FeaturedNationalVOLUME 19 ISSUE # 49

Boosting resilience for economic and climate challenges

Pakistan faces significant economic and climate-related challenges, but recent recommendations from the International Monetary Fund (IMF) and the World Bank highlight pathways to foster sustainable growth and resilience. Key proposals include increasing women’s participation in the labor force and allocating substantial resources to climate resilience. These strategies, combined with ongoing economic reforms, could significantly strengthen Pakistan’s economy, address social inequalities, and mitigate the impact of climate-related disasters.

The World Bank has raised its growth forecast for South Asia to 6.4% in 2024, up from the earlier estimate of 6.0%, citing faster recoveries in crisis-affected countries like Sri Lanka and Pakistan, as well as strong domestic demand in India. For Pakistan, the World Bank now projects economic growth of 2.8% for the current fiscal year, which began in July, an improvement from the previous forecast of 2.3%. This revision is driven by a recovery in manufacturing and a more relaxed monetary policy. The updated outlook reinforces South Asia’s position as the fastest-growing emerging economy region tracked by the World Bank, which forecasts solid 6.2% growth annually over the next two years.

“You have a growing consumer class in India driving its economy forward, recoveries from crises in Sri Lanka and Pakistan, and a tourism-led recovery in Nepal and Bhutan,” said Martin Raiser, World Bank Vice President for South Asia. He added that South Asia has “significant upside potential” for growth if countries further integrate into the global economy, but cautioned that sustaining this momentum would require adherence to economic reform programs.

India’s growth forecast for the fiscal year ending in March 2025 was revised to 7%, up from 6.6% in April, supported by a rebound in agricultural output and higher private consumption. India’s central bank has maintained its GDP growth forecast at 7.2% for this fiscal year, while shifting its policy stance to neutral.

Sri Lanka, recovering from a sovereign debt default and its worst economic crisis in decades, saw the largest upward revision, with growth expected at 4.4% this year and 3.5% in 2025. Nepal’s growth forecast was raised to 5.1%, up from 4.6% for the fiscal year 2024/25 starting mid-July, and Bhutan’s was increased to 7.2%, up from 5.7%. However, Bangladesh’s growth forecast was downgraded to 4.0% from 5.7% for fiscal year 2024/25 due to a slowdown in garment exports and recent social unrest.

The World Bank has urged South Asian countries to increase female labor force participation, which currently stands at just 32%, the lowest globally. According to the Bank, raising women’s employment to levels comparable to men could boost long-term output by as much as 50%. “Bringing more women into the labor force could add significantly to the region’s production potential,” noted Martin Raiser, World Bank Vice President for South Asia.

Meanwhile, the International Monetary Fund (IMF) has recommended that Pakistan allocate over Rs1.24 trillion annually, equivalent to 1% of its GDP, towards climate resilience and adaptation measures. This investment aims to mitigate the economic disruptions caused by extreme weather events and support sustainable growth while addressing social inequalities.

During a special policy briefing, the IMF emphasized the dual benefits of Pakistan’s ongoing economic reforms and proactive climate investments. Under the Extended Fund Facility (EFF), reforms in fiscal policy, labor markets, trade, and state-owned enterprises are expected to boost Pakistan’s GDP growth by 2% over the next five years while significantly reducing inequality.

Pakistan ranks among the ten most vulnerable countries in the world to climate change despite accounting for only 0.9 percent of global greenhouse gas (GHG) emissions. The economic survey of Pakistan 2024-25 mentions unpredictable weather patterns, resulting in flash floods, droughts, glacial lake outbursts, intense heat waves, and erratic rainfall as destructive effects of climate change. The survey highlighted some key striking impacts of climate change in the country. The annual expected damage from riverine floods is projected to surge by at least around 47 percent by 2050. As for heatwaves, the fraction of the population exposed yearly is expected to increase by at least 32 percent by 2050. Moreover, labor productivity is projected to decline across the board because of escalating heat stress by around 7 percent. These changes in the climate over the years have also been impacting agriculture adversely. The Economic Survey of Pakistan 2023-24 points out that climate change will lower agriculture performance with annual mean wheat yield declining by at least one percent by 2050. Air and water pollution is another area that will aggravate human health especially those living in vulnerable areas.

Investing in climate-adaptive infrastructure is highlighted as a key strategy to reduce the negative impacts of natural disasters by a third, facilitating quicker and stronger recoveries. The IMF stressed that these infrastructure investments would enhance Pakistan’s resilience to recurring climate-related shocks.

The Fund also outlined the importance of improving public investment efficiency through the Climate-Public Investment Management Assessment (C-PIMA) Action Plan, which not only strengthens immediate disaster response capabilities but also supports long-term economic stability. Further discussions on financing these climate initiatives are anticipated during the upcoming IMF and World Bank annual meetings. While such investments may initially increase debt, the IMF recommends fiscal consolidation and structural reforms to maintain fiscal space and manage potential shocks.

By adopting the IMF and World Bank’s recommendations, Pakistan has the opportunity to enhance its economic resilience and growth potential. Increasing women’s labor force participation and investing in climate-adaptive infrastructure are critical strategies for fostering long-term stability. While these measures may initially strain resources, they offer the promise of a stronger, more equitable economy, better prepared to face future challenges. Fiscal discipline, economic reform, and strategic investments in climate resilience will be key to unlocking Pakistan’s full potential.

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