February, 23, 2024
World Bank's Concerns and Direction for Pakistan's Economy

World Bank’s Concerns and Direction for Pakistan’s Economy

Infostani Sources- The World Bank is against the proposed increase in electricity prices in Pakistan, as stated by Vice President Martin Reiser. He argues that instead of raising prices, the focus should be on reducing line losses. Country Director Naji Bin Hussain revealed that the Board of Directors of the World Bank will convene at the end of December to approve a $2 billion financial aid package for Pakistan in the current fiscal year. At the policy note launch ceremony for a better future in Pakistan, Hussain expressed concerns about the deferral of local loans, emphasizing its potential impact on the banking sector and investment.

He urged the continuation of economic reforms discussed with political parties before the elections, emphasizing the crucial need for policy implementation. To enhance revenue growth, there is a necessity to increase the tax-to-GDP ratio from 2 to 3 percent. Vice President Martin Razor identified the factors contributing to Pakistan’s economic distress, pointing out instances of corruption and privilege-seeking by some individuals. Despite opposition from landlords and industrialists, he stressed the urgency for Pakistan to make clear decisions to overcome economic challenges. Razor highlighted that for debt restructuring to be beneficial, it must be accompanied by economic reforms; otherwise, it may lead to further losses rather than improving the country’s economy.

Pakistan’s Economic Challenges and the Call for Reforms

World Bank's Concerns and Direction for Pakistan's Economy

He emphasized that the Special Investment Facilitation Council (SIFC) is not the optimal solution for addressing the challenges confronting foreign investment. To attract foreign investment, it is crucial to rectify the flaws in the system and implement effective reforms. In Pakistan, large landowners are evading income tax, industrialists are taking advantage of favorable policies to remain concealed, and real estate investors are subject to lower tax rates. Various classes receive government subsidies without fulfilling their tax obligations, all of which are driving Pakistan towards economic peril.

He pointed out that the mafias controlling the country’s wealth pose a significant obstacle to implementing reforms. However, the burgeoning young population in cities is clamoring for genuine change. Failure to enact reforms will widen the divide, prompting intelligent individuals to leave the country. Responding to a query, he warned that the absence of reforms will impact the World Bank program. Pakistan needs to prioritize human capital, as 40 percent of five-year-old children are stunted, and 28 million children, mostly girls, are out of school. Increasing investment in health and education is essential, contributing to a 5 percent boost in GDP.

Pakistan’s Economic Challenges and World Bank’s Reform Recommendations

World Bank's Concerns and Direction for Pakistan's Economy

Martin highlighted that Pakistan’s debt and interest payments have significantly reduced the funds available for public resource investment. In the next fiscal year, Pakistan will allocate 70 percent of its gross income to debt repayment, diminishing the resources for investment.

He suggested making fiscal reforms in expenditure and revenue. Emphasizing the importance of broadening the tax net instead of raising tax rates. Pakistan loses a third of its tax revenue annually due to its flawed tax structure. It is crucial to standardize the GST system across all provinces to encompass more businesses in the tax net. Increasing taxes on land and property can boost both tax revenue and investments in productive activities. The implementation of a Treasury Single Account to reduce tax expenditure. As well as enhance cash management can potentially achieve up to 2% of GDP.

The IMF board might convene in the next few weeks for the first review. Although a date has not been confirmed yet. According to Najibhar Mason, the Country Director of the World Bank. The IMF has reached out to all political parties, including Muslim League-N, People’s Party, Tehreek-e-Insaaf, and MQM.  Also, all parties have expressed support for the reform agenda, pledging to see it through.

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