Framework for Economic Growth May 2011: Challenges on numerous fronts focused

The Framework for Economic Growth May 2011, a publication of the Planning Commission, focuses on challenges faced by the economy on numerous fronts-investment, savings, decline of Public Sector Development Programme to 1 percent of GDP, poor rankings in education, declining share of formal sector and disappointing global ranking in judiciary, enforcement of contracts and corruption-and proposes a focus on "software of economic growth (issues of governance, institutions, incentives, human resources).
Building better government, the framework argues in line with studies undertaken by international financial institutions, would entail (i) reorienting the role of government which focuses on an exit from markets (agriculture, storage, transport and construction) and deeper deregulation and (ii) improving public sector management which includes reforming the civil service, improving resource mobilisation, elimination of untargeted subsidies, efficient public investment through results based management.
The study notes the reason implementation is poor in Pakistan is, "because plans are expected to be implemented by the very system that needs change." The study proposes (i) periodic identification of emerging constraints to economic growth through research and dialogue with all sectors and stakeholders, (ii) consensus building, (iii) building a system for measuring productivity and public service delivery, and (iv) developing and monitoring quantifiable plans regularly.
The lead role post eighteenth amendment would be exercised by the Planning system which would exercise control over the development process through consultations with ministries, identification of key economic reforms required and development of quantitative indicators, specifying government and ministry led reporting requirements, strengthening the capacity of ministries and developing capacity planning system to act as an institution that develops and overseas government's reform agenda.
The Framework also notes that the loss making public sector entities must be classified according to three possible remedial measures. First, utilities (electricity and gas) need better management and improved regulation. In case of each utility key issues of pricing and business process reengineering must be addressed. Second is the category of PSEs, which are privatisable. Included in this list are government owned agricultural procurement and marketing entities that have only added to fiscal deficit and led to shortages of strategic food reserves. And third PSEs that have outlived their purpose must be considered for closing down. The list includes Railways, PIA, Steel etc. Even if these are privatised at a notional sum, the report argues, they will save the exchequer in the vicinity of Rs 300 billion annually.
Broadening the tax base and widening the tax net may not by themselves solve the government's liquidity problems, the report adds: "However if the government reorients its role toward the efficient delivery of basic public goods, a sound resource base can ensure that visionary projects by the government are not vulnerable to aid injections from abroad. Tax reforms must be complemented with expenditure reforms."
To improve the GDP growth to 5 to 6 percent the Framework notes that if issues regarding energy and governance are resolved and some credible macro stability reached this could be achieved in a short time. The report does note that institutional strengthening has started with power sector companies and a base line has been established with technical and commercial audit of Gencos and Discos which has further highlighted the crisis in governance. The Ministry of Water and Power, the report promises, will oversee timely implementation of these plans through the respective Board of Directors. The charge process is expected to take 2 to 3 years after which the power sector companies should be financially solvent and prepared to serve the customers on a vastly improved basis.
The report also notes that greater accountability and efficiency is being introduced at petroleum companies and the Ministry as well as Ogra will monitor steady improvements in efficiency and introduction of performance based returns. The existing stock of circular debt will be paid off and recurrence will be avoided by putting in place a revised tariff determination mechanism for Nepra and an amendment to the act to enable cost recovery and automatic application of determined tariffs. The tariffs, the report adds, in petroleum and power sectors will be efficiency based with disincentive for inefficiencies. Cross and hidden subsidies will be replaced by direct targeted subsidies.
The report argues in favour of reestablishment of unilateral trade liberalisation programme, and setting of low tariffs, which would keep down smuggling, and under invoicing, immediate abolishment of distortive regulatory duties (SROs) that interfere with tariff structure, and maintain de minimis a neutral real exchange rate policy.
The report also proposes that the project selection process (PC-1) should ensure that the project is first floated to the private sector. Only in the event of non interest by the private sector should the government be approached for funding. The report notes that an approach to reforming the project selection process has been initiated and should be speeded up.