Asad Umar stresses on changing incentive structure
Federal Minister for Planning, Development and Special Initiatives, Asad Umar has said that Pakistan needs economic transformation by redefining resource allocation and incentive structure.
Asad Umar was addressing a seminar organized at the Planning Commission in which the Economic Advisory Group/PRIME Institute gave a presentation outlining a conceptual framework for economic transformation. The seminar was attended by Planning Commission members, senior staff, representatives from other ministries, think tanks, and academia.
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Addressing the seminar, Asad Umar said that deeper understanding and new forms of levers are needed to trigger growth, and the most important function of the government is to provide policy signaling and a framework for competitiveness and supportive regulatory architecture.
He urged the economists to do more research on the incentive structure in the light of East Asian experience, globalization, and technological advancements, highlighting that the industrial policy tools that Pakistan used in the 1960s are now outdated. A crucial question to be addressed now is which part of the value chain should be incentivized, he asked.
Asad Umar also encouraged economists to work on the political implication of reforms and to conduct empirical research on the impact of structural reforms on the lives of citizens.
The Deputy Chairman of the Planning Commission, Muhammad Jehanzeb Khan highlighted the need for much better policy coordination and suggested that the Government possibly needs to further strengthen its capacity to achieve much-improved policy coherence across the various Ministries. He also said that the Planning Commission is in the process of acquiring capabilities to spearhead growth and economic transformation agenda.
He stressed that political economy dimensions, including federal-provincial relations, should be considered in any plans for economic transformation. Chief Economist, Dr. Muhammed Ahmed Zubair provided examples from international best practices and highlighted the importance of local brand development.
Chief Economist, Dr. Muhammed Ahmed Zubair provided examples from international best practices and highlighted the importance of the development of local brands.
Earlier, Javed Hassan, Dr. Ahmed Pirzada, and Ali Salman from the Economic Advisory Group gave a presentation on “A New Vision for Economic Transformation: Resource Allocation & Productive Structures”.
Introducing the presentation, Javed Hassan pointed out that the wealth of nations is closely linked to their productive structures, as reflected in the diversity and sophistication of goods and services they can produce and export. He further highlighted the metric Economic Complexity Index (ECI), which shows how countries are ranked in terms of their relative level of sophistication. Pakistan is unfortunately ranked 99 among 133 countries.
Dr. Ahmed Pirzada highlighted that “What is required for economic transformation is a continuous reallocation of resources towards more productive activities i.e. producing more sophisticated products requiring higher capabilities.”
For this, the incentive structure has to keep evolving and there should be a willingness on part of policymakers to let inefficient businesses die out. He mentioned that both bad policies and market failures can contribute towards keeping the incentive structure ‘static’ and, as a result, prevent economic transformation. Furthermore, good governance and ‘right’ institutions are critical to stimulating capability-building and sustained growth.
Ali Salman, a member of EAG and Executive Director of PRIME Institute, presented indicative policy proposals to support economic transformation. EAG has recommended that the Planning Commission should take a central role as a custodian of the transformation agenda.
It has also called for the Planning Commission to revisit its recommendations for the upcoming budget and bring them in line with the transformation agenda. Existing and forthcoming policies, including tax and tariff structures, should be modified, so these can aid transformation rather than prevent it. One specific recommendation is to join RCEP, which is the world’s largest trading bloc announced in 2020.
The presentation was followed by an extensive brainstorming session, in which members of the Planning Commission, senior researchers, representatives from other ministries, and members of think tanks and academia participated. They appreciated the economic transformation framework and raised questions on the implementation, institutional and political dimensions of the framework.
