Islamabad: Pakistan’s economy shows signs of stabilization with a modest recovery to 2.5 percent growth in the fiscal year ending June 2024. However, the global financial institution warns that this recovery is insufficient for significant poverty reduction, with rates slightly increasing over the past year.

According to The World Bank, the report titled “Pakistan Development Update: The Dynamics of Power Sector Distribution Reform” indicates that despite improvements in agricultural output, lower inflation, and reduced political uncertainty, the growth experienced this past fiscal year does not meet the levels required to effectively combat poverty, which saw a slight increase from 40.2 percent in FY23 to 40.5 percent in FY24. Naj Benhassine, the World Bank Country Director for Pakistan, emphasized the necessity of implementing the government’s structural reforms to enhance economic performance. These reforms include overhauling the tax system, cutting inefficient spending and untargeted subsidies, diminishing the large state presence in the economy, reducing trade and investment barriers, and addressing losses in the energy sector.

The report also highlights the ongoing macroeconomic risks such as high financing needs, modest foreign exchange reserves, substantial debt servicing costs, and financial sector vulnerabilities. Continued economic pressures are exacerbated by a loss-making power sector that impacts public finances significantly.

Furthermore, the World Bank’s update projects a slight improvement in real GDP growth to 2.8 percent in FY25 but notes that growth will likely remain below potential due to tight macroeconomic policies, high inflation, and lingering policy uncertainties. The publication stresses that faster growth is essential for marked improvements in living standards.

The document also discusses the critical role of private sector involvement in the power distribution sector, which could lead to enhanced customer service, reduced losses, and increased efficiency. Effective reforms in this sector depend greatly on supportive government policies, strong political backing, and active private sector engagement, as outlined by Waqas Idrees, co-author of the report.

The Pakistan Development Update is part of a broader analytical effort that includes the South Asia Development Update. This broader report reviews economic trends across South Asia and explores how increasing female labor force participation and trade openness can unlock the region’s economic potential.