The World Bank’s latest Pakistan development update projects a rebound in Pakistan’s real GDP growth to 1.7% in FY24 and 2.4% in FY25. This projection is based on expectations of robust implementation of the IMF Stand-By Arrangement (SBA), new external financing, and continued fiscal restraint. However, it notes that economic growth is expected to remain below potential over the medium term, despite some improvements in investment and exports.

In FY23, Pakistan’s economic growth slowed sharply, with a contraction of 0.6% in real GDP. This decline was attributed to a combination of domestic and external shocks, including floods in 2022, government restrictions on imports and capital flows, political uncertainty, rising global commodity prices, and tighter global financing. These challenges led to pressure on domestic prices, fiscal and external accounts, exchange rates, and investor confidence.

Previously, Asian Development Bank (ADB) has projected Pakistan’s GDP growth to rebound to 1.5 percent

The economic difficulties, along with record-high energy and food prices, lower incomes, and flood-related losses, significantly increased poverty in Pakistan. The poverty headcount is estimated to have reached 39.4% in FY23, with 12.5 million more Pakistanis falling below the Lower-Middle Income Country poverty threshold compared to the previous year.

The World Bank emphasized the need for careful economic management and deep structural reforms to ensure macroeconomic stability and growth. It highlighted the importance of addressing high inflation, rising electricity prices, climate shocks, and the need for public resources to invest in inclusive, sustainable, and climate-resilient development.

Without fiscal adjustments and broad-based reforms, Pakistan’s economy will remain vulnerable to shocks, including liquidity challenges, political uncertainty, and external factors. The report recommends comprehensive fiscal reforms, including tax policy changes, expenditure rationalization, better debt management, and inter-government coordination.

To regain stability and support medium-term recovery, the report suggests reducing tax exemptions, broadening the tax base, improving public expenditure quality, addressing energy sector challenges, and strengthening debt management. These reforms aim to establish a foundation for long-term economic recovery and stability.

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