0

5

10

15

20

Exports (%) of GDP

Imports (%) of GDP

Current Account Deficit/GDP

Exports, Imports and Current Account 1980s-2000s

Decades long struggle with macroeconomic stabilization arising from unsustainable fiscal policies

Pressure of demography

Heightened expectations of the population for a better life from a democratic government

Battering from external events, including earthquakes, floods and a continuing longstanding low intensity conflict

Legacy of economic distortions

Low and declining productivity

Large loss-making public sector that impedes market development

Revival of the economy to its short-term potential annual GDP growth rate of about 5-6% and long term growth rate of 7-8%

Deep and sustained reforms in areas such as public sector

management, competitive markets development, urban management and connecting people and places

9.1

5.3

6.4

6.0

5.9

4.9

GDP Growth (%)1971-2009 (Annual Avg.)

China

India

Malaysia

Indonesia

Thailand

Pakistan

Growth Strategy of Pakistan, 2011

Key determinants of growth are economic governance and

human capital

Growth strategy aims to make growth more inclusive and speed up the movement out of poverty

In 2010 - 110 million people in working age groupBy 2050 - 236 million people in working age group

Key Points

• Focus is on fresh approach of “Software” of growth

• Politicized PSDP projects selection, requiring rationalization of PSDP

• Gross under utilization of existing infrastructure

• Simultaneous engineering of stabilization and growth can be done

• Energy crisis in Pakistan, a management issue rather than a capacity issue

0

10

20

30

40

50

60

1970 2010

Sectoral Shares in GDP (%)

Agriculture

Industry

Service

Targeting Growth

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usConstraints to Economic Growth of Pakistan

Inadequate market development

Lack of efficient public sector management

Inadequate Market Development

Lack of competition

Tax tariff and policy distortions

Entry barriers

Government involvement

Poor regulation

Lack of Efficient Public Sector Management

Provide core governance goods such as security of life, property, transaction

and contract

Facilitate markets and investment with

informed policy and competent regulation

Promote deepening of physical, human and social infrastructures

Thrust of the Growth StrategyThe growth strategy seeks to increase return on investment through measures to improve investment climate,

to reduce cost of doing business and to dissolve impediments to entrepreneurship

0

1

2

3

Agri. Manuf. Const. Wholesale & Others

Finance & Others

Labour Productivity by Sector, 2007

Agriculture

Cotton production can be increased by 62.5% by developing seed

industry, controlling weeds and pests (CLCV and Mealy Bug) and adopting

improved crop management techniques

Environmental degradation is costing Pakistan in terms of low GDP growth

40% of irrigated land has been affected by either salinity or water-logging

20% of current milk production is lost due to poor infrastructure facilities

Industry

Consistent subsidies have adversely affected the risk taking culture

in private sector

Competitive markets

Productive human resource

Healthy population

Meaningful education

Connecting markets and people

Knowledge creation and commercialization

Diffusion and absorption

Development of cluster

Productivity and Innovation

To increase public sector productivity, role of state needs to be transformed from owner-operator to facilitator-regulator across economic activities

Reforms for Productivity

Industry-University linkages should be emphasized as they play a decisive role in fostering innovation

Less than impressive contribution of productivity in

GDP growth of Pakistan

Never before in history has innovation offered promise of so much to so many in so short a time ~ Bill Gates

Productivity and innovation impart sustainability to growth

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HRD (Right skill-mix)

Merit based remuneration

and promotion

IssuesLarge government footprints

(50% of GDP) crowds out private investment

•PSEs bleeding

Excess regulation hurts business milieu

Weak public finance

•Inefficiencies in resource mobilization

•Unnecessary subsidies

Weak institutions and civil service

Improve public sector management

Changing role of government

Exit from Markets

RestructurePrivatize

Close down

Deregulation

CCP SECPSBP

Quality GovernanceIf you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand ~ Milton Friedman

Reforming Governance

Quality governance to improve delivery of public service and sustainability to growth

Tax reforms

Remove untargeted subsidies

Efficient PSDP/RBM

Restructuring

Autonomy

Accountability

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5

10

IndiaUSA

China

Trade Share of Pakistan in Selected Countries (%) Composition in Goods (%)

Textile

Leather Prod.

Misc Manuf.

Vegetable Prod.

