Pakistan can foster a more innovative, competitive and entrepreneurialeconomy and reinvigorate growth by addressing critical constraints that arelimiting private sector investment, according to a new report from theInternational Finance Corporation (IFC) and the World Bank.
The report, the Pakistan Country Private Sector Diagnostic (CPSD), saysPakistan has tremendous untapped economic potential that may be realizedthrough key policy actions to help create new market opportunities,mobilize private investments to create more jobs and help the country incoping with the impact of COVID-19 on its economy. It highlights the urgentneed for reforms given the COVID-19 pandemic and the impact it has had onthe country’s private businesses, especially on small and medium-sizedenterprises (SMEs), that drive so much of Pakistan’s economy. They make upabout 90 percent of all businesses in the country, employing about 80percent of the non-agricultural labor force but receives only seven percentof financial credit. At present most businesses are closed in keeping withrestrictions due to the pandemic and scheduled lockdown. It says whilePakistan has made impressive strides in reducing poverty, many peopleremain economically vulnerable and will struggle due to the COVID-19 crisis.
While the need for reforms extends across the economic system, the reportoutlines three broad policy objectives to support private sectordevelopment. These including boosting institutional capacity and policycoordination; strengthening competition and leveling the playing field; andspurring the development of a diversified and inclusive financial sector.The report says the reform agenda would generate higher returns ifcomplemented by other initiatives to address systemic macroeconomicfragilities and increase both public and private investments in humancapital.
“This report makes it clear there is no single reform that that would turnthe economy around, but equally it is clear that Pakistan’s high dependencyon consumption rather than investment and exports is a major cause of itsboom-busts cycle of the economy,” said Nadeem A. Siddiqui, IFC SeniorCountry Manager for Pakistan. “A private sector-led growth agenda needs tobe equitable and benefit Pakistan’s many small and medium-sized enterprisesand also offer jobs and opportunities for the more than two million youthwho join the labor force each year.” The report says that embarking on arobust public-private partnership (PPP) agenda could strengthen privateparticipation in the country’s development. A PPP-driven growth model notonly offers the prospect of access to currently idle capital forinvestment, but also productivity gains stemming from adoption of advancedtechnologies and prudent management. It also recommends greaterparticipation of women in Pakistan’s labor force for future growthprospects. Female labor participation in Pakistan stands at 26 percent,compared to 82 percent for men, much lower than the regional average.
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“The government of Pakistan has made considerable progress on ease of doingbusiness. These should be sustained and greater focus on addressingbarriers to competition and growth in specific sectors would go a long wayin spurring productivity rise, exports and entry of new firms” said NajyBenhassine, World Bank Country Director for Pakistan. “Focusing on themost binding constraints, in each of the most promising sectors of theeconomy, and developing coherent visions and action plans for each industrywill help unlock much needed private investment and jobs, upgrade thetechnological stock in these sectors, and create linkages of SMEs withlarger enterprises and global markets.”
