Pakistan can foster a more innovative, competitive and entrepreneurial economy and reinvigorate growth by addressing critical constraints that are limiting private sector investment, stated a report of the International Finance Corporation (IFC) and the World Bank.
The Pakistan Country Private Sector Diagnostic (CPSD) report stated that the country possessed tremendous untapped economic potential that could be realised through key policy actions to help create new opportunities and mobilise private investments to create more jobs.
According to the report, Pakistan has the resources to reverse the impact of Covid-19 on its economy. It highlighted the urgent need for reforms given the Covid-19 pandemic and its impact on country’s private businesses, especially on small and medium-sized enterprises (SMEs), which drive Pakistan’s economy.
“SMEs make up nearly 90% of all businesses in the country, employing about 80% of the non-agricultural labour force,” it said. “However, the sector receives only 7% of financial credit.” At present, most businesses in the country are closed owing to the restrictions imposed to contain the pandemic and lockdowns.
While Pakistan made impressive strides in reducing poverty, many people remain economically vulnerable and they will struggle due to the Covid-19 crisis, it added.
While the need for reforms extends across the economic system, the report outlined three broad policy objectives to support private sector development.
These included boosting institutional capacity and policy coordination, strengthening competition and leveling the playing field, and spurring the development of a diversified and inclusive financial sector.
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, it said. The report added that embarking on a robust public-private partnership (PPP) agenda could strengthen private participation for development of the country.
“A PPP-driven growth model not only offers the prospect of access to currently idle capital for investment but also productivity gains stemming from adoption of advanced technologies and prudent management,” the report said.
“This report makes it clear there is no single reform that would turn the economy,” said IFC Senior Country Manager for Pakistan Nadeem Siddiqui. “However, it is equally clear that Pakistan’s high dependency on consumption rather than investment and exports is the major cause of its boom-bust cycle of the economy.”
A private sector-led growth agenda needs to be equitable and benefit Pakistan’s SMEs while offering jobs and other opportunities to over 2 million jobseekers entering the labour market each year, he said.
“The government of Pakistan has made considerable progress on ease of doing business,” said World Bank Country Director for Pakistan Najy Benhassine. “These should be sustained and 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 unlock much-needed private investment and jobs, and create linkages of SMEs with larger enterprises and global markets,” he added.