ISLAMABAD: The World Bank has projected a gradual Pakistan’s economic recovery with real GDP growth expected to reach 1.7% in FY24 and 2.4% in FY25.
However, the economic outlook remains challenging due to various factors. The country’s economy contracted by 0.6% in FY23, primarily due to a combination of domestic and external shocks, including the 2022 floods, import restrictions, political uncertainty, rising global commodity prices, and limited global financing. These challenges have led to increased poverty, with an estimated 39.4% of the population falling below the poverty threshold in FY23.
To address these issues, the World Bank recommends comprehensive fiscal reforms, including tax policy adjustments, rationalization of public spending, improved management of public debt, and enhanced coordination among government entities on fiscal matters. These reforms are crucial for achieving macroeconomic stability and sustainable growth.
The report highlights that without substantial fiscal adjustments and broad-based reforms, Pakistan’s economy will remain susceptible to shocks. It emphasizes the importance of implementing the IMF Stand-By Arrangement, securing external financing, and maintaining fiscal discipline to support economic recovery.
Furthermore, the report predicts that easing import restrictions due to external inflows will widen the current account deficit in the short term. Additionally, a weaker currency and higher domestic energy prices are expected to maintain inflationary pressures.
The economic outlook for Pakistan is highly uncertain, with significant downside risks, including challenges related to servicing debt payments, ongoing political instability, and external shocks.
To restore stability and pave the way for medium-term recovery, the report recommends reforms such as reducing tax exemptions, broadening the tax base through higher taxes on agriculture, property, and retailers, improving the quality of public expenditure by reducing subsidies, addressing energy sector financial issues, and increasing private sector involvement in state-owned enterprises. Additionally, it calls for strengthening the management of public debt through better institutional systems and developing a domestic debt market.
The World Bank’s report underscores the need for Pakistan to undertake comprehensive fiscal reforms and address macroeconomic challenges to achieve sustainable economic growth and poverty reduction. It also emphasizes the importance of global cooperation and domestic efforts to overcome these economic hurdles.
