Towards Growth Strategy & Economic Reform 1 Planning Commission

Preoccupation with stabilization and crisis Growth policy by default – Aggregation of projects – Sectoral focus Result: sporadic growth Lack of structural reform: declining potential growth rate 2 Characteristics of Growth in Pakistan

Economic Growth Boom – Bust Cycles Volatility and decline in potential GDP growth

Demographic Challenge A bulge in the working age in coming 40 years Required growth: – 8% per annum to absorb growing labor force 4 Projected Population by Age Groups Million 65>

Growth Alternatives ( ) 5 Business as Usual: Low aid-led public investment, high Inflation (Average 3.5 %) Stabilization : Reform of PSEs, increase resource mobilization (Average 4.7%)

Growth Alternatives ( ) 6 Business as Usual: Low aid-led public investment, high Inflation (Average 3.5 %) Stabilization : Reform of PSEs, increase resource mobilization (Average 4.7%) Stabilization + Reform: Market reforms & productivity gains (Average 5.6%)

Short Term: Getting back to potential Utilization of existing capacity – Up to 30% in industry – Up to 50% in fertilizer, auto sector, sugar, cement and steel Requires: 1.Removing major constraints a.Energy (Electricity and Gas) b.Availability and pricing of credit 2.Macroeconomic stability 7

Longer term: Increasing Potential 8 Sector based & Project based Missing: Innovation, Entrepreneurship, Markets Economic Growth Physical Capital Public Investment Skills Education Human CapitalProductivity

9 Overall Infrastructure Quality CountryScore Indonesia2.5 India3.3 China3.4 Pakistan3.4 Thailand5.0 Korea5.1 Taiwan5.4 Malaysia5.7 Hongkong6.4 Source: Global Competitiveness Report Country Global Innovation Index (out of 132 countries) Quality of Education System Spending on R&D Pakistan India Indonesia Thailand Malaysia China Hardware Software Pakistan Lacks Growth Software

Developing a Growth Strategy 10 Productivity through economic reforms Better management of public resources Better managed PSDP Restructuring and privatizing PSEs Consultative process in a federal structure (post 18 th Amendment) o Taking feedback from provinces, chambers of commerce and civil society organizations o Building ownership through academia and media

PSDP Weaknesses o Decreasing PSDP Size o High share of bricks & mortar (60% of total in 2011) o Money Spread thin (large sectoral & regional spread) o Project governance Prioritizing PSDP o Projects nearing completion o Social sector projects o Key infrastructure projects: energy, water, transport o Projects for removing regional disparity 11 PSDP Resource Allocation Strategy

Rationalization for Results 1,905 projects with Rs 3,057 Billion throw- forward 1,421 projects with Rs 2,509 Billion throw-forward Maintaining infrastructure development through a better managed PSDP

Ongoing: – Modernization of feasibility reports – Project approval (PC-I) stating benchmark parameters for monitoring and evaluation Proposed: – Harmonize rules of donor agencies with GoP policies – Constitute joint donor – GoP appraisal teams 13 Project Approval Process Improvement Measures

Need to Restructure Public Sector Enterprises Sr.PSEFinancial Position 1PIAAccumulated Losses Rs 76.6 billion 2PASSCO Loss of Rs million in TCP Subsidized operation 4USC Subsidized operation 5NHA Government monopoly in highway contracts 6PEPCOAccumulated debt of Rs 425 billion 7Pak SteelAccumulated loss of approx. Rs 36 billion 8RailwaysAccumulated losses (2005 to 2010) Rs 86.7 billion 14

Ongoing PSE Reform Efforts Reform of Power sector under implementation Reform Strategy for Railways formulated Reforms of Gas Sector under formulation TCP and PASSCO to be examined for closing down 15

16 Quality of Life Quality Governance Vibrant Markets Energetic Youth & Community Creative Cities Pillars of New Growth Strategy Increasing Productivity

Potential Governance Agenda 17 Civil service reform –structure and incentives to attract talent –Monetized salaries, merit based promotions, and easy entry & exit Devolution of powers, responsibilities and resources to lower tiers of government for better service delivery Performance based governance Business process reengineering with technology (outdated regulations & multiplicity of processing layers)

Markets & Entrepreneurship 18 Modernize laws and regulations for better markets –Agriculture market committees –Entry of new investment into the engineering sector –Bankruptcy law (legislation drafted) Deregulating markets e.g. wheat, sugar & commodities exchange (under implementation) Encouraging innovation through incubation centers, cluster strengthening (e.g. Sialkot, Gujranwala, Wazirabad) Improving environment for domestic commerce –Taxation regime, rent laws –Legal structures for common property ownership (shops & flats)

Cities as Hubs of Commerce 19 Reform zoning and building regulations –Two zoning laws –Restrictive limits on heights Various needs unmet (office space, commerce, flats, warehouses, schools etc.) Property rights and land markets (issues of titles, taxation structures etc.) Freeing government land for commercial purposes

Youth & Community 20 Youth bulge - policy priority Making social capital available for youth –Community & social infrastructure (libraries, community centers etc.) Difficult to productively employ growing young labor force –Develop framework for youth self employment

Thank You 21 Thank You