Home Latest News World Bank Advises Consensus within Pakistan on Much-Needed Economic Reforms

World Bank Advises Consensus within Pakistan on Much-Needed Economic Reforms

Global lender calls for ending tax exemptions; bringing real estate and agriculture sectors into tax net to reduce poverty, increase employment

by Staff Report

File photo of the World Bank Headquarters. Tim Sloan—AFP

The World Bank on Friday supported a Charter of Economy for Pakistan, urging the country’s political parties and policymakers to achieve consensus on much-needed reforms to ensure their smooth implementation.

“The broad-based policy shift is required for striking consensus on minimum reform agenda instead of just labelling it as a Charter of Economy. There was a lot of stop-and-go as well as policy reversals in the past so there is a need for a broader economic reforms agenda with full implementation mechanism,” World Bank Country Director Najy Benhassine said while launching the “Reforms for a Brighter Future: Time to Decide” program in Islamabad.

The Charter of Economy has been a longstanding demand of various political parties, especially the Pakistan Muslim League (Nawaz) and Pakistan Peoples Party, with an aim to delink economic policies from government turnovers to ensure continuity of reforms. In recent years, the Army has also backed the initiative, noting it is necessary for economic revival.

During his presentation, the World Bank official unveiled five major policy shifts required for reform. It called for (1) shifting to a coordinated, efficient, and adequately financed service delivery, targeting the most vulnerable, with a special view to reducing child stunting rates and increasing learning outcomes for all children; (2) utilizing public expenditures on public services, infrastructure, and investments in climate adaptation, benefiting populations most in need and also shifting from an inequitable tax system to one that is broad-based, efficient, progressive, and equitable; (3) shifting from a protected, stagnant, and unproductive economy with a large state presence towards a dynamic open economy driven by private investment and exports; (4) moving agriculture sector policies away from low-value, low-productivity farming towards a more market-driven, productive agricultural system; and (5) moving from energy sector policies that drive high energy costs, environmental harms, and unsustainable accumulation of debt, toward efficient, sustainable, and resilient generation and distribution.

He further suggested five steps to shift from an inequitable tax system toward a broad-based, efficient and equitable system. To achieve this, he said the country must (i) reduce or eliminate costly and often regressive duty and sales tax exemptions; (ii) increase excise on socially harmful goods including tobacco; (iii) expand the base for personal income tax by simplifying the structure, merging the schedules for salaried and non-salaried workers and lowering the tax-free thresholds; (iv) increase or implement progressive taxation on property, retail and agriculture income particularly at provincial levels; and (v) introduce new environmental taxes and user charge including on carbon emissions or other pollutants.

The global lender noted that reducing agricultural subsidies in Punjab and Sindh alone would enable the country to save up to $4.9 billion. It also recommended bringing real estate and agriculture income into the tax net to increase the tax-to-GDP ratio by 3 percent over the short term. Over the long term, it said, this could be more than doubled from the existing 9.6% of GDP to around 22%. It said the country had the potential to achieve Rs. 14-15 trillion in tax revenue annually.

The World Bank officials regretted that poverty had increased from 34.2% to 39.4%, while the unemployment rate had doubled from 6.3% to 12.2% since 2018, reversing earlier successes.

“Pakistan has been facing numerous economic hardships including inflation, rising electricity prices, severe climate shocks, and insufficient public resources to finance development and climate adaptation—when the country is among the most vulnerable to climate change impacts,” said Benhassine. “It is also facing a ‘silent’ human capital crisis: abnormally high child stunting rates, low learning outcomes, and high child mortality,” he said, warning the country was at a “tipping point” wherein it needed to determine whether it wished to continue as is or change course for a brighter future.

Sounding optimism, however, he said, other countries had also hit this point and taken the right decisions during crises to overcome similar challenges. “This may be Pakistan’s moment in making policy shifts,” said Benhassine.

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