It is widely recognised that developed social infrastructure is the key to reaching a high level of sustainable growth but the sector has often not been either accorded the right priority or suffers from faulty programme design, or ineffective implementation, or in some cases it is a combination of all of these factors.
The social sector approach of growth policy hinges on human development and human welfare.
The issue of social sector development in Pakistan has cropped up in the seventh review under the International Monetary Fund (IMF) credit facility following a sharp cut in federal development spending. The IMF mission is seeking assurance from Pakistan that the sector would remain untouched by the cut in the Public Sector Development Programme (PSDP). Towards that end, it has sought precise project details that would be affected by the cut.
The Fund staff has also expressed its concern that economic growth may be affected due to slashing of PSDP by one third or Rs300 billion from the budgeted Rs900bn to Rs600bn.
The State Bank’s first quarterly report for 2021-22 notes that the reversal in the movement of the labour force from the industrial sector to the agriculture sector ought to be a concern of policymakers
Dr Pervez Hoodbhoy says Pakistan’s economic weaknesses stem from, among other major factors, a hopelessly under-skilled workforce. That’s why he adds, China-Pakistan Economic Corridor’s (CPEC) new infrastructure led to insignificant industrialisation. Pakistan has the world’s second-highest number (22 million) of out-of-school children and has always underspent on education, says another noted analyst.
No less worrying is the emerging trend of the declining share of value-added production in total national output as pointed out by the State Bank’s first quarterly report for 2021-22. It notes that the reversal in the movement of the labour force from the industrial sector to agriculture sector ought to be a concern of policymakers. “From an economic standpoint, value-added per person is predominantly higher in the non-agriculture sector than in the agriculture sector in developing countries.”
According to the Labour Force Survey of 2018-19, employment in the agriculture sector rose from 38.5pc in 2017-18 to 39.2pc of the total employed labour force in 2018-19. Simultaneously, employment in manufacturing dropped from 16.1pc to 15pc and industry as a whole from 23.7pc to 23pc but it remained constant at 37.8pc in the service sector. Employment, however, improved from 7.6pc to 8pc in the construction industry.
Since then these variable adverse trends have largely been strengthened. For example, in the past three months, construction activity has slowed down mainly due to a steep surge in the cost of construction material. The demand for steel has dropped by 20-25pc.
Much of the responsibility of social sector development lies with the provinces which are required to produce more budget surpluses to help the federation achieve the annual consolidated fiscal deficit target. And the process for evolving more meaningful horizontal distribution of resources for the development of economically backward regions has been frozen by the deadlock at the National Finance Commission.
It may be recalled that financial globalisation had set in a process of de-industrialisation resulting in stagnant exports and rising imports in many countries including Pakistan while burdening them with enormous foreign debts. More than 80 per cent of the new global debts burden came in 2021 from emerging markets, where total debt is approaching $100 trillion, said the Institute of International Finance’s annual global debt monitor report released on February 23. The PTI government has not been able to walk the talk on industrial growth.
The lack of the required level of social sector and physical infrastructure development is stifling the rapid and balanced industrial development due to which risks to economic growth are mounting from both domestic and external factors. No doubt the growth of large scale manufacturing industries’ output, primarily from existing capacity, has increased by 7.6pc in July-January 2021-22 compared to the previous fiscal year.
And the current account deficit also shrank by 78.46pc in February to $545m from a whopping $2.531bn in January mainly due to a sharp decrease in imports in January and February. It has not stopped the free fall of the rupee contributing significantly to high imported inflation.
Coming back to the issue of social sector development our policymakers may look at what the Chinese are doing. On March 6, Premier Li Keqiang said China is firmly committed to sustained and sound economic and social development. The key tasks in the Government Work Report made public on March 19 says protective measures would be made to boost domestic demand, unlock consumption potential and increase effective investment. A stable supply of affordable electricity and coal will be ensured. The Chinese government will make every effort to ensure and improve people’s livelihood.
We may learn from the Indian experience where inclusive growth has been a priority since the country’s independence. A study titled ‘Has social sector development catalysed inclusiveness of India’s economic growth?’ during the period from 1985-6 to 2015-16 is an eye-opener. The research found that two of the three components, — expenditure incurred on the welfare of underprivileged classes and expenditure on rural development show negative relation with inclusiveness. The third component is the expenditure incurred on social security and welfare.
And the probable reasons identified for the existing state of affairs in India are leakages in the process of cash disbursement, corruption, lack of proper management and effective monitoring and shortcomings in the implementation of the schemes. More puzzling is the lack of public awareness of the programmes.
Remedies suggested by the authors of the report include modifying programme design, expanding the community base with strong community participation, undertaking social mobilisation through advocacy and reinforcing information and communication to promote awareness. The whole ground of the policy framework must be clearly monitored for effective implementation.
Published in Dawn, The Business and Finance Weekly, March 28th, 2022