Islamabad: Arturo Herrera Gutierrez, Global Director for Governance, World Bank, has said that Pakistan stands at a crucial juncture where it can either pave the path for sustained economic growth or fall into the recurring traps of debt distress.
Mr Gutierrez was giving a public lecture as a keynote speaker on ‘Sustainable fiscal reforms: international experience and applications for Pakistan’ hosted here by Pakistan Institute of Development Economics (PIDE).
Mr Gutierrez emphasised the urgent need for sustainable fiscal reforms in Pakistan. Drawing from international experiences, he highlighted the criticality of establishing a stable and sustainable debt path as a cornerstone for Pakistan's economic future. He drew a parallel in historical context of economic challenges faced by countries like Mexico during the 1980s and how these experiences shaped fiscal strategies today. Moreover, Mr Gutierrez outlined the necessity of strong macroeconomic frameworks, robust debt management practices and the establishment of institutional arrangements to ensure discipline in fiscal policy. He emphasised that ensuring fiscal sustainability requires a comprehensive long-term strategy, not just balancing budgets annually. These measures are critical for building credibility and securing access to financial markets, he said adding that there is need to maintain consistency over time to avoid the economic problems of the past.
He brought to the attention the concerning resurgence of debt distress globally, particularly post-COVID-19, necessitating a re-evaluation of fiscal sustainability approaches. His presentation mentioned countries with gross public debt issues notably US, Canada, Japan and Pakistan which have debt-to-GDP ratios exceeding 75%. Japan, with a debt ratio of 252% of GDP and a low interest rate of 0.88%, contrasts sharply with Greece, which faces a higher interest rate of 3.55% despite a lower debt ratio of 168%. This indicates that the debt-to-GDP ratio is significant, he pointed out, but the sustainability of fiscal finances also sends a critical signal to the market, impacting interest rates. During the lecture, Gutierrez imparted critical insights on sustainable fiscal policies across the globe, focusing specifically on how these strategies can be adapted to Pakistan’s economic context.
In contrast, the PIDE team proposed a nuanced perspective, asserting that Pakistan's economic woes transcend simple accounting measures. They advocated comprehensive healing rather than superficial fixes. Placing growth at the centre of its reform agenda, PIDE speakers emphasised prioritising economic expansion over mere revenue accumulation. They advocated allowing the economy to flourish before imposing additional taxes, suggesting a re-regulation to facilitate transactions and stimulate economic activity ultimately leading to improved revenue generation by default.