The World Bank has released a new report titled “Pakistan Development Update: Restoring Fiscal Sustainability,” warning of a potentially difficult economic future for Pakistan. The report, published on Wednesday, paints a picture of lower GDP growth, higher inflation, and a primary deficit that contradicts the IMF-SBA agreement.
The World Bank dismissed Pakistan’s reclassification as a Highly Indebted Poor Country (HIPC), instead predicting a growing debt burden. According to the report, Pakistan’s public and publicly guaranteed debt (PPGD) could reach up to 90% of the country’s GDP by FY2027. This projection is associated with high liquidity risks, dwindling international reserves, and political instability.
In addition to these challenges, the World Bank also highlighted the potential for external shocks due to market-determined exchange rates. The report emphasizes the influence of political elites on tax policies and the subsequent difficulties in implementing necessary tax reforms.
To mitigate these risks and ensure macroeconomic stability, the World Bank advises Islamabad to increase taxation, reduce subsidies, and maintain a coherent mix of fiscal and monetary policies. The institution suggests that these measures could lead to an annual reduction in the fiscal deficit by PKR2.723 trillion (USD1 = PKR282.116).
The report also underscores the importance of adherence to the IMF-SBA agreement for stability in this volatile environment. Despite policy and political uncertainties, it urges Pakistan to persist with its reform efforts in order to restore fiscal sustainability.
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