Pakistan can increase its GDP by a cumulative 7 percentage points (roughly US$ 36 billion) and create around 4 million new jobs during 2016- 2025 via an increase in the use of digital financial services (DFS) alone, according to State Bank Report citing research by McKinsey Global Institute (MGI).
The ongoing digitization in the provision of services may be growth-enhancing from a macroeconomic perspective. This notion is supported by some gains that have already been made, as well as estimates of future potential.
Firstly, the impact of Digital Financial Service (DFS) through increased investment may occur via;
(a) increased credit to SMEs and households,
(b) a shift in savings from informal vehicles to formal digital accounts.
Bearing in mind that bank lending to SMEs in the country is particularly low at present, the investment channel may represent the biggest untapped opportunity from which DFS gains can be realized in the next couple of years.
At the moment, the penetration and access to financial services is showing some improvement, as digital technologies are being deployed for new mobile accounts; carrying out funds transfers; introducing electronic payment systems; etc.
In the future, this may accelerate the shift in savings to digital accounts and have further implications for policy goals like financial inclusion.
Secondly, even beyond the domain of DFS, the IT and data handling firms are already generating productivity gains across numerous sectors, by streamlining business processes and making them more efficient. The use of technology in the fields of commerce, finance, transport, and communications is facilitating cost-effectiveness by providing convenient alternatives to consumers and producers. Similarly, in the retail business, growing broadband penetration is providing businesses with new and cheaper ways of reaching out to customers and competing for market share.
Thirdly, the impact on employment generation and entrepreneurship is quite evident. As the overall digital connectivity has improved, new services and industries have emerged and along with it, self-employment opportunities and entrepreneurial space for startups. Commerce, transport and information sectors have benefited the most. The surge of mobile money has created a network of agents providing direct and indirect livelihood to thousands of people. Finally, in the domestic ICT sector, the presence of domestic freelancers and outsourcing firms is also growing.
Mindful of these strong linkages and positive spillovers for the macroeconomy, policy-makers in Pakistan have prioritized the digitization agenda at the national level. In particular, the 2014 auction of next-generation mobile services (NGMS) proved to be a decisive measure in terms of improving connectivity and enabling digitization. Moreover, while factors like favorable demographics were more fortuitous, rather than a product of conscious policy design, they nevertheless came together to form an enabling environment in which digitization could take root.