Published: 06:04 PM, 03 October 2025
Perpetuating Poverty, Poor Policies and Pakistan: An Urgent Call for Structural Reforms
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Amidst all the global geopolitical tensions, Pakistan is yet again found struggling with a typical structural issue: Poverty. Despite the massive bailout by the IMF, the situation seems to have worsened, instead of showing any faint signs of improvement. In its recent report, the World Bank has expressed its concerns over Islamabad’s growth trajectory. The current model of growth has failed to ameliorate the conditions of the poor, stalled improvements in incomes and the headcount ratio (HCR) has skyrocketed to its highest level of 25.3% in the last eight years, which is a 7 percent rise in HCR since 2023.1
In its report, “Reclaiming Momentum Towards Prosperity: Pakistan’s Poverty, Equity and Resilience Assessment”, the World Bank mentioned that its aspiring middle class (constituting 42.7 percent of its population) is “struggling to achieve full economic security”.2 When assessed using non-monetary, multi-dimensional measures, the experts find that conditions are worse, with the masses facing welfare deprivation in terms of limited access to safe sanitation, clean drinking water, affordable energy and housing. This reflects a severe lack of decent standards of living that can be achieved only through efficient provisioning of public goods by the government. Hence, the issue is structural which requires structural solutions through institutional and behavioural change, and not shoddy quick fixes via international aid.
In its report, “Reclaiming Momentum Towards Prosperity: Pakistan’s Poverty, Equity and Resilience Assessment”, the World Bank mentioned that its aspiring middle class (constituting 42.7 percent of its population) is “struggling to achieve full economic security”.2 When assessed using non-monetary, multi-dimensional measures, the experts find that conditions are worse, with the masses facing welfare deprivation in terms of limited access to safe sanitation, clean drinking water, affordable energy and housing. This reflects a severe lack of decent standards of living that can be achieved only through efficient provisioning of public goods by the government. Hence, the issue is structural which requires structural solutions through institutional and behavioural change, and not shoddy quick fixes via international aid.
Pakistan growth model lacks sustainability and resilience. As per the report, Pakistan’s early and promising phase of poverty reduction has not just come to a halt but also reversing years of poverty reduction gains. One needs to pay attention to the report’s claim that, “The growth model that supported initial poverty reduction has proven insufficient to sustain progress”.
Let’s revise some quick facts first. The macroeconomic shocks and economic crisis in 2022-23, climatic and health shocks including floods and Covid in 2022, along with perennial sticky structural bottlenecks like corruption, inflation, political instability, patronage politics, and elite capture have successfully worked to push and keep a large chunk of population below poverty line. Inflationary pressures in 2022–23, driven by energy price hikes, further eroded household incomes. Let’s revise some quick facts first and then analyze what led to the worsening poverty figures.
As expected, the extent of poverty reduction is also contingent on the initial conditions. We see a clear case of disparity along the regional, sectoral and gender axes. The historically disadvantaged and deprived provinces like Baluchistan face greater exacerbation of poverty, with the rise of HCR by 42.7 percent, while the economic center experience rise in poverty but by a lesser extent (Punjab by 16.3 percent and Sindh by 24 percent)3. However, the relatively prosperous and populated regions like Punjab also have a higher concentration of the number of poor. On the gender front, the conditions have always been suboptimal. For instance, Pakistan’s Female Labour Force Participation (FLFP) is one of the lowest (at 22 percent), even compared to its South Asian counterparts, let alone the world average4.
So, Pakistan made some quick gains in poverty reduction caused by non-agricultural income which led to consumption driven growth, which contributed to 57 percent of reduction in poverty between 2001 and 2015. Thus, one notes that the economy saw a Harris-Todaro kind of model of growth, with an episode of a rise in non-agricultural labour incomes as people moved from farm incomes to low-quality service jobs. Two issues here. First, formal employment hasn’t been created to meet the labour supply, thus leading to a low paying informal sector. Second, lack of rural development, which can be gauzed from the stylized fact of sectoral divide, with rural poverty HCR being twice than that of urban poverty in Pakistan. Thus, rural development and formal job creation which could have sustained reduction in poverty took a backseat in the policy agenda, giving way to higher defense expenditure and reduced expenditure of public goods like education and health. To give a gist of the situation, Pakistan's contribution to health sector is considered critically low, with around 2 percent of the annual budget.
Moreover, unplanned urbanization has led to issues of unemployment, overcrowding and low incomes, resulting in sub-optimal living standards. Thus, the economy experienced a short-lived rise in consumption without the initial measures concretizing into a structural transformation. Unfortunately, such growth spurt followed by a decline is not an alien path to Islamabad, rather it has emerged as a stylized pattern about its growth. Referring to a 2012 report by the World Bank5, there exists a pattern of short-lived growth acceleration in the economy and with higher average growth volatility vis-a-vis the international standards. Moreover, there has been a decreasing correlation between overall growth and agricultural growth, as well as lower rates of youth’s absorption in the labour market.
Analysing Pakistan’s economic history, one finds that the above average growth rates in the ‘60s and ‘80s coincided with episodes of reform and economic and political stability, along with foreign aid. On the other hand, political and macroeconomic instability and regional tensions with incomplete reforms, in the ‘70s and the ‘90s led to unsustainable growth and poverty reduction6. With the current situation in since 2000s, with political instability, quick fix reforms, external aid and environmental shocks, and short period of growth with eventual reversal, we find empirical evidence for the pendulum-like, non-linear growth pattern of Pakistan.
