ECONOMIC POLICIES, PAKISTAN

                ECONOMIC POLICIES:

The actions taken by a government to influence its economy is known as economic policies. Types of economic policy actions can include setting interest rates through a federal reserve, regulating the level of government expenditures, creating private property rights, and setting tax rates.

PAKISTAN ECONOMIC POLICIES:

Pakistan economic policies include reduction of poverty, which will help in growth and development. 

Pakistan economic policy played a major role in 4.7 percent real growth rate of its gross domestic product in fiscal 2008. It has been found that there was a growth rate of 7 percent per year for four successive years till 2007. Proper Pakistan economic policies made economic development look impressive in spite of being a very poor country. It has been seen that economic growth rate of Pakistan was better than average growth rate of world as a result of a stable economic policy in Pakistan. 

Manufacturing and financial services sectors have boomed because of latest economic policy of Pakistan. Stronger economic reforms were taken up as parts of economic policy at Pakistan. 

MANAGING POLICY REFORMS:

The economic situation of the past several months in Pakistan has elicited two different kinds of responses. There are either those who blame the economic managers of the country for their "ineptness" and mishandling of the situation or a second group that holds the international financial institutions such as the IMF and the World Bank responsible for all our economic woes.

MANAGING POLICY REFORMS IN PAKISTAN:

First and foremost is the credibility of policies and the policy makers. There are two components of policy credibility. First, how do the domestic economic agents perceive government policies? Even in cases where the policy content is sub-optimal or less than desirable, economic agents—both domestic and foreign—should be able to make long-term decisions expecting that the current set of parameters will remain in force for the next few years without major surprises, drastic or abrupt changes. In Pakistan, every successive government has followed policies that are unpredictable, impulsive and are of short duration. There have been too frequent changes, sometimes contradictory in nature and at times catering exclusively to special vested interests rather than meeting national economic objectives. The Statutory Regulatory Orders (SROs) are issued practically everyday exempting, withdrawing, imposing, amending, modifying, deleting, superseding, and overriding the earlier orders thereby creating confusion, uncertainty and variance in application. The complex maze of these and similar orders and gazette notifications does not just create opaqueness in interpretation of policies. It confers enormous power of discretion, arbitrariness and harassment to government functionaries of all kinds in a cascading manner along the chain—central governments, provincial governments, district councils, municipalities, public sector corporations, public utilities, etc. The implementation of the policies under these circumstances is not only indifferent but highly variable with connections, sifarish and bribes playing the decisive role in final decision making. Thus the credibility of policies in Pakistan among the investors is close to none and, although the investment regime has become favorable, this lack of policy certainty has remained a serious deterrent

 The other part of the credibility is whether the governments stick to the agreements reached with the international financial institutions (IFIs). If there are domestic political constraints in implementing some of the actions proposed under these agreements, these should be sorted out before accepting them. There is not much point in accepting reforms that cannot be realistically implemented and then backtracking and reversing them. This depletes the reservoir of goodwill for the country among the management and the staff of the IFIs.

REFORMS TO BRING GROWTH:

Address the energy crisis: The most significant challenge is the energy/power crisis. According to some estimates the growth in Pakistan is 1/3rd off to the on-going power shortage.

Open up markets and encourage trade: The region that is Pakistan can become a connector of markets like it has historically been. The country is surrounded by resource rich countries and it should take advantage of the complementarities that can arise in through the labor market, or through trade. If India and Pakistan can break a lot of economic and non-economic barriers, Pakistan will be put on India’s growth rate. Regional trade can be a potential driver for growth.

Invest in human capital: Two challenges arise here. First there is a need to improve general education outcomes across all levels. Second is to improve the skill set of the Pakistani labor force.

 Land reform: Land is very central to industry and to urbanization (which has been uneven). Land issues remain central to what happens to the urban space. Property rights also need to be established while agglomerations are to be thought over. Most importantly the writ of the state to introduce a new system is essential. However land reform without financial market is useless

Reform the financial sector: Currently only 14 percent of Pakistanis have bank accounts; hence access to finance is very limited. The financial sector needs to be reformed with a keen focus on who it lends to, on what conditions, to what end and how it can be made more accessible across a wide array of stakeholders including individuals, the private sector and the public sector. System of creating/providing credit to these people engaged in small medium enterprises is very important. They require access loans bigger than what microfinance banks offer.

Improve service sectors such as Health and Education. While education has been responding well to a lot change the health sector is gravely under-performing. Even though human capital is there, but the organizations are not leveraging this or adding value to the human capital that is present. This has long-term implications on growth. Socio-economic growth means better health and better education – these are outcomes beyond simple economic growth and are essential for development.

Improve the security situation: Discussion on non-economic factors is also essential such as the War on Terror, Sectarian attacks and general law and order situation. The war on terror and other security issues cost the economy roughly 9 percent of the GDP. Investment rates have plummeted due to this as investment cannot be expected to take place unless security issues are addressed.

 Reform SOEs: State owned enterprises are also in a crisis. SOEs need to be reformed. For example the railway sector has virtually collapsed and witnessed an almost 60 percent decline in the freight being carried. One way to reform state enterprises as suggested by PTI itself is to bring them out of the ambit of line ministries, and divide existing SOEs into three blocks, those that are ready for privatization, those that require clear reforms before privatizations and those that cannot be privatized at all such as national monopolies.

 Improve the regulatory environment: The regulatory framework needs to be improved. Legislative and empowerment measures must be taken to strengthen existing institutions such as he Federal Board of Revenue and the Competition Commission of Pakistan.

Youth policy should be formulated: The youth bulge needs to be addressed. As unemployment among the youth is rising, direct intervention is warranted. Employment guarantee schemes like in India can be implemented in Pakistan. However that presupposes a functioning local government. So focus on making local governments work which will also improve local infrastructure.

Mobilize the private sector: The state has to play a role to incentives private sector to grow as private sector savings need to be mobilized to bring the economy back on track. At the moment private sector confidence is zero due to the circular debt issue. Conditions don’t exist in Pakistan to allow the private sector to lead infrastructure led-growth.

Encourage female labor force participation: This is one of the hidden drivers of Pakistan and cuts across all dimensions .Female work force are much more compliant and disciplined and this pool needs to be tapped into. Private schools have been using that pool. Furthermore, the wage differential between males and females also needs to be addressed if economy is to move forward.

Create employment: Employment as a percentage of population has declined. Industry and formal sector Jobs are not being created and should be a deep area of focus. Several things are important under this. “First female rates of participation” is essential as they form 50 percent of the demographic dividend. Secondly employment creation through small scale manufacturing can be critical. Thirdly need to look at success stories such as lady health workers program that has created over 10,000 jobs and has had the greatest impact in terms of women’s empowerment, fertility rates, malnutrition etc.