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Pakistan’s growth inhibited by external demand position: ADB

Pakistan’s growth inhibited by external demand position: ADB

ISLAMABAD: The Asian Development Bank says that the economic growth in Pakistan is constrained by the country’s external demand position which makes 6 to 7 per cent GDP growth per annum unsustainable.

The ADB’s latest report evaluates the “accelerating economic transformation programme (AETP), which the government launched in 2009 to mitigate the effects of high prices for oil and food on the poor and fiscal stability.

The ADB provided two loans amounting to $650 million, however the project has been rated “ineffective” as all targets set in AETP missed.

The ‘unsustainable’ curse




Citing reasons for un-sustainability, ADB report says Pakistan’s export per capita is low and the country continues to compete with exports from poorer countries.

Unless the production and trade structure of the economy is transformed to enable it to compete effectively in global markets, it notes.

The share of manufacturing value-added accounted for by high-technology products is low and has remained so during the last forty years, the report says.

Many studies had analysed the lackluster performance of Pakistan’s industry and exports, and some already articulated a connection to the regular balance of payment problems of the country. This connection was attributed to the nature of Pakistan’s exports particularly a high concentration on a few traditional products and a failure to diversify and move up the value chain; and the absence of domestic, technology-intensive industries.

Growth facilitating policies needed

The report observed that ‘unless the country’s comparative advantages are transformed’ in the direction of more sophisticated products and the energy mix of the country’s economy is made less dependent on fuel imports, the immediate symptoms are periodic shortages of foreign exchange reserves – at the end of any few years of stronger growth in incomes; and reversion to lower growth rates in economic activity due to necessary fiscal compression efforts in the IMF macroeconomic stabilisation programmes.

The AETP proposed that the key to successful economic development in Pakistan is to ‘design, plan, and implement policies that facilitate growth in the industrial and manufacturing sectors’. Productive dialogue with the private sector was touted as a key ingredient of success.

A second important observation emerged: constraints on non-price competitiveness explain why Pakistan’s economic growth faces a balance of payment constraint. “Simply put empirical evidence seems to indicate that whenever the Pakistani economy grows above 5pc for a few consecutive years, higher growth in import demand tends to outpace the export that generates the foreign exchange reserves that would be needed to pay for imports,” the report added.

In its conclusion, the evaluation report emphasised that the development experience in comparable countries offers, first, a compelling argument that a significantly better outcome should have been possible in Pakistan, and second, a guide to ensure that the future can be different.

Identifying what is holding back structural transformation, removing constraints, altering current expectations about Pakistan’s economic outlook, and creating mutually reinforcing engines of growth is the only way to sustainably address national social and economic challenges.

Research underscored that Pakistan’s rate of structural transformation has been lower and slower than that of other countries in Asia.

Published in Dawn, October 11th , 2015

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