ISLAMABAD: UK Professor of Economic Policy at Oxford University, Stefan Dercon, on Sunday warned that Pakistan was rushing towards a growth trajectory of 4.75 percent or beyond 5 percent without undertaking structural reform, so the minister for finance would have to book a flight for Washington for seeking another bailout package from the IMF.
Professor Stefan Dercon, who gave advice to the Shehbaz Sharif-led government in recent years on economic issues, made these blunt remarks while delivering a keynote address in a policy dialogue shaping priorities ahead of the national budget, organised by the American Business Forum (ABF) in collaboration with the Lahore University of Management Sciences (LUMS) on Sunday evening.
The visiting professor reminded the audience that Pakistan was facing a difficult economic situation in January 2023 when businessmen were unable to get dollars and everything got complicated on the economic front. Inflation was reversed and the foreign exchange reserves were built up in the recent years, he added.
He stated that the State Bank of Pakistan (SBP) had recently projected that the GDP growth rate might go up to 4.75 percent and he considered it as bad news for Pakistan because the country was moving towards higher growth trajectory despite flood effects without undertaking structural reforms. Then the minister for finance must get ready for seeking another bailout package from the IMF. “I am worried that again growth momentum is picking up without structural reforms,” he maintained. The investment and savings are low and export-to-GDP ratio is stagnant, he said and added that the lack of structural reforms clearly indicates that the capital was not moving where it should have gone.
He cited examples that China and India undertook reforms in 80s and 90s by opening up their economies, then the growth momentum picked up in a sustained manner. Now businessmen are asking the government to lower tax rates and energyprices to stimulate the economy but it can only help if exports go up, he added.
He opposed the theory of Laffer curve illustrating that the reduction in tax rates result into increased tax revenues and stated that it never resulted into the same equation anywhere in the world but in Pakistan the Laffer curve was cited by everyone.
Pakistan, he said, had achieved lowest per capita terms compared to India and China and stated that India secured fast moving growth and clinched 5.4 percent per capita growth while Pakistan stood at 1.8 percent in this region.
If the country crossed 5 percent GDP growth without increasing investment, savings and exports, then the finance minister would have to definitely go to Washington for another IMF package.
He proposed improving trade balance, bringing certainty and consistency in policies and simplifying regulations to achieve the desired results in Pakistan. He cited the example of India where the Bombay Club had opposed the reforms at an initial stage but New Delhi pursued reforms without big bang. There is no silver bullet to fix the economy, he said and added that instead of making everything as part of reform, the consistency and continuity of reforms could play a pivotal role.
Minister of State for Finance Bilal Azhar Kiani said that despite resistance, the national tariff plan for five years was implemented. The Industrial Policy, he said, is on the cards and the government was moving towards reducing the cost of doing business in the country.Ali Naseer from Jazz Pakistan stated that there was a need for consistency in policies.
