Summary: Envisioning Pakistan at 100

As Pakistan as a country nears its centenary, it faces difficult choices to achieve a vision of its full potential. Despite an inauspicious start and a complex political history, Pakistan’s economy grew quickly in its earlier years and improved the lives of its citizens, becoming an example of successful development in its first 30 years. This has changed now, and Pakistan is struggling to keep pace with the growth and transformation of its peers, while improvements in development outcomes have become slow and uneven. Pakistan@100 seeks to identify the main changes that will be necessary if Pakistan is to become a strong upper middle-income country by the time it turns 100 years old in 2047. The choices over the next decade will determine Pakistan’s future. Whether it rises to the challenges ahead and ushers in a period of reform that transforms the economy, or whether it continues with the mixed record of reform implementation, failing to address the key constraints to growth, while another generation of Pakistanis sees limited welfare improvements. This executive summary provides a vision of the type of country Pakistan could be by 2047, illustrating the type of changes that are possible, and it discusses a limited number of priority reforms that will be necessary to address the most pressing constraints to accelerating and sustaining growth.

1. A Vision of Pakistan at 100 and the Challenges It Faces Today

Empowering women – enhancing women’s access to work to support growth

Imagine a Pakistan…

Imagine a Pakistan in which its large number of young people has been turned into a demographic dividend by creating millions of quality jobs. Imagine a Pakistan in which stunting and malnutrition have become a distant problem of the past. Imagine a Pakistan in which all citizens, but especially women, have the chance and the skills to join the labor force. Imagine a Pakistan in which all girls and women make their own decisions on pregnancy, work and age to get married. Imagine a Pakistan in which women regularly compete with or outperform men for the best jobs as doctors, scientists, policymakers and civil servants. Imagine a Pakistan in which a child, from any background, from any area in any province, has the same potential to become a doctor or an IT specialist as a child from a wealthy household in an urban area.

To get there…

Investments in family planning, maternal health and early childhood development are the foundation of human capital accumulation. Today, Pakistan’s population is almost 208 million and growing. This is Pakistan’s greatest asset, but it needs to invest more and better in this asset. Pakistan is experiencing a youth bulge, with the number of individuals entering the labor market expanding faster than the total population. This can be turned into a demographic dividend, if the country is able to absorb these young workers into the labor force by creating sufficient quality jobs and ensuring that people—both men and women—have the opportunity to participate in the labor force. On the other hand, to meet the demands of the labor market, more investment in human capital is needed. In this context, human capital is the knowledge, skills and health that people accumulate throughout their lives, enabling them to realize their full potential as productive members of society. Pakistan’s situation today suggests that it will not be able to generate a demographic dividend. Persistently high fertility rates, far higher than in peer countries, would prevent the type of declining dependency rates that are needed. Lower fertility is associated with improved maternal and child health, and greater female labor force participation. In addition, Pakistan continues to have one of the highest stunting rates in the world, affecting future learning and labor market success. Many children do not attend school, and many of those that attend are not being taught the necessary skills to succeed in today’s economy, even less so in a global economy that will increasingly reward knowledge.

A knowledge and innovation driven economy

Imagine a Pakistan…

Imagine a Pakistan in which businesses thrive and compete, and costs are low, attracting significant FDI and the very latest technologies, turning Pakistan into a competitive and innovation economic powerhouse. Imagine a Pakistan in which some firms have become world-leading innovators in niche markets. Imagine a Pakistan with a skilled labor force, including universal high-quality secondary education. Imagine a Pakistan in which its cities are home to state-of-the-art research centers and universities that lead the world in their own fields of expertise, for example water management and pollution mitigation.

To get there…

The future Pakistan will be one that has succeeded in overcoming the barriers to structural transformation that have been stifling its development in previous decades. Pakistan will have unleashed a period of rapid economic transformation by improving the business environment and providing first class infrastructure and education. Competition will be nurtured, supported by the adoption of the newest technologies through growing FDI and openness to trade and ideas, in turn creating a virtuous cycle of more competition and a more competitive economy. This could ultimately lead to Pakistan being at the technology frontier in niche markets. As things stand today, Pakistan’s economy has not changed much in the past 30 to 40 years. The share of agriculture in the economy has not declined much since the early 1990s. Pakistan’s business environment continues to be relatively weak, as reflected in Pakistan’s ranking in several international benchmarking exercises assessing the ease of doing business or the economy’s competitiveness. Incumbent businesses continue to be sheltered from domestic and international competition, through regulations and protectionist trade policies. Necessary public services and infrastructure (energy, transport, education) are inadequate, affecting the economy’s competitiveness.

