In its recent report titled “South Asia Development Update: Jobs for Resilience,” the World Bank highlighted several challenges hindering foreign investment in Pakistan. According to the report, the country’s tax policies discourage investment in the tradable sector, and its investment laws discriminate against foreign investors.
The report emphasised that Pakistan’s sales and value-added tax systems, characterised by narrow bases, multiple exemptions, and concessional rates, are estimated to cost the country 15% of the tax’s potential revenue. Such policies limit revenue potential and deter investment in the tradable sector.
Furthermore, the World Bank projected a growth rate of 2.3% for Pakistan in the fiscal year 2024–25, anticipating high inflation due to reforms aimed at lowering energy subsidies, leading to increased domestic energy prices and transportation costs.
The report also underscored the importance of reducing subsidies to state-owned enterprises in Pakistan, Bhutan, and Nepal to encourage greater private-sector participation and create space in state budgets for other programmes. In Pakistan, specifically, state-owned enterprises exhibit low investment rates while consuming significant government resources.
Despite challenges, the easing of exchange rate restrictions and policy rate stabilisation by the State Bank of Pakistan have contributed to stabilising financial markets and encouraging modest currency appreciation. However, high import duties, particularly on consumer goods, intermediate goods, and capital equipment, continue to impede import competition and hinder productivity growth.
Additionally, the report highlighted disparities in gender equality across South Asian countries, with Bangladesh, India, Pakistan, and Sri Lanka scoring poorly in promoting women’s rights and equal pay.
