According to the Planning Comm ission, 29 percent of Pakistan’s population was below the poverty line, based on a monthly household income of PKR 8,484 in fiscal year 2025. It implies that 70 million people in Pakistan live below the poverty line.
However, according to the Sustainable Policy Development Centre (SPDC), 43 percent of the population is below the poverty line.
Its mean 105 million people in fiscal year 2025 were below the poverty line. This number was 78 million in 2019.
The official narrative of the Planning Commission was based on a poverty line of PKR 8,484 per adult per month, while the SPDC poverty line is based on PKR 13,476 for urban and PKR 10,283 for rural households.
The poverty in rural areas was 28.2 percent in fiscal year 2019 and 36.2 percent in 2025. This was 11 percent in urban areas in 2019 and 17.4 percent in 2025. In Punjab, 16.5 percent of the population was below the poverty line in 2019, which rose to 23.3 percent in 2025. The population below the poverty line in Sindh was 24.5 percent in 2019 and 32.6 percent in 2025.
In Khyber-Pakhtunkhwa, this ratio was 28.7 percent in 2019 and 35.3 percent in 2025. In Baluchistan, 41.8 percent in 2019, and 47 percent in 2025.
The more drastic dimension of the poverty-related statistics belongs to the trend in real household income.
The real monthly household income in Pakistan was PKR 35,454 in 2019, which was PKR 31,127 in 2025, while real monthly household expenditures were PKR 31,711 in 2019, which were PKR 29,980 in 2025. These statistics envisage that now an average household in Pakistan cannot maintain the same lifestyle and quality of life as in 2019, despite spending its entire monthly income. Its obvious consequence is dissaving or selling the assets.
The estimation of the poverty line reflects the population under absolute poverty, which is a severe state of deprivation where individuals lack the minimum income required to meet basic life necessities, including food, clothing, shelter, education, and health care facilities. This line is drawn based on the minimum required income for living in a region or country, while attaining the minimum required income depends on the rate of inflation and the employment status of a person.
The depth and incidence of poverty are derived from the inflation rate and unemployment.
The employment status and rate of inflation are the major factors that can assess the difference between required earnings and actual earnings.
So, any change in the rate of inflation, income, or employment status can change the number of poor in a country. Based on this reason, the economic misery index is calculated by adding the seasonally adjusted unemployment rate to the inflation rate, which serves as a swift measure of economic hardship. It helps gauge the social and economic costs of rising prices and joblessness.
The official rate of unemployment in Pakistan is 7.1 percent, while the consumer price index (CPI) based annual inflation rate climbed sharply to 10.9 percent in April 2026, which was 7.3 percent in March 2026, and 5.8 percent in January 2026. It is well above the State Bank target range of 5–7 percent.
The steep growth in energy and food prices, and the transport cost, are the major components of the unexpectedly higher rate of inflation.
The blockage of the Strait of Hormuz and the government’s strategy to achieve the target of higher tax collection through petroleum levies and indirect taxes are the obvious reasons for this unexpected inflation. This burden is ultimately transferred to the end consumers. Higher CPI-based inflation is an indicator of a drastic deterioration in the quality of life.
However, the core inflation was 7.2 percent in urban areas and 8.2 percent in rural areas. Notably, the annualized average core inflation rate in Pakistan from 2010 to 2026 is 8.5 percent. This indicates that the compounded growth in the prices of non-food non -energy items was 8.5 percent per annum during the last 16 years.
The core inflation excludes food and energy items from the consumer price index (CPI) basket. This non-food non-energy index tracks less-volatile items, including readymade garments, clothes, tailoring services, water supply, household maintenance and equipment, clinic fees, drugs, medical equipment, personal effects, education fees, transportation services, and recreational items, etc.
At the same time, the sensitive price index (SPI) based inflation was recorded at 3.7 percent. This inflation rate depicts the growth in the prices of essential commodities, which are usually controlled by the administrative measures of the government.
