A Pakistan that achieves high and sustained growth, and curbs population growth, to reach upper middle-income status by 2047 would look very different from the Pakistan of today. It would be a country in which every child has access to a good education, mothers do not die giving birth and in which life opportunities are not predetermined before being born. An upper middle-income Pakistan would also be a country in which people no longer primarily work on farms, but are instead employed in highly productive, innovative and well-managed firms. It would be a country that has ensured that everyone, especially women and those from low-income households, is given the chance to contribute to and benefit from the country’s progress. It would also be a country that has responsibly managed its natural-resource base by reducing air and water pollution, and improved water use. Finally, a Pakistan that reaches upper middle-income status on its centenary would have a political system in which political leaders respond to the demands of their citizens and where the public sector efficiently implements the government’s ideas.
There is, however, a different, much less desirable, possibility for Pakistan’s future. Pakistan’s rise to upper middle-income status requires the formulation and effective implementation of a wide range of reforms that span all parts of government, the private sector and society. Pakistan’s future looks very different if it fails to achieve these reforms: income levels will be close to what they are today, with large parts of the population, especially women, deprived of economic participation. Its consumption-based growth model, low tax revenue and inefficient resource use will have prevented crucial investments, and instead continued Pakistan’s pattern of boom-and-bust growth cycles, and depleted the country’s naturalresource base. In addition, its political system will remain influenced by elites that will continue to capture the majority of the economic benefits.
This report has highlighted a potential pathway for the more ambitious scenario to materialize, allowing Pakistan to become an upper middle-income country by 2047. The discussion of needed reforms put forward in this report may seem overwhelming. However, there is significant capacity for implementation, and with the right governance environment, and a strong and solid constituency for reforms that demands progress in these areas from the authorities, much of what is being proposed is possible. The following paragraphs chart a path for the federal and provincial authorities in Pakistan to start a process of reform that puts Pakistan on a faster and more sustainable growth trajectory.
Turn Pakistan’s large youth bulge into a demographic dividend. The first step toward this demographic dividend is to lower fertility rates. Lower fertility is associated with improved development outcomes (health, education) for both mothers and children. Declines in fertility are also associated with a country’s increased savings and ability to invest. Lower fertility can also lead to increased female labor force participation. The impact of improved population management will be wide ranging and significant. To achieve lower fertility rates, Pakistan needs to develop comprehensive awareness programs to encourage informed decisions on parenthood. Awareness programs should go beyond services and information for birth control, and also prepare young people for parenthood by including information on reproductive health, young women’s health, and child development through health, nutrition and stimulation. Investments on human capital should prioritize early childhood development, with targeted programs that support children during the crucial first 1,000 days of the life cycle. In addition to parental support for family size and preparing young people for parenthood, as suggested above, support should include a pregnancy package, with pre-and ante-natal care and information on nutrition, a birth package, including attended skilled delivery, birth registration and exclusive breast-feeding, and a child health and development package, including immunizations, deworming, malnutrition treatment, a pre-school package and a family life education package to introduce respectful gender-based interactions as models. Pakistan needs to increase public spending in social sectors but, given limited fiscal space, the first priority is to improve the efficiency of current spending.
Pakistan needs to increase fiscal space if it is to invest more in its infrastructure and people. To increase investment levels, Pakistan requires increased fiscal space to afford public investments that crowd in private financing and build the human capital of its people. This requires a concerted effort to mobilize tax revenue that focuses on tax administration, making it taxpayer-friendly, efficient and able to leverage modern technology, and on the tax code, simplifying it and supporting federal-provincial harmonization and integration. Increasing fiscal space also requires improved coordination between the provinces and the federal government on fiscal policy. Finally, increasing fiscal space requires a focus on the efficiency of public spending to ensure that every rupee spent has the greatest possible impact on crowding in private investments, building human capital and contributing to Pakistan’s growth.
Leverage competitive forces to transform Pakistan’s economy. Pakistan’s economy has not changed much during the past 30 to 40 years, partly because the private sector has not been subject to the type of competitive pressures that results in a reallocation of resources to more productive uses. Incumbent firms are often protected from competition through regulations and barriers to entry, as well as protectionist trade policies. Increased competition in domestic markets will unleash the private sector’s creative and innovative forces. Adopting a more open trade and investment policy, particularly within the South Asia region, will expand market opportunities for Pakistani firms, increase competitive forces at home, while also facilitating access to modern technologies and improved management skills and business processes. To achieve and sustain a conducive environment for private investment and innovation-driven growth, Pakistan should strengthen its investment climate through legal and regulatory reforms that reduce the procedures, risks, costs and time associated with investing and doing business in Pakistan.
Pakistan needs to ensure that the pricing of resources, especially water, reflects their scarcity and promotes sustainable use. Pakistan is depleting its water faster than they can be replenished. To reverse this, water needs to be used more efficiently in the agriculture sector, which accounts for over 90 percent of water use. Overcoming constraints to sustainable growth requires moving toward abiana rates that promote water saving and efficient use, and a ‘green’ investment regime that reflects pollution and other environmental implications in investment costs. Getting prices right also requires eliminating environmentally damaging subsidies and consolidating support to the agricultural sector to generate fiscal savings and promote efficient and sustainable farming practices. The correct pricing of resources needs to build on stronger institutions and regulatory frameworks, and measuring and monitoring systems—all currently relatively weak. As a first step, therefore, Pakistan needs to strengthen institutional capacity and information and monitoring systems, which can then be used to better manage and price resources appropriately.
To ensure successful implementation of sectoral reforms, Pakistan must complete its devolution process. For reforms to be effective, a strong governance environment in which political leaders formulate policies that are in the public interest and manage public officials to work toward effective implementation is required. Revamping devolution—a key way to enhance the accountability of political leaders and thus strengthen the governance environment—requires three steps. First, Pakistan should revise its decentralization framework to clarify the distribution of expenditure responsibilities between the center and the provinces, and to link central transfers to provincial expenditure requirements. Second, provinces should establish elected local government authorities and devolve administrative autonomy, finances and expenditure responsibilities to them. Finally, effective decentralization requires improved coordination between federal and provincial departments.
Measures that enhance transparency and strengthen the voice of citizens contribute to reform implementation. Allowing voters to assess the performance of their leaders requires providing them with information and accountability mechanisms. Added transparency is especially needed in two areas. First, Pakistan should pass legislation that includes minimum transparency standards for public financial management to give citizens access to information on the flow of public finances. Second, it should mainstream and expand efforts to publicize statistics on service delivery, and provide citizens with mechanisms to assess service delivery performance and sanction poor providers. Existing efforts relating to e-governance, for example initiatives that provide platforms for citizen feedback, or SMS-based awareness campaigns that raise knowledge about citizens’ rights, are a promising first step in this direction.
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