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Improving Pakistan’s public and private investment

Muhammad Waheed's picture
Pakistan is not investing enough and its share of investment to GDP is one of the lowest in the world at 15 percent almost half of the South Asian average at 30 percent. This translates into inadequate infrastructure, lack of access to sufficient levels of energy and water, poor quality of schools and hospitals. Photo: World Bank

This blog is part of a series that discusses findings from the [email protected]: Shaping the Future report, which identifies the changes necessary for Pakistan to become a strong upper middle-income country by the time it turns 100 years old in 2047. 

Pakistan’s economy is unable to sustain high growth rates for extended periods. Every few years, the economy is faced with a balance of payments crisis as it tries to grow fast.

This is unlike many other successful peer countries that are growing at higher rates for a longer time.

This inability to sustain growth momentum has dented Pakistan’s ambitions to become a middle-income country. What is the reason for this boom and bust cycle that Pakistan experiences so often?
 
The fundamental cause for these short-lived growth cycles in Pakistan is that these are propelled by private and government consumption, not by higher investment.

Resultantly, the country’s demand increases at a much higher pace than its supply of goods and services, prompting a need for higher imports which becomes unsustainable.

Successive governments have tried to notch up growth in this way, but all of them have ended with a balance of payments crisis.
 
Pakistan is not investing enough and its share of investment to GDP is one of the lowest in the world at 15 percent , almost half of the South Asian average at 30 percent. This translates into inadequate infrastructure, lack of access to sufficient levels of energy and water, poor quality of schools and hospitals.
 
More worryingly, private investment as a share of GDP has been declining and stands at less than 10pc in FY18. This low investment trap and declining labor productivity have reduced Pakistan’s growth potential.
 
The decline in the economy’s growth potential is particularly concerning because it suggests that the country will not be able to grow at higher rates required for job creation. To correct this Pakistan needs to undertake several reforms in multiple areas to increase labor productivity and capital formation.
 
The foremost priority is that Pakistan must maintain macroeconomic stability. Persistent macroeconomic instability has discouraged savings and private investment in the country resulting in low-aggregate investment and fluctuating output levels.

Accelerating Pakistan’s structural transformation

Siddharth Sharma's picture
Pakistanat100 Shaping the Future report
Photo: World Bank

This blog is part of a series that discusses findings from the [email protected]: Shaping the Future report, which identifies the changes necessary for Pakistan to become a strong upper middle-income country by the time it turns 100 years old in 2047. 

Structural transformation is central to how countries grow rich.

The movement of jobs from agriculture to manufacturing and service industries is the first stage of that transformation.

Then, within industries, a process of creative destruction helps weed out unproductive firms and gives rise to more efficient and innovative ones.

Of course, no two countries have the same growth path. But those that succeed at sustaining growth do so by moving resources to more productive areas and building firm capabilities.

Pakistan’s economy is shifting toward more highly skilled, modern and productive industries but the path is uneven and slow relative to global norms.

The economy is less agricultural, more urban and services-oriented than before. Traditional industrial clusters have started exporting new products, while new industries such as information, communications and technology (ICT) are emerging.

Relative to the historical norm for countries at similar levels of per capita GDP, while Pakistan’s agricultural sector is of typical size, its manufacturing sector is small, and the services sector large.

Making Pakistan more equitable for all

Silvia Redaelli's picture
Between 2001 and 2015, approximately 32 million people were lifted out of poverty
Photo: World Bank

This blog is part of a series that discusses findings from the [email protected]: Shaping the Future report, which identifies the changes necessary for Pakistan to become a strong upper middle-income country by the time it turns 100 years old in 2047. 

In recent years, Pakistan has made remarkable progress in reducing poverty. Estimates based on the national poverty line, which was set at Rs3,030.3 per adult equivalent per month based on 2013-14 prices, show a consistent decline over the past two decades.
 
Between 2001 and 2015, approximately 32 million people were lifted out of poverty and the poverty rate was more than halved, going from 64 percent in 2001 to 24pc in 2015. However, a lot is yet to be done.

