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World Bank Urges Pakistan to Double Investments for Sustainable Growth

LAHORE: The World Bank has called on Pakistan to double its investment rate and simplify regulations to accelerate its economic growth, according to Martin Raiser, Vice President for South Asia at the World Bank. Speaking in Islamabad, Raiser emphasized that a predictable business environment and improved use of human and physical assets are crucial to achieving higher growth.

Key Highlights

  • Investment-to-GDP Ratio: Pakistan’s investment-to-GDP ratio has fallen below 15%, the lowest in the South Asia region, according to the Finance Ministry.
  • Raiser stressed that 12% of GDP investment is insufficient, noting, “If you invest 12% of gross domestic product, don’t expect miracles. You’re not going to grow. It’s as simple as that.”

Growth Potential

  • Pakistan can achieve an annual growth rate of up to 8% by doubling investments and utilizing its assets and human capital efficiently.
  • The country’s economy is expected to grow by 3% this year, as per Bloomberg’s survey of economists.

Challenges and Priorities

  • Boom-and-Bust Cycles: Pakistan’s economy has faced recurring cycles of growth and crisis due to imbalanced fiscal policies, leading to funding shortages in critical sectors like health and education.
  • Nearly 50% of government revenue is consumed by debt servicing and defense expenditures, limiting funds for development initiatives.
  • Pakistan ranks lower than its regional peers in the World Bank’s Human Capital Index.

Reforms for Progress

  1. Tax-to-GDP Ratio:
    • Raising the tax-to-GDP ratio to 15% is “eminently doable,” Raiser said, by cutting tax exemptions, tackling tax evasion, and adopting digital tax collection systems.
  2. State-Owned Enterprises:
    • Restructuring and privatizing state-owned enterprises is a key priority under the IMF’s three-year loan program, which also aims to increase government revenue and plug financial leaks.
  3. Improving Business Climate:
    • The World Bank’s 10-year partnership framework with Pakistan seeks to establish a more stable business environment.

Government’s Vision

Prime Minister Shehbaz Sharif has set a modest growth target of 3.6% for the current fiscal year, following efforts to avert an economic default last year with the help of external financing.

Way Forward

To unlock its economic potential, Pakistan must focus on doubling investments, enhancing productivity, and implementing critical reforms in taxation, governance, and public expenditure. Without these changes, achieving long-term, sustainable growth will remain a challenge.

 

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