Structure of the provincial economies

The previous article highlighted the shares of the four Provincial economies in the Gross Domestic and National Products of Pakistan at current prices in 2018-19, the last normal year prior to the Covid-19 attack. Punjab’s share was 55.4 percent while that of Sindh was 26.5 percent. The shares of the two smaller provinces, Khyber Pakhtunkhwa and Balochistan, were 13.7 percent and 4.4 percent, respectively.

These shares implied significant differences in per capita income among the provinces. Sindh has the highest per capita income, which is over 12 percent above the national average. Punjab comes next with a per capita income very close to the national average. Khyber Pakhtunkhwa has a per capita income 9 percent below the country’s per capita income while in the case of Balochistan it is 28 percent below the national average. The relative backwardness of Balochistan must be seen as a major development problem which has to be tackled on a top priority basis.

The objective of this article is to describe the structure of each Provincial economy based on the share of value added in different sectors. The research has led to estimation of the size of each of the 18 sub-sectors of a regional economy. Table 1 gives the estimate, as of 2018-19, of the agricultural, industry and service sector shares in the Gross Regional Product (GRP) of a province.

The table reveals major differences in the structure of the four provincial economies as follows:

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                                     Table 1
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                          Sectoral Shares in Provinces
                                 2018-19 – (%)
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                  Punjab    Sindh    Khyber-      Balochistan    Pakistan
                                   Pakhtunkhwa
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Agriculture         27.6     13.6      15.1          27.2            18.7
Industry            15.6     27.5      22.0          24.6            19.8
Services            62.8     58.9      62.9          48.2            61.5
GRP                100.0    100.0     100.0         100.0           100.0
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Punjab: The agricultural sector is relatively large in this province with a share of 27.6 percent, as compared to the share of 18.7 percent of this sector in the national economy. This is not surprising as the province is the food basket of the country.

Sindh: The industrial sector is relatively large in this province with a share in the GRP of 27.5 percent as compared to 19.8 percent in the GDP. Much of the industrial presence is concentrated in the metropolitan port city of Karachi in large-scale units.

Khyber Pakhtunkhwa: The services sector is relatively developed in this province with the largest share of 63 percent in such activities. The transport sector is more developed due to transit trade to Afghanistan and the earlier movement of NATO supplies. The relatively large inflow of home remittances on a per capita basis has facilitated the development of economic and social private services and better quality of housing.

Balochistan: This province has a more balanced though relatively underdeveloped economic structure. Minor crops, fisheries and livestock contribute to the agricultural sector. Within the industrial sector, mining, quarrying and electricity generation and distribution and gas distribution sectors make a sizeable contribution. Within services, the banking, transport, and private service sectors are relatively underdeveloped.

The research has enabled the identification of sub-sectors where a particular province has a comparative and locational advantage. This is the case if in a particular sub-sector, a particular province has a larger share of the national value added in the sector as compared to the overall share of the province in the national GDP.

The sub-sectors of locational advantage of each province are given in Chart 1 within the commodity-producing sectors and in Chart 2 within the services sector.

Chart 1

Sub-Sectors of Locational Advantage of different Provinces within the Commodity-Producing Sectors

PUNJAB:

• Major Crops; Cotton Ginning; Large-Scale and Small-Scale Manufacturing; Construction, Slaughtering

SINDH:

• Cotton Ginning; Livestock; Fishing, Mining and Quarrying, Large-Scale Manufacturing

KHYBER PAKHTUN-KHWA:

• Livestock; Forestry; Slaughtering; Construction; Electricity and Gas

BALOCHISTAN

• Minor Crops; Fishing; Forestry; Mining and Quarrying; Electricity and Gas

Identification of sub-sectors within a particular province of locational advantage helps greatly in development of the appropriate regional growth strategy. For example, both public and private sectors in the Province of Balochistan must direct investment more towards minor crops, mining and quarrying, fishing, forestry and electricity generation and gas.

The relatively more concentrated services by province are shown in Chart 2 below.

Chart 2

Sub-Sectors of Locational Advantage of

different Provinces within Services

PUNJAB:

• Transport and Communications; Finance and Insurance; Public Administration and Defense; Social and Community Services

SINDH:

• Wholesale and Retail Trade; Finance and Insurance; Ownership of Dwellings

KHYBER PAKHTUN-KHWA:

• Transport and Communications; Ownership of Dwelling; Social and Community Services

BALOCHISTAN

• Wholesale and Retail Trade; Public Administration and Defence

The consequence is the relative under-development especially of the agricultural sector in Khyber Pakhtunkhwa and of service activities in Balochistan. The development of the Gwadar Port should lead to a greater diversification of the economy of Balochistan. It is also very striking that only a minor part of the bank deposits in the branches of these two provinces are channelized as credit to the local private sector. This perpetuates the development gap between the two larger and the two smaller provinces. Special incentives will have to be given to private investors in Balochistan and Khyber Pakhtunkhwa.

The concentration of industry and the formal sectors in Sindh according to the above research findings is tested for by looking at the distribution of income tax and domestic sales tax revenues among the Provinces from the FBR Yearbook of 2018-19. The estimates are given in Table 2.

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                                 Table 2
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Share of Provinces in Income Tax and Domestic Sales Tax Revenues
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                                 Income Tax       Domestic Sales Tax
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                                    (%)                          (%)
Islamabad                          19.3                         20.4
Punjab                             27.9                         36.2
Sindh                              49.9                         40.2
Khyber-Pakhtunkhwa & Balochistan    2.9                          3.2
Pakistan                          100.0                        100.0
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The disproportionate contribution of Sindh to income tax and domestic sales tax revenue is clearly visible.

The next article on the Provincial Economies will focus on the growth performance of each province from 1999-2000 to 2018-19.

(The writer is Professor Emeritus at BNU and a former Federal Minister)

Copyright Business Recorder, 2021