Pakistan's economy has continued to stabilize from the recent economic crisis, with growth recovering to 2.5 percent in the fiscal year ending June 2024 and is expected to increase to 2.8 percent in the current fiscal year, said the World Bank in its latest country economic update, reported 24NewsHD TV channel.
Released on Thursday, the Pakistan Development Update: The Dynamics of Power Sector Distribution Reform, finds that following recession in FY23, economic activity strengthened in FY24 reflecting strong agricultural output, lower inflation, prudent macroeconomic measures, and reduced political uncertainty. But this level of growth is not sufficient to bring down poverty rates, which increased from 40.2 percent in FY23 to 40.5 percent in FY24.
"Pakistan's stabilizing economy is on a path of recovery. To sustain and strengthen that positive momentum, steady implementation of the government's structural reforms plan that aims to address longstanding constraints to faster growth will be key. These include reforming an inequitable and distortive tax system, reducing inefficient expenditures and untargeted subsidies, lessening the large state presence in the economy, reducing barriers to trade and investment, and reducing losses in the energy sector," said Najy Benhassine, World Bank Country Director for Pakistan.
"Implementation of planned structural policy reforms supported by a strong national political consensus and increased private sector participation, is critical to mitigate risks, support stronger private-led growth and poverty reduction."
As the economic stabilization continues, macroeconomic risks remain high reflecting high financing needs, modest foreign exchange reserves, high debt and debt-servicing costs, financial sector vulnerabilities, and a loss-making power sector that continues to weigh on public finances.
"Pakistan's recovery is expected to continue, with real GDP growth expected to reach 2.8 percent in FY25," said Mukhtar ul Hasan, lead author of the report. "However, output growth is expected to remain below potential over the medium-term as tight macroeconomic policy, elevated inflation, and policy uncertainty are expected to continue to weigh on economic activity. Faster growth will be needed to support significant improvements in living standards."
This edition of the Pakistan Development Update also highlights the challenges in Pakistan's power sector and presents a roadmap for addressing these constraints through private sector participation.
"Private sector participation in the power distribution sector offers the potential for better customer service, reduced losses, improved management, increased efficiency and new investment, but good outcomes are contingent on conducive government policies, strong political ownership, and robust private sector participation," said Waqas Idrees, co-author of the report.
South Asia growth forecast
The World Bank raised its growth forecast for South Asia to 6.4 percent in 2024 from an earlier estimate of 6.0 percent, citing the strength of domestic demand in India and quicker recoveries in crisis-hit countries such as Sri Lanka and Pakistan.
India’s economic growth forecast for the current fiscal year, ending in March 2025, was revised to 7 percent year-on-year, up from April’s estimate of 6.6 percent, helped by a rebound in agricultural output and increased private consumption.
“You have an emerging class of consumers in India that’s driving the economy forward, you have recoveries from crises in Sri Lanka and in Pakistan, you also have a tourism-led recovery in Nepal and Bhutan,” Martin Raiser, World Bank Vice President for South Asia, said on Thursday.
The upward revision confirms South Asia as the fastest growing emerging economy region monitored by the World Bank. The Washington-based lender projects South Asia will see robust 6.2 percent growth annually for the following two years.
Raiser said there was “significant upside potential” to growth with greater integration of South Asian countries into the global economy, but countries needed to stick with economic reform programs to sustain momentum.
On Wednesday, India’s central bank maintained its GDP growth forecast at 7.2 percent for the current fiscal year and shifted its policy stance to neutral.
The World Bank projected Pakistan’s economy would grow by 2.8 percent in the current fiscal year, which started in July, an increase from the previous estimate of 2.3 percent, aided by a recovery in manufacturing and easing monetary policy.
Sri Lanka, which is clawing its way out of a sovereign debt default and its worst economic crisis in decades, saw the biggest upward revision, with growth expected to come in at 4.4 percent this year and 3.5 percent in 2025.
Nepal’s growth forecast was raised to 5.1 percent from 4.6 percent for the 2024/25 fiscal year beginning mid-July, and Bhutan’s to 7.2 percent from 5.7 percent.
But Bangladesh’s growth forecast was downgraded to 4.0 percent from 5.7 percent for the fiscal year 2024/25, spanning from July to June, reflecting a slowdown in garment exports amid recent social unrest.
The World Bank recommended the region should boost women’s labor force participation — currently the lowest globally at 32 percent. Raising employment among women to levels comparable to those among men could raise output by as much as one-half in the long term, the report said.
“Bringing more women into the labor force could add significantly to the production potential,” said Raiser.
Reporter Waqas Azeem/Agencies