Islamabad: Arturo Herrera Gutierrez, Global Managing Director, World Bank, said Pakistan stands at a critical juncture where it can either pave the way for sustainable economic growth or fall into the recurring traps of debt distress.
Mr. Gutierrez delivered a public lecture as a keynote speaker on “Sustainable Fiscal Reforms: International Experiences and Applications for Pakistan” organized by the Pakistan Institute of Development Economics (PIDE) here.
Mr. Gutierrez emphasized the urgent need for sustainable fiscal reforms in Pakistan. Drawing on international experience, he emphasized the importance of establishing a stable and sustainable debt path as a cornerstone for Pakistan's economic future. He drew a parallel in the historical context of the economic problems faced by countries like Mexico in the 1980s and how those experiences shaped today's fiscal strategies. In addition, Mr. Gutierrez outlined the need for strong macroeconomic frameworks, robust debt management practices and the creation of institutional arrangements to ensure discipline in fiscal policy. He emphasized that ensuring fiscal sustainability requires a comprehensive long-term strategy, not just the annual balancing of budgets. These measures are critical to building credibility and ensuring access to financial markets, he said, adding that consistency over time is needed to avoid the economic problems of the past.
He highlighted the global resurgence of the debt crisis, especially after COVID-19, which called for a rethinking of approaches to fiscal sustainability. In his presentation, he mentioned countries with gross public debt problems, particularly the 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 of 168%. He stressed that this suggests that the debt-to-GDP ratio is significant, but the sustainability of fiscal finances also sends a critical market signal that affects interest rates. During the lecture, Gutierrez provided a critical perspective on sustainable fiscal policies around the world, specifically focusing on how these strategies can be adapted to the economic context of Pakistan.
In contrast, the PIDE team proposed a different perspective, arguing that Pakistan's economic woes go beyond simple accounting measures. They advocated comprehensive healing rather than superficial fixes. PIDE speakers placed growth at the center of their reform agenda, emphasizing the priority of economic expansion over mere income accumulation. They argued that the economy could flourish before additional taxes were imposed, proposing reregulation that would facilitate transactions and stimulate economic activity, ultimately leading to improved revenue generation by default.