The World Bank (WB) has pinpointed 'deepening human capital' as a specific challenge to Pakistan's economy, and stressed policy makers to search avenues for addressing it to accelerate economic growth and reduce poverty.
Human capital is the education, health and skills embodied in the population in general, but the workforce in particular. Increased production not only requires more physical capital but also enhances human capital. Labour productivity, which is essential for sustained economic growth, requires an educated, healthy and skilled labour force.
According to economists, no nation has enjoyed prolonged economic growth unless its literacy level has crossed 70 percent and the population has been free from enervating diseases. Rapidly advancing technology also requires a high degree of skills.
The World Bank in its report titled 'Economic Growth and South Asia' says that economic growth has already contributed to an impressive reduction in poverty.
In the last decade--1990s--poverty in the region (Bangladesh, India, Sri Lanka and Nepal) fell by 6 to 11 percent. Only in Pakistan did poverty increase by 8 percentage points due to economic stagnation throughout the decade. The most recent evidence (2004-05 survey), however, suggests that with the resumption of high growth, poverty is again declining rapidly in Pakistan.
But much remains to be done to achieve accelerated growth rates that increase economic prosperity across the board, the report adds.
First, economic growth in the past decade has resulted in growing income inequality which may act as a constraint to higher growth in the future. Second, while conflict, corruption, and high fiscal deficits may not have constrained growth in the past, their persistence may become binding in the future.
The Bank has cited country-specific challenges to boosting economic growth that policy-makers would need to address to accelerate their growths. These include reducing fiscal deficits and public debt in India; strengthening governance in Bangladesh; deepening human capital in Pakistan, and addressing civil conflict in Sri Lanka and Nepal.
A striking feature of the report is analysis showing that South Asian countries could see single-digit poverty rates in a decade if economic growth accelerates to 10 percent a year until 2015. This means the number of people living in poverty could go down by two-thirds in less than ten years.
The report says that while the challenges facing the region are daunting, it is possible that South Asia can see poverty rates cut by two-thirds in a decade.
Shantayanan Devarajan, World Bank Chief Economist for the region and co-author of the report, says that growth rates in South Asia have been accelerating in the last 10 to 15 years.
"South Asia as a whole has been enjoying about five to six percent growth with some countries like India and Pakistan growing over seven percent in the last two years," he says.
"If this growth can be sustained and accelerated, South Asia--which is the region with the largest concentration of poor people in the world--has a significant chance of bringing poverty down to single digits in a decade."
A key need, Devarajan says, in the region is new infrastructure. "South Asia is suffering from infrastructure constraints. All of this growth has occurred without commensurate increases in investment in public infrastructure.
"If we can relax those constraints, for instance bring more water to people, more roads, ports and things like that, that can actually benefit the poor and accelerate growth."
He says: "What you can observe in South Asia is not only there is a need for infrastructure but there's also need to be able to manage the current stock of infrastructure better.
As Ijaz Nabi, the report's co-author, points out, the economic growth in the region has already seen poverty levels decline.
"Across the board, poverty has come down by six, seven, eight percentage points, as a result of this decade long growth rate," Nabi says. "The one country in the region that did not experience a reduction in poverty was Pakistan, because Pakistan's growth rate virtually stalled in that decade.
"But there, too, growth has now picked up and the most recent data from Pakistan shows a substantial reduction in poverty," says Nabi, who's the Bank's Sector Manager for Economic Policy for the South Asia region.
He says that part of the reason behind their forecast that poverty levels could be down to single digits in a decade is that countries in the region have already shown they're capable of growing despite what he calls 'binding constraints'.
Nabi says their preliminary estimates are that "one would need to spend something in the range of US $25 to $30 billion in order for India, Pakistan, Bangladesh, Sri Lanka and Nepal to have the kind of infrastructure to reduce internal logistics costs to make South Asian products internationally competitive."