Growth Strategy of Pakistan, 2011

Decades long struggle with macroeconomic stabilization arising from unsustainable fiscal policies Pressure of demography
20 15

Growth strategy aims to make growth more inclusive and speed up the movement out of poverty
Exports, Imports and Current Account 1980s-2000s

In 2010 - 110 million people in working age group By 2050 - 236 million people in working age group

Heightened expectations of the population for a better life from a democratic government Battering from external events, including earthquakes, floods and a continuing longstanding low intensity conflict Legacy of economic distortions Low and declining productivity Large loss-making public sector that impedes market development

10 5 0 Exports (%) of GDP Imports (%) of GDP Current Account Deficit/GDP

Targeting Growth

Sectoral Shares in GDP (%)

60 50 40 30 20 10 0

Agriculture Industry Service

Revival of the economy to its short-term potential annual GDP growth rate of about 5-6% and long term growth rate of 7-8%

Deep and sustained reforms in areas such as public sector management, competitive markets development, urban management and connecting people and places

1970

2010

Thrust of the Growth Strategy

The growth strategy seeks to increase return on investment through measures to improve investment climate, to reduce cost of doing business and to dissolve impediments to entrepreneurship

Key determinants of growth are economic governance and human capital

Prepared and Presented by Madiha Younus

Constraints to Economic Growth of Pakistan

Inadequate Market Development
Inadequate market development
Lack of competition Tax tariff and policy distortions

GDP Growth (%) 1971-2009 (Annual Avg.)

China

Key Points
Focus is on fresh approach of Software of growth Politicized PSDP projects selection, requiring rationalization of PSDP Gross under utilization of existing infrastructure Simultaneous engineering of stabilization and growth can be done Energy crisis in Pakistan, a management issue rather than a capacity issue

4.9 Lack of Efficient Public Sector Management

India

9.1
Malaysia Indonesia

5.9
5.3 6.0 6.4

Lack of efficient public sector management

Entry barriers Government involvement Poor regulation

Provide core governance goods such as security of life, property, transaction and contract

Facilitate markets and investment with informed policy and competent regulation

Promote deepening of physical, human and social infrastructures

Thailand Pakistan

Productivity and Innovation

Never before in history has innovation offered promise of so much to so many in so short a time ~ Bill Gates Labour Productivity by Sector, 2007
3 2

To increase public sector productivity, role of state needs to be transformed from owner-operator to facilitator-regulator across economic activities
Industry-University linkages should be emphasized as they play a decisive role in fostering innovation

1
0 Agri. Manuf. Const. Wholesale Finance & & Others Others

Reforms for Productivity

Competitive markets

Agriculture
Cotton production can be increased by 62.5% by developing seed industry, controlling weeds and pests (CLCV and Mealy Bug) and adopting improved crop management techniques

Industry
Productive human resource
Consistent subsidies have adversely affected the risk taking culture in private sector

Healthy population

Meaningful education
Connecting markets and people
Prepared and Presented by Madiha Younus

Environmental degradation is costing Pakistan in terms of low GDP growth

40% of irrigated land has been affected by either salinity or water-logging

20% of current milk production is lost due to poor infrastructure facilities

Knowledge creation and commercialization

Less than impressive contribution of productivity in GDP growth of Pakistan

Diffusion and absorption Development of cluster

Productivity and innovation impart sustainability to growth

Quality Governance
If you put the federal government in charge of the Sahara Desert, in 5 years thered be a shortage of sand ~ Milton Friedman

Issues
Large government footprints (50% of GDP) crowds out private investment
PSEs bleeding

Excess regulation hurts business milieu

Weak public finance

Inefficiencies in resource mobilization Unnecessary subsidies

Weak institutions and civil service

Reforming Governance
Improve public sector management Changing role of government
HRD (Right skill-mix)

Exit from Markets

Restructure Privatize Close down

Merit based remuneration and promotion

Deregulation
CCP SECP SBP

Tax reforms

Remove untargeted subsidies

Efficient PSDP/RBM

Autonomy Accountability

Quality governance to improve delivery of public service and sustainability to growth

Prepared and Presented by Madiha Younus

Restructuring

Deepening and Maintaining Openness

You have to be very rich or very poor to live without a trade ~ Albert Camus
No success story in growth accelerations worldwide has featured exclusive inward-looking growth Openness allows reaching new markets Openness in trade is a critical ingredient for self sustained growth that creates jobs and raises productivity Tariff system has become distorted and non-transparent and is exposed to corruption Good logistics is critical for trade and competitiveness due to its wide ranging impact on economy

