The damage inflicted by the floods on the livelihoods of millions of people has once again raised concerns about the high and rising level of poverty in Pakistan.
The long-term trend of poverty is dependent on the trend in food prices, level of per capita income and unemployment.
The poverty line is defined as the cost of ensuring the intake of the minimum nutritional requirement by an individual of 2,350 calories per day. The cost of other necessities like shelter and clothing are added to the cost of food to yield the poverty line.
Therefore, the higher the poverty line the larger the likely incidence of poverty in the country. The Planning Commission had estimated the monthly poverty line per adult equivalent as Rs 3,757 in 2018-19. This has not been updated.
Similarly, the World Bank had defined the poverty line per day for countries as USD 3.60 per capita measured in 2017 PPP. This poverty line is close to the poverty line defined by the Planning Commission. However, it was raised recently to USD 4.20 per capita per day, measured in 2021 PPP. According to this higher poverty line, the incidence of poverty in 2018 in Pakistan was as high as 45 percent.
Clearly, the poverty line is very sensitive to food prices, especially in relation to the overall price level. Estimates are that if the rate of inflation in food prices is higher by 1 percentage point over the overall rate of inflation in the consumer price index, then this tends to increase the incidence of poverty by over 2 percentage points.
The estimate as of 2024-25 of the poverty line in Pakistan is of Rs 8,513 per adult equivalent per month. The adult equivalent in terms of nutritional requirement is 1.07 for an adult male, 0.86 for an adult female and 0.67 for a child. Therefore, a family of 1 male adult, 1 female adult and 4 children faces a monthly poverty line of close to Rs 39,200. This is the minimum income required to take the family out of poverty.
The minimum wage in Pakistan is Rs 37,000 per month. Therefore, it is even lower than the poverty line for a household with six members. Further, it is estimated that over 40 percent of the workers do not even get this minimum wage. On top of this, the latest estimate of the incidence of unemployment is very high at over 22 percent, according to the Population and Housing Census of 2023.
What has been the long-term trend of the incidence of poverty in Pakistan? The estimation of poverty is linked to the distribution of household income, according to the periodic Household Integrated Economic Surveys (HIES) carried out by the Pakistan Bureau of Statistics. The last HIES was carried out in 2018-19.
More recent estimates of poverty have been generated by determination quantitatively of the relationship between the incidence of poverty, the real per capita income, the rate of unemployment and the relative food prices in Pakistan. As of 2021-22, the estimate of the incidence of poverty in Pakistan was 36.2 percent.
The devastating floods of 2022-23 led to a quantum jump in food prices, much more than the overall price index. The increase during the year in food prices was over 39 percent, while the overall rate of inflation was 29 percent. There was also a decline in real per capita income of over 2 percent. Consequently, the incidence of poverty is likely to have increased by over 20 percent, from 36.2 percent in 2021-22 to 43.4 percent in 2022-23.
Fortunately, the rise in food prices moderated substantially in 2023-24 and 2024-25. They rose by 24 percent compared to the overall increase of 29 percent in the Consumer Price Index. Also, the real per capita income remained unchanged. Consequently, the incidence of poverty is likely to have fallen to 39.1 percent by the end of 2024-25.
Unfortunately, we have been seeing once again the devastating impact of floods in the last few weeks. The damages to crops, livestock, housing and infrastructure are likely to be large like the floods of 2022-23. Consequently, there is a risk that food prices, in particular, will start rising rapidly once again.
The latest weekly Sensitive Price Index reveals that on a year-to-year basis, prices of wheat flour, sugar, tomato and pulse moong have gone up by 18.6 percent, 29.3 percent, 90.1 percent and 15.2 percent, respectively. The rise in the overall SPI is much less at 5 percent. There is also likely to be a fall in real per capita income in 2025-26.
Therefore, we have the grim prospect once again of sharply rising incidence of poverty. There is likely to be a significant divergence between the rate of inflation in food prices and the CPI as happened in 2022-23. If the divergence is 7.5 percent points, then the incidence of poverty could go up by 15 percentage points in 2025-26 and approach 45 percent. This is a conservative estimate. With a bigger increase in food prices relative to the CPI, the incidence of poverty in Pakistan could approach 50 percent by the end of 2025-26. In effect, as many as 125 million people in the country could be below the poverty line.
There is the need also to arrive at an estimate of the ‘poverty gap’ in the country. This is the overall difference in the actual income of the poor and the income according to the poverty line. Earlier estimates of the gap are close to 15 percent on average, equivalent to Rs5880 per household per month. As such, the total ‘poverty gap’ in the country will approach Rs 1270 billion in 2025-26.
The Benazir Income Support Programme (BISP) is expected to make cash transfers to the poor of up to Rs 727 billion in 2025-26. This is likely to be 57 percent of the poverty gap. The quarterly amount per family is Rs 13,500 and transfers are being made to 10 million recipients. The coverage is approximately 55 percent of the existing poor population.
There will be need to raise the quarterly cash transfer to Rs 16,000 and the number of recipients to at least 12 million. This will necessitate an increase in the size of the BISP of Rs 228 billion in 2025-26.
Further, other subventions will be required. This will include the roll-over or write-off of small farmer loans, special credit facility for taking care of damage to housing and loss of livestock. Very importantly, major steps will need to be put in place to support the over 25 million more poor people in Pakistan in 2025-26.
Pakistan is likely to reach a peak unfortunately in the incidence of poverty of over 45 percent of the population in 2025-26, after the devastating floods. Following the declaration of an Emergency, strong and wide-ranging measures must be taken for poverty alleviation. Top priority will need to be attached to basic food security, with bigger buffer stocks built up by larger imports if necessary.
Copyright Business Recorder, 2025
The writer is Professor Emeritus at BNU and former Federal Minister