Accelerating Economic Transformation Programme (AETP) will help Pakistan achieve and sustain average annual economic growth of about 8 percent from 2010 to 2020, through a process of structural transformation of the country's economy.
In a final project report, R. Subramaniam, Sector Director and Team Leader of Central and West Asia Governance and Finance Division (CWGF) of Asian Development Bank said that the AETP will provide the fiscal and implementation support needed to enable the Government to undertake and leverage reforms. The expected outputs of the AETP are: (i) the removal of existing distortions, thereby initiating structural transformation; (ii) strengthening of financial intermediation to support structural transformation; and (iii) development and implementation of a national structural transformation strategy, he added.
Subramaniam said that the AETP is structured as a cluster of four subprogrames over 2008-2011. Subprogram-1 attends to the urgent task of addressing the fiscal implications of the current food and energy crisis and short-term investment climate problems. It will initiate reforms that will be carried forward in the medium term. Subprograms 2-4 will build on these fiscal consolidation reforms and on analytical work and stakeholder consultation.
These subprograms will support the government to implement policies targeted at economic diversification and structural transformation. By addressing costly and inefficient subsidies in the energy and agriculture sectors, the AETP will provide fiscal space for the government so it can finance overall development efforts. By helping to raise confidence in the banking system through a stronger regulatory environment, the AETP will mobilise financial resources and help to develop strong financial institutions that can channel investments to their most productive uses, he added.
In tandem with a new industrial policy to diversify and deepen the industrial and export base, Subramaniam said that these efforts are expected to initiate an economic transformation that will enable Pakistan to sustain high economic growth.
AETP is premised on three key principles. First, Pakistan needs to address certain economic distortions in the short term, specifically by reducing and eventually abolishing inefficient subsidies and targeting them to benefit the poor and vulnerable. Second, Pakistan needs to deepen financial intermediation and increase financial sector stability and soundness. Third, Pakistan needs to diversify its economy and increase the share of industry from the current level of 26 percent of GDP and to increase the share of manufacturing with high value-added. In parallel, it needs to increase agriculture productivity and make its services sector produce greater value.
It is estimated that Pakistan will need more than $1.6 billion to transition from the inefficient subsidy schemes to a targeted cash transfer and food safety net programme in the first year of AETP, and about $3 billion to resolve the accumulated debt in the electricity sector. The AETP will help Pakistan to address the ongoing food and energy crisis in a systematic manner. Subprogram-1 is also one ADB's first responses to its developing countries' needs in the food crisis, first announced by the President at the Asian Development Bank (ADB) Annual Meeting in May 2008 and contained in the Board information paper ADB's Response to the Food Crisis, Subramaniam explained.
He pointed out that the Structural Transformation of an economy of the size and nature of Pakistan's cannot take place quickly or through rigidly prescribed conditions. To achieve the principles, the AETP sets out a 4-5 year design and implementation period, and a cluster structure of four subprograms that will provide flexibility to meet evolving circumstances. It sets out short-and medium-term actions, with changes to come beyond the programme period. The AETP will only tackle the policy issues, with a large number of procedural and process-related changes taking place in parallel to the proposed reform measures.
Subramaniam said that AETP envisages immediate reforms to remove pricing, procurement, or other finance-related distortions (eg, debt) in certain key sub-sectors such as wheat and electricity. Reforms are also needed in the financial sector to boost public and investor confidence. In parallel, Pakistan needs to initiate the process of structural transformation of its economy.