Trade Share of Pakistan in Selected Countries (%)

10 5 0 India USA China

Composition in Goods (%)

Textile Leather Prod. Misc Manuf. Vegetable Prod. Others 20

Total Openness (%)

35 30
25

1995

2000

2005

2009

Need for Addressing Coordination Failures

Extremely high protection slows down issues related to poor development of efficient and governance and competitive management industries and structures need promotes to overcome rent-seeking behaviour
Implementation

General Recommendations
Re-establish unilateral trade liberalization program

Specific Sectoral Recommendations

Issuance and implementation of a general trade policy statement

Information Gaps and Transparency Recommendations

Substantial improvement in computerized version of detailed customs tariff schedule
Prepared and Presented by Madiha Younus

Active use of non-tariff barriers is an area featuring coordination failures in government

Abolish distortive regulatory duties (SROs)

Thorough inventory and review of tariff distortions

Maintain a neutral real exchange rate policy Accelerate re-establishment of normal trade relations with India Accelerate maximum potential possible under signed free trade agreements

Immediate abolition of ad-hoc system of quasi-import licensing

Publication of MOC regular statements

Thorough review of economic justification for sectors/industries

Publication and easy access to information on anti-dumping decisions Frame of all policies and regulatory stance based on intentions defined in the growth strategy

Openness allows to reach new markets, raise productivity and accelerate innovation and competitiveness for sustained growth

Vibrant and Competitive Markets

Open markets offer the only realistic hope of pulling billions of people in developing countries out of abject poverty, while sustaining prosperity in the industrialized world ~ Kofi Annan

Key Issues in Markets

Outmoded urban management and zoning for domestic commerce Inadequate transport and storage facilities for agricultural markets Legal issues and regulatory environment

Pakistan ranks 85th out of 183 countries in ease of doing business

Urban areas have excess demand for retail, office and mixed use space About 30% to 40% of agricultural produce is wasted due to inefficient farm to market channels and inadequate storage facilities Agriculture Produce Markets Act of 1939 is outdated and requires fresh legislation Pakistani businessmen claim delayed justice, weak property rights, corruption and time and cost of enforcing contract as key constraints to investment

Key Reforms
Macro Level Reforms

Promoting trade openness and competition Land reforms Taxation reforms Labour reforms Agricultural and rural markets Reforms for manufacturing sector Trading processes

Most Problematic Factors for Doing Business, 2010

20 15 10 5
Prepared and Presented by Madiha Younus

Meso Level Reforms

0
Corruption Govt. Instability Policy Instability Inflation Inefficient Govt. Bureaucracy Crime & Theft

Firm Level Reforms

Initial setup of business Enforcing contracts

Competitive markets ensure higher productivity and efficiency of economy

Creative Cities
Focusing on cities as engine of growth
Cost of investment per 27 sqkm in Pakistan Area Density in 1 sqkm Dubai Cost of investment per sqkm in Dubai (Vertical Expansion) 200,000 people Pakistan (Horizontal Expansion) 6,000 people

Population by 2030 (000)

Karachi Lahore Faisalabad Rawalpindi Multan 27,993 14,626 6,192 4,149 3,025

Urban Governance Issues

Laws and Regulations for Cities
Restrictive zoning and building regulations Lack of mixed use and high rise development Ambiguous urban land policies

Excess Demand
Demand for commerce, office space, warehouses and housing Missing space for community infrastructure

Idle-state-owned land Complex land registration system

Property Rights
Lack of titles and tax related issues Biased rent laws

Cities generate ideas, innovation, technology and choices to accelerate growth

Prepared and Presented by Madiha Younus

Land Markets

Amend zoning laws and building regulations Auction/privatize stateowned land Build linear commercialization along inner city roads Improve capacity of urban planners for low cost energy construction and for facilitation of research Revise city planning for deregulation to unlock productivity and innovation Establish more community space

Modernize land and registration system Establish housing and information system Revise laws favoring tenants Establish regulatory bodies for real estate markets Increase access to housing finance - revitalize HBFC Curtail growth of katchi abadi by producing low income housing Repeal Land Acquisition Act 1894

Reforms for Commercialisation

Reforms for Land and Housing

Connecting to Compete
Measured in time of transport and communication, the whole round globe is now smaller than a small European country was a 100 years ago ~ John Boyd
Connectivity Scorecard Rankings
Resource and Efficiency Driven Economies
Malaysia

