The third budget of the PTI government for FY22 was presented last week with a total outlay of PKR 8.4 trillion. It is based on a 4.8 percent growth rate and a public sector development programme of PKR 900 billion. The budget has been widely termed a growth-focused budget. It has been largely welcomed by the business segments of the country. The growth target of 4.8 percent set by the government is a challenging one and equally challenging is the funding of the public sector development programme of PKR 900 billion. The government is primarily banking on enhancing its revenue based on growth in exports, agriculture and investment, including foreign direct investment (FDI).
The country’s exports may touch around dollar 24 billion mark during the ongoing fiscal year 2020-21. The last three years did record only incremental growth in exports and sincere efforts were indeed put into this area by the incumbent government. But when benchmarked to exports made by countries in the region then we are far behind. Bangladesh’s exports hover around dollar 40 billion, Vietnam’s dollar 280 billion, Malaysia’s dollar 230 billion and India’s dollar 550 billion.
The World Bank report 2021 is optimistic that Pakistan can increase its annual exports to its potential of dollar 88 billion and can grow at the same rate as Vietnam and Bangladesh for the next couple of years. The report rates Pakistan as an inward-oriented economy and that it should rather target high potential destinations in Central Asia. In this regard the Belt and Road Initiative is a great pull in favour of the region. The missing exports of dollar 64 billion is a figure which cannot be ignored by any economy.
FDI has not returned after 2007 when it touched a peak of dollar 8 billion with GDP growth rate of around 8 percent. For years the country has struggled to manage an annual FDI of dollar 2 billion to 3 billion only. We may end up with an FDI of around dollar 2 billion at the close of this financial year. It is important to note that dollar 2.3 billion has been reinvested by existing multinationals, which is not considered as FDI.
Realistically, no FDI in a green field project is expected in the foreseeable future. The only chance for flow of FDI into Pakistan is if it could come up as a viable destination for re-export by investors from China, Vietnam and some other attractive destinations in the region. In the global rankings of countries rated attractive for investment – Pakistan’s ranking is 92 out of 109 countries, whereas Vietnam’s is 45, India’s 61 and Iran’s 66. Pakistan has to seriously do a lot to come up at an acceptable level.
Multiple Special Economic Zones (SEZs) have been set up in the country. Unfortunately, however, they are struggling to be populated .There was an understanding with China that it would move its low-end industry to Pakistan for re-export. But, nothing is on ground yet.
Black holes such as the loss-making power sector, loss-making public sector enterprises, the unmanageable circular debt, and mounting debt burden continue to haunt the country’s economy. These sectors are yet to be addressed.
Finance Minister Shaukat Tarin has done his job by providing the nation with a growth-oriented roadmap of economy. Both the Houses are likely to approve the budget anytime soon after some customary hue and cry. Soon the nation would move from figures to deliverables on ground and the main show shall start.
With the prevailing governance, structural framework and largely sluggish bureaucratic machinery some incremental growth in the economy may be achieved but this will not be sufficient to move the country anywhere near a stable and vibrant economy. What the country needs in these times is an exponential growth over the next five years. This requires political will and dramatic and radical reforms in all segments of state and business governance and structural framework as has been done by all the emerging markets in our region and around the globe.
(The writer a former President, Overseas Investors Chamber of Commerce & Industry)
Copyright Business Recorder, 2021