Silver lining?

The economic landscape of the Asia-Pacific region is marked by the imperative for sustainable development amid evolving challenges and opportunities.
As highlighted in the 2024 survey conducted by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), governments in the region face the dual challenge of financing essential public investments while navigating complex macroeconomic dynamics. This survey underscores the significance of robust taxation systems, efficient public spending, and strategic borrowing to address the pressing needs of sustainable development.
The economic survey has forecasted an acceleration in Pakistan’s economic growth for both the current year and the following year, with projected real GDP growth rates of two percent and 2.3 percent, respectively. Additionally, it anticipates a reduction in inflation in Pakistan from 26 percent in 2024 to 12.2 percent in 2025.
The survey also highlighted the challenges faced by Pakistan’s economy. Political unrest and a massive flood have adversely affected business and consumer sentiment, as well as agricultural production. Despite these challenges, the survey noted that an agreement with the International Monetary Fund in mid-2023, along with further assistance from China, Saudi Arabia, and the United Arab Emirates, has helped Pakistan regain some macroeconomic stability during 2023. However, fiscal adjustments are still underway to restore stability, including measures such as the removal of subsidies for the power sector.
Furthermore, the survey observed that despite relatively low tax levels, tax gaps in Pakistan are moderate, particularly when measured as a share of current tax revenues rather than a share of GDP. This suggests that better tax policies and administration alone may not be sufficient to address the significant development financing gaps in low-tax countries. The survey recommends broader improvements in socioeconomic development and public governance, along with tax revenue enhancement on a larger scale.
Highlighting the urgent need for affordable and long-term financing for developing countries in the Asia-Pacific region, the survey suggests that governments are facing difficult choices between servicing debt in a high-interest rate environment and investing in crucial sectors like education, health, and social protection. To address this challenge, the survey proposes new perspectives and approaches, such as prioritizing development financing needs over political interests, enhancing lending capacities of multilateral development banks through fresh capital injections, and encouraging credit rating agencies to adopt a long-term perspective that recognizes the positive fiscal impact of public investments.
While Pakistan and other developing countries in the Asia-Pacific region face significant economic challenges, there are opportunities for progress through strategic policy interventions and international cooperation. By addressing the identified challenges and implementing the proposed recommendations, these countries can work towards achieving sustainable economic development and improving the well-being of their citizens.
The survey also advocated for bolstering public revenue collection, noting that this measure would not only help narrow the “tax gap” but also mitigate fiscal risks and reduce borrowing costs. Additionally, the survey highlighted the potential of implementing policies aimed at increasing society’s willingness to pay taxes, which remains largely untapped. Similarly, it emphasized the necessity for more developed capital markets to mobilize significant domestic savings in the region and facilitate the provision of long-term capital for investments in the Sustainable Development Goals (SDGs).
UN Secretary-General Antonio Guterres, quoted in the report, lamented the challenges faced by governments of developing countries across Asia and the Pacific, characterizing them as victims of an unjust, outdated, and dysfunctional global financial architecture. He expressed concern about widening income inequality in the region, citing declining real national minimum wages in several countries, which further exacerbates the difficulties faced by lower-income groups in coping with weak job opportunities and high food prices.
UN-ESCAP Executive Secretary Armida Salsiah Alisjahbana stressed the importance of dispelling the misconception that higher public debt levels inevitably lead to higher debt distress. She underscored the benefits of strategically deploying public debt to invest in the SDGs, highlighting its potential to contribute to lowering public debt as a percentage of gross domestic product over the long term.
The survey revealed a pickup in average economic growth in the developing Asia-Pacific region, rising from 3.5 percent in 2022 to 4.8 percent in 2023, although this rebound was concentrated in a few large countries. However, it projected relatively steady GDP growth in the region, albeit below the pre-pandemic trend, at 4.4 percent in both 2024 and 2025.
Furthermore, the survey identified uncertain inflation and interest rate trends, escalating geopolitical tensions, and trade fragmentation as examples of economic headwinds faced by the region’s economies. These challenges underscore the importance of implementing strategic policy measures and fostering international cooperation to address them and promote sustainable economic development in the Asia-Pacific region.
While a robust and equitable taxation system and efficient public spending should continue to serve as the foundation for funding essential public investments, governments will inevitably need to borrow to meet the substantial investment requirements for sustainable development. In the Asia-Pacific region, the proportion of external public debt owed to official creditors has decreased from 54 percent in 2010 to 35 percent in 2022. Consequently, private creditors, particularly bondholders, have emerged as the primary creditors for countries in the region, as indicated by the survey.
The survey contended that strengthening tax revenue collection and bolstering domestic savings are especially vital. The developing Asia-Pacific region has made significant strides in mobilizing tax revenue, with the average tax-to-GDP ratio rising from 13 percent in 2001 to 17.8 percent in 2011 before moderating to 15.7 percent in 2021 amid the pandemic, according to the survey’s findings.
In conclusion, the 2024 survey underscores the critical importance of strengthening tax revenue collection, boosting domestic savings, and leveraging private investments to advance sustainable development goals in the Asia-Pacific region. By aligning macroeconomic policies with long-term development objectives and fostering international cooperation, governments can navigate the challenges posed by evolving economic dynamics while advancing inclusive and resilient growth. Through concerted efforts and strategic investments, the region can embark on a path towards sustainable and equitable development, ensuring prosperity for present and future generations.