COVER STORY

build capacity and conduct analytical work

Challenges to
on the impact of SPS and TBT measures.
Similar programmes have also been
launched in Bangladesh. Such measures
should be replicated in Pakistan in order to

Structural Reforms
improve the ability of Pakistani exporters to
participate in international trading activities.
The ADB can enhance the role of Pakistan
Standard and Quality Control Authority
(PSQCA) in ensuring Pakistani products The ADB views macroeconomic imbalances in many
meet international standards and are not
constrained by SPS and TBT measures developing countries as worsening. The need for
imposed by the importing countries. multilateral financing to develop projects and finance
Pakistan has also lacked foreign deficits is very important.
direct investment (FDI) in export-oriented
sectors. This has deprived technological
By Mirza Aqeel Baig
advancement and spillover effects on
local firms that are often associated with
an increase in FDI inflow. FDI played
a crucial role in the industrialization of
several East Asian economies. Japan shifted
several of its industries that had lost their
comparative advantage to the more recently
industrialized East Asian economies. The
CPEC provides Pakistan an opportunity
to upgrade its industrial capability. Today,
China is upgrading its production from low
and medium tech industries towards high
tech industries. Therefore, ‘sunset’ labour-
intensive and agro-based manufacturing
industries in China that are losing their
comparative advantage due to rising costs
can be shifted to Pakistan, where the labour
and agricultural inputs can be obtained
at a competitive price. Although China
will be a major investor in Pakistan, such
cooperation must not be limited to this
country only. The industrialization process
can become ineffective if it does not lead to
sufficient accumulation of knowledge and
improvement of technological capabilities
if gaps between the supply and demand of
inputs and the needs of the industries are
not properly identified.
In essence, Pakistan and the ADB have
a long-term relationship that has supported Syed Ghazanfar Abbas Jilani, Secretary, Economic Affairs Division (EAD),
development across several sectors in
Government of Pakistan and Ms. Xiaohong Yang, Country Director, ADB,
Pakistan. However, the advent of the CPEC
has changed the dynamics as Pakistan shaking hands after signing loan agreements.
now has an opportunity to improve its
economic linkages with China and the

rest of Asia. Therefore, trade and industrial
development must be ensured in order to
maximize the returns from the CPEC. The
ADB has always been an important partner
in the development of Pakistan, particularly
in the industrial sector. With newer
opportunities, it is crucial to determine
avenues to enhance this partnership and
realize the goal of transforming Pakistan
into an ‘Asian tiger’ as specified in Vision
2025.
The writer is an Assistant
Professor of Economics
& Research Fellow at
CBER, Institute of Business
Administration (IBA) Karachi.
T
he ongoing political chaos and institutional conflict in Pakistan
combined with widening macroeconomic imbalances have almost
marred the advance of Pakistan’s economy, which is now predicted
to face a slump in economic growth during fiscal year 2018-19 after
years of sustaining an upward growth trajectory. This seems certain on
account of inevitable financial tightening after the election year. This is a
likelihood confirmed by the International Monetary Fund (IMF), the Asian
Development Bank (ADB) and the World Bank in their recent reports
on Pakistan. The IMF in its recent report expressed concern over the
weakening of the macroeconomic situation in the country, including a
widening of external and fiscal imbalances, a decline in foreign exchange
reserves, increased risks to Pakistan’s economic and financial outlook and
its medium term debt sustainability as threats to its economy. The World
Bank released its report, ‘South Asia Economic Focus Spring 2018’ on
April 15, 2018, observing that Pakistan’s economic growth continues to
accelerate but macroeconomic imbalances are widening.
According to the ADB and IMF, even though Pakistan’s near-term

