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Pakistan’s services sector regaining strength; set to meet global standard

Current growth rate of this sector is larger than the growth rate of industrial and agriculture

Services sector, which according to the World Trade Organization (WTO) is the fastest growing sector of the global economy and contributes 70 percent to the global output. It also employs one third of global employment. In the production process, services can be found at various stages from the inception to the final consumption. The services sector is also scattered globally where advancement in information technology and communications have made it mobile and cost effective.

Statistics of the services sector are difficult to measure. Countries usually measure trade in services through the balance of payment maintained by the central banks. The WTO Secretariat in collaboration with Organization for Economic Co-operation and Development (OECD) has developed trade in ‘Value Added Database’ that gives some light on the content of services in trade in goods.

In the developed economies, the value addition or content of the services in exported goods is as much as 45 percent. For developing countries, this averages around 35 percent. For some developing countries such as India and China, the value addition done by services in the exported goods is around 50 percent.

The data from OECD research shows that contribution of services to manufacturing accounts for 50 percent of exports from the USA and the EU in 2014. This study also quantified the impact on barriers on import of services and that there was a direct relationship between restrictions on the import of services and trade in manufacturing. Manufacturing and export of goods is dependent on the availability of competitive services both domestic and foreign.

In Pakistan, the sector has huge importance, since it constitutes 58 percent of the country’s GDP. It contributes significantly to the cross border trade. The share of this sector has stood to 59.59 percent of GDP in the fiscal year 2017. This sector has recorded a growth of 5.98 percent as against to 5.55 percent previous year. This trend is continued during fiscal year 2017 and the sector increased at 5.98 percent.

Pakistan’s exports of services recorded a growth of 15.32 percent year-on-year to $403.71 million in the first month of the current year. It entered positive growth in the past months after recording negative growth in the previous months. Pakistan’s exports of services recorded a growth of 1.76 percent year-on-year to $5.55 billion in the fiscal year 2016-17. The import of services was up 28.6 percent to $893.13 million in July 2017 as against 694.49 million over the corresponding period last year. The import of services increased 2.96 percent to $9.12 billion in July-June 2016-17.

There has been an ongoing debate on the competiveness of local firms where increasing challenges from competitors have prevented Pakistan to realize its export potential. It is important for the policymakers to realize that global competiveness is achieved not by protective approaches but through aggressive and bold steps by liberalizing trade (both goods and services). This would require Pakistan to facilitate foreign direct investment and take measures for ease of doing business.

There is also need to liberalize and open up services sector to be able to create opportunities for national firms competing globally. Information Technology is governed by the principles of constant change and innovation, Pakistan offers an outstanding platform for organizations world over with an edge of freshness due to its cost-effective services, ever growing inventive talent and significant communication infrastructure.

Construction is the second largest sector in Pakistan’s economy after agriculture. Pakistan’s construction & architecture industry has a good reputation for market excellence, a strong heritage of quality, stability and innovative work. Pakistan’s services sector has strong linkages with the major sectors of the economy such as textiles and commodities. There is significant trade in services activity in all four modes of supply in financial, construction, business services such as computer. The service sector has a significant share in the Gross Domestic Product (GDP), offering career opportunities to the citizens, and also offers inputs and public services for the economic growth and prosperity.

Trade in services can enhance the economic situation and even provide a range of traditional and latest export opportunities. Many service sectors like education, health, water and sanitation sectors are also directly relevant to attaining social development targets. In case of our country, the share of services is growing in all sectors of Pakistan’s economy over the period. The growth rate of this sector is larger than the growth rate of industrial and agriculture due to better investment climate in the country.

The government officials revealed and mentioned in the country’s annual report that services sector also surpassed the planned target and has emerged as the most important driver of economic growth and is contributing a key role in augmenting and sustaining economic growth in Pakistan.

All components of services contributed considerably in optimistic term, as housing services by 3.99 percent, finance and insurance by 10.77 percent, transport, storage and communication by 3.94 percent, wholesale & retail trade increased by 6.82 percent, general government services by 6.91 percent and other private services by 6.28 percent.

Government of Pakistan is making best attempts to offer enabling environment to economic agents to tap its potential.

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