The World Bank finds that nearly 40% of Pakistanis, about 95 million people, are struggling with poverty. It recommends reducing wasteful expenditures and increasing taxes, notably on land and property that the lead country economist for Pakistan refers to as “sacred cows.”
Pakistan has the lowest per capita income in South Asia, according to a set of policy notes issued by the World Bank draft policy notes.
The financial institution found that in one year, the poverty rate has risen from 34.2% to 39.4%, with 12.5 million more people falling below the poverty line of 3.65 US dollars a day.
It highlighted that Pakistan’s average real per capita growth rate, which excludes inflation, was 1.7% between 2000 and 2020, significantly lower than the 4% average for South Asian countries.
Najy Benhassine, Country Director for the World Bank in Pakistan, says that the country has been facing an array of economic hardships such as economic inflation, rising electricity prices, climate vulnerability, and insufficient public resources to finance development and climate policies. For Mr. Benhassine, Pakistan is “also facing a ‘silent’ human capital crisis: Abnormally high child stunting rates, low learning outcomes, and high child mortality.”
The World Bank released the set of policy proposals for Pakistan at the launch of their Reforms for a Brighter Future: Time to Decide, a series of national debates and discussions that started on September 22. The reform discussions take place as Pakistan is at an important turning point ahead of the next election cycle in January 2024 after the dissolution of the National Assembly in August.
Tobias Haque, the World Bank’s lead country economist for Pakistan, states “Pakistan’s economic model is no longer reducing poverty, and the living standards have fallen behind peer countries.” Mr. Haque urges the country to take urgent steps to tax its “sacred cows” – agriculture and real estate – and cut wasteful expenditures in an effort to achieve economic stability.
For instance, real estate investment trusts have tax exemptions that the financial institution recommends withdrawing. Also, farmers owning between 26 and 50 acres (10 to 20 hectares) of land pay only 250 rupees (86 cents) of taxes per acre, and 300 rupees (1 dollar) per acre for owners of more than 50 acres.
Overall, the World Bank recommends that Pakistan should raise its tax-to-gross domestic product ratio by 5% while concurrently reducing expenditures by approximately 2.7% of GDP.
Currently, Pakistan’s capacity for tax collection stands at 22% of the GDP, but the actual ratio falls back significantly to 10.2%. Raising taxes on land and property could add another 2% of GDP in revenue and generate an extra 1% of GDP from the agriculture sector.
Some of the other proposals include improving the quality of development spending, reducing energy and commodity subsidies and withdrawing tax exemptions on machinery import and for pharmaceutical and energy sectors.
