World Bank official stresses need for sustainable fiscal reforms

ISLAMABAD: The World Bank’s (WB) Global Director, Governance Global Practice, Equitable Growth, Finance, and Institutions Practice Group (EFI) Vice Presidency Arturo Herrera Gutierrez, while stressing the need for critical sustainable fiscal reforms in Pakistan has said that the country should outline strategies to secure a robust economic future based on the global lessons.

Delivering a lecture at a seminar titled, “Sustainable Fiscal Reforms: International Experience and Applications for Pakistan,” organised by the Pakistan Institute of Development Economics (PIDE), here on Thursday, Gutierrez said, “Pakistan stands at a crucial juncture where it can either pave the path for sustained economic growth or fall into the recurring traps of debt distress”.

He also shed light on the historical context of economic challenges faced by countries like Mexico during the 1980s and how these experiences shape fiscal strategies today. He also presented detailed mechanisms through which Pakistan can avoid the pitfalls of fiscal irresponsibility that plagued many economies in the past.

Gutierrez emphasized an urgent need for sustainable fiscal reforms in Pakistan. Drawing from international experiences, he highlighted the criticality of establishing a stable and sustainable debt path as a cornerstone for Pakistan's economic future.

At the core of his presentation, Gutierrez emphasized the urgent need for sustainable fiscal reforms in Pakistan. Drawing from international experiences, he highlighted the criticality of establishing a stable and sustainable debt path as a cornerstone for Pakistan's economic future.

"Pakistan stands at a crucial juncture where it can either pave the path for sustained economic growth or fall into the recurring traps of debt distress," remarked Gutierrez. In parallel, he discussed the historical context of economic challenges faced by countries like Mexico during the 1980s and how these experiences shape fiscal strategies today.

Moreover,Gutierrez outlined the necessity of strong macroeconomic frameworks, robust debt management practices, and the establishment of institutional arrangements to ensure discipline in fiscal policy.

He emphasized that ensuring fiscal sustainability requires a comprehensive long-term strategy, not just balancing budgets annually. These measures are critical for building credibility and securing access to financial markets. The World Banker emphasized the need to maintain consistency over time to avoid the economic problems of the past.

He brought to the attention the concerning resurgence of debt distress globally, particularly post-Covid-19, necessitating a re-evaluation of fiscal sustainability approaches. His presentation mentioned countries with gross public debt issues; notably, countries like the US, Canada, Japan, and Pakistan, which have debt-to-GDP ratios exceeding 75 percent. Japan, with a debt ratio of 252 percent of GDP and a low interest rate of 0.88 percent, contrasts sharply with Greece, which faces a higher interest rate of 3.55 percent despite a lower debt ratio of 168 percent.

This indicates that the debt-to-GDP ratio is significant, but the sustainability of fiscal finances also sends a critical signal to the market, impacting interest rates.

During the lecture, Gutierrez imparted critical insights on sustainable fiscal policies across the globe, focusing specifically on how these strategies can be adapted to Pakistan’s economic context.

In contrast, the PIDE team proposed a nuanced perspective, asserting that Pakistan's economic woes transcend simple accounting measures. They advocate for comprehensive healing rather than superficial fixes. Placing growth at the center of its reform agenda, PIDE emphasizes prioritizing economic expansion over mere revenue accumulation.

They advocate for allowing the economy to flourish before imposing additional taxes, suggesting a re-regulation to facilitate transactions and stimulate economic activity, ultimately leading to improved revenue generation by default. PIDE also accentuated that the crux of the issue lies more in expenditure than in revenue, making an argument for misplaced efforts for reforms.

At the end, PIDE and the World Bank pledged to take the reform debate further, in more engagements between the two sides to push for reforms.

The lecture was attended by senior economists, policymakers, young researchers, media persons and representatives from international financial institutions, reflecting a shared interest in enhancing fiscal governance worldwide.

Copyright Business Recorder, 2024