EDITORIAL: The World Bank report titled “Reclaiming Momentum Towards Prosperity: Pakistan’s Poverty, Equity and Resilience Assessment” concludes disturbingly that there has been an upswing in poverty levels to 25.3 percent in 2023-24 (estimated by defining the level at 3.20 dollars per day) after a dramatic reduction from 64.3 percent in 2001 to 21.9 percent in 2018.
The argument presented by the Bank is that “the economic model that delivered early wins has reached its limits, with 14 percent of the population in 2018 remaining vulnerable to falling back into poverty when faced with shocks. Compounding crises—Covid-19, economic instability, devastating floods, and record-high inflation—have further exposed systemic weaknesses, leaving many in low-productivity activities and unable to cope with these challenges.”
A more recent assessment by the World Bank estimates Pakistan’s poverty levels at 44.7 percent by using the lower middle income poverty level line at 4.20 dollars per day. The reason for rising poverty is not only due to external factors inclusive of the devastation caused by floods but also due to incomplete and uneven devolution of public services leading to poor service delivery, regressive taxation (accounting for nearly 75 to 80 percent of all tax collections) and weak accountability. The World Bank further noted that rural poverty is double the urban poverty and levels vary from one region to another — a low of 3.9 percent in Islamabad to 71.5 percent in Khuzdar district of Balochistan.
Poverty levels have risen to an alarming level in Pakistan and constitute a ticking time bomb for the spontaneous eruption of socio-economic unrest and, therefore, it is critical to undertake mitigating measures to forestall that possibility. The World Bank warns that “bold policy reforms are now essential to address structural imbalances, prevent sliding back into poverty during shocks, and tackle the persistent challenges in remote areas.”
At first glance one would naturally assume that these are measures have been put in place under the ongoing 7 billion dollars Extended Fund Facility programme by the International Monetary Fund (IMF); however, a closer look at the programme design shows many flaws including: (i) insistence on increasing revenue rather than on the source of revenue which accounts for a sustained heavy reliance on regressive taxes with withholding taxes levied in the sales tax (regressive) mode credited under direct taxes accounting for around 75 percent of all direct tax collections; (ii) current expenditure is budgeted to account for 93 percent of total outlay in the current year as well with pension reforms to kick in for all inductees from 2024 onwards or, in other words, a policy change that may show positive results after 25 to 30 years; (iii) a prohibitively high policy rate (double that of most regional players); (iv) much higher utility rates than those in competing countries that account for low growth rates as well as making Pakistani products uncompetitive internationally; and (v) growing reliance on foreign and domestic borrowing remains high with existing foreign exchange reserves sourced to debt equity that account for debt servicing charges continuing to be a major component of current expenditure.
There is, therefore, an urgent need for the government to not follow the Fund’s lead but to propose some in-house out of the box policy reforms beginning with a massive reduction in current expenditure (that would require considerable sacrifice by some elite groups for at least two to three years) which, in turn, would reduce the pressure to increase tax collections and reform the tax structure to rely on ability-to-pay principle rather than on regressive taxes whose incidence on the poor is greater than on the rich.
Copyright Business Recorder, 2025
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