Between 2018-19 and 2024-25, Pakistan’s national poverty rate rose from 22% to 29%, according to the World Bank, the sharpest reversal since the 1990s.
Some 72.6 million Pakistanis now live below the national poverty line, around 25 million more than six years earlier. Real wages fell by around 3.4% a year over those six years, and more than half of the rise in poverty came from a worsening distribution of consumption.
The finance ministry responded by disputing the World Bank’s decision to group Pakistan with the Middle East and North Africa. That is an argument about averages, not about why Pakistan’s own poverty rate rose. Nor can the rise be blamed on Covid-19 and the 2022 floods alone. India faced the same pandemic and comparable climate shocks, yet continued to reduce extreme poverty. The difference lies in how Pakistan’s economy has been managed for three decades.
Every government since the early 1990s has followed the same script. Growth is pushed up through consumption, imports and cheap credit, financed by remittances, foreign borrowing or a geopolitical windfall. The current account deficit widens, reserves drain and the rupee comes under pressure. The government then turns to the IMF, raises interest rates, devalues the currency and cuts development spending. Growth collapses, inflation spikes and the burden falls on those least able to bear it.
In the 1990s, elected governments alternated in power and each IMF programme was abandoned midway. Official poverty rose from about 26% in 1990-91 to 34% by 2001-02. The post-9/11 boom of 2002-07, fueled by aid, debt relief and consumer credit, delivered growth of 7% but ended in the 2008 crisis and another IMF programme. The 2013-18 expansion, driven by CPEC-related imports and an overvalued rupee, ended in the 2019 Extended Fund Facility. The post-Covid stimulus of 2021-22 took growth above 6%, and was followed by the 2022-23 crisis, when inflation peaked at about 38% and the country came close to default.
Each bust erases a large share of what the preceding boom delivered. Poverty did fall substantially between 2001 and 2018, from 64% to 22% on the World Bank’s revised measure. But the gains rested on remittances, urban migration and transfers rather than on productive jobs. They left tens of millions vulnerably hovering just above the line. When inflation erodes real incomes by a third in two years, those households slip back below the poverty line. A cycle that lifts people slowly and pushes them down quickly keeps adding to the ranks of the poor and the near-poor.
Why does the cycle repeat? Because the policies that produce it serve those who shape them. The root lies in a narrow tax base. The tax-to-GDP ratio has stayed at 9-12% for three decades. Retail, real estate and agricultural income remain lightly taxed, while salaried workers, formal manufacturing and indirect taxes on consumption carry the load. A state that will not tax its wealthy borrows instead, and debt servicing now absorbs most of federal net revenue, forcing cuts in development spending in every squeeze.
We see unbridled elite capture of energy and trade policy. Power purchase agreements signed from 1994 onwards, with guaranteed dollar-indexed returns and capacity payments, produced circular debt and some of the region’s highest industrial tariffs. Tariff protection and SROs for favoured sectors make import substitution more profitable than exporting. Exchange rate management plays its own role. Governments have repeatedly defended an overvalued rupee for political reasons, burning reserves, only to devalue sharply when the forex reserves completely run out. Each devaluation feeds inflation, which hits the poor hardest.
Changes of government, often engineered, ensure institutional discontinuity, as policies are reversed and reforms abandoned midway. The 18th Amendment devolved functions to the provinces, but the provinces have not devolved resources to elected local governments. BISP has expanded, but transfers have not kept pace with inflation, and the programme remains a cushion rather than a route out of poverty. Climate shocks, from the 2010 and 2022 floods to the 2025 monsoon, deepen each bust because recovery is financed by borrowing rather than planned into budgets.
Beyond flawed fiscal and economic policies, the neglect of human capital and population is perhaps the biggest challenge for Pakistan’s sustainable economic growth. Population grew at 2.55% a year between the 2017 and 2023 censuses. Some 40% of children are stunted, and 75% cannot read a simple story by the end of primary school. Fewer than one in four women participate in the labour force.
Pakistan’s population is young, with 60% under 30. An economy growing at 3-4% cannot absorb the two million young people entering the labour market each year. A demographic dividend that is not employed becomes a demographic liability. The human capital losses are intergenerational. Stunting cannot be reversed in adulthood, and children who do not learn to read by age ten rarely catch up. Today’s deprivation shapes the workforce of the 2040s.
Skilled emigration is at record levels, draining the professional middle class that sustains institutions. Lagging districts in Balochistan, southern Punjab and rural Sindh become fertile ground for crime, militancy and provincial grievance. The legitimacy of the state erodes when citizens see no link between taxes, public services and their own prospects. And an economy that lives on rollovers and IMF tranches cannot set its own priorities.
What must be done is not new. What has been missing is the political will to impose costs on powerful constituencies. Pakistan has to break the cycle itself. A binding fiscal rule that caps the primary deficit and saves windfalls, an independent State Bank and a market-determined exchange rate would ensure that imbalances are corrected early and gradually.
What seems to be the Achilles’ heel so far is Pakistan’s inability to broaden the tax base. Retail, real estate and agricultural income must be brought into the net at rates comparable to salaried income, and provinces must enforce their agricultural income tax laws. A target of a 15% tax-to-GDP ratio within five years is achievable.
There is virtually no hope of an economic turnaround without fixing the energy sector’s black hole. Legacy power contracts need renegotiation, distribution companies should move to private or provincial management under performance contracts and cross-subsidies must go.
In tandem, Pakistan has to convert social protection from relief into resilience. BISP transfers should be indexed to inflation, coverage extended to the near-poor, and transfers linked to proactive graduation through skills, assets and financial inclusion. Anticipatory triggers built into the socioeconomic registry would ensure that support reaches households before floods and price shocks, not months after.
Additionally, Pakistan has to treat human capital and population as economic policy. That means a nutrition programme for the first 1,000 days of life in the highest-stunting districts, annual measurement of foundational literacy in every district, and implementation of the 2018 Council of Common Interests recommendations on population. Little headway is possible without empowered local governments, supported by Provincial Finance Commission awards that transfer predictable resources to elected local tiers.
Above all, Pakistan needs a Charter of Economy that binds parties and institutions beyond electoral cycles. India’s reform direction since 1991 has survived changes of government, and that consistency has mattered more than any single scheme. Pakistan does not lack plans. It lacks continuity and the willingness to make the privileged pay their share.
The writer is a sociologist with extensive work in social policy and development. He can be reached at: [email protected]
Disclaimer: The viewpoints expressed in this piece are the writer’s own and don’t necessarily reflect Geo.tv’s editorial policy.
Originally published in The News
