Transforming the investment landscape of Pakistan

Hassnain Javed

March 12, 2019

After the last government’s poor financial performance, Pakistan is still recovering from growth which was fueled by short term debt and declining investments. The economy was in shambles and Pakistan was almost on the verge of bankruptcy by the end of the year 2018. In these circumstances, the Pakistan Tehreek-e-Insaf (PTI) government has chosen to control the supply side of policies with the aid of reduction in government spending to encapsulate austerity drives and increase taxes.

So what should be the government’s focus in order to boost investment in the country? A major highlight from Finance Minister Asad Umer’s speech on the new mini-budget was the relief and incentives being given to the investors to ensure ease of doing business. According to recent stats, Pakistan is ranked at the 136 in the Ease of Doing Business Index (EDBI), and 173 in terms of complicated tax systems. The investment-to-gross domestic product (GDP) ratio of Pakistan has been stagnant at approximately 15 percent, while countries like China, India and South Korea have been able to sustain the ratio to more than 30 percent. Therefore, the new government should aspire to raise the investment-to-GDP ratio to at least 20-25 percent during the government’s five-year tenure. Such a move will improve job creation, productivity, and exports.

Recently, the Finance Supplementary (Second Amendment) Bill, 2019 was passed by the National Assembly, which is termed as a business-friendly reform package. This is because a tax reform package would encourage investment, promote industrial growth as well as boost the country’s stagnant exports. Before this announcement, Abdul Razak Dawood, who is the Adviser to the Prime Minister on Commerce, Trade, Textile, and Investment has also said that the bill would allow investment opportunities and business activities will increase in the country. Regarding this, the Chairman Pakistan Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) Zubair Motiwala acknowledged decisions of the government and speculated that it would help to boost exports and investment.

Following these encouraging policies, the State Bank of Pakistan reported that private sector borrowing has jumped by over 92 percent to Rs600.5 billion during the July-February 22 period, compared to Rs312 billion in the same period last year. These numbers are encouraging for the government as the private sector continues to borrow at a stronger pace despite a steep rise in interest rates, which shows increased confidence of investors in the economy of Pakistan.

Foreign investment in Pakistan is also showing positive trends with countries like the United Arab Emirates (UAE) and Turkey showing interest in investments. Turkey has further expressed interest in developing a legal framework for tourism infrastructure planning, allocation of public properties to the investors, determination, and classification of qualities of hospitality facilities based on international standards. The main focus would be the rendering of technical support to Pakistan in order to facilitate promotional marketing of tourism, advertising a positive image of the country and production of promotional material.

In early October last year, PM Imran Khan spoke at the Future Investment Initiative Conference (FIIC) in Riyadh, where he discussed Pakistan’s economic challenges and invited foreign investors to invest in the country. In this conference, the PM communicated the policy of his tenure that is to enable an environment for investment. He further added that the plan is not just to attract foreign and overseas investors, but also Pakistani investors as well.

The crown prince of Saudi Arabia visited Pakistan last month, showing staunch support and promising $20 billion in investment. Haroon Sharif, who chairs Pakistan’s Board of Investment claimed that the UAE has also nearly finalised plans to establish an oil refinery in Pakistan with an anticipated production capacity of about 300,000 barrels. This project would entail $8 billion in investments.

Recently, Foreign Minister Shah Mehmood Qureshi held a meeting with a delegation led by Luxembourg Foreign Minister Jean Asselborn. Both governments have exchanged views on bilateral relations, trade, and matters of mutual interests. Furthermore, agreement exchange of delegations for enhancing bilateral ties besides cooperation in science, technology and education sectors.

Conclusively, the investment landscape of Pakistan shows some promising trends but in order to fully upturn prevalent economic conditions, more effort from the government is required. Firstly, a multiplicity of taxes and redundant procedures hurt businesses. Pakistan is advised to transform its entrepreneurial environment by encouraging cottage industries to improve the domestic market. By easing the procedures to start a business, the investors could be encouraged by allowing construction permits as indicators through one-window or online operations. Moreover, reforms in contract enforcement, tax payments and protecting intellectual property rights among others are also needed.

It takes two to Tango: The rising Indo-Pak tension

Hassnain Javed

March 07, 2019

 

 

Peace between India and Pakistan, which is tangible and true in every aspect and strong enough to crush the mood of bellicose jingoism in South-Asia seems like a cry far from reality. Prime Minister (PM) Narendra Modi who is contesting for re-election in India, has built a Hindu nationalist base with India’s violent response to a suicide attack in the Indian controlled part of Kashmir. The attack killed 49 Indian soldiers, in response to which India bombed Pakistan, claiming to have been targeting a Jaish-e-Mohammad camp. The air strike in the Muslim-majority area had initially improved PM Modi’s image amongst the extremist groups in India. However, after Pakistan’s counterblast and downing of two Indian aircraft and brief imprisonment of the Indian pilot by Pakistan, the tables turned.

It has been 30 years since the insurgency in Indian Occupied Kashmir (IOK) began. Indian military operations have led to the creation of a new generation of young activists that are fighting Indian forces for independence. The bombers who have claimed responsibility for the February 14 attack on the Indian troops was a local Kashmiri, which shows the level of agitation in the youth.

The situation has taken an interesting turn after the confrontation between the two nuclear-armed arch enemies took place five decades down the line. An article by the New York Times revealed that the challenges faced by the Indian army are quite visible as the country lost two of its planes to a country which is half in terms of the number of army and quarter in terms of the military budget. The article further explained that according to government estimates “if intense warfare broke out tomorrow, India could supply its troops with only 10 days of ammunition. And 68 percent of the army’s equipment is so old, it is officially considered vintage”.