26 SOUTHASIA • MAY 2018

outlook for economic growth is broadly
favourable, yet macroeconomic
imbalances are worsening. For
example, the fiscal deficit is expected
to widen to 5.5% of GDP this year
against a target of 4.1%. Similarly,
the external sector is also in a gloomy
state with current account projection
to be at 4.8% of total national income.
This, along with alarmingly low saving
rates and rising debt burden, has put
the positive economic outlook in
jeopardy.
Industrial growth has remained at
5% despite all efforts. However, large
scale manufacturing (LSM), which is
the largest sub-sector of the industry,
registered an improvement with 5.3%
growth. It was a mere 3.7% in FY16.
In a developing country like Pakistan,
a minimum of 8% industrial growth
is required to achieve sustainable
economic growth. Though industry
is picking up momentum but it has
become a challenge to attain this
benchmark.
Like every other developing
country, Pakistan needs foreign
financial support not only to finance
her developing projects but sometimes
to finance its deficits also. The ADB has
played a significant role in financing
Pakistan’s development projects. In
fact, Pakistan is one the founding
members of the ADB and has a long
history of mutual cooperation since
the inception of the ADB in 1966.
The ADB claims help countries in
achieving significant milestones in
achieving economic development. It
“provides loans, grants, and expertise
to Asian developing member countries
to help them alleviate poverty and
create a world in which everyone
can share in the benefits of growth.”
Energy, public sector management,
infrastructure, road and transport,
poverty alleviation, agriculture and
rural development and the social
sectors have been the top priority
areas for the ADB.
Pakistan occupies a significant
position in ADB’s plan, as evident
from the fact that it is among the top
five borrowers from the ADB. The
Like every other developing country,
Pakistan needs foreign financial support
not only to finance her developing projects
but sometimes to finance its deficits also.
total amount of loans, grants and
aid provided by the ADB to Pakistan
was nearly $30 billion by the end of
fiscal year 2016. Pakistan acquired
almost 28% of total ADB financing
in the energy sector. Transport (16%),
public sector management (14%),
finance (11%), agriculture and natural
resources (14.26%) have been among
other priority sectors. The ADB’s
Country Operations Business Plan
(COBP) 2017–2019 is aligned with
the priorities and development plans
of the Pakistan government. This
includes a provisional assistance
package of $5.96 billion. COBP’s
2017-2019 lending is in congruity
with Pakistan’s investments and policy
reforms in the energy sector, transport
connectivity and economic corridors,
better management of water resources
and a stimulating private sector.
Though it is not desirable to
borrow heavily as debt-driven growth
attempts by many countries have
gone into vain in the past with few
exceptions, yet the fact that Pakistan’s
saving rate hovers around 13% on
average cannot be ignored. This is
seriously lower than other developing
countries. For example, the saving
rate in countries like Bangladesh and
Sri Lanka is approximately twice as
much while India enjoys a saving
rate consistently more than 30%.
This shows that Pakistan’s domestic
resources are acutely limited against
its investment requirements.
To deal with this huge and
permanent saving-investment gap,
various governments in Pakistan have
failed to introduce effective structural
reforms necessary to mobilize
domestic resources. Moreover, huge
fiscal and trade deficits are among the
norms in Pakistan. As a result, foreign
borrowing becomes necessary. But the
fact cannot be denied that Pakistan’s
finance managers rely too much on
the easy option of foreign borrowing.
There is a dire need to explore
and mobilize the internal sources of
financing. There have been high claims
of reforms by various governments in
this regard without any noticeable
success. During the past few years,
significant infrastructure construction
has occurred in the country as a result
of CPEC projects, but the possible
positive effects of this development
are at risk because of the failure to
reduce macroeconomic imbalances.
It is a well-known fact that economic
prosperity and intensity of internal
conflict are inversely proportional
to each other and conflicts among
different state institutions and political
parties are certainly causing trouble to
Pakistan in overcoming its economic
challenges.
Institutional conflict and
absence of political consensus are
functioning as obstacles to structural
reforms in Pakistan. Political parties
need to realize that the economic
future of Pakistan is their collective
responsibility irrespective of the fact
whether they are in the government
or in the opposition. A charter of
economic reform among all political
stakeholders is the need
of the hour in order to
face recent and future
challenges.
The writer is an Assistant
Professor of Economics
at IoBM, Karachi.

The Asian Development Bank was founded half a century
ago on the pattern of the World Bank under the auspices
of Japan, the only modern country in Asia at that time
when most of the continent was emerging out of the Third
World of underdevelopment, the legacy of the long age of
Imperialism.
During these last fifty years, the Asian Development Bank
has played a leading role in the big push of the war against
poverty. The crowning achievement of the ADB is reflected
in its Seminal Report predicting that the once backward
continent is poised to produce more than half of the world's
GDP by 2050 when the Asian Century will begin.
Kamal Azfar
former Governor of Sindh and
former Research Assistant for Professor
Gunnar Myrdal's epic “Asian Drama.”

SOUTHASIA • MAY 2018 27