NESCAP 2024 Report: Pakistan’s Economy to Grow by 2% Amid 26% Inflation

Pakistan’s economy is at a critical juncture, according to the United Nations Economic and Social Survey of Asia and Pacific (UNESCAP) 2024. The report predicts a GDP growth of 2% and an inflation rate of 26% for the ongoing fiscal year. However, the forecast for FY25 is more optimistic, with GDP growth expected to rise to 2.3% and inflation projected to fall to 12.2%.

The country’s tax gap, currently at around 3% of the GDP, could potentially exceed 12% against the existing Federal Bureau of Revenue’s (FBR) tax-to-GDP ratio. This is in light of the Rs9415 billion tax collection target for the current fiscal year, which stands at around 9% of the GDP. Despite their low tax levels, tax gaps in countries such as Pakistan, Bangladesh, and Sri Lanka are moderate. However, these gaps are not necessarily small if measured as a share of current tax revenues rather than as a share of GDP.

The UNESCAP report emphasizes that merely introducing better tax policies and administration alone may not help bridge the vast development financing gaps in low-tax countries. Instead, a larger scale enhancement of tax revenue coupled with improvements in socioeconomic development and public governance is needed

The report also highlights the adverse effects of political unrest on businesses, with the situation further exacerbated by floods that disrupted agricultural production. Countries such as Pakistan and Sri Lanka have sought external assistance from the International Monetary Fund (IMF). Islamabad secured a deal with the Washington-based lender in mid-2023, which would help with further assistance from bilateral partners such as China, Saudi Arabia, and the United Arab Emirates.

Meanwhile, Sri Lanka, which is also under an IMF programme, witnessed some macroeconomic stability despite a shrinking of its economy by 2.3% in 2023 after a 7.4% contraction in 2022. Both Islamabad and Colombo are undergoing fiscal adjustments to restore fiscal sustainability via various measures, including the removal of subsidies for the power sector in Pakistan and domestic debt restructuring in Sri Lanka.

Back to top button