December 2015 GROWTH of the PROVINCIAL ECONOMIES
Total Page:16
File Type:pdf, Size:1020Kb
December 2015 GROWTH OF THE PROVINCIAL ECONOMIES By Dr. Hafiz A. Pasha The time for formulation of Provincial Growth Strategies (PGS) has come. These strategies should form the basis for the allocation among sectors of the funds in the respective Annual Development Programs (ADPs). This role of the Provinces in promoting the growth of their respective economies has been greatly facilitated by the passage of the 18th Amendment. This Amendment has led to the abolition of the Concurrent List in the Constitution and the resultant transfer of the large number of functions in this List to the Provinces. Unfortunately, not much is known currently about the size, composition and growth of the Provincial economies. Pakistan, unlike India, does not have a tradition of constructing and maintaining Regional Income Accounts so as to estimate and derive the trends in the Provincial Gross Domestic Products (PGDPs). This has rendered it extremely difficult to engage in meaningful planning at the Provincial level. The Pakistan Bureau of Statistics (PBS), in coordination with the Provincial Bureaus of Statistics, should have undertaken the task of distributing the national GDP into the PGDPs on the basis of allocators for each sector. This has not happened because planning has been very much in the Federal domain under the Planning Commission, Government of Pakistan. The approach now required is a ‘bottom-up’ process whereby Provincial development plans are first prepared and then aggregated into the National Plan. The task for the Federal Planning Commission is to ensure that there is a consistent sectoral and macroeconomic framework to support the Provincial and Federal plans. No part of this publication may be The objective of this report is to present estimates by sector of the PGDPs reproduced or transmitted in any form or by any means without permission in for the period, 1999-2000 to 2014-15. In the process, there is substantial writing from the Institute for Policy deepening of the knowledge on the economy of Pakistan, especially in Reforms terms of the location of different activities. The report is organized as follows: Section 2 describes the methodology Board of Directors used for constructing the regional income accounts to yield estimate of the PGDPs. Sections 3 and 4 presents the results of the application of Mr. Humayun Akhtar Khan, Chairman the methodology and conclusions derived regarding the relative size, Dr. Hafiz Pasha, Managing Director Mr. Akbar Khan composition and growth of the four Provincial economies. Section 5 Dr. Khalida Ghaus quotes or constructs other indicators of regional growth to judge the Mr. Ashraf M. Hayat, Executive Director consistency of the PGDP estimates. Section 6 asks the question as to whether regional inequality has been increasing or decreasing in Pakistan over the last fifteen years? Section 7 identifies the sub-sectors which can act as potential drivers of growth in each Province. Finally, in Section 8 are presented a summary of the major findings and recommendations. 2. METHODOLOGY FOR ESTIMATION OF THE PGDPs Board of Advisors The first attempt at estimating by sector the PGDP of the four Provinces is by Bengali and Sadaqat [2001] under the technical guidance of Professor Lt. Gen (R) Sikander Afzal Hafiz Pasha. The estimates are for the period, 1972-73 to 1999-2000. Dr. Manzoor Ahmad Mr. Munawar Baseer This report represents extension of the methodology developed in Ms. Roshan Bharucha this paper. Mr. Shakil Durrani Mr. Hussain Haroon This finalization of the methodology is also based on a comprehensive Dr. Iqrar Ahmad Khan review of literature of papers by Nair [1987] and Tiwari [1971] on India, Mr. Tasneem Noorani Walters [1987] on Australia, Adler [1970] on Canada, Arndt [1973] on Mr. Tariq Parvez Indonesia, Brown and Woodward [1969] on the U.K, Sourroile [1976] on Mr. Salman Raja Indonesia and Graham and Romans [1971] on the USA. Dr. Atta-ur-Rehman Dr. Abid Suleri The methodology essentially involves the identification of appropriate Mr. Abdullah Yousaf Mr. Moeed Yousaf regional allocators of the value added in different sectors/ sub-sectors. The choice depends also on the availability of data. There are three possible approaches including estimation of factor incomes, output or expenditure. Table 1 gives the allocator used for each sub-sector. The total number of sub-sectors is 17. The factor income approach has been adopted for four sectors, the output method for seven sectors and the expenditure approach for the remaining six sub-sectors. Eight sources of data have been used. ii Table 1 Regional Allocators for Different Sectors/Sub-Sectors Sector/Sub-Sector Allocator Data Sources* AGRICULTURE Major Crops Share in Output of major crops PDS, ASYB Minor Crops Share in Output of minor crops PDS,ASYB