Pakistan can foster a more innovative, competitive, and entrepreneurial economy and reinvigorate growth by addressing critical constraints that are limiting the private sector investment, according to a new report from the International Finance Corporation (IFC) and the World Bank.
The report titled the ‘Pakistan Country Private Sector Diagnostic (CPSD)’ details that Pakistan has tremendous untapped economic potential that may be realized through key policy actions to help create new market opportunities, mobilize private investments to create more jobs and help the country in coping with the impact of the pandemic on its economy.
It highlights the urgent need for reforms, given the pandemic and the impact that it has had on the country’s private businesses, especially on the small and medium-sized enterprises (SMEs) that drive so much of Pakistan’s economy. They make up about 90 percent of all the businesses in the country, employing about 80 percent of the non-agricultural labor force, but receive only seven percent of the financial credit. At present, most businesses are closed owing to restrictions under the pandemic and scheduled lockdowns.
The report mentioned that while Pakistan has made impressive strides in reducing poverty, many people remain economically vulnerable and will struggle due to the pandemic-induced crises.
While the need for reforms extends across the economic system, the report outlines three broad policy objectives to support the development of the private sector. These include boosting institutional capacity and policy coordination, strengthening competition and leveling the playing field, and spurring the development of a diversified and inclusive financial sector.
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The report also added that the reform agenda will generate higher returns if complemented by other initiatives to address systemic macroeconomic fragilities and increase both public and private investments in human capital.
“This report makes it clear there is no single reform that that would turn the economy around, but equally it is clear that Pakistan’s high dependency on consumption rather than investment and exports is a major cause of its boom-busts cycle of the economy,” said Nadeem A. Siddiqui, the IFC Senior Country Manager for Pakistan.
“A private sector-led growth agenda needs to be equitable and benefit Pakistan’s many small and medium-sized enterprises and also offer jobs and opportunities for the more than two million youth who join the labor force each year,” he added.
The report says that embarking on a robust public-private partnership (PPP) agenda could strengthen private participation in Pakistan’s development. A PPP-driven growth model offers the prospect of access to currently idle capital for investment, and productivity gains stemming from the adoption of advanced technologies and prudent management.
It also recommends the greater participation of women in Pakistan’s labor force for future growth prospects. Female labor participation in Pakistan is 26 percent, as compared to 82 percent for men, which is much lower than the regional average.
“The Government of Pakistan has made considerable progress on the ease of doing business. These should be sustained and a greater focus on addressing barriers to competition, and growth in specific sectors would go a long way in spurring productivity rise, exports, and entry of new firms,” said Najy Benhassine, the World Bank Country Director for Pakistan.
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He added, “Focusing on the most binding constraints in each of the most promising sectors of the economy, and developing coherent visions and action plans for each industry will help to unlock much needed private investment and jobs, upgrade the technological stock in these sectors, and create linkages of SMEs with larger enterprises and global markets”.
