Economy revisited

The "Asian Development Outlook (ADO) 2016" forecasts for Pakistan a growth of 4.5 percent for fiscal year ending June 2016 and 4.8 percent for fiscal year 2016-17. The Asian Development Bank (ADB) annual economic report released on 30th March 2016 also forecasts that Pakistan's economy will continue to pick up during the current fiscal year. The positive perception of Pakistan's economy is reported to be based on reforms and measures taken by the government to stabilise the economy, higher foreign exchange reserves, softer inflation and oil prices and on assumptions of continuity of microeconomic stability, improvement in energy supply, improvement in security situation and above all, the China-Pakistan Economic Corridor involving substantial investments in infrastructure.
The report forecasts a modest growth in industry, which is largely driven by strong expansion in construction, mining and utility sectors and lower interest rates. The agriculture sector is likely to record a modest growth as cotton output is likely to fall because of heavy rains in last July and lower global cotton prices. Whereas livestock sector has witnessed a strong expansion. Inflation is projected to average 3.2 percent based on lower global oil and commodity prices.
The key challenges impeding stronger economic growth have been identified as inadequate infrastructure and transport connectivity, weak governance and institutions, security concerns, power shortage, insufficient energy and power evacuation capacity, public sector enterprises loses and sluggish process of privatisation and revitalisation of public sector enterprises causing a fiscal drain and dent to the economy.
The other key challenges are that Pakistan's global ranking in 'Ease of Doing Business' is on a downward trend for the last five years or more and it is no longer considered a destination of choice for foreign or local investments. It is reported that the cost of doing business in Pakistan is 9 percent higher than in other countries of this region. Though the labour cost in Pakistan is competitive, its productivity has gone down much due to a lack of skill development needed to compete in global markets, demanding a much higher quality value and innovations.
The Foreign Direct Investment (FDI) continues to be at its lowest while exports are declining. Last week, the government unveiled the Strategic Trade Policy Framework 2015-18, seeking to achieve $35 billion exports by 2018 which is an increase of around 46 percent over the current exports of $24 billion. This means an average annual export growth of around 23 percent over the next two years which appears challenging.
Traders and exporters termed the $35 billion export target unrealistic and impossible to achieve as it lacks practical measures required to boost exports. They highlighted liquidity crunch on account of refund claims, disparity in granting incentives, lack of marketing plans and depleting government subsidies for holding overseas exhibitions, rising utility prices and similar deterrents.
The arguments of traders are not much far from truth. The trade policy continues to be based on an outdated mindset of subsidies, rebates and concessions, largely moving around same products and same markets. The policy lacks an out-of-box approach in terms of innovative global marketing, country and product branding in line with changing global trends and practices, internationally accepted certifications and approvals especially for our pharma products, enhanced value-addition and similar innovative approach in line with global practices and demands. Our policies are prepared much in isolation and the policy of 2015-18 is no different.
Pakistan's trade commissioners placed at our embassies lack the required will and motivation to support trade as they continue to play a dormant rule towards the objective of building up country's image and its perception. They lack will and expertise to open doors for our traders and have nearly a non-existent networking and profiling at trade bodies abroad that matter such as the EU Trade Office at Brussels. The role of our diplomatic corps stationed abroad is no different either. Here, one must not lose sight of the fact that diplomatic protocols around the world have changed under the pressure of big business houses. An ambassador is now more of an 'Ambassador of Economy' first than anything else. For developed and successful emerging markets its all about business and economy.
As per ADB, China's GDP will slide to 6.5 percent in 2016 and 6.3 percent in 2017 from 6.9 percent in 2015. India will slide to 7.4 percent in 2016 and rise to 7.8 percent in 2017 as against 7.6 percent in 2015. Myanmar is the most rapidly growing economy in the region recording a GDP of 7.2 percent in 2015 with a forecast to rise to 8.4 percent in 2016 and nearly the same in 2017. Also, Vietnam continues to maintain a growth of around 6.7 percent and this trend is foreseen to continue at least for the next three years.
These times are better times for Pakistan and there are opportunities. The economic corridor is one that offers the most. Pakistan's economic and strategic alignment with China, the world's second largest economy, is of significant value. Apart from benefits arising out of energy, infrastructure and industrial projects being pursued, it has upgraded the perception of Pakistan as a country ready to take off. The international donors and lenders are looking at Pakistan with a favourable mindset.
Iran is now open to business and in big business. It has extended its hand to Pakistan in the fields of business, economic and strategic cooperation. It has offered Pakistan favourable business concessions. Pakistan needs to reciprocate and cash in on this opportunity. Its a neighbouring country which can meet most of our energy demands in a cost-effectively manner. The trade between the two countries has the potential to escalate to $5 billion against the present value of few hundred million dollars. Pakistan's economic managers have to shutdown the outlets they are accruing huge losses to the country - loss-making public-sector enterprises. It appears that the government is reluctant to privatise them. This is a mistake. The will for structural reforms is also depleting. This too is a huge mistake.
(The writer is former President Overseas Investors Chamber of Commerce and Industry)