Pakistan stands at a critical juncture, facing profound economic and social challenges that demand urgent attention and decisive action. The World Bank’s $20 billion framework aims to address these pressing issues, laying a foundation for sustainable growth and resilience over the next decade.

With a focus on education, health, climate adaptation, and economic reform, this ambitious initiative seeks to revitalize Pakistan’s stagnant growth model, combat poverty, and unlock the nation’s vast potential. Yet, the road ahead is fraught with political, fiscal, and security hurdles that will test the resilience of both governance and development strategies.

Pakistan’s economic trajectory is anticipated to ascend modestly, with growth forecasted to touch 2.8% in the fiscal year 2024-25 and edge up to 3.2% in 2025-26, as outlined in the World Bank’s latest “Global Economic Prospects.” These revised figures represent an upward adjustment of 0.5 percentage points for both fiscal years compared to earlier projections issued in June. The enhanced outlook is attributed to diminishing inflationary pressures, a development poised to rejuvenate industrial activity and bolster confidence among investors and businesses alike.

Nevertheless, the World Bank underscored that restrictive fiscal and monetary measures are expected to suppress growth below its potential threshold in the short-to-medium term. The institution approximates that Pakistan’s economy expanded by 2.5% in FY24 (spanning July 2023 to June 2024), reversing a period of contraction. This recovery has been fueled by a resurgence in the agricultural sector, underpinned by favorable meteorological conditions, and an industrial rebound following the relaxation of import constraints and the stabilization of political dynamics post-general elections in February.

August 2024 witnessed a significant milestone, as inflation subsided to single-digit levels for the first time since late 2021, driven largely by stringent fiscal and monetary policies. This downward trajectory in inflation incentivized the central bank to initiate policy rate reductions, further alleviating inflationary strains. Examining broader regional patterns, South Asia’s growth—excluding India—accelerated to 3.9% in 2024, up from 3% in 2023, spurred by economic recoveries in Pakistan and Sri Lanka. Despite these gains, the report flags sluggish per capita income growth in Bangladesh, Pakistan, and Sri Lanka, which remains below pre-pandemic benchmarks. This tepid income growth jeopardizes poverty alleviation efforts and delays economic convergence with higher-income nations. Food insecurity persists as a grave concern, particularly in Pakistan, where hunger levels, though slightly moderated, remain significantly elevated compared to a decade prior to the pandemic.

The World Bank cautioned against the repercussions of deferred policy reforms, particularly those tied to IMF-supported programs. In countries like Pakistan, the Maldives, and Sri Lanka, delays could undermine investor confidence, prompt capital flight, and exacerbate fiscal vulnerabilities. A lack of fiscal prudence could escalate borrowing costs for both the public and private sectors, thereby discouraging private investment and dampening economic momentum.

While fiscal realignments are expected to stabilize deficits across South Asia, the report warns that Pakistan’s burgeoning interest payments and Bangladesh’s substantial infrastructure expenditures could neutralize these improvements, perpetuating fiscal strain.

In a significant development, the World Bank’s board sanctioned a $20 billion lending package for Pakistan. However, the accompanying framework document highlights formidable challenges in implementation, primarily due to political divisions and an escalating security crisis in Balochistan and Khyber-Pakhtunkhwa provinces. The Country Partnership Framework (CPF) for 2025-2035 designates these factors as “critical” risks to the successful deployment of the financial package.

Unveiled following its endorsement by the World Bank Group’s Executive Directors, the CPF aspires to uplift Pakistan’s economic landscape over the next decade. The $20 billion initiative targets a reduction in educational poverty, enhancements in public health, and heightened resilience against climate-induced adversities.

Before ratifying this ambitious plan, the World Bank projected that by 2029, Pakistan would achieve a modest 3.8% economic growth rate, contend with a fiscal deficit amounting to 6% of GDP, and maintain a debt-to-GDP ratio of 73%. Foreign direct investment was forecasted to remain at a mere 0.6% of GDP by 2029. To stimulate investment, the World Bank plans to leverage its private sector arms—the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

Of the $20 billion allocated by the World Bank, $14 billion is earmarked as concessional loans, while the remaining $6 billion will be extended at comparatively higher interest rates. This financial framework targets six pivotal outcomes: reducing learning poverty by advancing foundational education, curbing child stunting through enhanced access to clean water, sanitation, healthcare, and family planning, and fortifying resilience against floods and climate-induced catastrophes. Other priorities include bolstering food and nutrition security, promoting sustainable energy practices, improving air quality, expanding fiscal capacity, and fostering inclusive private investment with higher productivity.

The World Bank has labeled Pakistan’s current growth model unsustainable due to its reliance on public consumption, mounting debt, poor productivity, and insufficient capital accumulation. A paradigm shift toward greater investment in human capital, coupled with elevated productivity, is essential to unlock the nation’s long-term economic potential.

In its projections last year, the World Bank estimated a budget deficit of 6% of GDP by 2029—almost double the limit mandated by parliamentary legislation. Whether the combined efforts of the government and the World Bank’s $20 billion infusion will bring about substantial improvements remains uncertain. Pakistan continues to grapple with stagnating per capita income and alarming rates of child mortality, stunting, fertility, and learning poverty—issues rooted in decades of chronic underinvestment in essential public services, such as health, education, water, and sanitation. The framework identifies these areas as urgent priorities, warning of significant political risks. Heightened political tensions could lead to fiscally imprudent decisions, particularly regarding energy subsidies and tax exemptions, while misalignment between federal and provincial governments exacerbates policy inconsistencies.

The document also highlights escalating fragility in Balochistan and the former Federally Administered Tribal Areas of Khyber-Pakhtunkhwa (KP). Over the past year, violence has intensified, evolving from a low-intensity conflict to a more volatile situation. These regions are marked by the lowest levels of human development, rampant poverty, and stark economic disparities, particularly affecting women. The challenges in operating within these high-risk areas are expected to grow, necessitating conflict-sensitive approaches to address development needs through investments in basic services and institutional strengthening.

Child stunting remains a dire issue, with an average prevalence rate of 38%—among the highest globally—and exceeding 60% in the most impoverished rural districts. Educational attainment is equally concerning, with approximately 25.4 million children aged 5-16—one-third of the eligible population—out of school, the majority of whom are girls.

To combat these challenges, the World Bank envisions transformative outcomes over the next decade. It aims to deliver quality health, nutrition, and population services to 50 million individuals. Furthermore, 30 million women will gain access to modern contraceptives, and 60 million people will benefit from improved water, sanitation, and hygiene infrastructure. Educational initiatives will reach 12 million children—nearly half of those currently out of school—ensuring access to quality education. By 2035, 30 million people are projected to achieve nutritional security, and 75 million will experience enhanced climate resilience.

Decarbonization of the environment is another cornerstone of this framework. Proposed interventions aim to facilitate a sustainable transition toward lower greenhouse gas emissions, particularly within the energy sector. This will include measures to reduce air pollution by 35% annually and the generation of 10 GW of renewable energy. Additionally, the framework aspires to elevate Pakistan’s tax-to-GDP ratio to 15% within a decade, while increasing public expenditure on the nation’s bottom 50% by 60%.

The World Bank’s comprehensive framework offers Pakistan a transformative opportunity to rewrite its economic narrative. By investing in human capital, sustainable energy, and climate resilience, the country can break free from decades of stagnation and unlock pathways to prosperity. However, the success of this initiative hinges on strong governance, policy consistency, and effective coordination between federal and provincial entities. If implemented with precision and commitment, this $20 billion initiative could serve as a beacon of hope for millions, driving Pakistan toward a more equitable and sustainable future.