In its recent Pakistan Development Update, the World Bank has forecasted a modest growth rate of 1.8 percent for Pakistan’s economy in the current fiscal year ending June 2024. The report highlights significant challenges, including the absence of poverty reduction prospects over the medium term due to weak growth and persistent high inflation.
According to the update, Pakistan’s GDP growth is anticipated to remain below 3 percent over the next three years, with growth rates of 2.3 percent in FY25 and 2.7 percent in FY26. However, agricultural growth is expected to decline to 2.2 percent in FY26.
The subdued economic recovery is attributed to factors such as tight monetary and fiscal policies, import management measures aimed at conserving foreign reserves, and muted economic activity amid low confidence levels. The report emphasizes the high fiscal costs associated with federal state-owned enterprises (SOEs) and underscores the urgent need for reforms to enhance their performance, efficiency, and governance, including through privatizations.
Despite a strengthening of economic activity in the first half of FY24, driven by robust agricultural output, growth remains insufficient to alleviate poverty, with approximately 40 percent of Pakistanis living below the poverty line. The report warns of high macroeconomic risks due to a substantial debt burden and limited foreign exchange reserves.
The projected stagnant growth and persistent inflationary pressures are expected to impede human development outcomes, particularly affecting poorer households with reduced incomes and savings. The report underscores the potential negative welfare impacts stemming from chronic inflation and policy uncertainties, highlighting the importance of targeted transfers to protect vulnerable populations.
The report also highlights Pakistan’s ongoing foreign exchange liquidity challenges, stemming from a persistent trade deficit and limited access to external financing. Despite recent successful engagements with the IMF and continued rollovers, reserves are projected to remain low, posing significant liquidity risks.
The report suggests that a credible economic reform plan is essential to restore confidence and stimulate investment. It predicts gradual recovery in GDP growth, with agriculture and services sectors showing signs of improvement, albeit at moderate rates.
Overall, the World Bank’s update underscores the need for comprehensive reforms to address structural challenges and pave the way for sustainable economic growth and poverty reduction in Pakistan.