ADB recommends targeted subsidies and tax reforms for Pakistan’s economic recovery

The Asian Development Bank (ADB) has recommended that Pakistan implement targeted subsidies to alleviate inflationary pressures and improve the tax-to-GDP ratio in order to emerge from the current state of economic uncertainty.

Yevgeniy Zhukov, Director General of the Central and West Asia Department, and Yong Ye, Country Director of the Pakistan Resident Mission, emphasised the significance of targeted subsidies to help the most vulnerable segments of society, as well as the mobilization of domestic resources to bolster the national economy. They also suggested strengthening the Benazir Income Support Programme (BISP) and improving its verification process to ensure that the assistance reaches only those who require it.

Zhukov noted that the ADB has been providing financial assistance to the government to strengthen social security through the BISP programme since 2016. The ADB has provided $600 million in conditional cash transfers for health and education since 2021, and an additional $1.5 billion under the Countercyclical Support Facility.

A significant portion of this funding will be directed to the BISP to provide necessary assistance to those most affected by ongoing difficulties. Zhukov further suggested that Pakistan should improve its revenue collection, as its tax-to-GDP ratio of 10 per cent is one of the lowest in the region. He cautioned that if the government is only collecting 10 per cent, it may not have adequate resources to provide support and boost income.

Yong Ye indicated that the ADB, World Bank, European Union, and United Nations had pledged assistance to Pakistan after devastating floods last year, and a second meeting of the Geneva conference was scheduled to take place soon to discuss progress. Zhukov expressed sympathies for flood victims and stated that the ADB had approved a $1.5 billion programme for Pakistan before the floods to address the negative impact of the Russia-Ukraine war on the country’s economy, which was then repurposed to provide social protection for the flood-affected people.

The ADB has approved additional emergency assistance, including a $175 million loan and $5 million in grants, to rehabilitate damaged infrastructure and develop a stronger infrastructure that can withstand future floods. The bank is working with Pakistan and other partners, such as the International Monetary Fund and the World Bank, to introduce important structural reforms in public finance management, domestic resource mobilization, and energy sector reforms. The ADB is committed to collaborating with its partners and the Pakistani government to ensure that the reform agenda is advanced.