Pakistan, a developing country in South Asia, having total estimated population of 177 million in 2011. The total civilian labour force is 58.41million out of which 55.17 million is employed. At the time of independence in 1947, Pakistan was an agrarian economy where the contribution of agriculture towards GDP was 53 percent during the fiscal year 1950.
However, major shifts in the sectoral shares have occurred since then as the shares of agriculture, industry and services sectors towards GDP during fiscal year 2011 were 20.9 percent, 25.8 percent and 53.3 percent respectively.
Pakistan has faced varying economic growth since its inception. Growth has been slow during the civilian rules; while three long periods of military rule have seen remarkable recovery. Despite being a very poor country in 1947, the growth rate has been better than the global average during the subsequent five decades, but slowed a bit in the late 1990s. However, Pakistan's economy gained its momentum again and grew at an average rate of 7 percent between 2003 and 2007 which enables the government to rise development spending. As a result, the poverty headcount was reduced by more than 10 percent from 34.5 percent in 2001 to 22.3 percent in 2006.
Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately US $5410.2 Million in 2008 to US $2205.7 Million for the fiscal year 2010. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation.
In 2008, inflation reached as high as 21 percent and Pakistan had to depend on an aggressive fiscal policy backed by the International Monetary Fund to avoid possible bankruptcy. The inflation rate for the fiscal year 2011 was 14.1 percent. The average inflation rate between 2007 and 2011 stood at 14.6 percent whereas food inflation in the same period was 18 percent. It is feared that gains in the poverty reduction during mid 2000's may have eroded by this high rate of food inflation. The rise in inflation rate may also have an adverse effect on labour productivity as well as on total factor productivity.
Growth of GDP, and labour productivity of Pakistan: 1961-2010
The GDP growth indicates that Pakistan has experienced high economic growth between 1961-65 (7%), 1966-70 (6.5%) and 1981-85 (6.46%). However, the GDP growth was low in early 1970s (4.22) and between 1996-00 (3.89%). The GDP growth rate became 4.87% during 2001-05 and slowed down to 4.14 during 2006-10. The average growth rate of GDP between 1961 and 2010 was 5.21%. The GDP growth rate was 2.4 percent during the fiscal year 2011.
Similarly, the per worker labour productivity growth rate was seen highest during 1966-70 (5.01) and lowest during 2006-10 (-0.33). Like GDP, labour productivity was also low during 1970s and 1990s. The average growth rate of labour productivity between 1961 and 2010 was 2.51 (See Table I). The GDP growth rate was 3.7 percent during the fiscal year 2011-12.
Output growth and contributions of labour, capital, and TFP in Pakistan
The main driver of the Pakistan economic growth is the capital accumulation. During 1961-65 the contribution of capital was 5.15 (73%) as compared to the contribution of labour which was 1.68 (24%). The contribution of capital was lowest between 1996-00 and stood at 2.56 (66%) (See Table II) against the contribution of labour 1.13 (29%).The contribution of capital was lowest between 1996-00 and stood at 3.94 (76%) against the contribution of labour 1.32 (25%).
Roles of TFP and capital deepening in labour productivity growth
The labour productivity growth rate was 4.11% between 1961-65, of which capital deepening accounts for 96% and TFP accounts for another 4%. Overall labour productivity between 1961-2010 is 2.55% (See Table III). It was recorded lowest during 2006-10.
Presently, the issues and challenges in improving the labour productivity and total factor productivity in Pakistan can be due to growing energy crises, poor law and order situation, decreasing investment, high fiscal deficit, high inflation rate, global financial crises, low literacy rate, high proportion of unskilled labour, high unemployment and underemployment particularly in agriculture sector, less expenditure on education as percentage of GDP, less expenditure on research and development.
