Pakistan needs 7% GDP growth to ease debt burden

Pakistan needs 7% GDP growth to ease debt burden

Pakistan needs 7% GDP growth to ease debt burden
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KARACHI: The Pakistan government should take measures to achieve an annual 7 per cent GDP growth rate, which will not only help reduce the debt burden but also create job opportunities, said Mian Anjum Nisar, chairman of the Businessmen Panel.

“There is a need for a reform agenda to achieve 7 per cent economic growth annually, which will create two million jobs/annum and reduce the public debt,” Nisar said, while talking to BOL News.

The de-industrialisation in the country began in 1988 due to the policies implemented under various programmes of the International Monetary Fund (IMF), he said, adding that the signing of the Free Trade Agreement with China in 2005 has also badly damaged Pakistan’s industrial base since local industrialists failed to compete with the second largest economy of the world.

“It is unfortunate that the share of the industrial sector shrank to 19.5 per cent from nearly 21 per cent, which suggested that the people were moving away from the manufacturing activities,” he said.

“The share of the large-scale manufacturing (LSM) sector, which stood at 11.7 per cent under the old base year, has now shrunk to a mere 9.3 per cent,” he added.

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For Nisar, who was also the former president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the low GDP growth may result in pushing 20 million more people below the poverty line.

“Pakistan’s economy needs up to 7 per cent growth rate to avoid more poverty,” he said.

The LSM remained an important source of economic growth in Pakistan. Owing to the encouraging results of this sector in the previous fiscal year coupled with a low base effect, the government managed to show an overall 5.4 per cent economic growth in 2020/21, he said.

“A constant decline in the LSM sector may cause a lot of problems for the government that is already struggling to create new jobs.”

The government has targeted 4.8 per cent economic growth in the current fiscal year but the IMF has projected at 4 per cent, which is a decent rate but nearly half of what is required to create employment.

“The low base effect has so far been driving the growth of large industries, as the index had dropped to the low of 86.2 in April 2020 from the peak of 160 before the Covid-19 pandemic struck Pakistan. The index remained below the pre-Covid levels.”

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The official data showed that the final gross value-added of the LSM sector had been estimated at Rs2.84 trillion in the new base estimates, compared with Rs2.8 trillion in the old base estimates at the current prices for 2015/16, showing a modest increase of 1.4 per cent.

At present, the industry is facing numerous challenges, including constant rise in power tariff. These measures are counterproductive for economic growth and anti-industrialisation, Nisar said.

The government should shut down all expensive oil-based power plants to ensure availability of cheaper energy for consumers. The previous governments did not pay heed to rehabilitation and maintenance of old power plants, which caused several system constraints, inflicting heavy losses, he added.

“The under-utilisation of the efficient power plants due to the unavailability of regasified liquefied natural gas (RLNG) can be avoided if the Ministry of Energy has timely assessed and managed its availability.”

This huge cost burden on the consumers is being put, as the government could not arrange RLNG to run the plants. Owing to low supply of the imported gas, the less efficient plants were operated that generated costly electricity in November 2021, which is not fair, he said.

“The constant hike in the power tariff on the plea of fuel adjustment has pushed the electricity prices higher and added to the already soaring costs of trade and industry,” he said, adding that there should be similar competitive energy tariffs for domestic industries to capture the global market. Due to the high electricity rates, power theft became rampant.

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According to Nisar, the prevailing key policy rate at 9.75 per cent is also very high. The central bank should adopt competitive interest rates. “The present markup rate is already high, compared with the rate of China, India and Bangladesh.”

State Bank of Pakistan (SBP) Governor Dr Reza Baqir should fulfil his commitment of maintaining an accommodative monetary stance in the short- and long-term to support the rare recovery, amid uncertain Omicron coronavirus variant worries and challenges.

The central bank should reduce the interest rate, which is necessary to make Pakistan’s exports sector, as well as the local industry, competitive.

The achievements in exports and stabilisation of the economy through the monetary policy measures now require to sustain again by extending reduction in the policy rates so that the debt liability of the business sector is compensated through lower markup rate, Nisar added.

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