Daily Times

PESHAWAR: The annual growth rate in the NWFP is 2.9 percent less than the target of 7.5 percent growth required for the elimination of poverty in the province and the existing institutional and technological base is insufficient to attain the government’s objectives, a World Bank (WB) report has said.

According to the report ‘NWFP Economic Report’, the province’s potential growth rate is too short of the target required.

The report said that the priority for the NWFP government should be to strengthen the institutional and technological base in the province. It said that another point of concern was that there was a steadily increasing pressure on the cultivable land, which was considered the backbone of the NWFP economy. The report stated that the province should develop policies that maximise returns from the cultivable area and at the same time emphasise activities that are not intensive in the use of cultivable land. It said the agriculture strategy for the NWFP should be to enlarge the cultivable area by expanding the irrigation network, while also moving the agriculture sector increasingly towards higher value crops such as horticulture. This sector could accommodate the labour force presently unemployed if developed and thus poverty could be resolved up to some extend.

It said that in the manufacturing sector, the province was likely to possess a healthy comparative advantage in the extraction and polishing of marble, gemstones and construction materials for export to Afghanistan. It said that the province also possessed a strong comparative advantage in the generation of electricity from hydel sources.

“The creation of employment requires an increase in the demand for labour and this generally comes with an expansion of the GDP,” the report said. The long-term elasticity of employment with respect to real GDP growth works out to proximately 0.55. The labour force is presently growing at about 3.2 percent a year which implies a growth rate of 6 percent a year for the real GDP to absorb the additional workers entering into labour force, the report stated.

“How much faster should the GDP of the NWFP grow in order to absorb the additions to labour force and to engage the previously unemployed workforce?” it said. The real GDP growth rate will have to be higher in order to provide employment to workers who are in labour force but are at present unemployed. For the labour force to be employed a target growth rate for the province will probably have to be 7 to 7.5 percent a year in real terms.

Raising some serious questions about the available data on employment, firstly, the calculation of labour productivity is extremely problematic. Some very rough calculations and evidence from other countries suggests that a likely rate for growth of labour productivity would be in the range of 1.5 to 2 percent a year. Secondly, the poor quality of data makes it pointless to use any serious econometric technique to factor out short-term fluctuations and arrive at the underlying trend. Thirdly, one may regard the real growth attained by the province over a long period as a proxy for the potential growth rate.

It said that over the last 14 years, the GDP of the NWFP grew at a rate of 4.6 percent a year, while in the last seven years the growth rate averaged 4.4 percent, which is very less from the targeted one.