A Policy Dialogue on the New Growth Strategy of Pakistan: Moving Forward Opening Address by Mr. Ajay Chhibber.
Your Excellencies Mr. Hafiz Shaikh, Minister of Finance, and Mr. Nadeem Ul Haque, Deputy Chairman, Planning Commission of Pakistan
Excellencies, Distinguished representatives of civil society, academia and media, Development partners and UN colleagues,
Ladies and gentlemen:
It is an honor to be able to address you all today on such an important issue. I would like to thank Dr Nadeem Ul Haque Deputy Chairman of the Planning Commission and Timo Pakkala , the UN Resident Coordinator and Resident Representative of UNDP and their team and all our esteemed partners for their tireless efforts in organizing this conference.
This International conference on the New Growth Strategy organized as a high level policy dialogue among the policy makers, international experts, development community, business and civil society comes at a very critical time in Pakistan
It is the last link in the chain that has formed the participatory and transparent advisory process through which the New Growth Strategy has been formulated. It is a great privilege to be part of such discussions which we think will affect Pakistan‘s future profoundly and positively.
Pakistan sits in a region which has seen very rapid growth over the past two decades with average growth in Asia at around 7.8% from 1990-2010. Parts of Asia were hit hard by the Asian financial crisis in 1997-98, but rebounded quickly. More recently, the Asia Pacific region has been least affected by the Global financial crisis of 2008, partly because many countries had become more resilient after the Asian financial crisis and partly because of effective stimulus packages high levels of competitiveness, flexible labour markets and less exposed financial systems . Rising food and fuel prices have increased vulnerability among the poor and now high inflation – not deflation - is a major worry in many Asian countries. But as Asia contends with these problems there is growing recognition that the global economic crisis has accelerated the balance of economic power towards Asia.
Both East Asia and South Asia have witnessed a considerable acceleration of growth, more than any other region in the world. In terms of per capita GDP growth, the acceleration has been from 5 percent in the 1970s to 8 percent in the 2000s in East Asia, and from 0.6 percent in the 1970s to 5 percent
in the 2000s in South Asia. This growth acceleration has happened as a consequence of a series of economic reforms- which led to a stronger state and more vibrant markets, and better human capital.
Strong economic growth in Asia in the last 2 or 3 three decades has been accompanied by the emergence of a sizable middle class and a significant reduction in poverty. Developing Asia‘s middle class –with income between US $ 2- US$ 20 in 1995 PPP - has increased rapidly in size, from 21% of the total population in 1990 to 56% in 2008.
With rising prosperity poverty declined. In Asia, the absolute number of poor people living on less than $1.25 a day in the region declined significantly from 1.7 billion in 1981 to 933 million in 2005.Despite rising population, Asia lifted about 712 million people out of poverty in that 25 years period. But despite significant progress on poverty reduction, Asia still holds about two-thirds of the global poor.
Pakistan has not fully shared in the successful Asian growth story so far and therefore I believe the new growth strategy for Pakistan comes at a very important time and our conference today gives us an opportunity to better understand what is happening in the region and in the world and to see how best Pakistan can join the rest of Asia in achieving high, sustainable and inclusive growth.
I am by no means an expert on Pakistan as many of you gathered here are, but a very quick overview of Pakistan‘s economic history tells us that there have been periods when Pakistan‘s achieved very high rates of economic growth. Pakistan achieved impressive rates of economic growth in the 1960s and 1980s, but growth fell in the 1970s and 1990s. If anything over a 40 year period the trend growth rate is declining, whereas in most other countries in South Asia it has been rising. What has marked Pakistan out from others in Asia is that Pakistan‘s growth spurts have not been sustained over a sufficiently long period of time which is needed in order to lift large sections of the population out of poverty. We hope that the new growth strategy will help Pakistan reverse this trend and your deliberations over the next two days will address the issue of how best to ensure sustained growth in the future in Pakistan
Until recently the economics literature provided little guidance on the 'recipe' for strong economic growth. One interesting exercise is the work of the 'Growth Commission. The commission closely examined 13 cases of sustained high growth — those economies that had achieved seven per cent or more for 25 years or more and found that there is no 'magic bullet' to achieving growth: 'orthodoxies only apply so far'. There were, however, five common elements to those economies that did achieve sustained high growth: 1) they fully exploited the world economy; 2) they maintained macroeconomic stability; 3) they mustered high rates of saving and investment; 4) they let markets allocate resources; and 5) they had committed, credible, and capable governments.
