Pakistan’s decades-old policies that give preferential access to state resources to a select few sectors and ensure strong government footprints have placed it among nations that have the lowest inclusive growth and low access to education and healthcare, endangering the unparalleled demographic dividends.
A book of the International Monetary Fund (IMF), “Promoting Inclusive Growth in the Middle East and North Africa: Challenges and Opportunities in a Post-Pandemic World”, outlines the prevailing poor economic conditions in a part of the world to which Pakistan also belongs.
The countries that have the lowest inclusive growth scores are Yemen, Mauritania and Pakistan. They lag behind other countries in the private sector and financial inclusion the most.
In terms of access to education, Iran, Jordan, Egypt, Morocco, Lebanon, and Pakistan rank below average for the rest of the world. Within the region, Mauritania, Pakistan and Yemen are the ones that most seem to struggle to provide basic health services to their residents.
So much so, less than 15% of the poorest population have bank accounts and less than 6% have bank loans in Mauritania, Pakistan and Yemen. Just across the border in Iran, about 92% of the poorest 40% of population have bank accounts, 21% borrowing from a financial institution and 84% of the population using internet.
These stark contrasts tell how exclusive economic growth has remained in the region, including Pakistan, which has faced many wars and insurgencies and the young unemployed population could become a fodder to these militant groups.
Besides, the discontent population has tried to oust governments through the Arab Spring, forcing the key stakeholders to review their policies. The IMF, which often faces criticism for causing high unemployment and low economic growth through its fiscal stabilisation policies, has now triggered a debate about the interplay between inclusive and sustainable growth.
The global lender is poised to formally unveil its new set of policies in Marrakesh, the economic centre and home to mosques and gardens – during the October 2023 World Bank-IMF Annual Meetings.
In 2018, the IMF had organised a regional conference at the same venue. The participants were of the strong opinion that MENA countries needed to change their economic models, and indeed build a new social contract to create more jobs, lift growth, and ensure that the benefits of economic development accrue more broadly to their citizens.
The elite capture is probably more pronounced in Pakistan than many countries in the region, thanks to the rich-centric policies, which have also lately come on the radar of the IMF.
“There is fundamentally great potential in Pakistan for raising economic growth and making it more inclusive,” said Nathan Porter, IMF Mission Chief, last week during a seminar organised at the National University of Sciences and Technology (NUST) to discuss the future economic agenda.
Over the past two decades, Pakistan’s labour force participation has been low, and investment rate has been around 15% of GDP, which is well below the best performers of the region.
There is continuing reliance on policies that promote subsidies and preferential treatment to some sectors, which are not the solutions to the low human capital development and low investments in Pakistan, said Porter. “We need to think about a new approach,” he added.
Making growth inclusive and tackling these challenges really comes about bridging Pakistan’s labour force participation and investment rates over the next 10 years, the IMF mission chief said.
Porter argued that reducing state footprints will create breathing room for the private sector and will also strengthen the business environment. The recent adoption of a new state-owned enterprises (SOE) law will improve governance and should help more efficient use of state resources, said the mission chief.
He also emphasised on reducing anti-export biases through tariff policies and export promotion schemes.
During the recent policy dialogue under the $6.5 billion Extended Fund Facility (EFF), the IMF pushed Pakistan towards taking steps that are necessary to end the monopoly of a few businesses on the state’s resources.
It has minimised the difference between the policy rate and the export refinancing schemes’ rates that once used to be too large to the benefit of a few industrialists.
The few business-centric economic policies have led to low inclusive growth and as a result employment in the country is less than 50% of the working-age population.
Subsidies are not drivers of strong business development as these benefit a few and the limited resources are not going to the most productive sectors of the economy, said Porter. These subsidies are not helping in creating sustainable employment opportunities and sustainable exports, added the mission chief.
Pakistan should tap its female labour force, as there is only one woman and three men in the labour force. Many women are working in the agriculture sector without remuneration, he said.
Gender gap alone is costing Pakistan Rs500 billion annually and closing it can boost GDP by 30%, said Ayesha Javed, Deputy Secretary Budget of the Ministry of Finance. There is a young demographic dividend to be taken in the next couple of decades and the reforms done in the right way can help reduce poverty and inequality, advised the IMF mission chief.
In its book, the IMF stated that 10 years after the Arab Spring, the need to ensure more and fairer opportunities for all – and, in particular, opportunities for the young people, women, and entrepreneurs – remains a key priority for MENA countries.
Demographic changes, evolving climate conditions, the impact of automation and artificial intelligence in job markets all pose new challenges to the longstanding issues of high unemployment and deep inequalities in the region.
Inclusive growth is gaining focus in the region but it does not mean that macroeconomic stability is no longer on the agenda, rather the IMF is moving towards inclusive growth in a stable macroeconomic environment, said Dr Ashfaque Hasan Khan, Principal of Social Sciences School and Humanities, NUST.
Khan argued that there is a need for change in conventional policies of the IMF, as the policies that promote stabilisation today and growth later have to be changed to inclusive growth policies without compromising macroeconomic stability.
NUST Professor Dr Athar Maqsood sought more clarity in the IMF-World Bank policies, citing examples from the past where the policies increased inefficiencies in the power sector and taxation system of Pakistan.
“In a country where average growth rate is 3% and population growth is 2.5%, enough employment opportunities cannot be generated. We have the highest unemployment rate and the demographic dividend has turned into a demographic disaster,” said Maqsood.
The writer is a staff correspondent
Published in The Express Tribune, March 20th, 2023.
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