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Pakistan’s Poverty Rate to Rise This Year After Economic Struggles and Natural Disaster

Pakistan’s poverty rate will increase from last year as the country faces economic challenges, according to data compiled by The World Bank.
The poverty level is expected to surge to 39.4 percent this year from 34.2 percent in the previous year. This five-percentage-point rise is due to a challenging macroeconomic landscape, rising food and energy prices, a decline in real GDP, and catastrophic flood aftermath.
Economic Challenges Lead to Growing Poverty

A challenging macroeconomic environment has led to a contraction in real GDP, affecting economic activity and real incomes across the nation. Record-high food and energy prices have strained household budgets, while the catastrophic impact of the 2022 floods, coupled with the absence of effective coping mechanisms, has pushed many into poverty.

Despite efforts to mitigate the crisis, increased spending on social transfers, including a 25 percent boost in cash payments under the Benazir Income Support Program and an increase in beneficiaries from 7.7 to 9 million, proved inadequate to shield the vulnerable from falling into poverty. When considering population growth, the numbers are stark, with 12.5 million more Pakistanis living below the poverty line compared to 2022.

Labor Market Challenges

Labor market incomes remain the primary source of household income, but several structural constraints hinder their growth. A persistently low labor force participation rate, particularly among women, coupled with a scarcity of high-productivity jobs and a prevalence of informal employment, has constrained income growth for households.

Anemic growth in agriculture and contractions in industry and trade sectors, which employ 80 percent of poor workers, have further reduced labor incomes. 

Food Inflation and Purchasing Power

Food inflation nearly tripled in 2022-23, reaching an average of 38.7 percent. This has significantly eroded the purchasing power of households, especially the poor, who allocate half of their budgets to food. The poorest decile of households experienced a 7 percentage-point higher inflation rate compared to the richest decile due to differing consumption patterns.

Non-Monetary Dimensions of Poverty

The 2022 floods disproportionately affected poorer districts, causing extensive damage to public and private infrastructure, including health and education centers. Over 2.6 million enrolled children suffered significant learning losses, and one-third of the population in the hardest-hit districts reported inaccessible healthcare services.

Disrupted access to improved drinking water and safe sanitation has increased the risks of stunting and malnutrition. These challenges have far-reaching implications for child development and human capital accumulation, particularly in a country where 40 percent of children under five are stunted.

Income Inequality and Spatial Disparities

While monetary inequality has remained relatively stable over the past two decades, the Gini index (measures the extent to which the distribution of income or consumption among individuals or households within an economy deviates from a perfectly equal distribution, as defined by The World Bank) is projected to reach 30.7 in 2022-23, indicating a rise in income inequality. Poorer households have been disproportionately affected by high food inflation and the devastating floods.

Furthermore, spatial disparities persist, with rural poverty rates twice as high as urban areas. District-level poverty rates vary widely, ranging from 3.9 percent in Islamabad to a staggering 71.5 percent in Khuzdar.

Data Sources and Welfare Metrics

Official national poverty rates are derived from the Household Income and Expenditure Survey (HIES) conducted by the Pakistan Bureau of Statistics (PBS). The welfare metric used to estimate poverty is consumption per adult equivalent, with a specific focus on food poverty lines and total poverty lines.

The data behind these findings are based on the South Asia Micro Database (SARMD), a regional database of socio-economic indicators established in 2014 and managed by the South Asia Regional Training and Technical Assistance Center (SARTSD). SARMD follows Global Monitoring Database (GMD) Harmonization guidelines to ensure data consistency and accuracy.

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Tags: #Pakistan #Economy #poverty #world #business #Flood #natural disaster #economic challenge


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