Pakistan’s economic growth is expected to accelerate from 4 per cent in 2014 to 4.5 per cent in 2016 supported by strong services growth and a slight improvement in the industry sector. What are some reasons for this moderate improvement and how could it unlock its potential to grow even faster in the future? These questions are raised and answered in the latest World Bank report, “Pakistan Development Update”, unveiled in Islamabad this week. Presenting the report’s highlights, Muhammad Waheed, Senior World Bank Economist said that there has been an improvement in Pakistan’s economic environment due to lower domestic and external risks. Foreign exchange reserves have increased to an appropriate level given the size of Pakistan’s imports. Pakistanis working abroad sent home about $18.5 billion in FY2014/15 which contributed to financing the trade deficit. Waheed explained that the government efforts to stabilize the economy have been greatly aided by the decline in international oil prices which has significantly reduced the import bill. This restoration of macroeconomic stability is providing Pakistan with a window of opportunity to focus on more pressing structural bottle necks that are holding Pakistan back from realizing its immense potential and accelerating economic growth. Development outcomes play a very important role when a country’s economy is discussed and in case of Pakistan, these outcomes are weaker than one would expect given the country’s income level. These outcomes are mainly related to the social services including health benefits, education and social protection. A large and mainly young population is one of the major assets of Pakistan. This young population will contribute to higher and sustainable growth only if it is healthy and well educated. It will be important for the federal government and provinces to continue working together to improve the decentralization framework and ensure improved service delivery to achieve desired outcomes. It is however, important to make significant public and private investments in health and education to improve Pakistan’s competitiveness. The report reveals that the lack of complementary public investments and a weak investment climate are constraining private sector investment. Inconsistent trade and industrial policies create disincentives for investors and contributes to weak business environment. Another reason for the very low investment levels has to do with the low savings rate in Pakistan which is at around 13 per cent of GDP, and compares unfavorably with an average of 23 per cent in South Asia.
