On Friday (22 September), the World Bank unveiled draft policy notes for Islamabad emphasising that it is deeply concerned over the current state of the Pakistani economy. Highlighting that Pakistan’s economic model has failed completely, the Washington-based lender asked Pakistan to tax agriculture and real estate, Pakistan media reported.
The World Bank has also urged Pakistan to cut down on its wasteful expenditures to attain financial stability.
According to the World Bank, poverty in Pakistan has increased from 34.2% to 39.4% within one year. This has sent more than 12.5 million people below the poverty line of $3.65 per day income level. As per World Bank data, around 95 million Pakistanis now live in poverty. The World Bank asserted that the increase in poverty was consistent with ground realities.
The global lender’s lead country economist, Tobias Haque said, “The World Bank is deeply concerned about the economic situation as of today.”
He added that Pakistan is facing serious economic and human development crises and it is at a point where major policy shifts are required.
Haque further added, “Pakistan’s economic model is no longer reducing poverty and the living standards have fallen behind peer countries.”
According to the World Bank, it has identified several priority areas for reforms for the next government. These include improving low human development, an unsustainable fiscal situation, an over-regulated private sector, agriculture, and energy sectors.
On its part, the global lender has proposed a slew of measures. This includes – immediately increasing the tax-to-GDP ratio by 5% through the withdrawal of tax exemptions and increasing the burden of taxes on the real estate and agriculture sectors; and cutting expenditures by about 2.7% of GDP to achieve financial stability.
The country director for Pakistan at World Bank, Najy Benhassine said, “This may be Pakistan’s moment for significant policy shift.”
He added, “We hope there is a realisation of the current economic situation but the question is whether the realisation for the change in policies is across all the political parties, businesses, civil society, and all those who count.”
The World Bank draft policy further noted that Pakistan has the capacity to collect taxes equal to 22 percent of the GDP. However, its current ratio is only 10.2 percent – highlighting that there is a gap of more than half between the two.
This alarming development comes at a time when inflation soared to 27.4 percent in August after Pakistan received 1.2 billion USD from the International Monetary Fund (IMF) in July. The package was a part of the 3 billion USD bailout programme for nine months.