By Ayesha Saba ISLAMABAD, Nov 05 (INP-WealthPK): Small and medium enterprises (SMEs) are the vital forces in driving the economy of a country. All the developed and developing economies focus on the development of SMEs due to its significant impact. To survive the economic recession, this sector has great potential. The SMEs generate employment opportunities, boost trade volume, reduce poverty, and foster social integration and economic growth. Pakistan as a developing nation attributes a major portion of GDP to SMEs in value addition and employment generation. Pakistan is a labour-intensive country so this sector provides job opportunities to the major part of the non-agricultural labour force. The industrial sector of Pakistan is yet to achieve its true growth potential. Large-scale industries are mostly urban-based, while small enterprises are mostly located in small towns and rural areas. The SMEs situated in rural territories play a vital role in providing employment to poor workers. Economists believe that countries like South Korea and Japan achieved economic development by utilising the potential of SMEs. SMEs are the fast-growing force behind the economy of China also, and its contribution to the GDP is more than 40 per cent. Pakistan has established the Small and Medium Enterprises Development Authority (SMEDA) due to the importance of trade and commerce because it relies heavily on different business sectors. The main purpose is to enhance business facilities and make policies and regulatory frameworks to facilitate SMEs. Moreover, it helps boost skills development, training facilities and education to entrepreneurs. According to SMEDA, there are 3.3 million SMEs in the services and manufacturing sectors and initial businesses on various levels. Furthermore, they employ 78 per cent of the non-agricultural labour force and their contribution to the country’s exports is approximately 30 per cent of total exports which involves various business activities like sports goods, furniture, artificial jewellery, precious stones, surgical instruments and leather, etc. These sectors have the potential to attract foreign investors and can penetrate local as well as international markets. Agriculture is Pakistan’s main sector and is considered to be the spine of the state economy.  According to the Pakistan Economic Survey (2019-20), it provides 22 per cent to the country's GDP which is below its potential. The industrial sector also plays a pivotal role in the economy and its share in GDP is 18 per cent. During the past few years, it has been observed that globally the economic trend has been changed, the paradigm is shifting from the agriculture sector to the manufacturing sector and further from manufacturing to the services sector. In the case of Pakistan, the share of the services sector over time is increasing as compared to other sectors of the economy and its contribution to GDP is 53 per cent. Currently, in economic development, the services sector is considered the fastest emerging sector and it contributes a large share in GDP and employment generation in several countries. According to the Economic Survey of Pakistan, the sector-wise contribution of industrial, agriculture and services sectors to GDP are given below. SMEs have a great potential to boost the economic condition of a country, but unfortunately, Pakistan has low growth performance. Most SMEs face various hurdles due to which they can’t take full advantage of their potential. They continue to face challenges like lack of credit availability, technological innovation, entrepreneurial skills, financial accessibility, poor infrastructure, energy crisis, inefficient management, and most importantly, political instability. These all constraints adversely affect the productivity and profitability of small business entrepreneurs. To address all these issues, the Government of Pakistan is introducing initiatives for supporting and developing SMEs. The government has approved the national SME Policy Action Plan 2020 with the objective to facilitate the development and promotion of SMEs. This policy has a main focus on the above-mentioned issues. In order to facilitate small enterprises, the government has also directed SME banks to ensure easy access towards financial and technical needs. In addition, the government has recently launched the “Digital Pakistan” initiative which aims to implement the digital system in all departments. It is a great initiative towards information technology and gives benefits of modern networking, enhances knowledge skills and access to advanced tools in which SMEs are able to compete from rest of the modern world. But still policymakers need more strategic planning to reform this sector.