Connectivity
State of Physical Connectivity
Inefficiencies in transport sector is annually costing Pakistan 5% of GDP 30% agricultural output wasted due to inefficient farm to market channel, lack of cool storage and obsolete trucking fleet

Turkey

Iran

India

Pakistan

Human Resources Connectivity

Human capital comprises low to medium skilled labor

Social Connectivity

2009
2010

1
1

2
7

12
14

20
21

24
25

Bureaucracy (generalists) and stringent rules and regulations make it hard for professionals to participate in the economic affairs of the country

Social divide among people belonging to different economic classes is consistently widening Weak collaboration of diaspora by local enterprises and institutions

Reforms for Connectivity

Encourage public private partnership in infrastructure development Improve public transport network Create a sophisticated market for railways Be a regional hub of aviation Improve trade facilities through adoption of ICT Incentivize ICT services Open domestic trade market
Prepared and Presented by Madiha Younus

Impact of Poor Connectivity

Disintegrated markets Lethargic cities Youth with unemployable skills
Better connectivity reduces cost of doing business and thus boosts growth

Energetic Youth and Community

Much education today is monumentally ineffective. All too often we are giving young people cut flowers when we should be teaching them to grow their own plants ~ John W. Gardner

Education with Opportunity

Poor quality of basic and university education Parallel education systems High school drop-outs Failure to engage large youth population Corruption, stringent laws and financing major impediments to self employment 71% - have no school career counseling

Current State of Youth

Youth bulge in coming years Largest proportion (32%) of uneducated youth Less than 6% of youth has vocational and technical education Highest illiteracy rate (30%) of Pakistani youth in the region Curriculum does not prepare youth for job market

The Real Challenge

Introduce youth development programs in provinces

Opening Windows of Opportunity

National youth service reforms Youth education and skill development Youth and women entrepreneurship Youth volunteer services More youth space

Success

Reform policy and regulation to involve young people in community activities

83% - term school career counseling important

of

18th Amendment
79% - unsatisfied with either schooling system or curriculum

Orangi (Quality education PPP)

47% - do not have sports or recreation facilities

90% - want extracurricular activities 28% - feel syllabus/curriculum irrelevant to market demand 12% - not keen to learn occupational skills 100% - hold poor accountability the reason for corruption
95% - believe education can resolve problem of extremism

National Internship Program (Also for metric pass students)

Promote career counseling services at community and school levels

Engage youth in economic, social and community services

Energized youth and community allows reaping the benefits of demographic transition and accelerating growth

Prepared and Presented by Madiha Younus

Abolition of Concurrent Legislative List Amendment in Federal Legislative List Article 25 A - education compulsory for children Curriculum, syllabus, planning and policy fall under the jurisdiction of provinces Ministries and their functions devolved to provinces

Introduce courses related to economic choices and decision making for all disciplines

Youth is a Solution, Not a Problem! (Youth service)

Create space and opportunities for youth and women entrepreneurs

Implementation: RBM
You were born to win, but to be a winner, you must plan to win, prepare to win and expect to win ~ Zig Ziglar
Emphasis on performance and results that affect people's lives

The current system does not make growth and employment a core objective of policy

Implementation of change must alleviate constraints to productivity and facilitate growth RBM requires systematic implementation of key processes led by the overall growth strategy Output based budgets must emphasize on outputs, outcomes and key performance indicators

New Vision for Economic Growth

Periodic identifying emerging constraints to economic growth Consensus building through extensive consultations Building a system for measuring productivity and public service delivery Developing and monitoring quantifiable plans regularly

Control of Planning System under Post 18th Amendment Milieu Consulting and setting medium term and annual development objectives Identifying key economic reforms Specifying government and ministry-level reporting requirements Strengthening capacity of ministries Developing capacity of planning system

Five Critical Changes to Strengthen Linkage between Planning Commission and Government Performance
Strengthen MTDF and MTEF
Support unified results based budget preparation process Decentralize responsibility for projects to line ministries Redefine role and processes of Planning Commission Establish results based monitoring and evaluation system
Fiscal allocations Ministerial/departmental policies and plans Budgeting Accounting Monitoring
Prepared and Presented by Madiha Younus

Results Based Management

Provides change agenda for a greater degree of implementation assurance Helps government to focus on achievement of results and utilization of resources

Introducing RBM in Government

RBM enhances quality of planning, implementation and outcome of development efforts and improves quality of life of people