PAKISTAN'S PHYSICAL INFRASTRUCTURE IS INADEQUATE IN COMPARISON WITH WORLD STANDARDS

KANWAL SALEEM
(feedback@pgeconomist.com)

Oct 29 - Nov 4, 20
12

Pakistan's physical infrastructure is inadequate in comparison with world standards and has been identified as one of the critical reasons holding back more rapid economic growth in the country.

In Pakistan, the infrastructure sector is comprised of power, telecommunications, roads, ports, railways, air transport, urban infrastructure, information technology cyber parks, and industrial estates.

Experts told PAGE that poor infrastructure services result in constrained economic activity and reduce the country's growth potential. Elasticity of business sector output and productivity with respect to public core infrastructure investments are usually much higher than those of private business investments in Pakistan.

According to them, government's ability to plan and deliver infrastructure projects effectively will determine the future pace of growth of the country. The public sector has been the main provider of basic infrastructure in Pakistan. However, given the major unmet needs and limited fiscal space, the government's capacity to address the infrastructure deficit is severely constrained.

To augment limited public resources for infrastructure, private sector participation in infrastructure development needs to be encouraged by creating the necessary enabling environment for increased private sector involvement.

According to experts, Pakistan's electricity and power infrastructure has already come under major strain, and there is a danger that the infrastructure sector in its totality will become a major bottleneck for continued growth and development unless a well designed long-term strategy to enhance infrastructure investment and expand private sector participation in infrastructure development is evolved and implemented.

They said that the potential of the private sector to meet Pakistan's pressing infrastructure needs is largely untapped. Thus far, the government's initiatives to promote the private sector's role have only succeeded to a certain extent with private sector investment having come in the power and cellular telecommunications sectors.

Available data shows that Pakistan had total private sector investment in infrastructure of $17.206 billion during 1990-2006, with a major concentration of 96 per cent in the energy and telecom sectors. There was very little private investment in transport and no investment in water and sewerage sectors. Despite the laggard interest of the private sector so far, the government remains keen to tap private sector participation and investment in the infrastructure sector.

As per estimates, Pakistan's total requirements for infrastructure development over the next few years are in the range of $50-100 billion. The funding gap between the total requirements and the available government's public sector resource is expected to be filled by the private sector.

In order to encourage private sector financing in other infrastructure sectors like road networks and transportation and water and sanitation, it will be essential to tap domestic financial markets given that foreign capital would be less likely to flow in these `riskier` sectors. However a major constraint to generating domestic sources is the absence of a secondary market in debt securities and the governments' pre-emption of funds of large public sector savings institutions.

Quality infrastructure is vital for the development of the country and the government needs to attach priority to infrastructure development.

Experts believe that lack of infrastructure development is a big hurdle in promotion of business activities. They said, "Infrastructure development plays a crucial role in economic development of a country. But lack of infrastructure has been a big hurdle in the economic progress of Pakistan putting strains on the smooth growth of trade and industrial activities. Therefore, the government should involve private sector by moving to public-private partnership paradigm for developing the country's infrastructure at a fast pace."

According them, investment in infrastructure development has proven to be a successful model for reviving economies in the world, but Pakistan could not sustain its growth over time mainly due to lack of supporting infrastructure.

They said private investment in infrastructure projects has declined in Pakistan over the years as apart from Independent Power Plants ( IPPs) established in 1990s, no major infrastructure project has been completed in Pakistan on BOT (Build-Operate-Transfer) paradigm.

Pakistan has world's largest canal system in agriculture but lack of adopting new management practices and latest technology into this system has resulted in poor growth of crops. Similarly ignoring energy, water and communication infrastructures have badly stalled the growth of trade and industrial activities apart from affecting foreign direct investment. All this has led to making significant enhancement in cost of doing business in Pakistan. Not only international but local investors are also hesitant to come here due to non-availability of basic facilities. Instead of creating new jobs energy shortfall has forced to shutdown many industrial units leaving thousands unemployed. Infrastructure development in education and health sectors contributes effectively to sustaining overall development of a country apart from giving boost to social sector development. But in Pakistan, due to lack of interest, health and education sectors infrastructure could not be developed on sound footings which gave rise to poverty in the country.

Nevertheless, proper development of infrastructure will help to meet much of local demands like energy, clean drinking water, sanitation facilities, transportation & communication system in addition to creating many job opportunities. Therefore, the need of involving private sector and exploiting its potential for developing infrastructure in all sectors of the economy is inevitable.