The narrative needs to change

The fourth review under the International Monetary Fund’s (IMF’s) Extended Fund Facility (EFF) is scheduled to commence on the 23rd of this month and there is intense speculation whether the economic team leaders have the intent or, as some of their critics allege, the capacity to formulate an in-house out of the box solution to deal with rising poverty in the country and convince the Fund of the efficacy of their proposals.

Those who consider this a particularly harsh statement must take note of the fact that the poverty levels in Pakistan as estimated by the World Bank are a high of 44.7 percent (based on the lower middle income daily rate of 4.20 dollars per day), with extreme poverty line at 16.5 percent (daily rate of 3 dollars per day) and the national poverty line estimate is projected at around 22.5 percent to 25.3 percent.

In a 2025 publication titled “Reclaiming Momentum Towards Prosperity: Pakistan’s Poverty, Equity and Resilience Assessment” the World Bank noted that: “after dramatically reducing poverty from 64.3 percent in 2001 to 21.9 percent in 2018—declining by 3 percentage points annually until 2015 before slowing to less than 1 percentage point per year—recent compounding shocks have pushed poverty rates back up to a projected 25.3 percent by 2023/24.

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.” Geopolitical considerations, notably the widening conflict in the Middle East was not taken into account as these events post-dated the period under review in the report.

The World Bank further noted that the earlier gains in reducing poverty were unsustainable given that “higher incomes accounted by the expansion of male off-farm economic opportunities in the informal sector and the increase in out-migration and associated remittances, with non-farm labour income being the primary driver.” The Bank’s prescription - “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.”

Successive IMF programmes since 2019 (including the ongoing EFF) continues to impose severely contractionary fiscal and monetary policies – which are anti-growth, leading to lower productivity that translates into lower job opportunities and fuels poverty. The outcome of these policies on raising poverty levels has been significant.

Contractionary fiscal policies, implying higher taxes to bring the budget deficit to sustainable levels, has been impacting on poverty in four ways: (i) the value of each rupee earned has been consistently eroding coupled with the inability of the privately owned productive sectors to increase employee income for the past five to six years.

In contrast, public sector consumption (current not backed by a rise in productivity) continues to increase unabated with one component of this item, salaries of 7 percent of the country’s total labour force paid at the taxpayer’s expense, raised each year by more than the rate of inflation; (ii) the rise in government expenditure is funded by borrowing that, in turn, has upped the markup payments to almost 46 percent of total budgeted outlay in the current year (a percentage calculated on the basis of a policy rate that may well be adjusted during the year particularly as the ongoing Middle East conflict shows little sign of a resolution); (iii) taxes are largely indirect whose incidence on the poor is greater than on the rich (accounting for around 70 percent of total collections as the government, like its predecessors, credits withholding taxes levied in the sales tax mode under direct taxes). In this context claims of raising revenue from enforcement measures need the following clarification: at present, the source is sales tax (passed on its entirety onto the consumers), which is collected at the factory level on three consumer items, including sugar (which led to higher prices in the market), cement (which raised the cost of construction) and more recently fertilizers (expected to raise the cost of food); and (iv) increasing utility tariffs to ostensibly achieve full cost recovery but the tax/surcharge component is substantial with money collected not dedicated to ensure the sectors financial sustainability - obvious as circular debt continues to be a major issue - but is put in the federal kitty.

A contractionary monetary policy is geared towards reducing inflation while in effect nearly 74 percent of domestic borrowing is by the government while the private sector borrowing continues to be limited. Due to high input costs Pakistani products are uncompetitive regionally as well as domestically with large porous borders very attractive to smugglers.

In addition, the government relies heavily on Pakistan Investment Bonds (PIBs) that rises the cost of borrowing for the government and recent policy decisions, as per IMF prescriptions, to retire short-term debt in favour of long-term debt, may have reduced the debt service payments but lengthens the repayment period considerably.

The IMF’s policy thrust with respect to reducing poverty is to increase the budgeted amount for Benazir Income Support Programme (BISP). And yet that to this day no more than 4.5 percent of total outlay or 4.7 percent of current expenditure is being allocated for BISP. The Fund is also insisting on raising quarterly BISP cash disbursements that remain inadequate to take account of the prevailing inflation.

The World Bank report acknowledges that “while government initiatives such as BISP, Bait-ul-Mal, the National Poverty Graduation Programme and Poverty Alleviation Fund have provided critical support to the poorest households and strengthened coping mechanisms, these safety nets cannot substitute for structural policy shifts that address the root causes of poverty.”

To conclude, there is little evidence of any attempt to formulate a strategy focused on poverty reduction other than to extend subsidies that the IMF does not support.

The report suggested “strategic investments in people, places, and access to opportunities by addressing the human capital crisis,” “building resilience, protecting people against shocks and economic hardship requires enhancing the responsiveness of social safety nets,” and last but not least “developing better data systems through a robust statistical infrastructure that produces accessible, high-frequency, and granular data will enable the evidence-based policymaking necessary to ensure these reforms achieve their intended impact.”

Copyright Business Recorder, 2026