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Jun 05, 2020 PRINT EDITION
BR Research

Punjab speed 2.0

First time in the history of Pakistan, a province plans to come up with an in-house growth strategy. The dividend of bet

January 23, 2019

First time in the history of Pakistan, a province plans to come up with an in-house growth strategy. The dividend of better governance compared to other provinces for past two decades is demonstrating in institutional capacity building. Punjab Growth Strategy 2023 - about to be launched soon, is derived from evidence based economic variables and policy instruments. The relatively young blood of Dr Aman Ullah along with some vibrant consultants under the mentorship of Dr Hafiz Pasha came with a dynamic model approach which is well supported by the provincial finance minister - Makhdoom Hashim and Planning Commission.

The policy envisions provincial GDP growth to reach 7 percent by 2023 with an expected six million new jobs, and three million new housing units - 60 percent of national target. Indeed, after 7th NFC award and 18th amendment, provinces are the new drivers of growth and employment generation given greater fiscal space and devolution of social sector development agenda. Punjab being the biggest province is setting tone for the rest of the federating units to follow.

The policy is rightly focused on investing in upgrading human capital - in-house research shows that if Punjab is able to increase the average years of schooling by one year, the multidimensional poverty could be reduced by almost 5 percent. What could be a better strategy for uplifting socioeconomic status of those below poverty line than improving enrolment in schools and enhancing quality of education?

However, in order to enhance labor productivity, schooling alone does not cut it. The strategy is to stress equally on improving health and nutrition of children and youth. The emphasis on clean drinking water and managing better sanitation is imperative for any socioeconomic progress; and these goals are aligned with SDG priorities.

The best part of the policy is recognition of limiting government’s role to regulatory and policy space by letting the private sector continue to become engine of growth. Research shows that 90 percent of provincial GDP consists of goods and services produced by the private sector and the incumbents have no plans to intrude in their space.

The government has already developed and approved agriculture and industrial policies; and is envisioning average growth of 4.8 percent, 5.5 percent and 5.8 percent for agriculture, industrial and services sectors, respectively for next five years. Services sector is top priority for the province. It not only has the potential to create jobs but also the ability to create fiscal space for socioeconomic uplift by generating own tax revenues.

In the medium-term development framework of Punjab, adequate investment is required by government to achieve these goals. The Punjab home grown model is based on assumption of 14 percent growth in federal share of revenue, and 15 percent growth in own revenue along with 18 percent growth in current expenditure. This is aimed to create space for development expenditure - targeted to grow from current Rs238 billion to Rs825 billion by 2023.

The industrial policy of Punjab is eying to invest government resources in improving industrial infrastructure and creating enabling environment for industrialization. Manufacturing sector in Punjab is currently at a disadvantage to other provinces as energy pricing are lower in Sindh and KP after 18th amendment.

The policy framework is tilted towards promoting SME sector - research shows that highest economic dividend is in enhancing SME finance - one percentage point increase in SME finance can increase the employment by 1 percentage point in the sector. The real use of the provincial development fund is to sway away from traditional brick and mortar to supporting SMEs financing by funding credit guarantees and in subsiding mark up cost to ensure private capital at affordable rates for SMEs. At this point, interest rates are too high to incur higher fiscal cost of markup support; but with rates expected to come down by start of 2020, the incremental benefit of government support would be even higher.

The province also plans to create an environment for high value start ups and entrepreneurship. The core of the reforms ought to revolve around investing in regulatory reform by deploying latest techniques such as running provincial regulatory guillotine. It's a modern approach and has been successfully tested in several OECD countries, as return on investment is estimated to be more than three times.

In agriculture, which employs two-fifth of provincial labour force, government aims to initially invest herself in research and adaptable solutions which may trigger private sector investment in modern agriculture techniques and research thereafter.

In services sector, the ICT potential is huge with Lahore being the silicon-valley of Pakistan. The government is looking to ease regulatory regime rather than previous government model of public sector's own investment in the sector. The priority sector of public investment in services is tourism where the government is promising to develop stocks of resorts and other activities to attract all kind of tourism.

The key shift is infrastructure investment to sway from roads, bridges and transport to irrigation, water conservation and storage. The availability of water is critical for agriculture and industrial growth - it's a national priority and Punjab is eyeing to invest significantly in coming five years to improve water usage and availability. In case of roads and other infrastructure, public private partnership model is to be deployed.

Similarly, in energy sector, the focus is to shift from power infrastructure to distribution network. Punjab would do well to take onus of responsibilities of discos from federal government, and deregulate the energy market by making discos wholesale distributors with retailers coming from private sector.

The core of the Punjab growth strategy is evidence-based approach with well-defined levers. The public investment will flow in either purely public goods and services or areas where market failures create inefficiencies. Rest of the function is to ease the regulatory regime, developing partnership models, and enhance private capital flow. Good luck Punjab government!

Copyright Business Recorder, 2019