Others20

25

30

35

1995 2000 2005 2009

Total Openness (%)

Need for Addressing Coordination Failures

Implementationissues related

to poor governance

and management

structures need to overcome

Extremely high protection

slows down development

of efficient and competitive

industries and promotes

rent-seeking behaviour

Active use of non-tariff

barriers is an area featuring coordination

failures in government

General Recommendations

Re-establish unilateral trade liberalization program

Abolish distortive regulatory duties (SROs)

Maintain a neutral real exchange rate policy

Accelerate re-establishment of normal trade relations

with IndiaAccelerate maximum potential

possible under signed free trade agreements

Specific Sectoral Recommendations

Issuance and implementation of a general trade policy statement

Immediate abolition of ad-hoc system of quasi-import licensing

Thorough review of economic justification for sectors/industries

Information Gaps and Transparency

Recommendations

Substantial improvement in computerized version of detailed

customs tariff schedule

Thorough inventory and review of tariff distortions

Publication of MOC regular statements

Publication and easy access to information on

anti-dumping decisionsFrame of all policies and regulatory

stance based on intentions defined in the growth strategy

Deepening and Maintaining Openness

No success story in growth accelerations worldwide has featured exclusive inward-looking growthOpenness allows reaching new markets

Openness in trade is a critical ingredient for self sustained growth that creates jobs and raises productivityTariff system has become distorted and non-transparent and is exposed to corruption

Good logistics is critical for trade and competitiveness due to its wide ranging impact on economy

You have to be very rich or very poor to live without a trade ~ Albert Camus

Openness allows to reach new markets, raise productivity and accelerate innovation and competitiveness for sustained growth

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0

5

10

15

20

Corruption Govt. Instability

Policy Instability

Inflation Inefficient Govt.

Bureaucracy

Crime & Theft

Most Problematic Factors for Doing Business, 2010

Outmoded urban management and zoning for domestic commerce

Inadequate transport and storage facilities for agricultural markets

Legal issues and regulatory environment

Macro Level

Reforms

• Promoting trade openness and competition

• Land reforms

• Taxation reforms

• Labour reforms

Meso Level

Reforms

• Agricultural and rural markets

• Reforms for manufacturing sector

• Trading processes

Firm Level

Reforms

• Initial setup of business

• Enforcing contracts

Vibrant and Competitive Markets

Open markets offer the only realistic hope of pulling billions of people in developing countries out of abject poverty,while sustaining prosperity in the industrialized world ~ Kofi Annan

Key Issues in Markets Pakistan ranks 85th out of 183 countries in ease of doing business

• Urban areas have excess demand for retail, office and mixed use space

• About 30% to 40% of agricultural produce is wasted due to inefficient farm to market channels and inadequate storage facilities

• Agriculture Produce Markets Act of 1939 is outdated and requires fresh legislation

• Pakistani businessmen claim delayed justice, weak property rights, corruption and time and cost of enforcing contract as key constraints to investment

Competitive markets ensure higher productivity and efficiency of economy

Key Reforms

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Cost of investment per 27 sqkm in Pakistan

Cost of investment per sqkm in Dubai

Area Density in 1 sqkm

Dubai

(Vertical Expansion)

200,000 people

Pakistan

(Horizontal Expansion)

6,000 people

Laws and Regulations for Cities

• Restrictive zoning and building regulations

• Lack of mixed use and high rise development

• Ambiguous urban land policies

Excess Demand

• Demand for commerce, office space, warehouses and housing

• Missing space for community infrastructure

Land Markets

• Idle-state-owned land

• Complex land registration system

Property Rights

• Lack of titles and tax related issues

• Biased rent lawsR

efo

rms

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nd

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d H

ou

sin

g

• Modernize land and registration system

• Establish housing and information system

• Revise laws favoring tenants

• Establish regulatory bodies for real estate markets

• Increase access to housing finance - revitalize HBFC

• Curtail growth of katchi abadi by producing low income housing

• Repeal Land Acquisition Act 1894

Ref

orm

s f

or

Co

mm

erc

ialis

atio

n

• Amend zoning laws and building regulations

• Auction/privatize state-owned land

• Build linear commercialization along inner city roads

• Improve capacity of urban planners for low cost energy construction and for facilitation of research

• Revise city planning for deregulation to unlock productivity and innovation

• Establish more community space

Creative Cities

Population by 2030 (000)

• Karachi 27,993• Lahore 14,626• Faisalabad 6,192• Rawalpindi 4,149• Multan 3,025

Cities generate ideas, innovation, technology and choices to accelerate growth

Focusing on cities as engine of growth

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Urban Governance Issues

Reforms

for Connectivity

• Encourage public private partnership in infrastructure development

• Improve public transport network

• Create a sophisticated market for railways

• Be a regional hub of aviation

• Improve trade facilities through adoption of ICT

• Incentivize ICT services

• Open domestic trade market

State of Physical Connectivity

Human Resources Connectivity

Social Connectivity

Inefficiencies in transport sector is annually costing Pakistan 5% of GDP

30% agricultural output wasted due to inefficient farm to market channel, lack of cool storage and obsolete trucking fleet