Furthermore, Gaurav Gogoi, who is a lawmaker and member of the Parliamentary Standing Committee on Defense, said that: “Our troops lack modern equipment, but they have to conduct 21st-century military operations,”

Often characterised as an emerging superpower with a strategic position in South Asia, high quality of engineering technology and talent management, there is a rather gloomy story to India’s image of optimism. Reports reveal that India has one of the highest rates of illiteracy and unemployment in the world. Other Human Development Indexes like infant mortality, anaemia and morbidity are also showing poor performances. The social and economic disparities amongst the masses have reached an acute level. This can be seen from the fact that half of India’s 1.2 billion-strong population do not have the facility of private toilets in their home. According to the consensus report, about 77 percent of houses in Jharkhand, 76.6 percent of houses in Orissa and 75.8 percent of houses in Bihar do not have a toilet facility. All three of these states also report the highest poverty rates with more than half of their population living under the poverty line. Registrar General and Census Commissioner C Chandramouli said while releasing the report said that: “Open defecation continues to be a big concern for the country as almost half of the population does it,”

According to Express Tribune, even after the surgical strike on Pakistan, India has lost 785 points on Tuesday over rising tension between New Delhi and Islamabad; the KSE-100 of the Karachi Stock Exchange also shed 275 points on Wednesday as tensions continue to escalate between the two neighbours. Considering the economic consequences of having a nuclear war in the entire region, PM Imran Khan proposed to give peace a chance and released the Indian Air Force (IAF) Wing Commander Abhinandan – who was captured by Pakistan after his MiG 21 Bison aircraft was shot down by a Pakistan Air Force (PAF) jet. The DG ISPR Asif Ghafoor in a statement to the media said that, “Pakistan wants peace; India needs to understand war is a failure of policy”.

Despite these public statements and PM Modi’s reminder to Imran Khan to talk about poverty and illiteracy control, there still has been an air force incursion which is worrisome not only for both the countries but also the entire region. War is not an option, even if it’s started with the intent of being a brief political move to prove supremacy over counterparts in the region. As PM Imran Khan said in his speech, war has a tendency to escalate beyond control. Especially, when the two states are nuclear powers. There has been no direct engagement of war between nuclear countries, but only proxy wars in third states that were a result of failed policies and misplaced ideologies. It would be a move of utter insanity for Pakistan and India to engage in war in such a situation. Nuclear war becomes could annihilate both countries and neither India nor Pakistan’s weak economic conditions would sustain that level of damage.

Conclusively, the only viable option for India is to carry out peace talks with Pakistan as suggested by P Chidambaram, the Congress party leader and former finance minister. Nascent economies that are present all over the world face similar problems of poverty and economic disparity. Therefore, India and Pakistan should join forces to eliminate the crisis that has hit the region and work on public policies which work best for both the countries.

Small is beautiful: revitalizing the SME sector of Pakistan

Dr. Hassnain Javed

January 25, 2019

 

 

In many countries around the globe, and in particular the developing economies like Pakistan, the governments are facing low growth in foreign investment, trade deficits and unemployment. With the increase in economic disparity, citizens are in a state of dissatisfaction with the current affairs of the state. Most importantly, there is a lack in the extent of globalisation and technology as compared to developed nations. Against this backdrop, the digital transformation and restructuring of industries in Pakistan is essential for promoting economic growth and providing a more inclusive globalisation. One such opportunity lies in developing the cottage industry or Small Medium and Enterprises (SMEs), in Pakistan.

Many industries ( like the cotton weaving, textiles, surgical instruments, carpets, leatherwear industries etc) rely on SMEs for the generation of new ideas or value addition in the current product lines. Pro-poor governments in the growing economies have introduced subcontracting policies to integrate the industries along their size and scope. One such example is of the automobile industry that has integrated almost 60-70 percent of its component part supply from SMEs. This is perhaps one of the best examples of efficient collaboration of large corporations with SMEs. Forward integration, with showrooms and repair shops are further examples of how large firms can cover the vast geography of the countries by the extensive network of small enterprises. Likewise, Pakistan can develop its own petrochemicals and mineral industries by collaborating to ensure that the benefits are not only reaped by Punjab or Sindh but also to underdeveloped regions of Balochistan and Khyber pakhtunkhwa. Such a move would provide inclusive growth opportunities, through interdependencies of the region.

The growth of cottage industries is imperative for the sustainable growth and development of the economy of Pakistan. Firstly, the cottage industry boosts economy by creating jobs in the market. Generally small firms are more labor intensive than larger firms that rely more on automation for reaching economies of scale. According to Pakistan Poverty Reduction Strategy Paper, SMEs have a huge potential for the alleviation of poverty in Pakistan after agriculture and construction of housing schemes. Secondly, SMEs have the potential for participating and creating previously unsought benefits of a globalised and digital economy. As inferred from the success stories around the globe major breakthroughs in technology are mostly brought about by innovative ideas put forward by SMEs. For instance, in China Small-medium sized enterprises (SMEs) contribute 60 percent of China’s industrial output and create 80 percent of its jobs. Breaking down the statistics, China’s Bureau of Statistics (CBS)’s 2013 report, revealed that approximately 97.9 percent of all registered companies are SMEs, that contributes to 53.4 percent of all assets in China and 62 percent of all it profits, building this amount to a whopping 4.26 billion Yuan. Moreover, the economic surveys show that SMEs also contribute to nearly 58 percent of the GDP and 68 percent of exports. According to the listing of SMEs in the National Equities Exchange and Quotations (NEEQ) system net profits have increased from about 26.29 percent in 2016. Additionally, their annual reports presented an increase over 25 percent of the annual business revenue.

Despite of the discovery of the scope of SMEs in Pakistan, the sector faces many constraints hindering its growth to the full extent. Some of these impediments include lack of skilled labor, energy crisis, poor marketing and management especially regarding exports and most importantly lack of financial capital. According to the World Business Environment survey conducted on a sample from 54 countries and 4000 SMEs, one of the major problems cited by the businesses was the lack of capital. Due to the small size of these businesses, the management lack economies of scope and therefore an information asymmetry which consequently increases the search and processing costs. Moreover, in some situations these costs may often exceed profitability of the business thus further creating panic in the investor’s mind. Mostly, banks also avoid extending small venture firms to avoid the risk of default hence further increasing the costs of credit searching for SMEs. The inability of these firms to provide a collateral renders the banks unable to identify the earning potential of the SME.

Recently, SMEs have also been seen contributing rapidly towards a green economy because small firms transition more quickly to more sustainable patterns of production and consumption. Following the examples of the Malaysia around 98.5 percent of business establishments in Malaysia are all SMEs. This totals to an amount of 907,065 establishments of SMEs in Malaysia which contributed to 36.6 percent of Malaysia’s GDP in 2016. In terms of geographical locations, Malaysia has set up most of its cottage industries of apparel and textiles, along the previously underdeveloped West Coast in Johor, due to the availability of cheap lodgings. Similarly in the case of China Pakistan Economic Corridor, the initiative intends to develop the west of China’s for an inclusive economic development of the country. These trends from developed economies may serve as blueprints for expanding Gwadar as a hub for sustainable growth of the often overlooked treasure that is Balochistan.

