Pakistan – Yes we can

Pakistan is celebrating its 75th independence day with full zeal and enthusiasm. Seventy five years, yes seventy five years full of roller coaster ride, so many ups and downs. Journey started from virtually nothing to one of the most modern and advanced country till 1970 and then comes a gradual decline yet Pakistan remained among advanced countries but as soon as country entered into new a millennium, country speedily slipped into the darkness and still it is struggling to find its way to light. Most of the present day crises in Pakistan are self-created however we cannot rule out foreign factors as well. There are various means to control the degradation and can be managed better if not avoided at all.

Pakistan’s current main problems are not new where these were not addressed in past or tried to resolve half-heartedly. Be it low exports than imports, low per capita income, volatile FX rate and less industrialization, all are inter linked. All these are realistically manageable, if polices are made and implemented consistently. The core challenge lies in developing a governance model that fits the current economic and political condition of the country. The other major bottlenecks are its slow and non-transparent bureaucratic structure, corruption at various levels consequently cost of living in the country is very high. Cost of living doesn’t only mean at what price one gets the food but also includes the quality of life and infrastructure facilities available in the country.

Pakistan needs reforms accompanied with greater investments in the infrastructure, enhanced logistics and development of new urban growth centers. Agriculture sector continues to be the largest employer of labor with over 30 percent of the workforce. Present condition of governance in Pakistan is not satisfactory. Good governance is single most important factor in eradicating poverty, promoting development and bringing the much needed change. To ensure sound local development, action should be taken to work towards achieving good governance. As a matter of fact, economic growth depends on many factors, one of the key factors is adherence to the rule of law so that market and investors can work effectively and efficiently and without fear. It is equally important that laws must be clear, fair, enforced efficiently, and equally applicable to all the citizens of Pakistan.

Second phase of China-Pakistan Free Trade Agreement (CPFTA) has also come into effect from December 2019. This should help exporting additional over 300 new Pakistani products at zero duty to the Chinese market. Currently there are over 724 items which Pakistan exports to China under zero percent duty regime and after the second phase, additional 300 items have been added in the list of zero percent duty. It can help textile, leather, agriculture products, confectionery and biscuits, sectors in particular. Second phase of CPEC is also underway with conflicting news. CEPC is probably one project which can change Pakistan’s economic condition, if it is implemented properly.

The economic turbulence which in coming months will increase because fundamentals are not being addressed. Every time ordinary people have to suffer due to mistakes of the policy makers. Government is not an employment agency, it has to scale down government employees, it has to shut down its loss making state owned entities and should support to the private sector for job creation. Small and Medium Enterprises is one area where government should focus on as enough is not being done. In current situation, there is a risk that Pakistan’s loan to GDP ratio will further deteriorate, Pakistan will further slide into a debt trap and current account deficit will again emerge if government relaxes the imports without any increase in the exports.

CPEC is not free from problems as Chinese are getting irritated by delays in executing projects and problems in mobilizing funds on the Pakistan side. CPEC linking Gwadar Port to the Chinese province of Xinjiang, will be a game changer not only for Baluchistan and Pakistan but also for the world trade. Pakistan has yet to figure out the sectors and industries in which China should invest. Pakistan has an established textile and agriculture sector, therefore, it is better to offer these two sectors to China. Pakistan should produce high quality of products now and if this phase is not properly negotiated then chances of getting another chance would be very remote.

In current economic environment, large scale investment on big or mega projects seem difficult therefore, government should focus on Small and medium-sized enterprises (SMEs). The SME share in manufacturing value added can be much higher. Further as important source of new business creation and developing new entrepreneurial talents, these industries can provide the much needed dynamism and vitality to the national economy. In almost every part of the world, limited access to finance is considered a key constraint to the growth of private sector. This is especially true for SMEs of our country as they are facing different types of problems for availing institutional finance though SMEs can play important role in the national economy of Pakistan.

Most of the SMEs in Pakistan do not have access to formal source of finance. Less than 30 percent of SMEs enjoy unrestricted access to the formal credit. The rest of them have restricted access to the formal credit. Bank credit is used by small percentage of entrepreneurs and provides financing of generally less than 20 percent of their total outlay. Majority of the SMEs seek finance for their working capital needs from banks, although only a half-of them get loan from the banks. Banks usually do not express interest towards SME financing. The reason behind this conservativeness is higher operational cost, less return and high risk associated with the SME financing. Due to small loan size, the operational cost is high and they require intensive monitoring and supervision. The main reason for higher risk is that the small and medium entrepreneurs are highly unlikely to comply with the collateral requirements as typically they do not have immovable properties. The key reasons behind SMEs not entering into manufacturing are financial constraints, dismal state of utilities, technology and policy discriminations. But higher growth of small and medium enterprises can help bring down the poverty to a satisfactory level by eliminating various prejudices against labor intensive works and creating jobs for the skilled manpower in the SME sector.

In developing economy like Pakistan, SMEs can play a significant role in the development of the economy by creating employment opportunities and a source of saving huge outflow of foreign currency. Lack of investment or operating funds remains as one of the most prominent complains of the SMEs in Pakistan. However, with proper domestic policy support from the government, and an eye towards global market trends, SMEs can build capacity and reap the rewards of globalization. This sector can help Pakistan industrialize the country. Government should start working on establishing special funds for SMEs and identify areas where SMEs can help reducing the imports.

Policy makers should form policies in support of SMEs and industrialization whereas law enforcement agencies must stop the smuggling. If Pakistan really wants to progress then it has to come out of its past and should have a forward looking approach. Pakistani nation is world’s most resilient nation and the way it has stood against terrorism and supported its armed forces is unprecedented. There is no shortage of funds as such, if policy makers can make consistent and long term polices while implementing agencies focus on core issues rather than discrediting each other. There is no reason why Pakistan cannot progress, the only pre-requisite to growth and stability is unity, faith and disciple.

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