What kind of impact can digitisation of services have on Pakistan’s macro-economy? The subject is an important one and the State Bank of Pakistan has addressed it in a special section in its recently released Annual Report FY18.
Digital financial services (DFS) are helping emerging economies around the globe to increase financial outreach and unlock large productivity gains. Broadly speaking, to realise the impact of DFS on economic growth, there needs to be strong digital infrastructure in place coupled with vibrant financial services and convenient product offerings.
The SBP quotes a McKinsey Global Institute report, which puts the potential increase in Pakistan’s GDP at a cumulative 7 percent or approximately $36 billion through 2016-2025 as well as the creation of roughly 4 million jobs by increasing the use of DFS.
According to the central bank, there have been four key drivers behind the digitisation of the services sector in Pakistan. These are a “decent ICT base, connectivity and affordability, favourable demographics and support from diaspora.”
As the graph shows, the highest gains are expected to come from investment. This will happen through a higher quantum of small and medium enterprise (SME) and household lending. Investment gains will also flow from the transition in savings medium from informal ones to formal digital accounts.
Pakistan’s saving rate (11 percent in FY18) is quite low while the share of SME lending in overall private sector credit was only 8 percent by FY17. Given these statistics, the use of DFS including mobile accounts, online payment systems and other new product offerings can help stimulate savings as well as increase financial inclusion.
Similarly, productivity gains can be achieved by utilising DFS across service sectors to make existing processes more efficient. The SBP also points out growing broadband penetration as a catalyst for firms looking to increase their cost effectiveness for customer outreach purposes.
The third component which is employment creation has also seen a positive impact with growing digital penetration being the main driving force.
The SBP believes commerce, transport and information sectors have seen the most spill-over benefits with new employment opportunities created as a result of increased use of DFS.
It is good to see the central bank has also analyzed the e-commerce, fintech and e-government sections in its report which will be covered in this space in the coming days.
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