Pakistan’s cities have become vibrant commercial hubs and centers of excellence

Imagine a Pakistan…

Imagine a Pakistan celebrating its centenary at a time when the country’s major port and trading hub, Karachi, is able to compete with the likes of Dubai, Shanghai or Singapore in the region. Imagine all the major cities in Pakistan connected by fast road networks and high-speed rail links, boosting trade and cutting logistics costs between the country’s major commercial and political hubs. Imagine the major cities of Pakistan being clean and green, and providing better services and public amenities, with houses close to parks, schools, libraries and sports facilities, free of crime, all providing for an urban experience able to attract talent from abroad. And imagine a Pakistan in which cities are beacons of tolerance and openness, supporting and providing momentum to Pakistan’s economic transformation.

To get there…

Pakistan’s major cities can play a greater role in driving structural transformation and growth. The future Pakistan could have cities with world-class municipal services that contribute to productivity growth. Pakistan is already rapidly urbanizing. Cities produce over half of the country’s value added and by some accounts around 60 percent of the population lives in urban areas. Today, Pakistan’s cities are not supporting the economy’s transformation as well as they could. Congestion costs (traffic, pollution, price increases, crime) can at times outweigh the benefits of agglomeration, negatively affecting productivity and growth. Pakistan has one of the worse air qualities in the world. Importers take 20 times longer to clear customs in Karachi than in OECD countries. A number of constraints have prevented cities from playing their role, including institutional fragmentation between different government levels, weak finances at the municipal level, poorly working land markets and limited provision of municipal infrastructure and services. The transformation of cities into engines of growth has begun, but much needs to change for cities to be able to play the leading role they have played in other countries, being able to compete internationally in attracting investment and talent.

Becoming a regional interconnectivity and trade hub

Imagine a Pakistan…

Imagine a Pakistan that is a major regional trading hub, acting as a logistics corridor connecting the two economic powerhouses on its doorstep, India and China. Imagine a Pakistan open to global markets and integrated in global value chains, tripling its regional trade. Imagine Lahore and New Delhi connected by a state-of-the-art high-speed rail link, allowing people to travel between the cities in less than 3 hours, instead of the 18-20 hours it can take today. Indeed, imagining a deep and mutually beneficial relationship between Pakistan and India is of paramount importance to Pakistan’s further growth, prosperity and security, especially given that India could become one of the largest economies in the world by the middle of the century.

To get there…

If it is to achieve this vision by its centenary, Pakistan will need to fully embrace the benefits of more open trade and regional integration. Today, Pakistan’s economy is relatively closed to global and regional markets, limiting its ability to benefit from its pivotal geographical situation. Average tariffs and tariff escalation are relatively high, and it is not well integrated in global value chains, limiting access to newest technologies and the opportunity to use increased competition and specialization for structural transformation. Trade with India, an economy with over 1 billion people and which may be one of the world’s largest economies by mid-century, is negligible. Regional tensions affect domestic policy choices, with an increasing share of limited public resources being used for defense. Increasing regional integration within South Asia could expand Pakistan’s economy by 30 percent by 2047. Stronger regional relations can support Pakistan’s economic transformation and security objectives, increasing its leverage to resolve disputes with its neighbors and freeing resources for public investment in economic and human development. Previous efforts to normalize relations in the region have had mixed results and Pakistan cannot reduce tensions in the region on its own—other countries would also need to play their part.

