AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Islamabad, The World Bank emphasized the necessity of implementing a detailed, ambitious, and credible economic reform plan for Pakistan, crucial for achieving a robust recovery and reducing poverty. In its latest Pakistan Development Update, the Bank forecasts a modest growth rate of 1.8 percent for the current fiscal year ending June 2024, attributing the subdued outlook to stringent monetary and fiscal policies, continued import management to preserve foreign reserves, and overall weak economic activity.
According to The World Bank, the report, titled “Fiscal Impact of Federal State-Owned Enterprises,” reveals that after experiencing a contraction, Pakistan’s economy has shown signs of recovery in the first half of FY24, primarily due to strong agricultural output. Despite these improvements, the growth rate remains too low to effectively combat poverty, with 40 percent of Pakistanis currently living below the poverty line. The country also faces high macroeconomic risks due to its significant debt load and limited foreign exchange reserves.
Najy Benhassine, the World Bank Country Director for Pakistan, stressed the importance of rapid implementation of structural reforms to improve the economic forecast and restore confidence. Key measures include better fiscal management to reduce inflation, narrow the current account deficit, enhance financial sector stability, and increase private sector credit all vital for a substantial economic recovery.
The report outlines essential reforms in ten areas aimed at initiating a strong, sustainable, and poverty-reducing growth trajectory. These include enhancing the quality of government spending, broadening the tax base, alleviating regulatory constraints to encourage private sector activity, reducing state involvement in the economy through privatizations, tackling energy sector issues, and boosting public investment in human development.
Sayed Murtaza Muzaffari, the lead author of the report, highlighted the underwhelming growth projections that fall short of Pakistan’s potential and do little to alleviate poverty or prevent a decline in living standards. The report also underscores the significant fiscal costs associated with state-owned enterprises (SOEs) that have been loss-making since 2016, necessitating substantial government support, which in turn, has led to growing fiscal exposure.
To mitigate fiscal risks from SOEs, the World Bank recommends accelerating government privatization, restructuring, and divestment plans, as outlined in the 2021 Triage plan. Additional suggestions include establishing new rules for guarantee issuance, reducing credit risks, ensuring compliance with International Financial Reporting Standards, and developing risk monitoring procedures. The report advocates for comprehensive coverage of all SOEs under the SOE Act to guarantee financial transparency and uphold good corporate governance practices.
This development update complements the broader South Asia Development Update from the World Bank, highlighting that while South Asia leads in growth among developing regions, structural challenges and climate risks threaten long-term sustainability and job creation.