Pakistan's economy is showing signs of stabilization following a recent economic crisis, with growth reaching 2.5 percent in the fiscal year ending June 2024, according to the World Bank's latest country economic update. The report, titled "The Dynamics of Power Sector Distribution Reform," highlights improvements in agricultural output, lower inflation, prudent macroeconomic measures, and reduced political uncertainty as factors contributing to this recovery.
Despite these positive developments, poverty rates have slightly increased from 40.2 percent in FY23 to 40.5 percent in FY24. Najy Benhassine, World Bank Country Director for Pakistan, emphasized the importance of implementing structural reforms to sustain economic momentum and address long-standing constraints on growth. He stated that reforming the tax system, reducing inefficient expenditures and subsidies, lessening state presence in the economy, reducing trade barriers, and addressing energy sector losses are crucial steps.
Macroeconomic risks remain high due to significant financing needs, modest foreign exchange reserves, high debt levels and servicing costs, financial sector vulnerabilities, and a loss-making power sector impacting public finances.
Mukhtar ul Hasan, lead author of the report, projected real GDP growth to reach 2.8 percent in FY25 but noted that output growth might remain below potential due to tight macroeconomic policies and policy uncertainty affecting economic activity.
The report also addresses challenges within Pakistan's power sector and suggests private sector participation as a means to improve customer service and efficiency while encouraging new investments. Waqas Idrees co-authored the report stating that success relies on conducive government policies and strong political ownership.
This edition of the Pakistan Development Update serves as a companion piece to the South Asia Development Update by examining economic prospects in South Asia while highlighting roles greater female labor force participation can play in regional growth.