Human capital comprises low to medium skilled labor

Bureaucracy (generalists) and stringent rules and regulations make it hard for professionals to participate in the economic affairs of the country

Social divide among people belonging to different economic classes is consistently widening

Weak collaboration of diaspora by local enterprises and institutions

• Disintegrated markets

• Lethargic cities

• Youth with unemployable skills

Measured in time of transport and communication, the whole round globe is now smaller than a small European country was a 100 years ago ~ John Boyd

Connecting to Compete

Connectivity

Impact of Poor Connectivity

Better connectivity reduces cost of doing business and thus boosts growth

Malaysia Turkey Iran India Pakistan

2009 1 2 12 20 24

2010 1 7 14 21 25

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Connectivity Scorecard Rankings Resource and Efficiency Driven Economies

Education with Opportunity

Poor quality of basic and university education

• Parallel education systems

• High school drop-outs

• Failure to engage large youth population

• Corruption, stringent laws and financing major impediments to self employment

Current State of Youth• Youth bulge in coming years

• Largest proportion (32%) of uneducated youth

• Less than 6% of youth has vocational and technical education

• Highest illiteracy rate (30%) of Pakistani youth in the region

• Curriculum does not prepare youth for job market

The Real Challenge

• Introduce youth development programs in provinces

Opening Windows of Opportunity

• National youth service reforms

• Youth education and skill development

• Youth and women entrepreneurship

• Youth volunteer services

• More youth space

71% - have no school career counseling

83% - term school career counseling important

79% - unsatisfied with either schooling system or curriculum

47% - do not have sports or recreation facilities

90% - want extracurricular activities

28% - feel syllabus/curriculum irrelevant to market demand

12% - not keen to learn occupational skills

100% - hold poor accountability the reason for corruption

95% - believe education can resolve problem of extremism

18th Amendment

• Abolition of Concurrent Legislative List

• Amendment in Federal Legislative List

• Article 25 A - education compulsory for children

• Curriculum, syllabus, planning and policy fall under the jurisdiction of provinces

• Ministries and their functions devolved to provinces

Success

of

Orangi

(Quality education PPP)

Youth is a Solution, Not a

Problem!

(Youth service)

National Internship Program

(Also for metric pass students)

Reform policy and regulation to involve young people in community activities

Introduce courses related to economic choices and decision making for all disciplines

Create space and opportunities for youth and women entrepreneurs

Promote career counseling services at community and school levels

Engage youth in economic, social and community services

Energetic Youth and CommunityMuch education today is monumentally ineffective. All too often we are giving young people cut flowers

when we should be teaching them to grow their own plants ~ John W. Gardner

Energized youth and community allows reaping the benefits of demographic transition and accelerating growth

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Emphasis on performance and results that affect people's lives

The current system does not make growth and employment a core objective of policy

New Vision for Economic Growth

• Periodic identifying emerging constraints to economic growth

• Consensus building through extensive consultations

• Building a system for measuring productivity and public service delivery

• Developing and monitoring quantifiable plans regularly

Control of Planning System under Post 18th Amendment Milieu

• Consulting and setting medium term and annual development objectives

• Identifying key economic reforms

• Specifying government and ministry-level reporting requirements

• Strengthening capacity of ministries

• Developing capacity of planning system

Five Critical Changes to Strengthen Linkage between Planning Commission and

Government Performance

Strengthen MTDF and MTEF

Support unified results based budget preparation process

Decentralize responsibility for projects to line ministries

Redefine role and processes of Planning Commission

Establish results based monitoring and evaluation system

• Provides change agenda for a greater degree of implementation assurance

• Helps government to focus on achievement of results and utilization of resources

Results Based

Management

• Fiscal allocations

• Ministerial/departmentalpolicies and plans

• Budgeting

• Accounting

• Monitoring

Introducing RBM in

Government

You were born to win, but to be a winner, you must plan to win, prepare to win and expect to win ~ Zig Ziglar

Implementation: RBM

• Implementation of change must alleviate constraints to productivityand facilitate growth

• RBM requires systematic implementation of key processes led bythe overall growth strategy

• Output based budgets must emphasize on outputs, outcomes andkey performance indicators

RBM enhances quality of planning, implementation and outcome of development efforts and improves quality of life of people Pre

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