The United Nations Economic and Social Survey of Asia and Pacific (UNESCAP) 2024 report has forecasted Pakistan’s GDP growth at 2% and inflation at 26% for the ongoing fiscal year, expecting growth to slightly increase to 2.3% in FY25, while inflation is predicted to decrease to 12.2%.
The report further said that Pakistan’s tax gap is to remain approximately 3% of its GDP, with the potential to increase to more than 12% from the current 9%.
UNESCAP mentions that although Bangladesh, Pakistan, and Sri Lanka have low tax levels, their tax gaps are considered moderate. However, these gaps appear larger when measured against current tax revenues instead of GDP.
The report suggests that enhancing tax policies and administration might not be sufficient to address the significant development financing shortfalls in these countries.
It recommends comprehensive improvements in socioeconomic development and governance, along with larger-scale tax revenue enhancement.
The Federal Board of Revenue’s (FBR) tax-to-GDP ratio is currently around 9%, based on a projected tax collection target of Rs9415 billion for this fiscal year. UNESCAP estimates this ratio could increase to 12%.
The report also notes the economic challenges faced by Pakistan, including political unrest and a major flood affecting agricultural production.
It mentions Sri Lanka’s economy contracted by 2.3% in 2023, following a 7.4% contraction in 2022.
Facing fiscal pressures, Pakistan and Sri Lanka have sought IMF assistance. Pakistan entered into an IMF agreement in mid-2023, enabling further support from countries like China, Saudi Arabia, and the United Arab Emirates.
Sri Lanka, already under an IMF program, has seen some macroeconomic stabilization in 2023, with both countries implementing fiscal adjustments to achieve fiscal sustainability.
While Bangladesh has also approached the IMF, its request was precautionary and aimed at securing additional funding before facing financial difficulties.
The report underscores that better tax strategies and management may not be the sole solution for bridging the development financing gaps in countries with low tax intake, highlighting the need for broader improvements in socioeconomic and governance aspects.
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