The World Bank cautioned on Wednesday that nearly 10 million Pakistanis could face acute food insecurity during the current fiscal year, with poverty levels expected to rise. The warning came as the bank also revised Pakistan's economic growth forecast downward to 2.7%, citing tight economic policies that are suppressing national output.
In its flagship biannual Pakistan Economic Update report, the Washington-based lender noted that the government is likely to miss its annual budget deficit target. Additionally, the country's debt burden is projected to increase both in absolute terms and as a proportion of GDP.
"With climatic conditions impacting overall agricultural production of key crops such as rice and maize, nearly 10 million people, mostly in rural areas, are expected to experience high levels of acute food insecurity in FY25", said the World Bank.
The report brings back the focus on issues that are not frequently discussed in the official meetings – the food insecurity, poverty, unemployment and decreasing real wages.
The report underlined that "key sectors for the pooragriculture, construction, and low-value added servicesexperienced low or negative growth, causing stagnant real wages".
Combined with population growth of around 2% this is expected to push approximately 1.9 million more individuals into poverty in this fiscal year. Not only that, the employment-to-population ratio is at 49.7%, which reflects low labour market engagement, particularly among youth and women, said the WB.
The report stated that social protection expenditures have not kept pace with inflation, constraining resources available to the poor for food, health, education, and other critical items, with negative implications for human capital and labour productivity.
It said that 37% of youth and 62% of women are not in education, employment, or training. "Despite nominal daily wages nearly doubling for low skilled workers, such as masons, painters, plumbers, and unskilled workers, real wages remained stagnant or even slightly decreased," according to the lender.
As a result, poverty headcount, even at the official national poverty line, would slightly increase. The World Bank said that while using the national poverty line of Rs3,030 per adult equivalent per month in 2013-14, or Rs8,231 in 2024 prices, the projected poverty headcount rate is 25.4% for this fiscal year.
Sluggish economic growth
The World Bank said that the economic growth is expected to remain at 2.7% in this fiscal year, which is in line with the forecasts made by the International Monetary Fund (IMF) and the Asian Development Bank (ADB). It means the government will miss its 3.6% economic growth target, which Finance Minister Muhammad Aurangzeb had described in the budget as achievable.
Pakistan's key challenge is to transform recent gains from stabilisation into economic growth that is sustainable and adequate for poverty reduction," said Najy Benhassine, World Bank Country Director for Pakistan.
He emphasised that high-impact reforms to prioritise an efficient and progressive tax system, supporting a market-determined exchange rate, reducing import tariffs to boost exports, improving business environment and streamlining public sector would signal strong reform commitment, build confidence, and attract investment.
The World Bank said that the growth was expected to pick up in the next fiscal year to only 3.1% and then to 3.4% in 2027. The three years' growth projections were lower than the government's this fiscal year's annual target of 3.6%.
The report stated that inflation was projected to decline to 5% this year, reflecting a subdued demand, lower commodity and energy prices, and a stable exchange rate.
For this fiscal year, Pakistan's current account is projected to achieve a surplus of 0.2% of GDP or $800 million, the first annual surplus in 15 years, driven by stronger worker remittances, said the World Bank. This will help offset a widening trade deficit as import growth outpaces export growth. The current account is expected to return into a deficit of 0.5% in the next fiscal year, it added.
Missing budget deficit target
As against the government's budget target of 5.9% of the GDP, the World Bank said that the deficit is projected to remain at 6.8% of GDP in this fiscal year. It means the government will spend Rs1.1 trillion more than the budget target. The lender said that still the primary budget balance is anticipated to reach a surplus of 1.9% of GDP in FY25, primarily due to SBP profits.
It said that gross financing needs will remain elevated throughout the forecast period, reflecting maturing short-term debt, repayments to multilateral and bilateral creditors, and upcoming Eurobond maturities. Public debt, including guaranteed debt, is projected to reach 74.6% of GDP in this fiscal year, up from 72.7% of the last year, said the lender.
Way forward
The World Bank urged Pakistan to restore the functioning of the interbank foreign exchange market alongside the fully market determined exchange rate.
It has also asked for taking further measures with government right-sizing, including eliminating redundant or unproductive positions or agencies and sought review of public sector compensation, including monetisation and simplification of in-kind benefits to reduce costs and enhance transparency.
It stressed the need for implementing parametric pension reforms to substantially reduce future liabilities and facilitate transition to a contribution-based system over time.
"Pakistan's economy has turned the corner and stabilised. Yet, the economic outlook remains fragile and any implementation delays in structural reforms or shifts in economic stabilisation could dampen the nascent recovery and intensify external pressures," said Anna Twum, lead author of the report.
Risks remain high due to elevated debt levels, policy and global trade uncertainties, and exposure to climatic shocks, said Twum.
The World Bank has also urged the implementation of the recently revised Agriculture Income Tax and reforms in the property valuation to address systematic current undervaluation. It sought reduction in the number of zero-rated items under the fifth schedule, which means imposing more taxes.
The World Bank recommended elimination of preferential treatments under the income tax ordinance, and conduct ex-ante cost assessments for new exemptions, evaluate past exemptions, and institute sunset clauses.
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