Towards Growth Strategy & Economic Reform 1 Planning Commission

What is the Current Growth Strategy? What are Constraints to Economic Growth? Why Move towards a New Growth Strategy? What is Planning Commission’s Approach? New Growth Strategy – Brief Overview What should be the New Role of Government? 2 Outline

Growth policy by default Projects being multiplied with no available resources Regulated markets and sector picking Result Sporadic growth usually created by external resources Preoccupation with crises and stabilization Lack of structural reform 3 What is the Current Growth Strategy? No Long Term Thinking on Growth Strategy

4 What are Constraints to Economic Growth? Lack of Competition No Incentives for Innovation & Entrepreneurship Market Failure Poor Contract Enforcement Distortive Taxes and Subsidies Anti Competitive Practices Lacking Software of Economic Growth Governance Challenges

5 Infrastructure Quality CountryScore Indonesia2.5 India3.3 China3.4 Pakistan3.4 Thailand5.0 Korea5.1 Taiwan5.4 Malaysia5.7 Hong Kong6.4 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

Why Move Towards a New Growth Strategy? 6 Projected Population by Age Groups Million 65> A bulge in the working age groups in coming 40 years This increases potential productive capacity BUT also raises challenges: – UNEMPLOYMENT without adequate investment – COMPETING South Asian countries also have young populations

Why Move Towards a New Growth Strategy? 7 How much economic growth rate is required to absorb growing labour force? Expected long run labour force growth rate is 3.6% Absorbing incremental labour requires 8% GDP growth

Planning Commission’s Approach to a New Strategy 8 Home grown – Donor-driven models not working across developing countries – Growth possible during stabilization – Taking stock of local knowledge Consensus-driven – Meeting all segments of society including academia, civil society, business community – Detailed consultation with provinces

Growth Strategy Human Capital Physical Capital Social Capital 9 New Growth Strategy Economic Conceptualization

New Economic Growth Strategy 10 Economic Discipline Responsible Fiscal & Monetary Policies Restructuring of PSEs Rationalization of PSDP Productivity Governance & Institutions Market ReformsUrban ManagementYouth & Community

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 11

Longer term: Increasing Potential 12 Sector based & Project based Missing: Innovation, Entrepreneurship & Markets Economic Growth Physical Capital Public Investment Skills Education Human CapitalProductivity

Growth Alternatives ( ) 13 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 ( ) 14 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%)

Ongoing PSE Reform Efforts 15 Reform for Power Sector Under Implementation Reforms Strategy for Railways Formulated Reforms of Gas Sector under Formulation TCP & PASSCO to be examined for closing down

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 16 PSDP Resource Allocation Strategy

Potential Governance Agenda 17 Civil Service Reform Structure and Incentives to Attract Talent Monetized Salaries, Merit based Promotion, and Easy Entry & Exit Devolution Devolving powers, responsibilities and resources to lower tiers of government for better service delivery Performance based Governance Business process reengineering Need to address outdated regulations Remove multiplicity of processing layers

Markets & Entrepreneurship 18 Modernize Laws & Regulations for Markets Agriculture Market Committees Investment in New Sectors Bankruptcy Law (legislation drafted) Deregulate Markets Wheat, Sugar & Commodities Exchange Review Sectors where Government may Exit Encourage Innovation Innovation through Incubation Centers Cluster Strengthening (e.g. Sialkot, Gujranwala, Wazirabad) Domestic Commerce Taxation Regime, Rent Laws etc. Legal System for Common Property Ownership (shops & flats)

Cities as Hubs of Commerce 19 Modernize Laws & Regulations for Cities Reform Zoning & Building Regulations Address Excess Demand Need to Bridge Excess Demand for Commerce, Office Space, Warehouses etc. Land Markets Freeing Government Land for Commercial Purposes Property Rights Need to Address Issues of Titles, Taxation Structures etc.

Youth & Community 20 Youth Engagement Strategy VoiceEmpowerment Social Capital Making Social Capital Available for Youth Social Infrastructure (Libraries, Community Centers etc.) Youth Entrepreneurship Difficult to Productively Employ Growing Young Labour Force Develop Framework for Youth Self Employment

New Role of Government 21 Policy Regulation Production & Management Financing of Assets Ownership of Assets MarketsGovernment

Thank You 22 Thank You Quality of Life Quality Governance Vibrant Markets Energetic Youth & Community Creative Cities