UN forecasts modest economic growth amid challenges in Pakistan

WEB DESK: In the midst of Pakistan’s ongoing economic challenges, the United Nations Economic and Social Survey of Asia and the Pacific (UNESCAP) 2024 has made predictions regarding the nation’s economic indicators.

According to The News, the survey anticipates that Pakistan’s Gross Domestic Product (GDP) growth will maintain a 2 per cent rate, alongside a 26 per cent inflation rate for the current fiscal year.

The UN report further suggests that in the following fiscal year, FY25, the GDP growth is likely to experience a slight increase to 2.3 per cent, while inflation is projected to decrease to around 12.2 per cent.

Addressing the issue of Pakistan’s tax gap, the UNESCAP forum has stressed its current magnitude, standing at approximately 3 per cent of the GDP.

However, there is a potential for it to escalate to over 12 per cent when compared against the existing tax-to-GDP ratio of the Federal Bureau of Revenue (FBR).

This assessment is made in light of the Rs9415 billion tax collection target for the current fiscal year, representing roughly 9 per cent of the GDP.

The UNESCAP underscores that despite relatively low tax levels, countries like Pakistan, Bangladesh, and Sri Lanka face moderate tax gaps.

These gaps, although seemingly small in comparison to GDP, are significant when measured against current tax revenues.

This suggests that addressing development financing gaps in low-tax countries requires not only improved tax policies and administration but also a substantial increase in tax revenue, alongside advancements in socioeconomic development and public governance.

The UN forum highlights the economic challenges faced by Islamabad, attributing them to political unrest and natural disasters such as floods, which have disrupted agricultural production.

In response, both Pakistan and Sri Lanka have turned to external assistance, including support from the International Monetary Fund (IMF).

Pakistan secured a deal with the IMF in mid-2023, paving the way for further assistance from bilateral partners such as China, Saudi Arabia, and the United Arab Emirates.

Meanwhile, Sri Lanka, also under an IMF program, has managed to achieve some level of macroeconomic stability despite experiencing a 2.3 per cent contraction in its economy in 2023, following a 7.4 per cent decline in 2022.

Both Islamabad and Colombo are currently implementing fiscal adjustments to restore fiscal sustainability.

These measures include the removal of subsidies for the power sector in Pakistan and domestic debt restructuring in Sri Lanka.