The World Bank says it all

That the growing political uncertainty and institutional imbalances are adversely affecting the country’s perception is a fact.

This time it is no other than the World Bank, which has been engaged with Pakistan, since its inception, in funding mega energy and infrastructure projects and providing financial and intellectual support for reforms in the state governance, social and economic processes and systems of the country.

With its permanent establishment at Islamabad, the Bank has an eye on the happenings in the country. The World Bank Country Director Najy Benhassine in a ‘Policy Vision’ article published in the latest UNDP publication is reported to have stated: “Pakistan’s current economic model is not working since it has fallen behind its peers, significant progress in poverty reduction has now started to reverse, and the benefits of growth have accrued to a narrow elite”.

He further stated: “There is a broad consensus that action is needed to change policies that have plagued development, benefitted only a few, and led to very volatile and low growth.”

The Country Director therein touched upon all points, which matter for the social and economic sustainability of the country. He referred to the devastating impact of climate shocks and natural disasters, policy failures and distortions in the critical agri-food and energy sectors; notably, subsidies and price restrictions that lock smallholder farmers into low-value farming systems; thus progress towards financial sustainability is stymied.

Improving the efficiency of power distribution companies to encourage exports through increased private participation, and address the very high costs of electricity generation through increased renewable generation.

He underlined that fiscal management must be drastically improved, and debt servicing costs and domestic revenue mobilisation are at unsustainable levels, leaving adequate resources to invest in human development and infrastructure, address economic challenges, and adapt to a changing climate, consolidate and improve the quality of government spending, including by cutting regressive and distortionary subsidies, and reduce losses from inefficient state-owned enterprises, including in the energy sector.

More revenue must be raised from the better-off, through increased progressive taxation of property and environmentally-damaging activities, as well as reducing tax exemptions, protection of inward-oriented sectors, or distortions in taxation that favour non-tradables.

All this needs to be reduced to encourage exports and the overall business environment, especially for smaller firms.

Cutting red tape as well as opportunities for costly discretion in the government’s dealing with businesses is paramount. Structural macroeconomic imbalances, particularly on the fiscal side, will remain a prerequisite to ensure a more stable economic environment to attract investors.

Much of Country Director’s observations are in the knowledge of the government functionaries. Some have a commonality with the ones on the red list of IMF - where the key ones are tagged with the sanction of IMF loan tranche.

What is new and an eye opener is the red flag raised by the Country Director in his statement that “Pakistan’s current economic model is not working since it has fallen behind its peers, significant progress in poverty reduction has now started to reverse, and the benefits of growth have accrued to a narrow elite and that there is a broad consensus that action is needed to change policies that have plagued development, benefitted only a few, and led to very volatile and low growth.”

Pakistan has indeed fallen behind its peers and has lost its rightful place and voice in global politics. In these times the marathon is titled ‘The Economy’.

Pakistan is at a losing end insofar as poverty alleviation is concerned. Poverty in Pakistan rose from 34.2 percent to 39.4 percent in just one year, with 12.5 million more people falling below the poverty line of the dollar 3.65 per day income level. About 95 million Pakistanis now live in poverty. Pakistan also has the lowest per capita income in South Asia and highest out-of-school kids in the world.

In comparison with the region, Pakistan’s per capita income, as of 2023, is $1660 as compared to $3,700 of Vietnam, $2700 of Bangladesh $2380 of India. In the 80s, Pakistan’s per capita income was far head of these countries’. Furthermore, as of 2023, India’s GDP at $.7 trillion is 11 times higher than Pakistan’s GDP of $341 billion.

Pakistan’s economy grew faster than India’s from the 1960s through the 1980s, but India has outpaced Pakistan in growth since liberalising its economy in the 1990s. After that, it is a non-stop rise with each government adding on to the growth with improvement in policies amidst political and economic stability.

One thing which remained consistent in each government was to outpace its predecessor in economic excellence.

The compliance to the World Bank and other multilateral donors’ recommendations, by the successive governments of Pakistan, have been on need basis and limited to what is a must to secure loan tranche from donors. Lack of meaningful reforms reduced Pakistan to a perpetual seeker of loans from global lenders, notably the IMF.

The World Bank Country Director’s statement sums it up: “The need for such policy shifts has been well established, but experience shows that any reform efforts will face opposition. The question is whether those with power and influence will take the opportunity arising from the current crisis to do what is needed. It is time for Pakistan to come together in the interests of a brighter, more prosperous, and more sustainable future.”

Copyright Business Recorder, 2023