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Spend less on defence and more on human development, World Bank tells Pakistan

If Pakistan wants to be a strong upper middle-income country by the time it turns 100, it has to reduce its population growth rate by half and more than double its spending on education and healthcare, World Bank said in its latest policy report ‘Pakistan@100: Shaping The Future’.

The global lender has expressed its concerns on the ever increasing defence expenditures in the South Asia region amid recent tensions between India and Pakistan.

“India’s defence expenditures are seven times higher than Pakistan’s while Pakistan spends almost 70% of its revenues on military and interest spending,” says WB.

The report pointed out that the smaller size of Pakistan’s economy vis-à-vis India means that, although as a share of GDP military spending is significantly higher than India’s, in absolute terms it is vastly outspent by India.

“Pakistan has allocated a large amount of resources to developing and maintaining strong military capabilities. Pakistan’s spending on its military detracts from how much it can spend on other development priorities,” it says.

Strained regional relations affect trade, opportunities for regional cooperation and countries’ domestic policies.

Stronger regional relations can support Pakistan’s economic transformation and security objectives, increasing its leverage to resolve disputes with its neighbours and freeing resources for public investment in economic and human development, it elaborated.

“Peace is the best driver for economic growth and shared prosperity. We have seen how persisting conflicts can damage society, community and the economy as a whole. We believe peace brings economic dividends for a country and I think those kind of dividends can help Pakistan towards it two trillion dollar economy by 2047,” World Bank Country Director for Pakistan Patchamuthu Illangovan told SAMAA Digital on the eve of the report launch in Islamabad.

Previous efforts to normalise relations in the region have had missed results and Pakistan cannot reduce tensions in the region on its own; other countries also need to play their part, said the WB report.

Today Pakistan’s economy is relatively closed to global and regional markets, limiting its ability to benefit from its pivotal geographical situation, said the report.

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, mentioned in the report.

Where else do we need to improve?

The report seeks to identify the main changes that will be necessary if Pakistan is to become a strong upper middle-income country by 2047. It identifies seven areas of reforms. On top of these reforms lies a proposal to reduce the country’s fertility rate to 1.2% by 2047, down from 2.4% as of 2017.

“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,” the report said.

The WB also recommends the government achieve efficiencies on public spending. After achieving higher fiscal space, Pakistan should increase spending on health to 2% of the GDP, up from less than 1% as of now. It also suggests improving spending on education to 5% of the GDP from the current 2%.

Pakistan has several difficult decisions to make, says the Washington-based think tank. Despite a challenging start and a complex political history, Pakistan’s economy grew fast in its earlier years, improving the lives of its citizens. “Pakistan was considered an example of successful development in its first 30 years. This has since changed, and Pakistan is struggling to keep pace with the growth and transformation of its peers,” it says.

Among other reforms, WB recommends a tax-to-GDP ratio of 20% by 2030, up from the current 13%. Reform tax administration, making systems efficient and people friendly, it says. Similarly, it wants to see Pakistan at number 50 in World Bank’s Ease of Doing Business ranking come 2023. This can be done by reducing red tape and introducing legal reforms.

The WB says Pakistan should open its market for regional trade by adopting a simple, transparent tariff structure with reduced tariffs and clear and transparent rules and support greater integration efforts within the South Asia region. Greater regional integration can take Pakistan’s trade with its neighbors to $58 billion in the next 10 years from $18.5 billion (as of 2015).

The decisions Pakistan will take over the next decade will determine its future, WB says raising some pressing questions: will Pakistan rise to the challenges ahead and transform its economy? Or will Pakistan continue with the mixed record of reform implementation, failing to address the key constraints to growth, while another generation of Pakistanis sees limited welfare improvements?

The report and the relevant policy note provide a vision of the type of economy that Pakistan could have by 2047. The report illustrates 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.

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