Why Pakistan’s bid to curb its soaring poverty rate came to ‘troubling halt’ after early gains

Pakistan had dramatically reduced poverty from 64.3 percent in 2001 to 21.9 percent in 2018, but Covid-19, floods, inflation, economic and political instability have reversed gains.

According to a World Bank report, Pakistan’s once-promising poverty reduction trajectory has come to a 'troubling halt' | Akhtar Soomro | Reuters

New Delhi: Pakistan’s once-promising poverty reduction trajectory has come to a “troubling halt” with the poverty rate rising by 7 percentage points between 2021-2022 and 2023-2024 to reach 25.3 percent, the latest World Bank report has said.

According to the report titled ‘Reclaiming Momentum Towards Poverty—Pakistan’s Poverty, and Resilience Assessment‘ released Tuesday, Pakistan had dramatically reduced poverty from 64.3 percent in 2001 to 21.9 percent in 2018—declining by 3 percentage points annually until 2015, before slowing to less than 1 percentage point per year.

But the impact of Covid-19, devastating floods, high inflation, economic and political instability have left the country vulnerable, and unable to cope with macro challenges, pushing poverty rates back up to a projected 25.3 percent by 2023-24, reversing “years of hard-fought gains”, the report said.

The report attributed this trend to “deep-rooted inequalities of opportunity, political instability, elite capture, and vulnerability to climate risks”.

The report further stated that “the economic model that delivered early wins has reached its limits, with 14 percent of the population in 2018 remaining vulnerable to falling back into poverty when faced with shocks.”

The observed progress in poverty reduction is largely accounted for by the expansion of male off-farm economic opportunities in the informal sector and the increase in out-migration and associated remittances, with non-farm labour income being the primary driver, the report added.

Source: The World Bank’s report ‘Reclaiming Momentum Towards Poverty—Pakistan’s Poverty, and Resilience Assessment’

The Pakistan government is facing criticism over the report. Omar Ayub Khan, Leader of the Opposition and ex-secretary general of PTI has said that the report is an “indictment against the PDM and the hybrid regime of Shahbaz Sharif & Co”.

Posting on social media platform X, Khan said, “…. This report exposes the daily lies the Hybrid Regime spews out. 25.3% of Pakistan’s people are living below the poverty line. That translates to almost 55 million people!!! Poverty increase to 25.3%, unemployment at +24%, Almost zero GDP growth, skyrocketing inflation, rampant corruption, throttled media, 4.5 million people have left Pakistan and non existent rule of law all indicate that the people of Pakistan are suffering whilst the corrupt ruling Hybrid Regime has declared that Rs 366,000 Billion (Rs 366 Trillion) misappropriation is just a ‘typo error’!! This Hybrid Regime has crushed the people of Pakistan.”

The World Bank report also said that the early decline in poverty was mainly driven by higher incomes from informal labour markets—providing over 95 percent of the jobs for those at the bottom of the distribution—and labour movements from low-productivity agriculture to low-quality services and construction.

“However, low productivity across sectors limits income benefits for those remaining in agriculture and those who moved out, stalling income growth. In fact, real wage growth in sectors employing the poor remained minimal at just 2-3 percent between 2011 and 2021, making the poor ill-equipped to convert economic growth into income-generating opportunities,” the report said.

Apart from economic slowdown, the report also highlighted Pakistan’s poor performance on various social indicators like education and sanitation services. Nearly 75 percent of primary school children in Pakistan cannot read or understand a simple story, while 31 percent of households lack sanitation facilities to manage human waste.

‘Bold reforms needed’

To come out of the deep hole that Pakistan has dug for itself, the World Bank has suggested undertaking bold reforms to ensure macro-fiscal stability and private sector participation to drive long-term prosperity.

“Bold policy reforms are now essential to address structural imbalances, prevent sliding back into poverty during shocks, and tackle the persistent challenges in remote areas,” the report states.

The World Bank has recommended the need for strategic investments in human capital and public services while also strengthening local governance by increasing transparency through enhanced digitisation.

To ensure long-term success, the World Bank advises Pakistan to prioritise fiscal interventions for the bottom 40 percent households despite limited availability of funds.

According to the bank, this can be done by “balancing optimal tax policy to promote growth while reducing the burden on the poorest segments of society, enhancing municipal financing mechanisms, and eliminating inefficient subsidies that disproportionately benefit wealthier households.”

Pakistan’s poverty situation is linked to its slow and uneven economic growth. The real per capita GDP grew at just 2 percent annually over the last two decades, less than half the regional average.

According to the report, Pakistan’s economic growth model is more consumption driven rather than being supported by investments (private and foreign) and trade (exports/imports). This results in persistent fiscal deficits and rising public debt which reached 78 percent of GDP in 2022.

(Edited by Viny Mishra)