ISLAMABAD: The government of Pakistan is taking on a wide range of structural reforms - covering consolidating fiscal conditions, strengthening corporate governance of State-Owned Enterprises (SOEs), and improving the investment climate, which are expected to address the chronic balance of payments problems and build more sustained and stable growth, says the Asian Development Bank (ADB).
The ADB in its latest report, “Asia’s journey to prosperity policy, market, and technology over 50 years”, stated that Pakistan’s economic growth has been volatile over the past half century, affected by frequent political instability, geopolitical factors, and balance of payments crises.
During the first three decades after independence in 1947 with the partition of British India, Pakistan pursued a state-led import substitution industrialisation policy.
In the 1950s and 1960s, the government supported specific sectors (mainly sugar, jute, and chemicals) through import licensing, export subsidies, and multiple exchange rates; but the interventions were considered relatively benign and the country had a thriving private sector, it added.
The bank further stated the 1960s saw an acceleration of growth, driven by expanding manufacturing production, the Green Revolution that boosted the agriculture sector, and inflows of foreign aid and investment due to geopolitical factors related to the Cold War.
However, growth came with rising inequality, especially between East Pakistan and West Pakistan, culminating in civil conflict, which led to war with India and the separation of East Pakistan in 1971 as an independent Bangladesh.
Subsequently, Pakistan pursued socialist-inspired nationalisation by taking over large-scale manufacturing enterprises and establishing many SOEs.
Toward the end of the 1970s, economic and political instability led to the second military takeover in 20 years.
The new government reversed many of the early 1970s socialist policies and privatised much of the industry the previous government took over.
High private investment, inflows of foreign aid, and increased remittances from the Middle East contributed to solid growth.
While Pakistan returned to electoral democracy at the end of the 1980s, twin trade and fiscal deficits resulted in a balance of payments crisis, leading to a structural adjustment programme with the IMF.
The programme included policy conditions on privatising banks and SOEs, introducing a managed floating exchange rate, and liberalising trade and investment.
Implementing these structural reforms proved difficult.
Pakistan continued to suffer from rising public debt and frequent balance of payments difficulties in the 1990s.
There was another military takeover in 1999.
The country enjoyed a period of high growth from 2001 to 2006, partly due to large foreign aid associated with the war against terrorism.
But the oil price shocks of 2007–2008 hit Pakistan hard, and it had to enter into multiple IMF programmes in the following 10 years to stabilise the economy.
After 2010, the pace of growth gradually picked up, partly supported by increasing FDI, especially as economic cooperation with the PRC strengthened.
Economic growth, however, slowed sharply from mid-2018, following fiscal and monetary policy tightening to rein in high and unsustainable twin deficits.
The report further noted that Pakistan’s economic growth has been volatile over the past half century, affected by frequent political instability, geopolitical factors, and balance of payments crises.
With electoral democracy now taking root, the new government under Prime Minister Imran Khan is taking on a wide range of structural reforms with the help of an IMF programme in 2019 complemented by financing from the ADB, the World Bank, and some bilateral partners.
These reforms cover consolidating fiscal conditions, strengthening corporate governance of the SOEs, and improving the investment climate.
It is hoped that these reforms will address the chronic balance of payments problems and build more sustained and stable growth.
It further stated that among the top 10 remittance-recipient economies globally in 2018, five are in Asia—India ($78.6 billion), the People’s Republic of China ($67.4 billion), the Philippines ($33.8 billion), Pakistan ($21.0 billion), and Vietnam ($15.9 billion).
Together, they received $216.8 billion in remittances in 2018, or 31.4 percent of the global total.
In 2017, the largest source of outward migrants in Asia and the Pacific was India (accounting for 19.6 percent of the total), followed by the PRC (11.5 percent), Bangladesh (8.6 percent), Pakistan (6.9 percent), the Philippines (6.6 percent), Afghanistan (5.5 percent), and Indonesia (4.8 percent), the report noted.
Copyright Business Recorder, 2021