Pakistan’s economy slowed sharply in fiscal year 2023 with real gross domestic product (GDP) estimated to have contracted by 0.6 per cent, according to the World Bank.

In a report released on Tuesday, titled ‘Pakistan Development Update: Restoring Fiscal Sustainability’, the global body said the decline in economic activity in the country reflects the cumulation of domestic and external shocks including the floods of 2022, government restrictions on imports and capital flows, domestic political uncertainty, surging world commodity prices, and tighter global financing.

The report said the previous fiscal year ended with significant pressure on domestic prices, fiscal and external accounts and exchange rate, and loss of investor confidence.

“The difficult economic conditions along with record high energy and food prices, lower incomes, and the loss of crops and livestock due to the 2022 floods, have significantly increased poverty.”

As per the report, the poverty headcount is estimated to have reached 39.4pc in fiscal year 2023, with 12.5 million more Pakistanis falling below the lower-middle income country poverty threshold ($3.65/day 2017 per capita) relative to 34.2pc in fiscal year 2022.

“Careful economic management and deep structural reforms will be required to ensure macroeconomic stability and growth,” said World Bank Country Director for Pakistan Najy Benhassine said in the report.

He added: “With inflation at record highs, rising electricity prices, severe climate shocks, and insufficient public resources to finance human development investments and climate adaptation, it is imperative that critical reforms are undertaken to build the fiscal space and public means to invest into inclusive, sustainable, and climate-resilient development.”

Without a sharp fiscal adjustment and decisive implementation of broad-based reforms, Pakistan’s economy will remain vulnerable to domestic and external shocks.

Predicated on the robust implementation of the IMF stand-by arrangement (SBA), new external financing and continued fiscal restraint, real GDP growth is projected to recover to 1.7pc in fiscal year 2024 and 2.4 per cent in fiscal year 2025, the report added.

It said economic growth was therefore expected to remain below potential over the medium term with some improvements in investment and exports.

According to the report, limited easing of import restrictions thanks to new external inflows will widen the current account deficit in the near term and weaker currency and higher domestic energy prices will maintain inflationary pressures.

“While the primary deficit is expected to narrow as fiscal consolidation takes hold, the overall fiscal deficit will decline only marginally due to substantially higher interest payments.”

The report underlined that the economic outlook was subject to extremely high downside risks, including liquidity challenges to service debt payments, ongoing political uncertainty, and external shocks.

“These macroeconomic challenges can be addressed through comprehensive fiscal reforms of tax policy, rationalisation of public expenditure, better management of public debt, and stronger inter-government coordination on fiscal issues,” said Aroub Farooq, economist at the World Bank, and author of the report.

To regain stability and establish a base for medium-term recovery, the report recommended reforms to drastically reduce tax exemptions and broaden the tax base through higher taxes on agriculture, property and retailers; improve the quality of public expenditure by reducing distortive subsidies, improving the financial viability of the energy sector, and increasing private participation in state-owned enterprises.

The Pakistan Development Update is a counterpart to the semiannual South Asia Development Update by the World Bank. This report assesses economic developments, prospects, and policy challenges within the South Asia region, the lender said.

India has told Canada that it must repatriate 41 diplomats by October 10, the Financial Times reported on Tuesday.

Ties between New Delhi and Ottawa have become seriously strained over Canadian suspicion that Indian government agents had a role in the June murder in Canada of a Sikh separatist leader and Canadian citizen, Hardeep Singh Nijjar, who India had labelled a “terrorist”.

Nijjar, 45, was the president of Guru Nanak Sikh Gurdwara temple in Surrey, British Columbia and advocated for the creation of a Sikh state known as Khalistan.

India has dismissed the allegation as absurd.

On September 21, Trudeau called on India to cooperate with an investigation into the murder of the separatist leader in British Columbia and said Canada would not release its evidence for their claims.

India suspended new visas for Canadians and asked Ottawa to reduce its diplomatic presence in the country on the same day.

Last week, the Indian foreign minister spoke to US Secretary of State Antony Blinken and US National Security Adviser Jake Sullivan about Canadian allegations of New Delhi’s possible involvement killing of the separatist leader in Canada.

Jaishankar said that New Delhi had told Canada it was open to looking into any “specific” or “relevant” information it provides on the killing.

Trudeau, who is yet to publicly share any evidence, said he has shared the “credible allegations” with India “many weeks ago”.

The Financial Times, citing people familiar with the Indian demand, said India had threatened to revoke the diplomatic immunity of those diplomats told to leave who remained after October 10.

Canada has 62 diplomats in India and India had said that the total should be reduced by 41, the newspaper said.

The Indian and Canadian foreign ministries did not immediately respond to requests for comment.

Indian Foreign Minister Subrahmanyam Jaishankar said earlier there was a “climate of violence” and an “atmosphere of intimidation” against Indian diplomats in Canada, where the presence of Sikh separatist groups has frustrated New Delhi.

Former prime minister Imran Khan’s lawyer, Naeem Haider Panjutha, claimed on Tuesday that the PTI chief was moved to a lower class cell at the Adiala Jail last night and feared the ex-premier’s life was in danger.

Imran was shifted to Attock jail on August 5, 2023, after a court sentenced him to three years in prison in the Toshakhana case for concealing details of gifts he received as the prime minister of Pakistan.

After his sentence in the Toshakhana case was suspended by the Islamabad High Court, the government detained the ex-premier in the cipher case. He has since remained behind bars on judicial remand.

On September 26, Imran was shifted to Central Jail Adiala from District Jail Attock following IHC orders passed on a plea filed by the PTI.

Last night, the police ramped up security in the vicinity of the Adiala jail by deploying elite commandos and setting up additional security pickets to ensure foolproof measures. The decision was taken in light of recommendations by the Special Branch and relevant departments following a survey of Adiala Jail.

Talking to reporters in Islamabad today, Panjutha, spokesman to Imran on legal affairs, said Imran’s wife Bushra Bibi met the former prime minister in Adiala Jail today.

“There is danger to Imran Khan’s life,” he claimed. “Imran can be slow food poisoned … he is being mentally tortured and his movement has been restricted.”

Panjutha alleged that he had received reports last night that the PTI chief was moved to a lower class cell. “Security personnel has been stationed outside the cell and mobile phones have been taken for them,” he said, claiming that these were new ways of “breaking” Imran.

The PTI lawyer added that a petition pertaining to Imran’s conditions in jail was filed in the IHC and the application was fixed for hearing on October 5.

“There were objection [by the court] earlier that the matter has already but decided but no directions have been passed on Imran Khan’s health, which is a basic fundamental right enshrined in the Constitution,” Panjutha added.

IHC to hear Bushra Bibi’s petition seeking Imran’s protection in jail