CONFRONTED with stubborn macroeconomic imbalances, the PTI-led government’s greatest challenge now is figuring out how to integrate its wealth creation and public welfare policies into an effective strategy.

The problem lies in mobilising enough resources for increased capital spending on human resource development to stimulate investment and minimise the import-export gap. Chronic balance of payments difficulties created as a consequence of a huge trade deficit is a major obstacle in import-oriented economic growth.

According to the World Bank report ‘Changing Wealth of Nations 2018,’ human capital is the largest source of wealth in most advanced economies, contributing 70 per cent of the wealth in high-income countries.

Calling for investment in people, a World Bank policy note ‘Pakistan@100 Growth and Investment,’ notes that the country’s large young population is its greatest asset.

The critical issue is to put the idle manpower to work.

Any meaningful progress can only be made by serious, improved and sustained effort by the provincial governments

The second quarterly report of the State Bank of Pakistan (SBP), released on March 25, highlights that the incoming labour force needs greater skill and knowledge for CPEC projects. CPEC is soon expected to enter its second phase, focused on industrialisation.

The SBP report urges the government to take serious notice of human capital deficiency. It points out that labour force productivity is ‘on the low side’ when compared with countries with similar stages of economic development. According to the World Bank’s Human Capital Index, Pakistan ranked 134 among the 157 countries surveyed in 2017 and 2018.

While noting the steps taken in this regards, the central bank report also called for an overhaul of the education system, effective enforcement of the Digital Pakistan Policy and expanding/upgrading vocational and technical skills of the labour force.

Any meaningful progress in this regard can only be made by serious, improved and sustained effort by the provincial governments. It also calls for strengthening participatory federalism, more active public-private sector partnerships and much widened community participation.

As Michael Menser author of ‘We decide! Theories and cases in participatory democracy’ says: Policymakers often tend to forget that ‘participatory democracy is a tool for social change … It is about power wielding not over them but with them.’

But for vocational and technical training of manpower for exports, the PTI-government appears to be more focused on a federal subject: nurturing wealth creation.

EVOLVED in consultation with all private sector stakeholders, the Trade-Related Investment Policy Framework (TRIPF) envisages investment packages for 19 priority sectors, anticipating that local investors will develop joint venture proposals to attract foreign partners.

Interestingly, 25 heads of top Malaysian companies, accompanying their Prime Minister, have signed Memoranda of Understanding (MoU) with their Pakistani counterparts for investments worth $800-900 million in various sectors. The MoUs’ implementation will depend on the financial viability of individual projects.

The importance of expanding the manufacturing sector which contributes the bulk of the exports as well as tax revenue cannot be overemphasised.

World Bank data shows that export earnings of manufacturers in total foreign sales of merchandise have risen from 24pc in 1962 to 77pc in 2017. Sharp cuts in imports have also created room for development of import substitution industries. If implemented effectively, TRIPF can ultimately help reduce trade and current account deficits to manageable levels.

For decades, the country’s savings, investment and capital formation have been very low and consequently heavy dependence on foreign capital and financial inflows have now turned prohibitive.

So far issues arising from chronic balance of payments difficulties, adverse terms of trade, fast depreciating rupee and unsustainable debts are being addressed in ways that result in more foreign dependence and transfer of wealth abroad. The flexible foreign exchange and policy interest rates discourage domestic investment.

The expected International Monetary Fund bailout will no doubt bring more dollars as a temporary relief for managing fiscal and current account deficits.

The Fund however would expect the authorities to increase slow growing tax revenues, notwithstanding the fact that the economy is sliding downhill. The latest SBP forecast for growth during FY2019 is at 3.5-4pc. Hence, whether the PTI-led government will be able to provide incentives for trade-related investment remains a big question mark.

But for the hike in electricity and gas rates, besides a few symbolic moves, no serious effort has been made to curb non-development spending.

Addressing the national conference on ‘Taxation: a Pathway to Prosperity” organised by the Institute of Chartered Accountant of Pakistan, the institute’s President Jafar Husain lamented: “We are moving in circles. We are having same changes every five to six years. To increase the tax revenue, we need to document the economy.”

The PTI manifesto pledges to incentivise informal businesses to enter the formal segment of the economy. Authorities expect that the subsidised bank credit to underserved segments will step up the documentation drive. But this is easier said than done.

jawaidbokhari2016@gmail.com

Published in Dawn, The Business and Finance Weekly, April 1st, 2019