Pakistan needs structural reforms to sustain growth, reduce poverty: WB

ISLAMABAD: Pakistan’s current growth model, characterised by high public consumption, mounting debt, low productivity, and insufficient capital accumulation, is becoming increasingly unsustainable.

The World Bank, in its “Country Partnership Framework document,” has stressed the need for substantial reforms to boost investment, productivity, and human capital to ensure long-term economic growth.

The document predicts Pakistan’s real GDP growth will remain below its potential, averaging around three per cent for fiscal year 2025-26, with significant gross financing needs, equating to about 28 per cent of GDP.

This economic vulnerability makes the country highly susceptible to external shocks, such as natural disasters, global price fluctuations, and shifts in macroeconomic policy.

Poverty, which had seen a significant reduction from 64.3 per cent to 21.9 per cent between 2001 and 2018, has started to rise again due to a series of setbacks. The Covid-19 pandemic, followed by devastating floods in 2022 and rising commodity prices, contributed to a downturn in economic growth.

The country faced a record inflation rate of 29.2 per cent in 2022–23, pushing an estimated 2.4 million people into poverty.

Food insecurity is now a pressing concern, particularly in rural regions like KP, Sindh, and Balochistan, affecting one-third of the population. The situation is further compounded by increasing school dropout rates, particularly in the poorest districts.

Inequality remains entrenched, with rural poverty rates double those of urban areas, and gender disparities are stark. Pakistan ranks 142 out of 146 countries in the World Economic Forum 2023 Gender Gap Report, with female labour force participation standing at just 25 per cent in 2020.

To achieve sustainable poverty reduction and prosperity, Pakistan must move beyond its current development model. This includes addressing long-standing fiscal deficits, low private investment, and inadequate public spending, particularly in human capital and basic services.

The country’s fiscal system remains inefficient, with low tax revenues and poor public spending allocation. This creates a cycle of borrowing and debt that stifles private investment and exacerbates external imbalances.

The government has initiated a fiscal reform programme aimed at improving revenue collection and reallocating spending to critical areas like education, health, and infrastructure.

However, productivity remains low due to restrictive policies that limit investment and exports, compounded by inefficiencies in state-owned enterprises (SOEs), which dominate key sectors such as energy, transport, and infrastructure.

Trade protectionism also limits economic growth. Pakistan is among the world’s most protected economies, but the current government aims to open up trade to boost exports and competition.

Reducing trade barriers, while simultaneously improving the domestic business environment, will be crucial in reversing Pakistan’s economic decline and fostering long-term growth.

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