World Bank calls for bold rightsizing of Government to revive Pakistan’s economy

The World Bank’s Pakistan Development Update (April 2025) places government rightsizing at the heart of its reform agenda, arguing that streamlining Pakistan’s sprawling public sector is critical for economic revival and sustained poverty reduction.

Rightsizing is part of a strategy to free up fiscal space—by reducing the cost burden of salaries, pensions, and subsidies—so that more resources can be directed toward productive investments, such as infrastructure, human capital, and digital transformation.

The report emphasizes improving the effectiveness of public spending and reducing the size of the state in the economy, both of which implicitly support redirecting funds from recurrent administrative costs to development priorities.

While the report notes early signs of macroeconomic stability—easing inflation, a strengthening rupee, and a rare current account surplus—it warns that the country’s fragile recovery could falter without deep structural reforms. Chief among them: reducing the role of the state in the economy.

“Decisive measures should focus on—streamlining the public sector to signal reform intent and support short-term improvements in confidence and investment,” the report asserts. With state-owned enterprises (SOEs) draining public resources and crowding out private investment, the World Bank urges the government to push forward with its planned privatizations and restructure inefficient departments.

Under the new IMF Extended Fund Facility and the government’s own URAAN Pakistan plan—a five-year economic blueprint launched in December 2024—Pakistan has committed to rightsizing the public sector. This includes cutting redundant positions, merging overlapping departments, and digitizing government services to boost efficiency.

According to the World Bank's April 2025 Pakistan Development Update, the country's economy is projected to grow by 2.7% in the fiscal year ending June 2025. On the inflation front, consumer price inflation is projected to decline to 5.0% in FY2025.