Pakistan is a fairly young country by most standards. Conflicts, complications and historical political divisions have hindered its path to emerge as an influential and modern state. However, globalization along with various other economic factors have put the country in a strong position, most significantly due to its vibrant banking and finance sector. As the fifth most populous state, Pakistan is slowly and gradually becoming a significant player in South Asia. Its macro-economic indicators, however, tell a different story when one looks at its infrastructure, health, education and business environment.
The slow pace of growth and development could be attributed to the lack of political will due to which the country has struggled to establish itself as a democratic state. However, due to recent reforms, Pakistan is making great strides in transforming itself into a modern state. Funding from international donors have been directed towards addressing energy supply shortages, attracting foreign investment and strengthening the financial sector. Noticeable progress has also been made on the financial inclusion front which reflects a penetration of more than 50 percent of Pakistan’s adult population. Given the potential for digital/mobile platforms, the potential for further penetration looks promising.
Liberalization efforts of 1994 and 1997 through granting of autonomy to SBP, digitization in Pakistan and growth of Islamic banking are some of the ways in which the country’s financial sector has managed to flourish. SBP reports 22 Islamic banking institutions operating in the country including five full-fledged Islamic banks, one specialized bank and 16 conventional banks with Islamic banking branches. In the financial year 2020, further 361 branches were added to a network already spanning 3,274 branches in 122 districts. SBP also reports that country’s tele-density has increased from 60.07 percent in June 2015 to 82 percent in December 2020. Broadband penetration has more than quadrupled to 43 percent by December 2020 from only 8.9 percent in June 2015. Further, during the past four quarters, the number of registered mobile phone banking users increased by 3 million to reach 8.9 million. Resultantly, the volume of mobile banking transactions reached 104 million valuing Rs. 2.3 trillion compared with 866 billion in 2020. Similarly, internet banking transactions were recorded at 63 million valuing Rs. 3.4 trillion compared with Rs. 1.7 trillion over the same period.
Pakistan’s financial sector has also shown remarkable resilience in the face of economic fallout as a result of coronavirus pandemic. SBP’s interventions to support key parts of the economy during this period have also earned global accolade. From here, SBP needs to focus on four main areas: digital transformation, affordable housing and access to finance through reduction in gender gap and documentation of economy. As regards documenting the economy various hurdles are being faced some of which are as under:
- Structural impediments (complex layering of formal/informal economy)
- Workforce structure and trends
- Preference for cash in bank dealings
- Complexities of wealth / income declaration process
- Bureaucratic corruption due to manual systems
- Trust gap in documentation
- Inability to tax the agriculture sector
- Challenges with the trading sector
- Defective borders
Transparency in the government operations, paradigm shift in bureaucratic systems, non-political decision making and non-biased policy reforms in taxation may lead to restore the confidence of workforce/businesses. Significant progress has been made so far in above mentioned first three areas and with continuity of policies, commitment and liquidity, it is hoped that Pakistan will emerge as a more dynamic and prosperous economy by the end of next decade.