Pakistan’s growth has been stunted by the inability to mobilize all of its talent and resources, and to allocate them to productive uses, says the World Bank.
The Bank in its latest report “Pakistan Country Economic Memorandum”, stated that the country’s growth prospects are directly associated with the ability of its firms to grow large and productive over time, so that they create good quality job opportunities for the increasing working age population.
Growth has been low and consumption driven with implications on macro imbalances and long-term growth sustainability because low growth contributions of investment and exports are associated with productivity stagnation which also shows at the firm level and in part driven by lower capital deepening with many firms are not investing enough even to replace their depreciation which means they do not grow large (or ‘wise’) as they grow old and showing in underwhelming performance of Pakistani firms in demanding global markets in fact, lack of global integration is both cause and consequence of low productivity growth.
Slow structural transformation is also symptomatic of low productivity growth and quality job creation and while more recently, this process has accelerated but a supply constraint – low female labor force participation – may reduce the scope for further accelerations.
The report noted that since 2000, Pakistan’s real GDP per capita growth has been low at around 2.0 percent – almost 2.7 percentage points lower than the South Asian average. Not only is the contribution of exports and investment to overall growth in aggregate demand low from a long-term perspective and a cross-country comparison, but it has also declined.
During 1999-00-2009-10, exports and investment demand added on average 1.4 percentage points to aggregate demand growth. This contribution fell to an average of 0.7 percentage points during 2009-10 — 2019-20.
Low investment rates more than offset high consumption (therefore low saving). Structural challenges to mobilize revenues to match high government expenditures, resulted in systematic public sector deficits.
As a result, Pakistan has had current account deficits for 16-21 years since the turn of the century. As a result, risks of balance of payments crisis and macro instability have increased.
In 2018, an average worker in Pakistan produced only 38.1 percent more output than in 1991, while one from Vietnam produced 257.6 percent more than in 1991.
Source: Radio Pakistan