PAKISTAN: Reform Implementation Remains Critical for Continued Economic Recovery and Poverty Reduction, says World Bank
ISLAMABAD —Pakistan’s economy has continued to stabilize from the recent economic crisis, with growth recovering to 2.5 percent in the fiscal year ending June 2024, says the World Bank in its latest country economic update.
Released today, the Pakistan Development Update: The Dynamics of Power Sector Distribution Reform, finds that following recession in FY23, economic activity strengthened in FY24 reflecting strong agricultural output, lower inflation, prudent macroeconomic measures, and reduced political uncertainty. But this level of growth is not sufficient to bring down poverty rates, which increased from 40.2 percent in FY23 to 40.5 percent in FY24.
“Pakistan’s stabilizing economy is on a path of recovery. To sustain and strengthen that positive momentum, steady implementation of the Government’s structural reforms plan that aims to address long standing constraints to faster growth will be key. These include reforming an inequitable and distortive tax system, reducing inefficient expenditures and untargeted subsidies, lessening the large state presence in the economy, reducing barriers to trade and investment, and reducing losses in the energy sector” said Najy Benhassine, World Bank Country Director for Pakistan. “Implementation of planned structural policy reforms supported by a strong national political consensus and increased private sector participation, is critical to mitigate risks, support stronger private-led growth and poverty reduction.”
As the economic stabilization continues, macroeconomic risks remain high reflecting high financing needs, modest foreign exchange reserves, high debt and debt servicing costs, financial sector vulnerabilities, and a loss-making power sector that continues to weigh on public finances.
“Pakistan’s recovery is expected to continue, with real GDP growth expected to reach 2.8 percent in FY25,” said Mukhtar ul Hasan, lead author of the report. “However, output growth is expected to remain below potential over the medium-term as tight macroeconomic policy, elevated inflation, and policy uncertainty are expected to continue to weigh on economic activity. Faster growth will be needed to support significant improvements in living standards.”
This edition of the Pakistan Development Update also highlights the challenges in Pakistan’s power sector and presents a roadmap for addressing these constraints through private sector participation.
“Private sector participation in the power distribution sector offers the potential for better customer service, reduced losses, improved management, increased efficiency and new investment, but good outcomes are contingent on conducive government policies, strong political ownership, and robust private sector participation,” said Waqas Idrees, co-author of the report.
The twice-yearly Pakistan Development Update is a companion piece to the South Asia Development Update, a twice-a-year World Bank report that examines economic developments and prospects in the South Asia region and analyzes policy challenges countries face. The October 2024 edition, titled Women, Jobs, and Growth, includes economic growth projections and examines the roles greater female labor force participation and trade openness can play in realizing the region’s untapped economic growth potential.