Once the scope of the cottage industry in Pakistan is realised the next challenge for the government lies in the need to fill the gap in the demand and supply of skilled labor in Pakistan. This can only be achieved through relevant industry experience to the new working class by providing them with internship opportunities and apprenticeship programs. Moreover, educational institutions and polytechnics should be advised to implement a revised curriculum which is relevant to business today and hire professionals from the industry.

Conclusively, Pakistan is recovering from a growth which was fueled by short term debt and declining investments. The economy is in a bad shape, and by the end of year 2018 Pakistan was almost on the verge of bankruptcy. Unemployment and poverty challenges to Pakistan are major setbacks for its vision of development in future. Especially the situation in Balochistan has always been of political and economic exclusivity with post-9/11 issues in Afghanistan. With the beginning of 2019, Pakistan would be entering into the the second phase of China Pakistan Economic Corridor which promises the start of an era of development for the province. However, in Balochistan doubts have started to ebb, with a cautious optimism. The government should focus on trade policies and industry development moving on from infrastructure that is inclusive of all the provinces in Pakistan. Large multinational companies are already interested in setting up industries in the automobiles, telecommunications, energy and electronics industry, but in order to truly tap the undiscovered potential of the people of Pakistan, promotion of SMEs would be integral. A well-targeted government action plan should be set in motion provided such interventions do not intervene with the private sector.

Amendments in the role of Pakistan ministries: a viable soultion

Dr. Hassnain Javed

January 04, 2019

 

 

 

Pakistan is an economy which needs to experiment with new themes and policies in the existing ministerial structure and departments to face both the domestic and international competition. The main mandate – indeed cure – to major economic ills of the economy is to focus on export, export and only export based policies and reforms. For that it is suggested to have industrialization and structural transformation with the main policy goals of creating markets and access to trade with product diversification. This policy should primarily focus on import substitution, infant domestic industry protection and the sector development especially the promotion of small scale and cottage industry which will gradually lead to selective opening of competitive environment. But, for the implication of the stated policy it is required to have high political legitimacy to form national development strategies.

Once, the above policy is achieved then Pakistan industrial sector could move towards stabilization, liberalization and laissez faire features. This will lead to the main policy agenda of market led modernization and limit the government involvement. It will actually lead to implementation of more horizontal policies with the Foreign Direct Investment (FDI) opening and forming the base of having exposure to competition. Under this scenario favorable policy environment would be to have low political legitimacy and limitations to policy space through international commitments.

After achieving the first two goals Pakistani Industries can further move towards modern industrial policies by having the knowledge economy and Global Value Chains (GVCs) with key policy agendas of specialization and increased productivity. Additionally, there would be a need of sustainable development that will capture the policy goal of modern industrial ecosystem development. It will translate into technical capabilities developments, innovation in production, learning economy, sustainable goal development sector; public-private knowledge-tech-development institutions, acquisitions of foreign technology and most importantly will provide a platform for entrepreneurship development. This stated policy will require having more policy space in new fields with more emphasis on inclusiveness.

The major amendments are proposed keeping in view the emerging and developed economies like China (Merger of Ministry of Industries and Production with Ministry of Science and Technology);Malaysia (a separate branch for International Trade), Europe; and Japan (A strong liaison between Ministry of Economy, Trade and Industry).

In China, the industrial catalogue is the policy transmission method being utilised by the government to be fully integrated by 2025, in the lower level of the institution as well.

Moreover, the new ministry can serve as a guide for the construction of information system to capitalize on the capacity cooperation policy to develop Pakistan’s global reach; and Internet of Things (IOT) and cyber security upgrades.

In Malaysia, the Ministry of International Trade and Industry is responsible for the international trade development, investment and productivity in the industry, as well as, the management of small and medium enterprise, development finance institution, halal industry, automotive, steel, strategic trade. The vision of the ministry is to “make Malaysia the preferred investment destination and among the most globally competitive trading nations by 2020”. (Portal for the Ministry of International Trade and Industry) Governments all over the world, are employing market intelligent Business Process Softwares, as a part of their Strategic Plan to enable the industry best practices in their manufacturing units and expedite the much-anticipated Fourth Industrial Revolution.(Portal for the Ministry of International Trade and Industry).

Similarly, many countries in the European Union generate and implement, macroeconomic policies for the growth of its overall economy. Europe has created a strong liaison between its Ministry of Economy, Trade, Industry and Business Environment, thereby employing the use of market economy principles and supporting economic agents’ initiatives, to manage the mineral resources, energy, trade, small medium enterprises, cooperatives and the business sector.

During 2001, the Japanese Central Government Reform Ministry of International Trade and Industry has also merged with agencies from other ministries related to economic activities, such as the Economic Planning Agency. The move has proved to be quite beneficial as the ministry has since been transformed into a “human resource agency” as per the leaders of politics, business and academia. The Ministry of Economy, Trade and Industry mission is to “develop Japan’s economy and industry by focusing on promoting economic vitality in private companies and smoothly advancing external economic relationships, and to secure stable and efficient supply of energy and mineral resource.”

Following the model used in Europe and Japan, adopting a similar policy in Pakistan, will lead to effective strategic policy making, regulation and implementation of internal market development. Therefore, it will help enable the internalization of economic growth by defining the National Strategy for Competitiveness, National Export Strategy and development of support scheme for the increasing competitiveness of industrial products.

Door to prosperity: trade and market access for Pakistan

Dr. Hassnain Javed

December 28, 2018

 

 

The current state of Pakistan’s economy seems to be in tethers with the trade deficit rising to approximately 371.6 Billion in November 2018 from 246 Billion in the corresponding month last year. Although the exports have improved to 18.7 % but the effect is marred by a jump in imports to 23.2% from the last fiscal year. Many debates have surfaced, regarding the deteriorating condition of the economy, since the Pakistani rupee has devalued against the US dollar. All of which are pointing towards the fact that the Pakistani economy has been trapped in a vicious cycle. According to World Bank the inflation in Pakistan is expected to remain high till the fiscal year 2020. The currency devaluation and hike in crude oil prices will increase cost of transportation and manufacturing and hence, all commodities produced locally. Due to this fact, many local manufacturing companies are off shoring or outsourcing their manufacturing lines to countries like China, where the cost of manufacturing is substantially low. The mismatch in manufacturing costs is such that a single unit of a flag-badge that is sold for a cost of Rs. 15 in Pakistan corresponds to only Rs. 2 selling price in China.