The consumer price index (CPI) in Pakistan measures the price changes of 356 items in urban centers and 244 items in rural areas, while the Sensitive Price Index (SPI) gauges 51 essential items. The wholesale price index covers 419 items in the primary wholesale market.
A notable observation from the Pakistan economy is the higher rate of core inflation in rural areas than in urban areas. It indicates the miseries of life in rural areas.
Another surprise is that the rate of inflation at whole sale price index (WPI) was 0.2 percent. It is an indicator that the nature of inflation is not “Cost push” in Pakistan. It is not transferred from producers or wholesalers. The higher inflation is in retail markets, which reflects the higher demand for goods and services by consumers.
The policy to alleviate poverty is initiated by creating job opportunities and reducing the rate of inflation. The most important question is why economic policy is not working effectively in Pakistan. One of the major causes is the very limited fiscal space and restricted fiscal environment.
The spending of more than 50 percent of tax revenue on the payment of interest on debts does not allow spending on welfare programs, infrastructure development, improving business competitiveness and working conditions for employment-generating activities, and subsidies to commodity-producing sectors.
The high-income industrialized and fast-developing countries spend more than their 40 percent revenue on different kinds of subsidies to improve the competitiveness of their commodity-producing sectors so that these sectors can produce their goods at low cost and expand their production activities to generate more employment opportunities.
The international lending agencies, including the IMF, do not allow Pakistan to spend the public revenue on subsidies. The higher rate of general sales tax (GST) without any exemption is another restriction that is faced by the policy makers. In very limited cases and special circumstances, the targeted subsidies are allowed, but these limitations do not provide relief to the urban poor class or the middle-income group in urban or rural areas.
To understand the fiscal position of Pakistan, it is notable that the total outlay of the federal budget 2025-26 was PKR 17.6 trillion. Out of which 93 percent is spent on current expenditures, and the remaining 7 percent was allocated to development expenditures (though it further dropped due to the Israel/ US-Iran war). Out of current expenditures, 50 percent is spent on interest payments, and 7 percent on subsidies.
The spending on running the civil government is only PKR 971 billion, which is less than 6 percent of the budgeted current expenditures. Despite this, the economic managers’ priority is to cut subsidies and public sector employment.
The world average spending on subsidies is 44 percent of total expenditures. This is 55 percent for high-income countries, 64 percent in the USA, and 47 percent in the UK. This average is 38 percent in middle-income countries, 42 percent in India, and 34 percent in Bangladesh. Where are the 7 percent subsidies in Pakistan placed in the global scenario? Much of the portion of the subsidies in Pakistan are paid to the producers. These are not targeted subsidies to reduce consumer prices.
The spending on employment is 22 percent of expenditures in middle-income countries, 16 percent in high-income countries, 20 percent in Bangladesh, and 12 percent in India, while the entire cumulative budget of pension and running civil government is 12 percent of current expenditures in Pakistan.
The fact behind the much-debated tax-to-GDP ratio is that the world average of the taxes as a percentage of GDP is 14 percent. According to the latest available statistics, this ratio is 15.4 percent in high-income countries and 10.3 percent in middle-income countries. It is 11 percent in the USA, 27 percent in the UK, 7.6 percent in Bangladesh, 7 percent in China, and 6.7 percent in India. It is greater than 11 percent in Pakistan.
The more drastic aspect of the taxation system in Pakistan is not too much, nor too high taxes. It is the dependency on indirect taxes, where collection is easy at the cost of higher inflation and added poverty.
The indirect taxes are categorized as regressive taxes in economics, which means their burden is transferred to the lower-income households. According to the last budget, 51 percent of taxes in Pakistan are indirect.
The world average of indirect taxes is 31 percent. It is 34 percent in middle-income countries, 28 percent in high-income countries, 43 percent in Bangladesh, 33 percent in India, 31 percent in the UK, 28 percent in China, and 2 percent only in the USA. It means that the largest capitalist country in the world banks on the rich class for its taxes. It adopts the principle that you pay more if you earn more or hold more wealth.
