The World Bank has criticized Pakistan’s economic development model, citing a severe crisis that has failed to uplift its citizens out of poverty. According to World Bank officials, poverty in the country has risen from 34.2 percent in the fiscal year 2022 to a staggering 39.4 percent or 95 million in the fiscal year, pushing approximately 12.5 million people below the poverty line.
In a press briefing at the launch of a new program aimed at fostering discussions on critical development policy issues in Pakistan, the World Bank introduced “Reforms for a Brighter Future: Time to Decide.” This initiative seeks to engage a wide range of stakeholders in discussions about essential policy shifts needed to guide the economy toward stronger, more climate-resilient, and sustainable growth and development.
World Bank Country Director Najy Benhassine stated, “Pakistan has been facing numerous economic hardships including inflation, rising electricity prices, severe climate shocks, and insufficient public resources to finance development and climate adaptation—when the country is among the most vulnerable to climate change impacts. It is also facing a ‘silent’ human capital crisis: abnormally high child stunting rates, low learning outcomes, and high child mortality.”
Pakistan’s living standards have lagged behind its peers, resulting in a human development crisis, while the looming threat of climate change adds further complexity to the situation.
The World Bank’s report highlighted several concerning trends, including large and growing fiscal deficits, unsustainable debt levels, high government consumption driving inflation, and persistently low revenues due to a narrow tax base and significant tax expenditures.
The World Bank has recommended a comprehensive 10-year economic plan. This plan includes measures such as increasing taxes on agriculture and the real sector, transitioning from a regressive to a direct and progressive tax system, reducing tax exemptions for specific sectors, and making the tax structure more targeted to assist the poor and improve the country’s overall economic outlook.
Pakistan can realize significant economic benefits, including 3.4 percent GDP savings through expenditure measures and 2 percent GDP in revenue by cutting tax expenditures and reforming income tax. Moreover, introducing new taxes on land and agriculture could generate an extra 3 percent of GDP in revenue. Addressing trade policy biases could unlock an $88 billion export potential, attract $2.8 billion in FDI, and drive 7-8 percent GDP growth by raising investment to 25 percent of GDP.
The World Bank’s report also emphasized the urgency of reforming Pakistan’s economic model to address poverty, spur growth, and enhance resilience to climate change and other challenges.
Despite the challenges, there is hope for positive change, as various segments of society realize the need for policy shifts to steer the country in the right direction. The proposed policy shifts offer a path toward a brighter economic future for Pakistan, potentially boosting its GDP by 32 percent by closing the gap in human development indicators with similar-income countries.