Poverty and inequality

The release of the Household Integrated Economic Survey and Pakistan Social and Living Standards Measurement data presents a clearer picture of poverty and economic distress in Pakistan. This data has appeared after a gap of nearly six years, during which several important events and shocks took place.

In 2018-19, the country had to go through a painful macroeconomic adjustment to counteract the yawning current account deficit left behind by the then departing PML-N government. Between 2020 and 2021, the global economy faced massive contraction on account of the Covid-19 pandemic. The expansionary policies designed to mitigate this contraction then led to increased inflation and monetary tightening the world over, which dried up dollar liquidity and raised commodity prices.

During this cycle, the PTI government pursued ill-advised growth via the expansion of domestic consumption, which once again increased imports and reintroduced another balance-of-payments crisis. That crisis, coupled with the global oil price shock, sent Pakistan into its worst inflationary period in decades; it took an extraordinarily painful stabilisation period to tame the cost spiral, though at the cost of growth and any notion of increased prosperity. This precarious stability is threatened once more by regional geopolitical events.

Given the frequency of shocks — self-inflicted and external/global in nature — and the painful adjustments needed to fight them off, it is little surprise that poverty rates have gone up in the country. The government’s own poverty estimates narrate an increase of seven per cent between 2018-19 (21.8pc) and 2024-25 (28.9). Rural areas were impacted more, reporting an 8pc increase, compared to 6pc for urban areas.

We’re stuck in a doom-loop of low growth, recurrent stabilisation, and half-hearted attempts at poverty alleviation.

Likely for the first time ever on record, average household inflation-adjusted incomes and consumption actually fell during two successive survey cycles. In real terms, households on average are both earning less and consuming less than six years ago. Stretch that back to 10 years, and the numbers remain flat. In other words, Pakistan has witnessed a lost decade in both incomes and consumption.

On its own, this story is distressing enough. For a country of 250 million with a young and large labour force, enhancing shared prosperity should be the central plan of economic policymaking. Instead, we’re stuck in a doom-loop of low growth, recurrent stabilisation, and half-hearted attempts at poverty alleviation.

But what makes it worse is that there is a creeping inequality story that is becoming more apparent via data and anecdotes.

By now, it is clear that the story of the past decade is of economic slowdown interspersed with outright stagnation. The recently released survey data adds the increase in poverty to this story too. But what about the fact that growth has actually not been zero during this time? The average annual growth rate from the past six years is around 3pc. And yet poverty has gone up during this time.

As my colleague Dr Ali Hasanain and several others have noted, these two parallel trends (low but positive average growth and increased poverty) show that the benefits of even anaemic growth are being accrued to a narrower sliver of the population.

If the gain from all economic growth was distributed equitably, we would not see a real-term decline in average incomes or consumption and an increase in the poverty rate (using a fixed threshold). Breaking the income and consumption data by quintile predictably shows that the lowest quintiles have seen greater erosion compared to the upper ones. However, it’s the missing top 10pc or so that is likely benefiting from the growth that has taken place.

In large-scale consumption and income surveys, it is standard practice to assume that the top 10pc of the distribution is unlikely to be captured by standard sampling frames. These are richer households in smaller elite communities that are both a very small fraction of the overall urban landscape and are less likely to entertain door-to-door survey requests.

Given the absence of these households from the data, we don’t know what the impact of the past six years (or the past 10) has been on their incomes and consumption patterns. For those at the very top (the top 1pc to 5pc), there may have been a slowdown in income and consumption growth, but probably not an absolute decline.

The basis for this speculative assessment is the classic distinction between asset-owning households and non-asset owning households. Keeping farmland, livestock, and personal residence aside, most Pakistanis are asset poor. They especially do not have access to assets that can be used to generate rents, profits, dividends, or any other form of capital income.

During periods of high inflation (especially coupled with devolution), asset owners may see a temporary erosion in the real value of their assets, but this is often mitigated by the rise in interest rates, which ultimately benefit net savers.

Think about some of the other steps taken by governments in the recent past. Concessional finance for employers is a direct subsidy to owners of capital. The real estate amnesty scheme/package from 2021 helped spur growth in the construction sector but it had the (likely intended) effect of raising land values of urban residential and commercial real estate, owned by a small sliver of the population. Even shocks are experienced differently — higher energy prices have been offset by high-income households through access to low-tax solar products and now new energy vehicles.

In recent months, various forms of conspicuous consumption in big urban centres — expensive real estate, leisure opportunities, coffee shops and restaurants — provide anecdotal evidence of an increasingly bifurcated economy. Combined with the statistical picture shared earlier, prognosis of a k-shaped economy might seem speculative right now, but the signs are all pointing in that direction.

The writer teaches politics and sociology at Lums.

X: @umairjav

Published in Dawn, July 20th, 2026 ...