Contrary to this, the taxation system in Pakistan has to rely largely on indirect taxes, where more burden is transferred to lower-income households. To bank on direct taxes (Taxes on profits, capital gain, and wealth) is extremely difficult in Pakistan because of the political power and influence of the stakeholders.
Another aspect of the relief to higher income groups is that capitalism (particularly classical liberalism) believes in the effectiveness of the trickle-down mechanism to alleviate poverty. This trickle-down mechanism justifies the wealth accumulation and expansion in business empires. This process is debatable and highly critical in economic literature. It is described as a process that ensures the participation of lower-income households in the distribution of the benefits of economic growth and development.
This process can be blocked if the benefits of economic growth and development are not transferred to the lowest income class. The blockage in the transfer of benefits to the lowest income class is possible in two conditions: (1) The magnitude of growth is too small. The size of its trickle-down is negligible, and it can’t alleviate poverty. (2) The benefits of growth are stuck at the high-income level, and they enhance their wealth, improve their economic status, and enjoy more comforts and facilities of life.
The most drastic aspect of a system or policy is a reverse trickle-down, which shows the transfer of resources from the lower-income class to the upper-income class. A regressive fiscal or monetary policy can create a reverse trickle-down.
The bailout packages to big investors and industrialists, amnesty schemes, higher rates of general sales tax, taxes on salaries, tax exemptions on capital gain and wealth, high interest rate spread, domestic credit to big industries, and oligopolistic structure in basic industries are the sources of regressive economic policies, where earnings of lower-income people are transferred to the higher-income people.
The public expenditures on those infrastructures and facilities which are generally used by high income peoples are also create a reverse trickle down. Obviously, such policies are initiated and protected by the influential groups and powerful lobbies.
There are several ways of economic policies to transfer the economic resources from the lower to the upper income class.
The regressive taxation policies play a drastic role in widening the rich-poor gap and accelerating poverty. The dependency of the taxation system on indirect taxes and tax exemptions to earnings from real estate, capital gains, and large agricultural farms is part of regressive taxation policies.
Only big landlords and well-to-do families can get the benefits of such tax exemptions. Such fiscal policies are common in developing countries. Fiscal policy supports wealth concentration through subsidies to producers and bail-out packages to the problematic big industrial units.
Traders and fund managers make huge profits by speculating with other people’s money, but when they fail, the taxpayers have to pay the cost of their failure. Monetary policy encourages them through interest rate adjustments.
Some measures of monetary policy can aggravate poverty and income inequality. There are several mechanisms that make monetary policy a regressive option.
The most important regressive option is the interest rate spread. A higher spread (difference between the rate of interest on lending and deposits) indicates that depositors are receiving lower returns on their deposits as compared to the interest income received by banks from investors.
Financial institutions make earnings through this mechanism, while small depositors (pensioners, retired employees, widows, and small charitable institutions) are the victims of a higher interest rate spread.
The higher lending to big investors and much lower lending to the lower income class is another way of a regressive monetary policy. If a large part of bank deposits belongs to the lower income groups – like household savings, retirement money, pension funds, and endowments for orphans, old age people, non-working widows, and disabled persons, etc. - the higher spread will make the monetary system regressive.
Due to the dire need for foreign exchange, the trade policies of developing countries are focused on the enhancement of exports of goods and services, while domestic commerce is usually ignored.
Growing inflation is a natural consequence of such policies, which is a major cause of growing poverty. Such economic policies can be classified as regressive measures.
In the available fiscal space and conditions, the deep-rooted economic policies are required to alleviate poverty, create decent employment opportunities, and restrict the rate of inflation. The Accounting mechanism and adjustments cannot replace the economic policies.
Copyright Business Recorder, 2026
The author is a professor at Iqra University Karachi.