The situation of Pakistan’s economy is in a financial dooms loop, where most of the key economic indicators are falling and others are stagnant. According to Blomberg, Pakistani rupee has been the worst performing currency amongst all of the Asian economies. Amidst these daunting challenges, the account deficit is expected to remain under a stressed condition as the trade deficit is predicted to stay at an elevated level during fiscal year 2018-19. In view to the fact that the CPEC project is moved from its first phase and entered into the second development phase, more foreign shipments for construction and machinery are expected to increase the import bill of Pakistan. Keeping in view the balance of payments, the issue posits a serious damage to the economy during the current fiscal year, mostly as the deficits are swelling and foreign exchange reserves depleting further down the line. Consequently, the liquidity position may leave the government with be no choice but to lower its non-development and administrative expenditures to reduce fiscal deficit. Further speculation regarding currency devaluations is also expected, coupled with the fact that the foreign currency reserves are also depleting, seeking help from IMF has become inevitable for the Pakistani economy to survive.

However, seeking help from IMF is no solution for Pakistan at the moment as it will be only treating the symptom in the short term whereas the actual problem at surface, Pakistan is not self-sufficient. Currently, Pakistan has put too many of their eggs in one basket. Reliance on support from foreign countries is burdening the already fragile economy of Pakistan. Therefore, the solution for Pakistan’s economy is obvious that Pakistan needs to be integrated with the global economy, in a bilateral trade arrangement.

Approximately, 69000 Pakistani companies are registered in China, almost all of which has their production lines in China. Pakistan should focus, on bringing these factories in Pakistan. In order to do so, Special economic zones will be of utmost importance for facilitating the process. Right now, Pakistan has three key operational SEZ’s at Rashaki, Dhabeji, and Faisalabad; additionally more zones are under construction connected via rail and road. However, despite of the presence of the right infrastructure since 2012,

Pakistan has not been able to market these opportunities to entrepreneurs. Therefore, in order to communicate the advantages of backward integration to these entrepreneurs’ proper marketing efforts need to put in action by capitalizing the right medium.

With the desperate need to develop Pakistan’s industrial sector, Special economic zones will be crucial for the fast development of high quality products, to position Pakistan in the international market. One of the many opportunities that the construction of special economic zones in Pakistan can yield is the capacity building by means of vocational and technical training that will enable the work force here to establish quality skills. The two fold advantages of this would be the improved employment rate, skill formation and, knowledge and technology up gradation. The trading channel is very important in order to transfer the economic distress from Pakistan to developed nations of the world. In order to exploit the full potential of Special economic zones in Pakistan, the government would have to play a more proactive role in terms of capacity utilization and allocation of resources, in order to realize the full potential.

Along with the creation of Special Economic Zones, vocational training and the human development of the labour in Pakistan is also imperative for success. There is a need to establish modern vocational and technology institutes in order to facilitate the supply of technical labor. These centers must be equipped with state of the art training equipment as well as well-versed staff with practical knowledge of the factories to provide in service training programs. These programs, will enable the Pakistani workforce to produce quality products that conforms to international technology and quality standards.

These measures will hence play a pivotal role in order to maximize the utility for the entrepreneurs to base their production back in Pakistan. The gap in value chain can be further filled by capitalizing on the principles of total quality management in production. The goal should be to reduce defects per million opportunities and costs without compromising on the quality standards. An important rationale for quality management is the preoccupation of the idea of quality costs. A common hoax most companies in Pakistan fell victim to is the idea that the primary goal of a business is to minimize costs in order to improve profits. However, on the flip side, quality improvement can be just as effective and sometimes substantial more effective in boasting profits for a business. The concept of Total Quality Management (TQM),can be implemented through technological innovation, with newer quality technologies, price falls, quality rises and average production cost declines.

Conclusively, although the collateral effect of all firms quickly adopting quality technology, will generate equitable returns on investments but the jump in revenues would be enormous. However, firms that would fail to invest in quality related technology will be forced from the market, like most of the previous Pakistani exports.

Can policy reforms help in development of Pakistan’s SMEs?

Dr. Hassnain Javed

September 18, 2018

 

 

 

As discussed in my previous article, I believe that development of the Small and Medium Enterprises (SMEs) are the solution to many problems that the country is undergoing. There are many hopes attached to the newly formed government in regard to new opportunities, development, financial ease, ease of doing business and most importantly less corrupt society. But, it is important to mention all of this cannot be done overnight it requires tireless efforts, policies, reforms, their rightful implementations and yes patience to get the desired outcomes.

Fiscal and financial credit policies are always the cynosure of not only the regulatory authorities but also other stakeholders involved. Pakistan ranks among the world’s sixth largest population and is globally ranked at number nine in regard to its labourforce. It is best to exploit this potential for nation development. In my opinion the Ministry of Finance (MoF) of Pakistan should increase the inflow of fiscal funds into SMEs and also establish funds for the targeted beneficiaries. These funds will play a major role in the development of our economy. There should be an Innovation Fund for Technology based SMEs to promote and support technological innovations.

The methodology adopted by our neighbouring countries like India and China, should be fllowed. Likewise, Pakistan is an agro based economy, the MoF should also focus and allocate funds for Agricultural Research Findings which will boost commercialization, and exchange, transfers and partnerships of sophisticated and practical technologies in high-tech agricultural enterprises.
The MoF has also established the Fund for International Market Exploitation for SMEs to encourage them to participate in global competition, explore international markets and expand exports. Since 2003, the MoF has increased its budgets in some special funds to support SMEs in their establishment of service system, business specialisation and cooperation with large enterprises. Motivated by the central government, some local governments actively adopt measures to allocate special funds to promote the development of SMEs, by supporting the establishment of a national credit guarantee system, subsidies, interest payment for technology updates, and international market exploitation.

It is important to improve ?nancial services, adjust credit structure and enhance the support given to SMEs. Since 1998, the People’s Bank of China (PBC) has issued series of documents, such as ‘Opinions on further improving ?nancial services for small and medium-sized enterprises’,’Guidance on improving ?nancial services for small and medium-sized enterprises’, ‘Guidance on enhancing credit supports for SMEs with marketability, ef?ciency and credibility’. All these documents have initiated a series of policies and measures to improve ?nancial services, adjust credit structure and provide diversified financial products, thus improving the business environment for SMEs. Moreover, speeding up the development of the SME credit guarantee system and improving its financing environment.

