KARACHI: As Pakistan’s growth catches up with its neighbours in the fiscal year (FY) 2016, with a gross domestic product (GDP) at 4.7 per cent — the highest rate in eight years — and is expected to reach 5pc in FY17 and 5.4pc in FY18, the country needs to start investing in human capital and improving health, education and nutrition for sustainable growth and development in the long run, notes the Pakistan Development Update, a World Bank publication on economic development in Pakistan.
The biannual report, organised by the World Bank and SZABIST, points out that sustained progress on energy reforms, the China-Pakistan Economic Corridor and widening the tax net would be important in the short-to-medium term. It cautions that continued growth is not guaranteed.
World Bank Country Director Illango Patchamuthu praised Pakistan for making good headway in restoring macroeconomic stability while stressing that more needs to be done in terms of structural reform.
World Bank’s Lead Country Economist Enrique Blanco Armas shared interesting facts regarding economic activity in Karachi and its peripheries using the intensity of night time lights as a proxy for economic activity. Between 2000 and 2010, Karachi saw a decline in light intensity in the city centre, but an increase in peripheral areas. Armas notes that stagnation of economic activity in central areas was highly worrisome for long-term economic and social potential.
A moderate increase in investment [related to CPEC projects] is expected to supplement growth, driven primarily by public and private consumption. The report stresses that delays in implementation of the CPEC and inadequate revenue mobilisation were threats to near-term growth.
In a comprehensive talk on CPEC, Salim Raza, former governor of the State Bank, noted that Pakistan was failing to make the most of the economic corridor. “We have different tiers of government... Pakistan needs to integrate its projects under a central authority.”
While commenting on growth, he said that Pakistan’s financial sector was one dimensional. “We need bond markets. We need to enable the private sector to select interest rates and focus on fintech and the e-commerce sector.”
Sindh Chief Minister Syed Murad Ali Shah acknowledged that the provincial government was aware of the issues — particularly malnutrition and stunted growth.
He said an inter-sectoral strategy was being adopted to deal with the issues. He also announced the Karachi Quick Wins Projects under the ‘Karachi Transformation Strategy’ which aims to make the city green and liveable.
The report says amid soft global demand, Pakistan’s growth in FY16 was driven by strong domestic demand. “Consumption accounted for an overwhelming 92 per cent of the GDP in FY16, and contributed 7 percentage points towards GDP growth (moderated by a negative contribution of 2.2 per cent from net exports but supported by sustained growth in remittances).” On certain key human development indicators, however, there has been little progress since FY10, the report says.
Energy subsidies and the accumulation of arrears in the energy sector pose fiscal costs and risks, while insufficient energy limits the ability of the economy to prosper, the report says.
Energy reforms are expected to support higher growth. The agriculture sector is expected to recover from its poor performance in FY16. Subdued growth in exports and accelerated growth in imports are expected to widen the current account deficit from 1.1 per cent in FY16 to 1.7 per cent in FY17. As in previous years, this will be offset by remittance inflows so foreign exchange reserves.
The report notes that malnutrition was a particular concern, with the country experiencing the third highest stunting (low height for age) rate in the world. Data from several rural districts in the Punjab, Sindh and Khyber Pakhtunkhwa showed that drinking water was contaminated with E-coli and was unfit for consumption.
There has been some improvement in terms of gender equality. The female labour force participation rate has slowly increased from 19.3 per cent in 2005 to 24.8 per cent in 2014. The ratio of female to male literacy is improving, with seven literate women for every 10 literate men in 2015. “This ratio differs across provinces. Balochistan has four literate women for every 10 literate men,” the report notes.
Population growth is a key challenge for service delivery. “Service delivery strategies will need to take a long-term view if they are to capture a greater share of the growing population while also improving quality.”
The reported notes that Karachi was one of the least liveable cities in the world and faces “immense planning, infrastructure and service delivery challenges”. “The city is not effectively managing the large flow of migrants, leading to violence and exclusion, improved city management must consider resilience and sustainability, Karachi needs a programmatic, phased approach to address its deeply structural challenges.”
Amin Ahmed contributed to this report from Islamabad
Published in Dawn, November 11th, 2016