ISLAMABAD: The World Bank (WB) is calling on Pakistan’s political parties and policymakers to build a consensus on the economic reform program for effective implementation. It has emphasized five key areas to rejuvenate the struggling economy.
At the launch of the “Reforms for a Brighter Future: Time to Decide” program, the World Bank’s Country Director, Najy Benhassine, emphasized the need for comprehensive economic policy reform.
The program outlines five major areas, including bringing real estate and agriculture income into the tax system to increase the tax-to-GDP ratio by 3% in the short term and doubling tax collection to around 22% in the long term.
The World Bank reported an increase in poverty by 5 percentage points, with 12.5 million people falling into poverty, and a doubling of the unemployment rate from 6.3% to 12.2%. Benhassine highlighted the need for a broader economic reform agenda amid policy reversals and political transitions, emphasizing the importance of consensus.
The World Bank suggests that Pakistan could boost GDP growth to 7-8% by increasing investment to 25% of GDP. They point out the potential for a 32% GDP increase in five years by addressing human capital gaps.
The World Bank suggests measures to improve tax efficiency and calls for maintaining a market-based exchange rate. The program seeks to engage stakeholders in discussions on fundamental policy shifts for a more resilient and sustainable economy.
Proposed Policy Shifts to Revitalize Pakistan’s Economy
The notes propose vital policy shifts to move away from the current low-growth, anti-development status quo in Pakistan.
1: Shift from underfunded, inefficient, and fragmented service delivery and social protection systems to coordinated, efficient, and well-funded service delivery targeting the most vulnerable, with a focus on reducing high child stunting rates and improving learning outcomes.
2: Transition from wasteful and inflexible public expenditures benefiting a few, towards prioritized spending on public services, infrastructure, and climate adaptation, benefiting those most in need. This includes transforming the tax system into a broad-based, efficient, progressive, and equitable one to generate revenue for investment in human development, infrastructure, and climate adaptation.
3: Move from a protected, stagnant, and state-heavy economy to a dynamic open economy driven by private investment and exports.
4: Transform agriculture sector policies, shifting from low-value, low-productivity farming towards a more market-driven, productive system resilient to climate change and water scarcity. By reducing agricultural subsidies in Punjab and Sindh, potential savings of up to $4.9 billion can be realized.
5: Reconfigure energy sector policies, replacing those driving high energy costs, environmental harm, and unsustainable debt accumulation with efficient, sustainable, and resilient generation and distribution based on accurate pricing, increased competition, private participation, and cleaner energy sources.
These changes aim to address the economic challenges in Pakistan, including inflation, rising electricity prices, climate shocks, and inadequate resources for development and climate adaptation.
Pakistan is particularly vulnerable to climate change impacts, and the country also faces a “silent” human capital crisis marked by high child stunting rates, poor learning outcomes, and child mortality, according to the WB country director in Pakistan.
