Pakistan: Now, 40% of people under poverty, says World Bank

Virendra Pandit 

New Delhi: With poverty in Pakistan rising from 34.2 percent to 39.2 percent within a year, the World Bank has cautioned the nearly bankrupt South Asian country to take urgent steps to achieve financial stability as about 100 million people in a country of 240 million now live below the poverty line.

In a year, 12.5 million more people have fallen below the poverty line because of poor economic conditions, earning just USD 3.65 per day (PKR 1048), the media reported on Saturday.

The Washington-based lender on Friday unveiled draft policy notes prepared with the stakeholders for Pakistan’s next government, ahead of the new elections to the National Assembly in January 2024.

“Pakistan’s economic model is no longer reducing poverty, and the living standards have fallen behind peer countries,” said Tobias Haque, the World Bank’s Lead Country Economist for Pakistan, adding the global lender is deeply concerned about the economic situation in that country.

The Bank urged Islamabad to take urgent steps to tax its ‘sacred cows’ – agriculture and real estate – and cut wasteful expenditures to achieve economic stability through steep fiscal adjustment of over 7 percent of the economy.

Pointing out that the increase in poverty was consistent with ground realities, the World Bank identified low human development, unsustainable fiscal situation, over-regulated private sector, agriculture and energy sectors as the priority areas for reforms for the next government.

The WB proposed some measures–immediately increasing the tax-to-GDP ratio by 5 percent and cutting expenditures by about 2.7 percent of GDP–aimed to put the unsustainable economy back on a prudent fiscal path.

To strengthen government revenues, it urged Islamabad to improve the revenue-to-GDP ratio by 5 percent through the withdrawal of tax exemptions and increasing the burden of taxes on the real estate and the agriculture sectors.

Haque said Pakistan is facing serious economic and human development crises and is at a point where major policy shifts are required.

“This may be Pakistan’s moment for significant policy shift,” said Najy Benhassine, the Country Director for Pakistan at the World Bank.

Pakistan can collect taxes equal to 22 percent of the GDP, but its current ratio is only 10.2 percent–showing a gap of more than half, the World Bank note said.

It proposed reducing distortive exemptions to generate taxes equal to 2 percent of the GDP, and an increase in taxes on land and property to collect another 2 percent of GDP in revenues and also generate another 1 percent of the GDP from the agriculture sector.

The World Bank also proposed the mandatory use of a Computerized National Identity Card (CNIC) for transactions, particularly of assets, reducing energy and commodity subsidies, implementing a single treasury account, and imposing temporary austerity measures in the short term to save about 1 percent of the GDP equivalent expenditures.

In 2022, the government’s deposits in commercial banks amounted to over PKR 2 trillion, and due to its sovereign borrowings in the absence of use of this idle cash, PKR 424 billion was paid in interest, the lender said.

For the medium term, it proposed reducing federal development and current expenditures on provincial nature projects, reducing spending on loss-making entities, and improving the quality of development spending to save about PKR 1.4 trillion. The cumulative impact of these short- to medium-term savings is 2.7 percent of the GDP.

Pakistan is heavily subsidizing the agriculture sector, leading to low productivity, the global lender said, adding that the government can reduce PKR 328 billion in spending by winding up ministries that fall in the provincial domain.

It said that another PKR 70 billion can be saved by devolving the Higher Education Commission to the provinces, and PKR 217 billion savings can be ensured through cost sharing of the Benazir Income Support Programme (BISP) with the provinces.

The World Bank’s concerns came as inflation soared to 27.4 percent in August after the impoverished country received USD 1.2 billion from the Washington-based International Monetary Fund (IMF) in July, a part of the USD 3 billion bailout program for nine months to support the government’s efforts to stabilize the country’s ailing economy.