Not only because 2015 estimates show that approximately one in four Pakistani still does not have enough money to satisfy basic needs, but – even more alarming – progress has been far from equal when looking across the provinces, districts, cities, and rural areas.
 
While poverty declined at a fast pace in Khyber Pakhtunkhwa and, to a lesser extent, in Punjab, progress was less positive in Sindh and Balochistan.
 
Within provinces, poverty has remained stubbornly high in Southern Punjab and Northern Sindh. Similarly, the pace of poverty reduction has been slower in rural areas compared to cities, where the risk of poverty is less than half compared to rural areas.

Inequalities in poverty levels and poverty reduction performance are compounded by substantial inequalities in access to and quality of basic services such as health, education, electricity, water, and sanitation.
 
Being born in one of the country’s lagging areas and/or in a poor family largely predetermines a child’s chances of escaping deprivation and realizing his or her full human capital potential in life.

The dos and don’ts of boosting Pakistan’s human capital

Tazeen Fasih's picture
Photo: World Bank

This blog is part of a series that discusses findings from the [email protected]: Shaping the Future report, which identifies the changes necessary for Pakistan to become a strong upper middle-income country by the time it turns 100 years old in 2047. 

My parents’ gardener has six children – all aged 8 or younger. While his wife is busy taking care of the youngest ones, barely 15 months and 2 months old, he brings the other kids along with him so they don’t wander in the streets.

As I look at the supposedly 8-year-old girl with a dupatta wrapped around her head, looking tiny, probably stunted, suddenly I realize how pervasive all the statistics Yoon and I have been working are – right there, staring at us in our face.

The 38 percent stunting rate for the population, the fertility rate of 3.6 births per woman, the 22.6 million children out of school, the dismal learning outcomes for students, these are all here manifested in this family and its future.

What kind of future is awaiting these children? Will they be able to reach their full productive potential? According to the World Bank’s Human Capital Project, Pakistan’s children born today can achieve only 39 percent of their full potential – productivity they could have achieved if they were able to enjoy complete education and full health.

With over 60 percent of Pakistan’s national wealth (measured as the sum of produced capital such as factories and infrastructure; 19 types of natural capital such as oil, minerals, land, and forests; human capital; and net foreign assets) estimated to be coming from Human Capital Wealth, a failure to nurture and utilize this wealth to its full potential can be fatal.

Nonetheless, successive governments have failed to address the human capital challenge. A careful review of policies in Pakistan on human development reveals a myriad of policies over the 70 years of the country – many strategies appearing sound and well-intentioned, some, of course, appearing to be prompted by geopolitical situations of specific eras of the country.

In this context, we highlight some principles in human capital policies.

Ways for Sri Lanka to fix its healthcare

Deepika Attygalle's picture
Ways for Sri Lanka to fix its healthcare
Nurses in Sri Lanka. Photo: World Bank

Today on World Health Day, we can say with confidence that Sri Lanka’s healthcare system has delivered on many of its promises.

This year’s focus on universal health care is a timely reminder that Sri Lanka is still reaping the benefits of far-thinking health policies implemented as early as the 1800s.  

Many of these measures were designed to address what were then considered the key challenges of previous centuries, such as high maternal and child mortality rates and infectious diseases that claimed the health and lives of thousands.
 
Successes in lowering maternal and child mortality rates and introducing effective vaccination programs have made Sri Lanka’s low-cost model one worth emulating in the rest of South Asia.  
 
Sri Lanka’s healthcare faces new challenges
 
However, we can no longer afford to rest on our laurels. Our policies and systems must now evolve to address the country’s urgent concerns.
 
The island must also now contend with a worrying rise in non-communicable diseases such as cardiovascular diseases (CVD), ischemic heart disease and stroke, cancers, diabetes, and respiratory conditions such as asthma.
 
Fertility decline and increasing longevity have resulted in a demographic transition in Sri Lanka and this is taking place while the country is aspiring to become an upper middle-income country. 

Population projections show that the proportion of Sri Lankans above the age of 60 years will increase from 14 percent in 2017 to 22 percent by the year 2037.
 
