ISLAMABAD – Pakistan is at an interesting juncture. The PML-N governmentwill soon finish its current term, and elections would throw open thearena. At the same time, the economy and corporate profits have shownrobust growth recently, and a young and aspirational population makessustaining the momentum an imperative. Parties need to draw up a blueprintfor long-term economic growth, and use that as their plank. If Pakistanwants to grow its economy from $300 billion now to $750 billion by 2025, itwould have to target a stellar 12% CAGR. That may sound daunting, but manynations like China, Malaysia, etc. achieved decadal double-digit growth intheir journey. A high, yet achievable, target pushes the commitment neededfrom the politicians to realize the economic agenda. But to what extentshould Pakistan focus on each growth-driver to realize this target of $750billion? This is what we explore here.

*Services*

56% of Pakistan’s GDP is estimated from services; mainly trade and BFSI.This is slightly less than the average 60-70% seen in most large emergingmarkets. If services have to make up 65% of Pakistan’s GDP by 2025, itwould have to grow at a 15% CAGR, higher than the 12% estimated GDP growth.

While trade and financial inclusion would remain priorities, deepening theservices-sector through the digital economy would bring efficiencies inpublic-services delivery, bring more citizens into its organized economyand reduce the leakages of a cash-based economy.

It would also ensure delivery of subsidies to the intended recipients, likeIndia’s Direct Benefit Transfer. It should include improving the qualityand reach of skill-centres, to improve employment prospects andproductivity.

All these would expand its addressable consumer-base, a necessity in acountry where wealth concentration is high.

*Industry*

19% of Pakistan’s GDP is estimated to come from industry, far less than theaverage 30% seen in large emerging markets.So if its industry has reacheven a 20-25% proportion, it would have to grow at a 15% CAGR.

Pakistan’s gross investment at 16% of GDP has far lagged the 35-40% seen inChina, Malaysia and Thailand in their initial years of industrialization.If Pakistan intends to push this to at least 30% to drivecapacity-addition, its investment has to grow at a sheer 22% CAGR to makeup for the lag.

Investment also correlates with productive imports like machinery. InPakistan, import comprised 8% of GDP, which is roughly half of the share ofinvestment in the economy. This is in line with the experience of recentindustrializing nations where the share of imports was seen to be 50-60% oftheir share of investment. That implies most imports are for productivepurposes like investment.

Pakistan should continue this trend. So import should grow at the same CAGRas investment to hold its share at 15% by 2025 (i.e. 50% of the share ofinvestment, estimated at 30% of GDP).

Where should investments go? Corridors and infrastructure apart, thecountry needs a huge influx in affordable housing for the mass-marketsegment.

New industry clusters have to focus on the underdeveloped regions toenhance inclusive growth across districts. But this would also meanaddressing the Ease of Doing Business parameters, where it lost its rank by37 places since 2014.

*Agriculture*

25% of Pakistan’s GDP is estimated to come from agriculture, way higherthan its sub-10% share in most large emerging markets. The crux here is toimprove farm-productivity, as agriculture employs more than 40% of itsworkforce.

If it has to halve agriculture’s share to say 12% by 2025, it would grow ata 3-4% CAGR. But this growth has to be backed by productivity improvement.So the incremental investment in the previous section has to correlate withthe agro-sector.

It has re-skill unproductive labour for high-growth sectors likeconstruction and retail through skill-training centres. It also meansinvesting in market linkages to ensure the farmer gets the correct price.

*Export*

Only 18% of Pakistani GDP is estimated to come from exports. Its export hasto grow at a rapid 10% CAGR till 2025, if it has to meet the forex demandfor imports and make trade imbalance nil.

It has an advantage, because the PKR dropped more than the LKR, and similarto the BDT, last year. This makes it competitive in the export of commonproducts like textile and food.

Drawing up further Free Trade Agreements and export-promotion schemes withits partner countries should open more opportunities. It should also pushservices-sector export and not rely only on merchandise export, since thatwould marry its need to push services-sector too.

*Consumption*

Pakistan has a high share of private consumption to GDP at 82% vs. 60% inlarge emerging markets. Myanmar and Bangladesh have a similar per-capita,but they spend less and save more.

Over-dependence on external borrowing is not healthy for the forexposition, especially when imports would continue.

It needs to double its savings rate from 14% to 30%+ by energizing itsdomestic financial sector with more products and regulations. That wouldincentivize more saving and postponing consumption.

It would also reduce its dependence on external borrowings to fundincremental investment.

All in all, these segmental growth-rate estimates to target a GDP of $750billion by 2025 may sound over-ambitious. But it is not unachievable, ifone looks at similar markets.

Ramping up investment with saving, services-export and farm-productivitycan create significant growth traction in the long-term!

By: Souriya Ajit