The Commission noted a big role for infrastructure in high growth economies. These economies had investment rates of at least 25 percent of GDP. The Commission observed that high growth economies put substantial public investment — at least 7-8 per cent of GDP — into their people. The Commission found infrastructure spending in low-growth countries, on the other hand, to be badly neglected. No country has sustained rapid growth without keeping up impressive rates of public investment—in infrastructure, education, and health. Far from crowding out private investment, this spending crowds it in. It paves the way for new industries to emerge and raises the return to any private venture that benefits from healthy, educated workers, passable roads, and reliable electricity. The Commission highlighted the importance of governance in a fast growing economy. To promote growth, governments should facilitate the entry and exit of firms and labour mobility albeit not at the expense of safeguards for unsafe working conditions. Governments should protect people, not job positions through social safety nets to cushion the 'blows of the market'.
While growth is necessary for poverty reduction it is not sufficient. Asia‘s rise has helped reduce global inequality but at the same time we have seen rising in-country inequalities across most of Asia. The recent Asian growth has not been sufficiently inclusive. One important indication of inadequate inclusive growth in Asia is that inequality among rural-urban population, male-female, between regions and rich-poor are still not only high, but also increased over the period. During the last two decades, out of 14 Asian countries for which sufficient data are available, inequality measured by the Gini coefficient is found to have increased in 11 countries. Inequality increased by 6 to 9 Gini points in Sri Lanka, China, and Cambodia and by about 4 to5 Gini points in
India, Indonesia and Nepal. Rural-urban inequality is often a large component of overall inequality, contributing about half of the overall inequality in country like China. The ratio urban to rural per capita income has increased from 2.2 in 1990 to 3.3 in 2007 in China, and from 2.4 in 1971 to 2.8 in 2005 in India.
Growth in Asia has been ‗less-inclusive‘ because (i) growth has been uneven across sectors and locations, (2) demand for skilled and unskilled labour also uneven resulting huge wage premium for skilled labour, (3) growth has been driven by capital-intensive sectors and (4) high disparities in assets and access to infrastructure impede the poor from fully participating in the growth process. Government policies in terms of public spending on social sectors, social protection and agriculture, and financial inclusion, among others, have also not been ―sufficiently inclusive‖ in Asia. Since the poor lack both human and financial capital, public policies that help poor to build their human capital, better manage their risks, and improve the access to credit are key for making growth more inclusive.
Lack of inclusive growth could undermine pace of poverty reduction and achievement of the MDGs. Even in China which has an impressive record on poverty reduction, had inequality remained unchanged poverty would have declined to a quarter of its current level. There are also compelling reasons why high levels of inequality could dampen growth prospects. High inequality could lead to adverse consequences for social cohesion and the quality of institutions and policies, which, in turn, slow growth. The Growth Commission also strongly argued that growth strategies cannot succeed without a commitment to equality of opportunity, giving everyone a fair chance to enjoy the fruits of growth.
Healthy and well educated populations are essential not only for the sake of productive labour force for economic growth but to achieve a healthy and well educated society is a goal in itself. As the great Pakistani economist Mahbub Al Haq observed ―The real wealth of the region are its people. If sufficient investment is made in these people they can radically change the prospects of the region in the 21st century. ― Instead South Asia in particular has been falling behind the rest of the world in terms of its health and education spending but leads the world in military spending as a share of GDP. Pakistan is no exception. Maternal mortality rate is still very high in Pakistan with 276 women die during birth out of every 100,000 live births. Only 22 percent of Pakistani women participate to the labour force, one of the lowest in the world.
45 percent of the population is still illiterate and a disproportionate share of these are women and girls. Providing high quality education to young people is important for Pakistan, as one of the most valuable resources Pakistan has is its young population. However, for this human potential to be realized in full for an affluent Pakistan, girls and children living in rural areas must have equal access to high quality education as their urban and male counterparts.
