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Pakistan needs seven percent growth rate for survival

Pakistan’s economic condition is on the verge of collapse and in order to survive, it needs a growth rate of seven percent over the next few years as against the present three to four percent, reads a paper prepared by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

FPCCI has presented this study to the government in response to the Vision 2025 prepared by the Planning Commission for the revival of the economy. The report has been prepared by the Research and Development wing of the premier trade body of the country and says that future challenges can only be safeguarded against if the country has a double digit growth rate.

The paper states that the average growth rate of 5.1 percent during the past decade will not help resolve poverty, unemployment and other problems of Pakistan as no visible trickle-down effect is possible at the presently anaemic GDP growth rate.

“If this rate prevails for the next few years, it may create malnutrition problems as already 60 percent of the total population is living below poverty line at present,” said Dr. Ayub Mehar, who is the director general of FPCCI’s research wing.

He said that the IMF, World Bank and other international organisations had recommended seven percent growth rate for Pakistan to reduce the economic miseries of the people by the operation of the trickle-down effect.

The FPCCI recommends that all efforts and targets including the tax-to-GDP ratio, the budget deficit as a percentage of GDP as well as growth in investment, money supply and export targets should be tailored to achieving seven percent GDP growth rate. “It is a requirement for survival that should not be compromised,” the paper said.

The GDP growth rate in fiscal year 2013 was 3.6 percent, which was below the targeted rate of 4.3 percent. The State Bank of Pakistan (SBP) in its recently released annual report predicted that the government would fall short of the targeted growth rate of 4.4 percent set for fiscal year 2014.

Mehar said that the present growth rate may not be sustainable in the long term for the country, which may default on its international obligations. “[With this], no money will be left for opening letters of credit for imports and the international community will also not come to our rescue,” said Dr. Mehar, who is also among the top five economists of the country.

The Economic Growth Framework prepared by the Planning Commission has also identified seven percent as the GDP growth rate that is required to absorb the growing population.

However, the FPCCI paper said that about 10 to12 percent rate of growth is required to revive the economy. “This will ensure that the economy of Pakistan turns around to the point it was before 1990 in term of per capita income in the region,” the research paper said.

The FPCCI paper said that the present fiscal policy failure was an outcome of the clashes and interests, which should be discouraged in future.

In the present conditions, foreign assistance and external debt will not be feasible options for the country, it added.

The government has been recommended to undertake development projects funded by foreign direct investment inflows in which investment by ex-pats will be an attractive option.

The FPCCI has proposed financial liberalization, which would be a soft option for resource mobilization to rehabilitate deteriorating infrastructure.

Over the long term, the FPCCI suggests regional economic integration that could be a key for a sustainable source of economic prosperity.

The report suggests changes in planning as past polices have resulted in the present economic crisis. The FPCCI has also criticized the “six regimes of planning in Pakistan”: conceptualization; foreign influence; ad hocism; construction of social accounting matrix and macroeconomic models by the Planning Commission; PCI and PCII culture; and ineffective organs. “Planning in Pakistan is based on the nexus of foreign influence, ideology and feudalism,” the FPCCI report said.

To achieve the desired level of economic growth, the FPCCI recommended private-sector led growth through incentivizing innovation, quality and productivity enhancement.

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