Pakistan has important strategic endowments and development potential. The country is located at the crossroads of South Asia, Central Asia, China and the Middle East and is thus at the fulcrum of a regional market with a vast population, large and diverse resources, and untapped potential for trade.
Pakistan’s increasing working-age population provides the country with a potential demographic dividend but also with the critical challenge to provide adequate services and jobs.
Pakistan faces significant economic, governance and security challenges to achieve durable development outcomes. The persistence of conflict in the border areas and security challenges throughout the country affect all aspects of life in Pakistan and impedes development.
A range of governance and business environment indicators suggest that deep improvements in governance are needed to unleash Pakistan's growth potential.
Helped by cheap international oil prices and steady implementation of its reforms program, economic conditions have improved. The improved economic growth prospects has led rating agencies (Moody’s, S&P) to improve their outlook for Pakistan over the past year. Growth is slowly recovering supported by a favorable slump in international oil prices and fast-growing remittances, with GDP growth accelerating to 4.2 percent in FY15 and expected to pick-up to 4.5 percent in FY16.
Economic growth is showing signs of sustained recovery aided by falling commodity and fuel prices, increased energy availability and improved security conditions. Preliminary data for the first half of FY2016 show industrial growth accelerating on the back of higher activity in large-scale manufacturing and construction, the latter being driven primarily by initiation of China Pakistan Economic Corridor (CPEC) infrastructure and energy projects.
The improved industrial performance is expected to compensate, to some extent, the weather setbacks observed in the agriculture sector. Moreover, services sector is expected to also grow led by the financial sector, substantial automobile retail sales, increased port activity, and higher telecom profits; although wholesale and retail trade is yet to improve.
Despite some gains Pakistan’s low human development indicators undermine its labor force productivity and economic growth. Pakistan ranks 147 out of 188 countries in the 2015 Human Development Index (HDI) with most indicators lower than most countries in South Asia. Access to education remains low and completion rate for primary education is among the lowest in the world. In FY2014 public spending on education was 2.1% of GDP which reflects on the quality, poor teaching and learning outcomes and inadequate infrastructure.
Although some provinces (Punjab) have made headway in reducing the gender gap, at 67% girls’ participation at primary level lags 10 percentage points behind boys’. Public spending on health was 0.8% of GDP in FY2014, making Pakistan one of the lowest spenders worldwide. Health outcomes have improved but at a slow pace while nutritional outcomes have not improved over the last two decades, and have even deteriorated for some indicators. The 2011 National Nutrition Survey estimated that the rates of child stunting have not changed since 1965 with 45% of children being stunted, 16% of Pakistani children under 5 suffer from acute malnutrition.
According to official statistics, Pakistan has made substantial progress in reducing poverty. The Government of Pakistan has recently adopted a revised poverty line. Using the revised poverty line, the headcount poverty rate has declined from 64.3 percent in FY01/02 to 29.5 percent in FY13/14. The number of people around the poverty line remains high, which results in significant vulnerability to poverty. This steady decline in poverty has occurred despite periods of moderate growth. Growth incidence curves illustrate the pro-poor nature of Pakistan’s growth with consumption of the poorest growing faster than mean consumption.
However, the drivers of this process are not well understood. Large remittances, concentrated among relatively poor households, are a vital source, but growing ‘hidden’ urbanization and a burgeoning informal sector could be equally important.
Last Updated: May 17, 2016