Pakistan Business Council (PBC), an economic think tank, has come out with a report identifying key strengths and weaknesses in the economy. The report opens with an analysis of three macroeconomic indicators: the rate of investment, the savings rate and the trade deficit. After acknowledging the rise in the growth rate of GDP, and the CPEC investments coming into the power sector that will bottleneck the power supply situation, the report goes on to say that “challenges remain with a widening balance of payments position due to a heavy consumption-led, import-fuelled growth”. Investment spending has dropped to 9.9 per cent from 10.4pc two years ago, which is near the lowest level ever in Pakistan’s history (including the years of nationalisation). Likewise, the savings rate has dropped to 13.1pc from 14.7pc two years ago, compared with 29pc, 30pc and 45pc for India, Bangladesh and China respectively. No wonder our growth spurts for the past quarter century have always been short lived.
The savings and investment rate are the fuel and motor force for a sustainable growth process, and no other participant in our economic conversation places sufficient emphasis on these indicators. The result is declining productivity of the economy relative to competitors, and the growing trade deficit. Exports have fallen 13pc in the last three years, while imports have grown by 16pc in the same time, rising to a staggering $48.5 billion now. Without restoring competitiveness, this trend cannot be reversed and the trade deficit will swallow our economy. Local industries are increasingly unable to compete even in local markets, flooded with cheap imports. This is due in some measure to insufficient business acumen, but the sharp disparities in the savings rate between Pakistan and its competitors is the biggest constraint to reversing the situation.
Some of the solutions the report suggests include prioritising housing for low- and middle-income segments of the population, and mobile banking to help lift the deposit base of the banking system from 33pc of GDP to 50pc in the next three years. Revival of exports begins with short-term measures like the exchange rate flexibility and incentives, but the gains from these will be short lived if they are not quickly followed up with medium- and long-term steps, such as fiscal and corporate structure reforms to encourage capital formation, reducing the cost of doing business amongst much else.
For the longer term, the report stresses the importance of education, particularly in subjects like science and technology, mathematics and engineering, as well as vocational training to scale up the work force for the digital age and the jobs of the future. Regarding CPEC, the report calls on the government to “share the detailed [long-term] plan with the business community” and go on to warn about duty free leakages from any transit trade under CPEC, the way leakages from the Afghan transit trade have posed serious challenges to some local manufacturers. The report notes that already damaged by the FTA with China, many businesses in Pakistan are concerned that Chinese companies will use the CPEC ‘umbrella’ to further increase their share of the domestic market, through the proposed SEZs, or through the incorporation of Xinjiang within CPEC. Not everything in the report is agreeable. One can argue that it presents an elaborate protectionist strategy of an outmoded sort, but some form of protection to domestic investors should be part of every government’s economic strategy. The PBC report is a thoughtful document and deserves close study by the concerned government departments for follow-up action.