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The prospects for economic inclusion in Pakistan

Arsalan Ali Faheem
Recent positive developments offer reason for optimism about the prospects for economic inclusion in the country.
by Brigit Helms and Arsalan Ali Faheem

Having seen  a decade of regional instability, Pakistan is now predicted to join the league of countries that will contribute significantly to global growth over the next two decades. According to PWC’s The World in 2050, Pakistan should become a Top-20 economy by 2030. But, for Pakistan, the key to laying a sustainable basis for stability and security lies in ensuring that such growth, if it can be achieved, includes its large low-income population.

A few indicators illustrate the scale of the challenge. The UNDP estimates that nearly 80 million Pakistanis live in multidimensional poverty. Only 21.3 percent of Pakistani adults have any kind of bank or mobile money account, much lower than the 69.6 percent benchmark for South Asia. And when it comes to women’s inclusion, it’s hard to find a country that scores worse—The World Economic Forum’s Global Gender Gap ranks Pakistan 151th of 153 countries, besting only Iraq and Yemen.

Yet positive developments in three important areas offer reason for optimism about the prospects for economic inclusion in Pakistan.

Entrepreneurship and social value

Harnessed appropriately, entrepreneurs can foster socioeconomic inclusion by tackling Pakistan’s chronic challenges in housing, healthcare, education, and transportation. By creating the jobs and solutions that sustain Pakistan’s future economy, entrepreneurship can become a powerful contributor to inclusive growth.

Encouragingly, the Pakistani entrepreneurship ecosystem is on the move, spurred by major improvements in connectivity and a robust human capital backbone of more than 360,000 software engineers. According to the accelerator Invest2Innovate, Pakistan has seen a proliferation in incubation, acceleration, and financing, with around 24 business accelerators and 20 venture capital funds now operating across the country. Invest2innovate’s deal-flow analysis indicates that, since 2015, Pakistani startups have raised more than $165 million in new capital, a recent example being a $12 million investment in Airlift, a company that brings creative disruption to the public transit sector.

Read more: Women’s financial inclusion in Pakistan

To support this growing traction in the entrepreneurship space, Pakistan can make its foreign investment regime more efficient, streamline registration of local investment funds, and reduce the compliance burden of taxation and property registration. There is too, a critical need to reduce the gender gap and improve female participation in entrepreneurship.

The digital finance opportunity

Digital financial inclusion offers the prospect of ubiquitous access to financial services for large segments of the population, stimulating a series of socioeconomic benefits, as documented by McKinsey & Co. In Pakistan, the digital infrastructure has strong growth potential, with mobile broadband covering 80 percent of the population, and a strong universal ID system. However, according to CGAP’s Steve Rasmussen, former CEO of Pakistan Microfinance Network, Pakistan is performing below its potential on digital financial inclusion, hampered by issues of trust and openness of digital architecture. The share of digital payments as a proportion of financial transactions remains low—in 2014, it was less than 1 percent, compared to 55 percent in the United Kingdom.

But that low baseline throws into relief the upside potential in Pakistan. And the potential prize is large: the McKinsey Global Institute estimates that, by 2025, digital financial services can add 7 percent to Pakistan’s GDP, or $36 billion, creating four million new jobs in the process. Digital finance could bring millions of people into the financial system, boosting access to financial products and social safety support. It would also generate much-needed tax revenue.



Policymakers have sensed the opportunity, and reforms such as the 2018 Digital Pakistan Policy and the recently announced national e-commerce framework are encouraging. International investors are taking notice, with Alibaba-affiliate Ant Financial’s $184.5 million investment in Telenor Microfinance Bank expected to drive the sector forward. As Pakistan moves to bring its nearly 100 million unbanked citizens into the financial fold, it must pay particular attention to serving women and channeling catalytic finance to youth and small enterprises.

Ehsaas: an essential foundation

However successful Pakistan’s entrepreneurs and digital innovators may be, an economy that excludes the poorest and most vulnerable citizens is a recipe for unrest and instability. Last year, Pakistan  launched perhaps its boldest effort yet to build a comprehensive safety net through the nationwide Ehsaas (“Empathy”) programme.

Read more: Microfinance and Fintech

Building on the success of the Benazir Income Support Programme, Ehsaas consolidates a range of social safety measures under a single national umbrella. It plans to boost social spending from 0.7 percent to 1 percent of GDP and support access to income opportunities, education, and healthcare. This includes linking vulnerable women to banking services and applying the Khyber Pakhtunkhwa (KP) province’s successful health insurance model nationwide—affording access to 60 million low-income individuals.

Encouraged by a reform-minded government, international partners are also stepping up. At the UN General Assembly in September 2019, the Gates Foundation announced $200 million to support Ehsaas, whose biggest challenge is likely to be coordinating across 34 federal ministries, divisions, and agencies to make sure the aid reaches those that need it most.

Perhaps for the first time, the technology and entrepreneurial forces are available for Pakistan to build an economy that works for the majority of its citizens. With sound policy, wise allocation of resources, and a firm commitment to execution, a more inclusive future could be within reach.

Brigit Helms is Vice President of Technical Services at DAI. She has recently authored Access for All: Building Inclusive Economic Systems.

Arsalan Ali Faheem is an economic competitiveness specialist with DAI’s Economic Growth practice.

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