One marked feature of Asia‘s rise has been its heavy focus on trade as an engine of growth. Intra-Asian trade has also risen very markedly. For South-East Asia, for example, intraregional trade has been rising rapidly and now accounts for more than half of trade in manufactured goods – up from 40 per cent in 1994- 95 (ADB, 2009). In other sub-regions, such as South Asia and Central Asia, the level of intraregional trade is low. These are impressive potential gains waiting to be tapped. The recent experiences of India-Sri Lanka FTA are striking since they highlight the potential of bilateral trade to strengthen supply capabilities leading to correction of trade imbalances. Since the operationalization of the FTA, Sri Lanka‘s exports to India have grown by 132 per cent.
After the global crisis Asian countries have tried to re-balance their economic orientation towards more reliance on domestic demand. This is a necessary rebalancing for the larger Asian economies. But for the smaller and medium sized Asian countries trade with developed countries and intra- regional trade still remains a very important engine for growth. Pakistan, in my view, has huge unexploited potential for more trade both globally and regionally; and as outlined in the new growth strategy Pakistan will need to become more open and build up its competitiveness to achieve that potential.The new growth strategy rightly points out that it‘s not an issue of government vs markets but instead government and markets working together. The Asian state-led development success has occurred because of a strong and smart state not a large one. It has come because of a partnership between state and market to build competitiveness and improve productivity. It has not come by dismantling the state but by changing its role from direct producer to regulator and guide and an enabler. We need an active, smart, effective state for efficient and vibrant markets. Pakistan‘s new growth strategy points in the right direction, highlighting the need for public sector reform and the importance of reducing the costs of doing business, in order to develop more vibrant markets. Access to finance will play a key role in this effort, as well as reducing the time
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it takes for business startups through removal of red-tape and artificial restrictions. Pakistan‘s 18th amendment brings the state closer to the people but it now requires building sufficient capacity at the local level to carry out the newly expanded responsibilities and adequate coordination between various levels of government.
Pakistan‘s new growth strategy correctly highlights the role of vibrant cities. Well- functioning cities are the engine of dynamic innovation and efficient modern life. They are the springboards for new ideas and a better life for Pakistan‘s rapidly growing population. At the same time with such a large population still dependent on agriculture and living in rural areas it is important that the rural – urban divide does not become too large. Even by 2035 almost half of Pakistan‘s population will still be living in rural areas and must feel included in its growth processes. If the goal of high, sustainable and robust growth is to be realized, there is urgent need for policies that not only would address how to increase economic efficiency but also the different concerns of the rural poor and the urban poor. Failure to do so would make cities uninhabitable, with pressures on water, transportation, fuel and power, and countries susceptible to conflict, and growth meaningless for a large majority of people.
Like many other Asian countries Pakistan is vulnerable to natural disasters and conflict. In the last six years we have seen two huge disasters; the 2005 Kashmir earthquake and massive floods in 2010, which affected the entire country. In the last decade, Asia accounted for about three fourths of global casualties from natural disasters. These factors reinforce the need to proactively consider building resilience in countries like Pakistan as a part of the sustainable development agenda. Building resilience will help households, societies, and countries to withstand not only short-term economic and environmental shocks, but also longer-term climate change threats. Therefore, spending on social protection and helping build resilience from disasters is not a cost; it is an investment for nations. Asia has done a lot to protect its people from such vulnerabilities, but there is still a lot to be done.
The New Growth Strategy proposes to put the dynamic sectors and the (forces)/resources of Pakistan in front of the steering wheel. It is a forward looking strategy that will mobilize resources from areas that have been untapped until now; from cities, young brains, and from communities. The Arab spring shows us that jobless growth, especially if it neglects the youth and creates a sense of despair, can easily lead to social unrest. Pakistan can reap a huge demographic dividend if the kind of vision laid out in the New Growth Strategy of engagement, empowerment and job creation is realized.
The international community must stand by and support Pakistan in this formidable task. It is nevertheless vital that the new growth strategy is fully owned and implemented by Pakistan‘s own institutions. External support is vital but it must be embedded in Pakistan‘s own structures and systems. We believe the new Growth Center in the Planning Commission can be a very useful and valuable base for planning the implementation.
I wish you all great success in your discussions and deliberations as you help Pakistan‘s leaders prepare a new framework for re-imagining Pakistan. Thank you
