Pakistan needs to grow at least at 7 percent per annum continuously for the absorption of 3 million youth coming to work force every year. The problem is that when the economy grows at 5 percent plus for a couple of years, the balance of payment vulnerabilities surface; and to avert the external crisis, growth gets compromised. Currently, economy is going through a phase of high growth whilst BoP imbalances are growing too.
What is the recipe to undo this trend? How can the economy continuously grow at high path as it’s happening in our neighbourhood? There is a scoping study conducted by Asian Development Fund advocating that economic corridors development (ECD) both within the country and internationally with neighbouring countries is the key for sustainable development.
CPEC, which is believed to be a harbinger of economic change for good is bridging the connectivity gap with one of our giant neighbours and is filling gaps in the remotest areas within the country. CPEC is not the only connection in the region; there is Central Asia Regional Economic Corporation (CAREC) and other countries’ ECDs including 6 in India. Development of new channels will plug the disconnection of Pakistan with global production networks and global value chains.
The good news is that energy and security issues in Pakistan are being addressed somewhat in the recent past. The natural progression is increased connectivity through infrastructure and ECD including trade and financial markets development. Having said that, streamlining business regulations, simplifying tax procedures, and reducing bureaucratic red tape can work as catalysts in connectivity. These all can help in improving Pakistan’s score on Global Competitiveness Index (GCI); according to ADB, one point gain in GCI can raise productivity by 1.4 percentage points.
ADB undertook a few studies to understand the key conditions, factors and constraints for successfully developing the economic corridors in Pakistan. The economic perspective is evaluated by the analysis of four potential ECDs in various parts of the country; and it found strong potential in mining, tourism, agriculture, horticulture and livestock in E-35 (connecting Islamabad to KPK and onwards to China and Central Asia), N-50 (linking Balochistan to rest of the country), and N-70 (joining Multan to Qila Saifullah). In case of M4 (Faisalabad to Multan), the economic gains can be made in textile, light engineering and agriculture. This is an initial assessment of four areas; a similar research is required for many other corridors.
The question is how to tap the potential. ADB thinks that soft and hard infrastructure impediments hinder many districts to tap the economic potential. Thus, modernizing physical infrastructure cannot be over emphasized. But for doing so, detailed mapping of economic potential across districts is required. The Urban Unit is doing the job in Punjab; the need is to do similar exercises in the rest of the country.
However, infrastructure is simply not enough for development of ECDs. Setting up the enabling environment by instilling institutions and regulations are the key. And to do so, all the stakeholders from provinces and federal governments dealing with various routes ought to be on board. The coordination among them in policy making and implementation cannot be overstated.
On one end, there are federal ministries and departments including the ministry of planning, development and reforms, ministry of communications, ministry of railways, ministry of commerce, national highway authority (NHA), federal board of revenues (FBR), and small and medium enterprise development authority (SMEDA). On the other side, provincial planning and communications and works departments, urban planning units, development authorities, special purpose vehicles, and local bodies are operating in silos.
There is a need to have a holistic approach to create an enabling environment for ECD. This requires swift coordination among all bodies, which is not an easy task under existing political economic realm. ADB points out significant gaps in the current institutions and regulatory frameworks for ECD.
Gaps exist in administrative machinery for management of the ECD and its building blocks - Institutional weaknesses in project management, dysfunctional public sector bodies created for business facilitation, problems in inter-governmental coordination after devolution, complexity in tax administration and compliance that impedes private investment, misguided policies that distort economic incentives, lack of a coherent regulatory framework for land use and urban development, lack of a national transport and freight policy, and weaknesses in the planning and management of special economic zones.
Too many cooks spoil the broth. It’s important to establish an independent and business oriented centralized agency to provide one window operation. It should be a top priority to have a centralized body with strong political, institutional and business support. The government has already established such a setup for CPEC with the establishment of an exclusive CPEC center in the federal ministry of planning, development and reforms. A similar set up for the ECD in general would be pivotal in streamlining the implementation of the ECD.
Once we have ECDs, the issue of poverty and inclusiveness would be automatically resolved. The multi-dimensional poverty (MDP), which is too high in Pakistan relative to absolute poverty, can be dealt by building ECD. The study on the poverty and inclusiveness shows that employment and economic growth alone (holding everything else constant) is expected to have marginal impacts on the level of MDP in Pakistan. This finding is broadly consistent with the results of a range of studies including Pakistan and internationally. Thus to reduce broad based poverty, broad based growth is required.
Apart from having political and regulatory capital, developing economic corridors require huge sum of financial and human resource capital. ADB urges to tap Pakistani diasporas. This can play role in direct financial and human capital injection. The problem is that Pakistani livings abroad don’t believe in current political institutional framework.
Once this issue is resolved, other countries’ experiences suggest that diasporas can be keen in taking active part in development. Pakistanis living aboard have estimated wages and salaries of $52 billion (20% of GDP) per year. Ten percent of this coming back in country in form of investment would be double the amount committed by CPEC per year for next twenty years.
But that is not enough as per ADB; around $98 billion (38% of GDP) is required to bring backward districts at par with the developed ones. The need is to build a narrative country wide to raise finances for inclusive growth recipe.