- WB ruled out possibility of debt restructuring for Pakistan.
- The lender has warned that the debt burden could rise to 89.3% of GDP by FY2027.
- It is estimated that 12.5 million people have joined the list of people living below the poverty line.
ISLAMABAD: The World Bank (WB) has estimated that Pakistan’s GDP growth in the current fiscal year will be 1.7% compared to the official target of 3.5%, while inflation could reach 26.5% compared to the official estimate of 21.5%. news Reported on Wednesday.
The WB also estimates a higher primary deficit of negative 0.4% of GDP against the official target of positive 0.4% agreed with the IMF.
The global lender has also ruled out the possibility of debt restructuring or changing the definition to include Pakistan in the category of Highly Indebted Poor Countries (HIPCs) and instead cautioned Islamabad against a rising debt burden that could hit Pakistan by fiscal 2027. This could increase to 89.3% of GDP.
The global lender also highlighted that tax reform was difficult to do because the political elites who are part of the executive/cabinet, parliament, political parties, finance ministers, cabinet committees and standing committees have a strong influence on tax policy.
The bank advised Islamabad to improve taxation measures, reduce subsidies and rationalize expenditure to reduce the fiscal deficit to Rs 2.723 trillion annually. It also highlighted that the country’s macroeconomic outlook is uncertain and dependent on effective implementation of reforms.
“In the short term, macroeconomic stability will depend on the continued implementation of the FY24 budget and the IMF-SBA agreement, a coherent fiscal and monetary policy mix, a market-determined exchange rate, and low policy and political uncertainty.
“Pakistan faces a number of downside risks, including high liquidity risks and low international reserves, unstable political environment and external shocks,” WB said.
“Under adverse circumstances, public and publicly guaranteed debt (PPGD) could reach 89.3% of GDP by FY27. Pakistan’s PPGD is highly sensitive to exchange rate or interest rate shocks, the WB report titled “Pakistan Development Update: Restoring Fiscal Sustainability” released during a press conference from the bank’s offices in Washington, DC and Islamabad on Tuesday .
WB country head Najay Benhassin said the estimated dollar flow from the bank could decline to about $1.5 or $1.6 billion from $2 billion in the last fiscal year, including the possibility of a $350 million program loan under RISE-II during the current fiscal year. Is included. ,
Loan disbursement was at a higher level in the last financial year due to the 2022 floods, but the final figures depend on the ability of the executing agencies to accelerate the process of implementing the projects.
The WB’s Public Expenditure Review (PER) has estimated that the government could save Rs 2.723 trillion or 1% of GDP by reducing regressive subsidies in the power sector, reducing operations in devolved ministries, transferring Higher Education Commission (HEC) and NCHD. Can save 4.07%. , reducing development expenditure, adopting the Treasury Single Account as well as GST, personal income tax reforms and imposing FED on cigarettes.
The bank has estimated that 12.5 million people have joined the list of those living below the poverty line in Pakistan as the poverty line has increased from 34.2% to 39.4% due to severe floods in the last financial year 2022-23. Record the inflation pressure. This means that approximately 96 million people are living below the poverty line.
It also conducted a Value Added Tax (VAT), also known as General Sales Tax (GST) in Pakistan and found that Pakistan lost 15% of the potential revenue due to concessional tax rates, exemptions and zero rating regime for non-exported products. There was a loss of %.
GST collection can be doubled by increasing it to 6.53% of GDP compared to the current 3.3%. For the salaried and non-salaried class, personal income tax rates are higher than other South Asian countries.
According to the statement issued by WB, Pakistan’s economy slowed down sharply in FY2013 and real GDP is estimated to decline by 0.6%. According to the bank, the decline in economic activity reflects the accumulation of domestic and external shocks, including the 2022 floods, government restrictions on imports and capital flows, domestic political uncertainty, rising world commodity prices and tight global financing.
Overall poverty is projected to reach 39.4% in FY2023 relative to 34.2% in FY22 with more than 12.5 million Pakistanis below the lower-middle income country poverty threshold (US$3.65/day 2017 PPP per capita). Have come down.
“Ensuring macroeconomic stability and growth will require careful economic management and deep structural reforms,” Ngozi Benhassin said.
With inflation at record highs, rising electricity prices, severe climate shocks and insufficient public resources to finance human development investments and climate adaptation, it is urgent to create fiscal space and public instruments for inclusive, sustainable investment. Important reforms should be made. , and climate-resilient development.
Without rapid fiscal adjustment and decisive implementation of broad-based reforms, Pakistan’s economy will remain vulnerable to domestic and external shocks.
According to the report, limited easing of import restrictions due to new external inflows will widen the current account deficit in the near term and a weak currency and high domestic energy prices will maintain inflationary pressures.