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Escalating poverty levels

The World Bank has reported a concerning increase in poverty in Pakistan, soaring to 39.4% in the last fiscal year. This surge has pushed an additional 12.5 million people below the poverty line, with approximately 95 million Pakistanis now living in poverty. The poverty line is defined as an income level of $3.65 per day.

The global lender has emphasized the necessity for Pakistan, facing financial challenges, to take immediate measures to achieve economic stability. They suggest taxing sectors like agriculture and real estate and reducing unnecessary expenditures, aiming for a substantial fiscal adjustment of over 7% of the economy.

Priority areas for reforms

Identifying key concerns, the World Bank has highlighted low human development, an unsustainable fiscal situation, excessive regulation in the private sector, and challenges in the agriculture and energy sectors as areas needing reform by the next government.

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The World Bank proposes urgent actions, including a 5% increase in the tax-to-GDP ratio and a reduction in expenditures by about 2.7% of GDP, to steer the economy towards fiscal prudence. They also recommend measures to improve the revenue-to-GDP ratio, such as withdrawing tax exemptions and increasing taxes on real estate and agriculture.

A critical moment for policy shift

The World Bank emphasizes that Pakistan is currently facing severe economic and human development crises and calls for substantial policy shifts. They underscore the potential to collect taxes equal to 22% of GDP, with the current ratio at only 10.2%, suggesting a significant revenue gap.

The lender suggests addressing issues like heavy subsidies in the agriculture sector, inefficient spending, and enhancing development spending quality. By implementing these measures, substantial savings equivalent to 2.7% of GDP can be achieved in the short to medium term.

Pakistan's economic challenges, including unchecked inflation, necessitate urgent and comprehensive action to stabilize the country's economy and alleviate the growing poverty levels.

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