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Pakistan’s economic crisis deepens, World Bank urges tax reforms

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The World Bank has raised serious concerns over Pakistan’s escalating economic crisis, with the poverty rate in the country having surged to 39.4% as of the last fiscal year. This marks an increase from 34.2% within just one year, leading to an additional 12.5 million people falling below the poverty line of $3.65 per day income level. As a result, approximately 95 million Pakistanis are now living in poverty.

Tobias Haque, the World Bank’s lead country economist for Pakistan, voiced his concerns on Monday, stating that the current economic model is no longer reducing poverty and living standards have fallen behind peer countries. Haque stressed that Pakistan is facing serious economic and human development crises necessitating major policy shifts.

In its draft policy notes prepared for Pakistan’s next government ahead of the new election cycle, the Washington-based lender identified several priority areas for reform. These include low human development, an unsustainable fiscal situation, an over-regulated private sector, and agriculture and energy sectors.

The World Bank has urged Pakistan to implement urgent measures to achieve financial stability. The suggested measures aim to improve the revenue-to-GDP ratio by five per cent through the withdrawal of tax exemptions and increasing taxes on real estate and agriculture sectors.

The lender proposed reducing distortive exemptions to generate taxes equal to two per cent of the GDP and increasing taxes on land and property to collect another two per cent of GDP in revenues. An additional one per cent of the GDP could be generated from the agriculture sector.

The bank also recommended mandatory use of CNIC (Computerised National Identity Card) for transactions, particularly of assets. This comes as part of a broader call for steep fiscal adjustment over seven per cent of the size of the economy.

Despite having the capacity to collect taxes equal to 22 per cent of the GDP, Pakistan’s current ratio stands only at 10.2 per cent, revealing a gap of more than half, according to the World Bank note.

This warning by the World Bank comes ahead of the new election cycle, urging the upcoming government to make early policy choices to address these issues. The country now needs to reassess its policy decisions, often driven by the vested interests of military, political, and business leaders.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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