World Bank Warns Pakistan’s Financing Needs Exceed 10% of GDP Amidst Growing Fiscal Pressure


The World Bank has stated that Pakistan now faces financing needs surpassing 10 percent of Gross Domestic Product (GDP), underscoring the fiscal pressures the country faces.

The Bank in its report ‘The Great Reversal Prospects, Risks, and Policies in International Development Association (IDA) Countries’, stated that several IDA countries-including Burundi, Fiji, The Gambia, Ghana, Kenya, Malawi, Mozambique, Pakistan, Togo, and Zambia-now face financing needs surpassing 10 percent of GDP, underscoring the fiscal pressures these countries face.

The report noted that Bangladesh and Pakistan encounter seasonal river basin flooding, which, despite enriching soils, frequently results in extensive damage and displacement.

IDA uses this threshold of $1,315 for the fiscal year ending June 30, 2024. Some IDA-eligible countries, such as Nigeria and Pakistan, are also creditworthy for some IBRD borrowing; these are referred to as ‘blend’ countries, and they are also among the 75 countries currently eligible for IDA
resources and considered in this study.

Among IDA countries, 15 have weak credit ratings for sovereign bonds: Cameroon, Democratic Republic of Congo, Republic of Congo, Ethiopia, Ghana, Lao People’s Democratic Republic, Maldives, Mali, Mozambique, Niger, Nigeria, Pakistan, Solomon Islands, Sri Lanka, and Zambia.

The report noted that the key risk to the outlook for IDA countries is that the current stagnation becomes more protracted. If weak income growth persists, deeper reversals in progress could occur. IDA countries are especially susceptible to natural disasters associated with climate change.

Fragility and conflict-affected IDA countries are particularly vulnerable to new shocks given their weak fundamentals.

Risks are magnified by the highly challenging external environment: weaker-than-expected global growth, an escalation in geopolitical tensions, fragmentation of trade and investment networks, or an extended period of tighter global financial conditions could further darken prospects for IDA cou
ntries, the report added.

The report noted that despite their high potential to advance global prosperity, one-half of the world’s 75 most vulnerable countries are facing a widening income gap with the wealthiest economies for the first time in this century. Taking full advantage of their younger populations, their rich natural resources, and their abundant solar-energy potential can help them overcome the setback.

These countries are home to a quarter of humanity-1.9 billion people. At a time when populations are aging nearly everywhere else, IDA countries will enjoy a growing share of young workers through 2070-a huge potential ‘demographic dividend.

Over 2020-24, average per capita incomes in half of IDA countries-the largest share since the start of this century-have been growing more slowly than those of wealthy economies. This is widening the income gap between these two groups of countries. One out of three IDA countries is poorer, on average, than it was on the eve of the COVID-19 pandemic.

The ex
treme poverty rate is more than eight times the average in the rest of the world: one in four people in IDA countries struggles on less than $2.15 a day. These countries now account for 90 percent of all people facing hunger or malnutrition. Half of these countries are either in debt distress or at high risk of it.

Source: Pro Pakistani