In 1999, the former State Economic and Trade Commission (SETC) issued the ‘Guidance on pilot construction of the SME credit guarantee system’, which called for establishing a system to provide credit guarantee services to SMEs for indirect ?nancing. Credit guarantees have become an effective instrument to tackle the financing difficulties faced by SMEs. In 2001, the MoF issued the ‘Provisional rules on risk management of credit guarantee institutions for SMEs’, which speci?ed the organisation, business coverage, operational principles, premiums, provisions and deposits of the guarantee institutions. This document has promoted active and stable supplies of credit guarantee services. In 2001, the State Administration of Taxation (SAT) issued the ‘Circular on exempting SME credit guarantee institutions and reinsurance institutions from business tax’, which grants a three-year tax exemption to non-pro?t experimenting institutions nationwide that provide credit guarantee and reinsurance to SMEs. Furthermore, in 2004, the National Development and Reform Commission (NDRC) and SAT jointly issued the ‘Circular on issues relating to business tax exemption for SME credit guarantee institutions’, which extends preferential treatment to more bene?ciaries and is expected to stimulate the development guarantee institutions.

In order to promote a healthy development of SMEs, the General Office of the State Council issued the ‘Circular on transmitting and issuing the opinion of the state economic and trade commission on several policies of encouraging and promoting the development of SMEs’, in August 2000. As the first consolidated document about SME promotion, the opinion puts forward 25 policies and measures with focus on eight issues, such as propelling structural adjustment, encouraging technology innovation, enhancing fiscal and taxation support, broadening channels of financing, expediting the construction of credit guarantee system, improving socialised service systems, creating an external environment for fair competition, and strengthening organisation and guidance. These policies and measures have improved the regulatory environment and accelerated the legislation process for SMEs. In 1999, the former SETC issued the ‘Opinion on strengthening trainings for SME managers’ to elevate the quali?cations of proprietors and managerial staff in SMEs. Moreover, in 2000, the former SETC promulgated the ‘Opinion on several issues concerning the development of socialised service system for SMEs’, in order to mobilise every quarter of the society to offer services. In 2001, ten state ministries and commissions including the former SETC jointly issued the ‘Opinions on enhancing credit management of SMEs’, to encourage SMEs to pay higher attention to their credibility and enhance their credit status, and to promote the construction of a credit system.

Also in 2001, the former SETC and the General Administration of Quality Supervision, Inspection and Quarantine jointly issued the ‘Opinions on enhancing SME quality supervision’ to build up quality of products and strengthen quality management of SMEs.

Neither private nor state-owned SMEs can develop without government support. SMEs are often in an unfavourable position in market competition, have difficulties in competing with large enterprises and remain vulnerable to market risks, which result from their nature of business, i.e. small size and weak capacity. Taking into account both the nature and important role of SMEs in the economic and social development, we should transform its functions in line with the requirements of the market economy and improvethe way we support SMEs.

Evidence has proven that the vitality and competitiveness of SMEs and the comprehensive and coordinative social and economic development can be enhanced, only if the government adopts appropriate economic policies. Keeping in mind that the policies are in line with the nature of SMEs, properly handle its relations with enterprises, exercise macro controls of appropriate intensity and timing, and create a more fair, open and enabling external environment for enterprises of varied ownership.

Can SMEs be a blessing in disguise for Pakistan?

Dr. Hassnain Javed

September 09, 2018

 

 

 

It is believed that economies with strong Small and Medium-sized businesses (SMEs), are progressive in nature and experience robust economic growth. Likewise, SMEs are also considered as the heroes of contemporary capitalism. Indeed, leading economists and political scientists are also of the opinion that the SME’s structure and network act as a blessing in disguise for the nation and act as one of the main drivers of economic growth and development. Having, this stance Pakistan policymakers need to reform the prevalent SME structure to maximise gains. According to the Small and Medium Enterprises Development Authority (SMEDA), currently SMEs consists of 90 percent of all enterprises in Pakistan.

Pakistan SME structure needs improvement and development in phases. In the first phase, it is required to expand SMEs in number and scale with the government encouragement, in terms of support for the development of enterprise townships, collective and self-employed enterprises. This will contribute to economic development and ultimately improve the people’s living standard. In the second phase, there should be emphasis on the reformation of state-owned SMEs and the development of non-public sectors. At this stage there should be restructuring, merger and acquisitions, joint partnership, leasing, contracting and sell off along with the rapid development of private owned SMEs. Then, in the third phase, there should be focus on the promulgation of SMEs promotion law which symbolises its development. Moreover, the implementation of SMEs promotion law should also focus on improving policies and measures concerning their development, the removal of institutional barriers that hinder its development, with a specific focus on privately-owned ones. Also, the creation of level playing field for SMEs promotion, supporting scientific and technological innovations and upgrading, maximum optimisation of the industrial structure and lastly, enhance the overall quality and its competitiveness.

In the initial phase, the growth will rise but it is projected to accelerate to full boom after the introduction of reforms. The two leading factors which can work most effectively are the rapid development of small and medium-sized township enterprises. The main benefit of establishing township enterprises is to provide solutions for the transfer of rural surplus labour force to non-agricultural sectors which will increase the farmer’s income and will further aid in establishing a solid foundation for the accomplishment of the strategy for gradual reforms and development. Secondly, Pakistan needs to focus on rapid growth of non-public sectors of the economy.

According to the Small and Medium Enterprises Development Authority (SMEDA), SMEs constitute nearly 90 percent of all enterprises in Pakistan, employing nearly 80 percent of the non-agricultural labour force and contributes to approximately 40 percent of the annual GDP. As such, they continue to generate thousands of jobs and new opportunities for the talented Pakistani youth. Based on the current statistics of Pakistan SMEs, the newly formed government need to make policies along with taking initiatives that can further strengthen the economy.

The Pakistani government needs to attach significant value to the development of the SMEs and its structure, which will ultimately result in integrating the issue of small business development and further the overall strategic planning for national economic, technological and social development. Therefore, it is suggested that the new government form legislation and policies, to further process them step by step.

In order to overcome the major difficulties SMEs are facing and the new updates by the World Trade Organization (WTO), the government is encouraged to launch a series of preferential taxation policies. Although these are not specifically for SMEs but they will be the ones benefiting from it the most. The income tax policies for small enterprises in Pakistan should be reduced so that more people can start their own ventures. Likewise, there should be taxation policies that aid in promoting employment. For instance, if a new urban job agency in its first operational year is able to find urban residents job placements for 50 percent of the unemployed workers in the area, then the agency should be eligible for business tax exemption. After three years when the exemption period expires, if the agency is able to find more jobs for unemployed workers that exceed 30 percent of its total jobs, then for two more years, the business should pay 50 percent of the business tax.

