Monday, October 10, 2011

Understanding Pakistan’s competitiveness

Money Matters

Shahab Khawaja,
Chief Executive Officer
Competitiveness Support Fund

Q: Since the launch of Competitiveness Support Fund (CSF), how has it contributed towards the economic growth of Pakistan?

A: The CSF was established in 2006 as a joint initiative between the Ministry of Finance, Government of Pakistan and the United States Agency for International Development (USAID). Both Pakistan and the US agreed that there was a need for such an instrument that could create more government to government cooperation, as well as further initiatives on the basis of public-private partnerships to create an economy based on international competitiveness standards.

CSF is based on international best practices (India, Thailand, Turkey, Ireland, Finland etc.) to strengthen and make the private sector more competitive and improve the policy framework needed for innovation-based competitiveness. It is supporting Pakistan’s goal of becoming a more competitive economy by providing input into policy decisions, working to improve regulatory and administrative frameworks and enhancing public-private partnerships within the country. The CSF is also providing technical assistance and co-financing for initiatives related to entrepreneurship, business incubators and private-sector led projects with research institutes and universities that contribute to creating a knowledge-driven economy.

Q: Pakistan is ranked at 115 in the space of institutions on the Global Competitiveness Index. How does CSF see this challenge considering that no tangible economic development is possible without efficiently functioning institutions?

A: It is correct that Pakistan’s current ranking in institutions needs to be improved. Institutions play a critical role in creating a competitive environment and trust. Actually it is not just legal or administrative institutions that contribute to competitiveness, in fact bureaucracy, market regulations, red tape, corruption, contract enforcements etc. all play a critical role in determining the global competitiveness ranking in institutions. Landowners, corporate shareholders, intellectual property owners etc. are unwilling to invest in their businesses if they feel that their rights are not protected. Hence, businesses remain stagnant and gradually become uncompetitive. Similarly, countries having robust, transparent and professionally managed private sectors also score high on this account. It’s the issue of improving governance and simultaneously deregulating markets. The Planning Commission’s new growth framework highlights these issues and gives a roadmap to tackle these issues.

Q: Infrastructure rankings of Pakistan require massive improvement. How is CSF engaging with the government to address this challenge?

A: Extensive and efficient infrastructure is critical for ensuring effective functioning of the economy, as it is an important factor determining the location of economic activity and the kinds of activities or sectors that can develop in a particular instance. Well-developed infrastructure reduces the effect of distance between regions, integrating the national market and connecting it at a low cost to foreign markets. In addition, the quality and extensiveness of infrastructure networks has a significant impact on economic growth and reduces income inequalities and poverty in a variety of ways.

A well-developed transport and communications infrastructure network is a prerequisite for the access of less-developed communities to core economic activities and services. Effective modes of transport, including quality roads, railroads, ports, and air transport, enable entrepreneurs to get their goods and services to markets in a secure and timely manner and facilitate the movement of workers to the most suitable jobs. Economies also depend on electricity supplies that are free of interruptions and shortages so that businesses and factories can work unimpeded. Finally, a solid and extensive telecommunications network allows for rapid and free flow of information, which increases overall economic efficiency by ensuring that businesses can communicate and decisions are made by economic actors taking into account all available relevant information.

You will be surprised that the infrastructure rankings of Pakistan are still better than half of the world. The quality of roads in Pakistan is ranked at 79, whereas the quality of railroad infrastructure is at 59. The issue with Pakistan Railways is more of a management issue rather than an infrastructure one. Also the port infrastructure is quite well as it ranks at 72 among 142 economies in the world. According to the World Bank’s report on “Doing Business”, Pakistan ranks 81 out of 183 economies for doing trade across borders. In Pakistan it requires 21 days for export procedures and 18 days for import, which costs around 611 and 680 US dollars respectively. This is almost half of what is the cost of doing business in the region. Pakistan is also fairly well placed in terms of air transport infrastructure at 85 and the available airline seat kms/week, where it has an advantage in the region with a score of 48.

What it really means is that Pakistan is well connected within the country through air transport. Now being an agricultural economy what we need to focus more on is how to get our perishable items to global markets with the help of air transport infrastructure. However, the crisis that you see in the aviation industry is again of weak institutional capacity to manage.

Pakistan is facing multiple challenges on its economic, security and globalisation fronts. But the policy makers must not lose sight of long-term competitiveness fundamentals. For the recovery to be put on a more stable footing, Pakistan must ensure that growth is based on productivity enhancements. The economy is struggling with fiscal challenges and anaemic growth. It needs to focus on competitiveness-enhancing measures in order to create a virtuous cycle of growth and ensure solid economic recovery.

Q: In which economic sectors do you think Pakistan is most vulnerable and why?

A: If you look at the Global Competitiveness Report (GCR) 2011-12 published by the World Economic Forum (WEF), where CSF has also identified that Pakistan needs to concentrate more on its macro-economic indicators, especially inflation and government debt. Furthermore, primary health and education is also a key concern for creating an efficient skilled workforce. The inclusion of women in labour force as compared to men is also very poor; as a matter of fact Pakistan ranks at the bottom among the 142 countries being evaluated by WEF. But the biggest hurdle to the economic growth is the war on terror and its impact on the business cost of terrorism.

Q: What is the future of CSF? Does it have a long-term commitment to Pakistan’s economic recovery and growth?

