Pakistan’s economy continues to stabilise, GDP expected to reach 2.8% in FY2025: World Bank

Pakistan’s economy has continued to stabilise from the recent economic crisis, with growth recovering to 2.5 per cent in the fiscal year ended June 2024 and real GDP growth is expected to reach 2.8 per cent in FY25, says the World Bank in its latest country economic update.

Released on Thursday, “The Pakistan Development Update: The Dynamics of Power Sector Distribution Reform,” finds that following the recession in FY23, economic activity strengthened in FY24 reflecting strong agricultural output, lower inflation, prudent macroeconomic measures, and reduced political uncertainty. However, this level of growth is not sufficient to bring down poverty rates, which increased from 40.2 per cent in FY23 to 40.5 per cent in FY24.

“Pakistan’s stabilizing economy is on a path of recovery. To sustain and strengthen that positive momentum, steady implementation of the government’s structural reforms plan that aims to address long-standing constraints to faster growth will be key. These include reforming an inequitable and distortive tax system, reducing inefficient expenditures and untargeted subsidies, lessening the large state presence in the economy, reducing barriers to trade and investment, and reducing losses in the energy sector” said Najy Benhassine, World Bank Country Director for Pakistan. 

“Implementation of planned structural policy reforms supported by a strong national political consensus and increased private sector participation is critical to mitigate risks, support stronger private-led growth and poverty reduction.”

As the economic stabilization continues, macroeconomic risks remain high reflecting high financing needs, modest foreign exchange reserves, high debt and debt servicing costs, financial sector vulnerabilities, and a loss-making power sector that continues to weigh on public finances, the report added. 

“Pakistan’s recovery is expected to continue, with real GDP growth expected to reach 2.8 per cent in FY25,” said Mukhtar ul Hasan, lead author of the report. 

“However, output growth is expected to remain below potential over the medium-term as tight macroeconomic policy, elevated inflation, and policy uncertainty are expected to continue to weigh on economic activity. Faster growth will be needed to support significant improvements in living standards,” he said. 

This edition of the Pakistan Development Update also highlights the challenges in Pakistan’s power sector and presents a roadmap for addressing these constraints through private sector participation. 

“Private sector participation in the power distribution sector offers the potential for better customer service, reduced losses, improved management, increased efficiency and new investment, but good outcomes are contingent on conducive government policies, strong political ownership, and robust private sector participation,” said Waqas Idrees, co-author of the report. 

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}