A conducive governance environment supportive of reform and growth

Imagine a Pakistan…

Imagine a Pakistan in which public schools and health centers rival the best private schools and hospitals. Imagine a Pakistan in which all government levels are united in providing the best attention and services to the private sector, to ensure it grows and provides employment for all people. Imagine a corruptionfree Pakistan in which people can monitor in real time that public resources are being put to the best use. Imagine a Pakistan in which digital technologies support the voice of citizens to hold their politicians accountable. Imagine a Pakistan in which civil servants in all areas, teachers, nurses, police and other frontline staff are all well qualified and highly skilled, and where career progression is based on performance and merit.

To get there…

Establishing a governance environment that supports growth and allows for successful implementation of economic, social and environmental reforms requires a political system that aligns the incentives of policymakers with the interests of voters. Today, very often vested interests undermine political leaders’ accountability to citizens, and governance is deemed as a challenge, even when compared to its neighbors (Pakistan performs below its regional peers on most governance indicators). As a result, Pakistan has initiated many promising reforms, only for them to be shelved, poorly implemented, or subsequently undermined. This is partly because the system allows for some elites to influence policy formulation and implementation. In addition, Politicians’ capacity to manage the public sector is constrained by ineffective human resource management systems. Incomplete devolution by provincial governments to local governments means that a key mechanism for holding political leaders accountable has not been fully developed, undermining the operation of local governments, limiting their responsibilities and the public’s ability to hold them accountable.

2. How Can Pakistan Achieve This Vision in the Next 30 Years: The Way Forward

Pakistan’s average economic growth rate has been declining over the past 30 to 40 years, with periods of accelerating growth usually followed by a crisis.

Growth has declined because the country is not investing enough in either physical or human capital, and because misguided economic policies mean that limited resources are not used in the most productive way. Well-connected industries and firms are often protected from foreign and domestic competition in a variety of ways, limiting the positive impact that increased competition has on productivity. Productivity is also affected by weak public services provision— whether it be energy, livable cities, a healthy and educated population, or security. Frequent macroeconomic crises affect the country’s growth trajectory. This report identifies the key choices that Pakistan will need to make if it is to be able to invest more, and invest more efficiently, in both human and physical capital, and allow markets to allocate resources to where they are put to the most productive use.

The origin of Pakistan’s frequent and recurring macroeconomic crises is structural, not cyclical, and avoiding future crises requires appropriate medium-term responses.

Much analysis of Pakistan’s growth places an emphasis on the short-term challenges that Pakistan needs to overcome, often with a focus on the latest or the next cycle of macroeconomic instability. Pakistan@100 seeks to focus on policy changes that can address the country’s medium-term challenges, while also bearing in mind that macroeconomic imbalances often press the brakes in Pakistan’s development trajectory. Pakistan’s macroeconomic challenges are not cyclical, insofar as they are not caused by the business cycle, or a domestic or external shock. Pakistan’s macroeconomic challenges are structural: a revenue system that is unable to meet the government’s financing needs and consumption-led growth that relies on external flows (remittances, aid) for its sustainability and is therefore very vulnerable to changes in flows. Failure to address these structural, medium-term challenges, while stabilizing the macroeconomic imbalances, just means that the next crisis is another 4 to 5 years away. The proverbial can is constantly being kicked down the Pakistani road.

There are four elements to a growth strategy for Pakistan, namely (i) accumulation, (ii) allocation, (iii) sustainability, and (iv) governance.

That is: (i) accumulation of physical and human capital, which will require both increasing public and private investment; (ii) allocation of resources to their most productive use, through structural transformation and openness to trade and investment; (iii) environmental and social sustainability, to ensure that the unsustainable use of finite resources does not constrain growth in the future, and that everybody can benefit from and contribute to growth; and (iv) a governance environment that supports growth and the successful implementation of necessary reforms. Pakistan has had no shortage of technical assistance to inform policies or support for reforms from the international community. But many of the necessary policies have not been thoroughly implemented, or they have been reversed. A governance environment that supports making tough policy choices and then following through with those choices will be crucial if Pakistan is to follow the type of transformative path being suggested.

The set of reforms needed to transform Pakistan is large and varied and as such it needs to be prioritized into a more manageable set of immediate interventions, taking into account capacity and financing constraints.

