The government headed by Prime Minister Nawaz Sharif came into office in June 2013 proclaiming that putting the economy on the trajectory of high rate of growth was one of its top priorities. It identified three "Es" as the areas that would be the focus of attention in the making of public policy during the first few months of its tenure. In addition to the economy the other Es included energy and extremism. It could have included other Es in its list of priorities; perhaps a couple of "Ws" as well. The expanded list of priorities could have incorporated education, employment, environment, and external relations. The Ws could have included the empowerment of women and preparing to handle the worsening water situation.
The three Es received a great deal of new government's attention but so did long-term strategic planning. A considerable amount of state's resources were spent on preparing a vision statement. The Planning Commission prepared a document titled "Vision 2025" that identified the structural problems the country faced in 2014 and listed a long list of actions that needed to be taken to close the various social and economic gaps that had developed over time. But the vision document launched with much fanfare was silent on the amount of resources that will be needed to implement the program and how the needed resources will be garnered. These simultaneous moves - addressing a few priority areas that needed immediate attention and the writing of a long-term strategy spanning a period of more than a decade - left some confusion about the approach of the new government.
Two major foreign institutions jumped into this already crowded area of public policymaking. The International Monetary Fund was approached by the new government soon after it took office to provide fast-disbursing capital flows to help the country tide over the external payments problems. The Fund responded with a $6.6 billion program of assistance which was linked to several areas of reform. Given the country's poor record of performance under several IMF programs entered into in the past, the Washington-based institution kept Islamabad on a short-leash. Each quarterly release of funds was made contingent on the satisfactory review by the IMF staff of the performance by Islamabad in the previous three months. The sixth quarterly review was held in early February and concluded with a statement expressing qualified approval of the policy moves made by the federal government. However, it agreed to reduce the target for revenue mobilization by the federal authorities.
The World Bank Group was the second international institution to come to the help of the country. While the IMF program had focused on balancing the economy by the adoption of a string of measures aimed at improving the external and internal resource situations, the WBG got involved in a number of areas aimed at structural reforms. Energy became a major area of the institution's involvement. It developed what was called the "Indus Cascade" - as series of projects on the Indus River to generate electricity - while approving its financial involvement in the large Dasu run of the River project downstream of the Bhasha Dam. In 2013-14, the WBG completed its largest one-year program of commitments and disbursements to Pakistan.
With this as the background, can we draw the conclusion that Pakistan is on its way to climb out of the economic rut into which it had fallen since the early years of the 21st century. By the financial year 2012-13, Pakistan had completed almost seven years of sluggish growth. The 2006-13 was the slowest period in the country's history in terms of the rate of growth of the economy. In 2013-14, the first year of the current government the economy grew by 4.1 percent. Did this mean that the way had been prepared for the country to climb onto a higher growth plane? This question received a positive answer from the Economic Advisory Council convened in Islamabad on 21 February to review the situation. The EAC met under the chairmanship of Finance Minister Ishaq Dar and concluded that a rate of growth of 5 percent was within sight - perhaps by the year 2015-16. A broad-based pattern of growth was in place that would ensure that the country will steadily increase its growth performance while, at the same time, addressing the issue of the poor development of its large human resource.
All the growth numbers used above are for the formal economy. There are several analysts who are of the view that the size of the informal sector is as large as that of the formal part. Much of the activity in the informal part takes place in small and medium enterprises that escape the attention of the data gatherers as well as that of the tax collector. There is little knowledge of the goods produced and services provided by the enterprises that operate under the radar. Three examples of what kind of activities are being carried out that are not formally recognized will help to illustrate what official numbers don't tell.
Women are involved in all three activities. Tens of thousands of young and well-trained women are providing IT services to their clients living abroad. One IT executive estimates that about a billion dollars of capital flows that get recorded as remittances are in fact payments for the work done by these one-woman unregistered enterprises. Those who are engaged in this work were once employed as workers in large IT firms but left after getting married. However, they continued to work from home even while raising families.
Private schools established by women in towns and villages as well as in the peripheries of large cities are another example of the type of activity that does not receive the attention of the authorities. Most of these are modest operations built around one person who has received some education and is adding to family income by providing basic education to children in the neighborhood. The parents who send their children to these establishments are not impressed with the type education on offer in the public sector and are looking for alternatives.
The third sector in the unrecorded part of the economy can be loosely described as the "fashion industry." This includes small enterprises that are making garments and providing health and beauty services to the more affluent segments of the Pakistani society. The entrepreneurs who have established these enterprises belong to the part of the social segment they are servicing. As such they have a good understanding of what the market needs.
These three examples point to the enormous potential of the service sector in defining both the rate of growth of the economy as well as its future structure. It also underscores the role women can play in moving the economy forward. Should the state play a role in developing these activities or should they be left alone to develop on their own? The weakness of the state suggests that it is better to leave alone these enterprises. That said, it may be of some use to encourage the public educational system at the higher level to train the youth, particularly women, who could become workers as well as entrepreneurs in these kinds of areas.
Where the state could get involved in improving the country's economic future is to turn Pakistan's strategic location into an economic asset. There are four countries that share borders with both China and India - Asia's two giant and rapidly developing economies. Two of these countries - Bhutan and Nepal - are small. The third, Myanmar, is of medium size. It is also struggling to develop a viable political structure. Pakistan is not only large with a population approaching 200 million, it is also politically and economically more developed. By improving relations with India and by investing in developing the needed infrastructure, Pakistan could make use of its extraordinary location to use trade as a major driver of growth. Not only that. It could also obtain large amount of finance by offering its territory for moving goods and commodities among the nations on its borders as well as those not too distant from it.
Some of the needed investments are being planned. The most notable of these is the China-Pakistan Economic Corridor. While the precise location of the CPEC has become politically contentious, there are good indications that the massive investments that are currently envisaged will get to be made. The American pullout from Afghanistan and the election of Ashraf Ghani as the new Afghan president have set the stage for ushering in a new period of economic growth in this area. China needs to reach the enormous but untapped mineral wealth of Afghanistan some of which overflows into the Pakistani territory. China also needs the Pakistani and Afghan spaces to access the energy resources of the Middle East and Central Asia. Improved relations with India would mean linking that country into these corridors. The Indians also need to have good access to Central Asian and Middle Eastern energy to overcome their deficit of this vital economic input.
What all this implies is that Pakistan has the potential to significantly increase the rate of growth in its economy in the years ahead if it undertakes a major paradigm shift in economic thinking. It needs to focus on some of the neglected drivers of economic growth. These include its large and young population, in particular the contribution women can make to the economy; its proximity to large Chinese and Indian economy; and its location. Intelligent and imaginative use of these potential assets could produce the rates of economic growth that would approach those of the fast growing Asian economies. It is possible to think of and plan for rates of economic growth north of 8 percent a year by the end of this decade.
Pakistan has the potential to significantly increase the rate of growth in its economy in the years ahead.
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