Livestock Share in Consumption Expenditure HIES Forestry Share in Expenditure on Forest Products HIES Fishing Share in Output PDS,AYSB INDUSTRY Share in Output of Crude Oil, Natural Gas and Mining and Quarrying PDS, EYB Coal Large-Scale Manufacturing Share in Output of 100 industries PDS, PESa Share in Informal Sector Employment in Small-Scale Manufacturing LFS Manufacturing Share in Consumption Expenditure on Livestock Slaughter HIES Products (excluding milk) Shares in electricity generation, electricity Electricity, Gas and Water consumption, gas consumption and canal PDS,EYB,ASYB water withdrawal Construction Income-Adjusted Share in Employment HIES,LFS SERVICES Transport, Storage and Shares in Consumption of POL and number of OCAC,PTA Communications cellular phone subscribers Wholesale, and Retail Trade, Hotels Share in trade margins in marketing of goods HIES, LFS and Restaurants and in employment in hotels and restaurants Finance and Insurance Share in bank advances SBP Ownership of Dwellings Share in actual and imputed rents HIES Public Administration and Defense Income-Adjusted share in employment HIES,LFS Community, Social and Personal Income-Adjusted share in employment HIES,LFS Services a data was only available for selected industries, for other industries data was obtained directly from the Punjab Bureau of Statistics and Pakistan Bureau of Statistics *Punjab Development Statistics, ASYB=Agricultural Statistics Year Book, HIES=Household Integrated Economic Survey, LFS=Labor Force Survey, OCAC=Oil Companies Advisory Committee, PTA=Pakistan Telecommunication Authority, SBP=State Bank of Pakistan, EYB=Energy Yearbook Before presenting the PGDP estimates for the more recent period, the earlier growth patterns by Province are presented in Table 2, as revealed for different epochs by the estimates from Bengali and Sadaqat [2001]. A remarkable empirical regularity is observed. On a long-term basis, over a period of 27 years from 1972-73 to 1999-2000, three Provincial economics of Punjab, Sindh and Khyber-Pakhtunkhwa have grown at virtually the same rate of close to 5%. The only Province which has shown a significantly lower growth rate is Balochistan. 1 Table 2 Annual Growth Rate of the Provincial Economies in different Epochs (%) 1973-77 1977-88 1988-1999 1973-1999 (Bhutto) (Zia ul Haq) (BB+NS) Punjab 3.2 6.0 4.4 4.9 Sindh 1.9 7.0 4.1 5.0 Khyber-Pakhtunkhwa 1.1 7.0 4.3 5.0 Baluchistan 2.5 4.9 4.6 4.4 Pakistan 2.5 6.4 4.5 4.9 Source: Bengali and Sadaqat [2001] BB=Benazir Bhutto, NS= Nawaz Sharif There is also another pattern in terms of the impact of business cycles. When the economy is growing fast, as in the Zia ul Haq period, Sindh performs relatively well. In low growth periods, as from 1973 to 77, Punjab manages a somewhat higher growth rate. The question is whether these patterns are also observed in the more recent period? 3. SIZE AND GROWTH OF PROVINCES The respective size of the Provinces in the initial year, 1999-2000, and in the latest year, 2014-15, is given in Table 3. As expected, Punjab is the largest provincial economy with a share of just over 54% in 2014-15. However, the share of this Province has fallen somewhat since 1999-2000. The next economy is that of Sindh with a share of 30% in 2014-15. There has been a modest increase in the share of this Province since 1999-2000. The economy of Khyber-Pakhtunkhawa has a share in the national economy of 13%. It has increased its share significantly since 1999-2000. Balochistan is by far the smallest province, with a declining share. Table 3 SIZE OF THE PROVINCIAL ECONOMIES* (at constant prices of 2005-06,Billion Rs) Share Share Province 1999-2000 2014-15 (%) (%) Punjab 3147.7 55.3 5757.0 54.1 Sindh 1686.7 29.6 3192.5 30.0 Khyber-Pakhtunkhwa 644.2 11.3 1380.9 13.0 Balochistan 214.5 3.8 313.7 2.9 Pakistan 5693.1 100.0 10644.1 100.0 Source: Estimated *Year wise estimates can be made available by IPR on request. 2 Table 4 Share of the Provinces in the National Economy by Sector* 2012-13 (%) Agriculture Industry Services Punjab 62.3 39.8 55.7 Sindh 23.1 42.2 28.9 Khyber-Pakhtunkhwa 10.5 14.2 13.0 Balochistan 4.1 3.8 2.4 Pakistan 100.0 100.0 100.0 Source: Estimated. *Sub-sectoral estimates can be made available by IPR on request. Table 4 presents the sectoral distribution of value added among the Provinces. Punjab dominates in agriculture, with a share of over 62%. It is significant that the industrial sector of Sindh, with a share of 42%, is even larger than that of Punjab. In services, the ranking of size is the same as in agriculture. The shares have been depicted in Chart I. Turning to the growth rates of the Provincial economies, these have been derived for three periods, as follows: Musharraf Period: 1999-2000 to 2007-08 PPP Period: 2008-09 to 2012-13 PML (N) Period: 2013-14 and 2014-15 Table 5 presents the Provincial growth rates in the above periods.