Human capital ranking falls

KARACHI:

Pakistan is a country where investing in human capital development is often viewed as an extravagance. Additionally, a troubling culture has developed in which people receive charity rather than a living wage. This trend is leading to an increasingly severe national crisis, as data reveals a growing gap between the country's potential workforce and actual economic returns. This issue is exacerbated by poor education outcomes, low skill levels and minimal investment from the private sector in training.

According to a recent analysis shared by the Overseas Investors Chamber of Commerce and Industry (OICCI), Pakistan ranks 130 out of 174 countries on the Human Capital Index Plus (HCI+), placing it 23 points below the lower?middle?income average of 153. The ranking reflects how effectively countries equip their populations with the health, education and skills needed for productive employment.

Education emerges as the largest contributor to this gap. Weak learning outcomes, low school completion rates and limited access to quality education continue to undermine workforce readiness. This is compounded by minimal on?the?job training, with fewer than one in five firms in lower?middle?income countries providing any form of structured training to employees.

At the labour market level, the situation is even more stark. About 95% of Pakistan's self?employed workers are engaged in low?skill occupations, a ratio worse than regional peers such as India and Bangladesh, and far lower than Nigeria with 34% high?skill labour. These workers are largely concentrated in subsistence agriculture, street vending and informal services – sectors where productivity gains are limited and income growth remains stagnant.

This dynamic creates what economists describe as a "skill trap", where experience in low?productivity jobs fails to translate into meaningful wage increases. Evidence suggests that returns to experience in subsistence or informal employment are roughly half of those in formal sector jobs, further entrenching income disparities.

Dr Jazib Mumtaz, an applied economist associated with the Institute of Business Administration (IBA), described Pakistan's labour productivity as among the lowest in the region, attributing it to a lack of technical training and limited adoption of modern technologies.

"Our labour is not trained, especially not on new machines or technology. Companies don't invest in skill development, and that keeps productivity low," he said, adding that businesses often view training as a cost rather than a long?term investment.

He emphasised that improving worker productivity leads to higher efficiency, allowing firms to produce more output with fewer resources, ultimately boosting profitability.

However, he noted that many local businesses operate with a short?term mindset and lack structured human resource policies that incentivise skill development.

The absence of incentives is a critical bottleneck. While public sector institutions such as the Technical Education and Vocational Training Authority (TEVTA) offer training programmes, industry participation remains limited due to weak awareness and inadequate policy support.

Experts argue that targeted fiscal incentives could help shift this behaviour. Linking tax rebates or audit considerations to firm?level investment in human capital, such as training expenditure, could encourage businesses to adopt a more long?term approach.

Meanwhile, broader socioeconomic constraints further hinder human capital development. Dr Abid Qaiyum Suleri, Executive Director of the Sustainable Development Policy Institute (SDPI), pointed out that household spending patterns leave little room for investment in health and education.

Citing data from the Household Integrated Economic Survey (HIES), he noted that about 35% of household expenditure is spent on food, while 20% goes to housing and energy. In contrast, only 3.5% is allocated to health and less than 2.5% to education.

"When nearly two?thirds of income is consumed by basic necessities, there is very limited capacity to invest in human development," he explained. "This directly impacts education and health outcomes, which are fundamental pillars of human capital."

He further highlighted that nearly 40% of Pakistan's population faces food insecurity, exacerbating the challenge. Poor nutrition, combined with limited access to healthcare and education, creates a cycle of low productivity and weak economic mobility.

Despite these challenges, global evidence suggests that targeted interventions can deliver significant gains. The World Bank's 2026 human capital report identifies three key policy levers for improving outcomes.

First, training subsidies should be tied to employee retention rather than mere participation. This ensures that firms invest in meaningful skill development rather than treating training as a compliance exercise.

Second, prioritising soft skills, such as communication, teamwork and problem?solving, can yield high returns. Studies show that soft skills training can raise productivity by up to 13% among trained workers, with spillover benefits for untrained colleagues.

Third, structuring entry?level jobs through formal apprenticeship programmes can create pathways for skill acquisition. Certifications linked to these programmes should be transferable across firms, enabling workers to retain their value in the labour market.