With such a rapidly aging population in Sri Lanka, it is imperative for policymakers to ensure that social and economic institutions in the country are ready to face the health challenges and social consequences ahead.
 
In response, Sri Lanka is undertaking an ambitious agenda that will strengthen and expand primary healthcare services from the ground up. Documented in Re-Organizing Primary Healthcare in Sri Lanka, preserving our progress preparing our future”   this approach is backed by strong evidence.

The report captures the findings of wide-ranging conversations among hundreds of stakeholders from every level of the country’s healthcare system.

Facilitated by the Ministry of Health, Nutrition and Indigenous Medicine, and supported by the World Bank, the report makes a case for why, and how, Sri Lanka must re-imagine its primary healthcare systems in order to attain the goals of universal healthcare. 

What’s behind South Asia’s low exports?

Hans Timmer's picture
South Asian countries’ exports are only one-third of what they should be, had they mirrored the experience of economies with similar characteristics. Without further integration into global markets, South Asia will not sustain its growth. Photo: Shutterstock 

This blog highlights the findings from the recent South Asia Economic Focus: Exports Wanted

Bela Balassa worked for the World Bank from 1966 till his death in 1991. Luckily, his insights on international integration, revealed comparative advantages, trade diversion, and natural progress toward political integration have outlived him.

And what Bela is best-known for—and rightfully so—is the Balassa-Samuelson effect.

Put simply, this effect explains why a haircut or a restaurant meal is much cheaper in poor countries than in rich countries whereas the price tag for a car or a television is almost the same everywhere.

What’s behind this phenomenon is simple and can be summed up in three parts.

First, international competition equalizes the price of tradable goods like televisions across countries.

Second, the prices of non-tradable goods like haircuts can differ.

And third, the difference in productivity across countries is much more significant in tradable goods than in non-tradable goods. For example, a barber in Dhaka needs roughly the same amount of time as a barber in New York to cut my hair.

But manufacturers or farmers in Nepal need more labor to produce the same output than their counterparts in Germany.

Countries tend to be poor because their level of productivity in tradable goods is low.  

Visualizing Nepal's health progress

Ravi Kumar's picture
Photo: World Bank

Over the last few decades, Nepal has considerably improved the health and wellbeing of its people.

As we mark World Health Day today, here’s an overview of how much health progress Nepal has made in its efforts to meet the Sustainable Development Goals (SDGs), especially the SDG 3 indicators, which focus on healthy lives and wellbeing for all at all ages.

Should women get a job? “Yes...but” say Pakistani men

Saman Amir's picture
A large number of Pakistani women waiting to get relief money for her own business work at Lahore, Pakistan.
Pakistani women in Lahore, Pakistan. Photo: A M Syed, Shutterstock

 
This blog is part of a series examining women’s economic empowerment in South Asia.

In patriarchal societies—as in most of Pakistan—men exert much influence over the lives of their female relatives and almost always have exclusive control over household income.
 
Having a supportive father or husband is therefore critical for women and determines their choices and work opportunities, especially outside the home.

Conversely, men reluctant to see women in the workplace can derail progress toward greater participation of women in the labor force.
 
As part of the Women in the Workforce study, we interviewed a purposively selected group of men in Karachi, Lahore, Quetta, and Peshawar on their thoughts on women’s work outside the home.[1]
 
Despite the constraints of a purposive sampling technique, a few broad themes emerged from these interviews that can be relevant to anyone advocating for women’s economic empowerment.
 
As anywhere in the world, men’s attitudes toward women’s work were varied. 
 
Some men we spoke to expressed support for women’s work for economic gain.
 
The most common reason was the urgent need for a double income to maintain the household’s living standards in a fast-changing economy.

Shaping a brighter future for Pakistan

Illango Patchamuthu's picture
Pakistan needs to think big on investing in its people
Pakistani girls attending a primary school. Photo: World Bank
This blog is part of a series that discusses findings from the [email protected]: Shaping the Future report, which identifies the changes necessary for Pakistan to become a strong upper middle-income country by the time it turns 100 years old in 2047. 
 
