Macroeconomic Uncertainty Confines Productivity Growth

The World Bank said that the growth in productivity in Pakistan has been constrained by macroeconomic volatility.

In its latest report, “Global Productivity, Patterns, Drivers, and Policies,” the WB reported that annual productivity growth in Pakistan increased from an average pre-global financial crisis (GFC) of 2.5 to 3.5 per cent in 2013-18.

Productivity growth during the post-GFC era benefited from strong foreign direct investment (FDI) inflows and infrastructure projects which supported private-sector development. This further claimed that the differences in productivity across countries in the South Asia Region (SAR) are very high.

Nepal had the lowest rate of production in 2013-2018 at around one percent of the advanced-economy average, reflecting in part natural disasters. Bhutan, Maldives, and Sri Lanka have higher rates of productivity, ranging from 6% to 15% of the advanced economy average, reflecting the benefits of relatively large service sectors, especially tourism.

The resilience of the region reflected three main elements: the limited exposure of the SAR to external headwinds, continued rapid urbanization and an improved market environment that supported productivity gains from the continued shift away from agriculture to more competitive services sectors.

The share of economies with productivity growth below long-run and pre-GFC levels has been lower in the post-GFC period than in other emerging and developed economies (EMDEs). Nevertheless, the shock of COVID-19 and the related fall in global estimates present a major risk of slowing productivity growth in the region.

The study added that many businesses recognize infrastructure shortages as major obstacles to their business activities. Some companies are found to be less competitive than others in Pakistan and Bangladesh.

As seen after the global financial crisis and in the economic downturns in India and Pakistan in the 1990’s, economic and financial crises have proved to hold back growth in the country.

Political uncertainty tends to be a more significant impediment to South Asian firms’ operations than in other EMDE areas. Strengthening economic policy mechanisms, enhancing monetary and fiscal policy structures, and enhancing financial regulation and supervision will help provide businesses with a stable macroeconomic environment, minimize uncertainty and improve productivity.

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