Rethinking Pakistan’s Development Choices: Contributions to the Emerging Agenda

In recent years, the World Bank has had the honor and privilege of welcoming incoming administrations with a series of diagnostics studies and policy choices. Continuing this practice, the World Bank has put together a Country Economic Memorandum (CEM) and a series of 16 sector-specific Policy Notes for the incoming governments. Whereas the CEM focuses on conditions for growth acceleration and jobs creation, the Policy Notes are wide-ranging, and look at issues from improving inclusion and human development, enhancing economic growth and providing jobs, and improving governance and accountability.

This effort is meant to facilitate a broad understanding of key topics and support a creative dialogue around menus of policy options, while being informative in the spirit of knowledge-exchange. Ultimately, both publications aim to help the incoming governments achieve their ambitious economic and social goals along with the Bank’s mission of fighting poverty and achieving shared prosperity.

Accelerated economic growth in Pakistan has been possible in the past, and it can be again. Pakistan’s economy has shown it can be very resilient in preserving growth and poverty reduction despite civil conflicts, natural disasters, and complex political transitions.

To achieve rapid growth, Pakistan has many “positives”. These positives include the legitimacy of its institutions, capacity to implement national projects, growth in remittances, natural resource base, potential in food production and mining, its strategic location, and the rapid growth of women in the labor force. These positives can help reinvigorate the economy.

In such regard, the CEM and Policy Notes have three main messages:

1. Pakistan must aim to achieve higher growth linked to more and better jobs – especially among women and youth.
   
2. Pakistan must strive for inclusion and improving human capital as a cornerstone of rebuilding productivity.
   
3. Pakistan can sustain its growth, jobs, and inclusion agenda only by enhancing governance and accountability.

The CEM and Policy Notes emphasize that implementing required structural reforms ad hoc and piecemeal will not yield results. Reforms should rather reinforce each other, as the issues cut across sectors. For example, current tax and subsidy policies create avenues for corruption, as well as reduce the government’s ability to supply electricity, which then reduces business competitiveness and job productivity. The whole of the reforms will thus be far greater than the sum of the parts.

Six urgent major actions are highlighted for government’s consideration. The most important would be to initiate reform in the power sector, as progress in all other areas depends on it. It is estimated that annual economic growth could be 1.5-2% higher without the load-shedding crisis.

The second most important reform to initiate early on would be revenue mobilization, as the creation of fiscal space is essential to increase urgent public investment. Third action would be to reinvigorate State Owned Enterprise (SOE) reform and the business environment. Fourth would be the implementation of the regional agenda, focused on all regional countries. The fifth priority would be to improve human development, with much room to grow in education, health, and social protection. Sixth, to make all these efforts more effective would be to strengthen governance and accountability.

Implementing these reforms requires strong political will and takes both leadership and building consensus. Powerful individuals and well-organized vested interests will continue to avoid changes, in areas like taxation, agriculture, and trade reform. Thus, broad consensus-building with a solid communication effort is needed as part of the process to overcome these interests. Complementing leadership at the top will also require skilled managers with the capacity to champion, design and especially implement reforms through the complex political and social milieu of Pakistan. Financial support from donors is secondary, and not determinant. If reforms are forced, they can even be counterproductive.

Special attention should be given to the most vulnerable people or areas. Many of the proposed reforms are most likely to benefit those already well integrated into Pakistan’s economy. Large groups of people—particularly the poor, youth, and women—will need special measures to ensure that they too can participate in and benefit from these reforms. Special measures will also be needed to ensure that the most conflict-affected areas are not left out.

The key to success will be implementation, implementation, and implementation. It will do no good, and probably some harm, to take half-hearted steps that will then be partly reversed when facing obstacles. Most reforms, because they are complex and intertwined, will need concerted actions by multiple official entities over several years.

For details in each area of reform, the full CEM and individual Policy Notes can be accessed from the links below. Each note provides a short analysis of a few key issues, a menu of priority actions, and their potential sequencing in the short to medium term.

Finding the Path to Job-Enhancing Growth: A Country Economic Memorandum

Policy Notes Synthesis: Rethinking development policy choices : contributions to the emerging agenda

1. Building an efficient energy sector
2. Reinvigorating the agenda for open trade
3. Enhancing the business environment
4. Reforming state-owned enterprises
5. Revitalizing manufacturing
6. Increasing agricultural productivity
7. Enhancing labor market conditions for vulnerable groups
8. Recovering strong positive trends in poverty reduction and shared opportunity
9. Expanding access to quality education
10. Expanding quality health, population, and nutrition services
11. Consolidating social protection
12. Managing natural disasters
13. Revamping governance
14. Improving financial management
15. Promoting efficient service delivery with decentralization
16. Mobilizing revenue