Islamabad: The World Bank’s latest economic update has reported a stabilizing but still modest growth in Pakistan’s economy, with an increase to 2.5 percent in the fiscal year ending June 2024, following a recession. The report, titled “Pakistan Development Update: The Dynamics of Power Sector Distribution Reform,” emphasizes the critical nature of continued structural reforms to maintain and bolster this recovery.
According to The World Bank, the report outlines various essential reforms needed to sustain economic momentum. These reforms include overhauling the tax system to make it fairer and less distorting, cutting inefficient spending and untargeted subsidies, reducing the state’s role in the economy, lowering trade and investment barriers, and addressing inefficiencies in the energy sector. World Bank Country Director for Pakistan, Najy Benhassine, highlighted the necessity for a strong political consensus and increased private sector engagement to mitigate risks and support private-led growth and poverty reduction.
Despite these steps toward stabilization, the report notes persistent macroeconomic risks, such as high financing needs, modest foreign exchange reserves, substantial debt and debt servicing costs, financial sector vulnerabilities, and a deficit-running power sector. Looking ahead, the World Bank projects an increase in real GDP growth to 2.8 percent in FY25 but warns that output growth is expected to remain below potential due to ongoing macroeconomic policy tightening, high inflation, and policy uncertainty.
The update also discusses the challenges within Pakistan’s power sector, proposing a roadmap that includes private sector participation to improve service quality, reduce losses, enhance management, and boost investment. Co-author Waqas Idrees stated that achieving these outcomes would depend significantly on supportive government policies, strong political will, and robust private sector involvement.
This edition of the Pakistan Development Update complements the broader South Asia Development Update from the World Bank, which also explores how increased female labor force participation and trade openness could unlock economic growth in the region.