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Growth rate of 7pc essential to make a breakthrough in economic front

Published on 4th Jan, Edition 1, 2016

Pakistan will achieve seven percent growth rate by 2017-18 with aspiration to bring the investment to GDP ratio to 22 percent in the next three years as private sector will be encouraged to play its part in the development of the country.

The World Bank expects Pakistan’s fiscal deficit to decline to 3.5 percent of the Gross Domestic Products (GDP) in financial year 2017 in a latest report unveiled. It projected a steady growth recovery-cum-low inflation in the next two years, supported by fiscal consolidation and an improving external position.

According to the twice-a-year South Asia Economic Focus report, investment in Pakistan is expected to rise due to operationalization of the China-Pakistan Economic Corridor (CPEC) and inflation is projected to low on the back of low commodity prices, exchange rate stability and a prudent fiscal policy. South Asia is expected to maintain its lead as the fastest-growing region in the world, with economic growth forecasted to accelerate from seven percent in 2015 to 7.4 percent in 2016.

Bright projection

Macroeconomic stability in Pakistan has largely been restored and key external risks are lower. The landmark increase in remittances and stable agricultural performance continues to support a steady growth outlook.

Prospects for continued growth appear reasonably bright, supported by strong fiscal consolidation and improved external position. Slowdown in China might affect this outlook. Pakistan needs to successfully implement reforms in energy and taxation, and increase investment.

The economic conditions have improved over the past year and a strengthened external position, continued fiscal consolidation efforts, and progress in achieving structural reforms have led to Pakistan’s outlook being raised to positive from stable by the main rating agencies.

The government is going in the right direction, despite terrorism, chronic energy shortages, natural disasters and political upheavals like the PTI-led 126-day long protest in Islamabad.

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Numerous highly reputed media outlets like Bloomberg, Forbes and the Economist etc have reported that with a fast-improving security, dynamic Pakistan has the potential to become a global turnaround success story.

These media houses have asserted that government is working together with the Military to deliver peace in the country, inflation here has slowed each month this year because transport and food prices had plunged forcing the State Bank of Pakistan to cut the benchmark interest rate in the month of May to its lowest level in 42 years.

Pakistan whose 60 percent of the population is of working age and which is undergoing rapid urbanization process, massive future demands for food, energy, water and consumer goods have been rightly predicted.

These media houses states that the $46 billion China-Pakistan Economic Corridor was the key reason why the United States should reassess its Pakistan calculus, because this initiative has not only injected optimism in a country starved for infrastructure and energy investment, but the Pak-China deal has also greatly incentivized the government to harness terrorism.

These well-known Western media outlets think that the United States should encourage greater investment by using specialized agencies like the Overseas Private Investment Corporation, the US Trade Development Agency and USAID’s Development Credit Authority.

The Time magazine, has actually compared Pakistan to Colombia in its August 3, 2015 report. It states: “The Pakistan of today is similar to that of Colombia in the late 1990s. Back then, words like “drugs, gangs, and failed state” were freely associated with the Andean country.

Today, Colombia has a free trade agreement with the United States, a stable 3.5 percent annual GDP growth, and security is vastly improved. Similarly, Western headlines on Pakistan today gloss over the progress on the security front, the increased political stability, and incremental progress on the economic front.

In spite of this potential for Pakistan, it continues to suffer from a terrible country brand that has not caught up with realities on the ground.

Forbes.com has acknowledged that Pakistan’s improving security dynamic was the first change to note, stating that soon after the December 16, 2014 attack on Peshawar’s Army Public School that had killed 145 people including 132 children, the country’s military had responded in force by taking out 157 terrorists via air strikes and ground operations in the North Waziristan and Khyber tribal areas adjacent to Peshawar.

“The government is boosting infrastructure spending as the $232 billion economy expands at the fastest pace since 2008 amid the cheapest borrowing costs in 42 years. Leaving aside sectarian violence, bombings, killings and kidnappings, the benchmark KSE-100 stock index has advanced about 16 percent in the past 12 months, featuring among the world’s top 10 performers,” the report said further.

Bloomberg had reported that government who assumed power in May 2013, had boosted the infrastructure spending by 27 percent to Rs1.5 trillion for the financial year starting July 1, 2015, besides making significant progress in accomplishing targets under IMF’s $6.6 billion loan program. Bloomberg had revealed that Moody’s Investors Service had upgraded Pakistan’s sovereign credit ratings for the first time since 2008, making a strong mention of the soaring Forex reserves and the state’s economic overhauling under an IMF programme.

On May 5, 2015, the Bloomberg had revealed that Standard & Poor’s had raised Pakistan’s credit rating outlook to positive from stable, as lower energy costs and an IMF loan had triggered growth and had improved finances. It affirmed its ‘B’ rating, which is among the so-called junk grades, and raised the 2015-2017 average growth projection to 4.6 percent from 3.8 percent. Risks include higher oil prices, weakness in key trading partners and violence.

The Economist had contended: “Pakistan’s economy is growing at over 4 percent when the whole Europe and Canada are below 3 percent. Terrorism incidents have dramatically gone down in the last year. Operations in Fata and Karachi and throughout Pakistan are producing fruits. That and the economic policies of government have put the economy back on track.

Future planning

Pakistan should fixed tax for unorganized sector, allocating primary education exclusively for women, enhanced role of private sector to increase GDP growth rate to 7 percent and expeditious completion of energy projects to spur national economy.

Organized sector is paying its taxes and to bring the unorganized sector into the tax net, FPCCI and KCCI should work on this proposal to make it acceptable for the unorganized sector.

Taxes are must in human body and each and every person should pay its due tax liability in order to contribute its role in the overall development of Pakistan.

We must adopt suitable tax strategy appropriate to our own system. The fixed tax would facilitate tax payers from all income and sales tax related liabilities.

GDP growth, should be 7 percent to make a breakthrough in the economic front. The private sector and particularly FPCCI and KCCI have to take this responsibility and generate much needed economic activities.

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