A new report from the International Finance Corporation (IFC) and the World Bank states that Pakistan’s tremendous economic potential could be realized by introducing key policy actions to create new market opportunities and to mitigate the impact of COVID-19 on its economy.
Released by the IFC and the World Bank on May 26, the Pakistan Country Private Sector Diagnostic (CPSD) report recommends that a stronger private sector could help Pakistan to foster a more innovative, competitive, and entrepreneurial economy by addressing the critical restraints that limit private sector investment.
There is an urgent need for reforms given the COVID-19 pandemic and its impact on the country’s private businesses, particularly on small and medium-sized enterprises (SMEs), the report says adding that, although Pakistan has made impressive strides in reducing poverty, many people remain economically vulnerable and will struggle due to the COVID-19 crisis.
- As per the report, SMEs make up about 90% of all businesses in Pakistan, employing some 80% of the non-agricultural labor force
- Unfortunately, they receive only 7% of financial credit and currently, most businesses are closed due to the COVID-19 related lockdown
- The report recommends greater participation of women in Pakistan’s labor force for future growth prospects
- Currently, female labor participation in Pakistan stands at 26% compared to 82% for men which is much lower than the regional average
Highlighting that the report makes it clear there is no single reform that would turn the economy around but that it is equally clear that Pakistan’s high dependency on consumption rather than investment and exports is a major cause of its boom-bust cycle of the economy, Nadeem A. Siddiqui, IFC Senior Country Manager for Pakistan, said, “A private sector-led growth agenda needs to be equitable and benefit Pakistan’s many SMEs and also offer jobs and opportunities for the more than two million youth who join the labor force each year.”
Praising the fact that the government of Pakistan has made considerable progress on the ease of doing business, Najy Benhassine, World Bank Country Director for Pakistan, remarked, “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.”
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 links between SMEs and larger enterprises and global markets, he added.
The three broad policy objectives that aim to support private sector growth outlined in the report include boosting institutional capacity and policy coordination, strengthening competition and leveling the playing field, and encouraging the development of a diversified and inclusive financial sector. The report also recommends embarking on a robust public-private partnership (PPP) agenda to strengthen private participation in the country’s development adding that a PPP-driven growth model offers the prospect of access to currently idle capital for investment.