Economy

Pakistan’s Economic Growth to Remain Below 3%, World Bank Says

In a recent report, the World Bank has presented a sobering forecast for Pakistan’s economy, projecting that the gross domestic product (GDP) will remain below 3 percent over the next three years. The current fiscal year may see a growth rate of just 1.8 percent, with a slight increase to 2.3 percent expected in 2025.

The subdued recovery is attributed to stringent monetary and fiscal policies, coupled with dampened economic activity and low business confidence. Despite a contraction in the previous fiscal year, the first half of FY24 witnessed some strengthening in economic activity, primarily due to robust agricultural output1. This improvement has also spurred a modest recovery in other sectors.

However, the growth is deemed insufficient to make a dent in poverty levels, with 40 percent of Pakistan’s population living below the poverty line. The World Bank’s report underscores the urgency of implementing structural reforms to foster a durable economic recovery and reduce poverty.

The report also anticipates a decline in inflation, from 26 percent this fiscal year to 15 percent in FY 2025, and further down to 11.5 percent in FY 202645. Industrial growth is expected to hover around 1.8 percent this fiscal year, with a slight increase in the following years.

The fiscal deficit presents another challenge, projected to reach 8 percent of GDP this fiscal year, before gradually decreasing to 7.4 percent in FY 2025 and 6.6 percent in FY 2026.

Najy Benhassine, the World Bank Country Director for Pakistan, emphasized the need for a clearly articulated and ambitious reform implementation plan to restore confidence. The report also recommends establishing new rules for guarantee issuance, mitigating credit risks, and ensuring adherence to International Financial Reporting Standards.

The high fiscal costs of federal state-owned enterprises (SOEs) are highlighted as a critical area for reform. The World Bank suggests improving SOE performance, efficiency, and governance through privatizations and adherence to the SOE Act.

To achieve a sustained medium-term recovery, the World Bank advises a prudent macroeconomic policy mix, quality expenditure improvements, tax base broadening, regulatory constraints removal, state presence reduction in the economy, energy sector challenges addressed, and increased public investments for human development.

The report lists key reforms in ten areas for priority implementation to kickstart a strong, durable, and poverty-reducing economic growth recovery. The outlook remains cautious, with high risks including policy commitment uncertainties, financial sector risks, potential global price hikes in energy and food, regional geopolitical conflicts, slower global growth, and tighter global financing conditions.

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