Economic distortions hold back economic growth of Pakistan, says World Bank

Islamabad [Pakistan], October 22 : The World Bank said that economic distortions hold back the economic growth of Pakistan.
The World Bank report identified many distortions in the Pak growth model, either introduced by policy decisions or ignored by it, reported Asian Lite International.
It stated that distortions in various taxes, subsidies, size-dependent industrial policies, trade restrictions or gender norms are leading to resource allocation that is suboptimal and which is discouraging innovation and productivity in the country.
The World Bank's Country Economic Memorandum on Pakistan titled, 'From Swimming in Sand to High and Sustainable Growth', has reiterated the precarious conditions due to such distortions that are holding back the Pak economy's growth.
Pakistan's development partners also pointed out these fundamental rigidities as responsible for the poor prospects of the Pak economy in near future, reported Asian Lite International.
The World Bank report stated that despite brief periods of relatively fast growth of per capita GDP, growth has been low over the past two decades.
The growth of the country has been interrupted in the past and even today by the accumulation of external vulnerabilities that tend to result in a balance of payments crises, reported Asian Lite International.
It attributed these phenomena to Islamabad's model of growth which is driven primarily by consumption and government expenditure rather than by investment and exports.
Structural changes in the growth model that give thrust on investment is the core challenge facing Islamabad for taking the economy on a sustained growth trajectory, reported Asian Lite International.
The country has become less productive over time. Aggregate productivity in Pakistan has been stagnant or declining during the past decade.
The COVID-19 pandemic exacerbated the decline in productivity with a contraction of 23 per cent in 2020. Policies are hurting the innovative spirit of exporting firms. If firms want to innovate, they miss out on export subsidies.
Because export subsidy schemes target mostly well-established, unsophisticated export products and can provide up to a 30 - 35 per cent boost in profits, neglecting innovative manufacturers. It is hurting trade diversification also, reported Asian Lite International.
Industrial sickness is a continuous phenomenon in the country. Pakistan exhibits a relatively large share of firms known as 'zombies', i.e., firms that are loss-making for at least three consecutive years.
In 2016, Pakistan had the highest share of zombie firms among comparator countries. State-owned enterprises (SoEs) and family-owned domestic firms are more likely to be zombie firms, reported Asian Lite International.
The agriculture sector of Pakistan is also marked by several distortions. Though yields have grown over the past decades in agriculture, it has been due to more intensive use of inputs. The report noted that total factor productivity has been falling for most crops, reported Asian Lite International.