Pakistan’s Rising Poverty Crisis: Poverty, Policy & Pakistan’s Development Dilemma

Written By: Ms. Sana Pasha

“Pakistan now officially has the 21 years’ highest unemployment rate of 7.1%, the highest poverty rate in 11 years, and the highest inequality in 27 years.” — Preliminary Poverty Estimation Report (2024–25)

Poverty remains one of the most pressing socioeconomic challenges facing Pakistan. It is a multidimensional phenomenon encompassing income deprivation, lack of access to quality education and healthcare, vulnerability to economic shocks, and social exclusion. For nearly two decades, Pakistan achieved steady progress in reducing poverty, with rates falling from 64.3% in 2001 to 21.9% in 2018. This reduction was largely driven by consumption-based economic growth supported by rising remittances, expansion of informal employment, and increased urban migration.

However, as indicated by the Household Integrated Economic Survey (HIES) 2024–25 results, this trend has reversed sharply, with poverty rising from 21.9% in 2018–19 to nearly 29% in 2024–25. When measured against the World Bank’s international poverty threshold for lower-middle-income countries of $4.20 per day, the proportion of Pakistanis living in poverty rises dramatically to 44.7%, representing roughly 108 million people, according to the World Bank’s 2025 report, Reclaiming Momentum: Towards Prosperity.

The multidimensional nature of poverty in Pakistan is further highlighted by the UNDP’s 2025 Global Multidimensional Poverty Index Report, which notes that almost half of all multidimensionally poor people globally—approximately 518 million—reside in just six middle-income countries, including Bangladesh, China, India, Nigeria, Pakistan, and the United Republic of Tanzania.

Determinants of Pakistan’s Rising Poverty

The Poverty Estimation Report reveals one of the steepest short-term rises in poverty, reflecting a broad-based decline in real consumption, particularly among lower-income households. The current surge is rooted in macroeconomic disruptions, including high inflation, exchange-rate depreciation, and fiscal tightening.

Governance and Policy Inconsistency

Poor governance remains a major underlying driver of poverty in Pakistan. It increases socioeconomic vulnerability while weakening business confidence, investment, and economic growth. Frequent changes in fiscal and monetary policy, weak tax administration, and politicization of social safety programmes have further reduced policy effectiveness.

Fiscal deficits crowd out investment in human development and infrastructure, while limited administrative capacity reduces the efficiency of programmes such as the Benazir Income Support Programme (BISP) and Ehsaas. Households outside formal systems, including informal settlers and rural transient populations, are particularly vulnerable to exclusion.

Economic Slowdown and Inflation

Macroeconomic instability and persistent inflation have significantly contributed to rising poverty. Pakistan has experienced limited real economic expansion since 2019, while inflation has sharply increased. Repeated balance-of-payments crises, currency depreciation, and rising prices have eroded household purchasing power, particularly among low-income groups.

When food, fuel, and electricity prices rise rapidly, poorer households must devote a larger proportion of their income to essential consumption, leaving fewer resources for healthcare, education, and savings. This erosion of real income pushes vulnerable families further below the poverty line.

Decline in Real Household Consumption

The latest HIES results indicate a marked decline in real household consumption among lower-income groups. Real household incomes are estimated to be approximately 10–13% below 2015–16 levels, with the steepest deterioration among the bottom income quintiles.

Persistent food inflation has forced poorer households to allocate more income to basic necessities while reducing expenditure on education and healthcare. This indicates not only an increase in the poverty headcount but also a deepening intensity of poverty.

Human Capital Constraints

Pakistan’s human development indicators remain among the weakest in South Asia. Millions of children remain out of school, healthcare access is limited, and child malnutrition continues to constrain development. According to the Republic Policy report, nearly 40% of children are stunted and 25% are out of school.

These deficits directly affect productivity and economic competitiveness, reflecting Becker and Schultz’s Human Capital Theory, which emphasizes that investment in health and education enhances productivity and reduces poverty over the long term. Weak education and limited technical skills contribute to low productivity, restricted income growth, and intergenerational poverty.

COVID-19 and Flood Shocks

The COVID-19 pandemic weakened household resilience by disrupting employment, income, and access to essential services. The World Bank estimates that poverty rose to approximately 24.7% by 2020–21. Subsequent global commodity shocks, rupee depreciation, and the devastating 2022 floods intensified these pressures.

World Bank analysis suggests that the floods alone pushed an additional 13 million people into poverty, raising the projected poverty rate to approximately 25.3% by FY2023–24. With depleted savings and weakened coping mechanisms, vulnerable households became increasingly unable to absorb further economic and environmental shocks.

Ramifications of Growing Poverty

Economic Consequences

Rising poverty is constraining Pakistan’s economic development. The national poverty rate increased from approximately 22% in FY2018–19 to 29% in FY2024–25, reversing years of progress. Real household income, adjusted for inflation, is also approximately 13% below its FY2015–16 level.

Weak purchasing power suppresses domestic demand, discourages private investment, and slows industrial expansion. Poverty also pushes workers towards informal and low-income employment, while unemployment reached 7.1% in FY2024–25.

