The World Bank (WB) on Tuesday suggested Pakistan to undertake the much-needed fiscal reforms including a reduction in tax exemptions and broadening of tax base, terming them “critical” for economic stability and sustainable economic growth.
“Careful economic management and deep structural reforms will be required to ensure macroeconomic stability and growth,” WB Country Director for Pakistan Najy Benhassine said while launching “Pakistan Development Update (PDU): Restoring Fiscal Sustainability.”
With inflation at record highs, rising electricity prices, severe climate shocks, and insufficient public resources to finance human development investments and climate adaptation, he said ” it is imperative that critical reforms are undertaken to build the fiscal space and public means to invest into inclusive, sustainable, and climate-resilient development.” According to the WB report, Pakistan’s economy slowed sharply in FY23 with real Gross Domestic Product (GDP) estimated to have contracted by 0.6 per cent. “The decline in economic activity reflects the accumulation of domestic and external shocks including the floods of 2022, government restrictions on imports and capital flows, domestic political uncertainty, surging world commodity prices, and tighter global financing.”
It said the previous fiscal year ended with significant pressure on domestic prices, fiscal and external accounts and exchange rate, and loss of investors’ confidence, adding the difficult economic conditions along with record high energy and food prices, lower incomes, and the loss of crops and livestock due to the 2022 floods, have significantly increased poverty. “The poverty headcount is estimated to have reached 39.4% in FY23, with 12.5 million more Pakistanis falling below the Lower-Middle Income Country poverty threshold (US$3.65/day 2017 PPP per capita) relative to 34.2% in FY22,” the WB said. Without a sharp fiscal adjustment and decisive implementation of broad-based reforms, it cautioned that Pakistan’s economy would remain vulnerable to domestic and external shocks. Predicated on the robust implementation of the International Monetary Fund (IMF) Stand-By Arrangement (SBA), new external financing and continued fiscal restraint, the WB said real GDP growth was projected to recover to 1.7 per cent in FY24 and 2.4 per cent in FY25.