This report discusses in some detail reforms to accelerate and sustain growth. By necessity, to cover all the relevant topics, such a discussion will be broad-based. An incoming administration, dealing with a macroeconomic crisis and with limited policy space, may be overwhelmed by the vast set of reforms necessary to transform Pakistan. The next section takes potential capacity and policy space constraints into account, suggesting a limited set of reforms that should be prioritized for immediate implementation.

A prioritized set of interventions that addresses the binding constraints to growth, can have a significant and sustainable impact on growth.

This report identifies reforms that address identified constraints to accelerating and sustaining growth over the medium term. The following section highlights a more limited number of interventions that should be prioritized to kick-start Pakistan’s transformation, with a focus on increasing investment rates and productivity growth (summarized in Table 1). Higher government revenues will contribute to increasing investment rates, directly, by increasing public investment, and indirectly, by reducing the likelihood of macroeconomic crises and reducing crowding out of private sector borrowing. Higher revenues will also create the necessary fiscal space to address other constraints to growth such as weak human capital. An improved business environment and a more open economy to both regional and global trade and investment will unshackle the private sector and contribute to quickly accelerate productivity growth. Some measures may only contribute to growth in the medium term, but inaction today will have an irreversible and prolonged impact. Pakistan’s youth bulge can be turned into a demographic dividend, providing an additional boost to growth in the medium term, if dependency rates decline and people have the necessary skills. Lowering fertility and investing in early childhood development, which is the basis for future learning and skills development, are key to ensure that Pakistan’s large population becomes an engine for growth. Finally, improving water management, using water more efficiently in the agriculture sector but also releasing water for other sectors in the economy, will be necessary for the sustainability of growth.

  • 1. Investments for human capital accumulation. A first priority for Pakistan is to make the best use of its greatest asset, its people. The three immediate interventions for human capital investments are: (i) programs to reduce fertility; (ii) improving spending patterns to use existing resources more efficiently; and (iii) early childhood development programs. Lower fertility is associated with improved development outcomes for both mothers and children. Declines in fertility are also associated with increased savings and ability to invest, as well as greater female labor force participation. The public sector is today spending less than half what other emerging economics are spending on health and education, reflected in slow and uneven progress in improving development outcomes. While spending levels ultimately need to increase, much can be done within the existing envelop by improving spending efficiency. Today, Pakistan is suffering from one of the highest stunting ratios in the region and the world, with long-lasting and irreversible consequences for people’s ability to learn and lead a productive life. Early childhood interventions focusing on health and malnutrition can reduce stunting. Recent analysis estimates the benefits of halving stunting rates over a 30-year period are equivalent to over 8 percent of GDP.

Immediate Priorities: Human Capital Accumulation

The three immediate priorities for human capital investments are: (i) to reduce fertility, implement comprehensive awareness programs to encourage informed decisions on parenthood. This should go beyond services and information for birth control, but also prepare young people for parenthood by including information on reproductive health, young women’s health, and child development through health, nutrition and stimulation; (ii) increase public investment in human capital, first by using existing resources more efficiently, and later on, as fiscal space widens, by allocating an additional share of resources to human capital investments; and (iii) focusing on early childhood development, with targeted programs that support children during the crucial first 1,000 days of the life cycle. Early childhood development programs should include immunizations, deworming and malnutrition treatment. This set of priority interventions will need to be combined with others, including targeted interventions for disadvantaged households or programs to skill young people.

  • 2. Increasing fiscal space through taxation. With just 1.5 million registered taxpayers, the tax base needs to be expanded, while also reducing exemptions, preferential treatments to some sectors, and outdated property valuation tables. A broadening of the tax net should include the agriculture sector, which accounts for over 20 percent of GDP but generates a meager 0.22 percent of total direct tax revenue. The tax system is also riddled with legal loopholes that facilitate tax evasion and need to be rectified. There are multiple taxes and jurisdictional overlaps between the federal government and provinces, which increase compliance and administrative costs, and provide opportunities for rent-seeking. Increased fiscal space will also reduce the likelihood of macroeconomic crises, often the result of fiscal imbalances, and reduce the government’s borrowing needs, freeing up resources for private sector investment. Domestic revenue mobilization efforts will need to be combined with reforms in the financial sector to deepen financial intermediation and facilitate access to finance by SMEs.

