'ABC' of Growth for Pakistan
'ABC' implies improving the allocative efficiency of resources and talent, encouraging business-to-business connections and spillovers, and strengthening the capabilities of firms. World Bank
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Pakistan's per capita GDP growth has been low (at 1.7 % per year—less than half the regional average) during the past two decades. Periods of relatively fast growth have been abruptly hampered by the accumulation of external vulnerabilities resulting in balance of payments crises. A consumption-driven growth model alongside government expenditure instead of a model driven by investment and exports is at the core of Pakistan's growth challenge.
A recent report by the World Bank, 'From Swimming in Sand to High and Sustainable Growth a roadmap to reduce distortions in the allocation of resources and talent in the Pakistani economy', has shared the findings that
'Pakistan’s growth is stunted by its inability to allocate all of its talent and resources to the most productive uses due to various distortions due to a weak policy-making process.
Recommendations by the World Bank include removing those distortions to improve aggregate productivity through a better allocation of resources, by focusing on:
Tax policy: Ensure even tax rates across all sectors and reallocate resources from non-tradable/non-productive sectors (e.g real estate) into more productive or efficiency-enhancing non-tradable sectors.
Trade policy: Gradually reduce the anti-export bias of trade policy by reducing import duties, to facilitate the reallocation of resources, from domestic to outward-oriented activities.
Export schemes: Encourage export growth and diversification by expanding subsidies on exports.
Size-dependent policies: Re-consider size-dependent industrial policies, to reduce incentives for firms to stay small or defacto
Agriculture subsidies: Gradually phase out subsidies and price support in the agriculture sector to reallocate the created fiscal space toward investment in climate-smart technologies and infrastructure for crops and livestock, and agriculture extension services or research.
Increase participation of women: Introduce gender-based hiring policies and enforce strict harassment laws at the workplace to increase female labor force participation while investing in safe, secure transport or convenient remote work policies to facilitate female employees.
GRAPHICS OF THE DAY
Pakistan's real GDP per capita growth rate has been low compared to its peers. Regionally, Pakistan's performance is underwhelming. During the same period, average GDP per capita growth in South Asia stood at 4% per year, 2.3 percentage points higher than Pakistan. Similarly, Pakistan's growth is also below average when benchmarked against structural or aspirational comparators
Over the past two decades, Pakistan has periodically experienced short spikes of relatively fast growth followed by periods of slower growth. This inability to sustain high growth for extended periods is linked to growth spurts coinciding with an increase in imports, systematically lower exports, and, consequently, larger current account deficits and wider balance-of-payments (BOP) imbalances.
Real GDP growth (left-hand side- LHS) and import growth (right-hand side - RHS) are strongly linked.
Pakistan's growth challenge is linked to how resources and talent are allocated
The high prevalence of zombie firms is indicative of weak competition and preferential access to subsidized bank credit
Even if the firm is profitable, It's a small firm after all...
Entry into exporting is low in Pakistan and that too is led by small firms
INSTAGRAM POST
Did You Know? — www.instagram.com
⚫ Pakistan has only 21% of working-age women employed compared to 36% in Bangladesh
⚫ If Pakistan were to close the female employment gap relative to Bangladesh, most of the newly created jobs would be in the agriculture sector
⚫ Closing the female employment gap relative to Bangladesh could boost Pakistan’s GDP by 5% to 10%
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