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‘Low cost of doing business, import substitution only way forward’

By Our Correspondent
January 05, 2022
‘Low cost of doing business, import substitution only way forward’

KARACHI: Economics and management experts have suggested the government to reduce the cost of doing business, work on import-substitution, and improve regional trade via the barter system to make the economy sustainable in the long-term.

Pakistan has been facing stagnant exports for the past several decades, and the current challenges include high fiscal deficit, soaring unemployment rate and low level of human capital, high interest rate, as well as an energy and gas crisis, which led to unsustainable economic growth. To fix these issues, the government needed to look at both long- and short-term solutions.

This was the gist of the comments and suggestions made by economics and management sciences experts at a seminar titled “Economic Stability in Pakistan: The Way Forward” at the NED University of Engineering and Technology.

Prof Dr Raza Ali Khan, Chairman, Department of Economics and Management Sciences said Pakistan’s economy faced multiple challenges simultaneously, which included high fiscal deficit, high level of unemployment rate, and an unsustainable economic growth.

Prof Dr Noman Ahmed, Dean Faculty of Architecture and Management Sciences, NED University, said only 32 percent of taxes were collected from direct source, whereas major tax was coming from indirect sources. On top of that, the exports were stagnant for the past several decades. The first step, he said was holding discussions at educational institutes to seek out solutions to the economic crisis in the country.

Dr Asad Sayeed, Director, Centre of Collective Research-Karachi, and Associate Fellow at IDEAS-Lahore, discussed the details on structural constraints to growth and development in Pakistan. He highlighted that the economy faced volatile growth during the past two decades. “During 2003-04 to 2007-08 and 2013-14 to 2017-18 the economy performed relatively better compared to other years. However, 2019 was the worst year of the economy due to the pandemic crisis,” he added.

Pakistan has the lowest position in terms of exports of goods and services as compared to other regional countries. Similarly, the gross capital formation of the private sector was below 15 percent of the GDP in Pakistan, whereas it was above 20 percent among the regional countries.

He further added that when Pakistan entered the boom phase, consumption increased, but decision makers ignored the need for investment in the economy resulting, which resulted in multiple problems, including low level of human capital, high interest rate, as well as energy and gas crisis.

Prof Dr Shahida Wizarat, Dean College of Economics and Social Development, IoBM, highlighted the strategies of the International Monetary Fund (IMF). The IMF might indirectly control the State Bank of Pakistan (SBP), as the law indicates that the role of the federal government has been reduced drastically. “But the same act suggested the board may represent the members of the provincial government,” she said, adding that it seems the IMF wanted to deal with the provincial governments directly.

Abdul Rehman Naqi, Senior Vice President, Karachi Chamber of Commerce and Industry (KCCI), said the devaluation of local currency has not only pushed inflation up, but has had a negative impact on business activities, particularly small businesses. “In the current economic circumstances, the industries face many problems, including high cost of business and low demand due to high inflation,” he added.

Prof Dr Wizarat also suggested that for the short-term, government should restrict imports of luxury items for a few years. “The government can also start trade with regional economies through the barter system, she said, while also suggesting gradual restriction of edible oil imports, and shifting to other sources.