ISLAMABAD: Productivity growth in Pakistan was limited by macroeconomic instability, says the World Bank (WB).
The WB in its latest report, "Global Productivity, Trends, Drivers, and Policies" stated that in Pakistan, annual productivity growth picked up from a pre-global financial crisis (GFC) average of 2.5 percent to 3.5 percent during 2013-18.
During the post-GFC period, productivity growth benefited from strong foreign direct investment (FDI) inflows and infrastructure projects, which supported private sector activity.
It further stated that productivity differences across countries are very large in South Asia Region (SAR).
Nepal had the lowest productivity levels in 2013-2018, at around one percent of the advanced-economy average, partly reflecting natural disasters.
Bhutan, Maldives, and Sri Lanka have higher productivity levels, in the range of six to 15 percent of the advanced-economy average, reflecting the benefit of relatively large service sectors, in particular tourism activity.
Productivity levels in the three largest economies of the SAR - India, Bangladesh, and Pakistan - are lower, ranging between three and five percent of the advanced-economy average, reflecting their relatively large informal sectors, low urbanization rates, and weak financial development.
In the post-GFC period, a slight moderation in India's productivity growth was partially offset by pickups in Bangladesh and Pakistan.
The region's resilience reflected three main elements: the SAR's limited exposure to external headwinds, continued rapid urbanization, and an improving business environment that supported productivity gains from the continuing shift away from agriculture toward more productive services sectors.
As a result, in the post-GFC period, the share of economies with productivity growth below long-run and pre-GFC averages was lower than in other emerging market and developing economies (EMDEs).
However, the COVID-19 shock and the related plunge in global forecasts present a substantial risk of slowing productivity growth in the region.
The report added that many firms cite infrastructure gaps as important obstacles to their business activities.
In Pakistan and Bangladesh, these firms are found to be less productive than others.
The environment has also become decreasingly supportive in terms of access to finance with state-owned banks dominating banking system assets (e.g., roughly 70 percent in India) and their balance sheets encumbered by elevated nonperforming loan ratios (usually around 10 percent).
The post-GFC slowdown in the SAR productivity growth mostly reflected weaker capital accumulation.
A large share of firms cites infrastructure gaps as their biggest obstacle.
Firms facing infrastructure obstacles have been found to be less productive than others in Pakistan and Bangladesh.
Improved infrastructure in the energy and transportation sectors, as well as technology-oriented capital accumulation, can promote productivity growth and boost international competitiveness.
Economic and financial crises have proven to hold back productivity in the region, as observed after the global financial crisis and in economic downturns in India and Pakistan in the 1990s.
Political instability seems to be a more severe obstacle to the operations of South Asian firms than in other EMDE regions.
Strengthening economic policy institutions, improving monetary and fiscal policy frameworks, and enhancing financial regulation and supervision can help to provide a stable macroeconomic framework for firms, reduce uncertainty, and boost productivity.
Copyright Business Recorder, 2020
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