To build the confidence of private sector, Pakistan Business and Economic Council shall be established.
Pakistan Muslim League (Nawaz) in its 2013 manifesto has expressed its desire to boost the private sector for which the establishment of the Pakistan Business Council was promised.
The development of private sector is considered the harbinger of growth and development. As new businesses open more people find jobs and the general standard of living of the people improves leading to reduction in poverty. The question is how does private sector become productive in a country and what does it take for the government and general public to make the private sector robust and payable.
Who is private sector?
Anyone engaged in an economic activity it could be a farmer, a street trader, a person owning a multinational firm or a local corporation. As compare to the developed world most of the private business activities in a developing country operates in informal sector, which means the entities are not registered with, or taxed by the government. The core motivation behind every private enterprise is profit. No persons will engage his money and effort in an unprofitable business. Therefore, when governments explore the potential role of the private sector in development they keep the element of profitability in mind.
For a productive private sector, the role of the government in the form of regulations, rule of law, strong institutions, public investment and security, is extremely imperative. In fact, the public and private sector both complement one another. While the public sector provides basic health and social facilities the private sector with its ability to generate wealth and taxes through innovation and mass production, provide adequate resources for the smooth sailing of the public sector entities. Places where private sector stagnates are one where government’s policies fail to attract investment and enable business people to operate efficiently. It is the responsibility of the government to provide to the private sector with finances, infrastructure, regulations and taxation regimes, which are not overly burdensome.
According to the State Bank of Pakistan report: “Pakistan currently houses over 3 million SMEs, employing 78 per cent of country’s non-agricultural labour force, and account for 30 per cent of GDP and 25 per cent of the country’s exports of manufactured products. Despite sectors’ tremendous contribution to the economy, only a fractional number of 171,000 SMEs have formal access to finance of Rs374 billion (as on September 30, 2017) through banks. Out of the total 171,000 SMEs obtaining financing pie, 88 per cent are small enterprises while 12 per cent are medium-sized entities. Small enterprises occupy Rs154 billion of the financing, while 12 per cent of the medium enterprises accounts for Rs222 billion. SMEs are bifurcated into 3 broader business types i.e. traders, manufacturers and service-oriented businesses. The group distribution of the data exhibits that 36 per cent of total financing obtained by SMEs is trading concern, 34 per cent are manufacturing and 30 per cent are servicing. As of June 30, 2017, financing to SMEs was around 9 per cent of total private sector credit by banks and DFIs. The current scenario demands a robust and focused approach for the development of SME sector.”
All eyes are not set on China-Pakistan-Economic-Corridor, for the growth of the private sector. However, Pakistan benefit from this multi-billion project depends largely on its industrial plan including its joint venture with Chinese Companies to create jobs in Pakistan. Given the importance of SMEs for the economy, with its impact on employment and an inclusive growth, the financing to the SMEs is relatively very low, which is one of the major obstacles in its growth.
Special Assistant to the Prime Minister on Revenue/Federal Minister Senator Haroon Akhtar Khan has said the government has doubled the country’s GDP growth as well as the tax revenue and halved the inflation during the last five years.
“The economic indicators themselves are a proof of the gains we have achieved on these fronts and this has been made possible by the prudent and realistic economic policies of the government,” he said
He further noted that “Pakistan’s imports were increasingly mainly because of buoyancy and strength of the economy and demand for foreign machinery for the burgeoning local industry.”
However, he said a long-term solution to the country’s economic woes laid in strengthening the manufacturing base to achieve and ensure a sustainable seven per cent growth rate in coming years. “In my view, building the manufacturing base and making use of cheap labor available in Pakistan is the key to jumpstarting growth in the country,” he said. He agreed that the establishment of the Economic Council has not been fulfilled.
Truth Tracker contacted Asar Omer MNA from Tahreek-e Insaf, and inquired from him about Business Economic Council the PML –N had promised to make to promote the private sector. Asad said that the government never had its priorities streamlined in the sense that it would take up things from most important to least important. He expressed fear that Pakistan will have to seek financial bailout either from China or the International Monetary Fund (IMF) to avoid default. “Due to the government’s wrong policies the exports have been on decline for consecutive four years, which had never happened before in the country’s history. Similarly, the investment-to-GDP ratio always declined compared to the previous tenures whenever the PML-N government came into power,” said Omer. If the government had given impetus to the private sector, there would have been a growth in export and we would not have relied on debt.
Dr. Qais Aslam, Professor in Economics School of Accountancy & Finance, University of Central Punjab, Lahore said that Pakistan’s private sector had not progressed as much as it should have because of lack of an appropriate enabling environment for domestic industry, inappropriate exchange rate policy and the rising debt repayment obligations resulting into balance of payment crisis which most analysts term as a national security threat. It is imperative that immediate policy measures be taken to not only cover the lost ground but for Pakistan to achieve its potential economic growth and job creation.
PML-N though has done a few things for the promotion of private sector but no holistic approach has been visible all these years with the result that the economy is still dependent on external debt. The private sector has also suffered because of the crowding out effect.