In 28 years, Pakistan will turn 100 years old. The children born this year will be adults then.

I wonder what they will see when they look around. Will they see a country teeming with opportunity? Or will they be in a country that does not offer enough jobs and does not provide the needed skills to compete?

Some of them may well be new parents at 28. Will they be able to look at their own children, and see a brighter future for them?

Pakistan has some important decisions to make if it wants to give its children the future they deserve.

If the country can make the right decisions now, Pakistan can accelerate and sustain growth to become a confident upper middle-income by the time it turns 100. It’s ambitious but possible.

Other countries –South Korea, China, and Malaysia – have transformed their economies within a generation, and there is no reason why Pakistan cannot achieve the same.

The alternative is not inspiring. If the country fails to accelerate and sustain growth as well as control population growth, by 2047 income levels will be close to where they are today and with challenges similar to what they are today.

I like to imagine another Pakistan, in which stunting and malnutrition are gone, in which family background does not determine what job you can get, women compete equally with men, businesses thrive, and Pakistan competes with the likes of Shanghai or Singapore as a trading hub.

Last month we launched a report, [email protected]: Shaping the Future, which looks at some of the reforms needed to accelerate and sustain growth and transform Pakistan’s economy.

Now is the time to come together and see what needs to be done to achieve this goal. A growth narrative for Pakistan needs to rest on these four elements: investing in people; using resources more efficiently; caring for the environment; and finally, improving how Pakistan is run to support growth and the implementation of difficult reforms.

Pakistan needs to think big on investing in its people.

In Bangladesh, new latrines meet a tested business model

Shilpa Banerji's picture
Shamila Hakim outside her home in Gazipur district's Shinglab village, Dhaka
Shamela Hakeem outside her home in Gazipur district's Shinglab village, Dhaka. Photo: World Bank

In a tiny hamlet called Shinglab in Gazipur district, around 2 hours from Dhaka, you can see a cluster of homes made of varying materials depending on the household income.

Shamela Hakeem, 40, lives in a functional mud hut with a tin roof. A widow with no children, she makes around BDT 300 ($3.50) daily as a sweeper at a local factory.

Last year, she decided to upgrade her sanitation facilities and purchased a BDT 10,000 ($118) toilet from a local entrepreneur. She is due to pay off her final installment within the next month.

But why did she decide to invest in a toilet?
                                                                                                                                                                                      
A three-way street

Bangladesh has nearly eliminated the practice of open defecation, but many latrines are poorly constructed and unhygienic, which can be harm­ful to the environment and the user.

Only 32 percent of the rural population have access to a safely managed sanitation service.  The government is helping rural households shift to better sanitation. However, many poor rural households are often discouraged by the upfront cost.

The country also has a history of micro-finance institutions (MFIs) who have effectively worked with rural households. But MFIs have had little experience in investing in non-productive assets such as toilets.

In 2016, a $3 million World Bank grant helped scale up MFIs lending for improved rural sanitation in Bangladesh. An additional $23.7 million in seed money was mobilized from MFIs for the installation of latrines.

Small-scale sanitation entrepreneurs received technical assistance to build good quality, affordable models of hygienic latrines for low-income households. Finally, an agreement was reached with the Palli Karma-Sahayak Foundation (PKSF) to work with retail MFIs and local entrepreneurs (LEs).

Interest-free loans were extended to households using their own capital ($22) of PKSF and their MFI partners plus business loans to entrepreneurs with market rate interest. Across 42 districts, household borrowers could choose from a range of standard design ‘set price’ latrines installed by LEs. Another arrangement was reached between MFIs, LEs, and customers who accessed the sanitation loan from MFIs and placed an order with LEs to construct the latrine.

Households could pay off the loan over a period of 50 weeks without interest. “We started off with 143 latrines in 2017, but now the market is more developed, and entrepreneurs are motivated,” said Gazi Md. Salahuddin, general manager of Resource Integration Centre, an MFI based in Narayanganj district.

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