Poverty in Pakistan surged to 39.4 percent in the last fiscal year, with an additional 12.5 million people being pushed into poverty due to challenging economic conditions, according to the World Bank. The international financial institution has called on Pakistan to take immediate actions to achieve financial stability.
The World Bank recently released draft policy notes, created in collaboration with stakeholders, for Pakistan’s upcoming government in preparation for the new election cycle, as reported by Pakistan’s Express Tribune.
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In just one year, poverty in Pakistan increased from 34.2 percent to 39.4 percent, with approximately 95 million Pakistanis now living in poverty, equating to around USD 3.65 per day income level.
Tobias Haque, the World Bank’s lead country economist for Pakistan, commented, “Pakistan’s economic model is no longer reducing poverty, and the living standards have fallen behind peer countries.”
The World Bank has recommended that Pakistan urgently take steps to tax its critical sectors, such as agriculture and real estate, and reduce unnecessary spending to achieve economic stability, requiring a fiscal adjustment of over 7 percent of the economy.
The rise in poverty aligns with ground realities, according to the World Bank, which has identified low human development, an unsustainable fiscal situation, over-regulation in the private sector, and issues in the agriculture and energy sectors as priority areas for reforms in the next government.
Proposed measures include an immediate increase in the tax-to-GDP ratio by 5 percent and a reduction in expenditures by approximately 2.7 percent of GDP, aimed at restoring the economy to a sustainable fiscal path.
The World Bank’s recommendations for boosting government revenues encompass various measures, including the withdrawal of tax exemptions and an increased tax burden on real estate and agriculture sectors.
Najy Benhassine, the country director for Pakistan at the World Bank, remarked, “This may be Pakistan’s moment for significant policy shift.”
Despite having the capacity to collect taxes equal to 22 percent of the GDP, Pakistan’s current ratio stands at only 10.2 percent, indicating a significant gap, according to the World Bank.
The lender proposed reducing exemptions that distort the economy to generate taxes equal to 2 percent of the GDP and increasing taxes on land and property to collect an additional 2 percent of GDP in revenues, along with an additional 1 percent of GDP from the agriculture sector.
The World Bank also suggested the mandatory use of Computerized National Identity Cards (CNICs) for transactions, particularly those involving assets, as well as reductions in energy and commodity subsidies, the implementation of a single treasury account, and temporary austerity measures to save around 1 percent of GDP in expenditures.
For the medium term, the proposal involves reducing federal development and current expenditures on provincial nature projects, cutting spending on loss-making entities, and improving the quality of development spending to save approximately ₹1.4 trillion. The cumulative impact of these short- to medium-term savings is 2.7 percent of GDP.
The World Bank noted that Pakistan heavily subsidizes the agriculture sector, leading to low productivity, and suggested potential savings of ₹328 billion by streamlining ministries under provincial jurisdiction. Additionally, savings of ₹70 billion could be realized by devolving the Higher Education Commission to the provinces, and ₹217 billion in savings could be achieved through cost-sharing of the Benazir Income Support Programme (BISP) with the provinces.
Pakistan’s economy has been grappling with high inflation, which reached 27.4 percent in August, following a $1.2 billion disbursement from the International Monetary Fund in July as part of a $3 billion bailout program aimed at stabilizing the nation’s economy.
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