The World Bank has projected Pakistan’s real GDP growth to recover to 1.7% in the fiscal year 2024 and 2.4% in the fiscal year 2025. However, the annual inflation is likely to remain on the higher side of 26.5% during the ongoing fiscal year.
“Predicated on the robust implementation of the IMF Stand-By Arrangement (SBA), new external financing and continued fiscal restraint, real GDP growth is projected to recover to 1.7% in FY24 and 2.4% in FY25,” said the World Bank in its latest report Pakistan Development Update: Restoring Fiscal Sustainability stated on Tuesday.
The economic growth is expected to remain below potential over the medium term with some improvements in investment and exports, it added.
The poverty headcount in Pakistan 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 World Bank called it imperative to bring reforms to build the fiscal space and public means to invest into inclusive, sustainable, and climate-resilient development as the country is grappled with record-high inflation, hiked electricity prices, severe climate shocks, and insufficient public resources to finance human development investments.
Pakistan’s economy will remain vulnerable to domestic and external shocks if the country fails to make sharp fiscal adjustment and decisive implementation of broad-based reforms, it added.
The report said Pakistan’s economy slowed sharply in FY23 with real GDP estimated to have contracted by 0.6%.
World Bank Country Director for Pakistan Najy Benhassine said that careful economic management and deep structural reforms will be required to ensure macroeconomic stability and growth.
The decline in economic activity was due to domestic and external shocks including the floods of 2022, government restrictions on imports and capital flows, political uncertainty, rising global commodity prices, and tighter global financing, it said.
The economic performance of the country remained dismal in the fiscal year FY23 as it ended with pressure on domestic prices, fiscal and external accounts, and exchange rate, and loss of investor confidence in the local market.
“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 report stated.
The World Bank recommended bringing reforms to reduce tax exemptions and broaden the tax base through higher taxes on agriculture, property, and retailers.
It also suggested improving the quality of public expenditure by reducing subsidies, improving the financial viability of the energy sector, and increasing private participation in state-owned enterprises.