Zafar Iqbal
The latest World Bank report titled Poverty Projections for Pakistan paints a bleak picture of the country’s economic future. It notes that poverty rates are expected to rise to 25.3% in 2024, marking a staggering 7 percentage point increase from the previous year. This alarming surge is expected to push an additional 13 million people into poverty, with the poorest households experiencing disproportionately higher welfare losses. According to the report, these households will be pushed deeper into poverty, further exacerbating the nation’s existing economic woes.
One of the key criticisms of the World Bank’s report is the lack of reliable data. The absence of a recent household survey has led the Bank to rely on a micro-simulation tool that combined data from the Pakistan Bureau of Statistics’ most recent national household survey, the first-ever digital census of 2023. This tool, while based on the best available information, uses estimates to generate its projections. The World Bank also relied on high-frequency macroeconomic indicators, such as changes in labor markets, inflation, social transfers, and remittances, to model household consumption. However, this projection does little to address the issue of data reliability, a concern also raised by the International Monetary Fund (IMF) in its ongoing assessments of Pakistan’s economic situation.
The IMF’s recent staff report, published on October 10, 2024, highlighted significant data gaps in key sectors, which accounts for about a third of Pakistan’s GDP. These shortcomings in data, particularly regarding Government Finance Statistics (GFS), make it difficult to accurately assess the country’s economic performance. Pakistan’s authorities have acknowledged these data limitations and requested technical assistance from the IMF to improve fiscal reporting and ensure compliance with international standards.
Despite these technical shortcomings, there is no doubt that poverty in Pakistan is at critical levels. In fact, the World Bank’s previous report predicted that by 2024, 40.5% of the population would be living in lower-middle income poverty, defined as those earning less than $3.65 per day (adjusted for 2017 purchasing power parity). This is an alarming statistic, and the most recent World Bank report underscores this dire reality. The forecast for 2024 has now seen a 10.4 million increase in the number of people falling below the poverty line, compared to previous projections.
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This rapid rise in poverty levels is a major cause for concern and should silence any claims made by various stakeholders, including caretaker governments, about an improving economy or a sustained quality of life for Pakistan’s citizens. The facts presented by the World Bank’s latest projections highlight the urgent need for the country’s leadership to reconsider their economic policies and priorities. Instead of focusing on economic growth figures, which may mask the true extent of societal suffering, the government must shift its attention to improving the general quality of life for ordinary Pakistanis.
One of the most critical steps that could be taken to address this issue is to increase the budget allocation for social safety programs, such as the Benazir Income Support Programme (BISP). With millions falling below the poverty line, BISP’s funding must be significantly increased to support those most affected by the economic downturn. Experts suggest an additional 200 billion rupees in funding to accommodate the increasing number of impoverished households. However, this cannot be achieved through further borrowing, either domestically or internationally. Borrowing would increase the money supply without corresponding growth in output, thereby further fueling inflation and worsening the situation for the poorest citizens. It is crucial that resources be raised by cutting down on current expenditures and focusing on long-term fiscal responsibility.
Furthermore, the government must address the broader structural issues that have perpetuated poverty in Pakistan. It is clear that policies which were in place during previous administrations continue to have an adverse impact on the country’s socioeconomic landscape. These policies have passed the burden of poor sectoral performance, particularly in utilities and state-owned enterprises, onto the taxpayers. Pakistan’s reliance on indirect taxes for 75 to 80% of its revenue sources only exacerbates inequality. The poorest segments of society end up paying a disproportionate share of the tax burden, while the elite continue to benefit from a system of resource capture that ensures that they are not contributing their fair share.
It is also concerning that, despite periodic threats and notices aimed at rich tax evaders, the government continues to fall short of its revenue collection targets. As per the IMF’s agreement, the revenue shortfall for the first half of the year was a staggering 386 billion rupees. The focus on addressing tax evasion is commendable, but without a significant overhaul of Pakistan’s tax policies, these efforts will remain largely ineffective. The government must ensure that the wealthiest individuals and corporations contribute more to the nation’s finances, rather than relying primarily on the middle and lower-income populations to bear the brunt of tax collection.
The lack of structural reforms and continued reliance on outdated, regressive policies are contributing to widespread public dissatisfaction. There is a growing sense of frustration among Pakistan’s citizens, particularly those living on the margins of society. They are the primary source of government revenue but the least likely to benefit from government expenditure. If this inequality persists, it will only serve to deepen public discontent and contribute to greater social instability.
What Pakistan needs now is a comprehensive approach to economic reform—one that addresses the root causes of poverty, promotes fiscal accountability, and prioritizes the welfare of its citizens. This includes not only social safety nets like BISP but also structural reforms that enhance tax collection efficiency, reduce reliance on indirect taxes, and ensure that government spending is directed toward initiatives that directly benefit the country’s poorest.
Pakistan must also take a long, hard look at its state-owned enterprises and utilities, which have long been riddled with inefficiencies, corruption, and financial mismanagement. These entities should be restructured or privatized to ensure that they become financially viable and contribute to the economy, rather than draining state resources. Similarly, there needs to be a complete overhaul of the welfare system, so that resources are allocated where they are most needed, ensuring that public funds go directly to improving the lives of those affected by poverty.
In conclusion, the World Bank’s report on poverty projections for Pakistan is a stark reminder of the country’s growing economic challenges. With poverty rates set to increase, the government must act decisively to improve living conditions for its citizens and address the structural issues that have exacerbated inequality. Only through comprehensive economic reforms and a focus on social welfare programs can Pakistan hope to break free from the cycle of poverty and inequality that has plagued the nation for far too long.