Moreover, there should be taxation policies for high-tech enterprises. The enterprises located in the state-level high tech industry development zones are duly recognized as high-tech enterprises by the authority. They should be exempted from enterprise income tax for the two years counting from the year they go into operations. Furthermore, there should be taxation policies for the service industries as well. For instance, new enterprises that engage with transportation, posts and telecommunications, consultation, information industry and technological industry should be exempted from one year of taxation, from the day they start their operations, and for subsequent years they should enjoy a 50 percent discount. In addition to this, preferential taxation policies should also be extended to universities, schools, welfare organisations that employ disabled people in underdeveloped areas recognized by the government.

In conclusion, every successful nation prioritises three primary resources that are material, financial and human. Pakistan is not abundant in all three, but its has comparative advantage over material and human resources and if they are properly utilised and exploited, they would be able to sustain the the drawback we face in the financial sector. The establishment and promotion of SME structure and its policies, is the key to resolving the major socio-economic issue in Pakistan.

Is the water crisis technical or political?

Dr. Hassnain Javed

July 12, 2018

 

 

 

Water constitutes 70 percent of our planet. However, fresh water, safe drinking water, the water we bathe in, the water we use to irrigate our farms is in reality rare.

Water is an essential component that connects with every aspect of life. Approximately 1.1 billion people across the globe lack access to water and a total of 2.7 billion find themselves water insecure for at least one month a year. Moreover, insufficient sanitation is also a problem for 2.4 billion people who are exposed to diseases like cholera, typhoid and many other water-borne illnesses.

According to recent statistics, nearly two million people, the majority of them children, are dying each year due to diarrheal diseases only. Furthermore, one of nine people around the world lack access to safe drinking water; one of three people in developing economies lack access to a toilet.

Moreover, many of the water systems that keep ecosystems blooming, and can potentially feed a growing human population, have become stressed. The beautiful rivers, lakes and aquifers are becoming dry and polluted over time. Also, more than half of the world’s wetlands have vanished. In reality, agriculture is consuming a major chunk of water, and due to inefficiency in the methodology adopted, a lot of water is wasted. Besides this, climate change and its altering trend is another element causing shortages and drought in some areas.

With the given situation and ever-increasing consumption rate, it is believed that this situation is going to get worse and by 2025 more than two-thirds of the world population may have to face water shortages.
Thus, besides all the challenges that Pakistan is currently facing, the water crisis is a major issue that requires immediate attention and meaningful regulations. According to the World Resource Institute, Pakistan is ranked among the top five countries that are suffering from extreme water scarcity and very low access to safe drinking water and sanitation. According to the latest report by the United Nations, Pakistan ranks on the list of countries where shortage will destabilise and endanger its existence in the next few years. Moreover, three-fourths of Pakistan’s population lacks access to safe drinking water. There are issues of water scarcity and its interlinked diseases in both urban and rural settings.

This serious issue is generally left unaddressed even by the political parties who don’t give heat to this important issue in their designed manifestos. Likewise, whenever there is a discussion about the constructions of dams as a proposed solution and gateway to this crucial problem, it gets politicised. Indeed, beyond the construction of new dams if we have a look at the current dams they are not even properly managed. The mega dams of Pakistan at Tarbela and Mangla were constructed more than 40 years ago, and over time their storage capacity is falling short primarily due to slitting and sedimentation. Currently, these dams can only store 30 days of average water demand in contrast to 220 days in India.

There is a long list of factors that have contributed to water crisis which include lack of proper management of existing dams, the old traditional system of canals and barrages, mismanagement of water resources and policy flaws.

Apart from this, the research conducted at Pakistan Council of Research in Water Resources estimates that Pakistan may run dry if the current situation is not addressed. Pakistan is an agro-based economy and is in dire of water for agricultural lands in rural settings. The mounting water crisis has severely affected the agriculture sector of Pakistan, and according to a latest economic survey of Pakistan, agriculture is currently contributing 21 percent to total GDP of Pakistan. Furthermore, 47 per cent of employment generation to the total population of Pakistan is from the agriculture sector. Likewise, the majority of Pakistan’s export goods rely on agriculture like 70 per cent of the export share is from the agricultural sector. It implies that agriculture is the backbone of Pakistan’s economy and the agriculture sector is dependent on water. Therefore, water scarcity results in severe economic distress to the country’s economy. Moreover, a research conducted by Water Resources of Pakistan has found that approximately $70 billion worth of water is wasted every year due to the non-availability of water reservoirs.

The water crisis is also affecting the urban areas. Other than the administrative flaws in water regulations, Pakistan’ s all-time enemy is also adding salt to the wound. On many occasions, we have experienced serious violations of the Indus Water Treaty, such as when India built dams on western rivers that flow into Pakistan; the Baglihar and Kishanganga dams, built on Chenab and Jhelum, may lead Pakistan to lose a significant share of water.

Besides this, politicians and analysts attach all loopholes in water resource management to the policies made by the serving government or previous regimes. There are very few economists and policymakers who address this concern.

China, despite ranking among the world’s largest populations, has effectively implemented the reforms to take care of the matter. Likewise, Singapore has followed the strategy of four taps and Japan has invested heavily in water-saving technology. Now, Pakistan also has sufficient water around the year which needs proper storage to be filtered and reused rather than being spoiled. Internationally, many economies are adopting the strategy of water-pricing. Pakistan can also take this note.

To conclude, the United Nations Development Programme (UNDP) has proposed the development of lesser levelling technology and furrow bed irrigation which translates into 30 per cent water saving and also can drive the productivity by 25 per cent in Punjab. Pakistan as a nation has to make a collaborative effort and widen its scope and horizon to achieve water availability.

Democracy, democracy, where art thou democracy?

Dr. Hassnain Javed

June 29, 2018

 

 

 

Throughout the ages, it is has been easy to identify the faults in democracy. Plato has equated democracy with anarchy, uncertainty, or either mob rule and further explained it is as the second worst degree of government after autocracy. Likewise, Aristotle was less critical but still had a disbelieving view with regard to democratic processes. Moreover, many contemporary Western philosophers including Montesquieu, Rousseau, and Nietzsche were also somewhat, critical of democracy.
This viewpoint was quite common even before the current woes of democracy. In the current world, democracy’s rap sheet is a bit longer than usual. It is often associated, in fact, blamed for congestion, ineffectiveness, and inability to reform and with obvious elections of flawed characters. With all of the stated issues, it is no longer a surprise that democracies do face economic problems.
But, there are instances when democracy played a significant role in economic growth and development. The example of South Korea explains it.