Immediate Priorities: Taxation (Physical Capital Accumulation)

Taxation reform is a top priority given that many of the reforms needed to promote growth will require greater fiscal space to fund them. Taxation reform should focus on tax administration, making it taxpayer-friendly, more efficient and better able to leverage modern technology to enforce compliance (identification of non-filers, track-and-trace in high-risk sectors, risk-based audits). The tax code should be simplified, supporting federal-provincial harmonization and integration. This should be facilitated by the establishment of a high-level constitutional body through the Council of Common Interest, with clear accountability to resolve tax-related issues across the country.

  • 3. Leverage competitive forces to transform Pakistan’s economy. The two main interventions to support Pakistan’s structural transformation are the adoption of a more open trade and investment regime and an improvement of the business environment. Pakistan’s economy has not changed as much as most of its peers during the past 30 to 40 years, partly because the private sector has not been subject to the competitive pressures that result 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. A more open trade regime would increase competitive forces at home and facilitate access to the latest technologies. Greater integration within the South Asia region would expand market opportunities for Pakistani firms and facilitate integration in regional and global value chains. To achieve and sustain a conducive environment for private investment and innovation-driven growth, Pakistan should prioritize the strengthening of its investment climate. Structural transformation will benefit from parallel sectoral reforms to improve access to and reliability of electricity as well as efforts to create more efficient and productive cities. As Pakistan climbs the technology ladder, targeted interventions to support the adoption and generation of frontier technologies will be needed, but this is a second generation reform that will only be effective in a more competitive and open environment.

Immediate Priorities: Structural Transformation

The following interventions should be the initial focus for structural transformation: (i) improving the business environment, through regulatory and legal reforms that reduce the procedures, risks, costs and time associated with investing and doing business, at both federal and provincial levels. Transparency should be improved through a comprehensive inventory of all the licenses and permits that apply to firms in each province or sector. Regulatory compliance should be eased through single-window online portals; and (ii) liberalizing trade and investment. This includes the establishment of a simple, transparent tariff structured with reduced tariffs, and with clear and transparent rules governing the use of discretionary provisions. Trade logistics should be supported through procedural facilitation and infrastructure improvements as needed, the extension of the automated border management system to all regulatory agencies as well as the adoption of a risk-based compliance management strategy for border controls. Regional integration will require improved relations with all neighbors, currently the main constraint to closer regional integration. Relations can be improved gradually, through CPEC and first focusing on making greater use of existing collaboration avenues like the joint chambers of commerce.

  • 4. Improved water management represents Pakistan’s main sustainability concern. Pakistan is depleting its water faster than it can be replenished. Today, over 90 percent of water goes to the agriculture sector, particularly to a small number of crops (rice, wheat, sugarcane and cotton) that only generate 5 percent of GDP. Water use is inefficient, primarily because of low water prices and poor management of the irrigation network. Going forward, water will need to be used more efficiently, to increase productivity in the agriculture sector, release water for other uses and increase resilience to climate change. This entails moving toward irrigation rates that promote water saving and efficient use. Parallel efforts to better manage air and water pollution, improve productivity in agriculture, better prepare the country for climate change and reduce disaster risks will all contribute to improved sustainability. Social sustainability will require a more inclusive growth process, through an intergovernmental transfer system that addresses regional disparities, legislation that reduces gender-based and other types of discrimination, and programs that improve the access of the most disadvantaged to public services and economic opportunities.

Immediate Priorities: Environmental and Social Sustainability

Pakistan needs to strengthen institutional capacity and information and monitoring systems, which can then be used to better manage and price resources appropriately. The priority reforms are: (i) improve water measurement and accounting to manage water supply, improve water resource planning and improved flood risk assessment and forecasting; (ii) modernize existing irrigation networks to reduce water-logging and salinity, updating water allocation processes and increasing its transparency and equity; and (iii) adopting effective abiana rates that, covering O&M costs and the externalities associated with extraction of groundwater, help incentivize more efficient water use. Improvements are also required in assessing areas for abiana rates, differential tariffs reflecting services provided and the efficiency of tariff collection.

