growth 1972 - 2010 Volatility and decline in potential GDP growth 10 9 7 6 5 4 3 2 1 Boom – Bust Cycles 2008 2005 2002 1999 1996 1993 1990 1987 1984 1981 1978 1975 0 1972 GDP Growth (%) 8 3 Demographic Challenge • A bulge in the working age in coming 40 years Projected Population by Age Groups 2050 85 85 85 84 83 83 80 77 71 67 63 2040 2030 2020 • Required growth: – 8% per annum to absorb growing labor force 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 4 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 2014-155 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 2014-156 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 7 Longer term: Increasing Potential Economic Growth Physical Capital Public Investment Sector based & Project based Human Capital Skills Productivity Education Missing: Innovation, Entrepreneurship, Markets 8 Pakistan Lacks Growth Software Overall 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 Hongkong 6.4 Source: Global Competitiveness Report Hardware Country Software Global Quality of Innovation Education System Index (out 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 52 239 Developing a Growth Strategy • Productivity through economic reforms • Better management of public resources • Better managed PSDP • Restructuring and privatizing PSEs • Consultative process in a federal structure (post 18th Amendment) o Taking feedback from provinces, chambers of commerce and civil society organizations o Building ownership through academia and media 10 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 11 Rationalization for Results • Maintaining infrastructure development through a better managed PSDP 1,905 projects with Rs 3,057 Billion throwforward 1,421 projects with Rs 2,509 Billion throw-forward Project Approval Process Improvement Measures • Ongoing: – Modernization of feasibility reports – Project approval (PC-I) stating benchmark parameters for monitoring and evaluation • Proposed: – Harmonize rules of donor agencies with GoP policies – Constitute joint donor – GoP appraisal teams 13 Need to Restructure Public Sector Enterprises Sr. PSE Financial Position 1 PIA Accumulated Losses Rs 76.6 billion 2 PASSCO Loss of Rs 440.7 million in 2008-09 3 TCP Subsidized operation 4 USC Subsidized operation 5 NHA Government monopoly in highway contracts 6 PEPCO Accumulated debt of Rs 425 billion 7 Pak Steel Accumulated loss of approx. Rs 36 billion 8 Railways Accumulated losses (2005 to 2010) Rs 86.7 billion 14 Ongoing PSE Reform Efforts • Reform of Power sector under implementation • Reform Strategy for Railways formulated • Reforms of Gas Sector under formulation • TCP and PASSCO to be examined for closing down 15 Pillars of New Growth Strategy Increasing Productivity Quality Governance Creative Cities Quality of Life Vibrant Markets Energetic Youth & Community 16 Potential Governance Agenda • Civil service reform –structure and incentives to attract talent – Monetized salaries, merit based promotions, and easy entry & exit • Devolution of powers, responsibilities and resources to lower tiers of government for better service delivery • Performance based governance • Business process reengineering with technology (outdated regulations & multiplicity of processing layers) 17 Markets & Entrepreneurship • Modernize laws and regulations for better markets – Agriculture market committees – Entry of new investment into the engineering sector – Bankruptcy law (legislation drafted) • Deregulating markets e.g. wheat, sugar & commodities exchange (under implementation) • Encouraging innovation through incubation centers, cluster strengthening (e.g. Sialkot, Gujranwala, Wazirabad) • Improving environment for domestic commerce – Taxation regime, rent laws – Legal structures for common property ownership (shops & 18 flats) Cities as Hubs of Commerce • Reform zoning and building regulations – Two zoning laws – Restrictive limits on heights • Various needs unmet (office space, commerce, flats, warehouses, schools etc.) • Property rights and land markets (issues of titles, taxation structures etc.) • Freeing government land for commercial purposes 19 Youth & Community • Youth bulge - policy priority • Making social capital available for youth – Community & social infrastructure (libraries, community centers etc.) • Difficult to productively employ growing young labor force – Develop framework for youth self employment 20 Thank You Thank You www.pc.gov.pk 21