Generally, South Korea’s growth miracle is often associated with the authoritarian leaders of the 1960’s, which includes General Park Chung-hee. He is primarily associated with directing the country’s state-based industrialisation. But the country experienced a downfall in 1980 when it had reached per-capita income of only about one-third of Japan’s. It was followed by large student protests, trade unions and pro-democracy protests. It finally marked the end of military government in June 1987 which led to approximately 5 percent annual growth in the next two decades.

On the flip side, isn’t the nondemocratic China considerably the greatest growth miracle of all time? Many analysts are of the opinion that democracy not good for growth. Aren’t democracies mostly associated with poor implementation of reforms that can trigger to economic growth for instance tackling corruption or restructuring monopolies? Isn’t democracy less likely to function in a poor or low education society and aren’t its economic implications known to lead to major disaster? In addition, aren’t all the dilemmas in democratic societies around the globe representing proof of its flawed nature?

It is true that China’s growth is impressive and it is difficult for democratic societies to catch up to it. However, compare China’s growth from the late 1970’s when its income per capita was less than $300 a year with that of Germany or US, and you see that it is a specifically egregious case. The real question is whether Germany would have experienced faster growth in the last two decades being a nondemocratic country and China would have suffered from poor growth rates if it had been democratic?

Such questions are always difficult to address and require statistical support to analyse how growth patterns would have proceeded if the political regime of the country had been different. A simple cross-country comparison reveals the growth deficit of non-democracies.

The misguided view that democracy is not good for growth has many sources. Firstly, most of them are based on causal comparisons of the growth experience of some democratic nations with non-democratic nations for instance comparing China with western economies rather than presenting a careful and detailed statistical analysis.

Secondly, it is important to note that nondemocratic regimes often experience failure when the economy caves in. Thus, democracies often inherit an economy in turmoil. Therefore, making a comparison of an economy few years after democratisation to several years before the advent of democracy will have probability to give a misleading picture of what exactly democracy indicates for economic vibrancy.

Lastly, reverting to Plato and Aristotle, many other intellectuals who have often been doubtful of democratic decision-making generally streamline the weakness of democracy while ignoring its success.
Moreover, there is a shared view that democracies are bad at economic reforms and they are often backed up with the arguments that you need the firm grip of a dictator to push reforms through in a way that General Augusto Pinochet did in Chile after overthrowing the democratically elected government of Salvador Allende in 1973. In modern era, a lot of people are in favour of authoritarian governments with the argument that there are better able to implement tough reforms in comparison to democratic government.

However, the reality is the complete opposite. Through diversity of areas, democracies are more likely to adopt market friendly reforms. Whenever a country democratises, it often moves towards a battery of reforms while undergoing a variety of inefficient regulations and monopolies instilled by its previous nondemocratic regime.

Primarily, because of these reforms and because of other economic and social changes which democracy brings along, there is a steady increase in investments, which are collectively responsible for the growth in the following years after the onset of democracy. Besides this, democracy is noteworthy in increasing taxes and spending more on education and health along with preparing economies to achieve greater productivity in the decades to come.

American Economist Richard Posner suggested that when electorate is poorly educated or either when the economy is not yet modern, democracy will face greater difficulties and at certain instances its negatives might well outweigh the positives. On the contrary, the data shows something different — democratisation even in low-income and low-education countries appears to lead to faster growth rates. Therefore, it should not be proposed that some countries are not yet ready for democracy.

Furthermore, it cannot be said that nondemocratic governments will experience smooth transitions to democracy. Democracies, in real terms, demand work and will also face headwinds because the idea of democracy is often threatening to powerful international actors such as Russia and China today.

Moreover, some of the major problems attached with a democratic system are internal rather than external. Democracy gives birth to both losers and winners. After all, the weaker groups fall prey to giving higher taxes and few are unhappy after an end to their monopolies. These tensions aggravate when the losers are powerful enough to undermine democracy and generally, this is the main reason behind why democracies fail to operate.

Likewise, democratic politics also becomes difficult to practice during times of hardship when natural forces leading to polarisation are showing resistance to compromise, which is an integral pillar of democracy.

This piece does not aim to criticise democracy, rather it seeks to support it. Democracy has its problems but it is the only viable option. In summation, Churchill’s famous thoughts on democracy explain better than I can: “No one pretends that democracy is perfect or all wise. Indeed it has been said democracy is the worst form of Government, except for all those other forms that have been tried from time to time.”

Pakistan budget: myth versus reality

Dr. Hassnain Javed

June 21, 2018

 

 

 