  • 5. Improve transparency and accountability to create a conducive governance environment. Generating a governance environment that is conducive to reforms requires realigning the incentives of political leaders and public officials with the needs of citizens. This includes increased transparency – transparent and accessible information on politicians’ track-records of reform and service delivery, and increased accountability – the provision of levers for citizens to sanction public officials and political leaders when policy and service delivery do not meet their expectations. Accountability will also be supported by furthering the devolution process, as it allows local leaders to tailor service delivery to local needs, and facilitates monitoring and sanctioning by voters based on service delivery performance. Currently, local governments are deprived of the authority to direct service delivery, undermining accountability, as it deprives voters of the ability to closely monitor the leaders responsible for providing public services.

Immediate Priorities: Governance

Increased transparency and accountability will improve governance and Pakistan’s ability to implement the necessary reforms. To enhance transparency, the government should ensure timely disclosure of all budget documentation and publicize audited information from state owned enterprises (SOEs). Information technologies should be leveraged to enhance transparency, e.g. through e-procurement that can increase competition, achieve cost-savings and reduce corruption. Mechanisms to strengthen the voice of citizens to hold the state and politicians accountable will enhance accountability, through greater clarity of roles and responsibilities of service providers, a comprehensive monitoring of service quality and avenues for citizens to provide feedback on and sanction service providers. Technology holds significant potential in facilitating these steps, as evidenced by initiatives at the provincial level. Continued devolution to local governments will require the establishment of elected local government authorities (LGAs) and devolving administrative autonomy and financial responsibilities to LGAs. Effective policy responses to Pakistan’s development challenges will also require improved coordination between different government levels.

Table 1: Prioritized Set of Interventions to Accelerate and Sustain Growth

Growth Strategy Elements Baseline Goal Immediate Reforms
Accumulation - Human Capital Population growth: 2.4% (2017) Population growth below 1.2% (2047) Reduce fertility rates through the implementation of comprehensive awareness programs to encourage informed decisions on parenthood, including information on birth control, reproductive health, young women’s health, and child development through health, nutrition and stimulation.
Stunting (2018): 37.6% Stunting (2030): 22.5% Implement early childhood development programs including immunizations, deworming and malnutrition treatment.
Public spending on education (2%) and health (<1%) Public spending on education (5%) and health (2%) As a first step, improve efficiency of public spending, and later after increasing fiscal space, then increase spending on health and education.
Accumulation - Physical Capital Tax revenues/GDP: 13% (2018) Tax revenues/GDP: 20% (2030) Improve (i) tax administration, making it taxpayer-friendly, more efficient and better able to leverage modern technology, and (ii) tax policy through simplification and ensuring federal-provincial harmonization and integration.
Allocation Doing Business ranking: 136 (2019) Doing Business ranking: 50 (2023) Introduce regulatory reforms, leveling the playing field for all firms by reducing red tape, and the scope for excessive discretion and arbitrariness.
Regional trade (2015): US$18.5 billion Regional trade (2030): US$58 billion Adopt a simple, transparent tariff structure with reduced tariffs and clear and transparent rules governing the use of discretionary provisions. Support greater integration efforts within the South Asia region.
Sustainability Water productivity in agriculture: US$1.00/m3 (2017) Water productivity in agriculture: US$15.00/m3 (2047) As a first step, strengthen institutions, regulatory frameworks and information systems (monitoring, measuring) for water management. Move toward irrigation rates that promote water saving and efficient use. Eliminate environmentally damaging subsidies.
Governance WEF Transparency of government policymaking index: 3.6 (2016) WEF Transparency of government policymaking index: 4.8 (2030) Provide transparent and accessible information on politicians’ track-records of reform and service delivery to citizens. Improve transparency of budget documentation.
WGI Voice and accountability index: -0.69 (2016) WGI Voice and accountability index: -0.16 (2030) Complete the devolution of responsibilities and resources to local governments. Streamline ICT initiatives to provide avenues for citizens to hold service providers accountable. Provide levers for citizens to sanction public officials and political leaders when policy and service delivery do not meet their expectations.

Pakistan@100: Shaping the Future has been developed by the World Bank in partnership with Department for International Development (UK) and Department of Foreign Affairs and Trade (Australia).