According to local media, the World Bank cut Pakistan’s economic growth rate prediction for the current fiscal year by about 1% on Wednesday, citing the additional load on the budget imposed by the outgoing Imran Khan government’s last-ditch energy subsidies.
“The financing of the price cuts or subsidies can create an additional burden on the fiscal budget, threaten the ongoing pr with the International Monetary Fund (IMF), and limit the use of the fiscal budget on other, more productive projects”, the Dawn newspaper quoted the World Bank as saying ahead of the IMF-WB Annual Spring Meetings beginning early next week.
These subsidies, according to the bank’s Chief Economist for South Asia Region Hans Timmer, are “unsustainable and counterproductive.” Instead, the proper costs should be levied to customers and redistributed to impoverished households.
“While these measures can help reduce fluctuations in domestic prices, also constitute a direct burden or hidden liability on the government’s budget, which could increase fiscal vulnerabilities going forward. GDP growth is expected to slow to 4.3 per cent in FY22 (against 5.6 per cent last year) and to 4 per cent in FY23,” said the bank.
The bank pointed out that Pakistan has previously followed through on its commitment with the IMF to eliminate tax loopholes and raise fuel taxes. However, the administration was compelled to grant power and fuel price relief in February due to soaring energy prices in the country and political resistance, according to the media site.
The bank predicted that inflation will reach double digits in Pakistan before decreasing in 2023, citing energy subsidies as one of the country’s present concerns.
Furthermore, the media outlet said that accumulated government debt in Pakistan during the COVID-19 pandemic may lead to fiscal austerity measures, since general government debt has reached over 70% of GDP.