A: CSF was launched with an objective to bring competitiveness at the core of Pakistan’s economic growth strategy. I am also very happy to share with you that Pakistan has improved its ranking on the GCR from 123 (2010-11) to 118 (2011-12). This, though is a modest gain, but has been achieved against very heavy odds such as deteriorating law and order, unprecedented floods and an overall global recession. CSF has worked very closely with the Government of Pakistan in identifying policy gaps hindering economic competitiveness. CSF has also established linkages between the Pakistani institutions and their respective international counterparts. This has made the importance of CSF even more, as it has been the main instrument for opening Pakistan to the global competitiveness world. In terms of its organisational capacity, CSF has also played its role in identifying opportunities to the private sector and worked closely with the government in terms of policy reforms on investment, institutional capacity building on financial reporting from Pakistan to the international bodies with FBR, and revamping the Board of Investment as a more efficient and professional organisation. We are also developing a comprehensive strategy with the Competition Commission on creating a business friendly environment and a level playing field for all stakeholders. I am confident the work that the CSF is undertaking by engaging all the stakeholders will be the basis for the economy’s recovery and sustainable growth. USAID has shown willingness to continue to support CSF to help Pakistan remove the obstacles impeding its economic growth and competitiveness. I am positive that the government too will continue to support CSF and the stakeholders have expressed their desire for the continued active role of CSF in the future.

The writer is a Karachi-based
communication consultant.

Saturday, October 8, 2011

The Federal Board of Revenue, Government of Pakistan receives training on strengthening financial reporting systems

Competitiveness Support Fund provides technical assistance to 50 senior and mid-level FBR management officials 

The Federal Board of Revenue received in-depth training on the financial reporting, taxpayer audit, revenue analysis and tax policy capacity. As a result of these trainings FBR will implement new ITMS and use a data warehouse for more effective and efficient tax collection for FY 2012 and onwards.
The Government of Pakistan realized the need for such an intervention, when the country was unable to send correct data and assessment on its financial forecasting and reporting to international institutions, which raised doubts among the bilateral and multilateral agencies.
The U.S. Agency for International Development/Pakistan (USAID) proposed to initiate and finance a collaborative tax administration program (TAP) with the Federal Board of Revenue (FBR) of the Government of Pakistan (GoP). The objective of the program was to provide assistance, to build FBR capacity and to transform the FBR into a more transparent, efficient, accountable public sector organization, with enhanced capacity for service delivery. To conduct TAP’s review, the Competitiveness Support Fund (CSF) designed a training programme in a manner that built the capacity of the FBR officials on real time data. It established a team consisting of experts like Mr. Muhammad Abdullah Yusuf, Dr. Ather Maqsood Ahmed and Mr. Habib Fakhruddin, and Mr. Edward Koos along with Dr. Ashfaq Hassan.
The trainees had hands on experience in managing and implementing analytical financial systems using state of the art tools. The trainees were also equipped with the knowledge of operating the new information technology management systems at FBR.
In a statement, Shahab Khawaja, the Chief Executive Officer of the Competitiveness Support Fund said that “Pakistan needs to put in a more transparent and effective system in tax collection and the timeframe to pay taxes – therefore, expanding tax base by improving compliance, bringing the currently untaxed areas into the tax system and formalizing almost 40% of Pakistan’s informal economy have been the keys areas of our focus of this capacity building initiative”.
He also added“50 senior to mid-level management officials were trained to promote a culture of informed decision-making and policy formulation by strengthening the automation and research capacity of the FBR for maximum efficiency and transparency of systems and processes. The training program is also building up capacity for better revenue forecasting.”
CSF as a partner institute of the World Economic Forum (WEF) has identified key economic challenge related to taxation issues in The Financial Development Report 2010 and the Financial Development Index (FDI). According to these reports, Pakistan was ranked at 54 among 57 economies, losing 6 points from its previous position of 49 in 2009. However Pakistan does well on the distortive effect of taxes and subsidies on competition, where it has been ranked at 38 out of 57 economies.
Former Chairman FBR and the Lead Consultant for the training programme, Muhammad Abdullah Yusuf said, “Pakistan needs to focus on improving the financial reporting gaps, CSF has provided technical assistance to FBR and other institutions of the Government of Pakistan on key focus areas including taxpayer education and public outreach, information technology and management systems and data warehouse, taxpayer audit with revenue analysis and tax policy capacity.”
CSF has worked on assessing the current FBR tax administration functions and identified areas where reforms were needed; it also reviewed the current and past tax technical assistance projects and identified any gaps in assistance provided to the FBR. CSF also designed a work-plan that sets forth specific tasks to be performed within each proposed area of assistance.
CSF is based on international best practices (India, Thailand, Turkey, Ireland, Finland etc.) to strengthen and make the private sector more competitive and to improve the policy framework needed for innovation-based competitiveness. USAID has been providing financial support to CSF for carrying out its activities. The Competitiveness Support Fund is supporting Pakistan’s goal of a more competitive economy by providing input into policy decisions, working to improve regulatory and administrative frameworks and enhancing public-private partnerships within the country.
CSF is also providing technical assistance and co-financing for initiatives related to entrepreneurship, business incubators and private-sector led initiatives with research institutes and universities that contribute to creating a knowledge-driven economy. CSF activities are helping all producers along the value chain that contribute to ultimate product quality. By obtaining better value and better prices for quality products, and improving cooperation throughout the Pakistani economy, the CSF is contributing to poverty alleviation by providing more income for producers and better employment prospects for employees.