PRIME Minister Imran Khan’s emphasis that economic future of the country is linked with enhancement of exports which so far unfortunately below the actual potential and desired level. He indicated that his government will prioritise the competitiveness of industry. Competitiveness is not only cause to slow the exports. There are some other economic policies and actions which dishearten the investors to invest in the country.
Revenue generated economic strategies have slowed down the investment process in the country. In the past economic policies focused on to minimize fiscal and trade deficits which were to some extent achieved but overall economic performance and investment were overlooked. Every government preferred doubling the tax collection and never made efforts to double the Tax-to-GDP ratio and find out new tax avenues.
Pakistan has enormous potential but due to lack of investor confidence, investment has reached its lowest point. In order to control external trade deficit, a policy of devaluation increased the cost of production through an increase in prices of imported raw material especially of plant and machinery. The increase in utilities prices and fluctuation in petrol prices resulted in a massive decline in investment.
Similarly recent increase in the rate of interest to double digit has worsened the negative impact on growth of investment. If further rate of interest increased then it may completely undermine the efforts to promote the investment. Being an agrarian country Pakistan has fertile land to produce and process agricultural products and enhance exports at least to Middle East but only problem is competitiveness. The productivity also plays vital role which depends on level of technical and vocational education and available skilled labour in the country.
A comprehensive economic policy consists of incentives that relax the supply side constraints by reducing cost of production as well as demand-enhancing efforts is required to boost investment and for the restoration of investor confidence. Investor confidence can be restored by taking measures to reduce the cost of imported raw material, availability of capital at lower rate or conditional subsidized credit for the export oriented small-scale industries. This would make it more competitive in foreign markets.
If PTI government is interested to do something then it is time to introduce a comprehensive investment oriented economic strategy to enhance the exports and increase the production of import substitute products for minimizing trade deficit. Manufacturing is key to produce surplus for exports and that needs rational tax structure or reforms for attracting investment in different sectors of economy.
Only growth-oriented strategy can improve the economy. The important areas need to revamp are competitiveness, availability of capital and enhancement of competitive skills to improve the quality of products to the level of their international competitors. The effects of devaluation and increase in rate of interest can be negated by allowing duty free imports of machinery – new and replacement, and raw material. The new strategy should not only be for local investors but it should also provide the incentive for Foreign Direct Investment (FDI).Interest rates emerge as the significant determinants of investment in all the sectors.
Nominal interest rates and infrastructure are important in the case of agriculture only, while relative prices of imported machinery and real interest rates are significant in other sectors. The economic strategy should be helpful in increasing investment but also should be encouraging for foreign investors. But main question is: When such Economic policy/measures will be taken as already eight to nine months have elapsed?
—The writer is ex-Chief, Planning Commission of Pakistan.