According to the World Bank WDI among the 7 categorised regions: East Asia and Pacific, South Asia, the Middle East and North Africa, Europe & Central Asia, Latin American & Caribbean, North America, Sub-Saharan Africa, the Asian Productivity Organisation (APO) member countries lie at the 3 fastest GDP growth regions. In the past 50 years the average GDP growth rate is 5.223% for South Asia, 4.972% for East Asia and Pacific and 4.187% for Middle East and North Africa. It also can be noted that East Asia & Pacific leaded the growth in 1960s and 1970s, whereas South Asia became growth leader in 1980s-2000s. The GDP growth among APO Member countries in 1961-2010 ranks Singapore (7.79%), Republic of China (7.02%), Korea (6.64%), Hong Kong (6.62%), Vietnam (6.27%), Malaysia (6.19%), and Thailand (6.12%) thus shows that APO member countries have achieved remarkable productivity and economic growth in the past five decades.
Similarly, in this regard Pakistan's membership to the Asian Productivity Organisation (APO) in 1961 and establishment of National Productivity Organisation thereafter has played a significant role in productivity movement in the country. By creating productivity mindset amongst the government agencies, Chambers of Commerce and Industries, and individual enterprises under the chairmanship of the Minister for Industries, productivity movement in Pakistan has contributed effectively towards the overall productivity enhancement.
Today, National Productivity Organisation (NPO) as an attached sole department of Ministry of Industries, Government of Pakistan is holding a mandate of promoting and improving productivity & quality to achieve Global Competitiveness by contributing to major economic sectors of the country. It acts as a catalyst in advancing productivity-related activities for mutual benefit and strengthening of Pakistan economy with specific emphasis on Industrial, Services, Academia, Agriculture and Research sectors. NPO Pakistan, with the help of APO and Spring Singapore, initiated Prime Minister Quality Awards this year to develop national organisations on business excellence methodologies to become world class organisations.
NPO has taken an initiative to carryout energy audits in textile, Steel and other economic sectors under Renewable Energy and Energy Efficiency framework to enhance productivity and quality. The long-term goals and vision of NPO includes areas Green Productivity, Benchmarking, CDM, development of business excellence center, strengthening the competitiveness of SMEs, Public Sector Productivity, Innovation and value creation.
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Table I
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Period GDP Per Hour Labour Per Worker Labour
Productivity Productivity
Growth Growth
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1961-65 7.01 4.11 4.06
1966-70 6.5 5.01 5.07
1971-75 4.22 1.53 0.63
1976-80 5.18 1.71 2.88
1981-85 6.46 4.26 4.25
1986-90 5.45 2.88 2.57
1991-95 4.77 3.69 3.49
1996-00 3.89 1.03 1.35
2001-05 4.87 1.94 2.42
2006-10 4.14 -0.33 -0.4
1961-2010 5.21 2.51 2.57
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Table II
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Period GDP Labour Capital TFP
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1961-65 7.01 1.68 5.15 0.17
1966-70 6.5 0.96 5.1 0.44
1971-75 4.22 1.42 3.76 -0.96
1976-80 5.18 1.89 4 -0.72
1981-85 6.46 1.34 4.58 0.54
1986-90 5.45 1.38 4.05 0.02
1991-95 4.77 -0.21 4.51 0.47
1996-00 3.89 1.13 2.56 0.19
2001-05 4.87 1.59 3.33 -0.05
2006-10 4.14 2.04 2.61 -0.52
1961-2010 5.21 1.32 3.94 -0.04
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Table III
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Period Labour Capital TFP
Productivity Deepening
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1961-65 4.11 3.94 0.17
1966-70 5.01 4.57 0.44
1971-75 1.53 2.49 -0.96
1976-80 1.71 2.42 -0.72
1981-85 4.26 3.72 0.54
1986-90 2.88 2.87 0.02
1991-95 3.69 3.22 0.47
1996-00 1.03 0.84 0.19
2001-05 1.94 1.99 -0.05
2006-10 -0.33 0.18 -0.52
1961-2010 2.55 2.6 -0.04
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