It has been pointed out, and it still holds quite firmly, that Pakistan needs to create more jobs, characterizing a shift from agriculture to industry and services which embody higher productivity by removing the impediments that constraint growth and enhance Total factor productivity7. Though the role of service sector increased in the economy, it has been limited to low productivity and low-paying jobs.
There are no shortcuts to economic development. A rise in income may occur due to patchy reforms like flukes, only to be quelled by structural asymmetries in due course. The economy needs structural reforms for growth to be sustained, period. The demand for bold, sustainable, people-centric reforms is not new; rather, it is a plea for addressing the structural inconsistencies of the bad institutions with perverse incentives and sticky behaviour. The policy actions need to transcend from normative policy suggestions resting on the glossy sheets of white papers to a positive paradigm touching the ground realities and lives of millions of poverty-stricken Pakistani aawaam. (By, Journalist Sajib Biswas & views expressed in the above piece are personal and solely those of the author.)
Let’s revise some quick facts first. The macroeconomic shocks and economic crisis in 2022-23, climatic and health shocks including floods and Covid in 2022, along with perennial sticky structural bottlenecks like corruption, inflation, political instability, patronage politics, and elite capture have successfully worked to push and keep a large chunk of population below poverty line. Inflationary pressures in 2022–23, driven by energy price hikes, further eroded household incomes. Let’s revise some quick facts first and then analyze what led to the worsening poverty figures.
As expected, the extent of poverty reduction is also contingent on the initial conditions. We see a clear case of disparity along the regional, sectoral and gender axes. The historically disadvantaged and deprived provinces like Baluchistan face greater exacerbation of poverty, with the rise of HCR by 42.7 percent, while the economic center experience rise in poverty but by a lesser extent (Punjab by 16.3 percent and Sindh by 24 percent)3. However, the relatively prosperous and populated regions like Punjab also have a higher concentration of the number of poor. On the gender front, the conditions have always been suboptimal. For instance, Pakistan’s Female Labour Force Participation (FLFP) is one of the lowest (at 22 percent), even compared to its South Asian counterparts, let alone the world average4.
So, Pakistan made some quick gains in poverty reduction caused by non-agricultural income which led to consumption driven growth, which contributed to 57 percent of reduction in poverty between 2001 and 2015. Thus, one notes that the economy saw a Harris-Todaro kind of model of growth, with an episode of a rise in non-agricultural labour incomes as people moved from farm incomes to low-quality service jobs. Two issues here. First, formal employment hasn’t been created to meet the labour supply, thus leading to a low paying informal sector. Second, lack of rural development, which can be gauzed from the stylized fact of sectoral divide, with rural poverty HCR being twice than that of urban poverty in Pakistan. Thus, rural development and formal job creation which could have sustained reduction in poverty took a backseat in the policy agenda, giving way to higher defense expenditure and reduced expenditure of public goods like education and health. To give a gist of the situation, Pakistan's contribution to health sector is considered critically low, with around 2 percent of the annual budget.
Moreover, unplanned urbanization has led to issues of unemployment, overcrowding and low incomes, resulting in sub-optimal living standards. Thus, the economy experienced a short-lived rise in consumption without the initial measures concretizing into a structural transformation. Unfortunately, such growth spurt followed by a decline is not an alien path to Islamabad, rather it has emerged as a stylized pattern about its growth. Referring to a 2012 report by the World Bank5, there exists a pattern of short-lived growth acceleration in the economy and with higher average growth volatility vis-a-vis the international standards. Moreover, there has been a decreasing correlation between overall growth and agricultural growth, as well as lower rates of youth’s absorption in the labour market.
Analysing Pakistan’s economic history, one finds that the above average growth rates in the ‘60s and ‘80s coincided with episodes of reform and economic and political stability, along with foreign aid. On the other hand, political and macroeconomic instability and regional tensions with incomplete reforms, in the ‘70s and the ‘90s led to unsustainable growth and poverty reduction6. With the current situation in since 2000s, with political instability, quick fix reforms, external aid and environmental shocks, and short period of growth with eventual reversal, we find empirical evidence for the pendulum-like, non-linear growth pattern of Pakistan.
It has been pointed out, and it still holds quite firmly, that Pakistan needs to create more jobs, characterizing a shift from agriculture to industry and services which embody higher productivity by removing the impediments that constraint growth and enhance Total factor productivity7. Though the role of service sector increased in the economy, it has been limited to low productivity and low-paying jobs.
There are no shortcuts to economic development. A rise in income may occur due to patchy reforms like flukes, only to be quelled by structural asymmetries in due course. The economy needs structural reforms for growth to be sustained, period. The demand for bold, sustainable, people-centric reforms is not new; rather, it is a plea for addressing the structural inconsistencies of the bad institutions with perverse incentives and sticky behaviour. The policy actions need to transcend from normative policy suggestions resting on the glossy sheets of white papers to a positive paradigm touching the ground realities and lives of millions of poverty-stricken Pakistani aawaam. (By, Journalist Sajib Biswas & views expressed in the above piece are personal and solely those of the author.)
