On Wednesday, the World Bank issued a warning that nearly 10 million people in Pakistan could face severe food insecurity in the current fiscal year, with rising poverty levels on the horizon. This alert came alongside a downward revision of Pakistan’s economic growth forecast to 2.7%, attributed to strict economic policies that are holding back national output.
10 million Pakistanis face growing concern as, in its latest biannual report, the Pakistan Economic Update, the Washington-based institution pointed out that the government is likely to fall short of its annual budget deficit target. Moreover, the country’s debt is expected to rise both in absolute terms and as a percentage of GDP.
“Due to climatic conditions affecting the agricultural production of essential crops like rice and maize, nearly 10 million individuals, primarily in rural areas, are anticipated to face high levels of acute food insecurity in FY25,” stated the World Bank.
This report shines a light on critical issues that often get overlooked in official discussions—food insecurity, poverty, unemployment, and the decline in real wages.
The report emphasized that “key sectors for the poor—agriculture, construction, and low-value added services—have seen low or negative growth, leading to stagnant real wages.”
With a population growth rate of about 2%, this situation is expected to push around 1.9 million more people into poverty this fiscal year. Additionally, the employment-to-population ratio stands at 49.7%, indicating low labor market participation, especially among youth and women, according to the World Bank.
The report highlighted that social protection spending hasn’t kept up with inflation, which is limiting the resources available to those in poverty for essentials like food, healthcare, education, and other vital needs. This situation has serious consequences for human capital and labor productivity.
It pointed out that 37% of young people and 62% of women are currently out of education, employment, or training. “Even though nominal daily wages for low-skilled jobs—like masons, painters, plumbers, and other unskilled positions—have nearly doubled, real wages have either stagnated or even dipped slightly,” the lender noted.
As a result, the poverty rate, even at the official national poverty line, is expected to see a slight increase. The World Bank mentioned that using the national poverty line of Rs3,030 per adult equivalent per month from 2013-14, which translates to Rs8,231 in 2024 prices, the projected poverty rate for this fiscal year stands at 25.4%.
Sluggish economic growth
The World Bank also indicated that economic growth is anticipated to hover around 2.7% for this fiscal year, aligning with forecasts from the International Monetary Fund (IMF) and the Asian Development Bank (ADB). This means the government is likely to fall short of its 3.6% growth target, which Finance Minister Muhammad Aurangzeb had previously deemed achievable in the budget.
Pakistan’s main challenge lies in converting recent stabilization gains into sustainable economic growth that can effectively reduce poverty,” stated Najy Benhassine, the World Bank Country Director for Pakistan.
He stressed the importance of implementing high-impact reforms that focus on creating an efficient and progressive tax system, supporting a market-driven exchange rate, lowering import tariffs to enhance exports, improving the business environment, and streamlining the public sector. These steps would demonstrate a strong commitment to reform, build confidence, and attract investment.
The World Bank has indicated that growth is anticipated to rise to just 3.1% in the upcoming fiscal year, with a slight increase to 3.4% by 2027. These projections for the next three years fall short of the government’s annual target of 3.6% for this fiscal year.
According to the report, inflation is expected to ease to 5% this year, driven by weak demand, lower prices for commodities and energy, and a stable exchange rate.
For this fiscal year, Pakistan’s current account is on track to achieve a surplus of 0.2% of GDP, or about $800 million, marking the first annual surplus in 15 years, thanks to stronger remittances from workers, as noted by the World Bank. This surplus will help counterbalance a growing trade deficit, as imports are increasing faster than exports. However, the current account is projected to slip back into a deficit of 0.5% in the next fiscal year.
As for the budget deficit, the World Bank reported that it is expected to hit 6.8% of GDP this fiscal year, exceeding the government’s target of 5.9%. This means the government will spend Rs1.1 trillion more than planned. Nevertheless, the primary budget balance is still expected to show a surplus of 1.9% of GDP in FY25, largely due to profits from the State Bank of Pakistan.
The report also highlighted that gross financing needs will remain high throughout the forecast period, reflecting the need to manage maturing short-term debt, repayments to both multilateral and bilateral creditors, and upcoming Eurobond maturities. Public debt, including guaranteed debt, is projected to rise to 74.6% of GDP this fiscal year, up from 72.7% last year, according to the lender.
The World Bank is calling on Pakistan to get the interbank foreign exchange market back on track, along with a fully market-driven exchange rate.
They’re also pushing for the government to streamline operations by cutting out unnecessary positions or agencies and reviewing public sector pay. This includes simplifying and monetizing in-kind benefits to help cut costs and boost transparency.
The Bank emphasized the importance of implementing parametric pension reforms to significantly lower future liabilities and gradually shift towards a contribution-based system.
“Pakistan’s economy has made some progress and stabilized. However, the economic outlook is still delicate, and any delays in structural reforms or changes in economic stabilization could hinder the budding recovery and increase external pressures,” noted Anna Twum, the report’s lead author.
Twum pointed out that risks remain high due to soaring debt levels, uncertainties in policy and global trade, and vulnerability to climate-related shocks.
Additionally, the World Bank has urged the implementation of the recently updated Agriculture Income Tax and reforms in property valuation to tackle ongoing undervaluation issues. They’re also advocating for a reduction in the number of zero-rated items under the fifth schedule, which would mean more taxes.
The World Bank suggested getting rid of preferential treatments in the income tax ordinance, conducting pre-emptive cost assessments for new exemptions, reviewing past exemptions, and putting sunset clauses in place.
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Q1. What did the World Bank say about food insecurity in Pakistan?
The World Bank warned that nearly 10 million Pakistanis could face severe food insecurity during the current fiscal year, mainly due to climatic disruptions affecting key crops like rice and maize.
Q2. How is poverty expected to change in Pakistan this year?
Due to slow economic growth, high inflation, and weak labor market participation, around 1.9 million more people are projected to fall into poverty in FY25, pushing the national poverty rate to 25.4%.
Q3. What is the World Bank’s economic growth forecast for Pakistan?
The World Bank has revised Pakistan’s GDP growth forecast to 2.7% for FY25, which is lower than the government’s target of 3.6%. Growth is expected to gradually rise to 3.4% by 2027.
Q4. Why is Pakistan’s economy growing slowly despite stabilization efforts?
Strict economic policies, a weak business environment, and underperforming sectors like agriculture and construction are limiting economic output and job creation, according to the World Bank.
Q5. What’s the status of Pakistan’s budget deficit?
The budget deficit is projected to reach 6.8% of GDP—exceeding the government’s target of 5.9%. This suggests overspending by about Rs1.1 trillion in FY25.
Q6. What reforms has the World Bank recommended for Pakistan?
The World Bank has urged tax reforms, pension restructuring, a market-based exchange rate, and public sector rationalization to improve transparency and attract investment.
