Pakistan Increase Poverty Rates According to World Bank Report

pakistan-increase-poverty

The World Bank’s Macro Poverty Outlook report highlights a concerning increase in poverty in Pakistan, largely attributed to record-high food and energy prices, weak labor markets, and the damages caused by floods.

The report underscores that the IMF Stand-by Arrangement (SBA) recently approved for Pakistan has provided a lifeline by unlocking new external financing. Despite this financial aid, GDP growth is expected to remain below its potential over the medium term, albeit showing signs of a slight recovery.

However, the country’s reserves, even with the SBA, are expected to average less than one month of total imports throughout FY24-FY25. This necessitates the continuation of import controls, which in turn constrains the overall economic recovery. Real GDP growth is anticipated to reach only 1.7 percent in FY24, owing to tight fiscal and monetary policies, persistent inflation, and diminished confidence due to political uncertainty surrounding upcoming elections. It is projected that as economic growth resumes, poverty levels will decrease to 37.2 percent in FY24.

The current account shortfall is also expected to gradually widen to 1.5 percent of GDP in FY25. High inflation is a significant concern, projected to remain at 26.5 percent in FY24 before moderating to 17.0 percent in FY25, influenced by high base effects and lower global commodity prices. Nonetheless, the imposition of a higher petroleum levy and energy tariff adjustments is expected to maintain domestic energy prices at elevated levels, contributing to growing social and economic insecurity.

The report underscores the risks associated with prolonged and elevated food and energy price inflation, especially in the absence of substantial economic growth. Such a situation could result in social displacement and negatively impact the welfare of households, particularly those that are worse-off, already grappling with depleted savings and reduced incomes.

In terms of fiscal dynamics, the fiscal deficit is projected to narrow slightly, averaging 7.6 percent of GDP over FY24 and FY25, primarily due to high-interest payments. The primary deficit, reflecting consolidation efforts, will remain modest at an average of 0.3 percent of GDP.

The report also points out that, despite liquidity challenges, the public debt-to-GDP ratio is expected to decline over the medium term.

Overall, the World Bank’s report emphasizes that the economic contraction, coupled with high inflation and the damage caused by floods, has disproportionately affected poorer households in Pakistan, resulting in increased inequality. The extensive damage to public infrastructure, including schools and clinics, due to floods, along with adverse economic coping strategies like withdrawing children from schools, have likely exacerbated disparities in human development outcomes, both within and across regions. The situation calls for a comprehensive response to address the multifaceted challenges facing Pakistan’s economy and the welfare of its citizens.

Ammara Ahmed

Ammara Ahmed

Leave a Reply

Your email address will not be published. Required fields are marked *