Good governance, reforms must to make most of CPEC: ADB

LAHORE: Pakistan will have to grow at 14.7 percent to materialise its vision of attaining the status of ‘middle income economy’ by 2025, but it would be impossible to achieve with the prevailing macroeconomics of the country, a top Asian Development Bank (ADB) official said on Thursday.

“China-Pakistan Economic Corridor (CPEC) is a great opportunity … however, to obtain maximum benefits … Pakistan will have to make meaningful changes in its governance and introduce reforms to strengthen its institutions.,” Guntur Sugiyarto, chief economist at ADB, said at one of a series of workshops on ‘supporting economic corridor development in Pakistan.’

The ADB official said Pakistan would be able to enjoy its strategic location if it gets integrated global production network with which it is currently disconnected. “Similarly Pakistan is not a part of global value chain (GVC) ,” he said and added that countries like Korea, Malaysia, and Thailand have moved ahead in global markets by being part of GVC.

Noting that lopsided development will not let Pakistan take full advantage of the opportunity, Gunter advised that the CPEC opportunity should be fully exploited. He said there is disparity in infrastructure developed between not only provinces but also between districts within the same province. “Business as usual will not work now,” he warned.

He said planners in Pakistan have failed to take advantage of its diaspora (expats living abroad). “They remit dollars equivalent to 6 percent of country’s GDP every year,” he said adding but they have not been motivated to invest in Pakistan.

Guntur said there are numerous stories that reveal the difficulties faced by foreign-based Pakistanis when they invested in their motherland. “They have lost confidence in the government; however, they are helping Pakistan’s economy through remittance but they would go beyond remittance and invest in Pakistan if the government holds their hand and assure them of fair dealing,” he added. He revealed that the total wages earned by expat Pakistanis is equivalent to 20 percent of country’s GDP, which is a huge source of wealth that could be attracted into the country.

“Pakistani exapts value their homeland very much. Their love and concern can be gauged by the fact that they come with large amount of money whenever there is an emergency in the country like the floods or earthquake,” he said. The economist said that Pakistan is adding 3 million persons a year in its workforce. “The demographic dividend of this young force is not being exploited,” he said and warned that the demographic advantage of young population that Pakistan currently enjoys would end in 2042.

Dr Ishrat Hussain, the former governor State Bank of Pakistan, said Pakistan enjoyed geo-strategic advantage since it came into being. “It is the only country in the world that connects South Asia and Central Asian States through land with China,” Hussain said. He added that infrastructure improvement alone would not deliver the goods. “Infrastructure is the hardware. It is reasonably developed but the software that needs to run on this hardware is very weak,” Hussain said.

He added that software weaknesses include the failure of the government and incompetence, corruption, and inefficiencies are its hallmarks. “If we take for instance the state-owned services sector then it will be found that irrigation, gas, electricity, railways incur a loss crossing one trillion rupees, which is 3.5 percent of our GDP,” the former SBP governor said attributing institutional weaknesses to government failure.

Hussain said government failures are compounded by market failures and markets in Pakistan are imperfect. “The distribution of resources is skewed towards the rich. There is over regulation in some cases and under regulation in others. There is no clarity in policies,” he said and asserted that a clear and positive change would have to be made in these spheres to get optimum benefits from the CPEC.

Hussain said no one should expect investment in manufacturing sector if the government continues to offer a guaranteed rate of return of 17 percent in dollar terms to investors in services sectors. “The government would have to adopt a fair and rational policy to attract manufacturing investment that creates jobs,” he concluded.