EDITORIAL: The World Bank’s report, “From Swimming in Sand to High and Sustainable Growth” only points out the obvious when it says that Pakistan’s “inability to allocate all its talent and resources to the most productive uses has stunted economic growth”.
Yet it is also true that policymakers have either been blind to this reality or not cared about enhancing overall productivity because it does not suit their own purposes.
Indeed, the report also mentions powerful “insiders” who regularly “influence the policymaking process to maximise their own benefits”. In agriculture, for example, it points out that large landowners benefit from subsidy schemes or underpriced inputs that favour a “narrow set of crops”; making themselves richer at the cost of the entire sector.
Its proposed roadmap to reducing distortions in the economy, too, makes all the right points but hardly breaks any new ground. It stresses harmonising direct taxes across sectors to route more resources into “dynamic tradable sectors” like manufacturing and tradable services instead of typical investments in real estate and other non-tradables.
This is very important because, as mentioned, the size of the tradable sector is usually associated with growth in the economy, and diminished money flow into it also squeezes growth potential. Then there’s also high import duties to contend with, making it far more profitable for firms to sell domestically than seek export markets.
And since increasing exports is desperately needed at the moment, it ought to be sobering for policymakers that a 10 percent import duty on any given product increases profits of selling it domestically instead of exporting it “by 40 percent on average”.
The report also sheds much needed light on how Pakistan is not tapping into its talent base properly. “Women in Pakistan have made progress in educational attainment, but this accumulated human capital is underused because of constraints they face to participate in the labour force,” according to Najy Benhassine, World Bank Country Director for Pakistan and co-author of the report.
It’s a shame that with only about 22 percent of women employed in Pakistan, our female labour force participation is among the lowest in the whole world. Especially since closing this gap can bring GDP gains “of up to 23pc” besides creating 7.3 million new jobs for women.
Much of what the report goes on to say, like the need for reducing regulatory complexity, harmonising GST across provinces, regulating investment laws to attract more FDI (Foreign Direct Investment), and also upgrading insolvency laws to reduce cost of liquidating non-viable firms, is already well-known and endlessly debated.
Pakistan’s main problem is the inability of policymakers to put words into action. All politicians and political parties add these points to their manifestos while they are on the campaign trail, but quickly forget them as soon as they come to office; only to go back to them when they are in the opposition.
But since the economy is now well and truly at a very critical stage, and painful structural reforms will have to be enacted just to keep the aid money flowing, it’s best to start with things that are more easily done; like the recommendations presented by the World Bank report.
For example, it is unforgivable that Pakistani firms “struggle to grow large as they grow old”, and one that has been in operation for 10-15 years is, on average, about the same size as one that’s been around for more than 40 years. This lack of dynamism has created a situation where the “average Pakistani exporter is less than half the size of one in Bangladesh”.
It’s clear that misplaced priorities and directionless policy are the real causes of the economic crisis that is currently unfolding in Pakistan. And it’s made worse by the fact that successive administrations knew all that was wrong all along, yet didn’t do anything about it.
Copyright Business Recorder, 2023
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