Social Instability

Persistent poverty intensifies socioeconomic and political tensions. Economic hardship and inequality can increase frustration, crime, and civil unrest. Rural-to-urban migration also places growing pressure on housing, sanitation, infrastructure, healthcare, and employment in major cities.

The Pakistan Panel Household Survey (PPHS) 2024 indicates that food insecurity affects more than 60% of households, further intensifying public dissatisfaction and socioeconomic vulnerability.

Environmental and Climate Vulnerability

Poverty significantly increases household vulnerability to environmental and climate-related risks. Poor families are often forced to live in floodplains, drought-affected regions, and vulnerable urban settlements where exposure to floods, heatwaves, and other climate hazards is greater.

Pakistan’s repeated exposure to extreme weather reinforces this poverty-climate nexus. The Climate Risk Index 1995–2024 analysis places Pakistan among countries repeatedly affected by climate-related catastrophes, with poorer households disproportionately bearing the consequences.

Government Initiatives to Eradicate Poverty

Pakistan has developed a broad social protection and poverty-alleviation framework under the Ministry of Poverty Alleviation and Social Safety (PASS). Federal programmes use the National Socio-Economic Registry (NSER) to improve beneficiary targeting.

The social protection system relies heavily on cash transfers and subsidies through the Ehsaas/BISP framework. Benazir Kafaalat provides cash assistance to women-led poor households, while Benazir Nashonuma addresses maternal and child nutrition and Benazir Taleemi Wazaif provides education stipends. Other initiatives include interest-free loans, youth financing schemes, Sehat Card health insurance, and various provincial programmes.

Implementation Challenges and Effectiveness

Targeting and Coverage Gaps

Although the NSER has improved beneficiary identification, inclusion and exclusion errors persist, particularly among remote, informal, and transient populations. Delays in updating household information also weaken the responsiveness of assistance programmes.

Fiscal and Institutional Constraints

Social protection spending remains below 2% of GDP, limiting the depth of the system. Within programmes such as BISP, the overwhelming share of expenditure goes towards direct transfers, leaving limited administrative resources for institutional development and delivery capacity.

Fragmentation of Delivery Systems

Poverty-alleviation initiatives are distributed across federal, provincial, and donor-funded institutions. Weak coordination among these actors creates risks of duplication, inefficiency, and uneven coverage.

Macroeconomic Vulnerability

Inflation, currency depreciation, economic instability, and climate disasters repeatedly undermine the real value of social protection. Cash assistance may prevent immediate hunger or school dropout, but households near eligibility thresholds remain highly vulnerable to falling into poverty.

Limited Impact on Poverty Levels

Cash-transfer programmes provide essential relief but cannot substitute for economic growth and employment generation. Most interventions function primarily as consumption support rather than instruments of structural transformation. Without job creation, price stability, and productivity growth, sustainable exits from poverty remain limited.

Policy Recommendations and Way Forward

Prioritizing Inclusive Economic Growth

Sustainable poverty eradication requires robust and inclusive economic growth. Pakistan must strengthen institutions, improve governance, maintain macroeconomic stability, and create an environment conducive to domestic and foreign investment. Consistent economic expansion remains one of the strongest mechanisms for lifting large sections of society out of poverty.

Strengthening Financial Inclusion through Productive Opportunities

Poverty policy should gradually shift from short-term relief towards sustainable income generation. Expanding access to microcredit, savings facilities, and small-business financing can enable vulnerable households to undertake productive economic activities. Financial inclusion should be complemented by financial literacy and entrepreneurship training.

Integrating Climate Resilience into Poverty Alleviation

Climate resilience must become an integral component of poverty policy. Because many low-income households depend on climate-sensitive sectors such as agriculture, Pakistan should promote climate-smart agriculture through crop insurance, green financing, resilient crops, and other mechanisms that reduce vulnerability to environmental shocks.

Promoting Education and Skills Development for Employment

Long-term poverty alleviation depends heavily on human capital development. Pakistan must expand access to quality education, particularly for girls and marginalized communities, while aligning vocational and technical training with labour-market requirements. A more skilled workforce can access better-paying employment and contribute to national productivity.

Addressing Population Growth and Enhancing Human Development

Rapid population growth places immense pressure on Pakistan’s limited resources and public services. Greater investment in family planning, maternal healthcare, education, and essential services is therefore necessary. Stabilizing population growth while strengthening human development can prevent economic gains from being diluted by rapidly expanding demographic pressures.

Conclusion

The Poverty Estimation 2024–25 findings indicate a sharp reversal in Pakistan’s poverty-reduction trajectory, driven primarily by inflation, declining real incomes, macroeconomic instability, and deeper structural weaknesses. Weak growth-employment linkages, human capital deficiencies, climate vulnerability, and limitations in social protection continue to reinforce the crisis.

While programmes such as BISP provide essential short-term relief, sustainable poverty reduction requires a broader development strategy combining macroeconomic stability, inclusive growth, employment generation, effective social protection, climate resilience, and sustained investment in human capital. Pakistan’s development challenge is therefore not simply to alleviate poverty but to build the economic and institutional foundations that allow vulnerable households to permanently escape it.