October 09, 2006	Monday	Ramazan 15, 1427

THE authorities took a number of steps to improve macro-economic stability that included market reforms and structural adjustments during the decade of 1990s.

While the economy has grown at a robust pace for the past four years, as result of these reforms and favourable exogenous shocks, there are a number of impediments in building up a competitive economy and the industrial production structure needs to undergo considerable changes.

The World Economic Forum’s (WEF) three indices (macro-economic conditions, public institution, and technology) present an yearly report of competitiveness of economy of 117 countries. In the Global Growth Competitiveness Index-2005, Pakistan’s position is at 94 and its regional vis-à-vis other competitors are shown in the following chart.

The ranking in the business competitiveness shows Pakistan at 66 out of 116 countries in 2005. This explains the strengths and weakness of its business environment, trade and stabilisation policies.

On the one side, its economy shows strong recovery for the last two years but on the other side, it is still fragile keeping in view the international competitiveness capacity.

Though the Medium Term Development Framework (MTDF) 2005-10 envisaged a strategy to move towards an efficient, balanced, internationally competitive, environmental- friendly and technologically-driven knowledge economy, one can look forward to Pakistan’s pursuits for competitive economy but with a great doubt.

Pakistan’s main competitive disadvantages are evident form long history of macro-economic instability, high public deficit particularly in 1990s and inflationary pressure, which ultimately effected the GDP growth and poverty incidence negatively. To foster competitiveness, economic growth, poverty reduction and private enterprises, a domestic predictable business environment is required to improve the level of investment.

The World Bank’s Doing Business indicators show that cost of investment is still very high as compared to other regional countries and with regard to cost of contract enforcement.

Pakistan is still lagging behind the other competitors. The major element that can undermine the growth pace is the low level of investment which stands only 17 per cent share of GDP. This is lowest in the region as compared to 24 per cent share of GDP for India, 19 per cent of Bangladesh and 38 per cent of China.

The Wold Bank study finds that much remains to be done to move towards a path towards sustainable economic growth. The main concern is the industrial sector and exports of low-value added products, mainly in the textile and clothing sectors. It also emphasised competitive labour market in terms of enhancing the economy’s technical capacities or improving the skills of the labour force.

The skill gap is considered an important element for underpinning the growth pace. In the UNIDO (2002) report, Pakistan ranks below all the regional countries and does not perform well by even regional standards. As per international competitiveness skill index, Pakistan is at 75. With such constrains of skill development, poor quality of vocational training available for management and workers, the firms are not investing in human capital.

The Higher Education Commission is trying to increase spending on education from four to eight per cent of the GDP by 2010 with major focus on science and engineering graduates. But to move towards a competitive economy to attract foreign investment, and to reduce transaction cost, there is a need to address the skill gap and low labour productivity on a priority basis.