Islamabad:
The World Bank warned on Wednesday that nearly 10 million Pakistani could face acute food insecurity during the current financial year, poverty levels should increase. The warning came while the bank also revised Pakistan’s economic growth forecasts at 2.7%, citing close economic policies that suppress national production.
In his flagship report of the economic update of Pakistan Biannual, the lender based in Washington noted that the government is likely to miss its objective of annual budget deficit. In addition, the country’s debt burden should increase both in absolute terms and in proportion to GDP.
“The climatic conditions having an impact on the overall agricultural production of key crops such as rice and corn, nearly 10 million people, mainly in rural areas, should experience high levels of acute food insecurity during the 2010 financial year,” said the World Bank.
The report brings back the emphasis on issues that are not frequently discussed during official meetings – food insecurity, poverty, unemployment and the decrease in real wages.
The report stressed that “the key sectors of the poor – agriculture, construction and additional low -value services – experienced low or negative growth, causing stagnant real wages”.
Combined with population growth of around 2%, this should push around 1.9 million additional people in poverty during this exercise. Not only that, the employment / population ratio is 49.7%, which reflects a low commitment to the labor market, especially among young people and women, said WB.
The report indicated that social protection expenses did not follow the rate of inflation, the constraint of the resources available for the poor for food, health, education and other critical articles, with negative implications for human capital and labor productivity.
He said 37% of young people and 62% of women are not in education, employment or training. “Despite nominal daily wages that almost double low -skilled workers, such as masons, painters, plumbers and unskilled workers, real wages have remained stagnant, even slightly reduced,” said the lender.
As a result, poverty staff, even on the official national poverty line, would increase slightly. The World Bank said that while using the national poverty line of RS3,030 by adult equivalent per month in 2013-2014, or 8,231 rupees in 2024, the rate planned for poverty is 25.4% for this financial year.
Slow economic growth
The World Bank said economic growth should remain at 2.7% during this financial year, which is in accordance with forecasts made by the International Monetary Fund (IMF) and the Asian Development Bank (ADB). This means that the government will miss its objective of economic growth of 3.6%, that the Minister of Finance Muhammad Aurangzeb had described in the budget as possible.
Pakistan’s main challenge is to transform recent economic stabilization gains that is sustainable and adequate for poverty reduction, “said Najy Benhassine, Director of the World Bank for Pakistan.
He pointed out that reforms with a high impact to prioritize an effective and progressive tax system, supporting a market rate determined by the market, reducing import prices to stimulate exports, improve the commercial environment and rationalize the public sector would signal a solid reform commitment, strengthen trust and attract investments.
The World Bank said growth should increase in the next fiscal year to only 3.1%, then to 3.4%in 2027. Growth projections of three years were lower than the annual objective of this 3.6%government exercise.
The report indicated that inflation had to decrease to 5% this year, reflecting moderate demand, a drop in basic products and energy prices and a stable exchange rate.
For this exercise, the Pakistan current account is expected to reach a surplus of 0.2% of GDP or $ 800 million, the first annual surplus in 15 years, caused by larger funds from workers, said the World Bank. This will help compensate for an extended trade deficit because import growth exceeds export growth. The current account is expected to return to a 0.5% deficit in the next financial year, he added.
Missing budget deficit objective
Against the government’s budgetary objective of 5.9% of GDP, the World Bank said that the deficit should remain at 6.8% of GDP during this financial year. This means that the government will spend 1.1 billion of rupees more than the budgetary target. The lender said that the main budget balance should reach a 1.9% surplus of GDP during the 2010 financial year, mainly due to the benefits of the SBP.
He said that the gross funding needs will remain high throughout the forecast period, reflecting short -term debt to maturation, reimbursements to multilateral and bilateral creditors and the next Eurobond deadlines. Public debt, including guaranteed debt, is expected to reach 74.6% of GDP during this financial year, against 72.7% of last year, said the lender.
Make the way
The World Bank has urged Pakistan to restore the operation of the interbank exchange market alongside the exchange rate determined entirely on the market.
He also asked to take other measures with the government’s leaping, in particular by eliminating redundant or unproductive positions or agencies and requested the examination of the remuneration of the public sector, in particular the monetization and simplification of the advantages in kind to reduce costs and improve transparency.
He underlined the need to implement parametric reforms of pensions to considerably reduce future liabilities and facilitate the transition to a system based on contributions over time.
“Pakistan’s economy has turned the turn and has stabilized. However, the economic perspectives remain fragile and any delay in implementation in structural reforms or changes in economic stabilization could reduce the emerging recovery and intensify external pressures,” said Anna Twum, the main author of the report.
The risks remain high due to the high levels of debt, policies and uncertainties of world trade and exposure to climatic shocks, said Twum.
The World Bank has also urged the implementation of recently revised agricultural income tax in the property assessment to deal with current systematic undervaluation. He asked for a reduction in the number of articles classified zero as part of the fifth appendix, which means imposing more taxes.
The World Bank has recommended the elimination of preferential treatments in the context of the income tax order and carried out ex-ante cost assessments for new exemptions, assess past exemptions and institute sunset.
