Pakistan needs productivity-enhancing reforms: World Bank

The World Bank said on Friday that Pakistan’s economy can grow sustainably if the country introduces “productivity-enhancing reforms” that facilitate better allocation of resources and improves female participation in the workforce.

In its report titled ‘From Swimming in Sand to High and Sustainable Growth’, the multilateral lender said Pakistan’s inability to allocate all its talent and resources to the most productive uses has stunted economic growth.

In a press release, the World Bank said that the report presented evidence of systematic productivity stagnation across firms and farms.

“In manufacturing and services, most of the productivity stagnation is related to firms losing efficiency over time. The report also shows a systematic decline in agricultural productivity, as well as a strong link between elevated temperatures and rainfall variations and productivity.”

The report presents a roadmap to reduce distortions in the economy that are currently acting as a deterrent to productivity growth.

Critical reforms recommended by the World Bank include harmonising direct taxes across sectors, reducing anti-export bias of trade policy by lowering import duties and reversing the anti-diversification bias of export incentives.

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World Bank Country Director for Pakistan Najy Benhassine said “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.”

“With only 22% of women employed in Pakistan, women’s labour force participation is among the lowest in the world. By closing the female employment gap relative to its peers, Pakistan can accrue GDP gains of up to 23%.”

He was of the view that successful implementation of policies to address the demand and supply-side barriers to female labour force participation can create about 7.3 million new jobs for women.

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Meanwhile, World Bank Senior Economist Gonzalo Varela said “long-term structural imbalances that have prevented sustainable growth for too long ought to be addressed urgently.”

He urged Pakistan to reduce distortions that misallocate resources and talent and support growth of firms through smart interventions.

The report urged Pakistan to maximise positive impact on businesses and productivity across the board by reducing regulatory complexity, harmonizing the general sales tax (GST) across provinces, reforming investment laws to attract more foreign direct investment and upgrading insolvency laws to reduce the costs of liquidating non-viable firms.

The report quoted economist Zehra Aslam as saying: “firms in Pakistan struggle to grow large as they grow old. A young formal firm in Pakistan that has been in operation for 10 to 15 years is about the same size as a firm that has been in operation for more than 40 years.”

Similarly, she said an average Pakistani exporter is less than half the size of one in Bangladesh, which shows a lack of dynamism amongst Pakistani firms compared to better functioning markets where firms either grow or exit.