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World Bank’s (WB) Global Director for Governance Arturo Herrera Gutierrez on Thursday stressed the need for ‘bold’ fiscal reforms to address Pakistan’s debt distress and achieve macroeconomic stability.
Speaking at a lecture organized by the Pakistan Institute of Development Economics (PIDE), Gutierrez highlighted the urgency of sustainable fiscal reforms, drawing from international experiences.
“Pakistan stands at a crucial juncture where it can either pave the path for sustained economic growth or fall into the recurring traps of debt distress,” Gutierrez remarked. He discussed historical economic challenges faced by countries like Mexico in the 1980s and how these experiences shape fiscal strategies today.
Moreover, he outlined the necessity of strong macroeconomic frameworks, robust debt management practices, and the establishment of institutional arrangements to ensure discipline in fiscal policy.
Gutierrez emphasized that ensuring fiscal sustainability required a comprehensive long-term strategy, not just balancing budgets annually.
“These measures are critical for building credibility and securing access to financial markets,” the WB director said while emphasizing the need to maintain consistency over time to avoid the economic problems of the past.
He brought to the attention the concerning resurgence of debt distress globally, particularly post-COVID-19, necessitating a re-evaluation of fiscal sustainability approaches.
His presentation mentioned countries with gross public debt issues; notably, countries like the US, Canada, Japan and Pakistan, which have debt-to-GDP ratios exceeding 75 percent.
Japan, with a debt ratio of 252 percent of Gross Domestic Product (GDP) and a low interest rate of 0.88 percent, he said contrasted sharply with Greece, which faced a higher interest rate of 3.55 percent despite a lower debt ratio of 168 percent.
“This indicates that the debt-to-GDP ratio is significant, but the sustainability of fiscal finances also sends a critical signal to the market, impacting interest rates.”
During the lecture, Gutierrez imparted critical insights on sustainable fiscal policies across the globe, focusing specifically on how these strategies could be adapted to Pakistan’s economic context.
In contrast, the PIDE team proposed a nuanced perspective, asserting that Pakistan’s economic woes transcend simple accounting measures. They advocated for comprehensive healing rather than superficial fixes.
Placing growth at the center of its reform agenda, PIDE emphasized prioritizing economic expansion over mere revenue accumulation.
They advocated for allowing the economy to flourish before imposing additional taxes, suggesting a re-regulation to facilitate transactions and stimulate economic activity, ultimately leading to improved revenue generation by default.
PIDE also accentuated that the crux of the issue lies more in expenditure than in revenue, making an argument for misplaced efforts for reforms. At the end, PIDE and the World Bank pledged to take the reform debate further between the two sides to push for reforms.
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