Martin Raiser, World Bank Vice President for South Asia, recently stated that Pakistan could achieve a $1 trillion economy by 2035 if it implements the right reforms and maintains a 7% annual growth rate. The World Bank has offered a potential $20 billion commitment over the next decade to aid the nation’s recovery, but this promise comes with strict conditions.
Raiser emphasized the importance of focusing on key sectors such as clean energy, agriculture, manufacturing, and digital infrastructure. However, the World Bank’s support depends on Pakistan’s ability to implement meaningful reforms to unlock this funding.
Structural Challenges Hinder Progress
Despite the World Bank’s optimism, Pakistan’s current economic situation presents significant hurdles:
- Economic Crisis: Pakistan’s GDP growth fell to just 2.4% in 2023, below the population growth rate of 2.6%, worsening poverty levels.
- Tax Collection Issues: With a tax-to-GDP ratio of only 12%, the country struggles to generate adequate revenue.
- Debt and Spending: Unsustainable fiscal imbalances and inefficient spending continue to drag the economy down.
World Bank’s Funding Conditions
The World Bank recently canceled a $500 million loan meant for sustainable energy projects after Pakistan failed to meet conditions, such as revising power purchase agreements under the China-Pakistan Economic Corridor (CPEC). This move signals the institution’s reluctance to offer further assistance without substantial reforms.
IMF Bailouts and Overreliance on External Aid
Pakistan has long depended on external aid, securing its 25th IMF bailout worth $7 billion in 2023. While this provides short-term stability, it fails to address deep-rooted problems like slow growth, high unemployment, and the brain drain.
The IMF’s plan focuses on raising taxes and cutting subsidies, but these measures don’t tackle inefficient governance or structural issues. Over 50% of Pakistan’s budget is spent on interest payments, worsening the debt crisis.
Dependence on Chinese Loans
Pakistan’s reliance on Chinese debt is another major challenge. China holds $23.6 billion in bilateral debt, accounting for over 28% of Pakistan’s external debt.
The IMF has urged Pakistan to stop offering tax incentives to Chinese companies under CPEC, further complicating its financial position. Chinese investments in Pakistan have also declined, adding uncertainty to future economic projects.
Can Pakistan Break the Cycle of Bailouts?
To achieve long-term economic growth, Pakistan must move beyond temporary solutions like bailouts and focus on:
- Reforming the energy sector.
- Diversifying exports.
- Reducing debt dependency.
- Strengthening governance and fiscal policies.
Hope vs. Reality
While the World Bank’s optimism is encouraging, Pakistan’s path to a $1 trillion economy is riddled with challenges. Without strong political will and comprehensive reforms, the country risks remaining stuck in a cycle of short-term fixes and long-term stagnation.