The current fiscal year marked the continued improvement in economic growth, as the GDP is estimated to have grown by 5.79 percent, highest in the last thirteen years. Although this is short of the planned GDP growth of 6 percent, there has been steady upward trend from around 5.3 percent growth achieved in 2016-2017.
This fastest pace of real GDP growth is backed by the robust growth in agriculture, manufacturing as well as in services. The growth across different sectors of the economy is appealing to various international companies, as they see immense potential, a huge consumer market, strategic location and macroeconomic stable environment. Moreover, the previous years mark the trend of foreign investment inflows into Pakistan.
Source: Economic Survey, Ministry of Finance
Moreover, in line with the trend from last five years, services sector has demonstrated a growth of 6.4 percent and remained the key contributor of GDP growth. This growth was majorly supported by the non-commodity producing sectors including wholesale and retail trade. The industrial and agricultural sectors also reflected healthy growth of 5.8 percent and 3.8 percent respectively. Agriculture sector surpassed its targeted growth of 3.5 percent and also last year’s growth of 2.07 percent.
Level of private consumption and investments largely contributed to the enhancement in the GDP growth. This year, household’s average tendency to consume continued at around same level of 85.5 percent at constant prices and at around 82 percent in current prices. It reveals that the growth rate of private consumption was about the same as the growth rate of GDP both in constant and in current price. Low interest rates also supplement the consumption level as people are interested in purchasing durables during periods when relatively cheap money is available.
Achievement of 5.79 percent real GDP growth was attributed to a number of factors ranging from stable macroeconomic environment due to improvement in supply of electricity to the industrial sector. Key drivers of GDP growth include control over inflation with lowest policy rate, credit flows to private sector via strengthening of banking sector, continued buoyancy in external trade, mainly imports, surge due to CPEC projects, improvement in electricity supply to industrial sector, higher large scale manufacturing growth, enhanced revenue collections and infrastructure progress including CPEC and its related projects is of utmost importance.
The government’s objective of containing inflation in single digits was fulfilled as per the Economic Review with inflation during July 2017 to March 2018 standing at 3.78 percent, which is lower in comparison to 4.01 percent in the same period last year. Although the Federal Minister admitted that the government could not claim to have transformed Pakistan like China, it was claimed that without any doubt it had turned around an economy described by many as dead five years ago. However, the social indicators, although not officially released, do not seem to be improving as per last available statistics. 30 percent Pakistanis live below poverty line of Rs 3030 per adult per month in 2013, 2 out of every 5 (44 percent) children under the age of five are stunted, 32 percent are underweight and 15 percent children are suffering from acute malnutrition. Approximate allocation for the first three years to education comes at about 2.6 percent of GDP.
Besides this, to the government’s credit, a number of developments in their tenure have fueled the growth impetus in the country. Some of the most prominent are addition of 12,230 MW of electricity to the national grid against an addition of 15,000 MW in the past 66 years, activation of $29 billion worth of projects under the $46 billion CPEC portfolio, and improvement in law and order situation of the country in general and of Karachi, the business capital of Pakistan, in particular.
Total public debt provisionally stood at Rs 23,608 billion at the end of February 2018 while total debt of the government was Rs 21,552 billion. Gross domestic debt recorded an increase of Rs 1093 billion during first eight months of the current fiscal year while external debt increased by Rs 1107 billion. In addition to financing of the fiscal deficit, increase of credit balance with banks and depreciation of currency contributed towards the increase in debt. The government has justified this increase through utilisation for capacity additions in energy sectors and infrastructure development.
Regardless of the significant growth shown by numbers, there is growing skepticism on the sustainability of this growth momentum owing to continuing bulge in the current account deficit and falling foreign exchange reserves. Pakistan’s exports have shown negative growth in the last four years, and have only witnessed some growth in the current year whereas rising imports of capital equipment and fuel kept the import bill high. Imposition of additional regulatory duty has done little to slow down the imports.
The current estimate of Current Account Deficit of 5 percent of GDP is expected to increase till the year-end as it currently does not take into account the circular debt which has crossed Rs 1 trillion.
The recent devaluation has not helped much in stabilising the foreign exchange reserves and the rising Current Account Deficit may lead to the situation of approaching IMF once again, a position which the government had assured would not reach in January this year. Should that happen, Pakistan will continue the tradition of being the only country of its size to have repeatedly approached IMF at a slow-down of economy after going through an artificial boost fueled by the previous round of funding with no sustainable improvement in the economy.
With an aggregate total outlay of PKR 5.93 trillion and no new taxes, the budget targets an economic growth of 6.2 percent by 2018-19 to be attained by raising net revenue receipts by 16 percent (PKR 3.2 Trillion) and attracting higher investments both from public and private sectors.
The budget aims to reduce the fiscal deficit to 4.9 percent, increase revenue and investment to GDP ratios, address the energy deficit and promote exports. Given the right economic policies and their effective implementation, the targeted growth appears challenging but achievable. FBR revenues are planned to be increase to Rs 4435 billion and increase federal revenue to Rs 5661 billion while non-tax receipts to be decreased by 21 percent this year as compared to FY18 budget.

The key highlights of budget 2018-19 include a new programme called 100 100 100, introduced in FY19 budget. This is federal government’s commitment to ensure that 100 percent Pakistani children will be enrolled in schools and 100 percent children will be retained in schools.
Funding for higher education, primary health services, and programmes for youth with Rs 57 billion under Public Sector Development Programme allocations to Higher Education Commission, Rs 37 billion for primary health programmes and Rs 10 billion for programmes for youth, for railways, in addition to recurrent budget grant of Rs 35 billion, development budget investment is proposed at Rs 39 billion, 31 projects for development of Gwadar are part of the proposed PSDP 2018-19 with an estimated cost of Rs 137 billion, for the AJK and Gilgit Baltistan, an amount of Rs 44.7 billion is proposed to be allocated. For the people of AJK, a special project of Lipa Tunnel construction which will facilitate the local population was also announced; for FATA, Rs 24.5 billion have been proposed to bring FATA to the mainstream, a ten-year FATA development plan with total outlay of Rs 100 billion has been approved during 2018-19; Rs 10 billion are proposed to be provided and Rs 90 billion have been allocated for peace and security in the budget 2018-19’ the defence budget is proposed to be Rs 1100 billion against the revised budget of Rs 999 billion in 2017-18, total size of Federal PSDP 2018-19 would be Rs 1030 billion against revised estimates of Rs 750 billion and provincial surplus is estimated at Rs 286 billion in 2018-19 against revised estimate of Rs 274 billion for 2017-18.
On the other hand, it also shatters the myth that Pakistan spends its major chunk of expenditures on defence as in reality the largest expenditure item is debt-servicing. It is the second largest expenditure, deliberately hidden in budget figures, which was actually eaten up by the losses of enterprises like PIA, the Pakistan Steel Mills and Railway. In budget 2018-19, the major expenditure is on debt-servicing followed by losses of public sector enterprises, public sector development programme and then comes the turn of defence affairs and services. Therefore, the perception that the defence budget takes away lion’s share of the total budgetary outlay is indeed not the reality as 82 percent are all government expenditures and 18 percent are spent on defence affairs and services. Moreover, Pakistan armed forces are the 6th largest in the world, but our expenses per solider are the lowest. US budget allocation amounts on average $460,000 per solider in one fiscal year in comparison to Pakistan which only allocates $12,000. Besides this, there is another myth that the defence budget has been increasing at a high rate whereas in reality it contributes to 4.6 percent of GDP in year 2001-02, 3.9 percent of GDP in year 2003-04 and Rs 1.1 trillion which accounts to 3.2 percent of GDP in the budget 2018-19. In addition, Pakistan’s defence budget is the lowest in the region despite its location in the red zone in terms of growing threats to its security. In order to make a comparative analysis, United States is spending $622 billion, China is spending $191 billion, India spending $50 billion and $9.6 billion is spent by Pakistan.
To conclude, according to the World Bank Global Economic Prospects published in January 2018, other countries in the region, especially India and Bangladesh are forecasted to grow by 7.5 percent and 6.7 percent in FY19 respectively. Pakistan should be aiming at a GDP growth of plus 7 percent, especially considering the huge opportunity created by CPEC investments and continuing improvements in law & order and energy sectors.