According to the World Bank, poverty in Pakistan has skyrocketed to 39.4% as of the last fiscal year, with an additional 12.5 million people falling into poverty due to poor economic conditions. The World Bank is urging Pakistan to take urgent action to achieve financial stability and address this alarming increase in poverty.
The World Bank recently unveiled draft policy notes in collaboration with all stakeholders for Pakistan’s next government, ahead of the upcoming election cycle. These policy notes highlight the pressing need for economic reforms and provide recommendations to alleviate poverty and improve the country’s economic situation.
The increase in poverty from 34.2% to 39.4% within just one year is of great concern. The number of Pakistanis living below the poverty line has reached a staggering 95 million, highlighting the severity of the issue. Tobias Haque, the World Bank’s lead country economist for Pakistan, stated that Pakistan’s economic model is no longer effective in reducing poverty and that living standards have fallen behind those of peer countries.
To address the urgent economic challenges, the World Bank is urging Pakistan to take immediate steps to tax its agricultural and real estate sectors, which have traditionally been exempt from taxes. The lender also emphasizes the need to reduce wasteful expenditures and implement fiscal adjustments amounting to over 7% of the economy. These measures are essential for achieving economic stability and improving the living conditions of the population.
The World Bank identifies several priority areas for reform in the next government, including low human development, an unsustainable fiscal situation, an overregulated private sector, and issues related to the agriculture and energy sectors. The proposed measures include increasing the tax-to-GDP ratio by 5%, cutting expenditures by about 2.7% of GDP, and reducing subsidies for energy and commodities.
Additionally, the World Bank recommends implementing a mandatory use of the Computerised National Identity Card (CNIC) for transactions, particularly for assets. This would help improve transparency and prevent tax evasion. The lender also suggests temporary austerity measures in the short term to save about 1% of GDP in expenditures.
In the medium term, the World Bank proposes reducing federal development and current expenditures on provincial projects, cutting spending on loss-making entities, and improving development spending quality. These measures could save around Rs 1.4 trillion and have a cumulative impact of 2.7% of the GDP.
The agriculture sector, which currently receives heavy subsidies, is highlighted as an area where significant savings can be made. The World Bank suggests winding up ministries falling under provincial domain, which could lead to savings of Rs 328 billion. Devolving the Higher Education Commission to the provinces and cost-sharing the Benazir Income Support Programme (BISP) could save an additional Rs 70 billion and Rs 217 billion, respectively.
The situation in Pakistan is dire, with inflation reaching a staggering 27.4% in August. The country has received financial assistance from the International Monetary Fund, but it is evident that more substantial reforms are needed to stabilize the economy and alleviate the pressure on the poor. Pakistan has the potential to collect taxes equal to 22% of the GDP, but the current ratio stands at only 10.2%, indicating the need for significant improvements in tax collection.
The World Bank’s recommendations provide a roadmap for Pakistan’s next government. A comprehensive overhaul of the economy, including tax reforms, expenditure reductions, and improved governance, is crucial to address the growing poverty crisis. Urgent action is needed to ensure financial stability and improve the living standards of millions of Pakistanis.