Pakistan falls behind peers in growth and competitiveness: IMF

Pakistan has been lagging behind its peers in terms of income per capita, competitiveness, and export performance over the past few decades.

According to the International Monetary Fund's (IMF) Country Report on Pakistan, from 2000 to 2022, the country's GDP per capita grew at an average annual rate of only 1.9%. In contrast, Pakistan's peers experienced significantly higher growth rates — Bangladesh averaged 4.5%, India 4.9%, Vietnam 5%, and China about 7.5%.

This disparity has resulted in Pakistan falling further behind its peers in living standards, highlighting the urgent need for policy reforms.

The country's export growth has been weak compared to its regional peers, and its competitiveness has declined due to an appreciated real exchange rate relative to productivity growth.

The recent restoration of stability presents an opportunity to implement reforms that could place Pakistan on a path of sustained, inclusive economic growth with stronger export capacity, IMF noted.

Pakistan has also struggled to innovate and develop more sophisticated export goods, as evidenced by its low and declining share of knowledge-intensive exports.

In 2022, Pakistan ranked 85th in the Economic Complexity Index, the same ranking it held in 2000.

Agriculture sector

The country's export basket remains heavily biased towards agriculture and textiles, such as cotton yarn, rice, woven fabrics, beef, and leather apparel, making it difficult to shift resources towards more technologically advanced production.

The IMF report indicates that Pakistan's current agricultural specialization limits its ability to diversify into more technologically sophisticated products.

Although Pakistan exports some complex goods, including medicines, medical instruments, metal hand tools, batteries, and plastics, many of its higher value-added sectors operate in a highly distorted economic environment.

Tariffs on intermediate and final goods undermine overall competitiveness and domestic competition, inhibiting the transition towards producing more sophisticated goods related to current production.

Agriculture exemplifies how government policies can hinder economic transformation by trapping resources in low-productivity activities.

The sector suffers from one of the lowest levels of labor productivity and has shown minimal reallocation and improvement in productivity compared to peers.

Government interventions in agricultural markets, such as support prices for raw and processed goods and preferential taxation treatment, have led to the entrenchment of resources in the agricultural sector at the expense of more productive segments of the economy, the report mentioned.